<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GUIDANT CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[GUIDANT LOGO]
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
March 30, 1999
Dear Shareholder:
It is our pleasure to extend to you a cordial invitation to attend the 1999
Annual Meeting of Shareholders of Guidant Corporation on Monday, May 17, 1999.
The meeting will be held at the Hilbert Circle Theatre, 45 Monument Circle,
Indianapolis, Indiana, at 10:00 a.m. (local time). Please complete and return
the enclosed Request for Admittance Card as soon as possible if you plan to
attend the meeting. An admittance card will be sent to shareholders who return
the reply card.
Your vote on these matters is very important. We urge you to sign, date and
return the enclosed proxy card in the envelope provided in order to be certain
your shares are represented at the meeting, even if you plan to attend the
meeting.
The Notice of Annual Meeting of Shareholders and the Proxy Statement
accompanying this letter describe the business we will consider at the
meeting.
We look forward to seeing you at the meeting in Indianapolis.
James M. Cornelius Ronald W. Dollens
Chairman of the Board of Directors President and Chief Executive
Officer
<PAGE>
GUIDANT CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 17, 1999
----------------
The Annual Meeting of Shareholders of Guidant Corporation will be held at
the Hilbert Circle Theatre, 45 Monument Circle, Indianapolis, Indiana, on
Monday, May 17, 1999, at 10:00 a.m. (local time), for the following purposes:
1. To elect four directors of the Company, each for a three-year term;
2. To consider and act upon a proposed amendment to the Amended and
Restated Articles of Incorporation of the Company to increase the
authorized number of shares of the Company's common stock from
500,000,000 to 1,000,000,000;
3. To ratify the appointment by the Board of Directors of Ernst & Young LLP
as independent auditors for the year 1999; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of common stock of record at the close of business on March 8, 1999
are entitled to notice of and to vote at the Annual Meeting. If you plan to
attend the meeting, please complete the enclosed Request for Admittance Card
and return it to the Company. An admittance card will be mailed to you.
By order of the Board of Directors,
Bruce J Barclay
Secretary
March 30, 1999
Indianapolis, Indiana
- - - -------------------------------------------------------------------------------
Your vote is important. If you do not expect to attend the Annual Meeting, or
if you do plan to attend but wish to vote by proxy, please date, sign and
promptly mail the enclosed proxy in the return envelope provided.
Directions to the Hilbert Circle Theatre and information concerning parking
will be sent to shareholders who request an admittance card.
<PAGE>
GUIDANT CORPORATION
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
May 17, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Guidant Corporation (the "Company") of proxies to be
voted at the Annual Meeting of Shareholders to be held on Monday, May 17,
1999, and at any adjournment thereof.
The accompanying proxy may be revoked at any time before it is exercised by
giving a later proxy, notifying the Secretary of the Company in writing or
voting in person at the Annual Meeting.
At the close of business on March 8, 1999, the record date for the Annual
Meeting, there were outstanding and entitled to vote 301,927,483 shares of
common stock of the Company. Each shareholder is entitled to one vote for each
such share held of record on that date on all matters that are properly
presented for action at the Annual Meeting. The Company has no other
outstanding voting securities.
A copy of the Company's Annual Report to Shareholders, including financial
statements and a description of the Company's operations for the year 1998, is
being mailed to each shareholder along with this Proxy Statement. The
Company's Annual Report to Shareholders is not incorporated by reference in
this Proxy Statement.
The principal executive offices of the Company are located at 111 Monument
Circle, 29th Floor, Indianapolis, Indiana 46204-5129. The approximate mailing
date of this Proxy Statement and the accompanying proxy will be March 30,
1999.
1. ELECTION OF DIRECTORS
Nominees for Election
The shareholders are requested to vote for four nominees for directors whose
terms expire at this Annual Meeting. The nominees whose terms expire at this
Annual Meeting are Mr. J.B. King, Ms. Susan B. King, Mr. J. Kevin Moore and
Dr. Ruedi E. Wager. Mr. King has been a director since the formation of the
Company in 1994. Ms. King was initially elected by the Board of Directors as a
director in 1996. Mr. Moore and Dr. Wager were initially elected by the Board
of Directors as directors in 1995.
Under the Company's Amended and Restated Articles of Incorporation, the
members of the Board of Directors are divided into three classes as nearly
equal in number as possible with approximately one-third of the directors
standing for election each year for three-year terms. The terms of four of the
present directors will expire at the 1999 Annual Meeting. Mr. Michael
Grobstein was initially elected by the Board of Directors in February, 1999 to
become a director effective May 1, 1999. Mr. Grobstein's term will expire at
the 2000 Annual Meeting so that there are four directors in each of the three
classes. The other directors listed below will continue to serve in their
positions for the remainder of their terms.
Directors will be elected by a plurality of the votes cast. Only votes cast
for a nominee will be counted, except that the accompanying proxy will be
voted for the four nominees in the absence of instructions to the contrary.
