<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Guidant Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
March 24, 1998
Dear Shareholder:
It is our pleasure to extend to you a cordial invitation to attend the 1998
Annual Meeting of Shareholders of Guidant Corporation on Monday, May 18, 1998.
The meeting will be held at the Hilbert Circle Theatre, 45 Monument Circle,
Indianapolis, Indiana, at 1:00 p.m. (local time). Please complete and return
the enclosed Request for Admittance Card as soon as possible if you plan to
attend the meeting. An admittance card will be sent to shareholders who return
the reply card.
Your vote on these matters is very important. We urge you to sign, date and
return the enclosed proxy card in the envelope provided in order to be certain
your shares are represented at the meeting, even if you plan to attend the
meeting.
The Notice of Annual Meeting of Shareholders and the Proxy Statement
accompanying this letter describe the business we will consider at the
meeting.
We look forward to seeing you at the meeting in Indianapolis.
James M. Cornelius Ronald W. Dollens
Chairman of the Board of Directors President and Chief Executive
Officer
<PAGE>
GUIDANT CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1998
----------------
The Annual Meeting of Shareholders of Guidant Corporation will be held at
the Hilbert Circle Theatre, 45 Monument Circle, Indianapolis, Indiana, on
Monday, May 18, 1998, at 1:00 p.m. (local time), for the following purposes:
1. To elect four directors of the Company, each for a three-year term;
2. To consider and act upon a proposal to approve the Guidant Corporation
1998 Stock Plan;
3. To consider and act upon a proposed amendment to the Amended and
Restated Articles of Incorporation of the Company to increase the
authorized number of shares of the Company's common stock from
250,000,000 to 500,000,000;
4. To ratify the appointment by the Board of Directors of Ernst & Young LLP
as independent auditors for the year 1998; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of common stock of record at the close of business on March 9, 1998
are entitled to notice of and to vote at the Annual Meeting. If you plan to
attend the meeting, please complete the enclosed Request for Admittance Card
and return it to the Company. An admittance card will be mailed to you.
By order of the Board of Directors,
J. B. King
Secretary
March 24, 1998
Indianapolis, Indiana
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR
IF YOU DO PLAN TO ATTEND BUT WISH TO VOTE BY PROXY, PLEASE DATE, SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE PROVIDED.
DIRECTIONS TO THE HILBERT CIRCLE THEATRE AND INFORMATION CONCERNING PARKING
WILL BE SENT TO SHAREHOLDERS WHO REQUEST AN ADMITTANCE CARD.
<PAGE>
GUIDANT CORPORATION
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Guidant Corporation (the "Company") of proxies to be
voted at the Annual Meeting of Shareholders to be held on Monday, May 18,
1998, and at any adjournment thereof.
The accompanying proxy may be revoked at any time before it is exercised by
giving a later proxy, notifying the Secretary of the Company in writing or
voting in person at the Annual Meeting.
At the close of business on March 9, 1998, the record date for the Annual
Meeting, there were outstanding and entitled to vote 150,839,625 shares of
common stock of the Company. Each shareholder is entitled to one vote for each
such share held of record on that date on all matters that are properly
presented for action at the Annual Meeting. The Company has no other
outstanding voting securities.
A copy of the Company's Annual Report to Shareholders, including financial
statements and a description of the Company's operations for the year 1997, is
being mailed to each shareholder along with this Proxy Statement. The
Company's Annual Report to Shareholders is not incorporated in this Proxy
Statement by reference.
The principal executive offices of the Company are located at 111 Monument
Circle, 29th Floor, Indianapolis, Indiana 46204-5129. The approximate mailing
date of this Proxy Statement and the accompanying proxy will be March 24,
1998.
1. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The shareholders are requested to vote for four nominees for directors whose
terms expire at this Annual Meeting. The nominees whose terms expire at this
Annual Meeting are Dr. Kim B. Clark, Mr. Maurice A. Cox, Jr., Mr. Ronald W.
Dollens, and Mr. Enrique C. Falla. Dr. Clark was initially appointed as a
director in January, 1998. Mr. Cox was initially elected by shareholders to a
three year term in 1995. Mr. Falla was initially appointed as a director in
1995. Mr. Dollens has been a director since the formation of the Company in
1994.
Under the Company's Amended and Restated Articles of Incorporation, the
members of the Board of Directors are divided into three classes with
approximately one-third of the directors standing for election each year for
three-year terms. The terms of four of the present directors will expire at
the 1998 Annual Meeting. The other directors listed below will continue to
serve in their positions for the remainder of their terms.
Directors will be elected by a plurality of the votes cast. Only votes cast
for a nominee will be counted, except that the accompanying proxy will be
voted for the four nominees in the absence of instructions to the contrary.
Abstentions, broker non-votes, and instructions on the accompanying proxy to
withhold authority to vote for one or more of the nominees will result in the
respective nominees receiving fewer votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
In the event any nominee for director declines or is unable to serve, it is
intended either that the persons designated as proxies will vote for a
substitute who will be designated by the Board of Directors or that the
authorized number of directors will be reduced accordingly by the Board. The
Board expects that each nominee will be available for election.
1
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY OR PRINCIPAL SERVED AS
NAME OCCUPATION AGE DIRECTOR FROM
---- ------------------------------------------- --- -------------
<S> <C> <C> <C>
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS ENDING IN 2001:
- ----------------------------------------------------------
Kim B. Clark, Ph.D...... Dean of the Faculty and Harry E. Figgie, 49 1998
Jr. Professor of Business Administration
at the Graduate School of Business
Administration, Harvard University
Maurice A. Cox, Jr...... President and Chief Executive Officer, The 47 1995
Ohio Partners, LLC
Ronald W. Dollens....... President and Chief Executive Officer of 51 1994
the Company
Enrique C. Falla........ Director, Senior Consultant, The Dow 58 1995
Chemical Company
DIRECTORS CONTINUING IN OFFICE UNTIL 1999:
- ------------------------------------------
J. B. King.............. Vice President, General Counsel and 68 1994
Secretary of the Company
Susan B. King........... Leader in Residence and Chair of the Board 57 1996
of Advisors for the Hart Leadership
Program, Duke University
J. Kevin Moore.......... Vice President, Carolinas Medical Center 43 1995
Ruedi E. Wager, Ph.D.... President and Chief Executive Officer, ZLB 54 1995
Central Laboratory Blood Transfusion
Service SRC
DIRECTORS CONTINUING IN OFFICE UNTIL 2000:
- ------------------------------------------
James M. Cornelius...... Chairman of the Board of Directors of the 54 1994
Company
Mark Novitch, M.D....... Adjunct Professor of Health Care Sciences, 65 1995
George Washington University Medical
Center
Eugene L. Step.......... Retired Executive Vice President and 69 1995
President of the Pharmaceutical Division,
Eli Lilly and Company
</TABLE>
A brief summary of the recent business and professional experience of each
nominee and director continuing in office is set forth below.
KIM B. CLARK, Ph.D.
Dr. Clark is Dean of the Faculty and the Harry E. Figgie,
Jr. Professor of Business Administration at the Graduate
School of Business Administration of Harvard University. Dr.
Clark has been a member of the Harvard faculty since 1978.
Dr. Clark was a Member of the Committee on High Technology
Ceramics in Japan, National Materials Advisory Board,
National Academy of Engineering, in 1983. He was also the
Rapporteur for the Automobile Panel, Committee on
International Trade and Technology, National Academy of
Engineering from 1980-1982. He is also a director of Tower
Automotive, Inc. and Ion, Inc.
[PHOTO]
2
<PAGE>
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 Eli Lilly and Company
("Lilly") from 1983 until his retirement in October 1995 and
was a Director for Lilly. 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, Chubb Corporation, Lilly Industries,
Inc., and the National Bank of Indianapolis. Mr. Cornelius
also serves as a Trustee of the University of Indianapolis.
[PHOTO]
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 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 Huntington
National Bank.
[PHOTO]
RONALD W. DOLLENS
Mr. Dollens is President, Chief Executive Officer and a
Director of the Company. Previously, he served as President
of Lilly's Medical Devices and Diagnostics ("MDD") Division
from 1991 until 1995. Mr. Dollens served as Vice President
of Lilly's MDD Division and Chairman of the Company's
subsidiary, Advanced Cardiovascular Systems, Inc. ("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 Eiteljorg
Museum, the Health Industry Manufacturers Association, and
the Indiana State Symphony Society Board. He is also the
President of the Indiana Health Industry Forum.
[PHOTO]
ENRIQUE C. FALLA
Mr. Falla is a Senior Consultant for The Dow Chemical
Company. Previously, he was an Executive Vice President from
1991 to 1997. He has also served as Chief Financial Officer.
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.
[PHOTO]
3
<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
the James Whitcomb Riley Memorial Association.
[PHOTO]
SUSAN B. KING
Ms. King is the Leader in Residence and Chair of the Board
of Advisors 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.
[PHOTO]
J. KEVIN MOORE
Mr. Moore is Vice President of the Carolinas Medical Center,
a position he has held since 1997. Previously, Mr. Moore was
Associate Chief Operating Officer for Duke University
Medical Center from March 1994 to 1997. Prior to assuming
that 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.
[PHOTO]
MARK NOVITCH, M.D.
Dr. Novitch was Professor of Health Care Sciences at George
Washington University Medical Center from 1994 to 1997 and
presently serves as Adjunct Professor. 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 federal
Food and Drug Administration ("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 Board member of the Food and Drug
Law Institute. Dr. Novitch is a director of Alteon, Inc.,
Calypte Biomedical, Inc., Neurogen Corporation, Osiris
Therapeutics, Inc., and Kos Pharmaceuticals, Inc.
[PHOTO]
4
<PAGE>
EUGENE L. STEP
Mr. Step served as Director, Executive Vice President,
President of the Pharmaceutical Division and a member of the
Executive Committee of Lilly until his retirement in 1992.
He joined Lilly in 1956. Mr. Step is a director of Cell
Genesys, Inc., Medco Research, Inc., Pathogenesis, Inc.,
Scios-Nova, Inc., and DBT Online, Inc.
[PHOTO]
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 ZLB Central Laboratory Blood Transfusion
Service SRC.
[PHOTO]
During 1997, the Board of Directors of the Company held seven meetings. No
director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which the director served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has four committees, the
principal functions of which are described below.
The Audit Committee is composed of Directors Falla (Chair), Moore and Wager.
During 1997, the Audit Committee held four meetings. The Audit Committee
annually recommends independent auditors for appointment by the Board of
Directors, reviews the services to be performed by the independent auditors
and receives and reviews the reports submitted by them. It also determines the
duties and responsibilities of the internal auditors, reviews the internal
audit program and receives and reviews reports submitted by the internal
auditing staff.
The Compliance Committee is composed of Directors Novitch (Chair), Clark,
Dollens, S. King and Wager. In 1997, the Compliance Committee held four
meetings. The Compliance Committee reviews compliance with all applicable
laws, regulations and internal procedures, with the exception of financial
controls and the internal audit function.
