<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number 1-13388
- ------------------------------------------- ------------------------------
GUIDANT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
111 MONUMENT CIRCLE
29TH FLOOR
INDIANA 35-1931722 INDIANAPOLIS, INDIANA 46204
<S> <C> <C> <C>
(State or other jurisdiction of (IRS Employer (Address of principal (Zip Code)
incorporation or organization) Identification No.) executive offices)
</TABLE>
Registrant's telephone number, including area code: 317-971-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock New York Stock Exchange
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock of the registrant held by non-
affiliates as of March 1, 1999 (Common Stock) was approximately $16.8 billion.
The number of shares of Common Stock outstanding as of March 1, 1999:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES OUTSTANDING
<S> <C>
Common 301,861,099
</TABLE>
Portions of the following documents have been incorporated by reference into
this report:
<TABLE>
<CAPTION>
DOCUMENT PARTS INTO WHICH INCORPORATED
<S> <C>
Registrant's Annual Report to Shareholders Parts I, II and IV
for fiscal year ended December 31, 1998
Registrant's Proxy Statement for the Annual Part III
Meeting of Shareholders to be held May 17, 1999
</TABLE>
<PAGE>
Part I
Item 1. BUSINESS
Overview
Guidant Corporation (the "Company")* was incorporated in Indiana on
September 9, 1994 to be the parent of five of the nine businesses in the Medical
Devices and Diagnostics ("MDD") Division of Eli Lilly and Company ("Lilly").
Prior to the consummation of the initial public offering of the Company's common
stock on December 20, 1994 (the "Offering"), the Company was a wholly-owned
subsidiary of Lilly. Pursuant to the Offering, 19.8 percent of the Company's
common stock was issued to the public. Lilly continued to own 80.2 percent of
the Company's common stock after the Offering. On September 25, 1995, Lilly
disposed of its remaining ownership interest in the Company by means of a tax-
free split-off, an exchange offer pursuant to which Lilly shareholders were
given the opportunity to exchange some, all or none of their Lilly common stock
for the Company's common stock owned by Lilly (the "Exchange Offer"). The
consummation of the Exchange Offer resulted in Lilly distributing all of its
Company common stock to Lilly shareholders. As a result, Lilly no longer owns
any Company common stock.
The Company is a multinational company that designs, develops, manufactures
and markets a broad range of innovative, high quality, therapeutic medical
devices for use in cardiac rhythm management ("CRM"), vascular intervention
("VI"), and cardiac and vascular surgery ("CVS"). In CRM, the Company is a
worldwide leader in automatic implantable cardioverter defibrillator ("AICD")
systems used in the detection and treatment of abnormally fast heart rhythms.
The Company also designs, manufactures and markets a full line of implantable
pacemaker systems used in the treatment of slow or irregular heart rhythms. On
February 1, 1999, the Company acquired Intermedics, Inc. the electrophysiology
business of Sulzer Medica for an aggregate cost of approximately $810 million.
This includes $200 million required to settle the Company's intellectual
property litigation with Intermedics, payable regardless of the consummation of
the acquisition. Intermedics is a global leader in the design, development,
manufacture and distribution of pacemakers and pacemaker leads, with 1998
revenues of approximately $305 million. The Company believes this acquisition
will nearly double its share of the worldwide market for pacemakers, solidifying
it as a leading pacemaker company. The Company also believes the acquisition of
Intermedics will significantly increase the Company's sales presence with
cardiologists, which will benefit the Company in its direct sale of pacemakers.
Also, Intermedics has an intellectual property portfolio which the Company
believes will further strengthen its existing position in intellectual property
in the cardiac rhythm management area. In VI, the Company is a worldwide leader
in minimally invasive devices, such as coronary stent systems and balloon
dilatation catheters used for opening blocked coronary arteries. In November
1998, the Company received FDA approval to market the ACS MULTI-LINK DUET
Coronary Stent System ("DUET") in the U.S. This stent provides enhanced
visibility, greater deliverability, lower profiles, and a wider range of sizes.
As of about December 1998, the DUET was the top selling stent in Europe and the
United States. In CVS, the Company develops, manufactures and markets products
for use in minimally invasive cardiac and vascular surgery. The Company's net
sales for the year ended December 31, 1998 were $1,897 million.
The Company's business strategy is to design, develop, manufacture and
market innovative, high quality therapeutic products principally for use in
treating cardiovascular disease, the leading cause of death in the United
States, resulting in improved quality of patient care and reduced treatment
costs. In implementing this strategy, the Company focuses on the following three
areas, which the Company believes are critical to its future success: (1) global
product innovation, (2) economic partnerships with customers worldwide, and (3)
organizational excellence.
- ----------------
* The terms, "Company," "Guidant," and "Registrant" are used interchangeably
herein to refer to Guidant Corporation or to Guidant Corporation and its
consolidated subsidiaries, as the context requires.
2
<PAGE>
The Company will continue to pursue a strategy that includes the potential
acquisition of businesses in the medical device industry. The Company plans to
acquire technologies that are complementary to its existing technology base,
products that serve the Company's existing customer base and businesses that
expand its geographical presence. However, the Company cannot assure you that
any acquisition will be consummated or, if consummated, when it will be
consummated and what the terms of the acquisition will be.
Cardiac Rhythm Management
In the CRM market, implantable device systems are used to detect and treat
abnormally fast, abnormally slow or irregular heart rhythms or arrhythmias. The
Company's CRM product line is organized into two major product categories:
tachycardia ("Tachy") and bradycardia ("Brady"). The Tachy product category
includes AICDs, endocardial defibrillation leads, programmers and accessories
used primarily in the treatment of abnormally fast arrhythmias. The Brady
product category includes pacemaker pulse generators, endocardial pacing leads,
programmers and accessories used primarily in the treatment of slow or irregular
arrhythmias. Customers for Brady products include electrophysiologists,
implanting cardiologists and cardiovascular surgeons. Customers for Tachy
products are primarily electrophysiologists. Sales of the Company's CRM
products, as a percentage of the Company's total consolidated net sales for the
years ended December 31, 1998, 1997 and 1996, were 43%, 50% and 55%,
respectively.
Tachy
AICD systems, or Tachy products, are used to detect and treat potentially
fatal, abnormally fast heart rhythms by delivering electrical energy to the
heart and, in so doing, restoring the heart's normal rhythm. Tachyarrhythmias
often result from the presence of abnormal cardiac tissue which interferes with
the normal electrical activity of the heart.
The Company's Tachy products offer multiple therapeutic options (tiered-
therapy). Tiered-therapy devices use a staged process for treating multiple
arrhythmias by first providing lower intensity pacing pulses, or antitachycardia
pacing, to the patient in an attempt to correct the abnormal rhythm. If
antitachycardia pacing is unsuccessful or if the arrhythmia requires more
aggressive therapy, then the device can progress to low or high energy shocks.
Brady
Cardiac pacemaker systems, or Brady products, are generally used to manage
a slow or irregular heartbeat caused by disorders that disrupt the heart's
normal electrical conduction system. This often results in a heart rate
insufficient to provide adequate blood flow through the body, creating symptoms
including fatigue, dizziness and fainting. Brady products range from
conventional single chamber devices to more sophisticated adaptive-rate dual
chamber devices.
Brady products are used to treat patients whose natural pacemaker, the
sinus node, is malfunctioning, or patients suffering from a disruption in the
electrical conduction system. Normally, the sinus node, located in the upper
atrial portion of the heart, sends electrical signals through the atrium to the
atrioventricular ("AV") node, which in turn sends signals down to the lower
(ventricular) chambers of the heart. The patient population needing pacemakers
can be divided roughly in half: those with malfunctioning sinus nodes, or Sick
Sinus Syndrome, and those suffering from malfunctioning AV nodes, or AV Block.
3
<PAGE>
On February 1, 1999, the Company purchased Intermedics, Inc. the
electrophysiology business of Sulzer Medica, Ltd. for an aggregate cost of
approximately $810 million. This includes $200 million required to settle the
Company's intellectual property litigation with Intermedics, payable regardless
of the consummation of the acquisition. Intermedics is a global leader in the
design, development, manufacture and distribution of pacemakers and pacemaker
leads, with 1998 revenues of approximately $305 million. The Company believes
this acquisition will nearly double its share of the worldwide market for
pacemakers, solidifying it as a leading pacemaker company. The Company believes
the acquisition of Intermedics will also significantly increase the Company's
sales presence with cardiologists, which will benefit the Company in its direct
sale of pacemakers. Intermedics also has an intellectual property portfolio
which the Company believes will further strengthen its existing position in
intellectual property in the cardiac rhythm management area.
In September 1998, the Company acquired InControl, Inc., a pioneer in the
development of devices for the treatment of atrial arrhythmias, for $137.5
million in cash. The acquisition was accounted for under the purchase method of
accounting and resulted in a pre-tax charge of $90 million, which represented
the appraised value of in-process research and development. This charge reflects
the unproven status of this technology. The Company must complete research and
testing related to this innovative technology and obtain FDA approval to market
any resulting product.
Vascular Intervention
The Company offers its customers a wide range of VI products, including
stent systems, coronary dilatation catheters, guide wires, guiding catheters,
atherectomy catheters and related accessories. Customers for VI products are
primarily interventional cardiologists. Sales of VI products, as a percentage of
the Company's total consolidated net sales for the years ended December 31,
1998, 1997 and 1996 were 53%, 45% and 40%, respectively.
More than six million Americans have been diagnosed with coronary artery
disease ("CAD"), which is the formation of blood flow restrictions
(atherosclerotic lesions) within the coronary arteries. If untreated, CAD can
lead to a heart attack, or cause chest pain that may interfere with normal
activities. Worldwide, over one million patients annually undergo minimally
invasive CAD interventions (angioplasty, stenting, atherectomy or mechanical or
laser ablation), which are less invasive and less expensive alternatives to
coronary artery bypass graft surgery.
In a percutaneous transluminal coronary angioplasty ("PTCA") procedure, a
local anesthetic is administered and a small incision is made in the patient's
groin area to gain access to the femoral artery. The physician inserts a guiding
catheter through the femoral artery into the entrance of the coronary blood
vessel and then advances a small guide wire through the inside of the guiding
catheter, into the blood vessel and across the site of the blockage. Then a
dilatation catheter is delivered over the guide wire through the inside of the
guiding catheter into the blood vessel and across the site of the blockage. The
dilatation catheter is then inflated to compress the atherosclerotic plaque
against the artery wall, thereby enlarging the opening of the vessel and
increasing blood flow to the heart. At the end of the PTCA procedure, all of the
devices are withdrawn.
The major clinical challenge to PTCA is clinical restenosis, the
renarrowing of the blood vessel at the site of the initial treatment, generally
requiring another intervention within six months of the initial procedure. A
number of other technologies have evolved to reduce the occurrence of this
condition, often in combination with a coronary dilatation catheter, including
stenting, atherectomy and ablation. Like coronary dilatation catheters, coronary
stents, atherectomy catheters and ablation catheters are delivered through a
guiding catheter and over a guide wire.
4
<PAGE>
Coronary stents are metal tubes or coils that are mounted on coronary
dilatation catheters. Coronary stents are permanently deployed at the blockage
by inflating the coronary dilatation catheter to expand the stent in the artery.
When the coronary dilatation catheter is removed from the artery, the stent
stays in place, which provides a "mechanical" way of keeping the artery open. In
October 1997, the Company received approval to market the ACS RX MULTI-LINK
Coronary Stent System in the United States and in November, 1998 the Company
received approval to market the ACS MULTI-LINK DUET Coronary Stent System in the
United States.
Atherectomy is the excision and removal of blockages by catheters with
miniature cutting systems. Ablation is the mechanical or laser reduction of
blockages without the removal of the tissue.
In May 1997, the Company acquired the assets of Neocardia, LLC.
("Neocardia"), a privately held development-stage company for an initial price
of $57.4 million. On April 27, 1998, the conditions which required the payment
of additional consideration for the asset acquisition of NeoCardia were met and
the Company paid $28.7 million which represents additional purchase price. The
Company could also pay subsequent additional bonus and royalty payments
contingent upon achieving certain product development and sales goals. These
additional payments are accounted for as goodwill. Neocardia, which currently
does not have any products available for commercial sale, has pioneered the use
of radiation therapy to reduce the occurrence of restenosis. Although the
Company has clinical studies ongoing in this area radiation technology is still
in the development stage and no assurance can be given that the Company will
obtain the regulatory approvals necessary for commercial marketing.
Cardiac and Vascular Surgery
The Company is involved in the development and marketing of innovative
surgical devices and systems which alter the surgeon's approach to surgical
procedures and may provide improved clinical benefit, reduced procedure time and
better patient outcomes. In May 1996, the Company announced that the strategic
focus for its minimally invasive surgery business would be on cardiovascular
applications and, in December 1997, the business group was renamed the Cardiac
and Vascular Surgery Group. The primary customers for the Company's CVS products
are cardiac and vascular surgeons, and general surgeons. Sales of the Company's
CVS products, as a percentage of the Company's total consolidated net sales for
the years ended December 31, 1998, 1997 and 1996, were 4%, 5% and 5%,
respectively. These percentages include other minimally invasive surgery
products sold by the Company with a focus on laparoscopic market opportunities
in the field of general surgery. Certain of these devices were developed for and
manufactured under original equipment manufacturer (OEM) distribution
arrangements.
In December 1997, the Company completed its acquisition of EndoVascular
Technologies, Inc. ("EVT"). EVT designs, develops and manufactures minimally
invasive systems to repair diseased or damaged vascular structures. EVT is
currently developing a product, the ANCURE system, to provide catheter-based
delivery and implantation of a specialized vascular prosthesis to repair
abdominal aortic aneurysms which would represent a less invasive alternative to
the open surgical procedure performed today. The ANCURE system is approved for
marketing in Europe and Australia and has completed Phase II clinical trials in
the United States. However, no assurance can be given that the Company will
obtain the regulatory approvals necessary for commercial marketing in the United
States.
The Company believes that CVS product systems may significantly decrease
the patient's postoperative pain, hospital stay and recovery period by reducing
the resulting trauma caused by more invasive surgical techniques.
On June 4, 1996, General Surgical Innovations, Inc. ("GSI") filed suit
against the Company's Origin Medsystems, Inc. ("Origin") subsidiary alleging
that the VASOVIEW Balloon Dissection System and Preperitoneal Distention Balloon
Systems infringe a patent owned by GSI. On February 8, 1999, the jury in this
5
<PAGE>
case returned a verdict that Origin infringed GSI's patent that covers the
VASOVIEW and these general surgery products and found that Origin should pay
$12.9 million in damages to GSI. The jury also found certain claims of the
patent to have been willfully infringed which could result in up to a trebling
of the damage award and entitle GSI to its attorney fees. GSI is also seeking
injunctive relief and a hearing relating to the injunction was held on March 2,
1999. While Origin may appeal the decision once a judgment is entered and post-
trial matters have been resolved, an additional charge to reported income of
approximately $9 million has been recognized for the year ended December 31,
1998 to provide for this potential loss.
As a result of this decision and due to management's strategic redirection
of this business to cardiovascular applications announced in 1997, the Company
also reassessed the recoverability of its general surgery assets using a
discounted cash flow analysis performed in accordance with generally accepted
accounting principles. The Company's revised analysis indicated that a reduced
level of future cash flows was likely and that a non-cash impairment charge of
$40 million became necessary which was taken for the year ended 1998.
Products
Tachy Products
The Company offers a broad array of Tachy products, including complex
devices and systems offering multiple therapeutic options as set forth in the
following chart:
<TABLE>
<CAPTION>
Category Description Product Name Date of Commercial Release
- -------- ----------- ------------ --------------------------
First
U.S. International
Release Release
------- -------------
<S> <C> <C> <C> <C>
Tiered- AICDs that provide VENTAK MINI IV Dec. 1998 Dec. 1998
Therapy low and high energy VENTAK MINI III HE Dec. 1998 Dec. 1998
shock therapy, Brady VENTAK AV III DR Sept. 1998 Oct. 1998
pacing and VENTAK AV II DR March 1998 Sept. 1997
antitachycardia VENTAK MINI III Jan. 1998 Oct. 1997
pacing. VENTAK AV II DDD Dec. 1997 Sept. 1997
VENTAK AV DDD July 1997 Nov. 1996
VENTAK MINI II+ July 1996 June 1996
VENTAK MINI II July 1996 June 1996
VENTAK MINI+HC May 1996 Dec. 1995
VENTAK MINI HC May 1996 Dec. 1995
VENTAK MINI + Jan. 1996 Dec. 1995
VENTAK MINI Jan. 1996 Dec. 1995
Endocardial Insulated wires ENDURANCE EZ (1) Nov. 1998
Defibrillation inserted through a ENDURANCE RX (1) Apr. 1998
Leads vein into the heart, ENDURANCE Sept. 1998 Feb. 1998
which allow energy to ENDOTAK DSP Jan. 1996 Oct. 1994
be transmitted to ENDOTAK 70 Series Aug. 1994 Nov. 1992
and from the implanted
AICD, allowing arrhythmias
to be detected and treated.
</TABLE>
- -------------------
(1) This product is not currently available in the United States. There can be
no assurance that the Company will obtain the regulatory approval necessary
for commercial marketing of this product in the United States.
6
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Brady Products
The Company offers a broad array of Brady products ranging from
conventional single chamber devices to more sophisticated adaptive-rate, dual
chamber devices as set forth in the following chart:
<TABLE>
<CAPTION>
Category Description Product Name Date of Commercial Release
- -------- ----------- ------------ --------------------------
First
U.S. International
Release Release
------- -------------
<S> <C> <C> <C> <C>
Single Pacemakers that pace PULSAR SSI (1) March 1998
Chamber (SSI) one chamber of the MERIDIAN SSI May 1998 March 1998
heart, typically the VIGOR SSI March 1995 May 1993
ventricle, at a VISTA VVI Apr. 1988 Dec. 1987
programmed rate.
Single Pacemakers that pace PULSAR MAX SP (1) Oct. 1998
Chamber one chamber of the PULSAR SR (1) March 1998
Adaptive-Rate heart, and incorporate DISCOVERY SR May 1998 March 1998
(SSIR) a sensor that modifies MERIDIAN SR May 1998 March 1998
the pacing rate in VIGOR SR June 1995 May 1993
response to physical
activity.
Dual Chamber Pacemakers that pace PULSAR DDD (1) March 1998
(DDD) both chambers of the MERIDIAN DDD May 1998 March 1998
heart, thereby VIGOR DDD Oct. 1994 May 1993
improving heart VISTA DDD June 1990 Oct. 1989
synchronization and
cardiac output.
Dual Chamber Pacemakers that PULSAR MAX DR (1) Oct. 1998
Adaptive-Rate pace both chambers PULSAR DR (1) March 1998
(DDDR) of the heart, and DISCOVERY DR May 1998 March 1998
incorporate a sensor MERIDIAN DR May 1998 March 1998
that modifies the VIGOR DR June 1995 May 1993
pacing rate in
response to physical
activity.
Endocardial Insulated wires, SELUTE PICOTIP (1) Oct. 1998
Pacemaker inserted through a ATRIAL
Leads vein into the heart, SWEET PICO RX (1) May 1998
which allow energy SELUTE PICOTIP April 1998 Sept. 1997
to be transmitted to SWEET TIP RX Oct. 1998 June 1997
and from the SELUTE ATRIAL (1) Oct. 1996
implanted pacemaker. SELUTE May 1996 Dec. 1994
SELUTE ATRIAL (1) June 1996
SWEET TIP RX (1) June 1996
</TABLE>
(1) This product is not currently available in the United States. There can be
no assurance that the Company will obtain the regulatory approval necessary for
commercial marketing of this product in the United States.
On February 1, 1999, the Company completed the acquisition of Intermedics. Based
in Angelton, Texas, Intermedics is a leading manufacturer and distributor of
bradycardia pacemakers worldwide. Intermedics also manufactures ICDs, leads, and
other electrophysiology products, including cardiac ablation catheters.
Intermedics offers its products to electrophysiologists, cardiovascular
surgeons, cardiologists and institutional buyers, including community hospitals.
Intermedics has one of the strongest brand names in the bradycardia pacemaker
industry and sells its pacemakers through a large network of independent
distributors, who cover more than 80 countries. Intermedics products include
dual-chamber pacemakers such as the Cosmos 3, dual-chamber, rate-responsive
pacemakers such as the Relay, Marathon DR and Momentum DR, single-chamber rate-
responsive pacemakers such as Dash and Marathon SR, and single-chamber rate-
responsive pacemakers such as the Unity-C and the Unity.
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Vascular Intervention Products
The Company offers its customers a wide range of VI products, including
coronary dilatation catheters, coronary stents, atherectomy catheters, guide
wires and accessories as well as products for peripheral vascular application as
set forth in the following chart:
<TABLE>
<CAPTION>
Date of U.S.
Commercial
Category Description Product Name Release
- -------- ----------- ------------ ------------
<S> <C> <C> <C>
CORONARY:
Stents Stents are ACS MULTI-LINK OTW DUET Nov. 1998
implantable metal ACS MULTI-LINK RX DUET Nov. 1998
devices that are ACS OTW MULTI-LINK HP April 1998
permanently ACS OTW MULTI-LINK April 1998
deployed to provide ACS RX MULTI-LINK HP Feb. 1998
a "mechanical" way ACS RX MULTI-LINK Oct. 1997
to keep an artery
open.
Rapid Exchange RX coronary ACS RX GEMINI Jan. 1999
("RX") dilatation catheters ACS RX SOLARIS Nov. 1998
Coronary allow for easy exchange ACS RX ROCKET Nov. 1997
Dilatation of the catheter ACS RX COMET VP Feb. 1997
Catheter without removing the ACS RX COMET Nov. 1996
original guide wire. RX ELIPSE Oct. 1993
Perfusion Perfusion coronary ACS RX ESPRIT Apr. 1998
Coronary dilatation catheters ACS OTW LIFESTREAM Dec. 1995
Dilatation allow continuous ACS RX LIFESTREAM Mar. 1995
Catheter blood flow during ACS RX FLOWTRACK Mar. 1993
the PTCA procedure, ACS RX PERFUSION Dec. 1990
offering flexibility
in inflation times.
Perfusion catheters
are available in RX
and OTW configurations.
Over-the-Wire OTW coronary dilatation ACS AVENGER April 1998
("OTW") catheters are ACS Tx2000 VP April 1997
Coronary delivered over a ACS Tx2000 Nov. 1996
Dilatation separate guide wire to
Catheter position the balloon
across the lesion.
Atherectomy Catheters which ATHEROCATH-BANTAM Dec. 1996
Products allow for the ATHEROCATH-GTO Sept. 1994
excision and removal ATHEROCATH SCA-EX Sept. 1992
of atherosclerotic
plaque.
</TABLE>
8
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Vascular Intervention Products (continued)
<TABLE>
<CAPTION>
Date of U.S.
Commercial
Category Description Product Name Release
- -------- ----------- ------------ -------
<S> <C> <C> <C>
Guide wires Individual ACS HI-TORQUE BALANCE Nov. 1998
guide wires are HEAVYWEIGHT
inserted through ACS HI-TORQUE CROSS-IT Sept. 1998
coronary and ACS HI-TORQUE ALL STAR Sept. 1997
peripheral vessels ACS HI-TORQUE BALANCE
facilitating the MIDDLEWEIGHT Aug. 1997
subsequent placement ACS HI-TORQUE IRON MAN Feb. 1997
of the dilatation HI-TORQUE BALANCE Oct. 1994
catheter or ACS HI-TORQUE EXTRA S'PORT Sept. 1994
atherectomy HI-TORQUE EXTRA SUPPORT Feb. 1992
catheter. HI-TORQUE TRAVERSE Nov. 1991
DOC Feb. 1988
HI-TORQUE FLOPPY II June 1986
Accessories Accessories are ACS VIKING Nov. 1997
products that INDEFLATOR 20/30 Sept. 1996
facilitate the delivery ACS ANCHOR Apr. 1996
or operation of a TOURGUIDE Dec. 1995
device. INDEFLATOR 20/20 March 1990
PERIPHERAL:
Stents See above. MEGALINK March 1999
Guide Wires See above. SUPRACORE July 1998
Accessories See above. EZPATH GUIDING CATHETER May 1998
</TABLE>
9
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CVS Products
The Company markets the VASOVIEW balloon dissection system for minimally
invasive access to, and removal of, the saphenous vein as of February, 1999. The
saphenous vein is used in coronary artery bypass graft surgery ("CABG").
However, as a result of a jury verdict on February 8, 1999 in the GSI
litigation, GSI is seeking an injunction against future sales by the Company of
this product. (See Item 3 LEGAL AND REGULATORY PROCEEDINGS.) The Company also
markets a cardiac stabilizer which enables immobilization of the anastomotic
site on a beating heart during CABG procedures. In addition, as a result of the
Company's acquisition of EVT, the Company markets the ANCURE system in Europe
and Australia. The ANCURE system is a catheter-based product that delivers and
implants a specialized vascular prosthesis to repair abdominal aortic aneurysms.
The Company also markets a number of other minimally invasive surgery products
for access, retraction and fixation, focusing on laparoscopic market
opportunities in general surgery. These products include the ORIGIN TACKER
fixation device.
Sales and Marketing
The Company has a broad product line which requires a sales and marketing
strategy that is tailored to its customers in order to deliver high quality,
cost-effective products and services to all of its customer segments worldwide.
Because of the diverse needs of the global market that the Company serves, the
Company's distribution system includes a direct sales force and independent
distributors. The Company utilizes separate sales forces to sell its CRM, VI and
CVS products in order to take advantage of specific clinical and technical
expertise. In many cases, members of the sales force are present during
procedures in order to provide technical consultation to the physician in the
use of the Company's products. Management believes the purchase of Intermedics
will add significantly to both the Company's direct sales force and independent
distributors of Brady products. The addition of Intermedics' experienced sales
force and their valuable relationships should bolster the Company's overall
worldwide pacemaker sales. The Company estimates only 3 to 4% of its pacemaker
sales are to Intermedics top 100 accounts and approximately 60% of Intermedics'
sales are to accounts with whom the Company does little, if any, business. The
Company is not dependent on any single customer and no single customer accounted
for more than 5% of the Company's net sales in 1998.
Sales personnel work closely with the primary decision makers who purchase
the Company's products, whether physicians, material managers, biomedical staff,
hospital administrators or purchasing managers. Additionally, the sales force
actively pursues approval of the Company as a qualified supplier for hospital
group purchasing organizations that negotiate contracts with suppliers of
medical products. The Company already has contracts with a number of national
buying groups and is working with a growing number of regional buying groups
that are emerging in response to cost containment pressures and health care
reform. In addition, the Company has contracted with a number of hospitals to
provide products under a predictable procedural cost program.
United States
In the United States, the Company sells substantially all of its products
through its direct sales force. The different uses of the Company's product
lines and the different physicians performing the corresponding procedures
necessitate focused sales organizations that can utilize their specific clinical
and technical knowledge. In 1998, 73% of the Company's consolidated net sales
were derived from sales to customers in the United States.
The Company's direct sales operations for its CRM and VI products are
divided into three geographic areas within the United States, under a single
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management structure to which all sales operations report. The Company believes
this geographic organizational structure provides the opportunity to leverage
the Company's resources across the individual business unit sales organizations
by facilitating rapid decision making and development of sales and marketing
strategies at the customer level, while retaining its clinical focus.
International
In 1998, 27% of the Company's net sales were derived from its international
operations through its direct sales force and independent distributors. The
Company sells its products in over 100 countries. Major international markets
for the Company's products include: Japan, Germany, France, Spain, Italy, the
United Kingdom, Australia, Belgium, The Netherlands, and Canada. The sales and
marketing approach in international markets varies depending on market size and
stage of development. The Company believes that its geographic-based sales
organization gives the Company greater flexibility in responding to each of
these markets.
Manufacturing
The Company's manufacturing operations are carried out in facilities in
Menlo Park, Santa Clara and Temecula, California; St. Paul, Minnesota; and
Dorado, Puerto Rico. Additionally, in July 1998, the Company purchased an
existing 155,000 square foot, high-tech manufacturing facility in Clonmel,
Ireland. It is expected that the Company will begin manufacturing at this site
in the third quarter of 1999.
In general, the Company's production activities occur in a controlled
environment setting or "cleanroom." Such a manufacturing environment helps
ensure that products meet all cleanliness standards and requirements. In
addition, manufacturing employees are trained in the necessary production
operations, the Quality System Regulation requirements (regulations adopted by
the United States Food and Drug Administration ("FDA") in October, 1996 which
replace the requirements previously known as Good Manufacturing Practices) and
ISO 9001 and EN46001 international quality system standards applicable to the
production process. The Company uses various production and quality performance
measures to provide high manufacturing quality and efficiency.
The Company vertically integrates its operations where it believes such
integration provides significant cost, supply or quality benefits. In some
areas, the Company is highly vertically integrated. In other cases, the Company
purchases components. In all cases, the Company attempts to work closely with
its suppliers to ensure the cost-effective delivery of high quality materials
and components. The Company's major considerations used in the selection and
retention of suppliers are supplier technology, quality, reliability, consistent
on-time deliveries, value-added services and cost. The Company tries to select
and build long-term relationships with suppliers who have demonstrated a
commitment to these factors. To date, the Company has been able to obtain all
required components and materials for all market released products and for all
products under development.
Raw Materials
The Company purchases certain of the materials and components used in
manufacturing its products, some of which are custom-made for the Company. In
addition, the Company purchases certain supplies from single sources due to
quality considerations, costs or constraints resulting from regulatory
requirements. In the past, certain suppliers have announced that, in an effort
to reduce potential product liability exposure, they intend to limit or
terminate sales to the medical device industry. In addition, agreements with
certain suppliers can be terminated by either party upon short notice. The
Company has agreed to indemnify certain suppliers against certain potential
product liability
11
<PAGE>
exposure. The establishment of additional or replacement suppliers for certain
components or materials cannot be accomplished quickly, largely due to the FDA
approval system and the complex nature of manufacturing processes employed by
many suppliers. Enactment of the Biomaterials Access Assurance Act of 1998, by
addressing the inequities in United States tort law, is expected to help ensure
a continued supply of raw materials and component parts essential to the
manufacture of Company products. It is not possible to assess the impact this
new law will have on the continued availability of raw materials, and the
inability to develop satisfactory alternatives, if required, or a reduction or
interruption in supply or a significant increase in the price of materials or
components, could have a material adverse effect on the Company.
Patents, Trademarks, Proprietary Rights and Licenses
The Company believes that patents and other proprietary rights are
important to its business. The Company also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. The Company reviews third-party patents and
patent applications in an effort to develop an effective patent strategy,
identify licensing opportunities and monitor the patent claims of others.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. From time to time,
the Company is subject to claims of, and legal actions alleging, infringement by
the Company of the patent rights of others. The Company believes that it has
been vigilant in reviewing the patents of others with regard to the Company's
products. However, an adverse outcome with respect to any one or more of these
claims or actions could have a material adverse effect on the Company.
The Company owns numerous patents and has numerous patent applications
pending in the United States and in certain foreign countries which relate to
aspects of the technology used in many of the Company's products. The Company's
policy is generally to file patent applications in the United States and foreign
countries where rights are available and the Company believes it is commercially
advantageous to do so. In addition, the Company is a party to several license
agreements with unrelated third parties pursuant to which it has obtained, for
varying terms, the exclusive or non-exclusive rights to certain patents held by
such third parties in consideration for cross-licensing rights or royalty
payments. The Company has also granted various rights in its own patents to
others under license agreements. There can be no assurance that pending patent
applications will result in issued patents, that patents issued to or licensed
by the Company will not be challenged or circumvented by competitors, that such
patents will not be found to be invalid or that such patents will be found to be
sufficiently broad to protect the Company's technology or provide the Company
with a competitive advantage.
The Company actively monitors the products of its competitors for possible
infringement of the Company's owned and/or licensed patents. Historically,
litigation has been necessary to enforce certain patent rights held by the
Company and the Company plans to continue to defend and prosecute its rights
with respect to such patents. There can be no assurance, however, that the
Company's efforts in this regard will be successful. In addition, patent
litigation could result in substantial cost to and diversion of effort by the
Company. The Company also relies upon trade secrets for protection of its
confidential and proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
or techniques or that third parties will not otherwise gain access to the
Company's trade secrets.
It is the Company's policy to require certain of its employees, consultants
and other parties to execute confidentiality and invention assignment agreements
upon the commencement of employment or consulting relationships with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection against, or adequate remedies for, the unauthorized use or
disclosure
12
<PAGE>
of the Company's trade secrets.
The Company has the following registered trademarks that are referred to
herein: ACS, ACS EDGE, ACS MULTI-LINK, ACS RX COMET, ACS RX LIFESTREAM, AICD,
ATHEROCATH, ATHEROCATH-GTO, CPI, DOC, ENDOTAK, ENDOTAK DSP, EXCEL, HI-TORQUE
BALANCE, HI-TORQUE FLOPPY II, HI-TORQUE TRAVERSE, INDEFLATOR, ORIGIN, PRx, RX
ELIPSE, SELUTE, SLALOM PLUS, VENTAK, VIGOR and VISTA. The following are
trademarks of the Company: ACS ANCHOR, ACS AVENGER, ACS HI-TORQUE ALL STAR, ACS
HI-TORQUE BALANCE MIDDLEWEIGHT, ACS HI-TORQUE EXTRA S'PORT, ACS HI-TORQUE IRON
MAN, ACS MULTI-LINK DUET, ACS MULTI-LINK RX DUET, ACS OTW LIFESTREAM, ACS OTW
MULTI-LINK, ACS RX MULTI-LINK , ACS RX MULTI-LINK HP, ACS RX FLOWTRACK, ACS RX
PERFUSION, ACS RX ROCKET, ACS Tx 2000, ACS Tx 2000 VP, ACS VIKING, ANCURE,
ATHEROCATH-BANTAM, INDEFLATOR PLUS 20, 20/30 INDEFLATOR, ORIGIN TACKER, SCA-EX,
SWEET TIP RX, TOURGUIDE, VASOVIEW, VENTAK AV and VENTAK MINI.
Competition
The medical devices industry is highly competitive. The Company competes
with many companies, some of which may have access to greater financial and
other resources than the Company. Furthermore, the medical devices industry is
characterized by rapid product development and technological change. The present
or future products of the Company could be rendered obsolete or uneconomical by
technological advances by one or more of the Company's present or future
competitors or by other therapies such as drugs. The Company must continue to
develop and acquire new products and technologies to remain competitive with
other developers of medical devices and therapies.
The Company faces substantial competition from a number of companies in the
markets for its products. The Company's primary competitors in CRM are
Medtronic, Inc. ("Medtronic") and St. Jude Medical, Inc. ("St. Jude"). The
Company's primary competitors in VI are Boston Scientific Corporation ("BSC"),
Johnson & Johnson ("J&J"), Arterial Vascular Engineering, Inc. ("AVE") and
Medtronic (which recently acquired AVE). With respect to CVS devices, the
principal competitors of the Company are United States Surgical Corporation,
J&J, Medtronic and BSC. The Company believes that it competes primarily on the
basis of product features, product quality, customer support, field services and
cost-effectiveness.
Government Regulation
As a manufacturer of medical devices, the Company is subject to extensive
regulation by the FDA and, in some jurisdictions, by state and foreign
governmental authorities. These regulations govern the introduction of new
medical devices, the observance of certain standards with respect to the design,
manufacture, testing, labeling and promotion of such devices, the maintenance of
certain records, the ability to track devices, the reporting of potential
product defects, the export of devices and other matters. The Company believes
that it is in substantial compliance with these governmental regulations.
From time to time, the Company has received notifications from the FDA or
other authorities of alleged deficiencies in the Company's compliance with
applicable regulatory requirements. These include FDA warning letters and
adverse inspection reports. To date, the Company has been able to address or
correct such deficiencies to the satisfaction of the FDA or other authorities
and, to the extent deficiencies arise in the future, the Company expects to be
able to so correct them, but there can be no assurance that this will be the
case. In addition, from time to time, the Company has recalled, or issued safety
alerts or advisory notices on, certain of its products. To date, no such recall
or safety alert has had a material adverse effect on the Company, but there can
be no assurance that a future recall or safety alert would not have such an
effect.
The Company's medical devices introduced in the United States market are
required by the FDA, as a condition of marketing, to secure a premarket
notification clearance pursuant to Section 510(k) of the federal Food, Drug and
13
<PAGE>
Cosmetic Act, an approved pre-market approval ("PMA") application or a
supplemental PMA. Alternatively, the Company may seek United States market
clearance through a Product Development Protocol approved by the FDA.
Establishing and completing a Product Development Protocol, or obtaining a PMA
or supplemental PMA, can take up to several years and can involve preclinical
studies and clinical testing. In order to perform clinical testing in the United
States on an unapproved product, the Company is also required to obtain an
investigational device exemption from the FDA. In addition to requiring
clearance for new products, FDA rules may require a filing and FDA approval,
usually through a PMA supplement or a 510(k) pre-market notification clearance,
prior to marketing products that are modifications of existing products.
While the FDA Modernization Act of 1997, when fully implemented, is
expected to inject more predictability into the product review process,
streamline post-market surveillance, and promote the global harmonization of
regulatory procedures, the process of obtaining such clearances can be onerous
and costly. There can be no assurance that all the necessary approvals,
including approval for product improvements and new products, will be granted on
a timely basis, if at all. Delays in receipt of or failure to receive such
approvals could have a material adverse effect on the Company's business.
Moreover, after clearance is given, if the product is shown to be hazardous or
defective, the FDA and foreign regulatory agencies have the power to withdraw
such clearance or require the Company to change the device, its manufacturing
process or its labeling, to supply additional proof of its safety and
effectiveness or to recall, repair, replace or refund the cost of the medical
device. In addition, federal, state and foreign regulations regarding the
manufacture and sale of medical devices are subject to future changes. The
Company cannot predict what impact, if any, such changes might have on its
business. However, such changes could have a material impact on the Company's
business.
The Company is also required to register with the FDA as a device
manufacturer. As such, the Company is subject to periodic inspection by the FDA
for compliance with the FDA's Quality System Regulation and other regulations.
These regulations require that the Company manufacture its products and maintain
its documents in a prescribed manner with respect to design, manufacturing,
testing and control activities. Further, the Company is required to comply with
various FDA requirements for labeling and promotion. The Medical Device
Reporting regulation requires that the Company provide information to the FDA
whenever there is evidence to reasonably suggest that one of its devices may
have caused or contributed to a death or serious injury or, if a malfunction
were to recur, could cause or contribute to a death or serious injury. In
addition, the FDA prohibits the Company from promoting a medical device before
marketing clearance has been received or promoting an approved device for
unapproved indications. If the FDA believes that a company is not in compliance
with applicable regulations, it can institute proceedings to detain or seize
products, issue a warning letter, issue a recall order, impose operating
restrictions, enjoin future violations and assess civil penalties against the
company, its officers or its employees and can recommend criminal prosecution to
the Department of Justice. Other regulatory agencies may have similar powers.
Medical device laws are also in effect in many of the countries in which
the Company does business outside the United States. These laws range from
comprehensive device approval requirements for some or all of the Company's
medical device products to simpler requests for product data or certifications.
The number and scope of these requirements are increasing. In addition, the
Company is required to notify the FDA if it exports to certain countries medical
devices manufactured in the United States that have not been approved by the FDA
for distribution in the United States. The Company is also required to maintain
certain records relating to exports and make the records available to the FDA
for inspection, if required.
14
<PAGE>
Health Care Cost Containment and Third-Party Reimbursement
During the past several years, the major third-party payers of hospital
services in the United States (Medicare, Medicaid, private health care insurance
and managed care plans) have substantially revised their policies, methodologies
and formulae in an attempt to contain health care costs. The introduction of
various Medicare cost containment incentives, combined with closer scrutiny of
health care expenditures by both private health insurers and employers, has
resulted in increased contractual adjustments and discounts in hospital charges
for services performed and in the shifting of services from inpatient to
outpatient settings. If hospitals respond to such pressures by substituting
lower cost products or therapies for the Company's products, the Company could
be adversely affected. Moreover, third-party payers may deny reimbursement if
they determine that a device was not used in accordance with cost-effective
treatment methods as determined by the payer, was experimental, or for other
reasons. Certain states have already made significant changes to their Medicaid
programs and have also adopted health care reform. Similar initiatives to limit
the growth of health care costs, including price regulation, are also underway
in several other countries in which the Company does business. Implementation of
health care reforms now under consideration in Japan, Germany, France and other
countries, may limit the price of, or the level at which reimbursement is
provided for, the Company's products.
The ability of customers to obtain appropriate reimbursement for their
products and services from government and third-party payers is critical to the
success of all medical device companies around the world. Several foreign
governments have attempted to dramatically reshape reimbursement policies
affecting medical devices. Further restrictions on reimbursement of the
Company's customers will likely have an impact on the products purchased by
customers and the prices they are willing to pay.
Product Liability and Insurance
The design, manufacture and marketing of medical devices of the types
produced by the Company entail an inherent risk of product liability claims. The
Company's products are often used in intensive care settings with seriously ill
patients. In addition, many of the medical devices manufactured and sold by the
Company are designed to be implanted in the human body for long periods of time
or indefinitely. The occurrence of a problem with one of the Company's products
could result in product liability claims and/or a recall of, or safety alert or
advisory notice relating to, the product. While the amount of product liability
insurance maintained by the Company has been adequate in relation to claims made
against the Company in the past, there can be no assurance that the amount of
such insurance will be adequate to satisfy claims made against the Company in
the future or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts. Product liability claims or product
recalls in the future, regardless of their ultimate outcome, could have a
material adverse effect on the Company's business, financial condition and
reputation, and on the Company's ability to attract and retain customers for its
products.
Environmental Compliance
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. In the course of its
business, the Company is involved in the handling, storage and disposal of
certain chemicals. While the Company continues to make capital and operational
expenditures relating to compliance with existing environmental laws and
regulations, it does not anticipate that those expenditures will have a material
adverse effect on its business.
15
<PAGE>
Research and Development
The Company is engaged in ongoing research and development to introduce
clinically advanced new products, to enhance the effectiveness, ease of use,
safety and reliability of its existing products and to expand the applications
for which the uses of its products are appropriate. The Company is dedicated to
developing novel technologies that will furnish health care providers with a
more complete line of products to treat medical conditions through minimally
invasive procedures.
The Company's research and development activities are carried out primarily
in facilities located in Santa Clara, Menlo Park, and Temecula, California; St.
Paul, Minnesota; Redmond, Washington; Houston, Texas; and Brussels, Belgium. The
Company's research and development staff is focused on product design and
development, quality, clinical research and regulatory compliance. To pursue
primary research efforts, the Company has developed alliances with several
leading research institutions and universities. The Company also works with
leading clinicians around the world in conducting scientific studies on the
Company's products. These studies include clinical trials which provide data for
use in regulatory submissions and post market approval studies involving
applications of the Company's products.
The Company evaluates developing technologies in areas where it may have
technological or marketing expertise for possible investment or acquisition. The
Company has invested in several start-up ventures. In return for funding and
technology, the Company has received equity interests in these ventures.
Quality Assurance Systems
The Company is committed to providing high quality products to its
customers. To meet this commitment, the Company has implemented modern quality
systems and concepts throughout the organization. The Company's quality system
starts with the initial product specification and continues through the design
of the product, component specification process and the manufacturing, sales and
servicing of the product. The quality system is designed to build in quality and
to utilize continuous improvement concepts throughout the product life.
Certain of the Company's operations are certified under ISO 9001, ISO 9002,
ISO 13485, EN46001 and EN46002 international quality system standards. ISO 9001
and 9002 require, among other items, an implemented quality system that applies
to component quality, supplier control and manufacturing operations. In
addition, ISO 9001 and EN46001 require an implemented quality system that
applies to product design. Such certification can be obtained only after a
complete audit of a company's quality system by an independent outside auditor.
These certifications require that these facilities undergo periodic
reexamination.
16
<PAGE>
Executive Officers of the Company
Name Position Age
- ---- -------- ---
James M. Cornelius Chairman of the Board of Directors 55
and Director
Ronald W. Dollens President, Chief Executive Officer 52
and Director
J.B. King Vice President, General Counsel 69
and Director
Bruce J Barclay Deputy General Counsel 42
and Secretary
James R. Baumgardt President, Guidant Sales Corporation 51
Keith E. Brauer Vice President, Finance and 50
Chief Financial Officer
A. Jay Graf President, Cardiac Rhythm Management 51
Ginger L. Graham President, Vascular Intervention 43
Cynthia L. Lucchese Treasurer 38
Roger Marchetti Corporate Controller and 41
Chief Accounting Officer
Rodney R. Nash Vice President Corporate 57
Resources & Policy
Richard M. van Oostrom President of Operations, Europe, 54
Middle East and Africa
F. Thomas (Jay) Watkins, III President, Cardiac and Vascular 46
Surgery
A brief summary of the recent business and professional experience of each
executive officer is set forth below.
James M. Cornelius Mr. Cornelius is Chairman of the Board of Directors and
a Director of the Company. Previously, he was Vice President, Finance and Chief
Financial Officer of Lilly from 1983 until his retirement in October 1995 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 and the Indianapolis Museum of Art.
Ronald W. Dollens Mr. Dollens is President, Chief Executive Officer and a
Director of the Company. Previously, he served as President of Lilly's MDD
Division from 1991 until 1995. Mr. Dollens served as Vice President of Lilly's
MDD Division and Chairman of 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 Beckman Coulter, Inc., the Health
Industry Manufacturers Association (Chairman), the Eiteljorg Museum, St. Vincent
Hospital Foundation, and the Indiana State Symphony Society Board. He is also
the President of the Indiana Health Industry Forum.
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<PAGE>
J. B. King Mr. King is Vice President, General Counsel 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 the Indiana
Legal Foundation, IWC Resources, Inc., and the James Whitcomb Riley Memorial
Association.