Abstentions, broker non-votes, and instructions on the accompanying proxy to
withhold authority to vote for one or more of the nominees will result in the
respective nominees receiving fewer votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
In the event any nominee for director declines or is unable to serve, it is
intended either that the persons designated as proxies will vote for a
substitute who will be designated by the Board of Directors or that the
authorized number of directors will be reduced accordingly by the Board. The
Board expects that each nominee will be available for election.
The Board of Directors recommends that the shareholders vote FOR electing
the nominees.
1
<PAGE>
<TABLE>
<CAPTION>
Served
as
Position with the Company Director
Name or Principal Occupation Age from
---- --------------------------------------------- --- --------
<S> <C> <C> <C>
Nominees for director
for three-year terms
ending in 2002:
J. B. King.............. Vice President and General Counsel 69 1994
of the Company
Susan B. King........... Leader in Residence and Chair of the Board 58 1996
of Advisors for the Hart Leadership Program,
Duke University
J. Kevin Moore.......... Senior Vice President and Chief 44 1995
Operating Officer,
Carolinas Medical Center
Ruedi E. Wager, Ph.D.... Chief Executive Officer, Centeon L.L.C. 55 1995
Directors continuing in
office until 2000:
James M. Cornelius...... Chairman of the Board of Directors 55 1994
of the Company
Michael Grobstein....... Retired Vice Chairman, Ernst & Young 56 1999
Mark Novitch, M.D....... Adjunct Professor of Health Care Sciences, 66 1995
George Washington University
Medical Center
Eugene L. Step.......... Retired Board member, Executive Vice 70 1995
President and President of the
Pharmaceutical Division,
Eli Lilly and Company
Directors continuing in
office until 2001:
Kim B. Clark, Ph.D...... Dean of the Faculty and Harry E. Figgie, Jr. 50 1998
Professor of Business Administration for
Harvard Business School
Maurice A. Cox, Jr...... President and Chief Executive Officer, 48 1995
The Ohio Partners, LLC
Ronald W. Dollens....... President and Chief Executive Officer 52 1994
of the Company
Enrique C. Falla........ Director and Senior Consultant, 59 1995
The Dow Chemical Company
</TABLE>
2
<PAGE>
A brief summary of the recent business and professional experience of each
nominee and director continuing in office is set forth below.
Kim B. Clark, Ph.D.
[PHOTO] Dr. Clark is Dean of the Faculty and the Harry E. Figgie,
Jr. Professor of Business Administration for Harvard
Business School. Dr. Clark has been a member of the Harvard
faculty since 1978. Dr. Clark was a Member of the Committee
on High Technology Ceramics in Japan, National Materials
Advisory Board, National Academy of Engineering, in 1983. He
was also the Rapporteur for the Automobile Panel, Committee
on International Trade and Technology, National Academy of
Engineering from 1980-1982. He is also a director of Tower
Automotive, Inc. and Fleet Financial Group.
James M. Cornelius
[PHOTO] Mr. Cornelius is Chairman of the Board of Directors and a
Director of the Company. Previously, he was Vice President,
Finance and Chief Financial Officer of Eli Lilly and Company
("Lilly") from 1983 until his retirement in October 1995 and
was a Director for Lilly. Mr. Cornelius has served as
Treasurer of Lilly and as President of IVAC Corporation, a
former Lilly medical device subsidiary. He joined Lilly in
1967. Mr. Cornelius is a director of American United Life
Insurance Company, Chubb Corporation, Lilly Industries,
Inc., and the National Bank of Indianapolis. Mr. Cornelius
also serves as a Trustee of the University of Indianapolis
and the Indianapolis Museum of Art.
Maurice A. Cox, Jr.
[PHOTO] Mr. Cox is President and Chief Executive Officer of The Ohio
Partners, LLC (a venture capital company), a position he has
held since July 1995. Previously, he served as President and
Chief Executive Officer of CompuServe Incorporated from 1990
to June 1995. Mr. Cox joined CompuServe in 1979 and has
served as Vice President, Product Management and as
Executive Vice President of CompuServe's Information
Services Division. He is also a director of Huntington
National Bank.
Ronald W. Dollens
[PHOTO] Mr. Dollens is President, Chief Executive Officer and a
Director of the Company. Previously, he served as President
of Lilly's Medical Devices and Diagnostics ("MDD") Division
from 1991 until 1995. Mr. Dollens served as Vice President
of Lilly's MDD Division and Chairman of the Company's
subsidiary, Advanced Cardiovascular Systems, Inc. ("ACS")
from 1990 to 1991. He also held the position of President
and Chief Executive Officer of ACS. Mr. Dollens joined Lilly
in 1972. Mr. Dollens currently serves on the boards of
Beckman Coulter, Inc., the Eiteljorg Museum, the Health
Industry Manufacturers Association (Chairman), St. Vincent
Hospital Foundation, and the Indiana State Symphony Society
Board. He is also the President of the Indiana Health
Industry Forum.
3
<PAGE>
Enrique C. Falla
[PHOTO] Mr. Falla is a Senior Consultant for The Dow Chemical
Company. Previously, he was an Executive Vice President from
1991 to 1997. He has also served as Chief Financial Officer.