The Corporate Governance Committee is composed of Directors Cox (Chair),
Cornelius, Moore and Step. In 1997, the Corporate Governance Committee held
three meetings. The Corporate Governance Committee recommends to the Board of
Directors the size and composition of the Board and proposes candidates for
director to be recommended by the Board to the shareholders of the Company and
oversees matters of corporate governance. The Corporate Governance Committee
will consider nominees for the Board recommended by shareholders.
Recommendations by shareholders for nominees should be forwarded to the
Secretary of the
5
<PAGE>
Company and should identify the nominee by name and provide pertinent
information concerning his or her background and experience. A shareholder
recommendation must be received at least 120 days prior to the date of the
Annual Meeting of Shareholders.
The Management Development and Compensation Committee (formerly the
Compensation Committee) is composed of Directors Step (Chair), Falla, S. King
and Novitch. During 1997, the Management Development and Compensation
Committee held four meetings. The Management Development and Compensation
Committee reviews succession planning, determines the compensation of
executive officers and administers the Guidant Corporation 1994 Stock Plan
(the "1994 Plan").
OWNERSHIP OF COMPANY COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of common stock of the
Company beneficially owned by the directors, the Named Executive Officers
listed on page 8 and all directors and executive officers as a group, as of
February 13, 1998.
<TABLE>
<CAPTION>
SHARES OWNED
NAME OF INDIVIDUALS OR IDENTITY OF GROUP BENEFICIALLY(1)
---------------------------------------- ---------------
<S> <C>
Kim B. Clark................................................ 300(2)
James M. Cornelius.......................................... 252,639(3)
Maurice A. Cox, Jr.......................................... 11,860(4)
Ronald W. Dollens........................................... 132,766(5)
Enrique C. Falla............................................ 4,032(4)
A. Jay Graf................................................. 37,825(6)
J. B. King.................................................. 58,380(7)
Susan B. King............................................... 3,862(4)
J. Kevin Moore.............................................. 3,860(4)
Mark Novitch, M.D........................................... 5,862(4)
Eugene L. Step.............................................. 3,860(4)
Richard M. van Oostrom...................................... 107,998(8)
Ruedi E. Wager, Ph.D........................................ 2,947(4)
All directors and executive officers as a group (20
persons)................................................... 774,938
</TABLE>
- --------
(1) Unless otherwise indicated in a footnote, each person listed in the table
possesses sole voting and sole investment power with respect to the shares
shown. No person listed in the table owns more than 0.17% of the
outstanding common stock of the Company. All directors and executive
officers as a group own 0.52% of the outstanding common stock of the
Company. The shares shown do not include the following shares that may be
purchased pursuant to stock options that are exercisable within 60 days of
February 13, 1998: Mr. Cornelius, 273,689 shares; Mr. Cox, 4,000 shares;
Mr. Dollens, 327,129 shares; Mr. Falla, 4,000 shares; Mr. Graf, 164,239
shares; Mr. King, 172,979 shares; Ms. King, 4,000 shares; Mr. Moore, 4,000
shares; Dr. Novitch, 4,000 shares; Mr. Step, 4,000 shares; Mr. van
Oostrom, 163,619 shares; Dr. Wager, 4,000 shares; and all directors and
executive officers as a group, 1,800,753 shares. The shares shown include
shares credited to the accounts of certain of those persons listed in the
table under The Guidant Employee Savings and Stock Ownership Plan
("ESSOP") as of December 31, 1997.
(2) The shares shown for Dr. Clark are held by the Clark Family Trust.
(3) The Cornelius Family Foundation, Inc. owns 31,500 of those shown in the
table, and he disclaims any beneficial ownership therein. The shares shown
for Mr. Cornelius include 3,921 shares credited to his account under the
ESSOP.
(4) Includes 840 shares of restricted stock granted pursuant to the Guidant
Corporation 1996 Nonemployee Directors Stock Plan ("Directors Stock
Plan"). The restrictions on these shares lapse on May 18, 1998.
(5) Mr. Dollens' children own 792 shares of those shown in the table, and he
disclaims any beneficial ownership therein. The shares shown for Mr.
Dollens include 30,156 shares credited to his account under the ESSOP.
(6) The shares shown for Mr. Graf include 21,413 shares credited to his
account under the ESSOP.
(7) Mr. King's wife owns 2,000 shares of those shown in the table, and he
disclaims any beneficial ownership therein. The shares shown for Mr. King
include 2,436 shares credited to his account under the ESSOP.
(8) The shares shown for Mr. van Oostrom include 25,566 shares credited to his
account under the ESSOP.
No director, nominee for director or executive officer is the beneficial
owner of any securities of any of the Company's subsidiaries.
6
<PAGE>
PRINCIPAL HOLDERS OF COMPANY COMMON STOCK
To the best of the Company's knowledge, the following is the only beneficial
owner of 5% or more of the outstanding shares of common stock of the Company
as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS SHARES PERCENT
---------------- ------------ -------
<S> <C> <C>
The Capital Group Companies, Inc. ................... 7,688,090(1) 5.2
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- --------
(1) Sole voting power is held with respect to 3,508,190 shares and sole
dispositive power is held with respect to 7,688,090 shares.
The information set forth above is based on a statement on Schedule 13G
which was filed under the Securities Exchange Act of 1934, as amended, by the
entity listed above and which was received by the Company.
DIRECTORS' COMPENSATION
On the date of each annual meeting of shareholders, each director who is not
a salaried officer or employee of the Company currently receives as an annual
retainer (i) a grant of an option to purchase 4,000 shares of the Company's
common stock at an option price equal to the fair market value on the date of
grant and (ii) a grant of a number of shares of restricted stock determined by
dividing $30,000 by the fair market value of a share of the Company's common
stock on the date of grant, rounded up to the nearest increment of ten shares.
The options have a ten year term and vest as of the next annual meeting of
shareholders following the grant. The restrictions on the restricted stock
also terminate as of the next annual meeting of shareholders following the
grant. The grants are made pursuant to the terms of the Directors Stock Plan.
The Chair of each committee also receives an annual retainer fee of $2,000. In
addition, each director who is not a salaried officer or employee of the
Company receives a fee of $2,000 for attendance at each Board meeting and each
committee meeting which is not held in conjunction with a Board meeting.
Directors are reimbursed for reasonable expenses incurred in connection with
attending Board and committee meetings. Dr. Clark was appointed as a director
of the Company effective in January, 1998. Since the terms of the Directors
Stock Plan do not allow the Company to grant him an option or restricted stock
as payment of his retainer for the period from the date of his appointment
until the date of the 1998 Annual Meeting of Shareholders, he was paid a cash
retainer of $20,000 for this period.
7
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows the annual compensation paid
by the Company to the Company's Chief Executive Officer for 1997, and each of
the four most highly compensated executive officers other than the Chief
Executive Officer, who were serving as executive officers as of December 31,
1997 (the "Named Executive Officers"). Until September 25, 1995, the Company
was an 80.2% owned subsidiary of Lilly, and was a wholly owned subsidiary of
Lilly prior to the consummation of the Company's initial public offering (the
"Offering") in December 1994. Accordingly, for certain of the periods reported
the compensation of the Company's executive officers was influenced by the
policies established by Lilly. The compensation of the Named Executive
Officers is reported for each of the last three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- --------------------------------
AWARDS(1) PAYOUTS
-------------------- -----------
NUMBER OF SECURITIES LONG-TERM
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
POSITION YEAR SALARY BONUS(2) COMPENSATION OPTIONS GRANTED(3) PLAN PAYOUT COMPENSATION(4)
- ------------------ ---- -------- -------- ------------ -------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James M. Cornelius...... 1997 $625,200 $812,000 $ 0 175,000 0 $50,016
Chairman of the Board 75,000(5)
1996 625,200 562,500 0 250,000 $753,366(6) 38,385
1995(7) 600,225 464,138(8) 812 285,538 780,550(9) 34,376
Ronald W. Dollens....... 1997 387,240 362,500 9,947 112,000 0 30,979
President and Chief 1996 352,080 232,500 0 160,000 748,556(6) 24,729
Executive Officer 1995 320,040 160,500 812 170,702 478,288(10) 14,935
J.B. King............... 1997 300,000 145,000 13,896 56,000 0 21,142
Vice President, General 1996 236,865 85,250 0 80,000 405,844(6) 19,449
Counsel & Secretary 1995 238,100 98,844 812 99,472 259,313(10) 10,155
A. Jay Graf............. 1997 274,740 145,000 430 56,000 0 21,979
President, Cardiac 1996 256,260 85,250 21,589 80,000 405,844(6) 19,938
Rhythm
Management Group 1995 239,040 58,580 14,898 86,360 195,925(10) 11,155
Richard M. van Oostrom.. 1997 264,230 145,000 366,525(11) 56,000 0 21,142
President of 1996 246,480 85,250 377,804(11) 80,000 405,844(6) 19,449
Operations,
Europe, Middle East and 1995 229,920 58,580 14,086(11) 85,430 259,313(10) 10,155
Africa
</TABLE>
- --------
(1) During the years indicated, restricted stock was not awarded and stock
appreciation rights were not granted.
(2) Unless otherwise indicated in a footnote, includes amounts awarded in
cash under the Guidant Corporation Economic Value Added (EVA(R)*) Bonus
Plan (the "EVA Bonus Plan").
(3) Options to acquire Company common stock. The number of shares has been
adjusted to reflect the two-for-one stock split which was effective in
September 1997.
(4) Contributions by the Company to the executive's account in the ESSOP.
(5) An option to purchase 75,000 shares of the Company's common stock was
granted to Mr. Cornelius to compensate him for the reduction in his
expected retirement benefits that was an unanticipated consequence of the
transition from Lilly. These options vest over a three year period
beginning in October 2001.
(6) Amounts paid in Company common stock (except for amounts paid in cash to
satisfy federal income tax withholding requirements) in February 1997
under the Company's performance award program under the 1994 Plan for the
period January 1, 1995 through December 31, 1996.
(7) Mr. Cornelius was employed by both Lilly and the Company through
September 30, 1995, during which time Lilly paid Mr. Cornelius'
compensation.
(8) Includes amounts awarded in cash under a Lilly bonus plan and the EVA
Bonus Plan.
(9) Amounts paid in Lilly common stock (except for amounts paid in cash to
satisfy federal income tax withholding requirements) in February 1996
under the Lilly performance award program for the period January 1, 1994
through December 31, 1995.
(10) Amounts awarded in cash in February 1996 under the 1994 Plan which was
based on Lilly's performance during the period January 1, 1994 through
December 31, 1995.
(11) Allowances paid for service outside the United States, consisting
primarily of tax equalization payments, housing allowances and cost of
living adjustments.
*EVA(R) is a registered trademark of Stern Stewart & Co.
8
<PAGE>
Stock Option Grants
The following table provides information on options to purchase Company
common stock granted in 1997 to the Named Executive Officers pursuant to the
1994 Plan.
OPTION SHARES GRANTED IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTION
SECURITIES SHARES GRANTED EXERCISE OR GRANT DATE
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE(2) DATE VALUES(3)
- ---- --------------- ----------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
James M. Cornelius...... 175,000 4.21% $61.25 10/23/07 $3,444,000
75,000(4) 1.80 61.25 10/23/07 1,476,000
Ronald W. Dollens....... 112,000 2.69 61.25 10/23/07 2,204,160
J.B. King............... 56,000 1.35 61.25 10/23/07 1,102,080
A. Jay Graf............. 56,000 1.35 61.25 10/23/07 1,102,080
Richard M. van Oostrom.. 56,000 1.35 61.25 10/23/07 1,102,080
</TABLE>
- --------
(1) Stock appreciation rights were not granted during 1997.