Bruce J Barclay Mr. Barclay is Deputy General Counsel and Secretary of the
Company. Previously, Mr. Barclay served as Vice President, Secretary and General
Counsel of Vascular Intervention and Cardiac and Vascular Surgery. He was named
Vice President and General Counsel of Advanced Cardiovascular Systems, Inc.
("ACS") in 1992. Prior to that he served as Patent Counsel for ACS. Mr. Barclay
also had responsibility for Business Development at Vascular Intervention. Prior
to working at ACS, Mr. Barclay worked for Lilly first in pharmaceutical research
and later as a patent attorney. Mr. Barclay joined Lilly in 1978 and is a
registered patent attorney.
James R. Baumgardt Mr. Baumgardt is a Vice President of the Company and
President, Guidant Sales Corporation. Previously he held the position of
President, Western Hemisphere Sales. Prior to that he held the position of Vice
President, Corporate Resources from 1994 to 1995. Mr. Baumgardt has also served
as Executive Director of Human Resources and Business Development for the MDD
Division of Lilly from 1992 to 1994. Mr. Baumgardt was Director of Personnel for
Lilly from 1990 to 1992 and Director of Sales for Lilly's Select Product
Division from 1988 to 1990. He joined Lilly in 1970. Mr. Baumgardt is a director
of the Rose-Hulman Institute of Technology.
Keith E. Brauer Mr. Brauer is Vice President, Finance and Chief Financial
Officer for the Company. Previously, he served as Executive Director of Finance
and Chief Accounting Officer of Lilly from 1992 to 1994. Mr. Brauer was
Executive Director of International Finance of Lilly from 1988 to 1992 and
Director of Corporate Affairs of Lilly from 1986 to 1988. Additionally, he held
the positions of Vice President of Finance and Treasurer for Physio-Control
Corporation, and Controller for Elizabeth Arden, both former Lilly subsidiaries.
Mr. Brauer joined Lilly in 1974. Mr. Brauer is a director of the Indiana Chamber
of Commerce. Mr. Brauer also serves on the University of Michigan Business
School Corporate Advisory Board.
A. Jay Graf Mr. Graf is a Vice President of the Company and President of
Cardiac Rhythm Management. He has been President and Chief Executive Officer of
the Company's subsidiary, Cardiac Pacemakers, Inc. ("CPI"), since 1992. He
joined CPI as Executive Vice President and Chief Operating Officer in 1990. Mr.
Graf has also held the position of Senior Vice President of Operations at
Physio-Control Corporation. Additionally, Mr. Graf held the positions of Vice
President of Sales and Technical Services, and Vice President of Marketing and
Communications at Physio-Control Corporation. Mr. Graf joined Lilly in 1976. Mr.
Graf is a director of ATS Corporation and Advanced BioSurfaces, Inc.
Ginger L. Graham Ms. Graham is a Vice President of the Company and
President of Vascular Intervention. She has been President and Chief Executive
Officer of ACS since 1993. She served as a Director of Pharmaceutical Sales for
Lilly in 1992 and was Director of Corporate Pharmaceutical Strategic Planning
from 1989 to 1991. Ms. Graham joined Lilly in 1979. Ms. Graham is a director of
Amylin Pharmaceuticals, Inc. and the California Healthcare Institute. She is
also a member of the Committee of 200.
Cynthia L. Lucchese Ms. Lucchese is Treasurer of the Company. She served as
Worldwide Treasury Planning Manager for Lilly from 1992 to 1994. She served as
Audit Manager for Lilly from 1990 to 1992. Ms. Lucchese joined Lilly in 1987.
Prior to joining Lilly, she was on the audit staff of Ernst & Young LLP from
1982
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<PAGE>
to 1986. Ms. Lucchese is a Certified Public Accountant. She is also a director
for Ballet Internationale.
Roger Marchetti Mr. Marchetti is Corporate Controller and Chief Accounting
Officer of the Company. He has been in this position since 1994. He served as
Manager of Finance for Lilly's Indianapolis pharmaceutical manufacturing
operations from 1992 to 1994, and Manufacturing Controller for ACS from 1990 to
1992. Mr. Marchetti joined ACS in 1988 as General Accounting Manager. Prior to
joining ACS, Mr. Marchetti was on the audit staff of Touche Ross & Co.
(currently Deloitte & Touche LLP) from 1980 to 1986. Mr. Marchetti is a
Certified Public Accountant.
Rodney R. Nash Mr. Nash is Vice President of Corporate Resources & Policy
for the Company. Previously he was the senior vice president of corporate
affairs. Mr. Nash served for four years as the president of Guidant Japan and
Pacific Rim Operations. He joined Lilly in 1972 and has held various assignments
in sales, marketing and general management, including director of marketing, Eli
Lilly (Philippines); district sales manager, Long Island, New York; general
manager, Eli Lilly (Taiwan); executive director of international sales and
marketing, IVAC Corporation; and president of the Medical Devices and
Diagnostics Division (MDD), Eli Lilly Japan. While in Tokyo, he served as vice
chairman and later chairman of the American Chamber of Commerce in Japan's
Medical Equipment and Supply subcommittee, dealing with U.S./Japan medical
equipment trade issues.
Richard M. van Oostrom Mr. van Oostrom is a Vice President of the Company
and President of Operations, Europe, Middle East and Africa. He served as Vice
President of European Operations for Lilly's MDD Division from 1984 to 1994. Mr.
van Oostrom was an Executive Director of Marketing for Lilly from 1981 to 1984
and President and General Manager of Eli Lilly Canada Inc. from 1980 to 1981. He
joined Lilly in 1971. Mr. van Oostrom is a board member of Isotis B.V., Impella
and the European trade association for medical prosthesis manufacturers.
F. Thomas (Jay) Watkins, III Mr. Watkins is a Vice President of the Company
and President of Cardiac and Vascular Surgery. He has also been President of the
Company's subsidiary, Origin Medsystems, Inc. ("Origin"), since 1995. Mr.
Watkins joined Origin in 1989. Previously, he has served in management positions
in several start-up companies, including Microgenics Corporation, and was a
consultant with the international consulting firm of McKinsey & Company, Inc.
Employees
As of December 31, 1998, the Company had approximately 6,310 full-time
employees, including approximately 800 employees outside the United States. The
Company maintains compensation, benefits, equity participation and work
environment policies intended to assist in attracting and retaining qualified
personnel. The Company believes that the success of its business will depend, in
significant part, on its ability to attract and retain such personnel. In
addition, the Company contracts for services where appropriate. The contract
labor provides management with flexibility in dealing with fluctuations in
volume during periods of high sales growth and through new product transfers to
manufacturing.
None of the Company's employees are represented by a labor union. The
Company has never experienced an organized work stoppage or strike and considers
its relations with its employees to be excellent.
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<PAGE>
Financial Information Relating to Classes of Products
Financial information relating to classes of products, set forth in the
Company's 1998 Annual Report to Shareholders under "Management's Discussion and
Analysis of Results of Operations and Financial Condition," at page 22, is
incorporated herein by reference.
Due to several factors, including the introduction of new products by the
Company and other manufacturers, the relative contribution of any particular
Company product to consolidated net sales is not necessarily constant from year
to year, and its contribution to consolidated net income is not necessarily the
same as its contribution to consolidated net sales.
Financial Information Relating to Foreign and Domestic Operations
Financial information relating to foreign and domestic operations, set
forth in the Company's 1998 Annual Report to Shareholders at page 42 under
"Notes to Consolidated Financial Statements, Note 12 - Segment Information," is
incorporated herein by reference.
Local restrictions on the transfer of funds from branches and subsidiaries
located abroad (including the availability of dollar exchange) have not to date
been a significant deterrent in the Company's overall operations abroad. The
Company cannot predict what effect these restrictions or the other risks
inherent in foreign operations, including possible nationalization, might have
on its future operations or what other restrictions may be imposed in the
future.
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<PAGE>
Item 2. PROPERTIES
As of December 31, 1998, the Company owned or leased the following
principal facilities:
<TABLE>
<CAPTION>
Approximate Leased or
Location Type of Facility Square Feet Owned
- ------------------- --------------------------------- ----------- ---------
<S> <C> <C> <C>
Basingstoke, UK Administration 24,000 Leased
Brussels, Belgium Administration and CRM research 17,000 Leased
Clonmel, Ireland Manufacturing 155,000 Owned
Dorado, PR CRM manufacturing and 54,000 Owned
administration
Houston, TX VI research and development 22,500 Leased
and administration
Indianapolis, IN Administration 18,000 Leased
Menlo Park, CA CVS manufacturing, research and 200,000 Leased
development, administration,
sales and marketing and warehouse
Santa Clara, CA VI manufacturing, research and 370,000 Owned
development, administration,
and sales and marketing
St. Paul, MN CRM manufacturing, research and 360,000 Owned
development, administration and
sales and marketing
St. Paul, MN CRM lead development and 100,000 Leased
administration
St. Paul, MN CRM packaging, shipping and 25,000 Leased
warehouse
Temecula, CA VI manufacturing and 500,000 Owned
research and development;
CRM research and development
Tokyo, Japan Administration 10,000 Leased
</TABLE>
The Company currently maintains its executive offices at 111 Monument
Circle, 29th Floor, Indianapolis, Indiana. Subject to normal expansion, the
Company believes that its facilities are adequate to meet its present and
reasonably foreseeable needs.
The Company believes that none of its properties is subject to any
encumbrance, easement or other restriction that would detract materially from
its value or materially impair its use in the operation of the business of the
Company. The buildings owned by the Company are of varying ages and are in good
condition.
Item 3. LEGAL AND REGULATORY PROCEEDINGS
The Company is currently a party to various legal actions which have
occurred in the normal course of its business. The litigation includes disputes
over intellectual property, product liability, employment litigation and general
commercial matters.
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<PAGE>
The Company currently has a number of disputes with Boston Scientific
Corporation ("BSC") and its subsidiary, SciMed Life Systems, Inc. ("SciMed").
These include the following:
A. In a lawsuit originally filed on May 31, 1994, in the Northern
District of California, SciMed alleges that the ACS RX ELIPSE coronary
dilatation catheter infringes certain patents owned by SciMed.
Subsequently, the complaint was amended to further allege infringement
by the ACS RX MULTI-LINK coronary stent system. In the lawsuit, SciMed
is seeking injunctive relief and monetary damages.
B. On October 10, 1995, Advanced Cardiovascular Systems, Inc. ("ACS"), a
wholly-owned subsidiary of the Company, filed suit against SciMed
alleging that the SciMed Express Plus and Express Plus II coronary
dilatation catheters infringe certain patents of ACS. In addition, on
March 12, 1996, ACS filed a separate lawsuit alleging that these
products infringe another patent of ACS. These lawsuits were filed in
the Northern District of California and ACS is seeking injunctive
relief and monetary damages.
C. On March 12, 1996, ACS filed suit against SciMed in the Northern
District of California alleging that SciMed's Trio/Bandit line of
coronary dilatation catheters infringes a patent of ACS. In the
lawsuit, ACS is seeking injunctive relief and monetary damages.
D. On September 17, 1997, ACS filed suit against SciMed and BSC in the
Northern District of California alleging that the SciMed Rebel rapid
exchange coronary dilatation catheter infringes certain patents of
ACS. In the lawsuit, ACS is seeking injunctive relief and monetary
damages.
E. An arbitration was held between SciMed and the Company in May 1998, to
determine whether the ACS RX COMET, ACS RX COMET VP, ACS RX ROCKET
coronary dilatation catheters, and ACS RX MULTI-LINK HP coronary stent
system were reasonable modifications under the 1991 ACS/SciMed
Settlement Agreement, and therefore immune from suit by patents owned
by SciMed. On August 17, 1998, the Arbitration Panel by a 2-1 majority
held in a Draft Determination that these products were not reasonable
modifications. The Company requested reconsideration of the Draft
Determination and on December 4, 1998 the Arbitration Panel by a 2-1
majority held in a Final Determination that the ACS RX COMET, ACS RX
COMET VP and ACS RX ROCKET coronary dilatation catheters were
reasonable modifications under the Settlement Agreement, and were
immune from suit. The ACS RX MULTI-LINK HP coronary stent system was
held not to be a reasonable modification.
F. On August 12, 1998, ACS and Guidant Sales Corporation ("GSC") filed
suit against BSC and SciMed in the Southern District of Indiana
alleging that SciMed's NIR stent infringes certain patents of ACS. In
the lawsuit ACS is seeking injunctive relief and monetary damages.
G. On December 29, 1998, SciMed filed suit against the Company in The
Hague, The Netherlands alleging infringement of a European Patent
owned by SciMed by the ACS RX ELIPSE coronary dilatation catheter and
the ACS RX MULTI-LINK, ACS RX MULTI-LINK HP, and ACS RX DUET coronary
stent system. SciMed is seeking injunctive relief and monetary
damages.
H. On January 13, 1999, SciMed filed suit against the Company, ACS and
Guidant Sales Corporation in the Northern District of California
alleging that ACS's RX MULTI-LINK, RX MULTI-LINK HP, and MULTI-LINK RX
DUET coronary stent systems infringe certain SciMed patents. In the
lawsuit, SciMed is seeking injunctive relief and monetary damages.
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The Company currently has a number of disputes with Medtronic, Inc.
("Medtronic"), including the following:
A. On October 10, 1995, ACS filed suit against Medtronic alleging that
the Medtronic Falcon coronary dilatation catheter infringes certain
patents of ACS. On March 12, 1996, ACS filed another suit against
Medtronic alleging that the Medtronic Falcon coronary dilatation
catheter infringes another patent of ACS. Both of these lawsuits were
filed in the Northern District of California. In the lawsuits, ACS is
seeking injunctive relief and monetary damages.
B. On November 6, 1997, Medtronic filed suit against ACS in the United
States District Court for Minnesota alleging that the ACS MULTI-LINK
coronary stent infringes a patent owned by Medtronic. In the lawsuit,
Medtronic is seeking injunctive relief and monetary damages.
The Company currently has a number of disputes with J&J and its subsidiary,
Cordis Corporation ("Cordis"), including the following:
A. On August 26, 1997, J&J and Expandable Grafts Partnership ("EGP")
filed suit against the Company's subsidiary Guidant Canada Corporation
in the Federal Court of Canada alleging that the sale of the ACS
MULTI-LINK coronary stent in Canada infringes patents licensed to J&J
by EGP. In the lawsuit, J&J and EGP seek injunctive relief and
monetary damages.
B. On October 3, 1997, Cordis filed suit against the Company and ACS, in
the District Court for the District of Delaware alleging that the sale
of the ACS MULTI-LINK coronary stent by ACS infringes certain patents
licensed to Cordis. In addition, on October 8, 1997, Cordis filed a
motion for a preliminary injunction in this lawsuit seeking to prevent
ACS from selling the ACS MULTI-LINK coronary stent other than in
certain limited circumstances and subject to certain conditions. On
October 22, 1997, the complaint was amended to include BSC and AVE as
co-defendants. The complaint was re-filed on February 6, 1998 to
include EGP as a plaintiff. A hearing on the motion for a preliminary
injunction was held in February 1998 and in July, 1998 Cordis's motion
for a preliminary injunction was denied by the court. On October 27,
1998 one of the patents asserted against the Company and ACS emerged
from a reexamination filed by Cordis. In the lawsuit, Cordis is
seeking injunctive relief and monetary damages.
C. On December 2, 1997, Cordis filed suit against Guidant and ACS in the
United States District Court for the District of Delaware alleging
that the ACS RX ROCKET coronary dilatation catheter infringes patents
owned by Cordis. Cordis also filed a motion for a preliminary
injunction, which was heard by the court on April 9, 1998. A decision
has not yet been rendered. In the lawsuit, Cordis is seeking
injunctive relief and monetary damages. A separate lawsuit was also
filed against the Company in December 1997 in The Netherlands alleging
infringement of the European equivalents of these patents. In this
separate lawsuit Cordis is seeking injunctive relief and monetary
damages.
D. On June 4, 1998, Cordis filed suit against the Company and ACS in the
United States District Court for the Eastern District of Virginia
alleging that the ACS MULTI-LINK coronary stent infringes two patents
owned by Cordis. The Company's motion to transfer the case to the
Northern District of California was granted on August 7, 1998. Cordis
is seeking injunctive relief and monetary damages.
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E. On February 22, 1999, ACS filed suit against Cordis in the United
States District Court for the Northern District of California alleging
infringement of several ACS patents by the Cordis CROWN stent. In the
lawsuit, ACS is seeking injunctive relief and monetary damages.
The Company currently has a number of disputes with General Surgical
Innovations, Inc. ("GSI"), including the following:
A. On May 28, 1996, Origin Medsystems, Inc. ("Origin"), a wholly-owned
subsidiary of the Company, filed suit against GSI in the Northern
District of California alleging that GSI's Spacemaker balloon products
infringe a patent of Origin. In the lawsuit, Origin is seeking
injunctive relief and monetary damages. On April 20, 1998 GSI's motion
that the Origin patent was obtained by inequitable conduct was
granted. On November 2, 1998 the Court awarded GSI its attorney fees.
Origin has appealed both decisions.
B. On June 4, 1996, GSI filed suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon
Dissection System and Preperitoneal Distention Balloon Systems
infringe a patent owned by GSI. GSI's motion for summary judgment of
infringement was granted on October 29, 1998, and a trial was held on
the validity of the GSI patent. On February 8, 1999 the jury held the
patent valid and awarded GSI approximately $12.9M in damages. The jury
also held certain claims of the patent to have been willfully
infringed which could result in up to a trebling of the damage award
and entitle GSI to its attorney fees. GSI is also seeking injunctive
relief and a hearing relating to the injunction was held on March 2.
Once post-trial matters have been resolved and a judgment is entered,
Origin may appeal.
C. On September 24, 1997, GSI filed suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon
Dissection System infringes another patent owned by GSI. GSI is
seeking injunctive relief and monetary damages.
The Company currently has a number of disputes with Arterial Vascular
Engineering ("AVE"), including the following:
A. On December 24, 1997, ACS filed suit against AVE in the United States
District Court for the Northern District of California alleging
infringement of three patents of ACS by certain AVE stents. This case
was subsequently transferred to the District Court of Delaware. On
April 10, 1998 ACS filed suit against AVE alleging infringement of an
additional ACS patent by certain AVE stents. This lawsuit is also
located in the District Court of Delaware. In the lawsuits, ACS is
seeking injunctive relief and monetary damages.
B. On February 18, 1998, AVE filed suit against ACS in the District Court
of Delaware alleging that the sale of the ACS MULTI-LINK Coronary
Stent infringes certain patents licensed to AVE. The lawsuit also
alleges misappropriation of trade secrets and breach of a
confidentiality agreement by ACS. In the lawsuit, AVE is seeking
injunctive relief, monetary damages, and to invalidate certain ACS
stent patents.
The Company currently has a number of disputes with St. Jude Medical, Inc.
("St. Jude"), including the following:
A. On May 3, 1996, Pacesetter, Inc. ("Pacesetter"), a subsidiary of St.
Jude, filed a lawsuit against Cardiac Pacemakers, Inc. ("CPI"), a
wholly-owned subsidiary of the Company, which is currently pending in
the United States District Court for Minnesota. The complaint, as
24
<PAGE>
subsequently amended, alleges infringement of certain Pacesetter
patents by certain CPI pacemaker models and programmers for pacemakers
and defibrillators. The lawsuit seeks injunctive relief, unspecified
monetary damages, and an award of attorneys' fees. On December 16,
1998, following a trial on the merits, the jury returned a verdict
finding no liability by CPI on two of the three patents asserted by
Pacesetter, and infringement by software in CPI programmers for
certain pacemakers and defibrillators of the third patent. The jury
awarded Pacesetter damages in the amount of $9.675 million, and the
court is currently considering Pacesetter's request for an injunction
and CPI's request that Pacesetter's patent be declared unenforceable.
B. On November 26, 1996, the Company and its subsidiaries, CPI and GSC,
and Lilly filed suit (the "State Court Case") against St. Jude,
Pacesetter, Ventritex, Inc. ("Ventritex") and the Telectronics Parties
in the Marion Superior Court, State of Indiana, alleging (among other
things) that the Telectronics Agreement did not transfer to Pacesetter
when Pacesetter purchased certain assets of the Telectronics Parties
in 1996. The lawsuit seeks declaratory and injunctive relief to
prevent and invalidate the purported transfer of the Telectronics
Agreement to Pacesetter. On June 12, 1998, the Company, CPI, GSC, and
Lilly requested a voluntary stay of the State Court Case pending
completion of the arbitration, which was granted on June 19, 1998.
C. On November 26, 1996, CPI, GSC and Lilly filed suit against St. Jude,
Pacesetter and Ventritex in the United States District Court for the
Southern District of Indiana alleging that upon consummation of the
merger of Ventritex and Pacesetter, the continued manufacture, use or
sale of certain Ventritex products would infringe certain patents of
CPI and Lilly. The lawsuit seeks declaratory and injunctive relief and
monetary damages. On June 8, 1998, the United States District Court
for the Southern District of Indiana entered an Order staying
proceedings.
D. On December 24, 1996, certain entities affiliated with Telectronics
Holdings Ltd. ("the Telectronics Parties") and Pacesetter filed suit
against the Company, CPI, GSC and Lilly in the United States District
Court for the District of Minnesota alleging that the claims made in
the State Court Case (as defined below) are subject to an arbitration
provision in the license agreement entered into in 1994 among CPI,
Lilly and the Telectronics Parties ("Telectronics Agreement"). In the
lawsuit, the Telectronics Parties and Pacesetter are seeking
declaratory and injunctive relief and an award of costs. In February
1997, the District Court ruled against the Telectronics Parties and
Pacesetter and held that the dispute was not subject to the
arbitration provision. The Telectronics Parties and Pacesetter
appealed the Court's ruling, and on May 4, 1998, the United States
Court of Appeals for the Eighth Circuit (the "Eighth Circuit") vacated
and remanded a judgment previously entered by the United States
District Court for the District of Minnesota. In vacating and
remanding that decision, the Eighth Circuit held that an arbitrator
(rather than a court) should decide whether the disputes set forth in
the State Court Case are subject to arbitration. On July 9, 1998, the
Minnesota District Court entered an Order referring the matter to
arbitration, subject to the qualification that "the arbitrator shall
determine what role, if any, Pacesetter should have in the arbitration
proceeding." The Telectronics Parties and the Company have completed
the procedures for selecting an arbitrator and have commenced the
arbitration process.
25
<PAGE>
The Company currently has a number of lawsuits with Angeion Corporation,
including:
A. On May 3, 1996, Angeion Corporation filed a lawsuit against CPI which
is currently pending in the United States District Court of Minnesota.
The complaint, as subsequently amended, alleges infringement of
certain Angeion defibrillator patents by CPI's MINI I and MINI II
defibrillator models. The lawsuit seeks injunctive relief, unspecified
monetary damages, and an award of attorneys' fees.
B. On September 15, 1998, CPI filed suit against Angeion Corporation in
the United States District Court of Minnesota. The complaint alleges
infringement of certain CPI defibrillator patents by Angeion's
defibrillator products. In the lawsuit, CPI is seeking injunctive
relief and monetary damages.
On May 15, 1995, Intermedics, Inc., a division of SulzerMedica, filed a
lawsuit against CPI which is currently pending in the United States District
Court for Minnesota. The complaint alleges infringement of certain Intermedics
patents by CPI's VENTAK MINI and PRx defibrillator models and certain VIGOR and
EXCEL pacemaker models. (The EXCEL models are not currently manufactured or sold
by CPI). Intermedics is seeking injunctive relief and monetary damages. CPI has
filed counterclaims alleging that certain of its patents are infringed by the
Intermedics Res-Q defibrillator products and certain Intermedics pacemaker
products. On February 1, 1999, the Company completed its acquisition of
Intermedics, including its intellectual property and the above-identified suits
were terminated.
On February 1, 1999 Deborah Charms filed suit against the Company and CPI
in the United States District Court for the Western District of Texas alleging
that unspecified defibrillation products of CPI infringe a patent owned by
Charms. In the lawsuit, Charms is seeking injunctive relief and unspecified
monetary damages.
In addition, the Company is currently involved in a number of other patent
related actions, including U.S. patent interferences, European and Japanese
patent oppositions and U.S. patent reexamination proceedings.
While it is not possible to predict or determine the outcome of the legal
actions brought against it, or to provide an estimate of the losses, if any,
that may arise, the Company believes the costs associated with all of these
actions will not have a material adverse effect on the Company's consolidated
financial position or liquidity, but could possibly be material to the
consolidated results of operations of any one period.
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matters were submitted to a vote of
security holders.
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Part II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
("NYSE") and the Pacific Exchange, Inc. ("PCX"). Information relating to the
high and low sales prices per share of the Company's common stock, as reported
in the consolidated transactions reporting system on the NYSE set forth in the
Company's 1998 Annual Report to Shareholders under "Notes to Consolidated
Financial Statements, Note 16 - Selected Quarterly Information (Unaudited)," at
page 45 is incorporated herein by reference.
During each quarter of 1998, 1997 and 1996, the Company paid a quarterly
cash dividend of $0.00625 per share of the Company's common stock, as adjusted
for the Company's two-for-one stock splits which were effective in September
1997 and January 1999. In December 1998, the Company's Board of Directors voted
to discontinue future dividend payments on the Company's common stock.
As of March 1, 1999, the approximate number of record holders of the
Company's common stock was 5,287.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's five most recent fiscal
years, set forth in the Company's 1998 Annual Report to Shareholders under
"Selected Consolidated Financial Data," at page 21, are incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and
Financial Condition, set forth in the Company's 1998 Annual Report to
Shareholders under "Operating Results" (pages 22-27), "Liquidity and Financial
Condition" (pages 27-28), and "Regulatory and Other Matters" (pages 28-30), is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information related to quantitative and qualitative disclosures about
market risk, set forth in the Company's 1998 Annual Report to Shareholders under
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Financial Condition" (pages 27-28), is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries,
listed in Item 14(a)1 and included in the Company's 1998 Annual Report to
Shareholders at pages 31-34 (Consolidated Statements of Income, Consolidated
Balance Sheets, Consolidated Statements of Shareholders' Equity and Consolidated
Statements of Cash Flows), and pages 35-45 (Notes to Consolidated Financial
Statements) and the Report of Independent Auditors set forth in the Company's
1998 Annual Report to Shareholders at page 46, are incorporated herein by
reference.
Information on quarterly results of operations, set forth in the Company's
1998 Annual Report to Shareholders under "Notes to Consolidated Financial
Statements, Note 16 - Selected Quarterly Information (Unaudited)," at page 45,
is
27
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incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Company's directors, set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 17,
1999, under "Election of Directors--Nominees for Election," is incorporated
herein by reference. Information relating to the Company's executive officers is
set forth at pages 17-19 of this Form 10-K under "Executive Officers of the
Company."
Item 11. EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held May 17, 1999,
under "Election of Directors--Executive Compensation," is incorporated herein by
reference, except that the Compensation Committee Report and Performance Graph
are not so incorporated.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of the Company's common stock by persons
known by the Company to be the beneficial owners of more than 5% of the
outstanding shares of common stock and by management, set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held May 17, 1999,
under "Election of Directors--Ownership of Company Common Stock by Directors and
Executive Officers," and "Election of Directors--Principal Holders of Company
Common Stock," is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, included in the Company's 1998 Annual Report to Shareholders at
the pages indicated in parentheses, are incorporated by reference in Item 8:
Consolidated Statements of Income--Years Ended December 31, 1998, 1997 and
1996 (page 31)
Consolidated Balance Sheets--December 31, 1998 and 1997 (page 32)
Consolidated Statements of Shareholders' Equity--Years Ended December 31,
1998, 1997 and 1996 (page 33)
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Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997
and 1996 (page 34)
Notes to Consolidated Financial Statements (pages 35-45)
(a)2. Financial Statement Schedules
The following consolidated financial statement schedule of the Company and
its subsidiaries is included in this Form 10-K:
Schedule II Valuation and Qualifying Accounts (page F-1)
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable or are adequately explained in
the financial statements and, therefore, have been omitted.
Financial statements of interests of 50% or less, which are accounted for
by the equity method, have been omitted because they do not, considered in the
aggregate as a single subsidiary, constitute a significant subsidiary.
The report of the Company's independent auditors with respect to the
schedule listed above is contained herein as part of Exhibit 23.1, Consent of
Independent Auditors.
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<PAGE>
(a)3. Exhibits
3.1 Amended and Restated Articles of Incorporation of the Registrant. (1)
3.2 By-Laws of the Registrant. (1)
4.1 Specimen of Certificate for Common Stock. (1)
10.1 Rights Agreement dated as of October 17, 1994 between the Company and
Bank One, Indianapolis, N.A. (1)
10.2 Form of International Services Agreement between international subsidiary
of Eli Lilly and Company and international subsidiary of the Company. (1)
10.3 United States Services Agreement dated as of October 31, 1994 between Eli
Lilly and Company and the Company. (1)
10.4 Transfer Agreement dated as of November 30, 1994 between Eli Lilly and
Company and the Company. (1)
10.5 Tax Sharing Agreement dated as of November 30, 1994 between Eli Lilly and
Company and the Company. (1)
10.6 Form of International Asset Purchase Agreement between international
subsidiary of Eli Lilly and Company and international subsidiary of the
Company. (1)
10.7 Sublicense Agreement dated as of October 18, 1994 between Eli Lilly and
Company and Cardiac Pacemakers, Inc. (1)
10.8 Purchase and Sale Agreement and Escrow Instructions dated as of October
18, 1994 between Eli Lilly and Company and Advanced Cardiovascular
Systems, Inc. (1)
10.9 Assignment of Leases dated as of October 25, 1985 between Seaport Centre
Venture Phase II and Metropolitan Life Insurance Company. (1)
10.10 Settlement Agreement dated as of December 1, 1991 among Advanced
Cardiovascular Systems, Inc., Eli Lilly and Company and SciMed Life
Systems, Inc. (1)
10.11 Distribution Agreement dated as of December 31, 1992 among Advanced
Cardiovascular Systems, Inc., Peripheral Systems Group and Mallinckrodt
Medical, Inc. (1)
10.12 Settlement Agreement dated as of January 13, 1992 between Advanced
Cardiovascular Systems, Inc. and C. R. Bard, Inc. (1)
10.13 Settlement Agreement dated as of April 4, 1998 between Advanced
Cardiovascular Systems, Inc. and C. R. Bard, Inc.*
10.14 Settlement and License Agreement dated as of December 17, 1991 among
Schneider (Europe) A.G., Schneider (USA) Inc. and Advanced Cardiovascular
Systems, Inc. (1)
10.15 Amendment to Settlement and License Agreement dated as of April 9, 1992
among Schneider (Europe) A.G., Schneider (USA) Inc. and Advanced
Cardiovascular Systems, Inc. (1)
10.16 Amended License Agreement dated as of September 26, 1988 between Paul
Yock, M.D. and Advanced Cardiovascular Systems, Inc. (1)
10.17 First Amendment to Amended License Agreement dated as of January 1, 1992
between Paul Yock, M.D. and Advanced Cardiovascular Systems, Inc. (1)
10.18 Second Amendment to Amended License Agreement dated as of January 13,
1992 between Paul Yock, M.D. and Advanced Cardiovascular Systems, Inc.
(1)
10.19 Agreement dated as of January 31, 1994 between E. I. DuPont de Nemours
and Company, Cardiac Pacemakers, Inc. and Eli Lilly and Company. (1)
10.20 Agreement dated as of July 1, 1994 between E. I. DuPont de Nemours and
Company, Minco Products, Inc., Cardiac Pacemakers, Inc. and Eli Lilly and
Company. (1)
10.21 Override Agreement between Motorola, Inc., Cardiac Pacemakers, Inc. and
Eli Lilly and Company. (1)
10.22 Material Supply Agreement dated as of January 1, 1995 between Dow Corning
Corporation and Cardiac Pacemakers, Inc. (2)
10.23 Purchase Contract dated as of January 1, 1991 between Wilson Greatbatch
Ltd. and Cardiac Pacemakers, Inc. (1)
10.24 Purchase Contract Extension between Wilson Greatbatch Ltd. and Cardiac
Pacemakers, Inc., effective as of January 1, 1996. (2)
10.25 Exclusive License Agreement dated as of January 30, 1973 between Medrad,
Inc. and Mieczyslaw Mirowski. (1)
10.26 Amendment to Exclusive License Agreement dated as of January 10, 1975
between Medrad, Inc. and Mieczyslaw Mirowski. (1)
30
<PAGE>
10.27 First Addendum to the Exclusive License Agreement dated as of June 17,
1974 between Medrad, Inc. and Mieczyslaw Mirowski. (1)
10.28 Second Addendum to the Exclusive License Agreement dated as of April 11,
1975 between Medrad, Inc. and Mieczyslaw Mirowski. (1)
10.29 Third Addendum to the Exclusive License Agreement dated as of December
22, 1976 between Medrad, Inc. and Mieczyslaw Mirowski. (1)
10.30 Fourth Addendum to the Exclusive License Agreement dated as of January 1,
1979 between Medrad, Inc. and Mieczyslaw Mirowski. (1)
10.31 Fifth Addendum to the Exclusive License Agreement dated as of June 24,
1981 between Medrad, Inc. and Mieczyslaw Mirowski. (1)
10.32 Sixth Addendum to the Exclusive License Agreement dated as of September
16, 1983 between Medrad, Inc., Mieczyslaw Mirowski, Medrad/Intec., Inc.
and Intec Systems, Inc. (1)
10.33 Guidant Corporation 1994 Stock Plan, as amended. (3)
10.34 Guidant Corporation 1998 Stock Plan (7)
10.35 Guidant Corporation Economic Value Added (EVA) Bonus Plan dated January
1, 1995. (2) #
10.36 Stock Purchase Agreement dated as of October 31, 1994 between Eli Lilly
and Company and Advanced Cardiovascular Systems, Inc. (1)
10.37 Standard Form Office Lease dated December 27, 1994 between Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership II and the
Company. (4)
10.38 Guidant Corporation Change in Control Plan for Select Employees. (5)
10.39 Agreement and Plan of Merger, dated as of October 5, 1997, as amended
November 14, 1997, among the Company, Ski Acquisition Corpl. And
EndoVascular Technologies, Inc. (6)
10.40 Five-Year Credit Agreement dated as of August 26, 1998 among the Company,
certain banks, and Morgan Guaranty Trust Company of New York as
Administrative Agent. *
10.41 364-Day Credit Agreement dated as of August 26, 1998, and amended and
restated as of November 17, 1998, among the Company, certain banks, and
Morgan Guaranty Trust Company of New York as Administrative Agent. *
10.42 Agreement and Plan of Merger, dated August 10, 1998 by and among Guidant,
Pegasus Acquisition Corporation and InControl (8)
10.43 Stock and Asset Purchase Agreement, dated September 20, 1998, as amended
February 1, 1999, between Guidant and Sulzer (9)
10.44 Underwriting Agreement, dated February 11, 1999 among the Company and
certain Underwriters relating to the issuance and sale by the Company of
$350,000,000 aggregate principal amount of its 6.15% notes dues 2006.
(10)
11.1 Statement regarding computation of per share earnings, set forth in the
Company's 1998 Annual Report to Shareholders under "Notes to Consolidated
Financial Statements, Note 7-Earnings (Loss) Per Share," at page 39, is
incorporated herein by reference.
13.1 Annual Report to Shareholders for the year ended December 31, 1998
(portions incorporated by reference into this Form 10-K). *
21.1 Subsidiaries of the Registrant. *
23.1 Consent of Independent Auditors. *
27.1 Financial Data Schedule. *
99.1 Factors Affecting Future Operating Results. *
- -----------------
(1) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Registration Statement on Form S-1, File No. 33-83934.
(2) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(3) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Annual Report on Form 10-K for the fiscal year December
31, 1996.
(4) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(5) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995.
(6) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Registration Statement on Form S-4, File No. 333-06363.
(7) Incorporated herein by reference to the identical exhibit filed as part
of the Company's 1998 Proxy Statement.
(8) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Form 8-K dated September 28, 1998
(9) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Form 8-K dated February 4, 1999.
(10) Incorporated herein by reference to the identical exhibit filed as part
of the Company's Form 8-K dated February 17, 1999.
* Filed herewith.
# Management compensation plan.
31
<PAGE>
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K in the fourth quarter of
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Guidant Corporation
By /s/James M. Cornelius
----------------------------
James M. Cornelius,
Chairman of the Board
March 22, 1999
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------ --------------
<S> <C> <C>
/s/ James M. Cornelius Chairman of the Board and March 22, 1999
- --------------------------- Director (principal executive
James M. Cornelius officer)
/s/ Ronald W. Dollens President, Chief Executive March 22, 1999
- --------------------------- Officer and Director
Ronald W. Dollens (principal executive officer)
/s/ Keith E. Brauer Vice President, Finance and March 22, 1999
- --------------------------- Chief Financial Officer
Keith E. Brauer (principal financial officer)
/s/ Roger Marchetti Corporate Controller and Chief March 22, 1999
- --------------------------- Accounting Officer (principal
Roger Marchetti accounting officer)
/s/ Kim B. Clark, Ph.D. Director March 22, 1999
- ---------------------------
Kim B. Clark, Ph.D.
/s/ Maurice A. Cox, Jr. Director March 22, 1999
- ---------------------------
Maurice A. Cox, Jr.
/s/ Enrique C. Falla Director March 22, 1999
- ---------------------------
Enrique C. Falla
/s/ J.B. King Director March 22, 1999
- ---------------------------
J.B. King
/s/ Susan B. King Director March 22, 1999
- ---------------------------
Susan B. King
/s/ J. Kevin Moore Director March 22, 1999
- ---------------------------
J. Kevin Moore
/s/ Mark Novitch, M.D. Director March 22, 1999
- ---------------------------
Mark Novitch, M.D.
/s/ Eugene L. Step Director March 22, 1999
- ---------------------------
Eugene L. Step
/s/ Ruedi E. Wager Director March 22, 1999
- ---------------------------
Ruedi E. Wager, Ph.D.
</TABLE>
33
<PAGE>
Guidant Corporation and Subsidiaries
Schedule II. Valuation and Qualifying Accounts
(in millions)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Balance at Charges Balance at
Beginning and End of
Description of Period Expenses Deductions(1) Period
- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for inventory obsolescence $ 6.3 $29.6 $(12.9) $23.0
Allowance for doubtful accounts 5.7 2.3 (0.6) 7.4
----- ----- ------ -----
Totals $12.0 $31.9 $(13.5) $30.4
===== ===== ====== =====
Year Ended December 31, 1997
Allowance for inventory obsolescence $23.0 $14.7 $(11.9) $25.8
Allowance for doubtful accounts 7.4 5.4 (3.6) 9.2
----- ----- ------ -----
Totals $30.4 $20.1 $(15.5) $35.0
===== ===== ====== =====
Year Ended December 31, 1998
Allowance for inventory obsolescence $25.8 $17.7 $(20.5) $23.0
Allowance for doubtful accounts 9.2 15.4 (5.1) 19.5
----- ----- ------ -----
Totals $35.0 $33.1 $(25.6) $42.5
===== ===== ====== =====
</TABLE>
(1) Write-offs of obsolete units or uncollectible accounts.
F-1
<PAGE>
Exhibit List
13.1 Annual Report to Shareholders for the Year Ended December 31, 1998
(portions incorporated by reference)
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
99.1 Factors Possibly Affecting Future Operating Results
<PAGE>
EXHIBIT 10.13
CONFIDENTIAL SETTLEMENT AGREEMENT
This Confidential Settlement Agreement ("Agreement") is made and
entered into effective this 4th day of April, 1998 by and between C. R. Bard,
Inc., a New Jersey corporation having a principal place of business at 730
Central Avenue, Murray Hill, New Jersey, 07974 ("Bard") and Advanced
Cardiovascular Systems, Inc., a California corporation having a principal place
of business at 3200 Lakeside Drive, Santa Clara, California 95052 ("ACS") with
respect to the following:
RECITALS
A. Bard is the owner by assignment of the entire right, title and
interest in United States Patent No. 33,561 ("the `561 patent'") which was
granted on March 26, 1991 naming Levy as the inventory for an invention entitled
"BALLOON AND MANUFACTURE THEREOF" and United States Patent No. Re 32,983 ("the
`983 patent'") which was granted on July 11, 1989 naming Levy as the inventory
for an invention entitled "BALLOON AND MANUFACTURE THEREOF." Bard is also the
owner by assignment of the entire right, title and interest in United States
Patent No. 5,728,067 ("the `067 patent'") which was granted on March 17, 1998,
naming Enger as the inventor for an invention entitled "RAPIDLY EXCHANGEABLE
CORONARY CATHETER".
B. Bard and ACS are parties to a civil action pending in the United
States District Court for the District of Delaware identified as C.R. Bard, Inc.
v. Advanced Cardiovascular Systems, Inc., Civil Action No. 97-305 (RRM) ("the
Levy Action"). Bard and ACS are also parties to a civil action pending in the
United States District Court
1
<PAGE>
for the District of Delaware identified as C.R. Bard, Inc. v. Advanced
Cardiovascular Systems, Inc., Civil Action No. 98-120 (RRM) ("the Enger
Action").
C. The Levy Action involves claims by Bard against ACS for infringement
of the `561 and `983 patents and the Enger Action involves claims by Bard
against ACS for infringement of the `067 patent. ACS has denied Bard's claims.
D. Bard and ACS are parties to a Settlement Agreement dated January 13,
1992, which settled previous litigation between them ("the Prior Agreement").
E. Bard and ACS are also parties to opposition proceedings that involve
European Application No. 89312612.8-205/Patent No. 0380873 ("the ACS Foreign
Opposition") an equivalent patent to the `067 patent.
F. Bard is the owner of the entire right, title and interest in U.S.
Patent Nos. 4,917,088, 5,102,390, 5,104,376 and 5,201,754 naming Crittenden as
the inventor for an invention entitled "BALLOON DILATATION PROBE."
G. ACS is owner of certain patents and patent applications naming both
Paul G. Yock and Michael J. Horzewski as co-inventors and in particular U.S.
Patent No. 4,748,982 ("the `982 patent) which was granted on June 7, 1988, as
well as U.S. Patent Nos. 5,496,346 and 5,626,600 for an invention entitled
"REINFORCED BALLOON DILATATION CATHETER WITH SLITTED EXCHANGE SLEEVE AND
METHOD". Under the Prior Agreement, ACS granted certain rights to Bard under the
`982 patent. ACS is also the owner of U.S. Patent No. 4,538,622 naming Samson
and Williams as co-inventors which was granted on September 3, 1985 for an
invention entitled "GUIDE WIRE FOR CATHETERS."
2
<PAGE>
H. The parties hereto wish to settle and compromise the Levy Action and
Enger Action and potential disputes between them and to grant each other certain
rights to their foregoing respective patents and patent applications.
AGREEMENT
In consideration of the foregoing, and of the covenants and conditions
hereinafter set forth, and in settlement and compromise of certain controversies
that exist and potentially may exist between them, the parties hereby agree as
follows:
1. DEFINTIIONS
Solely for purposes of this Agreement, the following terms
shall have the meanings set forth below:
1.1 "Levy Patent Rights" means and compromises United States reissue
patent nos. RE 32,983 and 33,561, together with all other United States patents
that have issued or may issue from United States patent applications serial nos.
510,812, 914,108 or 287,234, including any and all divisionals, continuations,
continuations-in-part, reissues, reexaminations and extensions thereof, and
Foreign Counterparts of any and all of them.
1.2 "Samson Patent Rights" means and compromises United States patent
no. 4,538,622, together with all other United States patents that have issued or
may issue from United States patent application serial no. 550,917, including
any and all divisionals, continuations, continuations-in-part, reissues,
reexaminations and extensions thereof, and Foreign Counterparts of any and all
of them.
3
<PAGE>
1.3 "Horzewski-Yock Patent Rights" means and comprises United States
patent nos. 4,748,982, 5,496,346 and 5,626,600, together with all other United
States patents that have issued or may issue from United States patent
applications serial nos. 000,653, 199,025, 728,812, 482,093 or 069,297,
including any and all divisionals, continuations, continuations-in-part,
reissues, reexaminations and extensions thereof, and Foreign Counterparts of any
and all of them.
1.4 "Crittenden Patent Rights" means and comprises United States patent
nos. 4,917,088, 5,102,390, 5,104,376 and 5,201,754 together with all other
United States patents that have issued or may issue from United States patent
applications serial nos. 458,906, 475,417, 729,541 or 303,908, including any and
all divisionals, continuations, continuations-in-part, reissues, reexaminations
and extensions thereof, and Foreign Counterparts of any and all of them.
1.5 "Enger Patent Rights" means and comprises United States patent no.
5,728,067, together with all other United States patents that have issued or may
issue from United States patent application serial nos. 303,803, 618,531,
759,107, 999,589, 095,036, 477,617, or 642,334, including any and all
divisionals, continuations, continuations-in-part, reissues, reexaminations and
extensions thereof, and Foreign Counterparts (including EPO Patent No. 0 380,873
B1) of any and all of them.
1.6 "Minor Modifications" means only changes in 1) balloon diameter, 2)
balloon length, 3) balloon size, 4) balloon material, 5) the inner and outer
dimensions of the catheter shaft, 6) or the addition of coatings 7) hubs, 8)
shaft length and material, 9)
4
<PAGE>
balloon markers, or 10) minor components required by the FDA as a result of a
product defect or complaint. In no event shall any other change, addition, or
deletion be deemed a Minor Modification and, in particular, any design or
structural change, addition or deletion. By way of example but not limitation,
in no event shall a change in the length of the guidewire lumen to anything less
than the full length of the catheter be deemed a Minor Modification. In no event
shall the inclusion of any means which permit a guidewire to exit the catheter
shaft between the distal end and proximal end of the catheter be deemed a Minor
Modification.
1.7 "Affiliate" means any corporation, firm, partnership, joint venture
or other entity which, now or hereafter, directly or indirectly owns, is owned
by or is under common ownership of a party. "Owned" for purposes of determining
Affiliates shall mean ownership of more than fifty percent (50%) (or such lesser
percentage which is the maximum allowed to be owned by a foreign corporation in
a particular jurisdiction) of the equity or other ownership interest having the
power to vote on or direct the affairs of such corporation, firm, partnership,
joint venture or other entity.