He joined The Dow Chemical Company in 1967 and is a member
of the Finance and Investment Policy Committees. Mr. Falla
is a director of The Dow Chemical Company and is a member of
the Board of Trustees of the University of Miami.
Michael Grobstein
[PHOTO] Mr. Grobstein served as Vice Chairman, Ernst & Young LLP
from 1984 until 1993, and as Vice Chairman, Ernst & Young
International from 1993 until his retirement in 1998. He
joined Ernst & Young in 1964, and was admitted to
partnership in 1975. Mr. Grobstein is a director of the
Central Park Conservancy and the Coro Foundation.
J. B. King
[PHOTO] 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.
Susan B. King
[PHOTO] Ms. King is the Leader in Residence and Chair of the Board
of Advisors for the Hart Leadership Program at Duke
University, a position she has held since January 1995.
Prior to assuming this position, she served as Senior Vice
President, Corporate Affairs for Corning Incorporated from
1992 to December 1995. Ms. King served as President for its
Steuben Glass Division from 1987 to 1992. She joined Corning
Incorporated in 1982. She also served as Chair of the U.S.
Consumer Product Safety Commission from 1978 to 1981. Ms.
King is a director of The Coca-Cola Company and the Health
Effects Institute. She is also a Trustee for the Eurasia
Foundation, the National Public Radio Foundation and Duke
University.
4
<PAGE>
J. Kevin Moore
[PHOTO] Mr. Moore is Senior Vice President and Chief Operating
Officer of the Carolinas Medical Center, having first held
the position of Vice President since 1997. Previously, Mr.
Moore was Associate Chief Operating Officer for Duke
University Medical Center from March 1994 to 1997. Prior to
assuming that position, he served as Assistant Director,
Surgical Private Diagnostic Clinics, and Adjunct Associate
Professor, Graduate School of Health Administration, from
April 1989 to March 1994. Mr. Moore served as Assistant
Director for Duke Hospital from May 1988 to April 1989 and
he served as Director of Management Services, Medical Center
Administration, and Adjunct Assistant Professor, Graduate
School of Health Administration, from May 1984 to April
1988. Mr. Moore is a director of the American Red Cross
Regional Chapter.
Mark Novitch, M.D.
[PHOTO] Dr. Novitch joined George Washington University Medical
Center as Professor of Health Care Sciences in 1994 and
became Adjunct Professor in 1997. Prior to joining George
Washington University Medical Center, he retired as Vice
Chairman of the Board and Chief Compliance Officer of The
Upjohn Company in December 1993. Prior to joining Upjohn in
1985, Dr. Novitch was Deputy Commissioner of the federal
Food and Drug Administration ("FDA") from 1981 until 1985.
He served as Acting Commissioner of the FDA from 1983 to
1984. Dr. Novitch is currently serving a five-year term as a
Trustee and Past President of the U. S. Pharmacopeial
Convention. Dr. Novitch is a director of Alteon, Inc.,
Calypte Biomedical, Inc., Neurogen Corporation, Osiris
Therapeutics, Inc., and Kos Pharmaceuticals, Inc.
Eugene L. Step
[PHOTO] Mr. Step served as Director, Executive Vice President,
President of the Pharmaceutical Division and a member of the
Executive Committee of Lilly until his retirement in 1992.
He joined Lilly in 1956. Mr. Step is a director of Cell
Genesys, Inc., Medco Research, Inc., Pathogenesis, Inc.,
Scios-Nova, Inc., and DBT Online, Inc.
Ruedi E. Wager,Ph.D.
[PHOTO] Dr. Wager is Chief Executive Officer of Centeon L.L.C., a
position he has held since February 1998. Centeon L.L.C. is
a leading manufacturer and distributor of blood plasma and
therapeutic proteins. Prior to assuming this position he was
President and Chief Executive Officer of ZLB Central
Laboratory Blood Transfusion Service SRC (a plasma
fractionation business in Switzerland), a position he held
since February 1994. He served as Senior Vice President at
Sandoz Pharma Ltd. (a multinational pharmaceutical company)
from March 1989 to January 1994. From January 1993 to
January 1994, Dr. Wager served as Head of Corporate Project
Management and member of the Executive Committee at Sandoz
Pharma Ltd., and from March 1989 to December 1993, he served
as Head of Worldwide Marketing and member of the Executive
Committee at Sandoz Pharma Ltd. Dr. Wager joined Sandoz,
Ltd. in 1973.
5
<PAGE>
During 1998, the Board of Directors of the Company held ten meetings. No
director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which the director served.
Committees of the Board of Directors
The Company's Board of Directors currently has four committees, the
principal functions of which are described below.
The Audit Committee is composed of Directors Falla (Chair), Moore and Wager.
During 1998, the Audit Committee held four meetings. The Audit Committee
annually recommends independent auditors for appointment by the Board of
Directors, reviews the services to be performed by the independent auditors
and receives and reviews the reports submitted by them. It also determines the
duties and responsibilities of the internal auditors, reviews the internal
audit program and receives and reviews reports submitted by the internal
auditing staff.