(2) The fair market value of the Company's common stock on the date of grant.
Except as otherwise indicated in a footnote, all of the options will
become exercisable beginning on October 23, 2000.
(3) These values were established using the Black-Scholes stock option
valuation model that was modified to include dividends. Assumptions used
to calculate the Grant Date Present Value of these option shares were:
(a) Expected Volatility--The average variance in the percent change in
monthly closing stock price during the period from January 1995 through
June 1997, which was 31.1%.
(b) Risk Free Rate of Return--The assumed rate for a U.S. Treasury
obligation having a term of 7 years during the month of grant based on
the actual 5 and 10-year U.S. Treasury rates as published in the Federal
Reserve Statistical Release, which was 6.47%.
(c) Dividend Yield--The yield calculated by dividing the annualized dividend
rate of the Company's common stock in the amount of $.05 per share by
the fair market value of the stock on the date of grant, which resulted
in an assumed dividend yield of 0.08%.
(d) Time of Exercise--The expected average actual option term, which was 7
years.
The disclosure above is required pursuant to executive compensation
disclosure rules of the Securities and Exchange Commission. However, the
Company does not believe that the Black-Scholes model, whether modified or
not modified, or any other valuation model, is a reliable method of
computing the present value of the Company's employee stock options. The
value ultimately realized, if any, will depend on the amount that the market
price of the stock exceeds the exercise price on the date of exercise.
(4) These options were granted to Mr. Cornelius to compensate him for the
reduction in his expected retirement benefits that was an unanticipated
consequence of the transition from Lilly. These options become exercisable
over a three year period beginning October 23, 2001.
Stock Option Exercises and Option Values
The following table contains information concerning Company stock options
unexercised at the end of 1997 with respect to the Named Executive Officers.
No stock options were exercised by any of the Named Executive Officers in
1997.
AGGREGATED OPTION SHARES FISCAL YEAR END VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(2)
------------------------------ -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
James M. Cornelius...... 273,689 511,849 $12,244,874 $11,462,643
Ronald W. Dollens....... 327,129 275,573 16,263,234 7,101,609
J.B. King............... 172,979 142,493 8,569,394 3,769,654
A. Jay Graf............. 164,239 138,121 8,162,984 3,566,356
Richard M. van Oostrom.. 163,619 137,811 8,134,154 3,551,941
</TABLE>
- --------
(1) No stock appreciation rights were outstanding during 1997.
(2) Represents the amount by which the market price of the Company's common
stock exceeded the exercise prices of unexercised options on December 31,
1997.
9
<PAGE>
Retirement Plan
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL EARNINGS YEARS OF SERVICE
(HIGHEST 5 OF LAST 10 ------------------------------------------------------------------
YEARS) 5 10 15 20 25 30 35
- ------------------------ -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 375,000.............. $ 25,421 $ 50,842 $ 76,263 $101,684 $127,105 $ 152,526 $ 177,947
525,000.............. 35,954 71,908 107,862 143,816 179,770 215,724 251,678
675,000.............. 46,487 92,974 139,461 185,948 232,435 278,922 325,409
825,000.............. 57,020 114,040 171,060 228,080 285,100 342,120 399,140
975,000.............. 67,553 135,106 202,659 270,212 337,765 405,318 472,871
1,125,000.............. 78,086 156,172 234,258 312,344 390,430 468,516 546,602
1,275,000.............. 88,619 177,238 265,857 354,476 443,095 531,714 620,333
1,425,000.............. 99,152 198,304 297,456 396,608 495,760 594,912 694,064
1,575,000.............. 109,685 219,370 329,055 438,740 548,425 658,110 767,795
1,725,000.............. 120,218 240,436 360,654 480,872 601,090 721,308 841,526
1,875,000.............. 130,751 261,502 392,253 523,004 653,755 784,506 915,257
2,025,000.............. 141,284 282,568 423,852 565,136 706,420 847,704 988,988
2,175,000.............. 151,817 303,634 455,451 607,268 759,085 910,902 1,062,719
2,325,000.............. 162,350 324,700 487,050 649,400 811,750 974,100 1,136,450
2,475,000.............. 173,883 345,766 518,649 691,532 864,415 1,037,298 1,210,181
</TABLE>
Certain of the executive officers of the Company participate in two defined
benefit pension plans that have been established by the Company: the Guidant
Retirement Plan (the "Retirement Plan") and the Guidant Excess Benefit Plan:
Retirement (the "Excess Plan"). The Retirement Plan is a tax-qualified plan
that determines benefits under a formula that takes into account a
participant's years of service through the date of the split-off from Lilly in
September 1995 and average annual earnings with the Company. The Excess Plan
is a non-qualified plan that provides the larger of the following two benefits
after offsetting any benefit due from the Retirement Plan and the Guidant
Retirement ESOP: a) a benefit which would otherwise be provided under the
Retirement Plan formula but for the application of certain limitations on tax-
qualified benefits under the Internal Revenue Code plus the benefit resulting
from the Guidant Retirement ESOP or b) a benefit which would be provided under
an alternative formula which considers all of the participant's years of
service with the Company and average annual earnings with the Company. (It is
this alternative formula which is illustrated in the above Pension Plan
Table.)
Messrs. Cornelius, Dollens, Graf and van Oostrom are entitled to receive
retirement benefits under the Retirement Plan and the Excess Plan. The Pension
Plan Table sets forth a range of annual retirement benefits for graduated
levels of average annual earnings (consisting of Salary, Bonus and Long-Term
Incentive Plan Payouts as set forth in the Summary Compensation Table on page
8) and years of service for the life of the retired employee, assuming
retirement at age 65 with a 50% survivor income benefit. The amounts payable
to the retired employee are reduced, however, for benefits payable under the
Guidant Retirement ESOP and amounts payable under Lilly pension plans. The
amounts shown in the table are not subject to reduction for Social Security
benefits.
The years of service credited to the applicable Named Executive Officers
are: Mr. Cornelius, 30 years; Mr. Dollens, 25 years; Mr. Graf, 21 years; and
Mr. van Oostrom, 27 years. Mr. Cornelius currently receives retirement
benefits under Lilly pension plans. Mr. King is not eligible to receive any
benefits under the Company's pension plans.
Change-in-Control Severance Pay Plan
The Company has adopted a change-in-control severance pay program
("Program") covering most employees of the Company and its subsidiaries,
including the Company's executive officers. In general, the Program would
provide severance payments and benefits to eligible employees and executive
officers in the event of their termination of employment under certain
circumstances within fixed periods of time following a change-
10
<PAGE>
in-control. A "change-in-control" would occur if 20% or more of the Company's
voting stock were acquired by an entity other than the Company, a subsidiary,
or an employee benefit plan of the Company. There are additional conditions
that could result in a change-in-control event. The Program would not be
subject to amendment by the Board, whether prior to or following a change-in-
control, in any manner adverse to a participant without his or her prior
written consent.
Under the portion of the Program covering the Named Executive Officers, each
would be entitled to severance payments and benefits in the event that his or
her employment is terminated following a change-in-control (i) without "cause"
by the Company; (ii) for "good reason" by the executive officer, each as
defined in the Program; or (iii) for a limited period of time, for any reason
by the executive officer. In such case, the executive officer would be
entitled to a severance payment equal to three times his or her current annual
cash compensation and bonuses, including performance awards. Additional
benefits would include a pension supplement and full and immediate vesting of
all stock options and other equity incentives. In the event that any payments
made in connection with the change-in-control would be subject to the excise
tax imposed under Section 4999 of the Code as a result of the aggregate
compensation payments and benefits made to the individual, under the Program
or otherwise, in connection with a change-in-control, the Company is obligated
to make whole the individual with respect to such excise tax.
Transaction with Executive Officer
During 1997, the Company agreed to sell a house located in Los Altos Hills,
California, to Ginger L. Howard, an executive officer of the Company, for
$1,013,500, which was the appraised value of the property. The sale was
completed in February 1998. Previously, Ms. Howard rented the house from the
Company. Fifty thousand dollars of the purchase price is being held in escrow
in order to pay for repairs to the property as disclosed in a pre-purchase
inspection of the property. The Company also provided an interest-free down
payment assistance loan to Ms. Howard in the amount of $150,000 in connection
with her purchase of the house. This loan will be repaid in equal installments
over a three year period.
Management Development and Compensation Committee Report
The Management Development and Compensation Committee of the Company (the
"Committee") consists of four non-employee directors. The Committee is
responsible for reviewing the compensation policies and practices of the
Company, including for the Company's executive officers, and establishing the
salaries of executive officers. The Committee also administers the 1994 Plan
covering executive officers. The current Committee members are Mr. Step
(Chair), Mr. Falla, Ms. King and Dr. Novitch.
A. Executive Compensation Policy
Overview. Until September 25, 1995, the Company was an 80.2% owned
subsidiary of Lilly, and was a wholly owned subsidiary of Lilly prior to the
consummation of the Company's initial public offering ("Offering") in December
1994. Accordingly, prior to 1997, the Committee adjusted the compensation
policies of the Company to more accurately reflect the needs of the Company
and to provide a gradual transition from Lilly's historical compensation
policies. During 1997, the Committee believed that the Company's compensation
policies accurately reflected the need for an increased emphasis on incentives
for Company performance and recognized the increased responsibilities assumed
by the Company's executives since the Company became independent from Lilly.
Consistent with past practices, compensation programs for the Company in
1997, including those for executive officers, were designed to attract, retain
and motivate highly talented individuals. In addition, the programs were
designed to be cost-effective and to treat all employees fairly. To that end,
the Company's compensation programs shared the following characteristics:
11
<PAGE>
. Compensation of the Company's employees, including that of executive
officers, was based on the level of job responsibility, the individual's
level of performance and the Company's performance. Members of senior
management had a greater portion of their pay based on Company
performance than other employees.
. Compensation also reflected the value of the job in the marketplace. To
retain the Company's highly skilled work force, the Company attempted to
remain competitive with the pay of employers of a similar stature who
compete with the Company for talent.
. Compensation programs were developed and administered to foster the
long-term focus required for success in a highly-competitive,
innovation-based industry.
The Committee believes that the Company's executive compensation program in
1997 reflected the fundamental principles described above and provided
executives strong incentives to maximize Company performance and therefore
enhance shareholder value. The program consisted of both annual and long-term
elements. The Committee believes that the various components of compensation
should be considered collectively in order to properly assess the
appropriateness of the Company's program to the attainment of its objectives.
In establishing the Company's total compensation, a variety of measures of
historical and projected Company performance were considered. This review
included such measures as sales, net income, stock price appreciation, product
market shares, economic value added, return on shareholders' equity, return on
sales, return on assets, sales and net income per employee, sales and general
administrative expenses as a percentage of net sales and total market value.