1.8 "Confidential Information" means information that gives the
disclosing party an advantage over its competitors who do not know or use it,
including, but not limited to, techniques, designs, drawings, processes,
inventions, developments, equipment, prototypes, sales and customer information,
and business and financial information, relating to the business, products,
practices, or techniques of the disclosing party. As used herein, "Confidential
Information" shall not include any information or data which (i) is in or
becomes part of the public domain by any means other than the
5
<PAGE>
receiving party's breach of its obligations hereunder; (ii) was known to the
receiving party at the time of disclosure by the disclosing party; (iii) is, at
any time, disclosed to the receiving party by any third party having the right
to disclose the same; or (iv) is developed by an employee(s) or agent/consultant
of the receiving party who was not privy to any Confidential Information
disclosed by the disclosing party pursuant to this Agreement.
1.9 "Foreign Counterpart" means all foreign patent applications and
issued foreign patents which claim priority from, or share common priority with
an identified United States patent or patent application or which disclose and
claim the same invention that is the subject matter of such identified United
States patent or patent application.
2. STIPULATED DISMISSAL
Promptly upon the effective date of this Agreement, counsel
for the respective parties in the Levy Action and the Enger Action shall dismiss
with prejudice all aspects of those litigations, including all claims and
defenses, by executing a Stipulation and Order of Dismissal in the form attached
hereto as Exhibits A and B, and shall, not later than ten (10) days thereafter,
present the same to the Court for approval and filing.
3. LICENSE GRANTS
a. Levy Patent Rights
Bard grants to ACS and its Affiliates a paid-up,
irrevocable, non-exclusive, worldwide license, without the right to sublicense,
to make, have made, use,
6
<PAGE>
sell, offer for sale or import, lease or otherwise dispose of all past, current
and future products, and to practice processes and methods, under the Levy
Patent Rights. ACS acknowledges that the issued patents of the Levy Patent
Rights are valid and enforceable.
b. Enger Patent Rights
Bard grants to ACS and its Affiliates a paid-up,
irrevocable, nonexclusive, worldwide license, without the right to sublicense,
to make, have made, use, sell, offer for sale or import, lease or otherwise
dispose of all past, current and future products, and to practice processes and
methods, under the Enger Patent Rights.
c. Horzewski-Yock Patent Rights
To the extent not already provided for in the Prior
Agreement or the subject of the covenant not to sue recited in Section 4 infra,
ACS grants to Bard and its Affiliates an irrevocable, non-exclusive, worldwide
license, without the right to sublicense, to make, have made, use, sell, offer
for sale or import, lease or otherwise dispose of all past, current and future
products, and to practice processes and methods, solely in connection with Rapid
Exchange Perfusion Catheter Systems (as defined in the Prior Agreement), under
the Horzewski-Yock Patent Rights and the "Yock/McInnes Patent Rights" (as
defined in the Prior Agreement). In connection solely with Rapid Exchange
Perfusion Catheter Systems and by way of update only of the Prior Agreement, the
following Yock Patents are included in the Yock/McInnes Patent Rights as
currently advised: U.S. Patent Nos. 5,040,548, 5,061,273, 5,300,085, 5,350,395
and 5,451,233. This Agreement does not expand or alter the rights granted in the
Prior Agreement in any way under the Yock/McInnes Patent Rights. As defined in
Paragraph 2(c) of the Prior Agreement and for purposes of this Agreement, a
"Rapid Exchange Perfusion Catheter
7
<PAGE>
System" shall mean a coronary balloon dilatation catheter having a rapid
exchange capability without need for an extension wire such as that set forth,
for example, in U.S. Patent Nos. 5,040,548 and 5,061,273 and designed, intended
and marketed by Bard as a bona fide perfusion catheter having multiple holes in
the wall of the catheter shaft proximal to the balloon and distal to the guide
wire entry point to allow blood flow through the balloon region of the catheter
when the balloon is inflated. Nothing in this Paragraph shall be deemed to be
the grant of a license or of any rights to Bard and its Affiliates to make, have
made, use, sell, offer for sale or import, lease or otherwise dispose of, or to
practice processes and methods in connection with, any products other than a
Rapid Exchange Perfusion Catheter System.
d. Crittenden Patent Rights
Bard grants to ACS and its Affiliates, a paid-up,
irrevocable, non-exclusive, worldwide license, without the right to sublicense,
to make, have made, use, sell, offer for sale or import, lease or otherwise
dispose of all past, current and future products, and to practice processes and
methods, under the Crittenden Patent Rights.
e. Samson Patent Rights
ACS grants to Bard and its Affiliates a paid-up,
irrevocable, non-exclusive, worldwide license, without the right to sublicense,
to make, have made, use, sell, offer for sale or import, lease or otherwise
dispose of all past, current and future products, and to practice processes and
methods, under the Samson Patent Rights.
8
<PAGE>
4. COVENANT NOT TO SUE
a. ACS and its Affiliates covenant not to sue Bard or its
Affiliates for infringement of any patent owned by ACS or its Affiliates, or as
to which ACS or its Affiliates has the right to sue, by reason of Bard and its
Affiliates making, having made, using, selling, offering for sale or importing
in the United States or elsewhere, Bard's Telescope catheter as set forth in the
Specification attached as Exhibit C hereto and Minor Modifications thereto.
b. Bard and its Affiliates covenant not to sue ACS and its
Affiliates for any and all debts, claims, demands, and liabilities, whether
known or unknown, suspected or unsuspected, which are based in any way on any
and all of ACS's and its Affiliates past and current domestic and foreign
angioplasty catheters including stent delivery catheters. For purposes of this
section, "ACS's and its Affiliates past and current domestic and foreign
angioplasty catheters including stent delivery catheters" shall mean ACS's and
its Affiliates past and current domestic and foreign angioplasty catheters
including stent delivery catheters and shall specifically exclude any future
modifications to such products. Within thirty (30) business days from the
effective date of this Agreement ACS shall deliver to Bard appropriate
catalogues or materials evidencing such current products only. In particular,
and by way of example but not limitation, Bard and its Affiliates covenant not
to sue ACS and its Affiliates for infringement of any U.S. or foreign patents or
patent applications owned by Bard or its Affiliates, or as to which Bard or its
Affiliates has the right to sue, by reason of ACS or its Affiliates making,
having made, using, selling, offering for sale, leasing, importing or otherwise
disposing
9
<PAGE>
of in the United States or elsewhere any and all of ACS's and its Affiliates
past and current domestic and foreign angioplasty catheters including stent
delivery catheters.
5. OPPOSITION TO ENGER FOREIGN COUNTERPART
Within twenty (20) business days following the effective date
of this Agreement, ACS and its Affiliates shall take all practical steps to
withdraw from and thereafter terminate its participation in any opposition
proceedings it or an agent or representative of ACS and its Affiliates has
initiated or filed against any Foreign Counterpart of the Enger Patent Rights,
including but not limited to European Application No. 89312612.8-2305/Patent No.
0380873. ACS and its Affiliates also shall not thereafter participate or
cooperate with any other party in any future opposition proceedings that may be
initiated or filed against any Foreign Counterpart of the Enger Patent Rights,
unless required by law to do so. In the event that ACS or its Affiliates are so
required, it is agreed that ACS or its Affiliates will provide Bard with notice
of such requirement immediately, so that Bard may seek an appropriate protective
order. ACS and its Affiliates agree to reasonably cooperate with Bard in
connection with Bard's efforts to obtain any such order or other remedy.
6. PAYMENT TERMS
a. ACS shall pay to BARD the nonrefundable sum of One Hundred
Million Dollars ($100,000,000). Such payment shall be made within one (1)
business day following the effective date of this Agreement in U.S. currency by
wire transfer to the following account:
10
<PAGE>
Account Name C.R. Bard, Inc.
Bank Name and Address: Chase Manhattan Bank
New York, New York
Account No.: 910-2-426765
ABA Routing No.: 021000021
All licenses granted by Bard to ACS and its
Affiliates hereunder are fully paid-up. At no time, and under no circumstances,
shall any royalty payments be owed by ACS or its Affiliates to Bard or any third
party under this Agreement, either for past or future manufacture, use or sales.
b. Horzewski-Yock Patent Rights Royalty Payment
No royalty shall be payable by Bard to ACS in
connection with the Horzewski-Yock Patent Rights license set forth in Paragraph
3(c) of this Agreement and such license shall be governed by the terms and
conditions of the Prior Agreement.
7. PATENT MARKING
ACS and its Affiliates shall mark all catheters which are
covered by or whose use is covered by an issued claim of a U.S. patent within
the Levy Patent Rights. Enger Patent Rights or Crittenden Patent Rights with the
number of the applicable U.S. patent(s). Bard and its Affiliates shall mark all
products which are covered by or whose use is covered by an issued claim of a
U.S. patent within the Horzewski-Yock Patent Rights or Samson Patent Rights with
the number of the applicable U.S. patent(s). The marking may appear on the
package, label, instruction for use, or brochure relating to the sale by each
party of its Affiliates of such products.
11
<PAGE>
8. REPORTING
It is understood and agreed by the parties hereto that within
thirty (30) business days of a written request by Bard, which request will be
made by Bard no more than once each calendar quarter, ACS will provide Bard with
reasonably requested information concerning all sales of applicable products of
ACS and its Affiliates covered by the Levy Patent Rights, for the life of the
Levy Patent Rights. ACS considers such information to be Confidential
Information and Bard agrees to treat it as such and use it only for determining
its obligation, if any, to DuPont. Any such information that is communicated to
DuPont shall be designated and treated as "Confidential" under the terms of
Bard's agreement with DuPont, and Bard shall use its best efforts to ensure that
such information is held in strict confidence by DuPont. If Bard ever satisfies
its obligation to DuPont (which requires such ACS sales information be provided
to DuPont hereunder) prior to the expiration of the Levy Patent Rights, it shall
so notify ACS promptly and ACS shall have no further obligation to supply sales
data to Bard.
9. PAYMENT OF COSTS AND ATTORNEYS FEES
The parties hereto shall pay their own costs, attorneys' fees
and expenses incurred in connection with the Levy Action and the Enger Action as
identified and defined herein.
10. PUBLICITY
a. Voluntary Release of Information
12
<PAGE>
Neither Bard nor ACS shall release any information to
any third party with respect to the existence or terms of this Agreement without
the prior written consent of the other party. This prohibition includes, but is
not limited to, press releases, education and scientific conferences,
promotional materials, governmental filings, and discussions with lenders,
investment bankers, public officials, and the media. The foregoing restrictions
shall not apply to confidential discussions with advisors, including lawyers,
accountants, lenders, and investment bankers.
b. Required Disclosure
If Bard or ACS determines that a release of such
information is required by law or the Rules of the New York Stock Exchange or
any exchange on which the parties' securities are listed ("Stock Exchange
Rules"), it shall promptly notify the other party in writing thirty (30) days
before the time of the proposed release, if practicable. The notice shall
include the exact text of the proposed release and the time and manner of the
release. If requested by the other party hereto, the party seeking to release
information shall furnish to the other an opinion of counsel that the release of
all the information is required by law or the Stock Exchange Rules. At the other
party's request and before the release, the party desiring to release the
information shall consult with the other party on the necessity for the
disclosure and the text of the proposed release. Absent approval in advance from
the other party, in no event shall a release include information regarding the
existence or terms of this Agreement that is not required by law or the Stock
Exchange Rules. The parties have each reviewed and approved the press release
attached as Exhibits D and E and agree that no further
13
<PAGE>
Approval hereunder is required from either party for Exhibits D and E and other
disclosures consistent with Exhibits D and E.
c. Disclosure Pursuant to Legal Process
Should any third party seek to obtain any information
by legal process with respect to the existence of this Agreement from any party
hereto, such party to this Agreement shall promptly notify the other party
hereto, and shall take all appropriate measures to avoid and minimize the
release of such information.
d. Disclosure Pursuant To Sale Of Business
Bard and ACS shall be permitted to release any
information to others in confidence with respect to the existence or terms of
this Agreement or the Prior Agreement in connection with (i) a merger,
consolidation or sale of all of the stock of ACS or Bard or (ii) a sale of all
or substantially all of the assets of the Business (as defined in Section 20).
11. PROTECTIVE ORDERS
The parties agree to abide by the terms of the respective
Protective Orders (Re Confidentially) filed in the Levy Action which shall
remain in force and effect, and documents produced in discovery, which were
designated "Confidential" or "Confidential - For Counsel Only," and all
deposition transcripts, shall be destroyed or retained in confidence by counsel
of records for the parties. This Agreement is hereby designated as
"CONFIDENTIAL" pursuant to such Protective Order.
14
<PAGE>
12. NO IMPLIED LICENSES
Nothing in this Agreement shall be construed as conferring by
implication, estoppel or otherwise any license or other right under any patent
or intellectual property of the parties, except as expressly granted.
13. SETTLEMENT OF DISPUTES
Any dispute between the parties concerning the construction,
interpretation, and effect of this Agreement or any clause herein contained, or
the rights and liabilities of the parties hereunder, or the coverage of any
patent claims licensed herein, shall be resolved, if necessary, by binding
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
locale of the arbitration shall be Chicago, Illinois. ACS and Bard shall
initially share the arbitration costs. However, the party losing the arbitration
shall then pay the total costs of the arbitration, reimbursing the other party
for costs of the arbitration already paid, provided that each party shall pay
its own costs and attorneys' fees. The validity, enforceability and ownership of
the patents licensed herein shall not be at issue in any future dispute between
the parties arising under this Agreement, except as expressly provided with
respect to holding of invalidity, unpatentability or unenforceability by the
U.S. Patent and Trademark Office (or similar foreign patent office, agency or
court) in proceedings initiated and prosecuted by a party other than and not
affiliated, directly or indirectly, with the party licensed under the patent in
question, or in third party litigation.
15
<PAGE>
14. ABSENCE OF WAIVER
The failure of any party to enforce at any time any provision
of this Agreement shall in no way be construed as a waiver of such provision,
nor in any way affect the validity of this Agreement or any part thereof, or the
right of any party to later enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to be a waiver of any other or
subsequent breach.
15. ENTIRE AGREEMENT
With the exception of the Prior Agreement, which shall remain
in full force and effect except as specifically amended by this Agreement, and
the Interference Settlement Agreement entered into on the same day as this
Agreement, this Agreement shall constitute the entire agreement between the
parties hereto with respect to the subject matter hereof, and shall supersede
all previous negotiations, commitments and writing, except as specifically
provided in Paragraph 11 hereof which shall remain in force and effect. This
Agreement shall not be modified or altered in any manner except by an instrument
in writing executed by all the parties hereto.
16. SEVERABILITY
If any provision of this Agreement is found to be prohibited
by law and invalid, or for any reasons such provision is held unenforceable, in
whole or in part, that provision shall be considered severable and its
invalidity or enforceability shall not effect the remainder of this Agreement,
which shall continue in full force and effect.
16
<PAGE>
17. NOTICE
a. Any notice, report, written statement or payment to a party
permitted or required under this Agreement shall be in writing and shall be sent
by certified mail, return receipt requested, Federal Express, or hand delivered
at the respective addresses set forth below, or to such other addresses as the
respective parties may from time to time designate:
ADVANCED CARDIOVASCULAR SYSTEMS, INC.
3200 Lakeside Drive
Santa Clara, California 95052-8167
Attention: General Counsel
GUIDANT CORPORATION
111 Monument Circle
Indianapolis, Indiana 46204-5129
Attention: General Counsel
C.R. BARD, INC.
730 Central Avenue
Murray Hill, New Jersey 07974
Attention: General Counsel
b. Any such notice, report, statement or payment under
Subparagraph 17(a) above which is sent by prepaid registered or certified mail,
or by Federal Express, shall be deemed to have been duly made upon mailing,
subject to proof of receipt.
18. APPLICABLE LAW
This Agreement shall be deemed to be executed and to be
performed in the State of California and shall be construed in accordance with
the laws of the State of California as to all matters, including, but not
limited to, matters of validity, construction, effect, or performance.
17
<PAGE>
19. NO ADMISSION
Neither the entering into this Agreement, nor any provision
hereof, shall be deemed as an admission by any party of any wrongdoing, or of
the validity or invalidity of any position taken or proposed to be taken by or
against the party in the Levy Action or Enger Action or any other litigation.
Nothing in this Agreement shall be construed as an admission of the validity or
enforceability of the Enger Patent Rights.
20. ASSIGNMENT OR TRANSFER
Except as set forth below, neither this Agreement nor any of
the rights or obligations arising under this Agreement may be assigned or
transferred by any party, in whole or in part, without the prior written consent
of the other party, and any attempted assignment or transfer without such
written consent shall be of no force or effect. Notwithstanding the foregoing,
this Agreement, including the rights and obligations arising under this
Agreement can be assigned or transferred by a party in connection with (i) a
merger, consolidation, or sale of all of the stock of that party or (ii) a sale
of all or substantially all of the assets of the Business (as defined below) of
that party, provided, however, that any such assignment or transfer by Bard
shall not relieve Bard of its obligations under Section 22 of this Agreement
without the consent of ACS. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the permitted successors, assigns, and
transferees of the parties. For purposes of this Section, Business shall mean,
with respect to ACS, those portions of its operations that are related to
developing, manufacturing and selling angioplasty products, and with respect to
Bard,
18
<PAGE>
those portions of its operations that are related to developing, manufacturing
and selling coronary angioplasty products.
21. REPRESENTATIONS AND WARRANTIES
Each of the parties hereto represents and warrants to each
other that it has the right to enter into this Agreement and to grant the rights
as provided herein. In particular Bard represents and warrants that it is the
owner by assignment of the entire right, title and interest in and to the Levy
Patent Rights and the Enger Patent Rights, and has all rights to sue for past
damages. Bard further represents and warrants that it is not in breach of its
agreement with DuPont. Bard agrees that it will remain in compliance with its
DuPont agreement for the life of the last to expire Levy Patent Rights, and will
take all necessary steps to keep that agreement in force.
Each party hereto also represents and warrants that no
assignment, sale or agreement or encumbrance has been, or will be made or
entered into which would conflict with the rights granted to the other party by
this Agreement.
The parties' respective representations and warranties set
forth herein shall survive expirations or termination of this Agreement.
22. HOLD HARMLESS
Bard shall indemnify and hold harmless ACS and its Affiliates
from and against any claims by DuPont, Ms. Enger, Dr. Levy or a third party
deriving rights therefrom, against ACS and its Affiliates, with respect to the
Levy Patent Rights and the Enger Patent Rights, and by Mr. Crittenden, or a
third party deriving rights therefrom.
19
<PAGE>
against ACS or its Affiliates with respect to the Crittenden Patent Rights. ACS
shall indemnify and hold harmless Bard from any claims by Dr. Yock or Mr.
Horzewski or a third party deriving rights therefrom, against Bard or its
Affiliates with respect to the Horzewski-Yock Patent Rights in connection with
Rapid Exchange Perfusion Catheter Systems, and by Mr. Samson or a third party
deriving rights therefrom, against Bard or its Affiliates with respect to the
Samson Patent Rights.
23. TERM AND TERMINATION
a. This Agreement shall become effective as of April 4, 1998.
b. This Agreement shall continue until the expiration of the
last to expire of the patents or patent applications under which rights are
granted pursuant to this Agreement.
c. Expiration of certain patent licenses or covenants
hereunder shall not affect any obligation by Bard to pay royalties under the
affected license or covenant which may have accrued prior thereto, nor shall
such expiration affect the rights and obligations of the parties with respect to
any of the other licenses or covenants under this Agreement which shall remain
in full force and effect. All other rights and obligations of the parties,
including the obligations of confidentiality, shall survive such expiration.
24. CAPTIONS
Captions are inserted herein only as a matter of convenience
and for reference, and in no way define, limit or describe the scope of this
Agreement or the intent of any provision herein.
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25. NO STRICT CONSTRUCTION
This Agreement has been prepared with the participation of
both parties, and shall not be strictly construed against either party.
26. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
27. CONSULTATION WITH COUNSEL AND RELIANCE
ACS and Bard each acknowledges that it has or has had the
opportunity to consult with counsel of its choice, and that in executing this
Agreement it has not relied upon any statement, representations or agreements or
any other person than those contained herein.
28. OTHER DOCUMENTS
Each of the parties hereto agrees to execute such additional
documents or instruments as are specifically contemplated above or as otherwise
may be reasonably required to carry out the intents and purposes of this
Agreement, including, specifically, the dismissal referenced in Paragraph 2
above.
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29. RELATIONSHIP BETWEEN THE PARTIES
It is understood that the parties hereto are independent
contractors and engaged in the conduct of their own respective endeavors.
Neither ACS nor Bard is to be considered the agent or employee of the other for
any purpose, and neither party has the right or authority to enter into any
contract or assume any obligation for the other or give any warranty or make any
representation on behalf of the other party except where and to the extent
specifically authorized in writing to do so.
30. FORCE MAJEURE
In the event any party hereto is prevented or is otherwise
unable to perform any of its obligations under this Agreement due to fire,
flood, earthquake, war, strikes, lockouts, labor troubles, materials shortages,
failure of public utilities, injunctions, governmental actions, or other events
beyond the reasonable control of the party affected, the affect party shall give
notice promptly to the other party in writing and thereupon, the affected
party's nonperformance shall be excused and the time for performance of this
Agreement shall be extended for the period of delay or inability due to such
Force Majeure.
31. SURVIVAL OF PRIOR BARD AGREEMENTS
In the event that ACS mergers or consolidates with a third
party, or sells to a third party all or substantially all of the assets of the
Business, then to the extent that Bard has pre-existing agreement(s) with any
such third parties as of the effective date of this Agreement, relating to Bard
patents which are the subject of this Agreement, any
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payment or royalty provisions to Bard provided for under those pre-existing
agreements for such Bard patents shall remain in full force and effect only
against such third party, and shall otherwise be unaffected by the provisions of
this Agreement. Bard represents and warrants that as of the effective date of
this Agreement the only third parties which have any rights to such Bard patents
are J&J/Cordis and Schneider.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers, effective as of the day and year
first above written.
C.R. BARD, INC.
By: ______________________________
Attest: ___________________________ Title: ___________________________
ADVANCED CARDIOVASCULAR
SYSTEMS, INC.
By: ______________________________
Attest: ___________________________ Title: ___________________________
(bard levy stlmt agmt 3rd)
<PAGE>
EXHIBIT 10.40
CONFORMED COPY
$400,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
August 26, 1998
among
Guidant Corporation,
The Banks Party Hereto,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
-------------------------------
J.P. Morgan Securities Inc.
Arranger
Bank of America NT&SA
The Chase Manhattan Bank,
Co-Syndication Agents
Bank of America NT&SA
The Chase Manhattan Bank,
Co-Documentation Agents
Citicorp USA, Inc.
NBD Bank, N.A.,
Senior Managing Agents
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions 1
SECTION 1.02. Accounting Terms and Determinations 14
SECTION 1.03. Types of Borrowings 15
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend 15
SECTION 2.02. Notice of Committed Borrowing 16
SECTION 2.03. Money Market Borrowings 16
SECTION 2.04. Notice to Banks; Funding of Loans 20
SECTION 2.05. Notes 21
SECTION 2.06. Maturity of Loans 22
SECTION 2.07. Interest Rates 22
SECTION 2.08. Method of Electing Interest Rates 25
SECTION 2.09. Facility Fees 27
SECTION 2.10. Termination or Reduction of Commitments 27
SECTION 2.11. Optional Prepayments 28
SECTION 2.12. General Provisions as to Payments 28
SECTION 2.13. Funding Losses 29
SECTION 2.14. Computation of Interest and Fees 29
SECTION 2.15. Regulation D Compensation 30
SECTION 2.16. Maximum Interest Rate 30
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness 31
SECTION 3.02. Borrowings 32
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power 33
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention 33
<PAGE>
PAGE
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SECTION 4.03. Binding Effect 33
SECTION 4.04. Financial Information 33
SECTION 4.05. Litigation 34
SECTION 4.06. Compliance with ERISA 34
SECTION 4.07. Environmental Matters 34
SECTION 4.08. Taxes 35
SECTION 4.09. Subsidiaries 35
SECTION 4.10. No Regulatory Restrictions on Borrowing 35
SECTION 4.11. Full Disclosure 35
SECTION 4.12. Year 2000 36
ARTICLE 5
COVENANTS
SECTION 5.01. Information 36
SECTION 5.02. Payment of Obligations 38
SECTION 5.03. Maintenance of Property; Insurance 39
SECTION 5.04. Conduct of Business and Maintenance of Existence 39
SECTION 5.05. Compliance with Laws 39
SECTION 5.06. Inspection of Property, Books and Records 39
SECTION 5.07. Consolidated Leverage Ratio 40
SECTION 5.08. Subsidiary Debt 40
SECTION 5.09. Minimum Consolidated Tangible Net Worth 40
SECTION 5.10. Negative Pledge 40
SECTION 5.11. Consolidations, Mergers and Sales of Assets 41
SECTION 5.12. Use of Proceeds 41
SECTION 5.13. Limitations on Restrictions Affecting Subsidiaries 42
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default 42
SECTION 6.02. Notice of Default 45
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization 45
SECTION 7.02. Administrative Agent and Affiliates 45
SECTION 7.03. Action by Administrative Agent 45
SECTION 7.04. Consultation with Experts 45
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PAGE
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SECTION 7.05. Liability of Administrative Agent 46
SECTION 7.06. Indemnification 46
SECTION 7.07. Credit Decision 46
SECTION 7.08. Successor Administrative Agent 47
SECTION 7.09. Agents' Fees 47
SECTION 7.10. Other Agents 47
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair 47
SECTION 8.02. Illegality 48
SECTION 8.03. Increased Cost and Reduced Return 49
SECTION 8.04. Taxes 50
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans 52
SECTION 8.06. Substitution Of Bank 53
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices 53
SECTION 9.02. No Waivers 54
SECTION 9.03. Expenses; Indemnification 54
SECTION 9.04. Set-off 55
SECTION 9.05. Amendments and Waivers 55
SECTION 9.06. Successors; Participations and Assignments 56
SECTION 9.07. Designated Lenders 58
SECTION 9.08. No Reliance on Margin Stock 59
SECTION 9.09. Governing Law; Submission to Jurisdiction 59
SECTION 9.10. Counterparts; Integration 59
SECTION 9.11. WAIVER OF JURY TRIAL 59
iii
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COMMITMENT SCHEDULE
PRICING SCHEDULE
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E-1 - Opinion of Special Counsel for the Borrower
Exhibit E-2 - Opinion of General Counsel of the Borrower
Exhibit F - Opinion of Davis Polk & Wardwell, Special
Counsel for the Agents
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Designation Agreement
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FIVE-YEAR AGREEMENT dated as of August 26, 1998 among GUIDANT CORPORATION, the
BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"ACS" means Advanced Cardiovascular Systems, Inc., a California
corporation.
"Absolute Rate Auction" means a solicitation of Money Market Quotes setting
forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New York in
its capacity as agent for the Banks hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent,
completed by such Bank and returned to the Administrative Agent (with a copy to
the Borrower).
"Agents" means the Administrative Agent, the Syndication Agents, the
Documentation Agents and the Senior Managing Agents.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
<PAGE>
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means (i) each bank or other financial institution listed on the
Commitment Schedule, (ii) each Assignee which becomes a Bank pursuant to Section
9.06(c) and (iii) their respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means a Committed Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Section 2.08(a) or Article 8.
"Benefit Arrangement" means, at any time, an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means Guidant Corporation, an Indiana corporation, and its
successors.
"Borrower's 1997 Form 10-K" means the Borrower's annual report on Form 10-K
for 1997, as filed with the SEC pursuant to the Exchange Act.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report on
Form 10-Q for the quarter ended June 30, 1998, as filed with the SEC pursuant
to the Exchange Act.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CID Loan" means a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Committed Borrowing or Notice of Interest
Rate Election.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
"CD Rate" means a rate of interest determined pursuant to Section 2.07(b)
on the basis of an Adjusted CID Rate.
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"CD Reference Banks" means Morgan Guaranty Trust Company of New York, Bank
of America NT&SA and The Chase Manhattan Bank.
"CPI" means Cardiac Pacemakers, Inc., a Minnesota corporation.
"Commitment" means, (i) with respect to each Bank listed on the Commitment
Schedule, the amount set forth opposite such Bank's name on the Commitment
Schedule and (ii) with respect to any Assignee which becomes a Bank pursuant to
Section 9.06(c), the amount of the transferor Bank's Commitment assigned to it
pursuant to Section 9.06(c), in each case, as such amount may be changed from
time to time pursuant to Section 2. 10 and Section 9.06(c); provided that, if
the context so requires, the term "Commitment" means the obligation of a Bank to
extend credit up to such amount to the Borrower hereunder.
"Commitment Schedule" means the Commitment Schedule attached hereto.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Consolidated Debt" means, at any date, the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period plus, to the extent deducted in determining Consolidated Net Income
for such period, the aggregate amount of (i) Consolidated Interest Expense, (ii)
income tax expense and (iii) depreciation, amortization and other similar
non-cash charges.
"Consolidated Leverage Ratio" means, at any date, the ratio of (i)
Consolidated Debt at such date to (ii) Consolidated EBITDA for the period of
four consecutive Fiscal Quarters most recently ended on or prior to such date.
"Consolidated Net Income" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
for such period, adjusted to exclude the effect of any extraordinary gain or
loss.
3
<PAGE>
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"Consolidated Tangible Net Worth" means, at any date, the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries less
their consolidated Intangible Assets, all determined as of such date. For
purposes of this definition "Intangible Assets" means the amount (to the extent
reflected in determining such consolidated stockholders' equity) of (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of assets of a going concern business made within twelve months after
the acquisition of such business) subsequent to December 31, 1997 in the book
value of any asset owned by the Borrower or a Consolidated Subsidiary and (ii)
all unamortized debt discount and expense, unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, anticipated future
benefit of tax loss carry-for-wards, copyrights, organization or developmental
expenses and other intangible assets.
"Credit Exposure" means, with respect to any Bank at any time, (i) the
amount of its Commitment (whether used or unused) at such time or (ii) if the
Commitments have terminated in their entirety, the aggregate outstanding
principal amount of its Loans at such time.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with GAAP, (v) all non-contingent obligations (and, for purposes of
Section 5. 10 and the definitions of Material Debt and Material Financial
Obligations, all contingent obligations) of such Person to reimburse any bank or
other Person in respect of amounts paid under a letter of credit or similar
instrument, (vi) all redeemable preferred stock of such Person, if such stock is
mandatorily redeemable on or prior to the Termination Date, (vii) all Debt
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (viii) all Debt of others Guaranteed
by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
4
<PAGE>
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Designated Lender" means, with respect to any Designating Bank, an
Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated
Lender for purposes of this Agreement.
"Designating Bank" means, with respect to each Designated Lender, the Bank
that designated such Designated Lender pursuant to Section 9.07(a).
"Documentation Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as documentation agents in respect of this Agreement.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth 'in Section
2.07(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
5
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"Eligible Designee" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, written or published plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental restrictions
relating to the environment or the effect of the environment on human health or
to emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment, including (without limitation)
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election.
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"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.07(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of Morgan
Guaranty Trust Company of New York, Bank of America NT&SA and The Chase
Manhattan Bank.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is 'in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day, provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Administrative Agent.
"Fiscal Quarter" means a fiscal quarter of the Borrower.
"Fiscal Year" means a fiscal year of the Borrower.
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"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01) or any combination of the foregoing.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks.
"Group of Loans" means, at any time, a group of Loans consisting of (i) all
Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar
Loans having the same Interest Period at such time or (iii) all CD Loans having
the same Interest Period at such time, provided that, if a Committed Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time to
time as it would have been in if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by virtue of an agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (i) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months, or if deposits of a
8
<PAGE>
corresponding maturity are available to all Banks in the London interbank
market, nine or twelve months thereafter, as the Borrower may elect in such
notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(2) with respect to each CD Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in an applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in such notice; provided
that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(3) with respect to each Money Market LIBOR Loan, the period commencing on
the date of borrowing specified in the applicable Notice of Borrowing and ending
such number of days thereafter (but not less than 7 days) as the Borrower may
elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
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(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date; and
(4) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing, and ending such number of days thereafter (but not less than 7 days)
as the Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market Quotes setting forth
Money Market Margins based on the London Interbank Offered Rate pursuant to
Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Committed Loan or a Money Market Loan and "Loans" means
Committed Loans or Money Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).
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"Material" means, with respect to any matter so characterized herein, that
such matter could reasonably be expected to be significant to a Bank in
determining whether to enter into this Agreement, make any Loans or take or not
take any other action hereunder.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, results of operations, proper-ties,
liabilities or prospects of the Borrower and its Subsidiaries, considered as a
whole.
"Material Debt" means Debt of the Borrower and/or one or more of
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $25,000,000.
"Material Financial Obligations" means a principal or face amount of Debt
and/or payment obligations then due and payable in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$25,000,000.
"Material Plan" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
"Money Market Absolute Rate" has the meaning set forth in Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan made or to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; provided that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan" means a loan made or to be made by a Bank
pursuant to a LIBOR Auction (including any such loan bearing interest at the
Base Rate pursuant to Section 8.01).
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"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.03(d)(ii)(C),
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"1996 Credit Agreement" means the Credit Agreement dated as of January 8,
1996 among the Borrower, the banks party thereto and Morgan Guaranty Trust
Company of New York, as agent for such banks, as amended.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans,
and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined in
Section 2.02) or a Notice of Money Market Borrowing (as defined in Section
2.03(f)).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.08.
"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a limited liability
corporation, a partnership, an association, a trust or any other entity or
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organization, including a government or political subdivision or an agency or
instrumentality thereof
"Plan" means, at any time, an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Payment Dates" means each March 3 1, June 30, September 30 and
December 3 1.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference
Banks, as the context may require, and "Reference Bank" means any one of such
Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Required Banks" means, at any time, Banks having more than 50% in
aggregate amount of the Credit Exposures at such time.
"Revolving Credit Period" means the period from and including the Effective
Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"SEC" means the Securities and Exchange Commission.
"Senior Managing Agents" means Citicorp USA, Inc. and NBD Bank, N.A. in
their capacity as senior managing agents in respect of this Agreement.
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"Significant Subsidiary" means a Subsidiary Which is a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X promulgated by the
SEC.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Syndication Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as syndication agents in respect of this Agreement
"Termination Date" means August 26, 2003, or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed
by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
"Wholly-Owned Consolidated Subsidiary" means, With respect to any Person,
any Consolidated Subsidiary all of the shares of capital stock or other
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by such Person.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower
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notifies the Administrative Agent that the Borrower wishes to amend provision
hereof to eliminate the effect of any change in GAAP on the operation of such
covenant (or if the Administrative Agent notifies the Borrower that the Required
Banks wish to amend any provision hereof for such purpose), then such provision
shall be applied on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or such
provision is amended in a manner satisfactory to the Borrower and the Required
Banks.
SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes (i) the
aggregation of Loans made or to be made to the Borrower by one or more Banks
pursuant to Article 2 on the same day, all of which Loans are of the same type
(subject to Article 8) and, except in the case of Base Rate Loans, have the same
initial Interest Period or (ii) if the context so requires, the borrowing of
such Loans. Borrowings are classified for purposes hereof either (i) by
reference to the pricing of Loans comprising such Borrowing (e.g., a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or (ii)
by reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "Money
Market Borrowing" is a Borrowing under Section 2.03 in which one or more Banks
participate on the basis of their bids).
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the terms
and conditions set forth in this Agreement, to make loans to the Borrower
pursuant to this Section from time to time during the Revolving Credit Period;
provided that, immediately after each such loan is made, (i) the aggregate
outstanding principal amount of such Bank's Committed Loans shall not exceed its
Commitment and (ii) the aggregate outstanding principal amount of all the Loans
shall not exceed the aggregate amount of the Commitments. Each Borrowing under
this Section 2.01 shall be in an aggregate principal amount of $25,000,000 or
any larger multiple of $5,000,000 (except that any such Borrowing may be in the
aggregate amount available within the limitations in the foregoing proviso) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section, prepay Loans to the extent permitted by Section 2.11 and reborrow at
any time during the Revolving Credit Period under this Section.
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SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing") not later than
10.30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y)
the second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day in
the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a
Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and
(d) in the case of a CD Borrowing, or a Euro-Dollar Borrowing, the duration
of the initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
Notwithstanding the foregoing, no more than 20 Fixed Rate Committed Borrowings
shall be outstanding at any one time, and any Borrowing which would exceed such
limitation shall be made as a Base Rate Borrowing.
SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In
addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as
set forth in this Section, request the Banks to make offers to make Money Market
Loans to the Borrower from time to time during the Revolving Credit Period. The
Banks may, but shall have no obligation to, make such offers and the Borrower
may, but shall have no obligation to, accept any such offers in the manner set
forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request offers
to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received not later
than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day
before the date of Borrowing proposed therein, in the case of a LIBOR Auction or
(y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Administrative Agent shall have mutually
agreed and shall have notified to the Banks not later than the date of the Money
Market
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Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$15,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly after receiving a Money
Market Quote Request, the Administrative Agent shall send to the Banks by telex
or facsimile an Invitation for Money Market Quotes substantially in the form of
Exhibit C hereto, which shall constitute an invitation by the Borrower to each
Bank to submit Money Market Quotes offering to make the Money Market Loans to
which such Money Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this Section 2.03(d) and must be
submitted to the Administrative Agent by telex or facsimile at its offices
specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
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Money Market Quotes submitted by the Administrative Agent (or any affiliate of
the Administrative Agent) in the capacity of a Bank may be submitted, and may
only be submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not later than
(x) one hour before the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes before the deadline for the other Banks, in the case
of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote
so made shall not be revocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be substantially in the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing;
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater
than or less than the Commitment of the quoting Bank, (x) must be
$5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the
principal amount of Money Market Loans for which offers were requested
and (z) may be subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by such
quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000 of 1%) to be added to or subtracted
from such base rate;
(D) in the case of an Absolute Rate Auction, the rate of interest
per annum (specified to the nearest 1/10,000 of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan; and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
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(A) is not substantially in conformity with Exhibit D hereto or
does not specify all of the information required by subsection
2.03(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth
in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection 2-03(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly notify the
Borrower of the terms of (i) any Money Market Quote submitted by a Bank that is
in accordance with Section 2.03(d) and (ii) any Money Market Quote that amends,
modifies or is other-wise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote. The Administrative Agent's
notice to the Borrower shall specify (A) the aggregate principal amount of Money
Market Loans for which offers have been received for each Interest Period
specified in the related Money Market Quote Request, (B) the respective
principal amounts and Money Market Margins or Money Market Absolute Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in any single Money
Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York
City time) on (x) the third Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Administrative Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Administrative
Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to Section 2.03(e). In the case of acceptance, such notice (a "Notice
of Money Market Borrowing") shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. The Borrower may accept any
Money Market Quote in whole or in part; provided that:
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(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money
Market Quote Request;
(ii) the principal amount of each Money Market Borrowing must be
$15,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be;
(iv) the Borrower may not accept any offer that is described in
subsection 2.03(d)(iii) or that otherwise fails to comply with the
requirements of this Agreement; and
(v) immediately after such Money Market Borrowing is made, the
aggregate outstanding principal amount of the Loans shall not exceed
the aggregate amount of the Commitments.
(g) Allocation by Administrative Agent. If offers are made by two or more
Banks with the same Money Market Margins or Money Market Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Administrative Agent among such Banks as nearly as possible
(in multiples of $1,000,000, as the Administrative Agent may deem appropriate)
in proportion to the aggregate principal amounts of such offers. Determinations
by the Administrative Agent of the amounts of Money Market Loans shall be
conclusive in the absence of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans. (a) Promptly after
receiving a Notice of Borrowing, the Administrative Agent shall notify each Bank
of the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than (x) 12:00 Noon (New York City time) on the date of each
Base Rate Borrowing and each Money Market Absolute Rate Borrowing and (y) 10:00
A.M. (New York City time) on the date of any other Borrowing, each Bank
participating therein shall make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make
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the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a Bank-
before the date of any Borrowing that such Bank will not make available to the
Administrative Agent such Bank's share of such Borrowing, the Administrative
Agent may assume that such Bank has made such share available to the
Administrative Agent on the date of such Borrowing in accordance with Section
2.04(b) and the Administrative Agent may, in reliance on such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such share available to the
Administrative Agent, such Bank and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent,
at (i) if such amount is repaid by the Borrower, a rate per annum equal to the
higher of the Federal Funds Rate and the interest rate applicable to such
Borrowing pursuant to Section 2.07 and (ii) if such amount is repaid by such
Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative
Agent such corresponding amount, the Borrower shall not be required to repay
such amount and the amount so repaid by such Bank shall constitute such Bank's
Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.05. Notes. (a) The Borrower's obligation to repay the Loans of
each Bank shall be evidenced by a single Note payable to the order of such Bank
for the account of its Applicable Lending Office.
(b) Each Bank may, by notice to the Borrower and the Administrative Agent,
request that the Borrower's obligation to repay such Bank's Loans of a
particular type be evidenced by a separate Note. Each such Note shall be
substantially in the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it relates solely to Loans of the relevant type. Each
reference in this Agreement to the "Note" of such Bank shall be deemed to refer
to and include any or all of such Notes, as the context may require.
(c) Promptly after it receives each Bank's Note pursuant to Section 3.01
(b) the Administrative Agent shall forward such Note to such Bank. Each Bank
shall record the date, amount and type of each Loan made by it and the date and
amount of each payment of principal made by the Borrower with respect thereto,
and may, if such Bank so elects in connection with any transfer or enforcement
of its Note, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each
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such Loan then outstanding; provided that a Bank's failure to make (or any error
in making) any such recordation or endorsement shall not affect the obligations
of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. (a) Each Committed Loan shall mature, and
the principal amount thereof shall be due and payable (together with interest
accrued thereon), on the Termination Date.
(b) Each Money Market Loan included in any Money Market Borrowing shall
mature, and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the last day of the Interest Period applicable to
such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the Base Rate for such day.
(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for each day during each Interest Period applicable thereto, at a rate
per annum equal to the sum of the CD Margin for such day plus the Adjusted CD
Rate applicable to such Interest Period; provided that if any CD Loan shall, as
a result of clause (2)(b) of the definition of Interest Period, have an Interest
Period of less than 30 days, such CD Loan shall bear interest for each day
during such Interest Period at the Base Rate for such day. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than 90 days, at intervals of 90 days after the first
day thereof. Any overdue principal of or interest on any CD Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the higher of (i) the Base Rate for such day and (ii) the
sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such
Loan on the day before such payment was due.
The "Adjusted CD Rate" applicable to any Interest Period means a rate per
annum determined pursuant to the following formula:
[CDBR ]*
ACDR = [------------] + AR
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[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------------
* The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
"Domestic Reserve Percentage" means for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in New York City with deposits exceeding five billion dollars in respect
of new non-personal time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The Adjusted CD Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
adequately capitalized and within supervisory subgroup "A" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R.
Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance
Corporation (or any successor) for such Corporation's (or such successors)
insuring time deposits at offices of such institution in the United States. The
Adjusted CD Rate shall be adjusted automatically on and as of the effective date
of any change in the Assessment Rate.
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(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day, thereof
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1 /100 of 1%) of
the respective rates per annum at which deposits in dollars are offered to each
of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Loan on the day before such
payment was due and (ii) the sum of 2% plus the Euro-Dollar Margin for such day
plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/100 of 1%) of the respective rates per annum. at which one day
(or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than three months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks
are offered to such Euro-Dollar Reference Bank in the London interbank market
for the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
8.01(a) or 8.01(b) shall exist, at a rate per annum equal to the sum of 2% plus
the Base Rate for such day).
(e) Subject to Section 8.01, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.07(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan. Each Money Market Absolute Rate Loan shall bear
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interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum. equal to the Money Market Absolute Rate
quoted by the Bank making such Loan. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is longer
than three months, at intervals of three months after the first day thereof Any
overdue principal of or interest on any Money Market Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 2% plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder. The Administrative Agent shall promptly notify the
Borrower and the participating Banks of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.08. Method of Electing Interest Rates. (a) The Loans included in
each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject to Section 2.08(d)
and the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day
or convert such Loans to Euro-Dollar Loans as of any Euro-Dollar
Business Day or continue such Loans as CD Loans for an additional
Interest Period, subject to Section 2.13 if any such conversion is
effective on any day other than the last day of an Interest Period
applicable to such Loans; and
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(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans as of any Domestic Business
Day or convert such Loans to CD Loans as of any Euro-Dollar Business
Day or elect to continue such Loans as Euro-Dollar Loans for an
additional Interest Period, subject to Section 2. 1 3 3 if any such
conversion is effective on any day other than the last day of an
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective (unless the relevant
Loans are to be converted from Domestic Loans of one type to Domestic Loans of
the other type or are CD Loans to be continued as CD Loans for an additional
Interest Period, in which case such notice shall be delivered to the
Administrative Agent not later than 10:30 A.M. (New York City time) on the
second Domestic Business Day before such conversion or continuation is to be
effective), A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each at least $25,000,000 (unless such
portion is comprised of Base Rate Loans). If no such notice is timely received
before the end of an Interest Period for any Group of CD Loans or Euro-Dollar
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans at the end of such Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of Section 2.08(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans resulting from such conversion are
to be CD Loans or Euro-Dollar Loans, the duration of the next
succeeding Interest Period applicable thereto; and
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(iv) if such Loans are to be continued as CD Loans or Euro-Dollar
Loans for an additional Interest Period, the duration of such
additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Promptly after receiving a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.08(a) above, the Administrative Agent shall
notify each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any Committed
Loans to, or continue any Committed Loans for an additional Interest Period as,
CD Loans or Euro-Dollar Loans if (i) the aggregate principal amount of any Group
of CD Loans or Euro-Dollar Loans created or continued as a result of such
election would be less than $25,000,000 or (ii) a Default shall have occurred
and be continuing when the Borrower delivers notice of such election to the
Administrative Agent.