The Compliance Committee is composed of Directors Novitch (Chair), Clark,
Dollens, Grobstein (effective May 1, 1999) and S. King. In 1998, the
Compliance Committee held four meetings. The Compliance Committee reviews
compliance with all applicable laws, regulations and internal procedures, with
the exception of financial controls and the internal audit function.
The Corporate Governance Committee is composed of Directors Cox (Chair),
Cornelius, Moore and Step. In 1998, the Corporate Governance Committee held
one meeting. The Corporate Governance Committee recommends to the Board of
Directors the size and composition of the Board and proposes candidates for
director to be recommended by the Board to the shareholders of the Company and
oversees matters of corporate governance. The Corporate Governance Committee
will consider nominees for the Board recommended by shareholders.
Recommendations by shareholders for nominees should be forwarded to the
Secretary of the Company and should identify the nominee by name and provide
pertinent information concerning his or her background and experience. A
shareholder recommendation must be received at least 120 days prior to the
date of the Annual Meeting of Shareholders.
The Management Development and Compensation Committee is composed of
Directors Step (Chair), Falla, S. King and Novitch. During 1998, the
Compensation Committee held two meetings. The Compensation Committee reviews
succession planning, determines the compensation of executive officers and
administers the Guidant Corporation 1998 Stock Plan (the "1998 Plan") and the
1994 Stock Plan (the "1994 Plan").
6
<PAGE>
Ownership of Company Common Stock by Directors and Executive Officers
The following table sets forth the number of shares of common stock of the
Company beneficially owned by the directors, the Named Executive Officers
listed on page 9 and all directors and executive officers as a group, as of
February 12, 1999.
<TABLE>
<CAPTION>
Shares Owned
Name of Individuals or Identity of Group Beneficially(1)
---------------------------------------- ---------------
<S> <C>
Kim B. Clark, Ph.D....................................... 1,480(2,3)
James M. Cornelius....................................... 648,986(4,5)
Maurice A. Cox, Jr....................................... 24,600(3)
Ronald W. Dollens........................................ 306,817(6,7)
Enrique C. Falla......................................... 8,944(3)
A. Jay Graf.............................................. 96,552(8,9)
Michael Grobstein........................................ 0
J.B. King................................................ 165,297(9,10)
Susan B. King............................................ 9,804(3)
J. Kevin Moore........................................... 8,600(3)
Mark Novitch, M.D........................................ 12,604(3)
Eugene L. Step........................................... 8,600(3)
Richard M. van Oostrom................................... 236,849(9,11)
Ruedi E. Wager, Ph.D..................................... 14,774(3)
All directors and executive officers as a group (21
persons)................................................ 1,836,289
</TABLE>
- - - --------
(1) Unless otherwise indicated in a footnote, each person listed in the table
possesses sole voting and investment power with respect to the shares
shown in the table to be owned by that person. No person listed in the
table owns more than 0.21% of the outstanding common stock of the Company.
All directors and executive officers as a group own 0.61% of the
outstanding common stock of the Company. The shares shown do not include
the following shares that may be purchased pursuant to stock options that
are exercisable within 60 days of February 12, 1999: Mr. Cornelius,
704,408 shares; Mr. Cox, 16,000 shares; Mr. Dollens, 814,736 shares; Mr.
Falla, 16,000 shares; Mr. Graf, 319,386 shares; Mr. King, 305,610 shares;
Ms. King, 16,000 shares; Mr. Moore, 8,000 shares; Dr. Novitch, 16,000
shares; Mr. Step, 16,000 shares; Mr. van Oostrom, 437,526 shares; Dr.
Wager, 8,000 shares; and all directors and executive officers as a group,
4,166,870 shares. The shares shown include shares credited to the accounts
of certain of those persons listed in the table under The Guidant Employee
Savings and Stock Ownership Plan ("ESSOP") as of December 31, 1998, and
the number of shares has been adjusted to reflect the two-for-one stock
split which was effective in January, 1999.
(2) The shares shown for Dr. Clark include 600 shares held by the Clark Family
Trust.
(3) Includes 880 shares of restricted stock granted pursuant to the Guidant
Corporation 1996 Nonemployee Directors Stock Plan ("Directors Stock
Plan"). The restrictions on these shares lapse on May 17, 1999.
(4) The Cornelius Family Foundation, Inc. owns 103,136 of those shown in the
table, and he disclaims any beneficial ownership therein. The shares shown
for Mr. Cornelius include 9,794 shares credited to his account under the
ESSOP.
(5) Includes 50,000 shares of restricted stock granted pursuant to the 1998
Plan. The restrictions on these shares lapse on approximately one-third of
the shares each year, beginning January 15, 2002.
(6) Mr. Dollens' children own 1,584 shares of those shown in the table, and he
disclaims any beneficial ownership therein. The shares shown for Mr.
Dollens include 61,597 shares credited to his account under the ESSOP.
(7) Includes 40,000 shares of restricted stock granted pursuant to the 1998
Plan. The restrictions on these shares lapse on approximately one-third of
the shares each year, beginning on January 15, 2002.
(8) The shares shown for Mr. Graf include 43,728 shares credited to his
account under the ESSOP.