This data formed the basis for the assessment of the overall performance and
prospects of the Company that underpinned the judgment used in establishing
total compensation ranges. In evaluating these factors, relative weights or
rankings were not assigned to each factor. Rather, a subjective determination
was made based on a collective consideration of all such factors.
In 1997, the Company's total compensation package was compared with those of
global medical device companies of comparable size and stature to the Company
(the "Guidant Peer Group").
The data generated from the Guidant Peer Group was used primarily as a
benchmark to ensure that the Company's total compensation was within the broad
range of comparative pay in the Guidant Peer Group. In some instances, it was
recognized that compensation levels would require continued adjustment over
time in order to fall within an acceptable range and to avoid an abrupt
change. The Committee did not, however, target a specific position in the
range of comparative data for each individual or for each component of
compensation. Individual amounts were established in view of the comparative
data and such other factors as level of responsibility, prior experience and
the subjective judgment as to individual contribution. These factors were not
assigned specific mathematical weights; rather, judgment and discretion were
exercised in the information reviewed and the analysis considered.
In 1997, the Company also periodically retained outside compensation and
benefits consultants to assist in the evaluation of salary and incentive
compensation programs for the Company's executive officers. Such independent
consultants provided an additional measure of assurance that the Company's
programs were reasonable and appropriate to the Company's objectives.
The Committee believes that the Company's overall compensation program in
1997 was appropriate and competitive and that the compensation levels of the
Company's executive officers were appropriate relative to the corporate
performance and the compensation levels of persons in similar positions in the
Guidant Peer Group.
B. Elements of Compensation
Annual Compensation. In 1997, annual compensation for the Company's
executive officers consisted of two components--base salary and a cash bonus.
Individual base salary increases are determined primarily by
12
<PAGE>
individual performance and comparison to marketplace data. Assessment of an
individual's performance includes consideration of a person's impact on
financial performance, as well as judgment, creativity, effectiveness in
developing subordinates and a diverse organization, and contributions to
improvement in the quality of the Company's products, services and operations.
Cash bonuses are connected to economic value added milestones, which attempt
to measure economic value created for shareholders. Economic value is created
when the Company's net income exceeds the cost of the capital employed in the
business. Subject to certain adjustments, capital is the net investment
employed in the Company's operations which is calculated by subtracting
current liabilities and cash from total assets. Currently, the Company
utilizes a target weighted average after-tax cost of capital of 13 1/2%.
Therefore, the size of bonuses varies directly with the amount by which after-
tax operating profit exceeds the cost of capital.
Long-Term Incentives. In 1997, stock options were utilized as a method of
providing long-term incentives for employees. In 1997, substantially all
employees of the Company received a stock option award. The Company believes
that stock options emphasize the long-term focus necessary for continued
success in the innovation-based medical device business. The Company has
emphasized the importance of equity ownership by employees at all levels,
particularly individuals in leadership roles, including executive officers, to
ensure proper focus on shareholder value.
The Committee believes that stock options are an important part of the
performance-based compensation of the Company's management, including that of
its executive officers. Stock options provide a strong incentive to increase
shareholder value, since stock options have value only if the stock price
increases over time. The Company's options, granted at the market price on the
date of grant and with terms not to exceed 10 years, ensure that management
and other employees and consultants are oriented to growth over the long term
and not simply to short-term profits. In addition, the options create an
incentive to remain with the Company for the long term because they carry a
vesting period and, if not exercised, are forfeited if the employee leaves the
Company before retirement. Options granted during 1997 to the executive
officers of the Company contain a vesting provision where the options vest
after a three-year period, except that a portion of the options granted to Mr.
Cornelius become exercisable over a three year period beginning in October
2001. During 1997, the Committee granted employees options to purchase
approximately 4,156,700 shares of the Company's common stock at option prices
ranging from $30.10 to $63.44, as adjusted to reflect the Company's two for
one stock split which was effective in September 1997. The exercise price for
all options was the fair market value on the date of grant. The size of the
grants was based on the recipient's level of responsibility and performance.
The Committee also considered the size of previous option grants made to
individuals and internal relativity. In addition, during 1997, the Committee
granted approximately 175 employees of EndoVascular Technologies, Inc. ("EVT")
options to purchase approximately 411,750 shares of the Company's common
stock. EVT was acquired by the Company in December 1997, and the options were
granted as substitute options under the 1994 Plan to replace options held by
the EVT employees under EVT option plans.
Deductibility Cap on Executive Compensation. Beginning in 1994, a new
federal tax law disallows corporate deductibility for certain compensation
paid in excess of $1 million to the chief executive officer and the four other
most highly paid executive officers of publicly held companies. "Performance-
based compensation," as defined in the tax law, is not subject to the
deductibility limitation, provided certain shareholder approval and other
requirements are met. During 1997, the deductibility cap had an immaterial
impact on the Company. At the present time, it is not known whether the
deductibility cap will have an impact on the Company in 1998, although it is
possible. However, the Company believes that options and performance awards
granted previously under the 1994 Plan, which were disclosed in the Company's
prospectus for the Offering, currently qualify for an exception to the rules
governing the deductibility cap. The Company also believes that approval by
the shareholders of the Guidant Corporation 1998 Stock Plan (see Proposal
Number 2 on pages 16 to 18) will qualify future option grants for this
exception and will allow the Committee to decide whether future performance
award grants will qualify. The Committee decided, however, to not qualify the
EVA(R) Bonus Plan as "performance-based compensation" at this time since to do
so would have limited the Committee's flexibility in the administration of the
Plan. The Committee believes that flexibility is important in
13
<PAGE>
the administration of the EVA(R) Bonus Plan. The anticipated future loss of
deductibility, if any, is expected to be immaterial. The Committee will
continue to review the Company's executive compensation plans on a regular
basis to determine what changes, if any, should be made as a result of the
limitation on deductibility.
C. Compensation of the Chairman and Chief Executive Officer
In 1997, the compensation of James M. Cornelius, Chairman, and Ronald W.
Dollens, President and Chief Executive Officer, consisted of the same
components as for other senior executives--base salary, bonus and stock
options.
In 1997, Mr. Cornelius' and Mr. Dollens' initial base salaries (at the
annual rates of $625,200 and $387,240, respectively) were set so as to be
within the middle range relative to persons in similar positions in the
Guidant Peer Group. Their base salaries will be reviewed on 12-month cycles by
the Committee. Mr. Cornelius' salary did not increase in 1997 from 1996
because the Committee believed that a higher proportion of his total
compensation should be in the form of performance based compensation. Mr.
Dollens' salary in 1997 was increased approximately 10% over 1996. The
Committee believes that this increase was appropriate in light of the
increased responsibilities undertaken by Mr. Dollens since the Company became
independent from Lilly.
For 1997, Mr. Cornelius and Mr. Dollens earned $812,000 and $362,500,
respectively, under the EVA Bonus Plan, which was paid in early 1998. Mr.
Cornelius and Mr. Dollens elected to defer 100% and 50%, respectively, of this
bonus under the Company's deferred compensation plan. The increase in bonus
payout for 1997 over 1996 reflects increased target bonus payouts for both Mr.
Cornelius and Mr. Dollens. The target payouts were increased in order to place
a greater emphasis on performance based compensation. The target payout was
also increased in 1997, in part, as a result of the elimination of performance
awards as part of compensation which became effective in 1997. For 1997,
consistent with the goal of linking a greater portion of executive officer
compensation to Company performance, Mr. Cornelius' and Mr. Dollens' total
compensation program was structured such that if the Company achieved or
exceeded certain EVA(R) targets, the performance-based bonus would represent
a higher proportion of combined salary and bonus.
In October 1997, the Committee granted Mr. Cornelius and Mr. Dollens options
to purchase 175,000 and 112,000 shares, respectively, of Company common stock
at $61.25, the fair market value of the Company common stock on the date of
grant. In determining the size of the grant, the Committee considered a number
of factors, including option grants to other executive officers in similar
positions in the Guidant Peer Group, the size of the option grant relative to
grants received by other Company personnel and the responsibility of Mr.
Cornelius and Mr. Dollens for the management of the Company, and considered
various value estimations which the Committee determined were consistent with
Mr. Cornelius' and Mr. Dollens' responsibilities to the Company. The Company
also considered the size of previous grants of options to these individuals.
The Committee believed the size of the grants was sufficient to give Mr.
Cornelius and Mr. Dollens a substantial equity position that would provide
appropriate incentives to increase long-term shareholder value. The value of
the stock options granted to Mr. Cornelius and Mr. Dollens were both increased
in 1997 over 1996. This increase was attributed to the Committee's desire to
have a greater proportion of total compensation directly linked with value
created for shareholders. Also, the stock option grants were increased to
partially substitute for the performance awards that were discontinued
effective in 1997.
Mr. Cornelius also received an additional stock option grant for 75,000
shares in 1997 to compensate him for the reduction in his expected retirement
benefits that was an unanticipated consequence of the transition from Lilly.
These additional options vest over a three year period beginning in October
2001. The Committee believes that the value of these additional options
approximated the reduction in his expected retirement benefits.
D. Adjustments for Economic Value Added Bonus
Reported earnings for 1997 include special charges totaling $68.5 million
associated with the acquisitions of Neocardia and EndoVascular Technologies,
Inc. Reported earnings also include a gain of $23.2 million on the
14
<PAGE>
sale of the Company's equity interest in Gynecare, Inc. which was acquired by
Johnson and Johnson, a special contribution to the Guidant foundation of $11.5
million, a provision for future litigation of $11.5 million, and a charge of
$7.3 million relating to a cumulative change in accounting principle. The
incentive formulas under the Company's economic value added bonus were
adjusted to eliminate the effect of these items. However, since Neocardia was
acquired in the first half of 1997, the purchased research and development
expense was treated as an asset and the operating loss was deducted from net
income for purposes of calculating the economic value added bonus. The
operating loss and the asset value of EndoVascular Technologies, Inc. was
excluded for 1997 bonus calculations since the merger closed on December 19,
1997. The Committee generally believes that employees should not be penalized
in the current year by the implementation of strategic business actions in the
latter portion of the year or the application of special or new accounting
standards that reduce current earnings but prepare the Company for enhanced
competitiveness in the future.
Management Development and Compensation Committee
Eugene L. Step (Chair)
Enrique C. Falla Susan B. King Mark Novitch, M.D.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return on the Company's common stock with Standard & Poor's 500 Stock Index
and Standard & Poor's Health Care (Medical Products and Supplies) Index for
the period beginning on December 13, 1994 (the date of the Offering) and
ending on December 31, 1997. The graph is constructed on the assumption that
$100 was invested on December 13, 1994 in each of the Company's common stock,
Standard & Poor's 500 Stock Index and Standard & Poor's Health Care Index. The
companies in the Standard & Poor's Health Care Index are the same companies in
the Guidant Peer Group used by the Company's Management Development and
Compensation Committee to compare compensation levels for the Company's
executive officers.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG GUIDANT, S&P 500 STOCK INDEX, AND S&P HEALTH CARE INDEX
<TABLE>
[GRAPH APPEARS HERE]
<CAPTION>
Measurement Period
(Fiscal Year Covered) Guidant S&P 500 Stock Index S&P Health Care Index
- --------------------- ------- ------------------- ---------------------
<S> <C> <C> <C>
Measurement Pt-
FYE 12/13/94 $100 $100 $100
FYE 12/31/94 $110 $103 $106
FYE 12/31/95 $292 $141 $179
FYE 12/31/96 $394 $174 $205
FYE 12/31/97 $863 $232 $256
</TABLE>
- --------
*Total return assumes reinvestment of dividends.