(e) If any Committed Loan is converted to a different type of Loan, the
Borrower shall pay, on the date of such conversion, the interest accrued to such
date on the principal amount being converted.
SECTION 2.09. Facility Fees. The Borrower shall pay to the Administrative
Agent for the account of the Banks ratably in proportion to their Credit
Exposures, a facility fee calculated for each day at the Facility Fee Rate for
such day (determined in accordance with the Pricing Schedule) on the aggregate
amount of the Credit Exposures on such day. Such facility fee shall accrue for
each day from and including the Effective Date to but excluding the day on which
the Credit Exposures are reduced to zero. Fees accrued for the account of the
Banks under this Section shall be payable quarterly in arrears on each Quarterly
Payment Date and on the day on which the Commitments terminate in their entirety
(and, if later, on the day on which the Credit Exposures are reduced to zero).
SECTION 2.10. Termination or Reduction of Commitments. (a) The Borrower
may, upon at least three Domestic Business Days' notice to the Administrative
Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at
such time, or (ii) ratably reduce from time to time by an aggregate amount of
$25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans. Promptly after receiving a notice pursuant to this
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subsection, the Administrative Agent shall notify each Bank of the contents
thereof
(b) Unless previously terminated, the Commitments shall terminate in their
entirety on the Termination Date.
SECTION 2.11. Optional Prepayments. (a) Subject in the case of any Fixed
Rate Loans to Section 2.13, the Borrower may, (i) upon at least one Domestic
Business Day's notice to the Administrative Agent, prepay the Group of Base Rate
Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant
to Section 8.01), (ii) upon at least two Domestic Business Days' notice to the
Administrative Agent, prepay any Group of CD Loans or (iii) upon at least three
Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group
of Euro-Dollar Loans, in each case in whole at any time, or from time to time
in part in amounts aggregating $25,000,000 or any larger multiple of $5,000,000
by paying the principal amount to be prepaid together with interest accrued
thereon to the date of prepayment. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Banks included in such Group
of Loans (or such Money Market Borrowing).
(b) Except as provided in Section 2.11 (a) above, the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan
before the maturity thereof
(c) Promptly after receiving a notice of prepayment pursuant to this
Section, the Administrative Agent shall notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment, and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
The Administrative Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans
or any payment of fees shall be due on a day which is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
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calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. Whenever any payment of principal of, or
interest on, the Money Market Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(b) Unless the Borrower notifies the Administrative Agent before the date
on which any payment is due to the Banks hereunder that the Borrower will not
make such payment in full, the Administrative Agent may assume that the Borrower
has made such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance on such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent that the Borrower shall not have so made such
payment, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date such amount is distributed to such Bank until the date such
Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a different type of Loan (whether such payment or conversion is
pursuant to Article 2, 6 or 8 or otherwise, except pursuant to Section 8.02) on
any day other than the last day of an Interest Period applicable thereto, or the
last day of an applicable period fixed pursuant to Section 2.07(d), or if the
Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after
notice has been, given to any Bank in accordance with Section 2.04(a), 2.08(c)
or 2.11 (c), the Borrower shall reimburse each Bank within 15 days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
conversion or failure to borrow, prepay, convert or continue; provided that such
Bank shall have delivered to the Borrower a certificate setting forth in
reasonable detail the calculation of the amount of such loss or expense, which
certificate shall be conclusive in the absence of clearly demonstrable error.
SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime
Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days
in a leap year) and paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest and fees shall be
computed
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on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day).
SECTION 2.15. Regulation D Compensation. For so long as any Bank maintains
reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of such Bank-
to United States residents), and as a result the cost to such Bank (or its Euro-
Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is
increased, then such Bank may require the Borrower to pay, contemporaneously
with each payment of interest on the Euro-Dollar Loans, additional interest on
the related Euro-Dollar Loan of such Bank at a rate per annum determined by such
Bank up to but not exceeding the excess of (i) (A) the applicable London
Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve
Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank
wishing to require payment of such additional interest (x) shall so notify the
Borrower and the Administrative Agent, in which case such additional interest on
the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place
indicated in such notice with respect to each Interest Period commencing at
least three Euro-Dollar Business Days after the giving of such notice and (y)
shall furnish to the Borrower at least five Euro-Dollar Business Days prior to
each date on which interest is payable on the Euro-Dollar Loans an officer's
certificate setting forth the amount to which such Bank is then entitled under
this Section (which shall be consistent with such Bank's good faith estimate of
the level at which the related reserves are maintained by it). Each such
certificate shall be accompanied by such information as the Borrower may
reasonably request as to the computation set forth therein.
SECTION 2.16. Maximum Interest Rate. (a) Nothing contained in this
Agreement or the Notes shall require the Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law.
(b) If the amount of interest payable for the account of any Bank on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to Section 2.07, would exceed the maximum
amount permitted by applicable law to be charged by such Bank, the amount of
interest payable for its account on such interest payment date shall be
automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of any Bank in
respect of any interest computation period is reduced pursuant to clause 2.16(b)
and the amount of interest payable for its account in respect of any subsequent
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interest computation period, computed pursuant to Section 2.07, would be less
than the maximum amount permitted by applicable law to be charged by such Bank,
then the amount of interest payable for its account in respect of such
subsequent interest computation period shall be automatically increased to such
maximum permissible amount; provided that at no time shall the aggregate amount
by which interest paid for the account of any Bank has been increased pursuant
to this clause 2.16(c) exceed the aggregate amount by which interest paid for
its account has theretofore been reduced pursuant to clause 2.16(b).
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or waived
in accordance with Section 9.05):
(a) the Administrative Agent shall have received counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, the Administrative Agent
shall have received, in form satisfactory to it, telegraphic, telecopy, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party);
(b) the Administrative Agent shall have received a duly executed Note for
the account of each Bank dated on or before the Effective Date complying with
the provisions of Section 2.05;
(c) the Administrative Agent shall have received an opinion of Dewey
Ballantine, special New York counsel for the Borrower, and an opinion of J.B.
King, Vice President and General Counsel of the Borrower, substantially in the
forms of Exhibits E-1 and E-2, respectively, and each covering such additional
matters as the Required Banks may reasonably request;
(d) the Administrative Agent shall have received an opinion of Davis Polk &
Wardwell, special counsel for the Agents, dated the date of such Borrowing,
substantially in the form of Exhibit F hereto and covering such additional
matters as the Required Banks may reasonably request;
(e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
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Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) the Administrative Agent shall have received evidence satisfactory to
it of the payment of all principal of and interest on any loans outstanding
under, and all accrued fees under, the 1996 Credit Agreement;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
September 4, 1998. Promptly after the Effective Date occurs, the Administrative
Agent shall notify the Borrower and the Banks thereof, and such notice shall be
conclusive and binding on all parties hereto. The Borrower and the Banks party
to the 1996 Credit Agreement, comprising the "Required Banks" as defined
therein, hereby agree that (i) the commitments of the banks under the 1996
Credit Agreement shall terminate in their entirety immediately and automatically
upon the effectiveness of this Agreement, without further action by any party to
the 1996 Credit Agreement, (ii) all accrued fees under the 1996 Credit Agreement
shall be due and payable at such time and (iii) subject to the funding loss
indemnities in the 1996 Credit Agreement, the Borrower may prepay any and all
loans outstanding thereunder on the date of effectiveness of this Agreement.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of the Commitments;
(c) the fact that, immediately before and after such Borrowing, no Default
shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (other than the representation and warranty set
forth in Section 4.04(c)) shall be true in all material respects on and as of
the date of such Borrowing.
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Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
3.02(b), 3.02(c) and 3.02(d).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
Indiana, and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement and
the Notes are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of the Borrower or any of its
Subsidiaries or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of December 31, 1997 and the
related consolidated statements of income and cash flows for the Fiscal Year
then ended, reported on by Ernst & Young, and set forth in the Borrower's 1997
Form 10-K, a copy of which has been delivered to each of the Banks, fairly
present, in conformity with GAAP, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such Fiscal Year.
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(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1998 and the related consolidated
statements of income and cash flows for the six months then ended, set forth in
the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of
the Banks, fairly present, on a basis consistent with the financial statements
referred to in Section 4.04(a), the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for six month period (subject
to normal year-end adjustments).
(c) Since June 30, 1998 there have been no material adverse changes in the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. Except as set forth in the Borrower's 1997 Form
10-K and any subsequent Forms 10-K and 10-Q of the Borrower, there is no action,
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable likelihood of an adverse decision which could materially
adversely affect the consolidated financial position of the Borrower and its
Consolidated Subsidiaries, considered as a whole or the ability of the Borrower
to satisfy its obligations under this Agreement and the Notes, or which in any
manner draws into question the validity of this Agreement and the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any material liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of its
business, the Borrower reviews the effect of Environmental Laws on the business,
operations and properties of the Borrower and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and costs (including,
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without limitation, any capital or operating expenditures required for clean-up
or closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including the
costs of material compliance with Environmental Laws, are unlikely to have a
Material Adverse Effect.
SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except where payment thereof is being contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate.
SECTION 4.09. Subsidiaries. Each of the Borrower's Significant Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4. 10. No Regulatory Restrictions on Borrowing. The Borrower is not
(i) an "investment company" within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) otherwise subject to any regulatory scheme which
restricts its ability to incur debt.
SECTION 4.11. Full Disclosure. No written information heretofore or
hereafter furnished by the Borrower to the Administrative Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby, when taken together with all such information so furnished, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make the
statements
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therein in the light of the circumstances under which they were made not
misleading in any material respect.
SECTION 4.12. Year 2000. The cost to the Borrower of (i) any reprogramming
required to pen-nit the proper functioning, in and following year 2000, of (a)
the Borrower's computer systems and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Borrower's
systems interface), (ii) the testing of all such systems and equipment, as so
reprogrammed and (iii) the reasonably foreseeable consequences of year 2000 to
the Borrower (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement, to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Credit Exposure
hereunder or any interest or fees accrued hereunder remain unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the Banks:
(a) as soon as available and in any event within 120 days after the end of
each Fiscal Year of the Borrower, a copy of the Form 10-K for such Fiscal Year
filed or to be filed with the SEC, containing the audited consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Year and the related audited consolidated statements of income and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year, all reported on by Ernst & Young or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end of
each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, a
copy of the Form 10-Q for such Fiscal Quarter filed or to be filed with the SEC,
containing the consolidated balance sheet of the Borrower and its Consolidated
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Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for such Fiscal Quarter and for the portion
of the Borrower's Fiscal Year ended at the end of such Fiscal Quarter, setting
forth in the case of such statements of income and cash flows in comparative
form the figures for the corresponding Fiscal Quarter and the corresponding
portion of the Borrower's previous Fiscal Year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and consistency by
the chief financial officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial statements
refer-red to in clauses 5.01(a) and 5.01(b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 5.07 to 5.09,
inclusive, and Section 5. 1 0(i) on the date of such financial statements, and
(ii) stating whether any Default exists on the date of such certificate and, if
any Default then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial statements
referred to in clause 5-01 (a) above, a statement of the firm. of independent
public accountants which reported on such statements (i) whether anything has
come to their attention to cause them to believe that any Default existed on the
date of such statements and (ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to clause
5.01(c) above;
(e) within five days after any officer of the Borrower obtains knowledge of
any Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting forth
the details thereof and the action which the Borrower is taking or proposes to
take with respect thereto;
(f) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or its equivalent)
which the Borrower shall have filed with the SEC;
(g) if and when any member of the ERISA Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined 'in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to
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be given to the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code. a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 406' 3 of ERISA, a copy of such
notice; or (vii) falls to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take; and
(h) from time to time such additional information regarding the financial
position or business of the Borrower and its Subsidiaries as the Administrative
Agent, at the request of any Bank, may reasonably request.
Information required to be delivered pursuant to Sections 5.01(a), 5.01(b) or
5.01(f) above shall be deemed to have been delivered on the date on which the
Borrower provides notice to the Banks that such information has been posted on
the Borrower's website on the Internet at the website address listed on the
signature pages hereof, at sec.gov/edaux/searches.htm or at another website
identified in such notice and accessible by the Banks without charge; provided
that (i) such notice may be included in a certificate delivered pursuant to
Section 5.01 (c) and (ii) the Borrower shall deliver paper copies of the
information referred to in Sections 5.01 (a), 5.01 (b) or 5.01 (f) to any Bank
which requests such delivery.
SECTION 5.02. Payment of Obligations. The Borrower will pay and discharge,
and will cause each Significant Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where any of the foregoing may be
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Significant Subsidiary to maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
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SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Significant Subsidiary to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted; provided that the Borrower or any Significant Subsidiary may
sell, lease or exchange surplus or worn-out equipment in the ordinary course of
business and any assets employed in a discontinued line of business.
(b) The Borrower will, and will cause each of its Significant Subsidiaries
to, maintain (either in the name of the Borrower or in such Significant
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are
customarily insured against in the same general area by companies of established
repute engaged in the same or a similar business; provided that the Borrower
may, and may cause any of its Significant Subsidiaries to, self insure in such
amounts and against such risks as are customarily self-insured against by such
companies. The Borrower will furnish to the Banks, upon reasonable request from
the Administrative Agent, information presented in reasonable detail as to the
insurance so carried (including, without limitation, any self insurance).
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Significant Subsidiary to continue,
to engage in the medical device business and will preserve, renew and keep in
full force and effect, and will cause each Significant Subsidiary to preserve,
renew and keep in full force and effect their respective corporate existence and
their respective material rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that nothing in this
Section 5.04 shall prohibit any consolidation, merger or sale of assets
permitted under Section 5.11.
SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause
each Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.06. Inspection of Property, Books and Records. The Borrower will
keep, and will cause each Significant Subsidiary to keep, proper books of record
and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Significant Subsidiary to permit, representatives of
any Bank at such Bank's expense to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to
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discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired; provided that, so long as no
Default has occurred and is continuing, any of the foregoing shall take place
during normal business hours and a representative of the Borrower shall be given
prior notice of, and may attend any meeting between, representatives of any Bank
and such independent public accountants.
SECTION 5.07. Consolidated Leverage Ratio. The Consolidated Leverage Ratio
will at no time be more than 3.5 to 1.0.
SECTION 5.08. Subsidiary Debt. Total Debt outstanding at any time of all
Subsidiaries (excluding Debt of a Subsidiary to the Borrower or to a wholly
owned Subsidiary) will 11 at no time exceed $100,000,000; provided that in no
event shall any Subsidiary Guarantee any Debt of the Borrower.
SECTION 5.09. Minimum Consolidated Tangible Net Worth. Consolidated
Tangible Net Worth will at no date be less than Minimum Consolidated Tangible
Net Worth at such date. For purposes of this Section 5.09, "Minimum Consolidated
Tangible Net Worth" means, at any date, $312,000,000 plus (i) an amount equal to
50% of Consolidated Net Income for each Fiscal Quarter ending after March 31,
1998 but prior to the date of determination, in each case, for which
Consolidated Net Income is positive (but with no deduction on account of
negative Consolidated Net Income for any Fiscal Quarter) plus (ii) 50% of the
aggregate net proceeds, including the fair market value of property other than
cash (as determined in good faith by the board of directors of the Borrower),
received by the Borrower from the issuance and sale after the date hereof of any
capital stock of the Borrower (other than the proceeds of any issuance and sale
of any capital stock (x) to a Subsidiary of the Borrower or (y) which is
required to be redeemed, or is redeemable at the option of the bolder, if
certain events or conditions occur or exist or otherwise or (z) solely to the
extent the proceeds of such issuance are used to redeem any capital stock of the
Borrower).
SECTION 5.10. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) Liens existing as of the Effective Date and securing Debt outstanding
on the Effective Date in an aggregate principal or face amount not exceeding
$50,000,000;
(b) any Lien existing on any asset of any corporation at the time such
corporation becomes a Subsidiary and not created in contemplation of such event;
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(c) any Lien on any asset securing Debt incurred or assumed for the purpose
of financing all or any part of the cost of acquiring such asset, provided that
such Lien attaches to such asset concurrently with or, within 180 days after the
acquisition thereof,
(d) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower or a Subsidiary
and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof by the
Borrower or a Subsidiary and not created in contemplation of such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(g) Liens arising in the ordinary course of its business which (i) do not
secure Debt or Derivatives Obligations, (ii) do not secure any one obligation in
an amount exceeding $10,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
(h) Liens on cash and cash equivalents securing Derivatives Obligations,
provided that the aggregate amount of cash and cash equivalents subject to such
Liens may at no time exceed $10,000,000; and
(i) Liens not otherwise permitted by the foregoing clauses of this Section
securing Debt in an aggregate principal or face amount at any date not to exceed
$75,000,000.
SECTION 5.11. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or 'into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, (x) all or any material
part of the assets of the Borrower and its Subsidiaries, taken as a whole, to
any other Person or (y) in any event, all or any material part of the assets of
ACS or CPI; provided that the Borrower may merge with another Person if (a) the
Borrower is the corporation surviving such merger and (b) immediately after
giving effect to such merger, no Default shall have occurred and be continuing.
SECTION 5.12. Use of Proceeds. The proceeds of the Loans made under this
Agreement will be used by the Borrower for general corporate purposes,
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including acquisitions. None of such proceeds will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "margin stock" within the meaning of Regulation U.
SECTION 5.13. Limitations on Restrictions Affecting Subsidiaries. Neither
the Borrower nor any of its Subsidiaries will enter into, or suffer to exist,
any agreement with any Person, other than this Agreement, which prohibits or
limits the ability of any Subsidiary to (a) pay dividends or make other
distributions or pay any Debt owed to Borrower or any Subsidiary, (b) make loans
or advances to Borrower or any Subsidiary, (c) transfer any of its properties or
assets to Borrower or any Subsidiary or (d) create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired (other than with respect to assets subject to consensual
liens permitted under Section 5. 10); provided that the foregoing shall not
apply to customary net worth, financial leverage and coverage tests in
agreements governing Debt incurred by Subsidiaries in compliance with this
Agreement.
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due;
(b) any interest on any Loan, any fees or an), other amount payable
hereunder shall not be paid within five days of the date when due;
(c) the Borrower shall fail to observe or perform any covenant contained in
Sections 5.07 to 5.13, inclusive (it being understood that to the extent any
such covenant requires the Borrower to cause any of its Subsidiaries to comply
with the agreements set forth therein, a failure by the Borrower to cause any of
its Subsidiaries to so comply shall constitute a failure by the Borrower to
observe or perform such covenant);
(d) the Borrower shall fail to observe or per-form any covenant or
agreement contained in this Agreement (other than those covered by clause 6.01
(a), 6.01(b) or 6.01 (c) above) for 30 days after written notice thereof has
been given to the Borrower by the Administrative Agent at the request of any
Bank or, if such failure to observe or perform is susceptible of cure and at the
time such
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notice is given the Borrower shall be diligently taking all actions necessary or
desirable in order to cure such failure, for 90 days after notice thereof has
been given (it being understood that to the extent any such covenant requires
the Borrower to cause any of its Subsidiaries to comply with the agreements set
forth therein, a failure by the Borrower to cause any of its Subsidiaries to so
comply shall constitute a failure by the Borrower to observe or perform such
covenant);
(e) any representation, warranty, certification or statement made by the
Borrower in this Agreement or in any certificate, financial statement or other
document delivered pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);
(f) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period;
(g) any event or condition shall occur which results in the acceleration of
the maturity of any Material Debt or enables the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof,
(h) the Borrower or any of its Significant Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial pan of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be commenced against the
Borrower or any of its Significant Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
or any of its Significant Subsidiaries under the federal bankruptcy laws as now
or hereafter in effect;
(j) any member of the ERISA Group shall fail to pay when due an amount or
amounts aggregating in excess of 5,000,000 which it shall have
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become liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000;
(k) a judgment or order for the payment of money in excess of $15,000,000
shall be rendered against the Borrower or any Significant Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 10
days;
(l) any person or group of persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC
under said Act) of 30% or more of the outstanding shares of common stock of the
Borrower, or during any period of 12 consecutive calendar months, individuals
who were either (i) directors of the Borrower on the first day of such period or
(ii) elected to fill vacancies caused by the ordinary course resignation or
retirement of any other director and whose nomination or election was approved
by a vote of a majority of the directors then still in office who were directors
of the Borrower on the first day of such period, shall cease to constitute a
majority of the board of directors of the Borrower; or
(m) ACS or CPI shall cease to be a Wholly-Owned Consolidated Subsidiary of
the Borrower (except that (i) either ACS or CPI may merge with and into the
Borrower, as permitted pursuant to Section 5.11 or (ii) ACS and CPI may merge
with and into each other);
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes (together
with accrued interest thereon) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind and
without
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valuation and appraisement, all of which are hereby waived by the Borrower;
provided that in the case of any of the Events of Default specified in clause
6.01(h) or 6.01(i) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind and without valuation and
appraisement, all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent shall give notice
to the Borrower under Section 6.01 (d) promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. Administrative Agent and Affiliates. Morgan Guaranty Trust
Company of New York shall have the same rights and powers under this Agreement
as any other Bank and may exercise or refrain from exercising the same as though
it were not the Administrative Agent. Morgan Guaranty Trust Company of New York
and its affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower or any Subsidiary or affiliate of the
Borrower as if it were not the Administrative Agent.
SECTION 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any
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action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Administrative Agent. None of the Administrative
Agent, its affiliates and their respective directors, officers, agents and
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks (or such
different number of Banks as any provision hereof expressly requires for such
consent or request) or (ii) in the absence of its own gross negligence or
willful misconduct. None of the Administrative Agent, its affiliates and their
respective directors, officers, agents and employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance on any notice, consent, certificate, statement or other writing (which
may be a bank wire, telex, facsimile or similar writing) believed by it to be
genuine or to be signed by the proper party or parties. Without limiting the
generality of the foregoing, the use of the term "agent" in this Agreement with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship between
independent contracting parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in proportion to
their Credit Exposures, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct) that such indemnitees may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnitees thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance on any Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance on any Agent or any other Bank,
and based on such documents and information as it shall deem
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appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving notice thereof to the Banks and the Borrower. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $50,000,000. Upon
the acceptance of its appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent resigns as Administrative Agent hereunder, the provisions
of this Article shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent.
SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for its
own account fees in the amounts and at the times previously agreed upon by the
Borrower and such Agent.
SECTION 7.10. Other Agents. Nothing in this Agreement shall impose any duty
or liability whatsoever on any Documentation Agent, Senior Managing Agent or
Syndication Agent in such capacity.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or before the first day of any Interest Period for any CD Loans, Euro-Dollar
Loans or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars in the applicable amounts are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
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(b) in the case of a CD Loans or Euro-Dollar Loans, Banks having more than
50% in the aggregate amount of the Commitments advise the Administrative Agent
that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may
be, as determined by the Administrative Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans,
as the case may be, for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, or to continue or convert outstanding Loans as or into CD Loans or
Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each
outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted
into a Base Rate Loan on the last day of the then current Interest Period
applicable thereto. Unless the Borrower notifies the Administrative Agent at
least two Domestic Business Days before the date of any affected Borrowing for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such affected Borrowing is a CD Borrowing or
Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate
Borrowing and (ii) if such affected Borrowing is a Money Market LIBOR Borrowing,
the Money Market LIBOR Loans comprising such Borrowing shall bear interest for
each day from and including the first day to but excluding the last day of the
Interest Period applicable thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into
Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section, such Bank shall designate a different Euro-Dollar Lending Office if
such designation will avoid
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the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, each
Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate
Loan either (i) on the last day of the then current Interest Period applicable
to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund
such Loan as a Euro-Dollar Loan to such day or (ii) immediately if such Bank
shall determine that it may not lawfully continue to maintain and fund such Loan
as a Euro-Dollar Loan to such day. Interest and principal on any such Base Rate
Loan shall be payable on the same dates as, and on a pro rata basis with the
interest and principal payable on the related Euro-Dollar Loans of the other
Banks.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the
date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency, shall impose, modify
or deem applicable any reserve (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding (i) with respect to any CD Loan any such requirement included in an
applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar
Loan any such requirement with respect to which such Bank is entitled to
compensation during the relevant Interest Period under Section 2.15), special
deposit, insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Administrative Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
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(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority,, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material, then from time to time, within 15 days after demand
by such Bank (with a copy to the Administrative Agent), the Borrower shall pay
to such Bank such additional amount or amounts as will compensate such Bank (or
its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgement of such Bank, be otherwise disadvantageous to it. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder and the calculation thereof in
reasonable detail shall be conclusive in the absence of clearly demonstrable
error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.
SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the following
terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Borrower
pursuant to this Agreement or under any Note, and all liabilities with respect
thereto, excluding (i) in the case of each Bank and the Administrative Agent,
taxes imposed on its income (other than withholding taxes) and franchise or
similar taxes imposed on it, by a jurisdiction (A) under the laws of which it is
organized, (B) in which it conducts business (provided that it would be subject
to such income (other than withholding taxes), franchise or similar taxes by
such jurisdiction without regard to any Loan under law as in effect on the date
hereof because it conducts business in such jurisdiction) (C) in which such
Bank's principal executive office is located or (D) in the case of each Bank, in
which its
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Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments but only to the extent
that such Bank is subject to United States withholding tax at the time such Bank
first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from the
execution or delivery of, or otherwise with respect to, this Agreement or any
Note.
(b) Any and all payments by the Borrower to or for the account of any Bank
or the Administrative Agent hereunder or under any Note shall be made without
deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be
required by law to deduct any Taxes or Other Taxes from any such payments, (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 8.04) such Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Administrative Agent, at its address specified in or pursuant to
Section 9.01, the original or a certified copy of a receipt evidencing payment
thereof
(c) The Borrower agrees to indemnify each Bank and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable
under this Section 8.04) paid by such Bank or the Administrative Agent (as the
case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be paid
within 15 days after such Bank or the Administrative Agent (as the case may be)
makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the United
States, on or before the date of its execution and delivery of this Agreement in
the case of each Bank listed on the signature pages hereof and on or before the
date on which it becomes a Bank in the case of each other Bank, and from time to
time thereafter if requested in writing by the Borrower (but only so long as
such Bank remains lawfully able to do so), shall provide the Borrower with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such
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Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide the
Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.04(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.04, then such Bank will change
the jurisdiction of its Applicable Lending Office if, in the judgment of such
Bank, such change (i) will eliminate or reduce any such additional payment which
may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund (including a
refund in the form of a credit against taxes that are otherwise payable by the
Bank or the Administrative Agent) of any Taxes or Other Taxes for which the
Borrower has made a payment under Section 8.04(b) or (c) and such refund was
received from the taxing authority which originally imposed such Taxes or Other
Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to
the extent of such refund.
(h) Each Bank and the Administrative Agent acknowledge, that on and as of
the Effective Date it is not aware of any Tax or Other Tax that would be imposed
upon any payment to it hereunder or under any Note.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If
(i) the obligation of any Bank to make, or to continue or convert outstanding
Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect
to its CD Loans or Euro-Dollar Loans and in any such case the Borrower shall, by
at least five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the
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Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist, all Loans which would otherwise be made by such
Bank as (or continued as or converted to) CD Loans or Euro-Dollar Loans, as the
case may be, shall instead be Base Rate Loans on which interest and principal
shall be payable contemporaneously with the related CD Loans or Euro-Dollar
Loans of the other Banks. If such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer exist, the principal amount of each such Base Rate Loan shall be
converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first
day of the next succeeding Interest Period applicable to the related CD Loans or
Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution Of Bank. If (i) the obligation of any Bank to
make, or to convert or continue outstanding Loans as or into, Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03 or 8.04, the Borrower shall have the right, with
the assistance of the Administrative Agent, to designate a substitute bank or
banks (which may be one or more of the Banks) mutually satisfactory to the
Borrower and the Administrative Agent (whose consent shall not be unreasonably
withheld or delayed) to purchase (and, if such right is exercised, such Bank
shall sell and assign) for cash, pursuant to an Assignment and Assumption
Agreement substantially in the form of Exhibit G hereto, the outstanding Loans
for such Bank and assume the Commitment of such Bank, without recourse to or
warranty by, or expense to, such Bank, for a purchase price equal to the
principal amount of all of such Bank's outstanding Loans plus any accrued but
unpaid interest thereon and the accrued but unpaid fees in respect of such
Bank's Commitment hereunder plus such amount, if any, as would be payable
pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in
their entirety on the date of consummation of such assignment.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
or similar writing) and shall be given to such party: (a) in the case of the
Borrower or the Administrative Agent, at its address, facsimile number or telex
number set forth on the signature pages hereof, (b) in the case of any Bank, at
its address, facsimile number or telex number set forth in its Administrative
Questionnaire or (c) in the case of any party, at such other address, facsimile
number or telex
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number as such party may hereafter specify for the purpose by notice to the
Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number referred to in this Section and the appropriate
answerback is received, (ii) if given by facsimile, when transmitted to the
facsimile number referred to in this Section and confirmation of receipt is
received, (iii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (iv) if
given by any other means, when delivered at the address referred to in this
Section; provided that notices to the Administrative Agent under Article 2 or
Article 8 shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by any Agent or Bank in
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all
reasonable out-of-pocket expenses of the Agents, including fees and
disbursements of special counsel for the Agents, in connection with the
preparation and administration of this Agreement, any waiver or consent
thereunder or any amendment thereof or any Default or alleged Default and (ii)
if an Event of Default occurs, all reasonable out-of-pocket expenses incur-red
by the Administrative Agent and each Bank, including (without duplication) the
fees and disbursements of outside counsel and the allocated cost of inside
counsel, in connection with such Event of Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement or any actual or proposed use of proceeds of
Loans thereunder; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as deter-mined by a court of competent jurisdiction.
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SECTION 9.04. Set-offs. (a) If (i) an Event of Default has occurred and is
continuing and (ii) Banks holding more than 50% in aggregate unpaid principal
amount of the Loans have requested the Administrative Agent to declare the Loans
to be immediately due and payable pursuant to Section 6.01, or the Loans have
become immediately due and payable without notice as provided in Section 6.01,
then each Bank is hereby authorized by the Borrower at any time and from time to
time, to the extent permitted by applicable law, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off and apply
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank to or for the
account of the Borrower against any obligations of the Borrower to such Bank now
or hereafter existing under this Agreement, regardless of whether any such
deposit or other obligation is then due and payable or is in the same currency
or is booked or otherwise payable at the same office as the obligation against
which it is set off and regardless of whether such Bank shall have made any
demand for payment under this Agreement. Each Bank agrees promptly to notify the
Borrower after any such set-off and application made by such Bank; provided that
any failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Banks under this subsection are in addition to
any other tights and remedies which the Banks may have.
(b) Each Bank agrees that if it shall, by exercising any night of set-off
or counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest then due with respect to the Loans held by it
which is greater than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest then due with respect to the
Loans held by such other Bank, the Bank receiving such proportionately greater
payment shall purchase such participations in the Loans held by the other Banks,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Loans held by the Banks
shall be shared by the Banks pro rata; provided that nothing in this Section
shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness in respect
of the Loans. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Loan, whether
or not acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or
the Notes to which the Borrower is a party may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by the
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Borrower and the Required Banks (and, if the rights or duties of any Agent are
affected thereby, by such Agent); provided that no such amendment or waiver
shall:
(a) unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except for a ratable decrease in the Commitments of all Banks) or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees hereunder, (iii) postpone the date
fixed for any payment of principal of or interest on any Loan or any fees
hereunder or for termination of any Commitment or (iv) amend this Section 9.05
or the definition of Required Banks or change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement; or
(b) unless signed by a Designated Lender or its Designating Bank, subject
such Designated Lender to any additional obligation or affect its rights
hereunder (unless the rights of all the Banks hereunder are similarly affected).
SECTION 9.06. Successors, Participations and Assignments. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Borrower may not assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all the Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. If a Bank grants any such participating interest to a
Participant, whether or not upon notice to the Borrower and the Administrative
Agent, such Bank shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), or (iii) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article 8 with respect
to its participating interest. An assignment or other transfer which is not
permitted by subsection
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9.06(c) or 9.06(d) below shall be given effect for purposes of this Agreement
only to the extent of a participating interest granted in accordance with this
subsection.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial Commitment at least equal to the lesser of (A) $10,000,000 and (B) such
Bank's entire Commitment at such time) of all of its rights and obligations
under this Agreement and its Note, and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrower
and Administrative Agent, which consents shall not be unreasonably withheld;
provided that (i) if an Assignee is an affiliate of such transferor Bank or was
a Bank immediately before such assignment, no such consent shall be required and
(ii) such assignment may, but need not, include rights of the transferor Bank in
respect of outstanding Money Market Loans. When such instrument has been signed
and delivered by the parties thereto and such Assignee has paid to such
transferor Bank the purchase price agreed by them, such Assignee shall be a Bank
party to this Agreement and shall have 0 the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection,
the transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall pay
to the Administrative Agent an administrative fee for processing such assignment
in the amount of $2,500. If the Assignee is not incorporated under the laws of
the United States or a State thereof, it shall deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or withholding
of United States federal income taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights shall
be entitled to receive any greater payment under Section 8.03 or 8.04 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
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SECTION 9.07. Designated Lenders. (a) Subject to the provisions of this
Section 9.07(a), any Bank may from time to time elect to designate an Eligible
Designee to provide all or a portion of the Loans to be made by such Bank
pursuant to this Agreement; provided that such designation shall not be
effective unless the Borrower and the Administrative Agent consent thereto,
which consents shall not be unreasonably withheld. When a Bank and its Eligible
Designee shall have signed an agreement substantially in the form of Exhibit H
hereto (a "Designation Agreement") and the Borrower and the Administrative Agent
shall have signed their respective consents thereto, such Eligible Designee
shall become a Designated Lender for purposes of this Agreement. The Designating
Bank shall thereafter have the right to permit such Designated Lender to provide
all or a portion of the Loans to be made by such Designating Bank pursuant to
Section 2.01 or 2.03, and the making of such Loans or portions thereof shall
satisfy the obligation of the Designating Bank to the same extent, and as if,
such Loans or portion thereof were made by the Designating Bank. As to any Loans
or portion thereof made by it, each Designated Lender shall have all the rights
that a Bank making such Loans or portion thereof would have had under this
Agreement and otherwise; provided that (x) its voting rights under this
Agreement shall be exercised solely by Designating Bank and (y) its Designating
Bank shall remain solely responsible to the other parties hereto for the
performance of its obligations under this Agreement, including its obligations
in respect of the Loans or portion thereof made by it. No additional Note shall
be required to evidence Loans or portions thereof made by a Designated Lender;
and the Designating Bank shall be deemed to hold its Note as agent for its
Designated Lender to the extent of the Loans or portion thereof funded by such
Designated Lender. Each Designating Bank shall act as administrative agent for
its Designated Lender and give and receive notices and other communications on
its behalf Any payments for the account of any Designated Lender shall be paid
to its Designating Bank as administrative agent for such Designated Lender and
neither the Borrower nor the Administrative Agent shall be responsible for any
Designating Bank's application of such payments. In addition, any Designated
Lender may (i) with notice to, but without the prior written consent of the
Borrower or the Administrative Agent, assign all or portions of its interest in
any Loans to its Designating Bank or to any financial institutions consented to
by the Borrower and the Administrative Agent providing liquidity and/or credit
facilities to or for the account of such Designated Lender to support the
funding of Loans or portions thereof made by such Designated Lender and (ii)
disclose on a confidential basis any non-public information relating to its
Loans or portions thereof to any rating agency, commercial paper dealer or
provider of any guarantee, surety, credit or liquidity enhancement to such
Designated Lender.
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(b) Each party to this Agreement agrees that it will not institute against,
or join any other person in instituting against, any Designated Lender any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or
other proceeding under any federal or state bankruptcy or similar law, for one
year and a day after all outstanding senior indebtedness of such Designated
Lender is paid in full. The Designating Bank for each Designated Lender agrees
to indemnify, save, and hold harmless each other party hereto for any loss,
cost, damage and expense arising out of its inability to institute any such
proceeding against such Designated Lender. This Section 9.07(b) shall survive
the termination of this Agreement.
SECTION 9.08. No Reliance on Margin Stock. Each of the Banks represents to
the Administrative Agent and each of the other Banks that it in good faith is
not relying upon any "margin stock" (as defined in Regulation U) as collateral
in the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.09. Governing Law; Submission to Jurisdiction. This Agreement and
each Note shall be governed by and construed 'in accordance with the laws of the
State of New York. The Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated thereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 9.10. Counterparts; Integration. This Agreement maybe signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement constitutes the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
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GUIDANT CORPORATION
By: /s/ Cynthia L. Lucchese
--------------------------------
Title: Treasurer
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: General Counsel
Facsimile Number: (317) 971-2141
Web site: http://www.guidant.com
<PAGE>
BANKS:
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BANCA MONTE DEI PASCHI DI SIENA S.P.A.
BY: /s/ G. Natalicchi
--------------------------------
Title: S.V.P & General Manager
By: /s/ Brian R. Landy
--------------------------------
Title: Vice President
BBL INTERNATIONAL (UK) LIMITED
By: /s/ Marie Claire Swinnen
--------------------------------
Title: Authorised Signatory
By: /s/ C.F. Wright
--------------------------------
Title: Authorised Signatory
BANK OF AMERICA NT&SA
By: /s/ Barry Watters
--------------------------------
Title: Managing Director
THE GOVERNOR AND COMPANY OF THE
BANK OF IRELAND
By: /s/ F. McDonald
--------------------------------
Title: Manager
By: /s/ Nichola Chapman
--------------------------------
Title: Senior Account Executive
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By: /s/ Hajime Watanabe
--------------------------------
Title: Deputy General Manager
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
--------------------------------
Title: EVP and Manager
BANKERS TRUST COMPANY
By: /s/ Gina S. Thompson
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Stephen P. Rochford
--------------------------------
Title: Vice President
CITICORP USA, INC.
By: /s/ Mark Standfield Packard
--------------------------------
Title: Vice President
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert Potter
--------------------------------
Title: Vice President
By: /s/ William Lutkins
--------------------------------
Title: Vice President
NBD BANK N.A.
By: /s/ Scott A. Dvornik
--------------------------------
Title: Vice President
MELLON BANK, N.A.
By: /s/ Martin J. Randal
--------------------------------
Title: Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Robert Bottamedi
--------------------------------
Title: Vice President
NATIONAL CITY BANK INDIANA
By: /s/ Frank B. Meltzer
--------------------------------
Title: Vice President
<PAGE>
SOCIETE GENERALE-CHICAGO BRANCH
By: /s/ Editha Paras
--------------------------------
Title: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ Laurel A. Neu
--------------------------------
Title: Vice President
WACHOVIA BANK N.A.
By: /s/ Brad Watkins
--------------------------------
Title: Vice President
<PAGE>
ADMINISTRATIVE AGENT:
---------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By: /s/ Robert Bottamedi
--------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: Dennis Wilczak
Facsimile number: (212) 648-5018
<PAGE>
EXHIBIT 10.41
COMPOSITE CONFORMED COPY
$800,000,000
364-DAY CREDIT AGREEMENT
dated as of
August 26, 1998
and amended and restated as of November 17, 1998
among
Guidant Corporation,
The Banks Party Hereto,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
----------------------------------------
J.P. Morgan Securities Inc.
Arranger
Bank of America NT&SA
The Chase Manhattan Bank,
Co-Syndication Agents
Bank of America NT&SA
The Chase Manhattan Bank,
Co-Documentation Agents
Citicorp USA, Inc.
NBD Bank, N.A.,
Senior Managing Agents
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions 1
SECTION 1.02. Accounting Terms and Determinations 15
SECTION 1.03. Types of Borrowings 16
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend 16
SECTION 2.02. Increased Commitments; Additional Banks 16
SECTION 2.03. Notice of Committed Borrowing 18
SECTION 2.04. Money Market Borrowings 18
SECTION 2.05. Notice to Banks; Funding of Loans 22
SECTION 2.06. Notes 23
SECTION 2.07. Maturity of Loans 24
SECTION 2.08. Interest Rates 24
SECTION 2.09. Method of Electing Interest Rates 27
SECTION 2.10. Fees 29
SECTION 2.11. Termination or Reduction of Commitments 30
SECTION 2.12. Optional Prepayments 31
SECTION 2.13. General Provisions as to Payments 32
SECTION 2.14. Funding Losses 33
SECTION 2.15. Computation of Interest and Fees 33
SECTION 2.16. Regulation D Compensation 33
SECTION 2.17. Maximum Interest Rate 34
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness 35
SECTION 3.02. Borrowings 36
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power 37
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PAGE
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SECTION 4.02. Corporate and Governmental Authorization; No
Contravention 37
SECTION 4.03. Binding Effect 37
SECTION 4.04. Financial Information 37
SECTION 4.05. Litigation 38
SECTION 4.06. Compliance with ERISA 38
SECTION 4.07. Environmental Matters 38
SECTION 4.08. Taxes 39
SECTION 4.09. Subsidiaries 39
SECTION 4.10. No Regulatory Restrictions on Borrowing 39
SECTION 4.11. Full Disclosure 39
SECTION 4.12. Year 2000 39
ARTICLE 5
COVENANTS
SECTION 5.01. Information 40
SECTION 5.02. Payment of Obligations 42
SECTION 5.03. Maintenance of Property; Insurance 42
SECTION 5.04. Conduct of Business and Maintenance of Existence 43
SECTION 5.05. Compliance with Laws 43
SECTION 5.06. Inspection of Property, Books and Records 43
SECTION 5.07. Consolidated Leverage Ratio 43
SECTION 5.08. Subsidiary Debt 44
SECTION 5.09. Minimum Consolidated Net Worth 44
SECTION 5.10. Negative Pledge 44
SECTION 5.11. Consolidations, Mergers and Sales of Assets 45
SECTION 5.12. Use of Proceeds 45
SECTION 5.13. Limitations on Restrictions Affecting Subsidiaries 45
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default 46
SECTION 6.02. Notice of Default 49
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization 49
SECTION 7.02. Administrative Agent and Affiliates 49
ii
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PAGE
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SECTION 7.03. Action by Administrative Agent 49
SECTION 7.04. Consultation with Experts 49
SECTION 7.05. Liability of Administrative Agent 49
SECTION 7.06. Indemnification 50
SECTION 7.07. Credit Decision 50
SECTION 7.08. Successor Administrative Agent 50
SECTION 7.09. Agents' Fees 51
SECTION 7.10. Other Agents 51
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair 51
SECTION 8.02. Illegality 52
SECTION 8.03. Increased Cost and Reduced Return 53
SECTION 8.04. Taxes 54
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans 56
SECTION 8.06. Substitution Of Bank 57
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices 57
SECTION 9.02. No Waivers 58
SECTION 9.03. Expenses; Indemnification 58
SECTION 9.04. Set-offs 58
SECTION 9.05. Amendments and Waivers 59
SECTION 9.06. Successors; Participations and Assignments 60
SECTION 9.07. Designated Lenders 61
SECTION 9.08. No Reliance on Margin Stock 63
SECTION 9.09. Governing Law; Submission to Jurisdiction 63
SECTION 9.10. Counterparts; Integration 63
SECTION 9.11. WAIVER OF JURY TRIAL 63
iii
<PAGE>
COMMITMENT SCHEDULE
PRICING SCHEDULE
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E-1 - Opinion of Special Counsel for the Borrower
Exhibit E-2 - Opinion of General Counsel of the Borrower
Exhibit F - Opinion of Davis Polk & Wardwell, Special
Counsel for the Agents
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Designation Agreement
iv
<PAGE>
364-DAY AGREEMENT dated as of August 26, 1998 among GUIDANT CORPORATION,
the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent.
WHEREAS, the parties hereto have heretofore entered into a 364-Day Credit
Agreement dated as of August 26, 1998 (the "Agreement");
WHEREAS, at the date hereof, there are no Loans outstanding under the
Agreement; and
WHEREAS, the parties hereto desire to modify the Agreement as set forth
herein and to restate the Agreement in its entirety to read as set forth in the
Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Acquisition" means the acquisition by the Borrower of the
Electrophysiology business of Sulzer Medica Ltd. on substantially the terms
publicly announced by the Borrower in September 1998.
"ACS" means Advanced Cardiovascular Systems. Inc., a California
corporation.
"Absolute Rate Auction" means a solicitation of Money Market Quotes setting
forth Money Market Absolute Rates pursuant to Section 2.04.
"Additional Bank" has the meaning set forth in Section 2.02(b).
"Adjusted CD Rate" has the meaning set forth in Section 2.08(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New York in
its capacity as agent for the Banks hereunder, and its successors in such
capacity.
<PAGE>
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent,
completed by such Bank and returned to the Administrative Agent (with a copy to
the Borrower).
"Agents" means the Administrative Agent, the Syndication Agents, the
Documentation Agents and the Senior Managing Agents.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Off-ice.
"Assessment Rate" has the meaning set forth in Section 2.08(b).
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means (i) each bank or other financial institution listed on the
Commitment Schedule, (ii) each Additional Bank which becomes a Bank pursuant to
Section 2.02, (iii) each Assignee which becomes a Bank pursuant to Section
9.06(c) and (iv) their respective successors.
"Base Rate" means, for any day. a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means a Committed Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Section 2.09(a) or Article 8.
"Benefit Arrangement" means, at any time, an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means Guidant Corporation, an Indiana corporation, and its
successors.
"Borrower's 1997 Form 10-K" means the Borrower's annual report on Form 10-K
for 1997, as filed with the SEC pursuant to the Exchange Act.
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<PAGE>
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form
10-Q for the quarter ended June 30, 1998, as filed with the SEC pursuant to the
Exchange Act.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.08(b).
"CD Loan" means a Committed Loan which bears interest at a CD Rate pursuant
to the applicable Notice of Committed Borrowing or Notice of Interest Rate
Election.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
"CD Rate" means a rate of interest determined pursuant to Section 2.08(b)
on the basis of an Adjusted CD Rate.