(9) Includes 20,000 shares of restricted stock granted pursuant to the 1998
Plan. The restrictions on these shares lapse on approximately one-third of
the shares each year, beginning on January 15, 2002.
(10) Mr. King's wife owns 4,000 shares of those shown in the table, and he
disclaims any beneficial ownership therein. The shares shown for Mr. King
include 5,825 shares credited to his account under the ESSOP.
(11) The shares shown for Mr. van Oostrom include 51, 985 shares credited to
his account under the ESSOP and 150,000 shares held by the van Oostrom
Family Trust.
No director, nominee for director or executive officer is the beneficial
owner of any securities of any of the Company's subsidiaries.
7
<PAGE>
Principal Holders of Company Common Stock
To the best of the Company's knowledge, the following are the only
beneficial owners of 5% or more of the outstanding shares of common stock of
the Company as of December 31, 1998:
<TABLE>
<CAPTION>
Number of
Name and Address Shares Percent
---------------- ---------- -------
<S> <C> <C>
1. AMVESCAP................................................. 34,615,588 11.49%
11 Devonshire Square
London, England EC2M 4YR
2. Fidelity Management and Research Corporation ............ 21,564,222 7.16%
82 Devonshire St.
Boston, MA 02109
</TABLE>
The information set forth above is based on copies of statements on Schedule
13G which were filed under the Securities Exchange Act of 1934, as amended, by
the entities listed above and which were received by the Company.
Directors' Compensation
On the date of each annual meeting of shareholders, each director who is not
a salaried officer or employee of the Company currently receives as an annual
retainer (i) a grant of an option to purchase 4,000 shares (split adjusted) of
the Company's common stock at an option price equal to the fair market value
on the date of grant and (ii) a grant of a number of shares of restricted
stock determined by dividing $30,000 by the fair market value of a share of
the Company's common stock on the date of grant, rounded up to the nearest
increment of ten shares. The employee directors approved an increase in
restricted stock to a total of $50,000 to be effective at the 1999 annual
meeting of shareholders. The options have a ten year term and vest as of the
next annual meeting of shareholders following the grant. The restrictions on
the restricted stock also terminate as of the next annual meeting of
shareholders following the grant. The grants are made pursuant to the terms of
the 1996 Non-Employee Director Stock Plan. The Chair of each committee also
receives an annual retainer fee of $2,000. In addition, each director who is
not a salaried officer or employee of the Company receives a fee of $2,000 for
attendance at each Board meeting and each committee meeting which is not held
in conjunction with a Board meeting. Directors are reimbursed for reasonable
expenses incurred in connection with attending Board and committee meetings.
8
<PAGE>
Executive Compensation
Summary Compensation Table
The following Summary Compensation Table shows the annual compensation paid
by the Company to the Company's Chief Executive Officer for 1998, and each of
the four most highly compensated executive officers other than the Chief
Executive Officer, who were serving as executive officers as of December 31,
1998 (the "Named Executive Officers"). The compensation of the Named Executive
Officers is reported for each of the last three years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------- --------------------------------
Awards(1) Payouts
-------------------- -----------
Number of Securities Long-Term
Name and Principal Other Annual Underlying Incentive All Other
Position Year Salary Bonus(2) Compensation Options Granted(3) Plan Payout Compensation(4)
- - - ------------------------ ---- -------- ---------- ------------ -------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James M. Cornelius...... 1998 $650,200 $1,300,000 $ 835 450,000 0 $71,522
Chairman of the Board.. 1997 625,200 812,000 0 350,000 0 50,016
150,000(5)
1996 625,200 562,500 0 500,000 $753,366(6) 38,385
Ronald W. Dollens....... 1998 426,000 680,000 2,222 288,000 0 46,860
President and Chief
Executive Officer..... 1997 387,240 362,500 9,947 224,000 0 30,979
1996 352,080 232,500 0 320,000 748,556(6) 24,729
J.B. King............... 1998 318,000 300,000 24,760 144,000 0 34,980
Vice President and
General Counsel....... 1997 300,000 145,000 13,896 112,000 0 21,142
1996 236,865 85,250 0 160,000 405,844(6) 19,449
A. Jay Graf............. 1998 300,000 300,000 7,720 144,000 0 33,000
President, Cardiac
Rhythm Management 1997 274,740 145,000 430 112,000 0 21,979
Group.................. 1996 256,260 85,250 21,589 160,000 405,844(6) 19,938
Richard M. van Oostrom.. 1998 282,780 300,000 345,905(7) 144,000 0 31,106
President of
Operations, Europe, 1997 264,230 145,000 366,525(7) 112,000 0 21,142
Middle East and Africa. 1996 246,480 85,250 377,804(7) 160,000 405,844(6) 19,449
</TABLE>
- - - -------
(1) During the years indicated, restricted stock was not awarded and stock
appreciation rights were not granted.
(2) Represents amounts awarded in cash under the Guidant Corporation Economic
Value Added (EVA(R)*) Bonus Plan (the "EVA Bonus Plan").
(3) Options to acquire Company common stock. The number of shares has been
adjusted to reflect the two-for-one stock split which was effective in
January 1999.
(4) Contributions by the Company to the executive's account in the ESSOP.