15
<PAGE>
2. PROPOSAL TO APPROVE THE GUIDANT CORPORATION 1998 STOCK PLAN
The Board of Directors has adopted, subject to shareholder approval, the
Guidant Corporation 1998 Stock Plan (the "1998 Plan"). The Board believes that
the 1998 Plan will benefit shareholders by allowing the Company to attract and
retain employees and consultants who have the ability to enhance the value of
the Company and by aligning the interests of employees and consultants with
those of the shareholders through increased stock ownership. The Board
therefore recommends approval of the 1998 Plan.
Approval of this proposal requires the affirmative vote of a majority of the
Company's shares present, or represented, and entitled to vote. Shares voted
for the proposal and shares represented by returned proxies that do not
contain instructions to vote against the proposal or to abstain from voting
will be counted as shares cast for the proposal. Shares will be counted as
cast against the proposal if the shares are voted either against the proposal
or to abstain from voting. Broker non-votes will not change the number of
votes cast for or against the proposal and will not be treated as shares
entitled to vote.
The following is a summary of the 1998 Plan. The summary is qualified in its
entirety by reference to the full text of the 1998 Plan, which is attached to
this Proxy Statement as Exhibit A.
GENERAL INFORMATION
The 1998 Plan will be administered by the Management Development and
Compensation Committee of the Board (the "Committee"), which will be
authorized to grant to employees and consultants up to 22,500,000 shares of
the Company's common stock ("Guidant Stock") in the form of stock options,
performance awards, and restricted stock. The 1998 Plan will become effective
upon approval by the shareholders and will expire on May 31, 2003 unless
terminated earlier or extended by the Board.
AUTHORITY OF COMMITTEE
The 1998 Plan will be administered and interpreted by the Committee, each
member of which must (i) be a "nonemployee director" as defined in Rule 16b-
3(b)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and (ii) satisfy the requirements of an "outside director" for purposes
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Committee will select persons to receive grants from among the
Company's employees and consultants, determine the types of grants and number
of shares to be awarded to grantees, and set the terms, conditions and
provisions of the grants consistent with the 1998 Plan. The Committee may
establish rules for administration of the 1998 Plan.
ELIGIBLE PERSONS
The Committee will select grantees from among the employees (including any
officer) or consultants of the Company and its subsidiaries. Currently,
approximately 5,000 employees would be eligible, including 12 executive
officers and three directors. The number of eligible persons can be expected
to vary from year to year.
SHARES SUBJECT TO PLAN
Subject to adjustment as described below, a maximum of 22,500,000 shares of
Guidant Stock may be issued or transferred for grants under the 1998 Plan.
However, not more than 5,000,000 shares can be issued as restricted stock
grants. The shares may be unissued shares or treasury shares. Payment of cash
in lieu of shares is deemed an issuance or transfer of the shares for purposes
of determining the maximum number of shares available for grants under the
1998 Plan as a whole or with respect to any individual grantee. In the event
of a stock split, stock dividend, spin-off, or other relevant change affecting
Guidant Stock, adjustments may be made to the number of shares available for
grants and to the number of shares and price under outstanding grants made
before the event.
16
<PAGE>
GRANTS UNDER THE 1998 PLAN
Stock Options. The Committee may grant nonqualified options and Incentive
Stock Options ("ISOs"). The Committee shall establish the option price, which
may not be less than 100% of the fair market value of the stock on the date of
grant. The Committee does not have discretion to re-price outstanding options.
The term of the option and the period during which it may be exercised are
also established by the Committee, provided that the term may not exceed 10
years. The option price may be satisfied in cash or, if permitted by the
Committee, by delivering to the Company Guidant Stock already owned by the
grantee having a fair market value equal to the option price, or a combination
of cash and shares. In addition, the Committee may permit the exercise of an
option by delivery of written notice, subject to the Company's receipt of a
third-party payment in cash for the option price. No grantee may receive
options for more than 700,000 shares under the 1998 Plan during any one
calendar year.
Performance Awards. The Committee may grant performance awards under which a
payment would be made in shares of Guidant Stock, cash, or both if the
financial performance of the Company or a subsidiary, division, or other unit
of the Company ("Business Unit") selected by the Committee meets certain
performance criteria during an award period. The performance criteria are
established by the Committee. For performance awards intended to qualify for
exemption under Section 162(m) of the Code, the performance criteria are
limited to earnings per share, return on assets, return on shareholders'
equity, divisional income, net income, total shareholder return, stock price
goals, cash flow, operating earnings, return on capital, or economic value
added, in each case as may be applied on an absolute or relative to peer group
basis. Economic value added is described in the Management Development and
Compensation Committee Report on page 13. However, for performance awards that
are not intended to qualify for exemption under Section 162(m) of the Code,
the Committee may designate any of the foregoing performance criteria or any
other financial measurement. The Committee also establishes the award period
(four or more consecutive fiscal quarters), the maximum payment value of an
award, and the minimum financial performance required before a payment is
made. Awards may be denominated either in shares of Guidant Stock ("Stock
Performance Awards") or in dollar amounts ("Dollar Performance Awards"). The
maximum number of shares that may be received by an individual in payment of
Stock Performance Awards in any calendar year is 30,000. As to Dollar
Performance Awards, the maximum payment to an individual in any calendar year
is $2,000,000. The Committee can elect to pay cash in lieu of part or all of
the shares of Guidant Stock payable under an award. In order to receive
payment, a grantee who is an employee of the Company must remain employed by
the Company through the date of the award payment, except that the Committee
may make complete or partial exceptions to that rule.
At any time prior to payment, the Committee can revise the performance
criteria and the computation of the award payment if unforseen events occur
during an award period which have a substantial effect on the performance
criteria and which in the sole discretion of the Committee make the
application of the performance criteria unfair unless a revision is made.
However, a revision cannot be made by the Committee that would increase the
award payment if the performance award was intended to qualify for exemption
under Section 162(m) of the Code, unless the revision is made on a non-
discretionary basis upon occurrence of objective events specified in the
performance award grant.
Restricted Stock Grants. The Committee may also issue or transfer shares
under a restricted stock grant. The grant would set forth a restriction period
during which a grantee who is an employee of the Company must remain in the
employment of the Company. The stock certificate would be held by the Company
in escrow until the restriction period lapses. If the grantee's employment
terminates during the period, the grant would terminate and the shares would
be returned by the Company. However, the Committee could provide complete or
partial exceptions to that requirement as it deems equitable. The grantee
could not dispose of the shares prior to the expiration of the restriction
period. During this period, the grantee would be entitled to vote the shares
and receive dividends. Upon lapse of the restrictions, the stock certificate
would be delivered to the grantee.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
The grant of a stock option will not result in taxable income at the time of
grant for the optionee or the Company. The grantee will have no taxable income
upon exercising an ISO (except that the alternative minimum
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tax may apply), and the Company will receive no deduction when an ISO is
exercised. Upon exercising a nonqualified stock option, the grantee will
recognize ordinary income in the amount by which the fair market value of the
Company's stock on the date the option is exercised exceeds the option price
and the Company will be entitled to a deduction for the same amount. The
treatment to a grantee of a disposition of shares acquired through the
exercise of an option is dependent upon the length of time the shares have
been held and on whether such shares were acquired by exercising an ISO or a
nonqualified stock option. Generally, there will be no tax consequence to the
Company in connection with the disposition of shares acquired under an option
except that the Company may be entitled to a deduction in the case of a
disposition of shares acquired upon exercise of an ISO if the disposition is
made before the applicable ISO holding period has been satisfied.
OTHER INFORMATION
The Board may amend or terminate the 1998 Plan as it deems advisable.
However, shareholder approval is required for any amendment or modification of
the 1998 Plan that would (i) change the class of Eligible Persons, (ii)
increase the number of shares of Guidant Stock available under the 1998 Plan,
(iii) allow the grant of stock options at an exercise price below fair market
value, or (iv) allow the re-pricing of stock options. In addition, the Board
may seek the approval of shareholders for any amendment or modification to the
1998 Plan to the extent the Board deems necessary or advisable for purpose of
compliance with Section 162(m) or Section 422 of the Code, the listing
requirements of the New York Stock Exchange or Pacific Exchange, or for any
other purpose. The Committee may amend outstanding grants consistent with the
1998 Plan if the amendment does not impair the grantee's rights or upon the
agreement of the grantee.
In the event of a Change of Control (as defined in Article 9 of the 1998
Plan), in order to preserve all of the Grantee's rights the following shall
occur, unless the Committee expressly provides otherwise in the grant
agreement: (i) any outstanding stock options not already exercisable shall
become fully exercisable; (ii) any restriction periods on restricted stock
grants shall automatically expire and all restrictions shall immediately
lapse; and (iii) outstanding performance awards will be deemed to have been
earned and will be paid out in an amount equal to the maximum award
opportunity.
During 1997, the Committee did not grant any performance awards under the
1994 Plan and the Committee does not currently have the intention to grant any
performance awards during 1998.
The Committee has made no determinations with respect to grants of stock
options under the 1998 Plan for 1998. During 1997, stock options were granted
under the 1994 Plan to the Named Executive Officers as set forth in the table
on page 9 entitled "Option Shares Granted in Last Fiscal Year." Also during
1997, the Committee granted stock options for 809,000 shares to all executive
officers as a group at an exercise price of $61.25 per share and for 3,347,700
shares to non-executive officer employees as a group at a weighted average
exercise price of $56.24 per share.
Similarly, the Committee has made no determinations regarding the award of
restricted stock grants under the 1998 Plan. In 1997, the Committee granted
restricted stock grants for an aggregate of 9,800 shares to 42 individuals.
The restriction periods vary from one to three years from the date of grant.
No executive officer received a restricted stock grant in 1997.
The closing price of Guidant Stock on the New York Stock Exchange on March
9, 1998, was $74.375 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE 1998 STOCK PLAN.
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3. PROPOSAL TO AMEND THE AMENDED AND RESTATED ARTICLES
OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved an amendment to the
Company's Amended and Restated Articles of Incorporation ("Articles") which
would increase the Company's authorized common stock from 250,000,000 shares
to 500,000,000 shares. Currently, the total number of authorized shares is
300,000,000, consisting of 250,000,000 shares of common stock and 50,000,000
shares of preferred stock. Accordingly, the Company's total number of
authorized shares would also be increased from 300,000,000 to 550,000,000.
The language in Article 3 and the first sentence of Section 4(a) would be
amended to read as follows:
"3. The total number of authorized shares is 550,000,000.
4. (a) Common Stock consisting of 500,000,000 shares."
The Board of Directors recommends that the shareholders approve the amendment
by voting in favor of Proposal No. 3.