"CD Reference Banks" means Morgan Guaranty Trust Company of New York, Bank
of America NT&SA and The Chase Manhattan Bank.
"CPI" means Cardiac Pacemakers, Inc., a Minnesota corporation.
"Commitment" means, (i) with respect to each Bank listed on the Commitment
Schedule, the amount set forth opposite such Bank's name on the Commitment
Schedule and (ii) with respect to each Additional Bank or Assignee which
becomes a Bank pursuant to Section 2.02 or 9.06(c), the amount of the Commitment
thereby assumed by it, in each case, as such amount may be changed from time to
time pursuant to Sections 2.02, 2.11 and 9.06(c): provided that. if the context
so requires, the term "Commitment" means the obligation of a Bank to extend
credit up to such amount to the Borrower hereunder.
"Commitment Schedule" means the Commitment Schedule attached hereto.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
3
<PAGE>
"Consolidated Debt" means, at any date, the Debt of the Borrower and its
Consolidated Subsidiaries. determined on a consolidated basis as of such date.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period plus, to the extent deducted in determining Consolidated Net Income
for such period, the aggregate amount of (i) Consolidated Interest Expense, (ii)
income tax expense and (iii) depreciation, amortization and other similar
non-cash charges. Consolidated EBITDA shall be adjusted to eliminate the effect
of non-recurring charges incurred in connection with the Acquisition (i) in an
aggregate amount not exceeding $200,000,000 in the Fiscal Quarter ended
September 30, 1998 and (ii) in an aggregate amount not exceeding $150,000,000 in
the Fiscal Quarter in which the Acquisition is consummated.
"Consolidated Leverage Ratio" means, at any date, the ratio of (i)
Consolidated Debt at such date to (ii) Consolidated EBITDA for the period of
four consecutive Fiscal Quarters most recently ended on or prior to such date.
"Consolidated Net Income" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
for such period, adjusted to exclude the effect of any extraordinary gain or
loss.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Borrower and its Consolidated Subsidiaries. determined as of such
date.
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if Such statements were prepared as of
such date.
"Credit Exposure" means, with respect to any Bank at any time, (i) the
amount of its Commitment (whether used or unused) at such time or (ii) if the
Commitments have terminated in their entirety, the aggregate outstanding
principal amount of its Loans at such time.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with GAAP, (v) all non-contingent obligations (and, for purposes of
Section 5.10 and the definitions of Material Debt and Material Financial
Obligations, all
4
<PAGE>
contingent obligations) of such Person to reimburse any bank or other Person in
respect of amounts paid under a letter of credit or similar instrument, (vi)
all redeemable preferred stock of such Person, If Such stock is mandatorily
redeemable on or prior to the Termination Date, (vii) all Debt secured by a Lien
on any asset of such Person, whether or not such Debt is otherwise an obligation
of such Person. and (viii) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option. bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction., cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"Designated Lender" means, with respect to any Designating Bank, an
Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated
Lender for purposes of this Agreement.
"Designating Bank" means, with respect to each Designated Lender, the Bank
that designated such Designated Lender pursuant to Section 9.07(a).
"Documentation Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as documentation agents in respect of this Agreement.
"Domestic Business Day'" means any day except a Saturday. Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to
5
<PAGE>
the Domestic Lending Office of such Bank shall be deemed to refer to either or
both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section 2.08(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Eligible Designee" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, written or published plans, injunctions, permits, concessions.
grants, franchises. licenses, agreements and other governmental restrictions
relating to the environment or the effect of the environment on human health or
to emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment, including (without limitation)
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture. processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary. are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
6
<PAGE>
"Euro-Dollar Lending Office" means. as to each Bank. its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or Such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan which bears interest at a Euro-
Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice
of Interest Rate Election.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.08(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of Morgan
Guaranty Trust Company of New York, Bank of America NT&SA and The Chase
Manhattan Bank
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day. as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Amount" means. for any day, the excess, if any, of (i) the
aggregate outstanding principal amount of the Loans on such day over (ii)
$200,000.000.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward. if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of
7
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the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day. as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day, provided that (i) if such day is not a Domestic Business
Day. the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
Such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Administrative Agent.
"Fiscal Quarter" means a fiscal quarter of the Borrower.
"Fiscal Year" means a fiscal year of the Borrower.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01) or any combination of the foregoing.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks.
"Group of Loans" means, at any time, a group of Loans consisting of (i) all
Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar
Loans having the same Interest Period at such time or (iii) all CD Loans having
the same Interest Period at such time, provided that, if a Committed Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time to
time as it would have been in if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing., any obligation, direct
or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by virtue of an agreement to
keep-well, to purchase assets. goods. securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment
8
<PAGE>
thereof or to protect such holder against loss in respect thereof (in whole or
in part), provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Increased Commitments" has the meaning set forth in Section 2.02(a).
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months, or if deposits of a
corresponding maturity are available to all Banks in the London interbank
market, nine or twelve months thereafter, as the Borrower may elect in such
notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month. in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day,
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the Maturity
Date shall end on the Maturity Date;
(2) with respect to each CD Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in an applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in such notice; provided
that:
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(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the Maturity
Date shall end on the Maturity Date;
(3) with respect to each Money Market LIBOR Loan, the period commencing on
the date of borrowing specified in the applicable Notice of Borrowing and ending
such number of days thereafter (but not less than 7 days) as the Borrower may
elect in accordance with Section 2.04; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date; and
(4) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 7 days)
as the Borrower may elect in accordance with Section 2.04; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
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"LIBOR Auction" means a solicitation of Money Market Quotes setting forth
Money Market Margins based on the London Interbank Offered Rate pursuant to
Section 2.04.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Committed Loan or a Money Market Loan and "Loans" means
Committed Loans or Money Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.08(c).
"material" means, with respect to any matter so characterized herein, that
such matter could reasonably be expected to be significant to a Bank in
determining whether to enter into this Agreement, make any Loans or take or not
take any other action hereunder.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, results of operations, properties,
liabilities or prospects of the Borrower and its Subsidiaries, considered as a
whole.
"Material Debt" means Debt of the Borrower and/or one or more of its
Subsidiaries. arising in one or more related or unrelated transactions. in an
aggregate principal or face amount exceeding $25,000,000.
"Material Financial Obligations" means a principal or face amount of Debt
and/or payment obligations then due and payable in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries. arising in
one or more related or unrelated transactions, exceeding in the aggregate
$25,000,000.
"Material Plan" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
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"Maturity Date" means the first anniversary of the Termination Date or, if
Such day is not a Euro-Dollar Business Day, then the next preceding Euro-Dollar
Business Day.
"Money Market Absolute Rate" has the meaning set forth in Section 2.04(d).
"Money Market Absolute Rate Loan" means a loan made or to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; provided that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan" means a loan made or to be made by a Bank
pursuant to a LIBOR Auction (including any such loan bearing interest at the
Base Rate pursuant to Section 8.01).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.04(d)(ii)(C).
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.04.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
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"Net Cash Proceeds" means the total amount of cash proceeds received by the
Borrower or any Subsidiary in respect of any Reduction Event, less underwriters'
fees, brokerage commissions, related professional fees and other customary
out-of-pocket expenses payable by the Borrower or such Subsidiary in connection
with such Reduction Event.
"1996 Credit Agreement" means the Credit Agreement dated as of January 8,
1996 among the Borrower, the banks party thereto and Morgan Guaranty Trust
Company of New York, as agent for such banks, as amended.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans,
and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined in
Section 2.03) or a Notice of Money Market Borrowing (as defined in Section
2.04(f)).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.09.
"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation. a limited liability
corporation, a partnership, an association. a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means, at any time, an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to. by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
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"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Payment Dates" means each March 31, June 30, September 30 and
December 31.
"Reduction Event" means any issuance by the Borrower or any of its
Subsidiaries of any debt securities in the capital markets with a maturity in
excess of one year.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference
Banks, as the context may require, and "Reference Bank" means any one of such
Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Required Banks" means, at any time, Banks having more than 50% in
aggregate amount of the Credit Exposures at such time.
"Revolving Credit Period" means the period from and including the Effective
Date to and including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"SEC" means the Securities and Exchange Commission.
"Senior Managing Agents" means Citicorp USA, Inc. and NBD Bank, N.A. in
their capacity as senior managing agents in respect of this Agreement.
"Significant Subsidiary" means a Subsidiary which is a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X promulgated by the
SEC.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
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"Syndication Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as syndication agents in respect of this Agreement.
"Termination Date" means August 25, 1999, or, if such day is not a Euro-
Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
"Wholly-Owned Consolidated Subsidiary" means, with respect to any Person,
any Consolidated Subsidiary all of the shares of capital stock or other
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by such Person.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks, provided that, if the Borrower
notifies the Administrative Agent that the Borrower wishes to amend provision
hereof to eliminate the effect of any change in GAAP on the operation of such
covenant (or if the Administrative Agent notifies the Borrower that the Required
Banks wish to amend any provision hereof for such purpose), then such provision
shall be applied on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or such
provision is amended in a manner satisfactory to the Borrower and the Required
Banks.
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SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes (i) the
aggregation of Loans made or to be made to the Borrower by one or more Banks
pursuant to Article 2 on the same day, all of which Loans are of the same type
(subject to Article 8) and, except in the case of Base Rate Loans, have the same
initial Interest Period or (ii) If the context so requires, the borrowing of
such Loans. Borrowings are classified for purposes hereof either (i) by
reference to the pricing of Loans comprising such Borrowing (e.g., a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or (ii)
by reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "Money
Market Borrowing" is a Borrowing under Section 2.04 in which one or more Banks
participate on the basis of their bids).
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the terms
and conditions set forth in this Agreement, to make loans to the Borrower
pursuant to this Section from time to time during the Revolving Credit Period;
provided that, immediately after each such loan is made, (i) the aggregate
outstanding principal amount of such Bank's Committed Loans shall not exceed its
Commitment and (ii) the aggregate outstanding principal amount of all the Loans
shall not exceed the aggregate amount of the Commitments. Each Borrowing under
this Section 2.01 shall be in an aggregate principal amount of $25,000,000 or
any larger multiple of $5,000.000 (except that any such Borrowing may be in the
aggregate amount available within the limitations in the foregoing proviso) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section, prepay Loans to the extent permitted by Section 2.12 and reborrow at
any time during the Revolving Credit Period under this Section.
SECTION 2.02. Increased Commitments; Additional Banks. (a) Subsequent to
the Effective Date (but not more than twice in any calendar year). the Borrower
may, upon at least 30 days' notice to the Administrative Agent (which shall
promptly provide a copy of such notice to the Banks), propose to increase the
aggregate amount of the Commitments by an amount which (i) is a multiple of
$10,000,000 and (ii) when combined with the aggregate amount by which the
Commitments have theretofore been increased pursuant to this Section 2.02, does
not exceed $600,000,000 (the amount of any such increase, the
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"Increased Commitments"); provided that no Default shall have occurred and be
continuing. Each Bank party to this Agreement at such time shall have the right
(but no obligation), for a period of 15 days following receipt of such notice,
to elect by notice to the Borrower and the Administrative Agent to increase Its
Commitment by a principal amount which bears the same ratio to the Increased
Commitments as its then Commitment bears to the aggregate Commitments then
existing.
(b) If any Bank party to this Agreement shall not elect to increase its
Commitment pursuant to subsection (a) of this Section, the Borrower may, within
10 days of the Banks' response, designate one or more of the existing Banks or
other financial institutions acceptable to the Administrative Agent and the
Borrower (which consent of the Administrative Agent shall not be unreasonably
withheld) which at the time agree to (i) in the case of any such Person that is
an existing Bank, increase its Commitment and (ii) in the case of any other such
Person (an "Additional Bank"), become a party to this Agreement, provided that
the Commitment of such Additional Bank is not less than $10,000,000. The sum of
the increases in the Commitments of the existing Banks pursuant to this
subsection (b) plus the Commitments of the Additional Banks shall not in the
aggregate exceed the unsubscribed amount of the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to this
Section 2.02 shall become effective upon the receipt by the Administrative Agent
of an agreement in form and substance satisfactory to the Administrative Agent
signed by the Borrower, by each Additional Bank and by each other Bank whose
Commitment is to be increased, setting forth the new Commitments of such Banks
and setting forth the agreement of each Additional Bank to become a party to
this Agreement and to be bound by all the terms and provisions hereof, together
with such evidence of appropriate corporate authorization on the part of the
Borrower with respect to the Increased Commitments and such opinions of counsel
for the Borrower with respect to the Increased Commitments as the Administrative
Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments pursuant
to this Section 2.02 that is not pro rata amount all Banks, within five Domestic
Business Days, in the case of any Group of Base Rate Loans then outstanding, and
at the end of the then current Interest Period with respect thereto, in the case
of any Group of Euro-Dollar Loans or CD Loans then outstanding, the Borrower
shall prepay such Group in its entirety and, to the extent the Borrower elects
to do so and subject to the conditions specified in Article 3, the Borrower
shall reborrow Committed Loans from the Banks in proportion to their respective
Commitments after giving effect to such increase, until such time as all
outstanding Committed Loans are held by the Banks in such proportion.
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SECTION 2.03. Notice of Committed Borrowing. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing") not later than
10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y)
the second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and
(d) in the case of a CD Borrowing or a Euro-Dollar Borrowing, the
duration of the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
Notwithstanding the foregoing, no more than 10 Fixed Rate Committed Borrowings
shall be outstanding at any one time, and any Borrowing which would exceed such
limitation shall be made as a Base Rate Borrowing.
SECTION 2.04. Money Market Borrowings. (a) The Money Market Option. In
addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as
set forth in this Section, request the Banks to make offers to make Money Market
Loans to the Borrower from time to time during the Revolving Credit Period. The
Banks may, but shall have no obligation to, make such offers and the Borrower
may, but shall have no obligation to, accept any such offers in the manner set
forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request offers
to make Money Market Loans under this Section. it shall transmit to the
Administrative Agent by telex or facsimile a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received not later
than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day
before the date of Borrowing proposed therein, in the case of a LIBOR Auction or
(y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Administrative Agent shall have mutually
agreed and shall have notified to the Banks not later than the date of the Money
Market
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Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$15,000,000 or a larger multiple of $1,000,000.
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly after receiving a Money
Market Quote Request, the Administrative Agent shall send to the Banks by telex
or facsimile an Invitation for Money Market Quotes substantially in the form of
Exhibit C hereto, which shall constitute an invitation by the Borrower to each
Bank to submit Money Market Quotes offering to make the Money Market Loans to
which such Money Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this Section 2.04(d) and must be
submitted to the Administrative Agent by telex or facsimile at its offices
specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
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Money Market Quotes submitted by the Administrative Agent (or any affiliate of
the Administrative Agent) in the capacity of a Bank may be submitted, and may
only be submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not later than
(x) one hour before the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes before the deadline for the other Banks, in the case
of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote
so made shall not be revocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be substantially in the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing;
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater
than or less than the Commitment of the quoting Bank, (x) must be
$5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the
principal amount of Money Market Loans for which offers were requested
and (z) may be subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by such
quoting Bank may be accepted;
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000 of 1%) to be added to or subtracted
from such base rate;
(D) in the case of an Absolute Rate Auction, the rate of interest
per annum (specified to the nearest 1/10,000 of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan; and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
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(A) is not substantially in conformity with Exhibit D hereto or
does not specify all of the information required by subsection
2.04(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in
the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection 2.04(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly notify the
Borrower of the terms of (i) any Money Market Quote submitted by a Bank that is
in accordance with Section 2.04(d) and (ii) any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote. The Administrative Agent's
notice to the Borrower shall specify (A) the aggregate principal amount of Money
Market Loans for which offers have been received for each Interest Period
specified in the related Money Market Quote Request, (B) the respective
principal amounts and Money Market Margins or Money Market Absolute Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in any single Money
Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York
City time) on (x) the third Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing,
in the case of an Absolute Rate Auction (or, in either case. such other time or
date as the Borrower and the Administrative Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Administrative
Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to Section 2.04(e). In the case of acceptance, such notice (a "Notice
of Money Market Borrowing") shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. The Borrower may accept any
Money Market Quote in whole or in part; provided that:
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(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money
Market Quote Request;
(ii) the principal amount of each Money Market Borrowing must be
$15,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be;
(iv) the Borrower may not accept any offer that is described in
subsection 2.04(d)(iii) or that otherwise falls to comply with the
requirements of this Agreement; and
(v) immediately after such Money Market Borrowing is made, the
aggregate outstanding principal amount of the Loans shall not exceed
the aggregate amount of the Commitments.
(g) Allocation by Administrative Agent. If offers are made by two or more
Banks with the same Money Market Margins or Money Market Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Administrative Agent among such Banks as nearly as possible
(in multiples of $1,000,000, as the Administrative Agent may deem appropriate)
in proportion to the aggregate principal amounts of such offers. Determinations
by the Administrative Agent of the amounts of Money Market Loans shall be
conclusive in the absence of manifest error.
SECTION 2.05. Notice to Banks; Funding of Loans. (a) Promptly after
receiving a Notice of Borrowing, the Administrative Agent shall notify each Bank
of the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than (x) 12:00 Noon (New York City time) on the date of each
Base Rate Borrowing and each Money Market Absolute Rate Borrowing and (y) 10:00
A.M. (New York City time) on the date of any other Borrowing, each Bank
participating therein shall make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make
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the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a Bank
before the date of any Borrowing that such Bank will not make available to the
Administrative Agent such Bank's share of such Borrowing, the Administrative
Agent may assume that such Bank has made such share available to the
Administrative Agent on the date of such Borrowing in accordance with Section
2.05(b) and the Administrative Agent may, in reliance on such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such share available to the
Administrative Agent, such Bank and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent,
at (i) if such amount is repaid by the Borrower, a rate per annum equal to the
higher of the Federal Funds Rate and the interest rate applicable to such
Borrowing pursuant to Section 2.08 and (ii) if such amount is repaid by such
Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative
Agent such corresponding amount the Borrower shall not be required to repay such
amount and the amount so repaid by such Bank shall constitute such Bank's Loan
included in such Borrowing for purposes of this Agreement.
SECTION 2.06. Notes. (a) The Borrower's obligation to repay the Loans of
each Bank shall be evidenced by a single Note payable to the order of such Bank
for the account of its Applicable Lending Office.
(b) Each Bank may, by notice to the Borrower and the Administrative Agent,
request that the Borrower's obligation to repay such Bank's Loans of a
particular type be evidenced by a separate Note. Each such Note shall be
substantially in the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it relates solely to Loans of the relevant type. Each
reference in this Agreement to the "Note" of such Bank shall be deemed to refer
to and include any or all of such Notes, as the context may require.
(c) Promptly after it receives each Bank's Note pursuant to Section
3.01(b), the Administrative Agent shall forward such Note to such Bank. Each
Bank shall record the date, amount and type of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
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such Loan then outstanding; provided that a Bank's failure to make (or any error
in making) any such recordation or endorsement shall not affect the obligations
of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
SECTION 2.07. Maturity of Loans. (a) Each Committed Loan shall mature, and
the principal amount thereof shall be due and payable (together with interest
accrued thereon), on the Maturity Date.
(b) Each Money Market Loan included in any Money Market Borrowing shall
mature, and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the last day of the Interest Period applicable to
such Borrowing.
SECTION 2.08. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the Base Rate for such day.
(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for each day during each Interest Period applicable thereto, at a rate
per annum equal to the sum of the CD Margin for such day plus the Adjusted CD
Rate applicable to such Interest Period; provided that if any CD Loan shall, as
a result of clause (2)(b) of the definition of Interest Period, have an Interest
Period of less than 30 days, such CD Loan shall bear interest for each day
during such Interest Period at the Base Rate for such day. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than 90 days, at intervals of 90 days after the first
day thereof. Any overdue principal of or interest on any CD Loan shall bear
interest. payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the higher of (i) the Base Rate for such day and (ii) the
sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such
Loan on the day before such payment was due.
The "Adjusted CD Rate" applicable to any Interest Period means a rate per
annum determined pursuant to the following formula:
[CDBR ] *
ACDR = [__________] + AR
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[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
-------------------
* The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
"Domestic Reserve Percentage" means for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in New York City with deposits exceeding five billion dollars in respect
of new non-personal time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The Adjusted CD Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
adequately capitalized and within supervisory subgroup "A" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R.
Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance
Corporation (or any successor) for such Corporation's (or such successor's
insuring time deposits at offices of such institution in the United States. The
Adjusted CD Rate shall be adjusted automatically on and as of the effective date
of any change in the Assessment Rate.
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(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day thereof
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, If necessary, to the next higher 1/100 of 1%) of
the respective rates per annum at which deposits in dollars are offered to each
of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Loan on the day before such
payment was due and (ii) the sum of 2% plus the Euro-Dollar Margin for such day
plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/100 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than three months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks are
offered to such Euro-Dollar Reference Bank in the London interbank market for
the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
8.01(a) or 8.01(b) shall exist, at a rate per annum equal to the sum of 2% plus
the Base Rate for such day).
(e) Subject to Section 8.01, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.08(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan. Each Money Market Absolute Rate Loan shall bear
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interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Money Market Absolute Rate
quoted by the Bank making such Loan. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is longer
than three months., at intervals of three months after the first day thereof.
Any overdue principal of or interest on any Money Market Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder. The Administrative Agent shall promptly notify the
Borrower and the participating Banks of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.09. Method of Electing Interest Rates. (a) The Loans included in
each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject to Section 2.09(d)
and the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to convert
such Loans to Base Rate Loans as of any Domestic Business Day or convert
such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day or
continue such Loans as CD Loans for an additional Interest Period, subject
to Section 2.14 if any such conversion is effective on any day other than
the last day of an Interest Period applicable to such Loans; and
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(iii) If such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or
convert such Loans to CD Loans as of any Euro-Dollar Business Day or elect
to continue such Loans as Euro-Dollar Loans for an additional Interest
Period, subject to Section 2.14 if any such conversion is effective on any
day other than the last day of an Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective (unless the relevant
Loans are to be converted from Domestic Loans of one type to Domestic Loans of
the other type or are CD Loans to be continued as CD Loans for an additional
Interest Period, in which case such notice shall be delivered to the
Administrative Agent not later than 10:30 A.M. (New York City time) on the
second Domestic Business Day before such conversion or continuation is to be
effective). A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each at least $25,000,000 (unless such
portion is comprised of Base Rate Loans). If no such notice is timely received
before the end of an Interest Period for any Group of CD Loans or Euro-Dollar
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans at the end of such Interest Period.
(b) Each Notice of Interest Rate Election shall specify
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in such
notice is to be effective, which shall comply with the applicable clause of
Section 2.09(a) above;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if the Loans resulting from such conversion are to be CD
Loans or Euro-Dollar Loans, the duration of the next succeeding Interest
Period applicable thereto; and
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(iv) if such Loans are to be continued as CD Loans or Euro-Dollar
Loans for an additional Interest Period, the duration of such additional
Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Promptly after receiving a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.09(a) above, the Administrative Agent shall
notify each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any Committed
Loans to, or continue any Committed Loans for an additional Interest Period as,
CD Loans or Euro-Dollar Loans if (i) the aggregate principal amount of any Group
of CD Loans or Euro-Dollar Loans created or continued as a result of such
election would be less than $25,000,000 or (ii) a Default shall have occurred
and be continuing when the Borrower delivers notice of such election to the
Administrative Agent.
(e) If any Committed Loan is converted to a different type of Loan, the
Borrower shall pay, on the date of such conversion, the interest accrued to such
date on the principal amount being converted.
SECTION 2.10. Fees. (a) The Borrower shall pay to the Administrative Agent
for the account of the Banks ratably in proportion to their Credit Exposures, a
facility fee calculated for each day at the Facility Fee Rate for such day
(determined in accordance with the Pricing Schedule) on the aggregate amount of
the Credit Exposures on such day. Such facility fee shall accrue for each day
from and including the Effective Date to but excluding the day on which the
Credit Exposures are reduced to zero.
(b) For each day on which the Excess Amount is greater than zero, the
Borrower shall pay to the Administrative Agent for the account of the Banks
ratably in proportion to their Credit Exposures, a utilization fee at a rate of
0.25% per annum on the Excess Amount for such day.
(c) Fees accrued for the account of the Banks under this Section shall be
payable quarterly in arrears on each Quarterly Payment Date and on the day on
which the Commitments terminate in their entirety (and, if later, on the day on
which the Credit Exposures are reduced to zero).
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SECTION 2.11. Termination or Reduction of Commitments. (a) The Borrower
may, upon at least three Domestic Business Days' notice to the Administrative
Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at
such time, or (ii) ratably reduce from time to time by an aggregate amount of
$25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans. Promptly after receiving a notice pursuant to this subsection, the
Administrative Agent shall notify each Bank of the contents thereof.
(b) Unless previously terminated, the Commitments shall terminate in their
entirety on the Termination Date.
(c) The Commitments shall be ratably reduced automatically in the event
that the Borrower or any of its Subsidiaries shall at any time, or from time to
time, after the date hereof receive any Net Cash Proceeds of any Reduction
Event, by an amount equal to the largest multiple of $1,000,000 which does not
exceed the amount of such Net Cash Proceeds; provided that any such reduction
made pursuant to this subsection (c) shall not exceed such amount (if any) as
shall be necessary so that the aggregate amount of the Commitments, as so
reduced, is $200,000,000. The reductions in the Commitments required by this
subsection shall be effective on the fifth Euro-Dollar Business Day following
receipt by the Borrower or any of its Subsidiaries, as the case may be, of such
Net Cash Proceeds; provided that
(i) if the amount of the Net Cash Proceeds in respect of any Reduction
Event is less than $5,000,000, such reduction shall be effective upon
receipt of proceeds such that, together with all other such amounts
received and not previously applied, the amount of such Net Cash Proceeds
is equal to at least $5,000,000; and
(ii) if and to the extent such reduction would otherwise reduce the
aggregate amount of the Commitments to an amount less than the related
Dedicated Amount. such reduction shall be deferred so as to become
effective simultaneously with reductions in the Dedicated Amount. For
purposes of this clause (ii):
"Dedicated Amount" means the sum of the aggregate principal amount of
Fixed Rate Loans and the aggregate face amount of Supported Commercial
Paper which, in each case, are outstanding at the time the Borrower or a
Subsidiary receives Net Cash Proceeds of the related Reduction Event. The
Dedicated Amount shall be reduced (i) at each subsequent maturity of such
Supported Commercial Paper by the amount
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then maturing and (ii) on the last day of the Interest Period applicable to
each such Fixed Rate Loan by the principal amount of such Fixed Rate Loan.
"Supported Commercial Paper" means commercial paper of the Borrower
which requires liquidity support in the form of undrawn bank commitments
and for which no such commitments other than the Commitments are available.
At any time at which the Borrower has other committed bank facilities
available as liquidity support for commercial paper, outstanding commercial
paper shall be allocated first to such other facilities, so that only the
amount which cannot be supported thereby shall constitute Supported
Commercial Paper. Such allocation to other facilities shall be in inverse
order of maturity, so that the earliest maturing commercial paper shall be
Supported Commercial Paper.
The Borrower shall notify the Administrative Agent within two Euro-Dollar
Business Days of receipt by it or a Subsidiary of Net Cash Proceeds of a
Reduction Event, specifying the date and amount thereof and, if the provisions
of clause (ii) relating to Supported Commercial Paper are applicable, setting
forth sufficient information with respect thereto to determine the resultant
schedule for reduction of the Commitments.
(d) On the date of any reduction of Commitments pursuant to 2.11(c) above,
the Borrower shall repay such principal amount (together with accrued interest
thereon) of outstanding Loans, if any, as may be necessary so that after such
repayment the aggregate outstanding principal amount of the Loans does not
exceed the amount of the Commitments as then reduced. Subject to Sections
2.12(b) and 2.14, each required payment or prepayment shall be made with respect
to such outstanding Borrowings as the Borrower may designate to the
Administrative Agent not less than three Euro-Dollar Business Days prior to the
date required for such payment or prepayment or, failing such designation by the
Borrower, as the Administrative Agent may specify by notice to the Borrower and
the Banks.
SECTION 2.12. Optional Prepayments. (a) Subject in the case of any Fixed
Rate Loans to Section 2.14, the Borrower may, (i) upon at least one Domestic
Business Day's notice to the Administrative Agent, prepay the Group of Base Rate
Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant
to Section 8.01), (ii) upon at least two Domestic Business Days' notice to the
Administrative Agent, prepay any Group of CD Loans or (iii) upon at least three
Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group
of Euro-Dollar Loans, in each case in whole at any time, or from time to time in
part in amounts aggregating $25,000,000 or any larger
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multiple of $5,000,000 by paying the principal amount to be prepaid together
with interest accrued thereon to the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Group of Loans (or such Money Market Borrowing).
(b) Except as provided in Section 2.12(a) above, the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan
before the maturity thereof.
(c) Promptly after receiving a notice of prepayment pursuant to this
Section, the Administrative Agent shall notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment, and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.13. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
The Administrative Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans
or any payment of fees shall be due on a day which is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business
Day, the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. Whenever any payment of principal of, or
interest on, the Money Market Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(b) Unless the Borrower notifies the Administrative Agent before the date
on which any payment is due to the Banks hereunder that the Borrower will not
make such payment in full, the Administrative Agent may assume that the Borrower
has made such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance on such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent that the Borrower shall not have so made such
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payment, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date Such amount is distributed to such Bank until the date such
Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a different type of Loan (whether such payment or conversion is
pursuant to Article 2, 6 or 8 or otherwise, except pursuant to Section 8.02) on
any day other than the last day of an Interest Period applicable thereto, or the
last day of an applicable period fixed pursuant to Section 2.08(d), or if the
Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after
notice has been given to any Bank in accordance with Section 2.05(a), 2.09(c) or
2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for
any resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, prepay, convert or continue; provided that such Bank shall
have delivered to the Borrower a certificate setting forth in reasonable detail
the calculation of the amount of such loss or expense, which certificate shall
be conclusive in the absence of clearly demonstrable error.
SECTION 2.15. Computation of Interest and Fees. Interest based on the Prime
Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days
in a leap year) and paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest and fees shall be
computed on the basis of a year of 3 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
SECTION 2.16. Regulation D Compensation. For so long as any Bank maintains
reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Bank to United
States residents), and as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar Loans is increased,
then such Bank may require the Borrower to pay, contemporaneously with each
payment of interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to
but not exceeding the excess of (i) (A) the applicable London Interbank Offered
Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Bank wishing to require payment
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of such additional interest (x) shall so notify the Borrower and the
Administrative Agent, in which case such additional interest on the Euro-Dollar
Loans of such Bank shall be payable to such Bank at the place indicated 'in such
notice with respect to each Interest Period commencing at least three
Euro-Dollar Business Days after the giving of such notice and (y) shall furnish
to the Borrower at least five Euro-Dollar Business Days prior to each date on
which interest is payable on the Euro-Dollar Loans an officer's certificate
setting forth the amount to which such Bank is then entitled under this Section
(which shall be consistent with such Bank's good faith estimate of the level at
which the related reserves are maintained by it). Each such certificate shall be
accompanied by such information as the Borrower may reasonably request as to the
computation set forth therein.
SECTION 2.17. Maximum Interest Rate. (a) Nothing contained in this
Agreement or the Notes shall require the Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law.
(b) If the amount of interest payable for the account of any Bank on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to Section 2.08, would exceed the maximum
amount permitted by applicable law to be charged by such Bank, the amount of
interest payable for its account on such interest payment date shall be
automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of any Bank in
respect of any interest computation period is reduced pursuant to clause 2.17(b)
and the amount of interest payable for its account in respect of any subsequent
interest computation period. computed pursuant to Section 2.08, would be less
than the maximum amount permitted by applicable law to be charged by such Bank,
then the amount of interest payable for its account in respect of such
subsequent interest computation period shall be automatically increased to such
maximum permissible amount; provided that at no time shall the aggregate amount
by which interest paid for the account of any Bank has been increased pursuant
to this clause 2.17(c) exceed the aggregate amount by which interest paid for
its account has theretofore been reduced pursuant to clause 2.17(b).
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ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or waived
in accordance with Section 9.05):
(a)the Administrative Agent shall have received counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, the Administrative Agent
shall have received, in form satisfactory to it, telegraphic, telecopy, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party);
(b) the Administrative Agent shall have received a duly executed Note for
the account of each Bank dated on or before the Effective Date complying with
the provisions of Section 2.06;
(c) the Administrative Agent shall have received an opinion of Dewey
Ballantine, special New York counsel for the Borrower, and an opinion of J.B.
King, Vice President and General Counsel of the Borrower, substantially in the
forms of Exhibits E-1 and E-2, respectively, and each covering such additional
matters as the Required Banks may reasonably request;
(d) the Administrative Agent shall have received an opinion of Davis Polk &
Wardwell, special counsel for the Agents, dated the date of such Borrowing,
substantially in the form of Exhibit F hereto and covering such additional
matters as the Required Banks may reasonably request;
(e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) the Administrative Agent shall have received evidence satisfactory to
it of the payment of all principal of and interest on any loans outstanding
under, and all accrued fees under, the 1996 Credit Agreement;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
September 4, 1998. Promptly after the Effective Date occurs, the Administrative
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Agent shall notify the Borrower and the Banks thereof, and such notice shall be
conclusive and binding on all parties hereto. The Borrower and the Banks party
to the 1996 Credit Agreement, comprising the "Required Banks" as defined
therein, hereby agree that (i) the commitments of the banks under the 1996
Credit Agreement shall terminate in their entirety immediately and automatically
upon the effectiveness of this Agreement, without further action by any party to
the 1996 Credit Agreement. (ii) all accrued fees tinder the 1996 Credit
Agreement shall be due and payable at such time and (iii) subject to the funding
loss indemnities in the 1996 Credit Agreement, the Borrower may prepay any and
all loans outstanding thereunder on the date of effectiveness of this Agreement.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.03 or 2.04, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of the Commitments;
(c) the fact that, immediately before and after such Borrowing, no Default
shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (other than the representation and warranty set
forth in Section 4.04(c)) shall be true in all material respects on and as of
the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
3.02(b), 3.02(c) and 3.02(d).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
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SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
Indiana, and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement and
the Notes are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or In respect of, or filing
with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of the Borrower or any of its
Subsidiaries or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of December 1, 1997 and the
related consolidated statements of income and cash flows for the Fiscal Year
then ended, reported on by Ernst & Young, and set forth in the Borrower's 1997
Form 10-K, a copy of which has been delivered to each of the Banks, fairly
present, in conformity with GAAP, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such Fiscal Year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1998 and the related consolidated
statements of income and cash flows for the six months then ended, set forth in
the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of
the Banks, fairly present, on a basis consistent with the financial statements
referred to in Section 4.04(a), the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for six month period (subject
to normal year-end adjustments).
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(c) Since June 30, 1998 there have been no material adverse changes in the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. Except as set forth in the Borrower's 1997 Form I
0-K and any subsequent Forms 10-K and 10-Q of the Borrower, there is no action,
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable likelihood of an adverse decision which could materially
adversely affect the consolidated financial position of the Borrower and its
Consolidated Subsidiaries, considered as a whole or the ability of the Borrower
to satisfy its obligations under this Agreement and the Notes, or which in any
manner draws into question the validity of this Agreement and the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any material liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of its
business, the Borrower reviews the effect of Environmental Laws on the business,
operations and properties of the Borrower and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and costs (including,
without limitation, an), capital or operating expenditures required for clean-up
or closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, pen-nit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded
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that such associated liabilities and costs, including the costs of material
compliance with Environmental Laws, are unlikely to have a Material Adverse
Effect.
SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except where payment thereof is being contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate.
SECTION 4.09. Subsidiaries. Each of the Borrower's Significant Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.10. No Regulatory Restrictions on Borrowing. The Borrower is not
(i) an "investment company" within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) otherwise subject to any regulatory scheme which
restricts its ability to incur debt.
SECTION 4.11. Full Disclosure. No written information heretofore or
hereafter furnished by the Borrower to the Administrative Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby, when taken together with all such information so furnished, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading in any material respect.
SECTION 4.12. Year 2000. The cost to the Borrower of (i) any reprogramming
required to permit the proper functioning, in and following year 2000, of (a)
the Borrower's computer systems and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Borrower's
systems interface), (ii) the testing of all such systems and equipment, as so
reprogrammed and (iii) the reasonably foreseeable consequences of year 2000 to
the Borrower (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
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Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement, to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Credit Exposure
hereunder or any interest or fees accrued hereunder remain unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the Banks:
(a) as soon as available and in any event within 120 days after the end of
each Fiscal Year of the Borrower, a copy of the Form 10-K for such Fiscal Year
filed or to be filed with the SEC, containing the audited consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Year and the related audited consolidated statements of income and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year, all reported on by Ernst & Young or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end of
each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, a
copy of the Form 10-Q for such Fiscal Quarter filed or to be filed with the
SEC, containing the consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and cash flows for such Fiscal Quarter and for
the portion of the Borrower's Fiscal Year ended at the end of such Fiscal
Quarter, setting forth in the case of such statements of income and cash flows
in comparative form the figures for the corresponding Fiscal Quarter and the
corresponding portion of the Borrower's previous Fiscal Year, all certified
(subject to normal year-end adjustments) as to fairness of presentation, GAAP
and consistency by the chief financial officer or the chief accounting officer
of the Borrower;
(c) simultaneously with the delivery of each set of financial statements
referred to in clauses 5.01 (a) and 5.01 (b) above, a certificate of the chief
financial
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officer or the chief accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Sections 5.07 to 5.09, inclusive, and
Section 5.10(i) on the date of such financial statements, and (ii) stating
whether any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial statements
referred to in clause 5.01 (a) above, a statement of the firm of independent
public accountants which reported on such statements (i) whether anything has
come to their attention to cause them to believe that any Default existed on the
date of such statements and (ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to clause
5.01(c) above;
(e) within five days after any officer of the Borrower obtains knowledge of
any Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting forth
the details thereof and the action which the Borrower is taking or proposes to
take with respect thereto;
(f) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or its equivalent)
which the Borrower shall have filed with the SEC;
(g) if and when any member of the ERISA Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041 (c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
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make any payment or contribution to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security, a certificate of the chief financial
officer or the chief accounting officer of the Borrower setting forth details as
to such occurrence and action, if any, which the Borrower or applicable member
of the ERISA Group is required or proposes to take; and
(h) from time to time such additional information regarding the financial
position or business of the Borrower and its Subsidiaries as the Administrative
Agent. at the request of any Bank, may reasonably request.
Information required to be delivered pursuant to Sections 5.01(a), 5.01(b) or
5.01(f) above shall be deemed to have been delivered on the date on which the
Borrower provides notice to the Banks that such information has been posted on
the Borrower's website on the Internet at the website address listed on the
signature pages hereof, at sec.gov/edaux/searches.htm or at another website
identified in such notice and accessible by the Banks without charge; provided
that (i) such notice may be included in a certificate delivered pursuant to
Section 5.01(c) and (ii) the Borrower shall deliver paper copies of the
information referred to in Sections 5.01(a), 5.01(b) or 5.01(f) to any Bank
which requests such delivery.
SECTION 5.02. Payment of Obligations. The Borrower will pay and discharge,
and will cause each Significant Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities. including,
without limitation, tax liabilities, except where any of the foregoing may be
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Significant Subsidiary to maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Significant Subsidiary to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted; provided that the Borrower or any Significant Subsidiary may
sell, lease or exchange surplus or worn-out equipment in the ordinary course of
business and any assets employed in a discontinued line of business.
(b) The Borrower will, and will cause each of its Significant Subsidiaries
to, maintain (either in the name of the Borrower or in such Significant
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are
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customarily insured against in the same general area by companies of established
repute engaged in the same or a similar business; provided that the Borrower
may, and may cause any of its Significant Subsidiaries to, self insure in such
amounts and against such risks as are customarily self-insured against by such
companies. The Borrower will furnish to the Banks, upon reasonable request from
the Administrative Agent, information presented in reasonable detail as to the
insurance so carried (including, without limitation. any self insurance).
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Significant Subsidiary to continue,
to engage in the medical device business and will preserve, renew and keep in
full force and effect, and will cause each Significant Subsidiary to preserve,
renew and keep in full force and effect their respective corporate existence and
their respective material rights,, privileges and franchises necessary or
desirable in the normal conduct of business: provided that nothing in this
Section 5.04 shall prohibit any consolidation, merger or sale of assets
permitted under Section 5.11.
SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause
each Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.06. Inspection of Property, Books and Records. The Borrower will
keep, and will cause each Significant Subsidiary to keep, proper books of record
and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Significant Subsidiary to permit, representatives of
any Bank at such Bank's expense to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired; provided that,
so long as no Default has occurred and is continuing, any of the foregoing shall
take place during normal business hours and a representative of the Borrower
shall be given prior notice of, and may attend any meeting between,
representatives of any Bank and such independent public accountants.
SECTION 5.07. Consolidated Leverage Ratio. The Consolidated Leverage Ratio
will at no time be more than 3.5 to 1.0.
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SECTION 5.08. Subsidiary Debt. Total Debt outstanding at an), time of all
Subsidiaries (excluding Debt of a Subsidiary to the Borrower or to a wholly
owned Subsidiary) will at no time exceed $100,000,000; provided that in no
event shall any Subsidiary Guarantee any Debt of the Borrower.
SECTION 5.09. Minimum Consolidated Net Worth. Consolidated Net Worth will
at no date be less than Minimum Consolidated Net Worth at Such date. For
purposes of this Section 5.09, "Minimum Consolidated Net Worth" means, at any
date, $402,000,000 plus (i) an amount equal to 75% of Consolidated Net Income
for each Fiscal Quarter ending after September 30, 1998 but prior to the date of
determination, in each case, for which Consolidated Net Income is positive (but
with no deduction on account of negative Consolidated Net Income for any Fiscal
Quarter) plus (ii) 75% of the aggregate net proceeds, including the fair market
value of property other than cash (as determined in good faith by the board of
directors of the Borrower), received by the Borrower from the issuance and sale
after the date hereof of any capital stock of the Borrower (other than the
proceeds of any issuance and sale of any capital stock (x) to a Subsidiary of
the Borrower or (y) which is required to be redeemed, or is redeemable at the
option of the holder, if certain events or conditions occur or exist or
otherwise or (z) solely to the extent the proceeds of such issuance are used to
redeem any capital stock of the Borrower).
SECTION 5.10. Negative Pledge. Neither the Borrower nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(a) Liens existing as of the Effective Date and securing Debt outstanding
on the Effective Date in an aggregate principal or face amount not exceeding
$50,000,000;
(b) any Lien existing on any asset of any corporation at the time such
corporation becomes a Subsidiary and not created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed for the purpose
of financing all or any part of the cost of acquiring such asset, provided that
such Lien attaches to such asset concurrently with or within 180 days after the
acquisition thereof;
(d) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower or a Subsidiary
and not created in contemplation of such event;
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(e) any Lien existing on any asset prior to the acquisition thereof by the
Borrower or a Subsidiary and not created in contemplation of such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(g) Liens arising in the ordinary course of its business which (i) do not
secure Debt or Derivatives Obligations, (ii) do not secure any one obligation in
an amount exceeding $10,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
(h) Liens on cash and cash equivalents securing Derivatives Obligations.,
provided that the aggregate amount of cash and cash equivalents subject to Such
Liens may at no time exceed $10,000,000; and
(i) Liens not otherwise permitted by the foregoing clauses of this Section
securing Debt in an aggregate principal or face amount at any date not to exceed
$75,000,000.
SECTION 5.11. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or Into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, (x) all or any material
part of the assets of the Borrower and its Subsidiaries, taken as a whole, to
any other Person or (y) in any event, all or any material part of the assets of
ACS or CP1; provided that the Borrower may merge with another Person if (a) the
Borrower is the corporation surviving such merger and (b) immediately after
giving effect to such merger, no Default shall have occurred and be continuing.
SECTION 5.12. Use of Proceeds. The proceeds of the Loans made under this
Agreement will be used by the Borrower for general corporate purposes, including
acquisitions. None of such proceeds will be used, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
any "margin stock" within the meaning of Regulation U.
SECTION 5.13. Limitations on Restrictions Affecting Subsidiaries. Neither
the Borrower nor any of its Subsidiaries will enter into, or suffer to exist,
any agreement with any Person, other than this Agreement, which prohibits or
limits the ability of any Subsidiary to (a) pay dividends or make other
distributions or pay any Debt owed to Borrower or any Subsidiary. (b) make loans
or advances to Borrower or any Subsidiary, (c) transfer any of its properties or
assets to Borrower
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or any Subsidiary or (d) create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter acquired
(other than with respect to assets subject to consensual liens permitted under
Section 5.10); provided that the foregoing shall not apply to customary net
worth, financial leverage and coverage tests in agreements governing Debt
incurred by Subsidiaries in compliance with this Agreement.