(5) An option to purchase 150,000 shares of the Company's common stock was
granted to Mr. Cornelius to compensate him for the reduction in his
expected retirement benefits that was an unanticipated consequence of the
transition from Lilly. These options have a five year vesting period.
(6) Amounts paid in Company common stock (except for amounts paid in cash to
satisfy federal income tax withholding requirements) in February 1997
under the Company's performance award program under the 1994 Plan for the
period January 1, 1995 through December 31, 1996.
(7) Allowances paid for service outside the United States, consisting
primarily of tax equalization payments, housing allowances and cost of
living adjustments.
*EVA(R) is a registered trademark of Stern Stewart & Co.
9
<PAGE>
Stock Option Grants
The following table provides information on options to purchase Company
common stock granted in 1998 to the Named Executive Officers pursuant to the
1998 Plan.
Option Shares Granted in Last Fiscal Year(1)
Individual Grants
<TABLE>
- - - ----------------------------------------------------------------------------------------------
<CAPTION>
Number of % of Total Option
Securities Shares Granted Exercise or Grant Date
Underlying to Employees Base Price Expiration Present
Name Options Granted in Fiscal Year Per Share(2) Date Values(3)
- - - ---- --------------- ----------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
James M. Cornelius...... 450,000 5.8% 34.27 5/18/08 $4,866,750
Ronald W. Dollens....... 288,000 3.7% 34.27 5/18/08 3,114,720
J.B. King............... 144,000 1.9% 34.27 5/18/08 1,557,360
A. Jay Graf............. 144,000 1.9% 34.27 5/18/08 1,557,360
Richard M. van Oostrom . 144,000 1.9% 34.27 5/18/08 1,557,360
</TABLE>
- - - --------
(1) Stock appreciation rights were not granted during 1998, and the number of
shares and the exercise price have been adjusted to reflect the two-for-
one stock split which was effective in January, 1999.
(2) The fair market value of the Company's common stock on the date of grant.
All of the options will become exercisable beginning on May 18, 2001.
(3) These values were established using the Black-Scholes stock option
valuation model that was modified to include dividends. Assumptions used
to calculate the Grant Date Present Value of these option shares were:
(a) Expected Volatility--The average variance in the percent change in
monthly closing stock price during the period from November 1995 through
April 1998, which was 33.47%.
(b) Risk Free Rate of Return--The assumed rate for a U.S. Treasury
obligation having a term of 7 years during the month of grant based on
the actual 5 and 10-year U.S. Treasury rates as published in the Federal
Reserve Statistical Release, which was 5.30%.
(c) Dividend Yield--The yield calculated by dividing the annualized dividend
rate of the Company's common stock in the amount of $.025 per share by
the fair market value of the stock on the date of grant, which resulted
in an assumed dividend yield of 0.07%.
(d) Time of Exercise--The expected average actual option term, which was 7
years.
The disclosure above is required pursuant to executive compensation
disclosure rules of the Securities and Exchange Commission. However, the
Company does not believe that the Black-Scholes model, whether modified or
not modified, or any other valuation model, is a reliable method of
computing the present value of the Company's employee stock options. The
value ultimately realized, if any, will depend on the amount that the market
price of the stock exceeds the exercise price on the date of exercise.
Stock Option Exercises and Option Values
The following table contains information concerning Company stock options
exercised during 1998 and stock options unexercised at the end of 1998 with
respect to the Named Executive Officers.
Aggregated Option Shares Exercised in Last Fiscal Year and Fiscal Year End
Values(1)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In The Money
Options at Fiscal Year Options at Fiscal Year
End End(2)
Number of Shares Value ------------------------- -------------------------
Name Acquired on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - - ---- -------------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James M. Cornelius...... 100,000 $2,503,125 804,408 1,116,668 $36,944,398 $28,890,809
Ronald W. Dollens....... -0- -0- 874,736 618,668 41,965,404 16,150,139
J.B. King............... -0- -0- 465,610 309,334 22,313,606 8,075,069
A. Jay Graf............. -0- -0- 439,386 309,334 21,077,800 8,075,069
Richard M. van Oostrom.. -0- -0- 437,526 309,334 20,990,149 8,075,069
</TABLE>
- - - --------
(1) No stock appreciation rights were outstanding during 1998, and the number
of shares and the exercise price have been adjusted to reflect the two-
for-one stock split which was effective in January, 1999.
(2) Represents the amount by which the market price of the Company's common
stock exceeded the exercise prices of unexercised options on December 31,
1998.