On August 18, 1997, the Company authorized a two-for-one stock split to be
effected in the form of a 100% stock dividend. The stock dividend was paid on
September 16, 1997 to shareholders of record on September 2, 1997. As a result
of that action, the number of authorized but unissued shares of common stock
available to the Company for future use was reduced significantly. As of March
9, 1998, there were 150,839,625 shares of common stock issued and outstanding
and an additional 13,106,008 shares of common stock were reserved for issuance
under the Company's stock plans. None of the preferred stock is outstanding.
The proposed increase in the number of shares of authorized common stock
will insure that shares will be available, if needed, for issuance in
connection with stock splits, stock dividends, acquisitions, and other
corporate purposes. The Board of Directors believes that the availability of
the additional shares for such purposes without delay or the necessity for a
special shareholders' meeting would be beneficial to the Company. The Company
does not have any immediate plans, arrangements, commitments or understandings
with respect to the issuance of any of the additional shares of common stock
which would be authorized by the proposed amendment.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the additional shares of common stock
unless required by applicable law or regulatory agencies or by the rules of
any stock exchange on which the Company's securities may then be listed.
The holders of any of the additional shares of common stock issued in the
future would have the same rights and privileges as the holders of the shares
of common stock currently authorized and outstanding. Those rights do not
include preemptive rights with respect to the future issuance of any
additional shares.
As stated above, the Company has no immediate plans, arrangements,
commitments or understandings with respect to the issuance of any additional
shares of common stock which would be authorized by the proposed amendment.
However, the increased authorized shares could be used to make a takeover
attempt more difficult such as by using the shares to make a counter-offer for
the shares of the bidder or by selling shares to dilute the voting power of
the bidder. As of this date, the Board is unaware of any effort to accumulate
the Company's shares or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
The Articles contain certain other provisions that may be viewed as having
possible anti-takeover effects. Under these provisions the Company's Board of
Directors is divided into three classes, with approximately one-third of the
members of the Board nominated for election each year. Thus, two annual
meetings of shareholders are necessary for a majority shareholder to replace a
majority of the incumbent directors. In addition, directors may be removed,
with or without cause, only upon the affirmative vote of the holders of 80% of
the outstanding voting power of the Company. The Articles further provide
that, in certain situations, the affirmative vote of the holders of 80% of the
Company's outstanding voting power is required to approve certain business
transactions
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(such as mergers or sales of assets) involving another entity which
beneficially owns 5% or more of the voting power of the Company. The Articles
also provide that the Board, when evaluating such transactions, shall, in
connection with the exercise of its judgment in determining what is in the
best interests of the Company and its shareholders, give due consideration to
all relevant factors, including the effects on employees, suppliers and
customers of the Company, communities in which offices or other facilities of
the Company are located and any other factors a Director considers pertinent.
On October 17, 1994, the Company adopted a Shareholder Rights Plan (the
"Plan"). Under the terms of the Plan, all shareholders received, for each
share owned, a preferred stock purchase right ("Right") entitling them to
purchase from the Company one two-hundredth of a share of Series A
Participating Preferred Stock at an exercise price of $21.75. The Company also
authorized the issuance of a Right with respect to each share of common stock
of the Company that becomes outstanding thereafter. 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 $0.005 per right up to and
including the tenth 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 Plan 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
shares of the acquiring company's common stock having a market value of twice
the exercise price. The Plan 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 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.
The Company also has 50,000,000 shares of authorized preferred stock which
have not been issued. A total of 1,500,000 shares of the preferred stock have
been designated as Series A Participating Preferred Stock and reserved for
issuance pursuant to the Shareholder Rights Plan discussed above. The Board
(subject to applicable laws or rules of regulatory agencies and requirements
of stock exchanges) has the power to issue the existing preferred stock
without further shareholder approval, with such rights as the Board deems
advisable, including conversion rights, redemption rights, dividend rights,
voting rights, and liquidation rights. The stock could be issued to deter a
takeover by establishing the terms of the preferred stock so as to make the
takeover substantially more expensive. The preferred stock could also be
issued with voting rights intended to make an acquisition of the Company more
difficult.
Approval of a majority of the Company's outstanding shares of common stock
is required for adoption of the proposal to amend the Articles. If the
proposal is adopted, the amendment will become effective upon the requisite
filing under the Indiana Business Corporation Law. Abstention from voting on
the proposed amendment and broker non-votes will have the practical effect of
voting against the amendment since the affirmative vote of a majority of the
Company's outstanding shares is required for adoption of the proposal. If not
otherwise specified, properly executed proxies will be voted in favor of the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION.
4. PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee, has
appointed the firm of Ernst & Young LLP as independent auditors for the
Company for the year 1998. In accordance with the By-laws of the Company, this
appointment will be submitted to the shareholders for ratification. Ernst &
Young LLP served as the independent auditors for the Company in 1997.
Representatives of Ernst & Young LLP are expected to be
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present at the Annual Meeting and will be available to respond to appropriate
questions. Those representatives will have the opportunity to make a statement
if they desire to do so.
Ratification of this appointment requires that the number of votes cast in
favor of ratification exceed the number of votes cast opposing ratification.
Only votes cast for or against ratification will be counted, except that the
accompanying proxy will be voted in favor of ratification in the absence of
instructions to the contrary. Abstentions and broker non-votes will not change
the number of votes cast for or against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
FOR THE YEAR 1998.
5. OTHER MATTERS
As of the date of this Proxy Statement, the management of the Company has no
knowledge of any matters to be presented for consideration at the meeting
other than those described in this Proxy Statement. If any other matters
properly come before the meeting, the accompanying proxy confers discretionary
authority with respect to those matters, and the persons named in the
accompanying form of proxy intend to vote that proxy to the extent entitled in
accordance with their best judgment.
All expenses in connection with solicitation of proxies will be borne by the
Company. The Company will pay brokers, nominees, fiduciaries or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies primarily by mail, but directors,
officers and other employees of the Company may also solicit in person, by
telephone, by telegraph, or by mail. The Company may retain D. F. King & Co.,
Inc. to assist in the solicitation of proxies. If retained, the firm will
solicit proxies by personal interview, telephone, telegraph, and mail. It is
anticipated that the fee for those services will not exceed $10,000 plus
reimbursement of customary out-of-pocket expenses.
First Chicago Trust Company of New York has been retained to receive and
tabulate proxies and to provide representatives to act as inspectors of
election for the Annual Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Securities and Exchange Commission rules relating to reporting of
changes of beneficial ownership of Company common stock, a report during the
last fiscal year relating to the following transaction of an executive officer
of the Company was not timely filed due to inadvertence: one report for Ms.
Howard pertaining to a gift of stock. Upon discovery, this oversight was
promptly corrected.
Shareholder Proposals for 1999 Annual Meeting
The date by which shareholder proposals must be received by the Company for
inclusion in the proxy materials relating to the 1999 Annual Meeting of
Shareholders is November 24, 1998.
By order of the Board of Directors,
J. B. King
Secretary
March 24, 1998
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EXHIBIT A
GUIDANT CORPORATION 1998 STOCK PLAN
The Guidant Corporation 1998 Stock Plan ("1998 Plan") authorizes the
Management Development and Compensation Committee ("Committee") of the Board
of Directors of Guidant Corporation to provide employees and consultants of
Guidant Corporation and its subsidiaries with certain rights to acquire shares
of Guidant Corporation common stock ("Guidant Stock"). The Company believes
that this incentive program will benefit the Company's shareholders by
allowing the Company to attract, motivate, and retain employees and
consultants and by causing employees and consultants, through stock-based
incentives, to contribute materially to the growth and success of the Company.
For purposes of the 1998 Plan, the term "Company" shall mean Guidant
Corporation and its subsidiaries, unless the context requires otherwise.
1. ADMINISTRATION.
The 1998 Plan shall be administered and interpreted by the Committee
consisting of not less than three persons appointed by the Board of Directors
of the Company from among its members. A person may serve on the Committee
only if he or she (i) is a nonemployee director as defined in Rule 16b-3(b)(3)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and (ii) satisfies the requirements of an "outside director" for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Committee shall determine the fair market value of Guidant Stock for
purposes of the 1998 Plan. The Committee may, subject to the provisions of the
1998 Plan, from time to time establish such rules and regulations as it deems
appropriate for the proper administration of the Plan. The Committee's
decisions shall be final, conclusive, and binding with respect to the
interpretation and administration of the 1998 Plan and any Grant made under
it. Except to the extent expressly prohibited by the 1998 Plan or applicable
law, the Committee may delegate to one or more of its members, or to one or
more agents, such responsibility or duties as it deems desirable.
2. GRANTS.
Incentives under the 1998 Plan shall consist of incentive stock options,
nonqualified stock options, performance awards, and restricted stock grants
(collectively, "Grants"). All Grants shall be subject to the terms and
conditions set out herein and to such other terms and conditions which are not
inconsistent with the 1998 Plan as the Committee deems appropriate. The
Committee shall approve the form and provisions of each Grant. Grants under a
particular section of the 1998 Plan need not be uniform and Grants under two
or more sections may be combined in one instrument.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee (including any officer) or consultant of
the Company ("Eligible Person"). The Committee shall select the persons to
receive Grants ("Grantees") from among the Eligible Persons and determine the
number of shares subject to any particular Grant.
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Guidant Stock that
may be issued or transferred under the 1998 Plan is 22,500,000; provided,
however, that the aggregate number of such shares that may be issued or
transferred as Restricted Stock Grants under the 1998 Plan is 5,000,000. The
shares may be authorized but unissued shares or treasury shares. The number of
shares available for Grants at any given time shall be 22,500,000 (5,000,000
in the case of Restricted Stock Grants), reduced by the aggregate of all
shares previously issued or transferred and of shares which may become subject
to issuance or transfer under then-outstanding Grants. Payment in cash in lieu
of shares shall be deemed to be an issuance of the shares for purposes of
determining the number of shares available for Grants under the 1998 Plan as a
whole or to any individual Grantee.
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(b) Adjustment Provisions. If any subdivision or combination of shares of
Guidant Stock or any stock dividend, reorganization, recapitalization, or
consolidation or merger with Guidant Corporation as the surviving corporation
occurs, or if additional shares or new or different shares or other securities
of the Company or any other issuer are distributed with respect to the shares
of Guidant Stock through a spin-off, exchange offer, or other extraordinary
distribution, the Committee shall make such adjustments as it determines
appropriate in the number of shares of Guidant Stock that may be issued or
transferred in the future under Sections 4(a), 5(f) and 6(f). The Committee
shall also adjust as it determines appropriate the number of shares and Option
Price in outstanding Grants made before the event.
5. STOCK OPTIONS.
The Committee may grant options qualifying as incentive stock options under
the Code ("Incentive Stock Options"), and nonqualified options (collectively,
"Stock Options"). The following provisions are applicable to Stock Options:
(a) Option Price. The Committee shall determine the price at which
Guidant Stock may be purchased by the Grantee under a Stock Option ("Option
Price") which, except in the case of substitute grants as described in
Section 11(b), shall be not less than the fair market value of Guidant
Stock on the date the Stock Option is granted (the "Grant Date"). In the
Committee's discretion, the Grant Date of a Stock Option may be established
as the date on which Committee action approving the Stock Option is taken
or any later date specified by the Committee.