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due;
(b) any interest on any Loan, any fees or any other amount payable
hereunder shall not be paid within five days of the date when due;
(c) the Borrower shall fail to observe or perform any covenant contained in
Sections 5.07 to 5.13, inclusive (it being understood that to the extent any
such covenant requires the Borrower to cause any of its Subsidiaries to comply
with the agreements set forth therein, a failure by the Borrower to cause any of
its Subsidiaries to so comply shall constitute a failure by the Borrower to
observe or perform such covenant);
(d) the Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by clause 6.01 (a), 6.01
(b) or 6.01 (c) above) for 30 days after written notice thereof has been given
to the Borrower by the Administrative Agent at the request of any Bank or, if
such failure to observe or perform is susceptible of cure and at the time such
notice is given the Borrower shall be diligently taking all actions necessary or
desirable in order to cure such failure, for 90 days after notice thereof has
been given (it being understood that to the extent any such covenant requires
the Borrower to cause any of its Subsidiaries to comply with the agreements set
forth therein, a failure by the Borrower to cause any of its Subsidiaries to so
comply shall constitute a failure by the Borrower to observe or perform such
covenant);
(e) any representation, warranty, certification or statement made by the
Borrower in this Agreement or in any certificate, financial statement or other
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document delivered pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);
(f) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period;
(g) any event or condition shall occur which results in the acceleration of
the maturity of any Material Debt or enables the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof,
(h) the Borrower or any of its Significant Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be commenced against the
Borrower or any of its Significant Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
or any of its Significant Subsidiaries under the federal bankruptcy laws as now
or hereafter in effect;
(j) any member of the ERISA Group shall fall to pay when due an amount or
amounts aggregating in excess of 5,000,000 which it shall have become liable to
pay under Title IV of ERISA-, or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
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4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $5,000,000;
(k) a judgment or order for the payment of money in excess of $15,000,000
shall be rendered against the Borrower or any Significant Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 10
days;
(l) any person or group of persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC
under said Act) of 30% or more of the outstanding shares of common stock of the
Borrower, or during any period of 12 consecutive calendar months, individuals
who were either (i) directors of the Borrower on the first day of such period or
(ii) elected to fill vacancies caused by the ordinary course resignation or
retirement of any other director and whose nomination or election was approved
by a vote of a majority of the directors then still in office who were directors
of the Borrower on the first day of such period, shall cease to constitute a
majority of the board of directors of the Borrower; or
(m) ACS or CPI shall cease to be a Wholly-Owned Consolidated Subsidiary of
the Borrower (except that (i) either ACS or CPI may merge with and into the
Borrower, as permitted pursuant to Section 5.11 or (ii) ACS and CPI may merge
with and into each other);
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes (together
with accrued interest thereon) shall thereupon become. immediately due and
payable without presentment, demand, protest or other notice of any kind and
without valuation and appraisement, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause 6.01(h) or 6.01(i) above with respect to the Borrower, without any notice
to the Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind and without valuation and
appraisement, all of which are hereby waived by the Borrower.
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SECTION 6.02. Notice of Default. The Administrative Agent shall give notice
to the Borrower under Section 6.01 (d) promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. Administrative Agent and Affiliates. Morgan Guaranty Trust
Company of New York shall have the same rights and powers under this Agreement
as any other Bank and may exercise or refrain from exercising the same as though
it were not the Administrative Agent. Morgan Guaranty Trust Company of New York
and its affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower or any Subsidiary or affiliate of the
Borrower as if it were not the Administrative Agent.
SECTION 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower). independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Administrative Agent. None of the Administrative
Agent, its affiliates and their respective directors, officers, agents and
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks (or such
different number of Banks as any provision hereof expressly requires for such
consent or request) or (ii) in the absence of its own gross negligence or
willful misconduct. None of the Administrative Agent, its affiliates and their
respective
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directors, officers, agents and employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance on any notice, consent, certificate, statement or other writing (which
may be a bank wire, telex, facsimile or similar writing) believed by it to be
genuine or to be signed by the proper party or parties. Without limiting the
generality of the foregoing, the use of the term "agent" in this Agreement with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship between
independent contracting parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in proportion to
their Credit Exposures, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct) that such indemnitees may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnitees thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance on any Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance on any Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking any
action under this Agreement.
SECTION 7.08. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving notice thereof to the Banks and the Borrower. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
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Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $50,000,000. Upon
the acceptance of its appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent resigns as Administrative Agent hereunder, the provisions
of this Article shall inure to its benefit as to an), actions taken or omitted
to be taken by it while it was Administrative Agent.
SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for its
own account fees in the amounts and at the times previously agreed upon by the
Borrower and such Agent.
SECTION 7.10. Other Agents. Nothing in this Agreement shall impose any duty
or liability whatsoever on any Documentation Agent, Senior Managing Agent or
Syndication Agent in such capacity.
ARTICLE 8
CHANGE IN
CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or before the first day of any Interest Period for any CD Loans, Euro-Dollar
Loans or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars in the applicable amounts are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
(b) in the case of a CD Loans or Euro-Dollar Loans, Banks having more than
50% in the aggregate amount of the Commitments advise the Administrative Agent
that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may
be, as determined by the Administrative Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans,
as the case may be, for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
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the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, or to continue or convert outstanding Loans as or into CD Loans or
Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each
outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted
into a Base Rate Loan on the last day of the then current Interest Period
applicable thereto. Unless the Borrower notifies the Administrative Agent at
least two Domestic Business Days before the date of any affected Borrowing for
which a Notice of Borrowing has previously been given that )it elects not to
borrow on such date, (i) if such affected Borrowing is a CD Borrowing or
Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate
Borrowing and (ii) if such affected Borrowing is a Money Market LIBOR Borrowing,
the Money Market LIBOR Loans comprising such Borrowing shall bear interest for
each day from and including the first day to but excluding the last day of the
Interest Period applicable thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into
Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section, Such Bank shall designate a different Euro-Dollar Lending Office if
such designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice
is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted
to a Base Rate Loan either (i) on the last day of the then current Interest
Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to
maintain and fund such Loan as a Euro-Dollar Loan to such day or (ii)
immediately if such Bank shall determine that it may not lawfully continue to
maintain and fund such Loan as a Euro-Dollar Loan to such day. Interest and
principal on any such Base Rate Loan shall be payable on the same dates as, and
on a pro rata basis with, the interest and principal payable on the related
Euro-Dollar Loans of the other Banks.
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SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the
date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency, shall impose, modify
or deem applicable any reserve (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding (i) with respect to any CD Loan any such requirement included in an
applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar
Loan any such requirement with respect to which such Bank is entitled to
compensation during the relevant Interest Period under Section 2.16), special
deposit, insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Administrative Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency (including any determination by any such authority, central bank or
comparable agency that, for purposes of capital adequacy requirements, the
Commitments hereunder do not constitute commitments with an original maturity of
one year or less), has or would have the effect of reducing the rate of return
on capital of such Bank (or its
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Parent) as a consequence of such Bank's obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for Such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction.
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to it. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder and the calculation thereof in
reasonable detail shall be conclusive in the absence of clearly demonstrable
error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.
SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the following
terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Borrower
pursuant to this Agreement or under any Note, and all liabilities with respect
thereto, excluding (i) in the case of each Bank and the Administrative Agent,
taxes imposed on its income (other than withholding taxes) and franchise or
similar taxes imposed on it, by a jurisdiction (A) under the laws of which it is
organized, (B) in which it conducts business (provided that it would be subject
to such income (other than withholding taxes), franchise or similar taxes by
such jurisdiction without regard to any Loan under law as in effect on the date
hereof because it conducts business in such jurisdiction) (C) in which such
Bank's principal executive office is located or (D) in the case of each Bank, in
which its Applicable Lending Office is located and (ii) in the case of each
Bank, any United States withholding tax imposed on such payments but only to
the extent that such Bank is subject to United States withholding tax at the
time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from
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the execution or delivery of. or otherwise with respect to, this Agreement or
any Note.
(b) Any and all payments by the Borrower to or for the account of any Bank
or the Administrative Agent hereunder or under any Note shall be made without
deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be
required by law to deduct any Taxes or Other Taxes from any such payments, (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 8.04) such Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Administrative Agent, at its address specified in or pursuant to
Section 9.01, the original or a certified copy of a receipt evidencing payment
thereof
(c) The Borrower agrees to indemnify each Bank and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any Jurisdiction on amounts payable
under this Section 8.04) paid by such Bank or the Administrative Agent (as the
case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be paid
within 15 days after such Bank or the Administrative Agent (as the case may be)
makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the United
States, on or before the date of its execution and delivery of this Agreement in
the case of each Bank listed on the signature pages hereof and on or before the
date on which it becomes a Bank in the case of each other Bank, and from time to
time thereafter if requested in writing by the Borrower (but only so long as
such Bank remains lawfully able to do so), shall provide the Borrower with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts the Bank from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Bank or
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States.
(e) For any period with respect to which a Bank has failed to provide the
Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
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failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.04(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.04, then such Bank will change
the jurisdiction of its Applicable Lending Office if, in the judgment of such
Bank, such change (i) will eliminate or reduce any such additional payment which
may thereafter accrue and (ii) is not other-wise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund (including a
refund in the form of a credit against taxes that are otherwise payable by the
Bank or the Administrative Agent) of any Taxes or Other Taxes for which the
Borrower has made a payment under Section 8.04(b) or (c) and such refund was
received from the taxing authority which originally imposed such Taxes or Other
Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to
the extent of such refund.
(h) Each Bank and the Administrative Agent acknowledge, that on and as of
the Effective Date it is not aware of any Tax or Other Tax that would be imposed
upon any payment to it hereunder or under any Note.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If
(i) the obligation of any Bank to make, or to continue or convert outstanding
Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect
to its CD Loans or Euro-Dollar Loans and in any such case the Borrower shall, by
at least five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer exist, all Loans which would otherwise be made by such Bank as (or
continued as or converted to) CD Loans or Euro-Dollar Loans, as the case may be,
shall instead be Base Rate Loans on which interest and principal shall be
payable contemporaneously with the related CD Loans or Euro-Dollar Loans of the
other Banks. If such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer exist, the
principal amount of each such Base Rate Loan shall be converted
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into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the
next succeeding Interest Period applicable to the related CD Loans or
Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution Of Bank. If (i) the obligation of any Bank to
make, or to convert or continue outstanding Loans as or into, Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03 or 8.04, the Borrower shall have the right, with
the assistance of the Administrative Agent, to designate a substitute bank or
banks (which may be one or more of the Banks) mutually satisfactory to the
Borrower and the Administrative Agent (whose consent shall not be unreasonably
withheld or delayed) to purchase (and, if such right is exercised, such Bank
shall sell and assign) for cash, pursuant to an Assignment and Assumption
Agreement substantially in the form of Exhibit G hereto, the outstanding Loans
for such Bank and assume the Commitment of such Bank, without recourse to or
warranty by, or expense to, such Bank. for a purchase price equal to the
principal amount of all of such Bank's outstanding Loans plus any accrued but
unpaid interest thereon and the accrued but unpaid fees in respect of such
Bank's Commitment hereunder plus such amount, if any, as would be payable
pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in
their entirety on the date of consummation of such assignment.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
or similar writing) and shall be given to such party: (a) in the case of the
Borrower or the Administrative Agent, at its address, facsimile number or telex
number set forth on the signature pages hereof., (b) in the case of any Bank, at
its address, facsimile number or telex number set forth in its Administrative
Questionnaire or (c) in the case of any party, at such other address, facsimile
number or telex number as such party may hereafter specify for the purpose by
notice to the Administrative Agent and the Borrower. Each such notice, request
or other communication shall be effective (i) if given by telex, when such telex
is transmitted to the telex number referred to in this Section and the
appropriate answerback is received, (ii) if given by facsimile, when transmitted
to the facsimile number referred to in this Section and confirmation of receipt
is received, (iii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iv) if given
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by any other means, when delivered at the address referred to in this Section;
provided that notices to the Administrative Agent under Article 2 or Article 8
shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by any Agent or Bank in
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all
reasonable out-of-pocket expenses of the Agents, including fees and
disbursements of special counsel for the Agents, in connection with the
preparation and administration of this Agreement, any waiver or consent
thereunder or any amendment thereof or any Default or alleged Default and (ii)
if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by
the Administrative Agent and each Bank, including (without duplication) the fees
and disbursements of outside counsel and the allocated cost of inside counsel,
in connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "Indemnitee") and hold each Indenmitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement or any actual or proposed use of proceeds of
Loans thereunder; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
SECTION 9.04. Set-offs. (a) If (i) an Event of Default has occurred and is
continuing and (ii) Banks holding more than 50% in aggregate unpaid principal
amount of the Loans have requested the Administrative Agent to declare the Loans
to be immediately due and payable pursuant to Section 6.01, or the Loans have
become immediately due and payable without notice as provided in Section 6.01,
then each Bank is hereby authorized by the Borrower at any time and from time to
time, to the extent permitted by applicable law, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off
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and apply all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Bank to
or for the account of the Borrower against any obligations of the Borrower to
such Bank now or hereafter existing under this Agreement, regardless of whether
any such deposit or other obligation is then due and payable or is in the same
currency or is booked or otherwise payable at the same office as the obligation
against which it is set off and regardless of whether such Bank shall have made
any demand for payment under this Agreement. Each Bank agrees promptly to notify
the Borrower after any such set-off and application made by such Bank; provided
that any failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Banks under this subsection are in
addition to any other rights and remedies which the Banks may have.
(b) Each Bank agrees that if it shall, by exercising any right of set-off
or counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest then due with respect to the Loans held by it
which is greater than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest then due with respect to the
Loans held by such other Bank, the Bank receiving such proportionately greater
payment shall purchase such participations in the Loans held by the other Banks,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Loans held by the Banks
shall be shared by the Banks pro rata; provided that nothing in this Section
shall impair the right of any Bank to exercise any right of set-off or
counterclaim It may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness in respect
of the Loans. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Loan, whether
or not acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or
the Notes to which the Borrower is a party may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by the Borrower and the
Required Banks (and, if the rights or duties of any Agent are affected thereby,
by such Agent); provided that no such amendment or waiver shall:
(a) unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except (x) as contemplated by Section 2.02 or (y) for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or
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any fees hereunder, (iii) postpone the date fixed for any payment of principal
of or interest on any Loan or any fees hereunder or for termination of any
Commitment or (iv) amend this Section 9.05 or the definition of Required Banks
or change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Section or any other
provision of this Agreement; or
(b) unless signed by a Designated Lender or its Designating Bank, subject
such Designated Lender to any additional obligation or affect its rights
hereunder (unless the rights of all the Banks hereunder are similarly affected).
SECTION 9.06. Successors; Participations and Assignments. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Borrower may not assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all the Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. If a Bank grants any such participating interest to a
Participant, whether or not upon notice to the Borrower and the Administrative
Agent, such Bank shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), or (iii) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article 8 with respect
to its participating interest. An assignment or other transfer which is not
permitted by subsection 9.06(c) or 9.06(d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial Commitment at least equal to the lesser of (A) $10,000,000 and (B) such
Bank's entire Commitment at such time) of all of its rights and obligations
under
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this Agreement and its Note, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement substantially in
the form of Exhibit G hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Borrower and Administrative
Agent, which consents shall not be unreasonably withheld; provided that (i) if
an Assignee is an affiliate of such transferor Bank or was a Bank immediately
before such assignment, no such consent shall be required and (ii) such
assignment may, but need not, include rights of the transferor Bank in respect
of outstanding Money Market Loans. When such instrument has been signed and
delivered by the parties thereto and such Assignee has paid to such transferor
Bank the purchase price agreed by them, such Assignee shall be a Bank party to
this Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of an), assignment pursuant to this subsection, the transferor
Bank, the Administrative Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the
Administrative Agent an administrative fee for processing such assignment in the
amount of $2,500. If the Assignee is not incorporated under the laws of the
United States or a State thereof, it shall deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or withholding
of United States federal income taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights shall
be entitled to receive any greater payment under Section 8.03 or 8.04 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02, 8.03 or 8.04 requiring Such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
SECTION 9.07. Designated Lenders. (a) Subject to the provisions of this
Section 9.07(a), any Bank may from time to time elect to designate an Eligible
Designee to provide all or a portion of the Loans to be made by such Bank
pursuant to this Agreement; provided that such designation shall not be
effective unless the Borrower and the Administrative Agent consent thereto,
which consents shall not be unreasonably withheld. When a Bank and its Eligible
61
<PAGE>
Designee shall have signed an agreement substantially in the form of Exhibit H
hereto (a "Designation Agreement") and the Borrower and the Administrative Agent
shall have signed their respective consents thereto, such Eligible Designee
shall become a Designated Lender for purposes of this Agreement. The Designating
Bank shall thereafter have the fight to permit such Designated Lender to provide
all or a portion of the Loans to be made by such Designating Bank pursuant to
Section 2.01 or 2.04, and the making of such Loans or portions thereof shall
satisfy the obligation of the Designating Bank to the same extent, and as if,
such Loans or portion thereof were made by the Designating Bank. As to any Loans
or portion thereof made by it, each Designated Lender shall have all the rights
that a Bank making such Loans or portion thereof would have had under this
Agreement and otherwise; provided that (x) its voting rights under this
Agreement shall be exercised solely by Designating Bank and (y) its Designating
Bank shall remain solely responsible to the other parties hereto for the
performance of its obligations under this Agreement, including its obligations
in respect of the Loans or portion thereof made by it. No additional Note shall
be required to evidence Loans or portions thereof made by a Designated Lender;
and the Designating Bank shall be deemed to hold its Note as agent for its
Designated Lender to the extent of the Loans or portion thereof funded by such
Designated Lender. Each Designating Bank shall act as administrative agent for
its Designated Lender and give and receive notices and other communications on
its behalf. Any payments for the account of any Designated Lender shall be paid
to its Designating Bank as administrative agent for such Designated Lender and
neither the Borrower nor the Administrative Agent shall be responsible for any
Designating Bank's application of such payments. In addition, any Designated
Lender may (i) with notice to, but without the prior written consent of the
Borrower or the Administrative Agent, assign all or portions of its interest in
any Loans to its Designating Bank or to any financial institutions consented to
by the Borrower and the Administrative Agent providing liquidity and/or credit
facilities to or for the account of such Designated Lender to support the
funding of Loans or portions thereof made by such Designated Lender and (ii)
disclose on a confidential basis any non-public information relating to its
Loans or portions thereof to any rating agency, commercial paper dealer or
provider of any guarantee, surety, credit or liquidity enhancement to such
Designated Lender.
(b) Each party to this Agreement agrees that it will not institute against,
or join any other person in instituting against, any Designated Lender any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or
other proceeding under any federal or state bankruptcy or similar law, for one
year and a day after all outstanding senior indebtedness of such Designated
Lender is paid in full. The Designating Bank for each Designated Lender agrees
to indemnify, save, and hold harmless each other party hereto for any loss,
cost, damage and expense arising out of its inability to institute any such
proceeding
62
<PAGE>
against such Designated Lender. This Section 9.07(b) shall survive the
termination of this Agreement.
SECTION 9.08. No Reliance on Margin Stock. Each of the Banks represents to
the Administrative Agent and each of the other Banks that it in good faith is
not relying upon any "margin stock" (as defined in Regulation U) as collateral
in the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.09. Governing Law; Submission to Jurisdiction. This Agreement and
each Note shall be governed by and construed in accordance with the laws of the
State of New York. The Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated thereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 9.10. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
63
<PAGE>
IN WITNESS WHEREOF, the par-ties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
---------
GUIDANT CORPORATION
By:
------------------------------
Title:
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: General Counsel
Facsimile Number: (317) 971-2141
Web site: http://www.guidant.com
<PAGE>
BANKS:
------
BANCA MONTE DEI PASCHI DI SIENA S.p.A.
By:
------------------------------
Title:
By:
------------------------------
Title:
BBL INTERNATIONAL (UK) LIMITED
By:
------------------------------
Title:
By:
------------------------------
Title:
BANK OF AMERICA NT&SA
By:
------------------------------
Title:
<PAGE>
THE GOVERNOR AND COMPANY OF THE
BANK OF IRELAND
By:
------------------------------
Title:
By:
------------------------------
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
------------------------------
Title:
BANQUE NATIONALE DE PARIS
By:
------------------------------
Title:
By:
------------------------------
Title:
BANKERS TRUST CO.
By:
------------------------------
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:
------------------------------
Title:
CITICORP USA, INC.
By:
------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By:
------------------------------
Title:
By:
------------------------------
Title:
NBD BANK N.A.
By:
------------------------------
Title:
MELLON BANK, N.A.
By:
------------------------------
Title:
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
------------------------------
Title:
NATIONAL CITY BANK INDIANA
By:
------------------------------
Title:
SOCIETE GENERALE
By:
------------------------------
Title:
THE NORTHERN TRUST COMPANY
By:
------------------------------
Title:
WACHOVIA BANK N.A.
By:
------------------------------
Title:
<PAGE>
ADMINISTRATIVE AGENT:
---------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By:
------------------------------
Title:
<PAGE>
Guidant Corporation and Subsidiaries
Exhibit 13.1
Annual Report to Shareholders
for the Year Ended December 31, 1998
(portions incorporated by reference)
<PAGE>
Guidant Corporation and Subsidiaries
Selected Consolidated Financial Data
(Dollars in millions, except per-share and other data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales:
Vascular intervention ................. $ 1,002.2 $ 591.4 $ 425.6 $ 447.9 $ 464.5
Cardiac rhythm management ............. 824.6 669.6 574.6 452.4 378.6
Cardiac & vascular surgery ............ 70.2 67.2 49.5 31.0 19.3
---------- ---------- ---------- ---------- ----------
Total net sales ........ 1,897.0 1,328.2 1,049.7 931.3 862.4
Cost of products sold ......................... 422.0 320.8 315.9(1) 283.4 270.9
---------- ---------- ---------- ---------- ----------
Gross profit ................... 1,475.0 1,007.4 733.8(1) 647.9 591.5
Research and development ...................... 276.0 208.3 164.6 142.8 138.3
Purchased research and development ............ 118.7(2) 57.4(3) -- -- --
Sales, marketing, and administrative .......... 558.6 439.7 328.4 292.8 269.8
Other - special(4) ............................ -- 22.6 -- -- --
---------- ---------- ---------- ---------- ----------
Income from operations ........................ 521.7(2) 279.4(4) 240.8(1) 212.3 183.4
Other expenses, net ........................... 394.1(5) 30.6(6) 104.8(7) 50.8 35.4
Net income (loss) ............................. ($ 2.2)(8) $ 145.3(9) $ 52.3(10) $ 92.8 $ 84.2
Earnings (loss) per share ..................... ($ 0.01) $ 0.49 $ 0.18 $ 0.32
Earnings (loss) per share - assuming dilution . ($ 0.01)(8) $ 0.48(9) $ 0.18(10) $ 0.32
Pro forma net income(11) ...................... $ 68.3
Pro forma earnings per share(11) .............. $ 0.23
Cash dividends declared per share(12) ......... $ 0.025 $ 0.025 $ 0.025 $ 0.0125 --
Weighted - average shares outstanding - diluted 294.59 299.78 296.26 293.26 291.00(11)
EBITDA(14)(15) ................................ 643.7 402.6 320.6 258.9 220.0
<CAPTION>
December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
Working capital ............................... $ 176.3 $ 83.8(13) $ 127.6 $ 119.7 $ 134.1
Current ratio ................................. 1.3:1 1.2:1(13) 1.4:1 1.4:1 1.4:1
Capital expenditures, net ..................... 116.0 76.8 63.6 64.9 51.8
Total assets .................................. 1,569.5 1,225.0 1,024.9 1,069.1 1,122.5
Borrowings .................................... 444.5 292.2 363.5 455.0 473.0
Borrowings as a percentage of total
capitalization 44.5% 33.4% 43.8% 53.6% 62.6%
Shareholders' equity .......................... 553.9 581.8 466.9 394.4 282.6
Book value per share .......................... $ 1.88 $ 1.94 $ 1.58 $ 1.34 $ 0.97
Other Data:
Net sales per employee ........................ $ 280,500 $ 239,500 $ 207,300 $ 183,000 $ 162,300
Income from operations per employee(14) ....... 94,700 64,800 53,200 41,700 34,500
Effective income tax rate(14) ................. 35.3% 35.3% 38.4% 40.5% 40.9%
Full-time employee equivalents(16) ........... 7,507 6,017 5,076 5,053 5,127
Common shareholders of record ................. 4,761 3,873 3,185 3,139 106
</TABLE>
(1) Includes the impact of special obsolescence charges of $28.8 million.
Excluding the effect of these charges, cost of products sold was $287.1
million, gross profit was $762.6 million, and income from operations was
$269.6 million.
(2) In conjunction with the asset acquisitions of InControl, Inc., and
NeoCardia, LLC., (Neocardia) in 1997, the appraised value of in-process
research and development was charged to expense. Excluding the effect of
these charges, income from operations was $640.4 million.
(3) In conjunction with the acquisition of NeoCardia, the initial purchase
price of $57.4 million represented a portion of the appraised value of
in-process research and development.
(4) Represents merger-related costs of $11.1 million in connection with the
acquisition of EndoVascular Technologies, Inc., (EVT) and a special
contribution to the Guidant Foundation, Inc., of $11.5 million.
Excluding the impact of these charges and the aforementioned purchased
research and development, income from operations was $359.4 million.
(5) Includes a $200 million charge recorded in the third quarter of 1998
relative to the settlement of intellectual property litigation with
Sulzer Medica, a $60 million charge recorded upon the Company's
agreement with C.R. Bard, Inc., that settled two patent infringement
lawsuits, a $9.2 million charge related to damages awarded to General
Surgical Innovations, Inc., and a $40 million non-cash impairment charge
on general surgery related goodwill.
(6) Includes a one-time gain of $23.2 million on the sale of the Company's
equity investment in Gynecare, Inc., and a corporate legal reserve of
$11.5 million.
<PAGE>
(7) Includes the impact of impairment charges on atherectomy-related
goodwill and other intangible assets of $66.9 million.
(8) Excluding the impact of the special charges referred to in (2) and (5),
net income was $359.4 million and earnings per share-assuming dilution
was $1.19. (The adjusted earnings per share-assuming dilution
calculation uses 302.27 shares outstanding.)
(9) In addition to the special items mentioned in (3), (4), and (6) above,
reported net income includes a cumulative effect of a change in
accounting principle of $4.7 million, net of tax. Excluding the effect
of these special items, net income was $197.4 million and earnings per
share-assuming dilution was $0.66.
(10) Excluding the effect of the aforementioned special obsolescence and
impairment charges, net income and earnings per share - assuming
dilution were $136.4 million and $0.46, respectively.
(11) Pursuant to the formation of Guidant, the Company reported 1994 earnings
on a pro forma basis, which gives effect to the following transactions
as if they occurred on January 1, 1994: (i) borrowings under certain
credit agreements, (ii) dividends to Lilly, and (iii) receipt of IPO
proceeds.
(12) In December 1998, the Company announced it will be eliminating future
quarterly dividends.
(13) This decline primarily resulted from the classification of $212.2
million of the Company's commercial paper and bank borrowings as a
current liability.
(14) Excludes the impact of the aforementioned special charges.
(15) Represents earnings before interest, income taxes, depreciation, and
amortization.
(16) Includes contractors and temporary personnel, and the full-time
equivalent amount of part-time employees.
Per-share data and weighted average shares outstanding have been adjusted for
all years to reflect the two-for-one stock split effective in January 1999.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Statements of Income
(In millions, except per-share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Net sales ................................................ $ 1,897.0 $ 1,328.2 $ 1,049.7
Cost of products sold .................................... 422.0 320.8 315.9
--------- --------- ---------
Gross profit ......................................... 1,475.0 1,007.4 733.8
Research and development ................................. 276.0 208.3 164.6
Purchased research and development ....................... 118.7 57.4 --
Sales, marketing, and administrative ..................... 558.6 439.7 328.4
Merger-related costs ..................................... -- 11.1 --
Foundation contribution .................................. -- 11.5 --
--------- --------- ---------
Income from operations ............................... 521.7 279.4 240.8
Other income (expenses):
Interest, net ........................................ (15.3) (19.5) (23.0)
Royalties, net ....................................... (44.6) 2.3 10.0
Amortization ......................................... (19.1) (15.5) (20.8)
Other, net ........................................... (5.9) 2.1 (4.1)
Litigation charges ................................... (269.2) -- --
Impairment charge .................................... (40.0) -- (66.9)
--------- --------- ---------
(394.1) (30.6) (104.8)
--------- --------- ---------
Income before income taxes and cumulative effect of
change in accounting principle ....................... 127.6 248.8 136.0
Income taxes ............................................. 129.8 98.8 83.7
--------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle ................................. (2.2) 150.0 52.3
Cumulative effect of change in accounting principle,
net of income taxes .................................. -- (4.7) --
--------- --------- ---------
Net income (loss) .................................... ($ 2.2) $ 145.3 $ 52.3
========= ========= =========
Earnings (loss) per share:
Income (loss) before cumulative effect of change in
accounting principle ................................. ($ 0.01) $ 0.51 $ 0.18
Cumulative effect of change in accounting principle, net . -- (0.02) --
--------- --------- ---------
Earnings (loss) per share ............................ ($ 0.01) $ 0.49 $ 0.18
========= ========= =========
Earnings (loss) per share - assuming dilution:
Income (loss) before cumulative effect of change in
accounting principle ................................. ($ 0.01) $ 0.50 $ 0.18
Cumulative effect of change in accounting principle, net . -- (0.02) --
--------- --------- ---------
Earnings (loss) per share - assuming dilution ........ ($ 0.01) $ 0.48 $ 0.18
========= ========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
December 31,
1998 1997
-------------------
Assets
Current Assets
Cash and cash equivalents ................ $ 15.6 $ 17.7
Short-term investments ................... -- 13.3
Accounts receivable, net of allowances
of $19.5(1998) and $9.2(1997) ...... 435.4 371.7
Other receivables ........................ 8.3 10.9
Inventories .............................. 193.4 120.8
Deferred income taxes .................... 83.3 65.7
Prepaid expenses ......................... 27.5 25.0
-------- --------
Total Current Assets ............... 763.5 625.1
Other Assets
Goodwill, net of allowances
of $78.9 (1998) and $95.1 (1997) ..... 202.6 182.0
Other intangible assets, net of allowances
of $16.6 (1998) and $11.4 (1997) ..... 44.3 6.5
Deferred income taxes .................... 73.8 16.7
Investments .............................. 62.5 46.2
Sundry ................................... 33.6 22.4
-------- --------
416.8 273.8
Property and equipment, net .............. 389.2 326.1
-------- --------
$1,569.5 $1,225.0
======== ========
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
December 31,
1998 1997
-----------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable ..................... $ 65.3 $ 51.7
Employee compensation ................ 129.5 109.9
Other liabilities .................... 137.9 126.9
Income taxes payable ................. -- 40.6
Current portion of long-term debt .... 54.5 212.2
Payable to Sulzer Medica ............. 200.0 --
-------- --------
Total Current Liabilities ...... 587.2 541.3
Noncurrent Liabilities
Long-term debt ....................... 390.0 80.0
Other ................................ 38.4 21.9
-------- --------
428.4 101.9
Commitments and contingencies ........ -- --
Shareholders' Equity
Common stock, no par value;
Authorized shares: 500,000,000 (1998)
250,000,000 (1997)
Issued shares: 301,848,000 192.5 192.5
Additional paid-in capital ........... 197.0 211.1
Retained earnings .................... 253.0 262.5
Deferred cost, ESOP .................. (41.3) (45.8)
Treasury stock, at cost:
Shares: 1998 - 671,618 .........
1997 - 356,042 ......... (27.0) (10.8)
Accumulated other comprehensive income (20.3) (27.7)
-------- --------
553.9 581.8
-------- --------
$1,569.5 $1,225.0
======== ========
See notes to consolidated financial statements.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Statements of Shareholder's Equity
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Deferred Cost, ESOP
Issued Shares Amount Capital Earnings Shares Amount
------------- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 297,023,000 $ 192.5 $ 181.0 $ 79.4 (8,584,000) ($ 57.3)
Comprehensive income: 52.3
Net income
Other comprehensive income, net of tax:
Unrealized gain on investments
Currency translation adjustments
Other comprehensive income
Comprehensive income
Conversion of preferred to common stock 3,228,600 (1)
Issuance of common stock 1,339,400 21.9 (7.2)
Cash dividends ($0.025 per share)
Repurchase of common stock
ESOP transactions 5.7 916,000 6.1
Other 124,000 (1.9)
---------- ------- ------- -------- ---------- --------
December 31, 1996 301,715,000 192.5 206.7 124.5 (7,668,000) (51.2)
Comprehensive income:
Net income 145.3
Other comprehensive income, net of tax:
Unrealized loss on investments
Currency translation adjustments
Other comprehensive income
Comprehensive income
Issuance of common stock under stock plans 133,000 (8.0)
Cash dividends ($0.025 per share) (7.3)
Repurchase of common stock
ESOP transactions 10.4 798,000 5.4
Tax benefits from employee stock options 2.0
----------- ------- ------- -------- ---------- --------
December 31, 1997 301,848,000 192.5 211.1 262.5 (6,870,000) (45.8)
Comprehensive income:
Net income (loss) (2.2)
Other comprehensive income, net of tax:
Unrealized loss on investments
Currency translation adjustments
Other comprehensive income
Comprehensive income
Issuance of common stock under stock plans (45.8)
Cash dividends ($0.025 per share) (7.3)
Repurchase of common stock
ESOP transactions 20.3 676,000 4.5
Tax benefits from employee stock options 11.4
----------- ------- ------- -------- ---------- --------
December 31, 1998 301,848,000 $ 192.5 $197.0 $253.0 (6,194,000) ($41.3)
=========== ======= ====== ======== ========== ========
</TABLE>
[WIDE TABLE CONTINUED]
<TABLE>
<CAPTION>
Accumulated
Other
Treasury Comprehensive
Stock Income Total
-------- ------------- -----
<S> <C> <C> <C>
December 31, 1995 $ -- ($ 1.2) $394.4
Comprehensive Income:
Net income 52.3
Other comprehensive income, net of tax:
Unrealized loss on investments 9.4
Currency translation adjustments (10.5)
------
Other comprehensive income (1.1)
------
Comprehensive income 51.2
------
Conversion of preferred to common stock --
Issuance of common stock 21.9
Cash dividends ($0.025 per share) (7.2)
Repurchase of common stock (4.0) (4.0)
ESOP transactions 11.8
Other 0.7 (1.2)
------ ------ ------
December 31, 1996 (3.3) (2.3) 466.9
Comprehensive Income:
Net income 145.3
Other comprehensive income, net of tax:
Unrealized loss on investments (5.2)
Currency translation adjustments (20.2)
-----
Other comprehensive income (25.4)
------
Comprehensive income 119.4
------
Issuance of common stock under stock plans 23.2 15.2
Cash dividends ($0.025 per share) (7.3)
Repurchase of common stock (30.7) (30.7)
ESOP transactions 15.8
Tax benefits from employee stock options 2.0
------ ------ ------
December 31, 1997 (10.8) (27.7) 581.8
Comprehensive Income:
Net income (loss) (2.2)
Other comprehensive income, net of tax:
Unrealized loss on investments (0.5)
Currency translation adjustments 7.9
-----
Other comprehensive income 7.4
------
Comprehensive income 5.2
------
Issuance of common stock under stock plans 61.4 15.6
Cash dividends ($0.025 per share) (7.3)
Repurchase of common stock (77.6) (77.6)
ESOP transactions 24.8
Tax benefits from employee stock options 11.4
------ ------ ------
December 31, 1998 ($27.0) ($20.3) $553.9
====== ====== ======
</TABLE>
(1) Results from the conversion of preferred stock of EVT at the time of its
initial public offering
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------
<S> <C> <C> <C>
Cash Provided by Operating Activities:
Net income (loss) ................................................ ($ 2.2) $145.3 $ 52.3
Adjustments to Reconcile Net Income (Loss) to Cash
Provided by Operating Activities:
Depreciation .................................................. 53.8 50.5 45.1
Amortization of goodwill and other intangible assets .......... 19.1 15.5 20.8
Provision for inventory and other losses ...................... 23.3 24.0 41.4
Impairment charges ............................................ 40.0 -- 66.9
Purchased research and development expense .................... 118.7 57.4 --
Cumulative effect of change in accounting principle, before tax -- 7.3 --
Change in deferred income taxes ............................... (73.6) (13.3) (8.2)
Other noncash expenses, net ................................... 45.8 9.0 15.3
------ ------ ------
224.9 295.7 233.6
Changes in Operating Assets and Liabilities:
Receivables, increase ......................................... (64.2) (168.0) (36.7)
Inventories, increase ......................................... (92.2) (38.2) (13.0)
Prepaid expenses, increase .................................... (1.5) (3.3) (7.6)
Accounts payable and accrued liabilities, increase (decrease) . 25.9 73.9 (10.7)
Income taxes payable, (decrease) increase ..................... (29.8) 37.5 (19.3)
Other liabilities, increase ................................... 18.6 44.2 2.9
Payable to Sulzer Medica ...................................... 200.0 -- --
------ ------ ------
Net Cash Provided by Operating Activities ........................... 281.7 241.8 149.2
Investing Activities:
Purchases of available-for-sale securities .................... (1.2) (8.7) (32.0)
Sale/maturity of available-for-sale securities ................ 12.8 22.9 24.6
Purchases of held-to-maturity investments ..................... (5.3) (8.9) (5.6)
Additions of property and equipment, net ...................... (116.0) (76.8) (63.6)
(Additions of) deductions from other assets, net .............. (68.6) (12.9) 4.5
Acquisitions, net of cash acquired ............................ (180.7) (41.4) --
------ ------ ------
Net Cash Used for Investing Activities .............................. (359.0) (125.8) (72.1)
Financing Activities:
Increase (decrease) in borrowings, net ........................ 147.5 (69.5) (89.6)
Dividends ..................................................... (7.4) (7.3) (7.2)
Proceeds from sale of common stock, net ....................... -- -- 21.6
Purchase of common stock and other capital transactions ....... (65.1) (25.1) (3.1)
------ ------ ------
Net Cash Provided by (Used for) Financing Activities ................ 75.0 (101.9) (78.3)
Effect of Exchange Rate Changes on Cash ............................. 0.2 (0.5) (0.3)
------ ------ ------
Net (Decrease) Increase in Cash and Cash Equivalents ................ (2.1) 13.6 (1.5)
Cash and Cash Equivalents at Beginning of Year ...................... 17.7 4.1 5.6
------ ------ ------
Cash and Cash Equivalents at End of Year ............................ $ 15.6 $ 17.7 $ 4.1
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per-share data)
Note 1 - Business and Nature of Operations
Guidant Corporation (Guidant or the Company) operates in one reportable segment:
the development, manufacture, and marketing of a broad range of innovative,
high-quality therapeutic medical devices for the treatment of cardiovascular and
vascular diseases. Guidant is a leader in automatic implantable cardioverter
defibrillator systems, which are used to detect and treat abnormally fast heart
rhythms (tachycardia). The Company designs, manufactures, and markets a full
line of implantable pacemaker systems used to manage slow or irregular heart
rhythms (bradycardia). The Company is also a leader in minimally invasive
procedures used for opening blocked coronary arteries using coronary stents,
coronary balloon dilatation catheters, and related accessories. In addition,
Guidant develops, manufactures, and markets products for use in minimally
invasive cardiac and vascular surgeries. Guidant is a global company with
principal operations in the United States, Western Europe, and Japan. The
Company markets its products in over 100 countries through a direct sales force
in the United States and a combination of direct sales representatives and
independent distributors in international markets.
Note 2 - Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Guidant and all of its wholly owned subsidiaries. Significant
intercompany transactions and balances have been eliminated.
Revenue Recognition: Revenue from the sale of products is primarily recognized
at the time product is shipped to customers. The Company maintains consigned
inventory at customer locations for certain products. For these products,
revenue is recognized at the time the Company is notified that the device has
been used. The Company provides credit, in the normal course of business, to its
customers. The Company also maintains an allowance for doubtful customer
accounts and charges actual losses when incurred to this allowance.
Research and Development: Research and development costs are charged to expense
as incurred. Purchased research and development is recognized in purchase
business combinations for the portion of the purchase price allocated to the
appraised value of in-process technologies. The portion assigned to in-process
technologies excludes the value of core and developed technologies, which are
recognized as intangible assets.
Foreign Currency Translation: Sales and expenses denominated in foreign
currencies are translated at average exchange rates in effect during the year.
Assets and liabilities of foreign operations are translated into United States
dollars using the exchange rates in effect at year end. Foreign currency
transaction gains and losses are included in the consolidated statements of
income as other income (expenses). Adjustments arising from the translation of
net assets located outside the United States (gains and losses) are accumulated
as a component of other comprehensive income.
Risk Management Contracts: In the normal course of business, the Company employs
a variety of derivative financial instruments, including foreign currency
forward and option contracts, to manage its exposure to fluctuations in foreign
currency exchange and interest rates. The Company designates and assigns the
financial instruments as hedges for specific assets, liabilities, or anticipated
transactions. When hedged assets or liabilities are sold or extinguished or the
anticipated transactions being hedged are no longer expected to occur, the
Company recognizes the gain or loss on the designated hedging financial
instruments. The Company classifies its derivative financial instruments as held
or issued for purposes other than trading. Prepaid option premiums are recorded
in the balance sheet as other assets. Gains and losses on hedges of existing
assets and liabilities are included in other income (expenses). Gains and losses
from hedges of firm commitments and anticipated transactions are classified in
the income statement consistent with the accounting treatment of the items being
hedged. Cash flows from financial instrument hedges are classified in the
statements of cash flows in the same category as the assets, liabilities, or
anticipated transactions being hedged.
Cash and Cash Equivalents: All highly liquid investments, generally with
original maturities of three months or less, are considered to be cash
equivalents. These investments are valued at cost, which approximates fair
value.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Significant Accounting Policies - (Continued)
Investments: Investments in marketable securities are accounted for in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
that certain investments in debt and equity securities be categorized as either
available-for-sale, held-to-maturity, or trading. Available-for-sale securities
are carried at fair value with unrealized gains and losses recorded as a
separate component of comprehensive income. Held-to-maturity securities are
stated at amortized cost. All other equity securities are accounted for under
the cost method. The Company has no trading securities.
Inventories: Inventories are stated at the lower of cost, determined by the
first-in, first-out method, or market.
Inventories at December 31 consisted of the following:
1998 1997
---- ----
Finished products....................... $89.9 $52.6
Work in process......................... 51.9 35.0
Raw materials and supplies.............. 51.6 33.2
---- ----
$193.4 $120.8
====== ======
Goodwill and Other Intangible Assets: Goodwill represents the excess of cost
over the fair value of identifiable net assets of businesses acquired. Other
intangible assets consist primarily of purchased technology and patents.
Goodwill and other intangible assets are amortized using the straight-line
method over their estimated useful lives, of which periods up to 25 years
remain. Management periodically reviews the carrying amount of goodwill and
other intangible assets to assess their continued recoverability. The
determination includes evaluation of factors such as current market value,
future asset utilization, business climate, and future cash flows expected to
result from the use of the related assets. The Company's policy is to record an
impairment loss in the period when it is determined that the carrying amount of
the asset may not be recoverable.
Long-Lived Assets: SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, requires that long-lived
assets be reviewed for possible impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. SFAS
No. 121 requires that certain long-lived assets, which meet prescribed
impairment tests, be written down to their fair values.
Property and Equipment: Property and equipment are stated at historical cost.
Additions and improvements are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is computed by the
straight-line method at rates which are intended to depreciate the cost of these
various assets over their estimated useful lives. At December 31, property and
equipment consisted of the following:
1998 1997
---- ----
Land............................. $26.5 $26.5
Buildings........................ 211.4 197.1
Equipment........................ 364.5 313.9
Construction in progress......... 49.1 31.2
---- ----
651.5 568.7
Less allowances
for depreciation................ 262.3 242.6
----- -----
$389.2 $326.1
====== ======
Income Taxes: All income tax amounts reflect the use of the liability method, as
prescribed by SFAS No. 109, Accounting for Income Taxes. Under this method,
deferred tax assets and
<PAGE>
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes.
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Significant Accounting Policies - (Continued)
Earnings Per Share: SFAS No. 128, Earnings per Share, requires companies to
present two earnings per share (EPS) amounts. Basic EPS is computed by dividing
net income by the weighted average common shares outstanding during the year.
Diluted EPS represents net income divided by the total of the weighted average
common shares outstanding plus potential dilutive instruments such as stock
options. The effect of stock options on diluted EPS is determined through the
application of the treasury stock method, whereby proceeds received by the
Company based on assumed exercises are hypothetically used to repurchase the
Company's common stock at the average market price during the period. The
diluted EPS calculation excludes the effect of stock options when their exercise
price exceeds the average market price during the period.
Stock Split: In December 1998, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a 100% stock dividend payable to
shareholders of record at the close of business January 13, 1999. Distribution
of the additional shares resulting from the stock split occurred on January 27,
1999. The stock split resulted in the issuance of approximately 150.9 million
additional shares.
In August 1997, the Company's Board of Directors declared a two-for-one stock
split effected in the form of a 100% stock dividend payable to shareholders of
record at the close of business September 2, 1997. Distribution of the
additional shares resulting from the stock split occurred on September 16, 1997.
This stock split resulted in the issuance of approximately 74.1 million
additional shares.
All references in the consolidated financial statements to common shares and
per-share amounts have been restated for all periods presented to reflect these
stock splits.
Stock-Based Compensation: The Company has adopted the disclosure-only provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, the
Company continues to account for stock-based compensation under Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and related interpretations.
Use of Estimates: Preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements. Actual results could differ from these
estimates.
Reclassifications: Certain prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year presentation.
Note 3 - New Accounting Pronouncements
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This SOP requires capitalization of certain costs incurred in the
development of internal-use software, including external direct material and
service costs, employee payroll and payroll-related costs, and interest. Prior
to adoption of SOP 98-1, the Company generally expensed these costs as incurred.
The effect of this change in accounting principle on consolidated earnings
during 1998 was immaterial.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities, which provides new guidance on the accounting and financial
reporting of start-up and organization costs. The Company is required to adopt
this new pronouncement effective January 1, 1999, and, as a result, will report
a cumulative effect of a change in accounting principle in the first quarter of
1999. The adoption of this standard will not have a material impact on the
Company's results of operations or financial position.
<PAGE>
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. This Statement establishes new rules for the reporting and display of
comprehensive income and its components. The Company has reported, in addition
to net income, the components of other comprehensive income including unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments, in its consolidated statements of shareholders' equity.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130. The adoption of this disclosure standard had no
impact on the Company's net income or financial position.
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 3 - New Accounting Pronouncements - (Continued)
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. This pronouncement superseded
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, and
establishes new standards for reporting information about operating segments and
related disclosures about products, geographic areas, and major customers in
annual and interim financial statements. The adoption of SFAS No. 131 does not
affect results of operations or financial position. See note 12.