10
<PAGE>
Retirement Plan
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
Average Annual Earnings ------------------------------------------------------------------
(Highest 5 of Last 10 Years) 5 10 15 20 25 30 35
- - - ---------------------------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 375,000.............. $ 25,421 $ 50,842 $ 76,263 $101,684 $127,105 $ 152,526 $ 177,947
525,000.............. 35,954 71,908 107,862 143,816 179,770 215,724 251,678
675,000.............. 46,487 92,974 139,461 185,948 232,435 278,922 325,409
825,000.............. 57,020 114,040 171,060 228,080 285,100 342,120 399,140
975,000.............. 67,553 135,106 202,659 270,212 337,765 405,318 472,871
1,125,000.............. 78,086 156,172 234,258 312,344 390,430 468,516 546,602
1,275,000.............. 88,619 177,238 265,857 354,476 443,095 531,714 620,333
1,425,000.............. 99,152 198,304 297,456 396,608 495,760 594,912 694,064
1,575,000.............. 109,685 219,370 329,055 438,740 548,425 658,110 767,795
1,725,000.............. 120,218 240,436 360,654 480,872 601,090 721,308 841,526
1,875,000.............. 130,751 261,502 392,253 523,004 653,755 784,506 915,257
2,025,000.............. 141,284 282,568 423,852 565,136 706,420 847,704 988,988
2,175,000.............. 151,817 303,634 455,451 607,268 759,085 910,902 1,062,719
2,325,000.............. 162,350 324,700 487,050 649,400 811,750 974,100 1,136,450
2,475,000.............. 173,883 345,766 518,649 691,532 864,415 1,037,298 1,210,181
</TABLE>
Certain of the executive officers of the Company participate in two defined
benefit pension plans that have been established by the Company: the Guidant
Retirement Plan (the "Retirement Plan") and the Guidant Excess Benefit Plan:
Retirement (the "Excess Plan"). The Retirement Plan is a tax-qualified plan
that determines benefits under a formula that takes into account a
participant's years of service through the date of the split-off from Lilly in
September 1995 and average annual earnings with the Company. The Excess Plan
is a non-qualified plan that provides the larger of the following two benefits
after offsetting any benefit due from the Retirement Plan and the Guidant
Retirement ESOP: a) a benefit which would otherwise be provided under the
Retirement Plan formula but for the application of certain limitations on tax-
qualified benefits under the Internal Revenue Code plus the benefit resulting
from the Guidant Retirement ESOP or b) a benefit which would be provided under
an alternative formula which considers all of the participant's years of
service with the Company and average annual earnings with the Company. (It is
this alternative formula which is illustrated in the above Pension Plan
Table.)
Messrs. Cornelius, Dollens, Graf and van Oostrom are entitled to receive
retirement benefits under the Retirement Plan and the Excess Plan. The Pension
Plan Table sets forth a range of annual retirement benefits for graduated
levels of average annual earnings (consisting of Salary, Bonus and Long-Term
Incentive Plan Payouts as set forth in the Summary Compensation Table on page
9) and years of service for the life of the retired employee, assuming
retirement at age 65 with a 50% survivor income benefit. The amounts payable
to the retired employee are reduced, however, for benefits payable under the
Company's employee stock ownership plan and amounts payable under Lilly
pension plans. The amounts shown in the table are not subject to reduction for
Social Security benefits.
The years of service credited to the applicable Named Executive Officers
are: Mr. Cornelius, 31 years; Mr. Dollens, 26 years; Mr. Graf, 22 years; and
Mr. van Oostrom, 28 years. Mr. Cornelius currently receives retirement
benefits under Lilly pension plans. Mr. King is not eligible to receive any
benefits under the Company's pension plans.
Change-in-Control Severance Pay Plan
The Company has adopted a change-in-control severance pay program
("Program") covering most employees of the Company and its subsidiaries,
including the Company's executive officers. In general, the Program would
provide severance payments and benefits to eligible employees and executive
officers in the event of their termination of employment under certain
circumstances within fixed periods of time following a change-
11
<PAGE>
in-control. A "change-in-control" would occur if 20% or more of the Company's
voting stock were acquired by an entity other than the Company, a subsidiary,
or an employee benefit plan of the Company. There are additional conditions
that could result in a change-in-control event. The Program would not be
subject to amendment by the Board, whether prior to or following a change-in-
control, in any manner adverse to a participant without his or her prior
written consent.
Under the portion of the Program covering the Named Executive Officers, each
would be entitled to severance payments and benefits in the event that his or
her employment is terminated following a change-in-control (i) without "cause"
by the Company; (ii) for "good reason" by the executive officer, each as
defined in the Program; or (iii) for a limited period of time, for any reason
by the executive officer. In such case, the executive officer would be
entitled to a severance payment equal to three times his or her current annual
cash compensation and bonuses, including performance awards. Additional
benefits would include a pension supplement and full and immediate vesting of
all stock options and other equity incentives. In the event that any payments
made in connection with the change-in-control would be subject to the excise
tax imposed under Section 4999 of the Code as a result of the aggregate
compensation payments and benefits made to the individual, under the Program
or otherwise, in connection with a change-in-control, the Company is obligated
to make whole the individual with respect to such excise tax.
Management Development and Compensation Committee Report
The Management Development and Compensation Committee of the Company (the
"Committee") consists of four non-employee and independent directors. The
Committee is responsible for reviewing the compensation policies and practices
of the Company, including for the Company's executive officers, and
establishing the salaries of executive officers. The Committee also
administers the 1994 Plan and 1998 Plan covering executive officers. The
current Committee members are Mr. Step (Chair), Mr. Falla, Ms. King and Dr.
Novitch.