(b) Option Exercise Period. The Committee shall determine the option
exercise period of each Stock Option. The period shall not exceed ten years
from the Grant Date.
(c) Exercise of Option. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Company or its representative as
designated by the Committee, either with or without accompanying payment of
the Option Price. The notice of exercise, once delivered, shall be
irrevocable.
(d) Satisfaction of Option Price. The Grantee shall pay or cause to be
paid the Option Price in cash, or with the Committee's permission, by
delivering shares of Guidant Stock already owned by the Grantee and having
a fair market value on the date of exercise equal to the Option Price, or a
combination of cash and shares. In addition, the Committee may permit the
exercise of an option by delivery of written notice, subject to the
Company's receipt of a third-party payment in full in cash for the Option
Price prior to the issuance of shares of Guidant Stock, in the manner and
subject to the procedures as may be established by the Committee. Unless
the Committee establishes a shorter period which is set forth in the Stock
Option, the Grantee shall pay the Option Price not later than 30 days after
the date of a statement from the Company following exercise setting forth
the Option Price, fair market value of Guidant Stock on the exercise date,
the number of shares of Guidant Stock that may be delivered in payment of
the Option Price, and the amount of withholding tax due, if any. If the
Grantee fails to pay the Option Price within the specified period, the
Committee shall have the right to take whatever action it deems
appropriate, including voiding the option exercise. The Company shall not
issue or transfer shares of Guidant Stock upon exercise of a Stock Option
until the Option Price and any required withholding tax are fully paid.
(e) Share Withholding. With respect to any nonqualified option, the
Committee may, in its discretion and subject to such rules as the Committee
may adopt, permit or require the Grantee to satisfy, in whole or in part,
any withholding tax obligation which may arise in connection with the
exercise of the nonqualified option by having the Company withhold shares
of Guidant Stock having a fair market value equal to the amount of the
withholding tax.
(f) Limits on Individual Grants. No individual Grantee may be granted
Stock Options under the 1998 Plan for more than 700,000 shares of Guidant
Stock during any one calendar year.
(g) Limits on Incentive Stock Options. The aggregate fair market value of
the stock covered by Incentive Stock Options granted under the 1998 Plan or
any other stock option plan of the Company or any subsidiary or parent of
the Company that become exercisable for the first time by any employee in
any calendar year shall not exceed $100,000. The aggregate fair market
value will be determined at the Grant
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Date. An Incentive Stock Option shall not be granted to any Eligible Person
who, on the Grant Date, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
subsidiary or parent of the Company.
6. PERFORMANCE AWARDS.
The Committee may grant Performance Awards which shall be denominated at the
time of grant either in shares of Guidant Stock ("Stock Performance Awards")
or in dollar amounts ("Dollar Performance Awards"). Payment under a Stock
Performance Award or a Dollar Performance Award shall be made, at the
discretion of the Committee, in shares of Guidant Stock ("Performance
Shares"), or in cash or in any combination thereof, if the financial
performance of the Company or any subsidiary, division, or other unit of the
Company ("Business Unit") selected by the Committee meets certain financial
goals established by the Committee for the Award Period (as defined below).
Performance Awards may be granted by the Committee in a manner designed to
qualify for exemption under Section 162(m) of the Code ("Section 162(m)
Awards") or in a manner that is not intended to so qualify. The following
provisions are applicable to Performance Awards:
(a) Award Period. The Committee shall determine and include in the Grant
the period of time (which shall be four or more consecutive fiscal
quarters) for which a Performance Award is made ("Award Period"). Grants of
Performance Awards need not be uniform with respect to the length of the
Award Period. Award Periods for different Grants may overlap. A Performance
Award may not be granted for a given Award Period after one half ( 1/2) or
more of such period has elapsed, except as provided in Section 6(g).
(b) Performance Criteria and Payment. Before a Grant is made, the
Committee shall establish objectives with respect to designated business
performance criteria ("Performance Criteria") that must be met by the
Business Unit during the Award Period as a condition to payment being made
under the Performance Award. The Performance Criteria and the applicable
goals with respect to such criteria shall be set out in the Grant. In the
case of Section 162(m) Awards, the Performance Criteria shall be limited to
earnings per share, return on assets, return on shareholders' equity,
divisional income, net income, total shareholder return, stock price goals,
cash flow, operating earnings, return on capital, or economic value added,
in each case as may be applied on an absolute or relative to peer group
basis. In the case of non-Section 162(m) Awards, the Performance Criteria
may include any of the foregoing or any other financial measurement
established by the Committee. The Committee shall also set forth in the
Grant the number of Performance Shares or the amount of payment to be made
under a Performance Award if the Performance Criteria are met or exceeded,
including the fixing of a maximum payment, subject to Section 6(f).
(c) Computation of Payment. After an Award Period, the financial
performance of the Business Unit during the period shall be measured
against the Performance Criteria. If the Performance Criteria are not met,
no payment shall be made under a Performance Award. If the Performance
Criteria are met or exceeded, the Committee shall certify that fact in
writing prior to payment of the Performance Award and shall determine the
number of Performance Shares or the amount of payment to be made under a
Performance Award in accordance with the Grant for each Grantee. The
Committee, in its sole discretion, may elect to pay part or all of the
Performance Award in cash in lieu of issuing or transferring Performance
Shares. The cash payment shall be based on the fair market value of Guidant
Stock on the date of payment. The Company shall promptly notify each
Grantee of the number of Performance Shares and the amount of cash, if any,
he or she is to receive.
(d) Revisions for Significant Events. At any time before payment is made,
the Committee may revise the Performance Criteria and the computation of
payment if unforeseen events occur during an Award Period which have a
substantial effect on the Performance Criteria and which in the sole
discretion of the Committee make the application of the Performance
Criteria unfair unless a revision is made; provided, however, that any such
revision that would result in an increase in the amount payable under
Section 162(m) Awards shall be made only on a non-discretionary basis upon
the occurrence of objective events specified in the Grant.
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(e) Requirement of Employment. To be entitled to receive payment under a
Performance Award, a Grantee who is an employee of the Company must remain
in the employment of the Company through the date of the award payment,
except that the Committee may provide for partial or complete exceptions to
this requirement as it deems equitable in its sole discretion.
(f) Maximum Payment. In case of a Performance Award that is designated as
a Section 162(m) Award, no individual may receive Performance Award
payments in respect of Stock Performance Awards in excess of 30,000 shares
of Guidant Stock in any calendar year or payments in respect of Dollar
Performance Awards in excess of $2,000,000 in any calendar year. For
purposes of determining the maximum payment under this subsection, payment
in cash of all or part of a Stock Performance Award will be deemed an
issuance of the number of shares with respect to which such cash payment is
made. No individual may receive both a Stock Performance Award and a Dollar
Performance Award for the same Award Period.
(g) Section 162(m) Requirements. In the case of a Performance Award that
is designated as a Section 162(m) Award, the Committee shall make all
determinations necessary to establish the Performance Award within 90 days
of the beginning of the Award Period, including, without limitation, the
designation of the Participants to whom Performance Awards are made, the
Performance Criteria applicable to the Grant and the performance goals that
relate to such criteria, and the dollar amounts or number of shares of
Guidant Stock payable upon achieving the applicable performance goals. As
and to the extent required by Section 162(m) of the Code, the terms of a
Section 162(m) Award must state, in terms of an objective formula or
standard, the method of computing the amount of compensation payable under
the Performance Award and must preclude discretion to increase the amount
of compensation payable under the Performance Award.
7. RESTRICTED STOCK GRANTS.
The Committee may issue or transfer shares of Guidant Stock to a Grantee
under a Restricted Stock Grant. Upon the issuance or transfer, the Grantee
shall be entitled to vote the shares and to receive any dividends paid. The
following provisions are applicable to Restricted Stock Grants:
(a) Requirement of Employment. If the employment of a Grantee who is an
employee of the Company terminates during the period designated in the
Grant as the "Restriction Period," the Restricted Stock Grant terminates
and the shares of Guidant Stock must be returned immediately to the
Company. However, the Committee may provide for partial or complete
exceptions to this requirement as it deems equitable.
(b) Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Guidant Stock except to a Successor
Grantee under Section 11(a). Each certificate for shares issued or
transferred under a Restricted Stock Grant shall contain a restricted
legend or be held in escrow by the Company until the expiration of the
Restriction Period.
(c) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Grant shall lapse (i) upon the expiration of the Restriction Period
if all conditions, including those stated in Sections 7(a) and (b) have
been met or (ii) as provided under Section 9(a)(ii). The Grantee shall then
be entitled to delivery of the certificate.
8. AMENDMENT AND TERMINATION OF THE 1998 PLAN.
(a) Amendment. The Board may at any time and from time to time and in any
respect, amend or modify the Plan; provided, however, that no amendment or
modification of the 1998 Plan shall be effective without the consent of the
Company's shareholders that would: (i) change the class of Eligible Persons
under the 1998 Plan, (ii) increase the number of shares of Guidant Stock
available for Grants or for Restricted Stock Grants, as provided in Section
4(a), (iii) allow the grant of Stock Options at an exercise price below fair
market value, or (iv) allow the re-pricing of Stock Options. In addition, the
Board may seek the approval of any amendment or modification by the Company's
shareholders to the extent it deems necessary or advisable in its sole
discretion
A-4
<PAGE>
for purposes of compliance with Section 162(m) or Section 422 of the Code, the
listing requirements of the New York Stock Exchange or for any other purpose.
No amendment or modification of the 1998 Plan shall in any manner affect any
outstanding Grant without the consent of the Grantee or the permitted
transferee of the Grant.
(b) Termination of 1998 Plan. The 1998 Plan shall terminate on May 31, 2003,
unless terminated earlier by the Board or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the 1998 Plan that occurs after a Grant is made shall not result
in the termination or amendment of the Grant unless the Grantee consents or
unless the Committee acts under Section 11(e). The termination of the 1998
Plan shall not impair the power and authority of the Committee with respect to
outstanding Grants. Whether or not the 1998 Plan has terminated, an
outstanding Grant may be terminated or amended under Section 11(e) or may be
amended (i) by agreement of the Company and the Grantee consistent with the
1998 Plan or (ii) by action of the Committee provided that the amendment is
consistent with the 1998 Plan and is found by the Committee not to materially
impair the rights of the Grantee under the Grant.
9. CHANGE OF CONTROL.
(a) Effect on Grants. Unless the Committee shall otherwise expressly provide
in the agreement relating to a Grant, upon the occurrence of a Change of
Control (as defined below):
(i) In the case of Stock Options, each outstanding Stock Option that is
not then fully exercisable shall automatically become fully exercisable;
(ii) The Restriction Period on all outstanding Restricted Stock Grants
shall automatically expire and all restrictions imposed under such
Restricted Stock Grants shall immediately lapse; and
(iii) Each Grantee of a Performance Award for an Award Period that has
not been completed at the time of the Change of Control shall be deemed to
have earned a Performance Award equal to such Grantee's maximum award
opportunity during such Award Period for such Performance Award.