In December 1997, SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued and was adopted by the Company effective
December 31, 1998. Implementation of this disclosure standard did not affect the
Company's financial position or results of operations.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued, which establishes accounting and reporting standards for
derivative financial instruments and hedging activities. This pronouncement,
which is required to be adopted in fiscal years beginning after June 15, 1999,
will require, among other things, the Company to recognize all derivatives as
either assets or liabilities on the balance sheet at fair value. Derivatives not
qualifying as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in its fair
value will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through income or recognized in other
comprehensive income. Hedge ineffectiveness, the amount by which the change in
the value of a hedge does not exactly offset the change in the value of the
hedged item, will be immediately recognized in earnings. Management has not yet
determined what the effect of SFAS No. 133 will be on the Company or when the
statement will be adopted.
Note 4 - Mergers and Acquisitions
On September 15, 1998, Guidant completed its cash tender offer for all of the
outstanding common shares of InControl, Inc., (InControl) at a total cost of
$137.5 million. InControl was a pioneer in the development of device technology
for the treatment of atrial arrhythmias. The acquisition has been accounted for
under the purchase method and resulted in a pre-tax charge of $90 million
related to the appraised value of in-process research and development. This
charge reflects the unproven status of the technology. The Company must complete
research and testing related to this innovative technology and eventually obtain
approval from the FDA to market any resulting product. Goodwill of approximately
$70 million recorded in this acquisition will be amortized using the
straight-line method over 15 years. The results of InControl's operations have
been included in the Company's consolidated results of operations from the date
of acquisition. The InControl acquisition did not have a material pro forma
impact on the Company's operations. This acquisition was financed through the
issuance of commercial paper.
In May 1997, Guidant acquired the assets of NeoCardia, LLC., (NeoCardia) a
privately held development-stage company for an initial price of $57.4 million.
NeoCardia has pioneered the use of radiation therapy for the treatment of
restenosis. On April 27, 1998, the conditions which required the payment of
additional consideration for NeoCardia were met, and the Company paid $28.7
million which represents additional purchase price. This acquisition was
accounted for by the purchase method. Radiation technology is still in the
testing stage and FDA approval for U.S. market release has not been obtained. In
conjunction with this acquisition, the Company recorded pre-tax charges of $28.7
million and $57.4 million in 1998 and 1997, respectively. These amounts
represent the appraised value of in-process research and
<PAGE>
development that must be expensed under generally accepted accounting
principles. The results of NeoCardia's operations have been included in the
Company's consolidated results of operations from the date of acquisition.
On December 19, 1997, the Company completed its acquisition of EndoVascular
Technologies, Inc., (EVT) in a tax-free stock-for-stock transaction. EVT, based
in Menlo Park, California, is a leader in the development of methods and devices
for minimally invasive repair of abdominal aortic aneurysms (AAA). EVT has
developed a minimally invasive catheter-based delivery system to implant a
specialized sutureless prosthesis to repair life-threatening AAAs without major
surgery. EVT's products are currently commercially available in Europe and other
international markets.
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Mergers and Acquisitions - (Continued)
This business combination, accounted for under the pooling of interests method,
was effected through the exchange of 0.6309 shares of Guidant common stock for
each share of EVT common stock. Approximately 5.4 million shares of Guidant
common stock were issued in connection with the EVT merger. The consolidated
financial statements give retroactive effect to this business combination. In
addition, EVT's outstanding stock options were converted into options to acquire
0.8 million shares of Guidant common stock. In 1997, the Company recorded costs
of $11.1 million in connection with the acquisition of EVT which includes
transaction and integration costs.
Note 5 - Special Charges and Intellectual Property Agreement
On February 8, 1999, a jury found that Origin MedSystems, Inc., (Origin), a
wholly owned subsidiary of Guidant, had infringed a patent of General Surgical
Innovations, Inc. (GSI). The jury found that Origin should pay $12.9 million in
damages to GSI. While the Company may appeal the decision once a judgment is
entered and post-trial matters have been resolved, an additional accrual of $9.2
million was recorded in the fourth quarter of 1998 to provide for this potential
loss. See Note 14 for additional details.
As a result of this decision, and due to management's strategic redirection of
this business away from general surgery to cardiovascular applications announced
in 1997, Guidant also reassessed the recoverability of Guidant's general surgery
assets using a discounted cashflow analysis performed in accordance with SFAS
No. 121. Guidant's revised analysis indicated that a reduced level of future
cash flows was likely and that a non-cash impairment write-down of $40 million
was necessary.
In conjunction with the announced signing of a definitive agreement in September
1998, to acquire the electrophysiology business of Sulzer Medica, Ltd.,
including its principal operating unit, Intermedics, Inc., the Company recorded
a charge of $200 million in the third quarter of 1998. This charge represents
the amount required to settle the Company's intellectual property litigation
with Intermedics, and was payable regardless of the ultimate consummation of the
acquisition. See Note 15 for additional information on this acquisition.
In April 1998, the Company entered into an agreement with C.R. Bard, Inc., that
settled two patent infringement lawsuits and granted Guidant paid-up licenses to
certain patents. As a result of this agreement, Guidant recorded a pre-tax
charge of $60 million to settle its patent litigation. An additional $40 million
was capitalized in other intangible assets and will be amortized over the
remaining useful life of the patents.
The Company recorded a charge of $11.5 million during the fourth quarter of
1997, related to various litigation activities. This charge was recorded in
other expenses.
The Company recorded two separate noncash charges totaling $95.7 million during
1996. The first was an impairment charge against the Company's
atherectomy-related goodwill and other intangible assets of $66.9 million. This
charge was based on a discounted cash flow analysis performed in accordance with
SFAS No. 121, and primarily resulted from declining sales and profitability of
the Company's atherectomy business. The goodwill and other intangible assets
were originally recorded as part of the purchase of Devices for Vascular
Intervention, Inc., prior to the formation of Guidant.
<PAGE>
The second charge was a $28.8 million noncash charge to cost of products sold
resulting from the obsolescence of older-generation cardiac rhythm management
products and programmers. The charge resulted from accelerated regulatory
approval for market release and customer acceptance of new-generation cardiac
rhythm management products.
Note 6 - Stock Plans
Stock Plans: The Company periodically grants nonqualified stock options and
restricted stock grants to outside members of its Board of Directors and may
grant incentive stock options, nonqualified stock options, performance awards,
and restricted stock grants to employees, including executive officers, and
consultants of the Company.
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Stock Plans - (Continued)
Stock options are granted at 100% of the fair market value of the underlying
stock at the date of grant and have 10-year terms. The stock options granted to
outside directors vest and become fully exercisable after one year from the date
of grant. The majority of other stock options granted by the Company vest and
become fully exercisable after three to five years from the date of grant or
vest in increments over three to five years.
At December 31, 1998, there were approximately 43.7 million additional shares
available for grant under the Company's stock plans.
Stock option activity is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- --------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 21,721,236 $16.01 14,137,714 $ 8.28 8,808,710 $6.27
Granted 7,870,850 34.28 8,441,147 28.12 5,960,829 11.08
Exercised (1,511,532) 8.14 (626,465) 7.12 (90,732) 3.87
Cancelled (313,946) 25.00 (231,160) 10.80 (541,093) 6.69
---------- ---------- ---------
Outstanding at December 31 27,766,608 $21.49 21,721,236 $16.01 14,137,714 $8.28
Exercisable at December 31 11,416,074 $10.74 7,727,483 $ 7.10 1,895,870 $7.38
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Options Exercisable
Weighted-Average -------------------
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.63 - $10.00 6,378,138 6.6 $6.39 6,378,138 $6.39
$10.00 - $15.50 5,743,468 7.8 11.20 3,620,958 10.92
$15.50 - $30.00 2,058,700 8.8 22.85 142,980 22.77
$30.00 - $35.00 13,512,702 9.2 32.70 1,273,998 30.64
$35.00 - $38.72 73,600 9.5 $37.85 -- $ --
---------- ----------
27,766,608 11,416,074
</TABLE>
The per-share weighted-average fair value of stock options granted in 1998,
1997, and 1996 was $15.42, $12.65, and $8.35, respectively. The fair value was
estimated as of the grant date using the Black-Scholes option pricing model with
the following weighted-average assumptions:
1998 1997 1996
---- ---- ----
Risk-free interest rate 5.6% 6.0% 6.5%
Dividend yield 0.1% 0.1% 0.2%
Volatility factor 31.1% 33.2% 32.7%
Option life 7 years 7 years 7 years
The pro forma impact on income assumes a forfeiture rate of approximately 10%.
Had compensation expense for stock options granted in 1998, 1997, and 1996 been
recorded based
<PAGE>
on the fair market value at the grant date, the Company's net loss and loss per
share would have increased by $52.1 million and $0.18, respectively, in 1998.
The Company's net income and earnings per share would have been reduced by $18.2
million and $0.06, respectively, in 1997; and $7.9 million and $0.03,
respectively, in 1996.
These pro forma amounts may not be representative of the effects on reported net
income for future years, as options are amortized to expense over the vesting
period, and additional options may be granted in future years. Because SFAS No.
123 is applicable only to options granted subsequent to December 31, 1994, the
pro forma effects for 1997 and 1996 are not representative of the effects on
reported net income for future years, as most of the stock option grants vest in
cumulative increments over a period of three years.
Prior to 1997, performance award shares were granted to officers and certain
other management and employees of the Company. These shares were dependent upon,
among other things, achievement of certain performance objectives. The cost of
performance award shares was $10.4 million in 1996.
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Stock Plans - (Continued)
Shareholder Rights Plan: A shareholder rights plan exists which would entitle
all shareholders to a preferred stock purchase right, entitling them to purchase
from the Company one four-hundredths of a share of Series A Preferred Stock at
an exercise price of $10.88. The Company may redeem the rights for $0.0025 per
right up to and including the tenth business day after the date of a public
announcement that a person or group of affiliated or associated persons
(Acquiring Person) has acquired ownership of common stock having 10% or more of
the Company's general voting power (Stock Acquisition Date). The plan provides
that, if the Company is acquired in a business combination at any time after a
Stock Acquisition Date, generally each holder of a right will be entitled to
purchase at the exercise price a number of the acquiring Company's shares having
a market value of twice the exercise price. The plan also provides that in the
event of certain other business combinations, certain self-dealing transactions,
or the acquisition by an Acquiring Person of stock having 15% or more of the
Company's general voting power, generally each holder of a right will be
entitled to purchase at the exercise price a number of shares of the Company's
common stock having a market value of twice the exercise price. Any rights
beneficially owned by an Acquiring Person shall not be entitled to the benefit
of the adjustments with respect to the number of shares described above. The
rights will expire on October 17, 2004, unless redeemed earlier by the Company.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 7 - Earnings (Loss) Per Share
The following table sets forth the computation of earnings (loss) per share:
1998 1997 1996
------- ------- -------
Income (loss) before cumulative effect of
accounting change .......................... ($ 2.2) $ 150.0 $ 52.3
Cumulative effect of accounting change, net .. -- (4.7) --
------- ------- -------
Net income (loss) .......................... ($ 2.2) $ 145.3 $ 52.3
======= ======= =======
Weighted-average common shares outstanding ... 294.59 294.30 293.46
Effect of employee stock options ............. -- 5.48 2.80
------- ------- -------
Weighted-average common shares outstanding
and assumed conversions .................... 294.59 299.78 296.26
======= ======= =======
Earnings (loss) per share:
Income (loss) before cumulative effect of
accounting change .......................... ($ 0.01) $ 0.51 $ 0.18
Cumulative effect of accounting change, net .. -- (0.02) --
------- ------- -------
Earnings (loss) per share .................. ($ 0.01) $ 0.49 $ 0.18
======= ======= =======
Earnings (loss) per share - assuming dilution:
Income (loss) before cumulative effect of
accounting change .......................... ($ 0.01) $ 0.50 $ 0.18
Cumulative effect of accounting change, net .. -- (0.02) --
------- ------- -------
Earnings (loss) per share - assuming dilution ($ 0.01) $ 0.48 $ 0.18
======= ======= =======
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 8 - Borrowings
At December 31, 1998, the Company had outstanding commercial paper borrowings of
$230.5 million and bank borrowings of $214.0 million at a weighted-average
interest rate of 5.39%. The Company expects that a minimum of $390 million of
its short-term borrowings will remain outstanding throughout 1999, and,
accordingly, has classified this portion as long-term at December 31, 1998. The
weighted-average interest rate on borrowings outstanding during 1998 was 6.03%.
At December 31, 1997, the Company had outstanding commercial paper borrowings of
$219.4 million and bank borrowings of $72.8 million at a weighted-average
interest rate of 6.69%. At December 31, 1997, the Company expected that a
minimum of approximately $80.0 million of its commercial paper borrowings would
remain outstanding throughout 1998, and, accordingly, classified this portion as
long-term at December 31, 1997. The weighted-average interest rate on borrowings
outstanding during 1997 was 5.98%.
The Company's commercial paper borrowings are supported by two credit facilities
with certain banks. This includes a $400 million facility that permits
borrowings through August 2003 and a $200 million facility that permits
borrowings through August 1999. There are currently no outstanding borrowings
under these credit facilities. These credit facilities carry a variable market
rate of interest. Restrictive covenants in the borrowing agreements include
limitations on additional borrowings, consolidations, mergers, and certain sales
of assets and maintenance of certain financial performance measures.
Compensating balances and commitment fees are not material in either year.
Interest expense, which is included in other expenses and approximates cash
payments of interest on borrowings, was $17.6 million, $21.5 million, and $26.4
million in 1998, 1997, and 1996, respectively.
Note 9 - Leases
The Company leases various manufacturing and office facilities, and certain
equipment under operating leases. Future minimum lease commitments are as
follows:
1999 $23.4
2000 14.9
2001 11.6
2002 9.6
2003 9.4
Thereafter 13.4
-----
$82.3
=====
Rent expense for all leases, including contingent rentals, which were not
material, amounted to approximately $24.6 million, $13.5 million, and $11.0
million for 1998, 1997, and 1996, respectively.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 10 - Income Taxes
Following is a summary of income before income taxes of U.S. and international
operations:
1998 1997 1996
------------------------------
United States $103.2 $232.2 $126.5
International 24.4 16.6 9.5
------------------------------
$127.6 $248.8 $136.0
====== ====== ======
Following is the composition of income tax expense:
1998 1997 1996
---- ---- ----
Current:
Federal.............................. $164.5 $93.9 $75.4
State................................ 26.4 17.6 11.7
Foreign.............................. 9.9 4.6 4.8
------ ----- -----
Total currently payable.......... 200.8 116.1 91.9
Deferred:
Federal.............................. (64.7) (15.0) (7.1)
State................................ (3.7) (3.2) (1.6)
Foreign.............................. (2.6) 0.9 0.5
------ ----- -----
Total deferred tax benefit....... (71.0) (17.3) (8.2)
------ ----- -----
Income tax expense....................... $129.8 $98.8 $83.7
====== ===== =====
Deferred tax assets and liabilities reflect the future tax consequences of
events that have already been recognized in the consolidated financial
statements or income tax returns. At December 31, deferred tax assets and
liabilities consisted of the following:
1998 1997
------ -----
Deferred tax assets:
Inventory and product-related reserves........ $46.1 $37.1
Net operating loss and credit carryforwards... 25.8 29.3
Accrued liabilities........................... 50.4 36.4
Acquisition of intangible assets.............. 76.3 32.2
------ -----
198.6 135.0
Valuation allowances.......................... (26.8) (33.4)
------ -----
Total deferred tax assets................. 171.8 101.6
Deferred tax liabilities:
Property and equipment........................ (12.4) (11.4)
Long-term equity investments.................. (2.3) (2.9)
Other......................................... -- (4.9)
------ -----
Total deferred tax liabilities............ (14.7) (19.2)
------ -----
Deferred tax assets, net.......................... $157.1 $82.4
====== =====
Income taxes paid were $233.7 million, $71.5 million, and $103.1 million in
1998, 1997, and 1996, respectively.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 10 - Income Taxes - (Continued)
Following is a reconciliation of the effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
United States federal statutory income tax rate ................ 35.0% 35.0% 35.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal tax benefit .............. 10.1 3.2 3.5
Benefit from operations in Puerto Rico ...................... (1.7) (1.2) (2.7)
Effect of international operations .......................... 1.9 (0.3) 1.7
Research credit ............................................. (4.9) (1.1) --
Benefit from foreign sales corporation ...................... (7.0) (2.4) (4.4)
Effect of impairment charges ................................ 11.0 -- 17.6
Litigation settlement and nondeductible goodwill amortization 59.5 2.1 2.7
Nondeductible EVT losses .................................... -- 4.4 5.5
Other, net .................................................. (2.2) -- 2.6
----- ----- -----
Effective income tax rate ...................................... 101.7% 39.7% 61.5%
===== ===== =====
</TABLE>
No provision has been made for United States federal and state, or foreign taxes
that may result from future remittances of undistributed earnings of foreign
subsidiaries ($76.3 million at December 31, 1998) because it is expected that
such earnings will be permanently reinvested in these foreign operations. It is
not practical to estimate the amount of taxes that might be payable on the
eventual remittance of these earnings.
At December 31, 1998, approximately $75 million of federal and foreign tax
losses were available for carryforward. These carryforwards are subject to
valuation allowances and certain restrictions, and generally expire within a
period of one to fifteen years.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Employee Benefit Plans
Employee Savings and Stock Ownership Plan: Guidant has created a defined
contribution savings plan that covers its eligible United States employees. The
plan includes both an employee savings component and an employee stock ownership
component. The purpose of the plan is generally to provide additional financial
security to employees during retirement.
Participants in the plan may elect to contribute, on a before-tax basis, a
certain percent of their annual salary. The Company matches a portion of these
employee contributions with Guidant common stock. In addition, the Company
contributes Guidant common stock in a fixed percentage of employees' annual base
pay to the plan regardless of whether the employee contributes to the plan.
The Company established an Employee Stock Ownership Plan (ESOP) as a funding
vehicle for the savings plan. This internally leveraged ESOP acquired
approximately 9.0 million shares of newly issued Guidant common stock at a cost
of approximately $60.0 million ($6.68 per share) in September 1995. Common
shares held by the ESOP are allocated to Guidant employees on a periodic basis
until these shares are exhausted (approximately thirteen years, assuming the
year-end price per share of Guidant common stock of $55.00 remains constant). At
December 31, 1998, the ESOP held approximately 2.8 million shares allocated to
employee accounts and 6.2 million unallocated shares. The cost of shares held by
the ESOP and not yet allocated to employees is reported as a reduction of
shareholders' equity. Allocated shares of the ESOP are charged to expense based
on the fair value of the shares transferred and are treated as outstanding in
the computation of earnings (loss) per share. Compensation expense under these
plans was $25.0 million, $14.1 million, and $13.9 million for 1998, 1997, and
1996, respectively.
Retirement Plan: The Company sponsors the Guidant Retirement Plan (Plan) which
is a frozen noncontributory defined benefit plan. Only certain employees who met
eligibility requirements at the date the Plan was frozen continue to accrue
benefits for projected future salary increases under the Plan.
The Company's funding policy for the Plan is consistent with United States
employee benefit and tax-funding regulations. Plan assets, which are maintained
in a trust, consist primarily of equity and fixed income instruments.
The Company recognized a net pension credit of approximately $1.0 million
related to the Plan for the years ended 1998, 1997, and 1996. The data for this
Plan is presented in accordance with SFAS No. 132, which the Company
retroactively adopted for all periods presented.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Employee Benefit Plans - (Continued)
Pension Benefits
1998 1997
----- -----
Accumulated benefit obligation $48.9 $39.1
Change in projected benefit obligation:
Benefit obligation at beginning of year 48.8 42.9
Service Cost 0.2 0.1
Interest Cost 3.6 3.2
Plan amendments 1.4 --
Actuarial losses 11.6 3.0
Benefits paid (0.5) (0.4)
----- -----
Benefit obligation at end of year 65.1 48.8
Change in plan assets:
Fair value of plan assets at beginning of year 52.8 45.6
Actual return on plan assets 5.1 7.6
Benefits paid (0.4) (0.4)
----- -----
Fair value of plan assets at end of year 57.5 52.8
Funded status of the plan (7.6) 4.0
Unrecognized net actuarial loss 11.9 0.5
Unrecognized prior service cost 3.1 1.9
----- -----
Prepaid pension cost $ 7.4 $ 6.4
===== =====
Weighted - average assumptions:
1998 1997
---- ----
Discount rate (weighted average)....................... 7.0 7.5
Rate of increase in future compensation levels......... 4.5-8.0 4.5-8.0
Expected long-term rate of return on plan assets....... 10.5 10.5
The majority of the actuarial losses incurred in 1998 relate to the change in
the weighted-average discount rate.
Certain employees outside the United States participate in retirement plans
maintained by the Company. Expenses for the employees participating in these
plans have not been included in the above information. However, expenses
attributable to the employees at these locations are included in the results of
operations and totaled $2.6 million, $2.2 million, and $1.9 million in 1998,
1997, and 1996, respectively.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Segment Information
The Company manages its business on the basis of one reportable segment: the
development, manufacture, and marketing of therapeutic medical devices for the
treatment of cardiovascular and vascular diseases. Guidant's chief operating
decision makers use consolidated results to make operating and strategic
decisions. Furthermore, the manufacturing processes, customers, as well as the
regulatory environment in which Guidant operates are the same. See Note 1 for a
brief description of the Company's business. This data is presented for all
periods in accordance with SFAS No. 131 which the Company adopted in 1998.
Geographic Information
Year Ended December 31,
1998 1997 1996
---- ---- ----
Net Sales(1):
United States $1,389.7 $902.9 $642.8
International 507.3 425.3 406.9
-------- -------- --------
$1,897.0 $1,328.2 $1,049.7
======== ======== ========
(1) Revenues are attributed to countries based on location of the customer.
December 31,
1998 1997
---- ----
Long-lived assets:
United States $678.4 $549.6
International 53.8 33.6
---- ----
$732.2 $583.2
====== ======
Year Ended December 31,
1998 1997 1996
---- ---- ----
Classes of Similar Products:
Vascular intervention $1,002.2 $591.4 $425.6
Cardiac rhythm management 824.6 669.6 574.6
Cardiac & vascular surgery 70.2 67.2 49.5
-------- -------- --------
$1,897.0 $1,328.2 $1,049.7
======== ======== ========
No single customer represents over 10% of the Company's consolidated sales.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 13 - Financial Instruments
In the normal course of business, operations of the Company are exposed to
continuing fluctuations in currency values and short-term interest rates. These
fluctuations can vary the costs of financing, investing, and operating. The
Company's objective is to reduce earnings volatility associated with these
fluctuations to allow management to focus on core business issues. Accordingly,
the Company addresses these risks through a controlled program of risk
management that includes the use of derivative financial instruments. The
Company's derivative activities, all of which are for purposes other than
trading, are initiated within the guidelines of documented corporate
risk-management policies. The Company does not enter into any derivative
transactions for speculative purposes.
The notional amounts of derivatives summarized in the following paragraphs
indicate the extent of the Company's involvement in such agreements but do not
represent its exposure to market risk through the use of derivatives.
Foreign Exchange Risk Management: A portion of the Company's cash flows is
derived from transactions denominated in foreign currencies (principally the
currencies of Western Europe and the Japanese yen). The United States dollar
value of transactions denominated in foreign currencies fluctuates as the United
States dollar strengthens or weakens relative to these foreign currencies. In
order to reduce the uncertainty of foreign exchange rate movements on
transactions denominated in foreign currencies, the Company enters into
derivative financial instruments in the form of foreign exchange forward and
option contracts with major international financial institutions. These forward
and option contracts, which typically mature within one year, are designed to
hedge anticipated foreign currency transactions, primarily intercompany
inventory purchases, for periods consistent with commitments. These contracts
also hedge firm commitments, primarily intercompany loans, payables, and
receivables. While these hedging instruments are subject to fluctuations in
value, such fluctuations are generally offset by changes in the value of the
underlying exposures being hedged. The Company's foreign exchange contracts do
not subject it to material risk due to exchange rate movements because gains and
losses on these contracts offset losses and gains on the assets, liabilities,
and transactions being hedged. The Company had contracts to exchange foreign
currencies in the following notional amounts:
1998 1997
---- ----
Forward exchange contracts $161.1 $133.9
Purchased foreign currency options $232.0 $202.9
Carrying amounts exceeded the fair values of these instruments at December 31,
1998, by approximately $0.4 million. Fair value exceeded the carrying amount of
these instruments by approximately $3.1 million at December 31, 1997. The
estimated fair values of derivative financial instruments used to hedge the
Company's risks will fluctuate over time. The fair values of forward exchange
and option contracts are calculated using pricing models used widely in
financial markets.
Interest Rate Risk Management: The Company may enter into interest rate swaps or
caps to lower funding costs or reduce exposures to interest rate fluctuations.
There were no interest rate swaps or caps outstanding during 1998. The impact of
interest rate risk-management activities on income for all periods presented was
not material.
There were no interest rate caps outstanding at December 31, 1998. The notional
amount of interest rate cap transactions outstanding at December 31, 1997, was
$100 million. The fair value of interest rate cap transactions outstanding at
December 31, 1997, was not significant.
Concentrations of Credit Risk: Financial instruments that potentially subject
the Company to credit risk consist principally of interest-bearing investments,
foreign currency exchange contracts, interest rate swaps, and trade receivables.
The Company maintains cash and cash equivalents, investments, and certain other
financial instruments with various major financial institutions. The Company
performs periodic evaluations of the
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 13 - Financial Instruments - (Continued)
relative credit standing of these financial institutions and limits the amount
of credit exposure with any one institution. Hospitals and other health-care
providers account for a substantial portion of the trade receivables; collateral
for these receivables is generally not required. The risk associated with this
concentration is limited due to the large number of accounts and their
geographic dispersion. The Company monitors the creditworthiness of its
customers to which it grants credit terms in the normal course of business.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to financial instruments, but management believes credit risk
exposure to such contracts is limited by periodically reviewing the
creditworthiness of the counterparties to the transactions.
Investments: A summary of the Company's available-for-sale securities at
December 31 follows:
1998 1997
Fair Fair
Cost Value Cost Value
-------------------------------------
Short term:
Marketable equity securities $ -- $ -- $11.6 $12.1
Corporate debt and other -- -- 1.2 1.2
---- ----- ---- -----
Total $ -- $ -- $12.8 $13.3
==== ==== ===== =====
Long term:
Marketable equity securities $4.7 $10.7 $3.5 $10.6
==== ===== ==== =====
The gross unrealized gains associated with available-for-sale securities of $6.0
million, $7.6 million, and $15.6 million, net of taxes of $2.3 million, $3.4
million and $6.2 million, were included as a separate component of accumulated
other comprehensive income in 1998, 1997, and 1996, respectively. Sales of
available-for-sale securities in 1998 were $14.1 million with an associated gain
of $1.3 million. There were no sales of available-for-sale securities in 1997
and 1996. The Company determines fair values primarily based on quoted market
values.
The carrying value of held-to-maturity investments, which include bank
certificates of deposit and repurchase agreements held in Puerto Rico, were
$36.3 million and $31.0 million at December 31, 1998 and 1997, respectively. The
carrying values of these investments approximate their fair values. The Company
owns no investments that are considered trading securities.
In the fourth quarter of 1997, the Company recognized a gain of $23.2 million on
its investment in Gynecare, Inc., as a result of its acquisition by Johnson &
Johnson, in a tax-free stock-for-stock exchange. The Company owned approximately
30% of the common stock of Gynecare and accounted for this investment under the
equity method prior to the acquisition. The gain was included in other income
and expenses. A special contribution, $11.5 million of this gain, was made to
the Guidant Foundation, Inc., and was recognized in operating expenses in 1997.
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Contingencies
The Company is a party to various legal actions which have arisen in the normal
course of business. In the third quarter, the Company settled its patent
litigation with Intermedics, Inc., a division of Sulzer Medica, USA, Inc. Refer
to Notes 5 and 15.
In a lawsuit originally filed on May 31, 1994, in the Northern District of
California, SciMed Life Systems, Inc., (SciMed) a subsidiary of Boston
Scientific Corporation, (BSC) alleges that the ACS RX ELIPSE Coronary Dilatation
Catheter infringes certain patents owned by SciMed. Subsequently, the complaint
was amended to further allege infringement by the ACS RX MULTI-LINK Coronary
Stent System. In the lawsuit, SciMed is seeking injunctive relief and monetary
damages.
On May 3, 1996, Pacesetter, Inc., filed suit against Cardiac Pacemakers, Inc.,
(CPI), a wholly owned subsidiary of the Company, in the District Court for
Minnesota. The complaint, as subsequently amended, alleges infringement of
certain Pacesetter patents by certain CPI pacemaker models and programmers for
pacemakers and defibrillators. The lawsuit seeks injunctive relief, unspecified
monetary damages, and an award of attorneys' fees. On December 16, 1998,
following a trial on the merits, the jury of the District of Minnesota returned
a verdict finding no liability by CPI on two of the three patents asserted by
Pacesetter, and infringement by software in CPI programmers for certain
pacemakers and defibrillators of the third patent. The jury awarded Pacesetter
damages in the amount of $9.7 million, which the Company has accrued. The court
is currently considering Pacesetter's request for an injunction and the
Company's request that Pacesetter's patent be declared unenforceable.
In May 1996, Angeion Corporation filed a suit against CPI in the District Court
for Minnesota. The complaint, as subsequently amended, alleges infringement of
certain Angeion defibrillator patents by CPI's MINI I and MINI II defibrillator
models. The lawsuit seeks injunctive relief, unspecified monetary damages, and
an award of attorneys' fees.
On June 4, 1996, General Surgical Innovations, Inc., (GSI) filed suit against
Origin MedSystems, Inc., (Origin) in the Northern District of California
alleging that Origin's VASOVIEW Balloon Dissection System and Preperitoneal
Distention Balloon Systems infringe a patent owned by GSI. GSI's motion for
summary judgement of infringement was granted on October 29, 1998, and a trial
was held on the validity of the GSI patent. On February 9, 1999, the jury
determined the patent to be valid and awarded GSI approximately $12.9 million in
damages. Although the Company may appeal the decision, an additional $9.2
million was accrued in the fourth quarter of 1998 to provide for this potential
loss. The jury also held certain claims of the patent to have been willfully
infringed which, if held exceptional by the court, could result in up to a
trebling of the damage award and entitle GSI to its attorney fees. GSI is also
seeking injunctive relief. A hearing relating to the injunction was held on
March 2, 1999. Once a judgment is entered and post-trial matters have been
resolved, Origin may appeal.
On September 24, 1997, GSI filed suit against Origin in the Northern District of
California alleging that Origin's VASOVIEW Balloon Dissection System infringes a
patent owned by GSI. GSI is seeking injunctive relief and monetary damages.
On October 3, 1997, Cordis Corporation (Cordis), a subsidiary of Johnson and
Johnson, filed suit against the Company and Advanced Cardiovascular Systems,
Inc., (ACS) the Company's wholly owned subsidiary, in the District Court of
Delaware, alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents licensed to Cordis. In addition, on October 8, 1997, Cordis
filed a motion for a preliminary injunction in this lawsuit seeking to prevent
the Company from selling the ACS MULTI-LINK Coronary Stent other than in certain
limited circumstances and subject to certain conditions. On October 22, 1997,
Cordis amended its complaint to include Arterial Vascular Engineering, Inc.
(AVE) and BSC as co-defendants. A hearing on the motion for a preliminary
injunction was held in February 1998 and in July 1998, Cordis' motion for a
preliminary injunction was denied by the court. On October 27, 1998, one of the
patents asserted against the Company
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Contingencies - (Continued)
and ACS emerged from reexamination filed by Cordis. In the lawsuit, Cordis is
seeking injunctive relief and monetary damages.
On November 6, 1997, Medtronic, Inc., filed suit against ACS in the District
Court for Minnesota, alleging that the ACS MULTI-LINK Coronary Stent infringes a
patent owned by Medtronic. In the lawsuit, Medtronic is seeking injunctive
relief and monetary damages.
On December 2, 1997, Cordis filed suit against Guidant and ACS in the District
Court of Delaware, alleging that the ACS RX ROCKET Coronary Dilatation Catheter
infringes patents owned by Cordis. Cordis has also filed a motion for a
preliminary injunction, which was heard by the court on April 9, 1998. A
decision has not yet been rendered. In the lawsuit, Cordis is seeking injunctive
relief, monetary damages, and attorney fees. A separate lawsuit was also filed
against the Company in December 1997 in the Netherlands alleging infringement of
the European equivalents of these patents. In this separate lawsuit, Cordis is
seeking injunctive relief and monetary damages.
On February 18, 1998, AVE filed suit against ACS in the District Court of
Delaware alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents licensed to AVE. The lawsuit also alleges misappropriation of
trade secrets and breach of a confidentiality agreement by ACS. In the lawsuit,
AVE is seeking injunctive relief, monetary damages, and to invalidate certain
ACS stent patents.
An arbitration was held between SciMed and the Company in May 1998, to determine
whether the ACS RX COMET, ACS RX COMET VP, ACS RX ROCKET Coronary Dilatation
Catheters, and ACS RX MULTI-LINK HP Coronary Stent System were reasonable
modifications under the 1991 ACS/SciMed Settlement Agreement, and therefore
immune from suit by patents owned by SciMed. On August 17, 1998, the Arbitration
Panel by a 2-1 majority held in a Draft Determination that these products were
not reasonable modifications. The Company requested reconsideration of the Draft
Determination and on December 4, 1998, the Arbitration Panel by a 2-1 majority
held in a Final Determination that the ACS RX COMET, ACS RX COMET VP, and ACS RX
ROCKET Coronary Dilatation Catheters were reasonable modifications under the
Settlement Agreement, and were immune from suit. The ACS RX MULTI-LINK HP
Coronary Stent System was held not to be a reasonable modification.
On December 29, 1998, SciMed filed suit against the Company in the Hague, the
Netherlands, alleging infringement of a European Patent owned by SciMed by the
ACS RX ELIPSE Coronary Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS RX DUET Coronary Stent Systems. SciMed is seeking
injunctive relief and monetary damages.
On January 13, 1999, SciMed filed suit against the Company, ACS, and Guidant
Sales Corporation in the Northern District of California alleging that ACS's RX
MULTI-LINK, RX MULTI-LINK HP, and MULTI-LINK RX DUET Coronary Stent Systems
infringe certain SciMed patents. In the lawsuit, SciMed is seeking injunctive
relief and monetary damages.
On June 4, 1998, Cordis filed suit against the Company and ACS in the District
Court for the Eastern District of Virginia, alleging that the sale of the ACS
MULTI-LINK Coronary Stent infringes two patents owned by Cordis. On August 7,
1998, the court granted the Company's motion to transfer the case to the
Northern District of California. Cordis is seeking injunctive relief and
monetary damages.
On February 1, 1999, Deborah Charms filed suit against the Company and CPI in
the United States District Court for the Western District of Texas alleging that
unspecified defibrillation products of CPI infringe a patent owned by Charms. In
the lawsuit, Charms is seeking injunctive relief and unspecified monetary
damages.
The Company believes that it has substantial and meritorious defenses against
the above infringement claims and intends to vigorously contest them. The
Company has filed suit
<PAGE>
and has lawsuits and other legal actions currently outstanding against most of
the companies discussed above. While it is not possible to predict or determine
the outcomes
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Contingencies - (Continued)
of the legal actions brought against it, or to provide an estimate of any
additional losses, if any, that may arise, the Company believes the costs
associated with all of these actions will not have a material adverse effect on
its consolidated financial position or liquidity, but could possibly be material
to the consolidated results of operations of any one period.
Further, product liability claims may be asserted in the future relative to
events currently unknown to management. Management believes that the Company's
risk-management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.
Note 15 - Subsequent Event (Unaudited)
On February 1, 1999, the Company completed its acquisition of the
electrophysiology business of Sulzer Medica, Ltd., which includes Intermedics,
Inc., a leader in the manufacture and distribution of bradycardia pacemakers,
for an aggregate cost of approximately $810 million. This includes $200 million
required to settle the Company's intellectual property litigation with
Intermedics, payable regardless of the consummation of the acquisition. The
acquisition was initially financed with commercial paper. Approximately $350
million of seven year 6.15% notes were subsequently issued on February 11, 1999,
to replace a portion of the commercial paper.
This transaction has been accounted for by the purchase method. An additional
charge of $49 million will be recorded in the first quarter of 1999 related to
the ascribed value of the Intermedics in-process technology. Goodwill recorded
in this acquisition, estimated to be in excess of $400 million, will be
amortized to earnings over 20 years.
<PAGE>
NOTE 16 - SELECTED QUARTERLY INFORMATION (UNAUDITED)
The following table summarizes the Company's operating results by quarter:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------ ------------------------------------------
Fourth Third Second First Fourth Third Second First
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Vascular intervention.......... $ 262.8 $ 216.0 $ 256.4 $ 267.0 $ 293.7 $ 95.8 $ 101.1 $ 100.8
Cardiac rhythm management...... 210.7 213.4 215.1 185.4 183.3 172.9 164.4 149.0
Cardiac & vascular surgery..... 20.0 16.0 16.3 17.9 18.8 15.5 16.3 16.6
------- ------- ------- ------- ------- ------- ------- -------
Total net sales.......... 493.5 445.4 487.8 470.3 495.8 284.2 281.8 266.4
Cost of products sold............. 108.9 95.7 110.0 107.4 110.7 70.3 73.0 66.8
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............. 384.6 349.7 377.8 362.9 385.1 213.9 208.8 199.6
Research and development.......... 78.2 70.0 65.8 62.0 66.1 50.2 46.0 46.0
Purchased research and
development.................... -- 90.0 28.7 -- -- -- 57.4 --
Sales, marketing, and
administrative................. 147.2 135.2 141.1 135.1 170.6 93.3 90.4 85.4
Merger-related costs.............. -- -- -- -- 11.1 -- -- --
Foundation contribution........... -- -- -- -- 11.5 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income from operations......... 159.2 54.5 142.2 165.8 125.8 70.4 15.0 68.2
Other expenses, net............... 74.3 219.0 20.5 80.3 14.0 6.3 5.5 4.8
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and cumulative effect of
accounting change.............. 84.9 (164.5) 121.7 85.5 111.8 64.1 9.5 63.4
Income taxes...................... 44.1 12.5 43.0 30.2 45.0 23.8 5.2 24.8
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect of
accounting change, net......... 40.8 (177.0) 78.7 55.3 66.8 40.3 4.3 38.6
Cumulative effect of accounting
change, net.................... -- -- -- -- (4.7) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 40.8 ($ 177.0) $ 78.7 $ 55.3 $ 62.1 $ 40.3 $ 4.3 $ 38.6
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share......... $ 0.14 ($ 0.60) $ 0.27 $ 0.19 $ 0.21 $ 0.14 $ 0.01 $ 0.13
Weighted average common shares
outstanding.................... 294.59 294.66 294.60 294.52 294.48 294.50 294.38 293.84
Earnings (loss) per share--
assuming dilution.............. $ 0.13 ($ 0.60) $ 0.26 $ 0.18 $ 0.21 $ 0.13 $ 0.01 $ 0.13
Weighted average common shares
outstanding--assuming dilution 302.96 294.66 301.90 301.88 301.26 300.02 299.16 298.00
Common stock prices:
High........................... $ 55.97 $ 45.03 $ 38.66 $ 39.69 $ 34.75 $ 28.28 $ 22.00 $ 18.07
Low............................ $ 31.75 $ 29.75 $ 30.00 $ 25.50 $ 24.32 $ 21.00 $ 14.63 $ 13.41
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Guidant Corporation (Guidant or the Company), is a global company that designs,
develops, manufactures, and markets a broad range of innovative, high-quality
therapeutic devices for use in: (i) cardiac rhythm management (CRM), (ii)
vascular intervention (VI), and (iii) cardiac and vascular surgery (CVS).
Guidant is a worldwide leader in automatic implantable cardioverter
defibrillator (AICD) systems, used to detect and treat abnormally fast heart
rhythms (tachycardia). The Company designs, manufactures, and markets a full
line of implantable pacemaker systems used to manage slow or irregular heart
rhythms (bradycardia). The Company is also a worldwide leader in minimally
invasive devices used for opening blocked coronary arteries, such as coronary
stents and coronary balloon dilatation catheters. In addition, the Company
develops, manufactures, and markets devices principally for use in minimally
invasive cardiac and vascular surgeries.
Cardiovascular disease continues to be the leading cause of death in the United
States. Guidant's business strategy is to design, develop, manufacture, and
market innovative, high-quality therapeutic products principally for use in
treating cardiovascular and vascular diseases which result in improved quality
of patient care and reduced treatment costs. In implementing this strategy, the
Company focuses on the following three areas, which it believes are critical to
its future success: (i) global product innovation, (ii) economic partnerships
with customers worldwide, and (iii) organizational excellence.
MERGERS AND ACQUISITIONS
On February 1, 1999, the Company completed its acquisition of the
electrophysiology business of Sulzer Medica, Ltd., which includes Intermedics,
Inc.(Intermedics), a leader in the manufacture and distribution of bradycardia
pacemakers, for an aggregate cost of approximately $810 million. This amount
includes $200 million required to settle the Company's intellectual property
litigation with Intermedics, payable regardless of the consummation of the
acquisition.
On September 15, 1998, Guidant completed its cash tender offer for all of the
outstanding common shares of InControl, Inc., (InControl) at a total cost of
$137.5 million. InControl was a pioneer in the development of device technology
for the treatment of atrial arrhythmias. The results of InControl's operations
have been included in the Company's consolidated results of operations from the
date of acquisition.
In May 1997, Guidant acquired the assets of NeoCardia, LLC., (NeoCardia) a
privately held development-stage company for $86.1 million paid in 1997 and
1998. NeoCardia has pioneered the use of radiation therapy for the treatment of
restenosis.
In December 1997, the Company completed its merger with EndoVascular
Technologies, Inc., (EVT) in a tax-free stock-for-stock transaction. EVT, based
in Menlo Park, California, is a leader in the development of methods and devices
for minimally invasive repair of abdominal aortic aneurysms (AAA). EVT has
developed a minimally invasive catheter-based delivery system to implant a
specialized sutureless prosthesis to repair life-threatening AAAs without major
surgery. The Company believes that EVT's endovascular procedures for AAA repair
offers significant advantages over conventional AAA surgery. This business
combination was accounted for under the pooling of interests method.
<PAGE>
The following tables are summaries of the Company's net sales and major costs
and expenses, excluding the impact of special charges:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Net sales:
Vascular intervention..................... $1,002.2 $ 591.4 $ 425.6
Cardiac rhythm management................. 824.6 669.6 574.6
Cardiac & vascular surgery................ 70.2 67.2 49.5
-------- -------- --------
Total net sales......................... 1,897.0 1,328.2 1,049.7
Cost of products sold....................... 422.0 320.8 287.1(1)
----- ----- --------
Gross profit............................ 1,475.0 1,007.4 762.6(1)
Research and development(2)................. 276.0 208.3 164.6
Sales, marketing, and administrative........ 558.6 439.7(3) 328.4
----- ----- --------
834.6 648.0 493.0
----- ----- --------
Income from operations excluding
special charges........................... $ 640.4(4) $ 359.4(4) $ 269.6(1)(4)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As a Percent of Net Sales
------------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Net sales:
Vascular intervention...................... 52.8% 44.5% 40.6%
Cardiac rhythm management.................. 43.5 50.4 54.7
Cardiac & vascular surgery................. 3.7 5.1 4.7
------- ------- ------
Total net sales.......................... 100.0% 100.0% 100.0%
Cost of products sold...................... 22.2 24.2 27.4(1)
------- ------- ------
Gross profit............................. 77.8 75.8 72.6(1)
Research and development(2)................ 14.6 15.7 15.7
Sales, marketing, and administrative....... 29.4 33.1(3) 31.2
------- ------- ------
44.0 48.8 46.9
Income from operations excluding
special charges.......................... 33.8%(4) 27.0%(4) 25.7%(1)(4)
======= ======= ======
</TABLE>
- ----------
(1) Excludes the impact of $28.8 million in special non-cash obsolescence
charges in the second quarter of 1996 resulting from the accelerated
regulatory approval for market release and customer acceptance of
new-generation CRM products and programmers. Reported cost of products sold
and gross profit for 1996 were $315.9 million and $733.8 million,
respectively.
(2) Excludes purchased research and development charges of $118.7 million in
1998 and $57.4 million in 1997, which represents the appraised value of
in-process research and development recorded in conjunction with the
acquisitions of InControl, Inc., and NeoCardia, LLC.
(3) Does not include a special contribution to the Guidant Foundation, Inc., of
$11.5 million or $11.1 million of transaction and integration costs related
to the Company's merger with EVT.
(4) Including the aforementioned special charges, reported income from
operations was $521.7 million and 27.5 % of net sales in 1998, $279.4
million and 21.0% of net sales in 1997, and $240.8 million and 22.9% of net
sales in 1996.
<PAGE>
OPERATING RESULTS -- 1998
The Company had worldwide net sales of $1,897.0 million for the year ended
December 31, 1998, reflecting an increase of $568.8 million or 43% over 1997.
Significant growth in unit volume of 46% was partially offset by net sales price
declines and unfavorable fluctuations in foreign currency exchange rates of 2%
and 1%, respectively. The effect of changes in product mix are included in the
net sales price decline.
Net sales of VI products reached $1,002.2 million, growth of $410.8 million or
69.5% for the year ended December 31, 1998, as compared to 1997. This sales
growth was primarily due to the enthusiastic customer acceptance of the ACS RX
MULTI-LINK Coronary Stent System released in the United States in October 1997
and the ACS MULTI-LINK DUET Coronary Stent System, released to the U.S. market
in November 1998. The MULTI-LINK DUET System, the Company's newest generation
coronary stent is available on high performance over-the-wire and rapid exchange
(RX) delivery systems. The DUET was designed specifically to deliver, deploy,
and post-dilate the stent with lower delivery profiles, enhanced radiopacity,
increased radial strength, and flexibility. Worldwide coronary stent sales
during 1998 were $680.3 million, compared to $262.5 million in 1997. Coronary
stent sales experienced growth in all major markets. Sales of coronary stent
systems in the United States were $531.7 million in 1998 and $187.2 million in
1997.