(b) Change of Control. For purposes of the 1998 Plan, a Change of Control
shall mean the happening of any of the following events:
(i) The acquisition by any "person," as that term is used in Sections
13(d) and 14(d) of the Exchange Act (other than (A) the Company, (B) any
subsidiary of the Company, (C) any employee or directors' benefit plan or
stock plan of the Company or a subsidiary of the Company, or any trustee or
fiduciary with respect to any such plan when acting in that capacity, or
(D) any person who acquires such shares pursuant to a transaction or series
of transactions approved prior to such transaction(s) by the Board of
Directors of the Company) of "beneficial ownership" as defined in Rule 13d-
3 under the Exchange Act, directly or indirectly, of 20% or more of the
shares of the Company's capital stock the holders of which have general
voting power under ordinary circumstances to elect at least a majority of
the Board of Directors of the Company (or which would have such voting
power but for the application of the Indiana Control Share Statute) (Voting
Stock);
(ii) the first day on which less than two-thirds of the total membership
of the Board of Directors of the Company shall be Continuing Directors (as
that term is defined in Article 6(f) of the Company's Articles of
Incorporation;
(iii) approval by the shareholders of the Company of a merger, share
exchange, or consolidation of the Company (a "Transaction"), other than a
Transaction which would result in the Voting Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the Voting Stock of the Company or such
surviving entity immediately after such Transaction; or
(iv) approval by the shareholders of the Company of a complete
liquidation of the Company or a sale or disposition of all or substantially
all the assets of the Company.
A-5
<PAGE>
10. ELIGIBLE PERSONS RESIDENT OUTSIDE THE UNITED STATES.
The following provisions shall apply to each Eligible Person who is resident
outside the United States:
(a) Determination of Eligible Locations. The Committee shall determine
whether it is feasible or desirable under local law, custom and practice to
make Grants at each location outside the United States. In making this
determination as of any Grant Date, the Committee may differentiate among
classes of individuals (including expatriates, third country nationals or
international assignees) and locations within a particular country.
(b) Special Terms Applicable to Grants. In order to facilitate the making
of Grants under this Section 10, the Committee may provide for such special
terms for Grants to Grantees who are foreign nationals or who are employed
outside the United States as the Committee may consider necessary or
desirable to accommodate differences in local law, policy or custom, or to
take advantage of special tax or social insurance regimes applicable in a
particular jurisdiction. The Committee may approve such supplements,
restatements or alternate versions of the Plan as it may consider necessary
or desirable for such purposes, without thereby affecting the terms of the
Plan as in effect for any other purpose. Without limiting the generality of
the foregoing, the Committee may adopt special sub-plans applicable to
individuals in particular jurisdictions (e.g., French or U.K. qualified
plans), may provide for accelerated vesting with restrictions on the shares
received under a Grant, and may condition Grants on acknowledgments or
agreements by Grantees tailored to local law.
(c) No Acquired Rights. Nothing in the 1998 Plan or in this Section 10
shall confer upon any individual in any country the right to receive (or to
continue to receive) any Grant, any form of Grant or to receive any benefit
in lieu of a Grant hereunder, nor to have any special tax treatment apply
to any Grant.
11. GENERAL PROVISIONS.
(a) Transfer of Grants. Only a Grantee or his or her authorized legal
representative or valid transferee may exercise rights under a Grant. Such
persons may not transfer those rights. Except as set forth below, the rights
under a Grant may not be disposed of by transfer, alienation, pledge,
encumbrance, assignment, or any other means, whether voluntary, involuntary,
or by operation of law, and any such attempted disposition shall be void.
Notwithstanding the foregoing and solely to the extent permitted by the
Committee in an agreement relating to a Grant, rights under a Grant (other
than pursuant to an Incentive Stock Option) may be transferred to members of a
Grantee's immediate family, charitable institutions, or trusts or partnerships
whose beneficiaries are any of the foregoing, or to such other persons or
entities as may be approved by the Committee, in each case subject to the
condition that the Committee be satisfied that such transfer is being made for
estate or tax planning purposes or for donative purposes without consideration
being received therefor. In addition, when a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the
Grantee may exercise the rights. A successor to the rights under a Grant
pursuant to the foregoing ("Successor Grantee") must furnish proof
satisfactory to the Company of his or her right to receive the Grant, whether
as a result of a transfer from the Grantee, under the Grantees will or under
the applicable laws of descent and distribution.
(b) Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Eligible Person by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company in substitution for a stock option,
performance award, or restricted stock grant granted by such other corporation
("Substituted Stock Incentive"). The terms and conditions of the substitute
Grant may vary from the terms and conditions required by the 1998 Plan and
from those of the Substituted Stock Incentives. The Committee shall prescribe
the exact provisions of the substitute Grants, preserving to the extent the
Committee deems practical the provisions of the Substituted Stock Incentives.
The Committee shall also determine the number of shares of Guidant Stock to be
taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means a corporation of which Guidant
owns directly or indirectly 50% or more of the voting power.
A-6
<PAGE>
(d) Fractional Shares. Fractional shares shall not be issued or transferred
under a Grant, but the Committee may pay cash in lieu of a fraction or round
the fraction.
(e) Compliance with Law. The 1998 Plan, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Guidant Stock under
Grants shall be subject to all applicable laws and regulations and to
approvals by any governmental or regulatory agency as may be required. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory law or governmental
regulation. The Committee may also adopt rules regarding the withholding of
taxes on payment to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee shall have no rights
as a stockholder of the Company with respect to any shares of Guidant Stock
covered by a Grant until the shares are issued or transferred to the Grantee
or Successor Grantee on the Companys books.
(g) No Right to Employment. The 1998 Plan and the Grants under it shall not
confer upon any Grantee the right to continue in the employment of the Company
or affect in any way the right of the Company to terminate the employment of a
Grantee at any time, with or without notice or cause.
(h) Foreign Jurisdictions. The Committee may adopt, amend, and terminate
such arrangements, not inconsistent with the intent of the 1998 Plan, as it
may deem necessary or desirable to make available tax or other benefits of the
laws of foreign jurisdictions to Grantees who are subject to such laws.
(i) Governing Law. The 1998 Plan and all Grants made under it shall be
governed by and interpreted in accordance with the laws of the State of
Indiana, regardless of the laws that might otherwise govern under applicable
Indiana conflict-of-laws principles.
(j) Effective Date of the 1998 Plan. The 1998 Plan shall become effective
upon approval by the Company's shareholders.
A-7
<PAGE>
REQUEST FOR ADMITTANCE CARD
GUIDANT CORPORATION
1998 ANNUAL MEETING OF SHAREHOLDERS
MONDAY, MAY 18, 1998
1:00 P.M.
The 1998 Annual Meeting of Shareholders of Guidant Corporation will be held on
Monday, May 18, 1998 at 1:00 p.m. at the Hilbert Circle Theatre in
Indianapolis, Indiana.
IF YOU PLAN TO ATTEND THE MEETING, please complete and return the Request for
Admittance Card attached below. An admittance card will be sent to you and
will be required to admit you to the meeting. If you plan to attend the
meeting, you are encouraged to return this card by May 11, 1998, so that an
admittance card can be mailed to you in time for the meeting.
REQUEST FOR ADMITTANCE CARD
GUIDANT CORPORATION
ANNUAL MEETING OF SHAREHOLDERS [_] I plan to attend the meeting.
MONDAY, MAY 18, 1998, 1:00 P.M. Please type or print clearly:
INDIANAPOLIS, INDIANA
-------------------------------------------
Please return this card only if Name
you plan to attend the meeting. -------------------------------------------
If you do not plan to attend, Street Address
you only need to return the -------------------------------------------
enclosed proxy. Even if you plan City State Zip Code
to attend the meeting, you are
encouraged to return the proxy.
An admittance card, directions to the Hilbert Circle Theatre in Indianapolis,
Indiana, and suggested parking alternatives will be sent to all shareholders
who indicate that they plan to attend the meeting. If you plan to attend, you
are encouraged to return this card by May 11, 1998, so that an admittance card
can be mailed to you in time for the meeting.
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^
NO POSTAGE
NECESSARY
IF MAILED
IN THE UNITED
STATES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 2659 INDIANAPOLIS IN
POSTAGE WILL BE PAID BY ADDRESSEE
GUIDANT CORPORATION
111 MONUMENT CIRCLE 2900
INDIANAPOLIS IN 46209-6388
<PAGE>
P R O X Y
GUIDANT CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. M. Cornelius, J. B. King and R. W.
Dollens, and each of them, as proxies of the undersigned, each with full power
to act without the others and with full power of substitution, to vote all the
shares of Common Stock of GUIDANT CORPORATION held in the name of the
undersigned at the close of business on March 9, 1998, at the Annual Meeting of
Shareholders to be held on May 18, 1998 at 1:00 p.m. (local time), and at any
adjournment thereof, with all the powers the undersigned would have if
personally present, as set forth on the reverse side.
This Proxy may also reflect shares held by employees or former employees of
Guidant Corporation in The Guidant Employee Savings and Stock Ownership Plan
("ESSOP") or The Guidant Corporation Employee Stock Ownership Plan for Puerto
Rico Affiliates ("ESOP"). With respect to those shares, if any, the undersigned
hereby directs the trustee under the ESSOP or ESOP, as applicable, to vote the
number of shares credited to the undersigned's account as set forth on the
reverse side.
Change of Address:
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
(IF YOU HAVE WRITTEN IN THE ABOVE
SPACE, PLEASE MARK THE
CORRESPONDING BOX ON THE REVERSE
SIDE OF THIS CARD.)
---------------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
---------------
<PAGE>
[X] Please mark your
votes as in this example.
If this Proxy is properly executed and returned, the shares represented thereby
will be voted in the manner directed by the undersigned shareholder. If no
direction is made, this Proxy will be voted FOR Proposals 1, 2, 3 and 4.
The Board of Directors recommends a vote FOR each of the following:
FOR WITHHELD Nominees:
1. Election of [_] [_] 1. K. B. Clark
Directors. 2. M. A. Cox
3. R. W. Dollens
4. E. C. Falla
FOR, except vote withheld from the following nominee(s):
--------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided above.
FOR AGAINST ABSTAIN
2. Approval of the [_] [_] [_]
Guidant Corporation
1998 Stock Plan.
FOR AGAINST ABSTAIN
3. Approval of the [_] [_] [_]
Amendment to the
Amended and Restated
Articles of Incorporation
FOR AGAINST ABSTAIN
4. Ratification of the [_] [_] [_]
appointment by the Board of
Directors of Ernst & Young LLP
as independent auditors
for 1998.
5. In their discretion, upon such other matters as may properly come before the
meeting, all in accordance with the accompanying Notice and Proxy Statement.
If you would like us to change your address on our records, please [_]
check this box and indicate your new address in the space provided
on the other side of this card.
If you plan to attend the meeting, please check this box and return [_]
the enclosed Request for Admittance Card.
----------------------------------------------------------------------
Signature(s) Date
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing in a representative capacity, please give full
title. Your signature serves as acknowledgment of receipt of the
accompanying Notice and Proxy Statement.