International sales of coronary stents also contributed to the Company's 1998
sales growth, due primarily to the launch of the ACS MULTI-LINK RX DUET Coronary
Stent System in Europe in March 1998 and the February 1998 receipt of approval
from Japan's Ministry of Health and Welfare for reimbursement of the ACS RX
MULTI-LINK Coronary Stent System. Sales of coronary stents in international
markets almost doubled to $148.6 million in 1998, compared to $75.3 million in
1997.
Total angioplasty sales in 1998, which include coronary balloon dilatation
catheters, were essentially level in comparison to 1997. Angioplasty sales in
Europe, which increased 17.8%, due in part to the success of the ACS RX GEMINI
dilatation catheter, were offset by reduced angioplasty sales in Japan.
Unlike 1997, when the Company's coronary stent was available in the U.S. market
for the fourth quarter only, 1998's results represent a full year of coronary
stent sales in the United States. During 1998, the Company experienced pricing
pressure on VI products, such as balloon dilatation catheters and, to a lesser
extent, coronary stents, although price declines in the U.S. coronary stent
market between the third and fourth quarters of 1998 were insignificant. The
Company believes that pricing pressures on non-stent VI products may continue.
<PAGE>
Sales of CRM products of $824.6 million during 1998 increased $155.0 million or
23.1% from 1997. AICD systems led the sales growth with the VENTAK AV II DR,
market released in the United States in March 1998; strong sales of the VENTAK
MINI III, released to the U.S. market in February 1998; the VENTAK AV III DR,
released in the United States in September 1998; and, to a lesser extent given
its December U.S. release, the VENTAK MINI IV. The VENTAK AV III DR, 20% smaller
than its predecessor product, is a rate responsive dual-chamber pacemaker/AICD.
The VENTAK MINI IV is a full-featured defibrillation device with single-chamber
bradycardia pacing therapy, and is over 20% smaller than its predecessor, the
VENTAK MINI III. Due to increased competition, sales growth in AICD systems in
1999 may be less than historical rates.
The Company's pacemaker products experienced substantial sales growth during
1998, particularly in the United States and Europe where sales of these products
increased 30.2% and 13.5%, respectively, over 1997 levels. This sales growth was
driven by the U.S. market release and enthusiastic customer acceptance of the
DISCOVERY and MERIDIAN devices in May 1998 and the European market release of
these devices in March 1998. The new pacemaker families include advanced
diagnostics and single-and dual-chamber models featuring adaptive-rate pacing
designed to match pacing rates to the patient's activity level. Worldwide
pacemaker sales growth during 1998 was 21.8%.
Net sales of CVS products in 1998 were $70.2 million, which represents 4.5%
growth over 1997. Sales growth occurred in the United States and was driven
primarily by the VASOVIEW Balloon Dissection System. Total VASOVIEW sales during
1998 were less than $10 million. (See Notes 5 and 14 to the Consolidated
Financial Statements for a discussion of legal matters and charges related to
this device.)
Based on the reasons mentioned above, the Company believes its net sales growth
rate in 1999 will be less than the 43% growth experienced in 1998.
The Company experienced sales growth both in the United States and international
markets in 1998. Net sales in the United States increased 53.9% to $1,389.7
million, while international net sales increased 19.3% to $507.3 million for
1998 as compared to 1997. U.S. net sales growth was primarily due to sales of
the ACS RX MULTI-LINK Coronary Stent System, VENTAK AV II DR, VENTAK MINI III,
DISCOVERY, MERIDIAN and, to a lesser extent given their late 1998 U.S. market
releases, ACS MULTI-LINK DUET Coronary Stent System, and VENTAK AV III DR.
International net sales growth was primarily driven by the ACS MULTI-LINK RX
DUET in Europe, ACS RX MULTI-LINK in Japan, VENTAK MINI III, VENTAK AV II DR,
and ACS RX GEMINI. An unfavorable foreign currency exchange rate impact, due to
the strength of the U.S. dollar, reduced net sales during the year by $14.0
<PAGE>
million compared to 1997. This negative exchange rate impact on gross profit was
partially offset by gains from foreign exchange derivative contracts, which were
recorded in cost of products sold.
Cost of products sold was $422.0 million for the year ended December 31, 1998,
and represented 22.2% of net sales versus 24.2% for 1997. This continued
reduction in cost of products sold as a percentage of net sales was due
primarily to increased manufacturing volume and favorable mix impact in product
sales, along with continued progress in manufacturing efficiencies. Management
believes that cost of products sold as a percentage of net sales in 1999 will be
23-25% due to Guidant's acquisition and integration of Intermedics.
The Company continued its commitment to achieving long-term growth by investing
significant resources in research and development. Research and development
spending as a percentage of net sales was 14.6% and 15.7% in 1998 and 1997,
respectively. Research and development expenses of $276.0 million increased
$67.7 million or 32.5% during 1998 compared to 1997. Increased research and
development spending during the year resulted primarily from: (i) new product
development costs related to future generations of AICDs, pacemakers, and
coronary stents; (ii) development of radiation therapy devices for coronary
restenosis; (iii) development of stent technology for other parts of the
vascular anatomy, such as carotid arteries; (iv) increased performance-based
compensation; (v) increased personnel costs related to the Company's acquisition
of InControl and work related to the treatment of atrial arrhythmias; (vi)
clinical evaluation of implantable device systems for treatment of congestive
heart failure; and (vii) continued development of endovascular grafting systems
for the minimally invasive repair of AAA. The Company intends to maintain its
commitment to bring new technologies to the market and provide cost-effective
therapies to people who suffer from cardiovascular diseases. As a result, the
Company believes research and development spending will be 14%-16% of net sales
in 1999.
As a result of the completed acquisition of InControl, the Company recorded a
$90 million pre-tax charge related to the appraised value of in-process research
and development ($58.2 million after tax) in September 1998. The appraisal was
completed using guidelines recently announced by the Securities and Exchange
Commission. As a result of contingent consideration paid for NeoCardia in April
1998, the Company recorded a pre-tax charge of $28.7 million which was treated
as purchased research and development expense consistent with the treatment of
the original acquisition cost of NeoCardia in the second quarter of 1997.
InControl was a leader in the development of implantable devices for the
treatment of atrial fibrillation (AF), a common heart rhythm disorder, which is
estimated to affect over 3 million people in the U.S. and Europe. AF is the
<PAGE>
irregular or uncontrolled and quivering contraction of the upper chambers of the
heart, caused by chaotic conduction of the heart's electrical signals. Although
not immediately life threatening, AF significantly increases the risk of stroke.
AF is not well managed with currently available therapies. Therefore, sales of
implantable atrial therapies could be substantial given the potential patient
population. There are however, competing technologies which address AF,
including antiarrhythmic drugs, surgical procedures, and catheter-based
treatments. InControl was in the process of developing a multi-programmable
device designed to detect episodes of recurrent atrial fibrillation and deliver
defibrillation therapy to the atria. Also, InControl was developing an
implantable atrial defibrillator that provides dual-chamber bradycardia pacing
and atrial tachyarrhythmia therapy for the conversion of AF and atrial flutter
to normal sinus rhythm. At the acquisition date, the technological feasibility
of InControl devices had not been established and the in-process technology had
no alternative future uses. Guidant is currently using InControl technology, in
combination with its existing technology, to develop more advanced implantable
devices for the treatment of atrial fibrillation. The Company expects to begin
clinical testing in 2000 on the resulting new product. A Pre-market Approval
(PMA) with the FDA is expected to be filed in 2001. The FDA approval process is
lengthy and unpredictable and there can be no assurance when such approval will
be received, if at all. The FDA approval process as well as the competing
therapies, cause uncertainty about this product's ability to reach commercial
viability. Guidant anticipates that this product will begin generating revenues
in 2001, subject to the uncertainties referred to above. It is estimated that
this project will cost approximately $30 million over the next three years to
achieve commercial viability.
Purchased research and development of $86.1 million has been recognized in 1997
and 1998, in conjunction with the Company's acquisition of NeoCardia, based on
the results of a valuation of the in-process technology acquired. Guidant is now
involved in the research and development of intravascular radiotherapy devices
for the treatment of restenosis based upon the technology acquired from
NeoCardia. Restenosis is the re-narrowing of the vascular lumen following the
deployment of a coronary stent or a balloon angioplasty procedure. There were no
products available for commercial sale at the time of acquisition, nor did
Guidant have any at December 31, 1998, as the technology continues to be in a
clinical development stage. Guidant's product is the GALILEO Intravascular
Radiotherapy System, (GALILEO) which supplies controlled beta radiation to
inhibit cell proliferation and resulting restenosis within a coronary vessel.
Several other companies have programs to develop competing products also using
radiation therapy. At the time of acquisition in May 1997, technological
feasibility had not been established and the in-process technology had no
alternative future uses. NeoCardia had completed three animal studies and was
preparing for human testing during the second half of 1997. It is estimated that
Guidant will have spent in excess of $35 million from 1997 to 1999 to
<PAGE>
bring this technology to market. The second phase of clinical trials is underway
in the United States, with an anticipated PMA filing in 2000, as originally
planned. The filing for CE Mark in Europe is anticipated in late 1999. U.S.
sales are expected to begin sometime in 2001 if FDA approval for market release
is obtained. The uncertainty of the FDA certification process and the emergence
of competitors in intravascular radiotherapy raise uncertainty about GALILEO's
ability to reach commercial viability. As a result of the above factors,
substantially all of the purchase price for NeoCardia's assets was assigned to
in-process research and development.
Sales, marketing, and administrative expenses in 1998 grew $118.9 million or
27.0%, a rate less than sales, compared to 1997. This increase was due to: (i)
costs related to the implementation of direct operations in certain
international markets, such as Japan; (ii) increased investment in the U.S.
field-sales force; (iii) increased legal costs associated with various
litigation; (iv) variable selling expenses, such as commissions and bonuses,
associated with the extraordinary growth in sales during the year; (v)
additional spending at CVS associated with the ramp up of business activities
related to products for the treatment of AAA; (vi) increased allowances for
uncollectible accounts; and (vii) promotional expenses related to the release of
new products. Controlled growth in spending resulted in sales, marketing, and
administrative expenses declining as a percent of sales to 29.4% for 1998,
versus 33.1% for 1997.
Income from operations in 1998, was $521.7 million. Excluding the impact of the
aforementioned purchased research and development charges, income from
operations was $640.4 million in 1998 or 33.8% of sales. Excluding special
items, 1997 income from operations would have been $359.4 million or 27.0% of
sales. This growth in adjusted income from operations of 78.2% resulted from
sales growth in 1998 combined with manufacturing cost efficiencies and
controlled growth in operating expenses.
The Company recorded a provision for a judgment rendered against Origin
MedSystems, Inc., its wholly owned subsidiary, on February 9, 1999, related to
infringement of a patent owned by General Surgical Innovations, Inc. Although
the Company may appeal the decision, an additional $9.2 million was accrued in
the fourth quarter 1998 to provide for this potential loss.
As a result of this decision, and due to management's strategic redirection of
this business away from general surgery to cardiovascular applications announced
in 1997, Guidant also reassessed the recoverability of Guidant's general surgery
assets using impairment guidelines specified by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
<PAGE>
Guidant's analysis determined that a non-cash impairment write-down of $40
million was necessary
Concurrent with the announced signing of a definitive agreement with Sulzer
Medica to purchase its electrophysiology business in the third quarter of 1998,
a one-time charge of $200 million was recorded. This charge represents the
amount required to settle the Company's intellectual property litigation with
Intermedics, and was payable regardless of the consummation of the acquisition.
The acquisition was completed on February 1, 1999.
On April 4, 1998, the Company entered into an agreement with C.R. Bard, Inc.,
(Bard) that settled two patent infringement lawsuits and grants the Company
paid-up licenses to certain patents. As a result, the Company recorded a
non-recurring, pre-tax charge of $60 million ($38.8 million after tax) against
1998 first quarter earnings in other expenses. An additional $40 million was
capitalized and will be amortized over the remaining estimated useful lives of
the patents.
The Company had net other expenses of $394.1 million, including the
aforementioned $269.2 million intellectual property litigation and the $40
million impairment charges, compared to $30.6 million in the prior year. Net
other expenses for 1998, without the aforementioned charges, were $84.9 million.
Excluding special charges, net other expenses would have been $42.3 million in
1997. The increase in adjusted other expenses in 1998 was due primarily to
decreased royalty income on certain vascular intervention technology patents and
increased royalty expenses driven by sales growth of coronary stent systems,
rapid exchange coronary dilatation catheters, and AICDs.
As a result of significant non-deductible special charges in 1998, the Company's
effective tax rate was 101.7% compared to 39.7% in 1997. Without considering the
effect of special charges in both years and the impact of EVT's non-deductible
tax losses in 1997, the effective income tax rate in 1998 and 1997 was 35.3%.
The Company believes its effective income tax rate in 1999 will increase 1.5 to
2.0 percentage points over the 1998 adjusted rate due to the nondeductible
nature of the goodwill amortization resulting from the Company's acquisition of
Intermedics.
Earnings before interest, taxes, depreciation, and amortization (EBITDA),
exclusive of special charges, was $643.7 million in 1998 compared to $402.6
million in 1997. This 60% improvement in 1998 EBITDA was primarily due to a
substantial growth in net sales combined with lower manufacturing costs as a
percentage of net sales and controlled growth in operating expenses.
<PAGE>
Guidant had a net loss for 1998 of ($2.2) million and a loss per share of
($0.01). Excluding the aforementioned special charges in 1998 and 1997, net
income would have been $359.4 million and $197.4 million, respectively. Growth
in operating income was the driver behind this 82% growth in adjusted net
income. Earnings per share-assuming dilution, exclusive of the above charges,
were $1.19 for 1998, and $0.66 in 1997.
<PAGE>
OPERATING RESULTS -- 1997
The Company had worldwide net sales of $1,328.2 million for the year ended
December 31, 1997, reflecting an increase of $278.5 million or 27% over 1996.
Growth in unit volume of 39% increased net sales, while net sales price declines
and fluctuations in foreign currency exchange rates decreased net sales 8% and
4%, respectively. The effect of changes in product mix are included in the net
sales price decrease.
Net sales of VI products for the year ended December 31, 1997, were $591.4
million, an increase of $165.8 million or 39.0% from 1996. This growth in VI
sales occurred in the fourth quarter of 1997 and was primarily due to the
enthusiastic market-acceptance of the ACS RX MULTI-LINK Coronary Stent System,
which was released in the United States in October 1997. Net sales of the ACS RX
MULTI-LINK Coronary Stent System were in excess of $200 million in the fourth
quarter of 1997. The Company also experienced significant sales growth in rapid
exchange coronary dilatation catheters, primarily due to the ACS RX ROCKET,
released in the United States in November 1997 and in international markets in
June 1997; the ACS RX COMET VP, released in the United States in February 1997;
the ACS RX COMET, released in international markets in June 1996 and in the
United States in November 1996; and international sales of the ACS RX MULTI-LINK
Coronary Stent System. The ACS RX ROCKET Coronary Dilatation Catheter is an
innovative rapid exchange catheter that enables physicians to treat multiple
lesions during angioplasty, pre-stent placement, or in conjunction with other
interventional technologies. Sales growth during the year was partially offset
by unit volume declines in perfusion and over-the-wire coronary dilatation
catheters, and atherectomy catheters; and lower net average selling prices of
most coronary dilatation catheters and guide wires in the United States and
Europe. These lower net average selling prices include the impact of product mix
changes due to sales growth of rapid exchange catheters which have a lower
average selling price than perfusion catheters.
Net sales of CRM products for 1997 were $669.6 million, an increase of $95.0
million or 16.5% over 1996. Sales growth was led by the VENTAK AV, market
released in the United States in July 1997 and in Europe in November 1996;
strong worldwide sales of the VENTAK MINI II advanced, tiered-therapy AICD,
released in the United States in July 1996; and, to a lesser degree, the VENTAK
AV II DR which was market released in Europe in late 1997. The VENTAK AV II DR
is the world's first implantable defibrillator system to incorporate
dual-chamber adaptive-rate pacing capability. The VENTAK AV product family's
exclusive Atrial View feature allows it to distinguish ventricular rhythms that
are life threatening from less dangerous atrial arrhythmias. The Company's
adaptive-rate pacemaker products also contributed to sales growth during the
<PAGE>
year, particularly in the United States, where sales of pacemaker systems during
1997 increased 12% from 1996.
Net sales of CVS products for the year ended December 31, 1997, were $67.2
million, an increase of $17.7 million or 35.8% over 1996. Sales growth occurred
in both United States and international markets and was primarily driven by the
ORIGIN TACKER endoscopic fixation device; custom configurations which
incorporate this device along with other CVS products; and, to some degree, the
VASOVIEW Balloon Dissection system, market released in September 1996.
The Company experienced sales growth both in the United States and international
markets during 1997. The Company's United States net sales increased 40.5% to
$902.9 million, while international net sales grew 4.5% to $425.3 million for
the year ended December 31, 1997, as compared to 1996. United States net sales
growth was primarily due to sales of the ACS RX MULTI-LINK Coronary Stent
System, VENTAK AV, VENTAK MINI II, ACS RX ROCKET, ACS RX COMET, and ORIGIN
TACKER and related custom configurations. International net sales growth was
primarily driven by the ACS RX MULTI-LINK Coronary Stent System, VENTAK MINI II,
VENTAK AV II DR, and VENTAK AV. Sales of the ACS RX COMET in Europe and Japan,
and ACS RX ROCKET in Europe also contributed to the international sales growth.
An unfavorable foreign currency exchange rate impact reduced net sales by
approximately $41.0 million in 1997, compared to 1996. This negative impact on
gross profit was partially offset by gains from foreign exchange derivative
contracts, which were recorded in cost of products sold.
Cost of products sold increased 1.6% to $320.8 million in 1997, and represented
24.2% of net sales versus 30.1% during 1996. Cost of products sold without the
effect of special noncash obsolescence charges of $28.8 million would have been
$287.1 million or 27.4% of net sales in 1996. During 1997, the Company recorded
obsolescence charges of approximately $9.4 million on its older-generation
programmer-recorder-monitors. This charge was offset by: (i) gains in 1997 of
$17.8 million realized on the foreign exchange hedges referred to above, (ii)
cost savings realized from significantly increased manufacturing volume during
the year, (iii) continued improvement in productivity and manufacturing
efficiencies in all businesses, and (iv) a change in the Company's method of
accounting for unrealized profit in inventory at its international affiliate
locations of approximately $6.2 million.
The acquisition of NeoCardia was accounted for under the purchase method. As a
result, the Company recorded a pre-tax charge of $57.4 million relating to the
appraised value of the in-process research and development.
The Company continued to invest significant resources in research and
development in 1997. Spending on research and development was 15.7% of net
<PAGE>
sales in both 1997 and 1996. Research and development expenses of $208.3 million
in 1997, excluding the aforementioned purchased research and development charge,
increased $43.7 million or 26.5% from 1996. This increase in research and
development spending resulted primarily from: (i) new product development costs
related to future generations of AICDs, pacemakers, and programmers; (ii)
increased performance-based compensation; (iii) development of stent technology
for other parts of the vascular anatomy, such as carotid arteries; (iv)
development of radiation therapy devices for coronary restenosis; (v) clinical
evaluation of implantable device systems for the treatment of congestive heart
failure; (vi) expedited PMA preparation activities and increased clinical trial
costs related to the Company's endovascular grafting system; and (vii) other
cardiovascular product development in CVS.
Sales, marketing, and administrative expenses, exclusive of special charges of
$439.7 million, increased $111.3 million or 33.9% in 1997, in comparison to the
prior year. This increase was due to: (i) variable selling expenses, such as
commissions and bonuses, associated with the growth in sales; (ii) increased
legal costs associated with various litigation; (iii) increased investment in
the United States field-sales force; (iv) expenses incurred in preparation for
the October 1997 launch of the ACS RX MULTI-LINK Coronary Stent System in the
United States; (v) implementation of European operations and increased personnel
costs associated with the ramp up of business activities at EVT; and (vi) a
charge of $4.0 million associated with the termination of a third-party
distributor.
During the fourth quarter of 1997, the Company recorded $11.1 million of special
charges related to its merger with EVT. These charges include $4.2 million in
transaction costs and $6.9 million of estimated costs, such as distributor
buyouts and unwinding various contractual commitments, to be incurred in the
integration of the operations of EVT with Guidant.
Also, during the fourth quarter, the Company recorded a gain of $23.2 million in
connection with the acquisition of Gynecare, Inc., by Johnson & Johnson in a
tax-free stock-for-stock merger. The Company held a 30% interest in Gynecare, an
enterprise engaged in the development of minimally invasive medical devices for
the treatment of uterine disorders. This gain was recorded in other income. The
Company went on to make a special contribution of $11.5 million of the common
stock received from the Gynecare transaction to the Guidant Foundation, Inc.,
the Company's primary vehicle for community, educational, and charitable giving.
Income from operations for the years ended December 31, 1997 and 1996, were
$279.4 million and $240.8 million, respectively. Excluding the impact of the
aforementioned purchased research and development charge, the special
<PAGE>
contribution to the Guidant Foundation, merger-related special charges in 1997,
and special obsolescence charges in 1996, income from operations would have been
$359.4 million or 27.0% of net sales and $269.6 million or 25.7% of net sales
for 1997 and 1996, respectively. This increase in adjusted income from
operations of 33.3%, was due to net sales growth combined with lower
manufacturing costs, partially offset by increased research and development, and
sales, marketing, and administrative spending.
The Company had net other expenses of $30.6 million and $104.8 million in 1997
and 1996, respectively. Partially offsetting the aforementioned gain on its
investment in Gynecare, the Company recorded charges of $11.5 million during the
fourth quarter related to various litigation activities. Without the effect of
the securities gain and litigation charges recorded in the fourth quarter, net
other expenses would have been $42.3 million in 1997. Included in net other
expenses in 1996, are noncash impairment charges of $66.9 million taken by the
Company against its atherectomy-related goodwill and other intangible assets.
Without the effect of this special charge, net other expenses would have been
$37.9 million in 1996. This increase in adjusted net other expenses was
primarily due to increased net royalties on certain vascular intervention
technology patents and AICD royalty agreements; and charges associated with the
disposal of certain equipment, partially offset by reduced amortization expenses
resulting from the lower intangible assets following the aforementioned
impairment charges and lower interest expense.
The Company reduced its effective income tax rate in 1997 to 39.7% from 61.5% in
1996. Without considering the effect of the special charges and the acquisition
of EVT in 1997 and 1996, the effective income tax rates for the years ended
December 31, 1997 and 1996, were 35.3% and 38.4%, respectively. This decline in
the adjusted effective income tax rate was primarily due to: (i) increased
income tax benefits in certain international locations, (ii) increased research
and development income tax credits, (iii) reduced state income taxes, and (iv)
the reduced impact of nondeductible expenses.
EBITDA, excluding special items was $402.6 million in 1997 compared to $320.6
million in 1996. This improvement in EBITDA of 26% in 1997 was primarily driven
by sales growth and lower manufacturing costs as a percentage of net sales,
partially offset by increased sales, marketing, and administrative spending.
For the years ended December 31, 1997 and 1996, the Company reported net income
of $145.3 million and $52.3 million, respectively. Excluding the aforementioned
special charges and other items in both 1997 and 1996, net income would have
been $197.4 million and $136.4 million in 1997 and 1996, respectively. This
growth in adjusted net income of 45% was due to growth in income from
<PAGE>
operations, along with slower growth in net other expenses and a lower effective
income tax rate.
Reported diluted earnings per share for 1997 and 1996 were $0.48 and $0.18,
respectively. Excluding the aforementioned special charges and other items in
both years, diluted earnings per share were $0.66 in 1997 and $0.46 in 1996,
representing an increase of 43%.
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
The Company continued to strengthen its financial condition in 1998 and
generated cash flows which were more than sufficient to fund operations. Cash
and cash equivalents decreased to $15.6 million at December 31, 1998, from $17.7
million at December 31, 1997; cash provided by operating activities was $281.7
million in 1998, compared to $241.8 million for 1997. This increase was due to
growth in net income exclusive of the $200 million intellectual property
settlement with Sulzer Medica, which remained payable and outstanding at
December 31, 1998. This payable was subsequently settled upon closing of the
Company's acquisition of Intermedics.
Working capital of $176.3 million at December 31, 1998, increased by $92.5
million from the prior year-end level. This increase was primarily due to an
increase in inventories resulting from preparations for certain new product
launches, an increase in accounts receivable due to the increased level of net
sales, and by a decrease in income taxes payable. The current ratio at December
31, 1998, was 1.3:1 compared to 1.2:1 at December 31, 1997. The Company believes
its cash from operations is sufficient to fund essentially all future working
capital needs and discretionary operating spending requirements.
Net cash used for investing activities totaled $359.0 million for 1998, compared
to $125.8 million for 1997. Uses of cash for investing activities in 1998
included $40 million of intangibles acquired as part of the Company's settlement
agreement with Bard and the acquisition of InControl for $137.5 million. Net
additions of property and equipment of $116.0 million for 1998, compared to
$76.8 million for 1997, were also a significant use of cash for investing
activities during both periods. This increase in property and equipment
additions is due in part to the Company's recently announced investment in a
manufacturing facility in Ireland.
Net cash provided by financing activities totaled $75.0 million for 1998. Cash
provided by operating activities was used to pay down debt through much of 1998,
however, this pay down in borrowings was more than offset by the additional
commercial paper issued for the aforementioned payments to Bard as well as the
acquisition of InControl. In 1997 financing activities decreased cash by $101.9
million.
At December 31, 1998, the Company had outstanding borrowings of $444.5 million
through the issuance of commercial paper and bank borrowings at a
weighted-average interest rate of 5.39%. The commercial paper borrowings are
supported by two credit facilities aggregating $600 million. This includes a
$400 million facility that permits borrowings through August 2003 and a $200
million facility that permits borrowings through August 1999. The Company
expects that
<PAGE>
approximately $390 million of borrowings will remain outstanding during 1999,
and as a result, this amount has been classified as long-term at December 31,
1998.
The purchase of Sulzer Medica's electrophysiology business for $810 million on
February 1, 1999, resulted in a considerable increase in the Company's
borrowings. The acquisition was initially financed with commercial paper.
Approximately $350 million of seven year 6.15% notes were subsequently issued on
February 11, 1999, to replace a portion of the commercial paper.
The Company expects its cash from operations to be adequate to meet its
obligations to make interest payments on its debt and other anticipated
operating cash needs including planned capital expenditures. Capital
expenditures are expected to be approximately $190 million in 1999. The expected
increase in capital spending over 1998 is primarily due to investment in the
Company's new manufacturing facility in Ireland and expansion of U.S.
administrative and manufacturing facilities. In addition, Guidant has assumed
liabilities for the discharge of certain activities and obligations related to
the Intermedics acquisition. Liabilities assumed include severance,
distribution, and miscellaneous cancellation fees. The estimated total
liabilities assumed related to the Intermedics acquisition are in excess of $90
million, most of which will be paid in 1999. The Company believes that amounts
available through existing commercial paper programs should be adequate to fund
maturities of short-term borrowings. The outstanding commercial paper is
supported by the committed credit facilities referred to above. At the time of
the purchase of Sulzer Medica's electrophysiology business, the $200 million
facility was increased to $800 million
The Company has recognized net deferred tax assets aggregating $157.1 million at
December 31, 1998, and $82.4 million at December 31, 1997. The assets relate
principally to the establishment of inventory and product related loss reserves
and purchased research and development. In view of the consistent profitability
of its past operations, the Company believes that all these assets will be
substantially recovered and that no significant additional valuation allowances
are necessary.
Due to the global nature of its operations, the Company conducts its business in
various foreign currencies (primarily the currencies of Western Europe and the
Japanese yen) and, as a result, is subject to the exposures that arise from
foreign exchange rate movements. Such exposures arise from transactions
denominated in foreign currencies, primarily intercompany loans and export
intercompany purchases of inventory, as well as from the translation of results
of operations from outside the United States. These exposures subject the
Company's results of operations primarily to the adverse impact of a
<PAGE>
strengthening United States dollar. The Company is also exposed to interest rate
changes.
The Company's risk-management objectives are to reduce earnings volatility and
protect the Company's cash flows from the impact of fluctuating foreign
currencies and interest rates. In the normal course of business, the Company
follows established policies and procedures in its management of these
exposures. Simple derivative instruments, including foreign currency forward
contracts and purchased options, and interest rate swap agreements, are used as
hedges to meet these objectives. The primary feature of Guidant's
risk-management philosophy is that all hedging activity must be designed to
reduce financial risks associated with commercial and financial transactions
that arise in the ordinary course of business thereby allowing management to
focus on core business issues and challenges. All hedging activities are entered
into for purposes "other than trading" as defined by SFAS No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments.
The contracts are initiated within the guidelines of documented corporate
risk-management policies. The Company does not enter into foreign currency or
interest rate transactions for speculative purposes. The Company's
risk-management activities were successful in reducing the net impact of
currency fluctuations to an immaterial level despite volatile market conditions.
The fair value of all foreign currency derivative contracts outstanding at
December 31, 1998, was ($0.4) million. An analysis has been prepared to estimate
the sensitivity of the fair value of all derivative foreign exchange contracts
to hypothetical 10% favorable and unfavorable changes in spot exchange rates at
December 31, 1998. Premiums paid for purchased options are included in the fair
value. The results of the estimation, which may vary from actual results, are as
follows:
Fair Value
of Derivatives
-----------------
1998 1997
----- -----
10% adverse rate movement ($22.9) ($17.4)
At year end rates (0.4) 3.1
10% favorable rate movement 30.5 30.4
Any gains and losses of fair value on derivative contracts would be largely
offset by losses and gains on underlying transactions or anticipated
transactions. These offsetting gains and losses are not reflected in the above
table. An analysis of the impact on the Company's interest rate sensitive
financial instruments of a hypothetical 10% change in short-term interest rates
compared to interest rates at year end shows no significant impact on expected
1999 earnings.
<PAGE>
REGULATORY AND OTHER MATTERS
Government and private sector programs limiting healthcare costs, including
coverage and payment policies, pricing regulations, competitive pricing, and
various types of managed-care arrangements, exist in the United States and in
several countries where the Company does business, and additional restrictions
are possible. These policies and programs require healthcare providers to put
significant emphasis on the delivery of more cost-effective medical therapies.
Although management believes the Company is well positioned to respond to this
worldwide trend toward cost containment, uncertainty as to the outcome of
current and prospective legislative and regulatory initiatives and further
changes in the marketplace preclude the Company from predicting the impact these
initiatives and changes may have on future operating results.
The Company's products are subject to extensive regulation by the FDA and, in
some jurisdictions, by state and foreign governmental authorities. The Company
must obtain specific clearance from the FDA before it can market products in the
United States. While policies implementing the FDA Modernization Act are
expected to inject more predictability into the product review process,
streamline post-market controls, and promote the global harmonization of
regulatory procedures, the process of obtaining such clearances will continue to
be onerous and costly, and there can be no assurance that all clearances sought
by the Company will be granted on a timely basis, if at all.
In recent years, many hospitals and other customers of medical device
manufacturers have formed large purchasing groups to enhance purchasing power
and become more cost-effective in the delivery of healthcare. To offer a broader
range of products to these purchasers, the medical device industry also has been
consolidating rapidly. Transactions with these purchasing groups are often more
significant, more complex, and involve more long-term contracts than in the
past. While this enhanced purchasing power may further increase the pressure on
product pricing, management is unable to estimate the potential future impact at
this time.
The operations of the Company, like those of other medical device companies,
involve the use of substances regulated under environmental laws, primarily in
manufacturing and sterilization processes. While it is difficult to quantify,
the Company believes that the potential impact of compliance with environmental
protection laws and regulations will not have a material impact on the Company's
financial position or results of operations.
The Company operates in an industry susceptible to significant product liability
claims. Such claims may be asserted against the Company in the future related to
events not known at the present time. Management believes that its
risk-
<PAGE>
management practices, including insurance coverage, are adequate to protect the
Company against any material product liability losses. Enactment of the
Biomaterials Access Assurance Act of 1998, by addressing inequities in United
States tort law, is expected to help ensure a continued supply of raw materials
and component parts essential to the manufacture of Company products. Management
cannot estimate the impact of this law on supplier arrangements at this time.
From time to time, the Company is subject to claims of, and legal actions
alleging, infringement by the Company of patent rights of others. (See Note 14
to the Consolidated Financial Statements.) While it is not possible to predict
or determine the outcomes of legal actions brought against it, or to provide an
estimate of any additional losses, if any, that may arise, the Company believes
the costs associated with all of these actions will not have a material adverse
effect on its consolidated financial position or liquidity, but could possibly
be material to the consolidated results of operations of any one period.
YEAR 2000
Guidant is taking reasonable steps necessary to confirm that its business
systems, software, and equipment that consider and process date-related
information will continue to function properly after December 31, 1999. In doing
so, Guidant is paying particular attention to assuring compliance with all
regulatory guidelines regarding Year 2000 issues. Guidant's implantable devices
do not contain real-time clocks. As a result, these devices present no Year 2000
issues. The Company's other products have been assessed and found to be Year
2000 ready with the exception of a few minor adjustments. These minor
adjustments are limited to programmers and relate to date limitations that
present no adverse health impact to the patient.
Guidant, as a corporation formed in 1994, has many relatively new systems,
including an enterprise-wide operational support system, which has already been
certified Year 2000 ready. As such, Management's focus has been on assessing and
readying manufacturing equipment, facilities infrastructure, other computer
systems, and business partners. This assessment is complete for all business
critical systems and, based upon this assessment, necessary actions are being
taken to remediate equipment and systems and develop contingency arrangements.
Guidant believes it will complete any necessary remediation of business critical
equipment, other computer systems, and infrastructure by mid-year 1999, with
remediation of all systems and equipment, regardless of level of business
criticality, being completed by October of 1999. This timeframe will allow
internal auditing and testing, as well as any further remediation, if necessary,
of these systems to take place in the second half of 1999. Efforts to confirm
<PAGE>
the readiness of our various business partners, while ongoing, will continue up
to, and through, January 1, 2000.
The implantable devices acquired from InControl and Intermedics do not contain
real-time clocks. These devices also present no Year 2000 issues. The Company is
currently evaluating the steps necessary to assure that assets acquired as part
of the InControl, acquisition will not be adversely affected by the Year 2000
problem. The Company has performed an assessment as to the Year 2000 readiness
of Intermedics. The assessment did not reveal any major deficiencies. Guidant
believes, therefore, that the integration of this enterprise will not adversely
impact Guidant's Year 2000 project schedule.
The Company is devoting the necessary resources to resolve all significant
issues in a timely manner. The costs associated with the Year 2000 assessment
and remediation of problems noted are expensed as incurred or capitalized if the
expenditures relate to hardware or software that will benefit future periods.
Based upon current assessments, Management believes that the cost of such
actions will not have a material effect on Guidant's operating results or
financial condition. The Company currently expects its total out-of-pocket costs
related to addressing its Year 2000 issues will be approximately $20 million,
$5.2 million of which has been incurred to date. Approximately $6 million of
this total represents capital expenditures, which will be capitalized and
depreciated over the assets' estimated useful lives.
The Year 2000 issue is expected to affect the systems of various entities with
which the Company interacts, including suppliers. However, the Company cannot
reasonably estimate the potential impact on its financial condition and
operations if critical third parties do not become Year 2000-ready on a timely
basis. The Company is working through various trade associations as well as
communicating directly with its significant suppliers and customers to determine
their Year 2000 readiness. In addition, the Company has begun contingency
planning to handle disruptions in electrical supply, telecommunications, and
distribution services. There can be no guarantee that these efforts will prevent
a material adverse effect on the Company's financial condition or operations due
to the failure of third parties to become Year 2000-ready.
EURO CONVERSION
Effective January 1, 1999, the European Economic and Monetary Union created a
single Eurocurrency (the euro) for its member countries. A transition period is
in effect from January 1, 1999 through December 31, 2001, during which time
transactions will be executed in both the euro and the member country
currencies. Effective January 1, 2002, euro bank notes will be introduced and,
<PAGE>
on July 1, 2002, the euro will be the sole legal tender of the European Economic
and Monetary Union countries.
In general, the adoption of a single currency for the participating countries is
expected to result in greater transparency of pricing, making Europe a more
competitive environment for businesses. In addition, conversion to the euro is
expected to affect many financial systems and business applications.
Guidant has established a Euro Steering Committee to evaluate and address issues
associated with the euro conversion. At the time Guidant switches to using the
euro as a functional currency, information system modifications will be
required. It is not anticipated, at this time, that the euro will have a
material impact on the competitive environment in which Guidant operates or a
significant impact on Guidant's fundamental risk management philosophy. Any
costs incurred associated with the adoption of the euro will be expensed as
incurred, and are not anticipated to be material to Guidant's results of
operations, financial condition, or liquidity.
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company, including those made in this document, are
subject to risks and uncertainties which may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological, and other factors which may affect the Company's operations are
discussed in the Company's most recent reports on Forms 10-Q and 10-K filed with
the Securities and Exchange Commission.
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements and related notes have been prepared by
the management of Guidant Corporation and Subsidiaries, which is responsible for
their integrity and objectivity. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and include
amounts based on judgments and estimates by management. Management is also
responsible for the accuracy of the related data in the annual report and its
consistency with the financial statements.
Management maintains internal accounting control systems designed to provide
reasonable assurance that assets are safeguarded, transactions are executed in
accordance with management's authorization and properly recorded, and accounting
records are adequate for preparation of financial statements and other financial
information. The design, monitoring, and revision of internal accounting control
systems involve, among other things, management's judgments with respect to the
relative cost and expected benefits of specific control measures. These systems
are periodically reviewed and modified in response to changed conditions. An
internal audit staff regularly monitors, on a worldwide basis, the adequacy and
effectiveness of internal accounting controls.
In addition to the system of internal accounting controls, management maintains
corporate policy guidelines that help monitor proper overall business conduct,
possible conflicts of interest, compliance with laws, and confidentiality of
proprietary information. The guidelines are reviewed on a periodic basis with
members of management worldwide.
The consolidated financial statements have been audited by the Company's
independent auditors, Ernst & Young LLP. Their responsibility is to examine
these statements in accordance with generally accepted auditing standards and to
express their opinion with respect to the fairness of presentation of the
statements.
The members of the Audit Committee of the Board of Directors, all of whom are
independent, non-employee directors, recommend independent auditors for
appointment and receive and review the reports submitted by them. The Audit
Committee meets several times during the year with management, the internal
auditors, and the independent auditors to discuss audit activities, internal
controls, and financial reporting matters. The internal auditors and the
independent auditors have full and free access to the Audit Committee.
<PAGE>
James M. Cornelius
Chairman of the Board of Directors
Ronald W. Dollens
President and Chief Executive Officer
Keith E. Brauer
Vice President, Finance and Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Guidant Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Guidant
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Guidant
Corporation and Subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Indianapolis, Indiana
January 28, 1999, except for Notes 5 and 14 as to which the date is
February 11, 1999
<PAGE>
Guidant Corporation and Subsidiaries
Exhibit 21.1 List of Subsidiaries
The following are the subsidiaries
of the Company at December 31, 1998:
<TABLE>
<CAPTION>
State or Jurisdiction
of Incorporation or
Name Organization % Owned
- ---- --------------------- -------
<S> <C> <C>
ACS GmbH Germany 100
Advanced Cardiovascular Systems, Inc. California 100
Cardiac Pacemakers, Inc. Minnesota 100
CPI del Caribe, Ltd. Minnesota 100
CPI Delaware, Inc. Delaware 100
EndoVascular Technologies, Inc. Delaware 100
EndoVascular Technologies Europe B.V. Netherlands 100
Guidant Australia Pty Ltd. Australia 100
Guidant B.V. Netherlands 100
Guidant Belgium S.A. Belgium 100
Guidant Beteiligungs GmbH Germany 100
Guidant Canada Corporation Canada 100
Guidant Denmark A.S. Denmark 100
Guidant do Brasil Ltda. Brazil 100
Guidant Europe S.A. Belgium 100
Guidant France S.A. France 100
Guidant GmbH (Austria) Austria 100
Guidant GmbH & Co. Germany 100
Guidant Holdings, Inc. Indiana 100
Guidant Hong Kong Ltd. Hong Kong 100
Guidant Intercontinental Corporation Indiana 100
Guidant International B.V. Netherlands 100
Guidant International (FSC) Barbados 100
Guidant Italia, S.r.l. Italy 100
Guidant Japan K.K. Japan 100
Guidant Limited (U.K.) England 100
Guidant Luxembourg Luxembourg 100
Guidant Nederland B.V. Netherlands 100
Guidant Norway A.S. Norway 100
Guidant S.A. (Spain) Spain 100
Guidant S.A. (Switzerland) Switzerland 100
Guidant Sales Corporation Indiana 100
Guidant Singapore Pte. Ltd. Singapore 100
Guidant Sweden A.B. Sweden 100
Origin Medsystems, Inc. Delaware 100
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Guidant Corporation of our report dated January 28, 1999 (except for Notes 5
and 14 as to which the date is February 11, 1999) included in the 1998 Annual
Report to Shareholders of Guidant Corporation.
Our audit also included the financial statement schedule of Guidant Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in Registration Statement
Number 333-00014 on Form S-3 dated January 17, 1996, as amended by that certain
Post-effective Amendment No. 1 to Form S-3 effective December 3, 1998,
Registration Statement Number 333-02334 on Form S-8 dated March 14, 1996,
Registration Statement Number 333-17897 on Form S-8 dated December 16, 1996 and
Registration Statement Number 333-69343 on Form S-8 dated December 21, 1998,
of our report dated January 28, 1999 (except for Notes 5 and 14 as to which the
date is February 11, 1999) with respect to the consolidated financial statements
of Guidant Corporation incorporated by reference in the 1998 Annual Report (Form
10-K) for the year then ended December 31, 1998.
Ernst & Young LLP
Indianapolis, Indiana
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 455
<ALLOWANCES> 20
<INVENTORY> 193
<CURRENT-ASSETS> 764
<PP&E> 651
<DEPRECIATION> 262
<TOTAL-ASSETS> 1,570
<CURRENT-LIABILITIES> 587
<BONDS> 445
0
0
<COMMON> 193
<OTHER-SE> 361
<TOTAL-LIABILITY-AND-EQUITY> 1,570
<SALES> 1,897
<TOTAL-REVENUES> 1,897
<CGS> 422
<TOTAL-COSTS> 422
<OTHER-EXPENSES> 395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 128
<INCOME-TAX> 130
<INCOME-CONTINUING> (2)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2)
<EPS-PRIMARY> (0.01)<F1>
<EPS-DILUTED> (0.01)<F1>
<FN>
<F1> In December, 1998, the Company's Board of Directors declared a two-for-one
stock split effective January 13, 1999. These EPS amounts reflect this
split. Prior financial data schedules have not been restated.
</FN>
</TABLE>
<PAGE>
GUIDANT CORPORATION
Exhibit 99.1
Factors Possibly Affecting Future Operating Results
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
1. Economic factors over which the Company has no control, including changes in
inflation, interest rates and foreign currency exchange rates.
2. Delays and uncertainties in the regulatory approval process in the United
States and other countries, resulting in lost market opportunities.
3. Unexpected safety, performance or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified, leading to product
recalls, withdrawals or declining sales.
4. Unexpected interruptions of manufacturing operations as a result of
regulatory enforcement actions by the FDA or other regulatory authorities.
5. The difficulties and uncertainties inherent in new product development,
including new products that appear promising during development but fail to
reach the market as a result of safety, performance or efficacy concerns,
inability to obtain necessary regulatory approvals, unanticipated restrictions
imposed on approved indications, excessive costs to manufacture, infringement of
patents or other intellectual property rights of others, or technological
advances by a competitor of the Company.
6. Litigation and other legal factors which could preclude commercialization of
products or negatively affect the level of sales or profitability of existing
products, including litigation of product liability claims, antitrust
litigation, environmental matters and patent disputes.
7. Future difficulties obtaining necessary components or materials used in
manufacturing the Company's products.
8. Future difficulties obtaining or the inability to obtain appropriate levels
of product liability insurance.
9. Competitive factors including the ability of the Company to obtain patent
rights or other intellectual property rights sufficient to keep competitors from
marketing competing products, the introduction of new products or therapies by
competitors or scientific or medical developments that render the Company's
products obsolete, uneconomical or otherwise non-competitive or the acquisition
of patents by competitors that prevent the Company from selling a product or
including key features in the Company's products.
<PAGE>
10. Governmental factors including laws and regulations, policies and judicial
decisions that affect the regulation and reimbursement of medical devices,
product liability, health care reform or tax laws.
11. Health care industry factors, including increased customer demands for
price concessions, reductions in third-party (Medicare, Medicaid and other
governmental programs, private health care insurance and managed care plans)
reimbursement levels for procedures using the Company's products and limits
imposed by customers on the number of manufacturers or vendors which the
customer will purchase products from.
12. Accounting requirements to write off obsolete inventory or goodwill which
reduces reported earnings or changes in accounting standards applicable to the
Company.
13. Internal factors such as retention of key employees, change in business
strategies and the impact of restructuring and business combinations.
14. The ability of the Company to implement its strategy that includes the
potential acquisition of one or more businesses and difficulties in achieving
the integration of the operations of acquired businesses in a cost-effective
manner and in implementing strategies necessary for the realization of
anticipated synergies.
15. The inability of certain of the Company's, or its Suppliers' or
Customers', computer systems to handle dates beyond the year 1999.
16. The Euro Conversions impact on the competitive environment in which the
Company operates or its impact on the Company's fundamental risk management
philosophy.
17. Factors beyond the control of the Company, including earthquakes
(particularly in light of the fact that the Company has significant facilities
located near major earthquake fault lines), floods, fires or explosions.