A. Executive Compensation Policy
Overview. Until September 25, 1995, the Company was an 80.2% owned
subsidiary of Lilly, and was a wholly owned subsidiary of Lilly prior to the
consummation of the Company's initial public offering ("Offering") in December
1994. Accordingly, prior to 1997, the Committee adjusted the compensation
policies of the Company to more accurately reflect the needs of the Company
and to provide a gradual transition from Lilly's historical compensation
policies. During 1998, the Committee believed that the Company's compensation
policies accurately reflected the need for an increased emphasis on incentives
for Company performance and recognized the increased responsibilities assumed
by the Company's executives since the Company became independent from Lilly.
Consistent with past practices, compensation programs for the Company in
1998, including those for executive officers, were designed to attract, retain
and motivate highly talented individuals. In addition, the programs were
designed to be cost-effective and to treat all employees fairly. To that end,
the Company's compensation programs shared the following characteristics:
. Compensation of the Company's employees, including that of executive
officers, was based on the level of job responsibility, the individual's
level of performance and the Company's performance. Members of senior
management had a greater portion of their pay based on Company
performance than other employees.
. Compensation also reflected the value of the job in the marketplace. To
retain the Company's highly skilled work force, the Company attempted to
remain competitive with the pay of employers of a similar stature who
compete with the Company for talent.
. Compensation programs were developed and administered to foster the
long-term focus required for success in a highly-competitive,
innovation-based industry.
12
<PAGE>
The Committee believes that the Company's executive compensation program in
1998 reflected the fundamental principles described above and provided
executives strong incentives to maximize Company performance and therefore
enhance shareholder value. The program consisted of both annual and long-term
elements. The Committee believes that the various components of compensation
should be considered collectively in order to properly assess the
appropriateness of the Company's program to the attainment of its objectives.
In establishing the Company's total compensation, a variety of measures of
historical and projected Company performance were considered. This review
included such measures as sales, net income, stock price appreciation, product
market shares, economic value added, sales and general administrative expenses
as a percentage of net sales and total market value. This data formed the
basis for the assessment of the overall performance and prospects of the
Company that underpinned the judgment used in establishing total compensation
ranges. In evaluating these factors, relative weights or rankings were not
assigned to each factor. Rather, a subjective determination was made based on
a collective consideration of all such factors.
In 1998, the Company's total compensation package was compared with those of
global medical device companies of comparable size and stature to the Company
(the "Guidant Peer Group").
The data generated from the Guidant Peer Group was used primarily as a
benchmark to ensure that the Company's total compensation was within the broad
range of comparative pay in the Guidant Peer Group. In some instances, it was
recognized that compensation levels would require continued adjustment over
time in order to fall within an acceptable range and to avoid an abrupt
change. The Committee did not, however, target a specific position in the
range of comparative data for each individual or for each component of
compensation. Individual amounts were established in view of the comparative
data and such other factors as level of responsibility, prior experience and
the subjective judgment as to individual contribution. These factors were not
assigned specific mathematical weights; rather, judgment and discretion were
exercised in the information reviewed and the analysis considered.
In 1998, the Company also periodically retained outside compensation and
benefits consultants to assist in the evaluation of salary and incentive
compensation programs for the Company's executive officers. Such independent
consultants provided an additional measure of assurance that the Company's
programs were reasonable and appropriate to the Company's objectives.
The Committee believes that the Company's overall compensation program in
1998 was appropriate and competitive and that the compensation levels of the
Company's executive officers were appropriate relative to the corporate
performance and the compensation levels of persons in similar positions in the
Guidant Peer Group.
B. Elements of Compensation
Annual Compensation. In 1998, annual compensation for the Company's
executive officers consisted of two components--base salary and a cash bonus.
Individual base salary increases are determined primarily by individual
performance and comparison to marketplace data. Assessment of an individual's
performance includes consideration of a person's impact on financial
performance, as well as judgment, creativity, effectiveness in developing
subordinates and a diverse organization, and contributions to improvement in
the quality of the Company's products, services and operations. Cash bonuses
are connected to economic value added milestones, which attempt to measure
economic value created for shareholders. Cash bonuses in the future are at
risk and determined by the attainability of economic value added targets.
Economic value is created when the Company's net income exceeds the cost of
the capital employed in the business. Subject to certain adjustments, capital
is the net investment employed in the Company's operations which is calculated
by subtracting current liabilities and cash from total assets. Currently, the
Company utilizes a target weighted average after-tax cost of capital of 13
1/2%. Therefore, the size of bonuses varies directly with the amount by which
after-tax operating profit exceeds the cost of capital.
13
<PAGE>
Long-Term Incentives. In 1998, stock options were utilized as a method of
providing long-term incentives for many employees. In 1998, 1,534 employees of
the Company received a stock option award. The Company believes that stock
options emphasize the long-term focus necessary for continued success in the
innovation-based medical device business. The Company has emphasized the
importance of equity ownership by employees at all levels, particularly
individuals in leadership roles, including executive officers, to ensure
proper focus on shareholder value.
The Committee believes that stock options are an important part of the
performance-based compensation of the Company's management, including that of
its executive officers. Stock options provide a strong incentive to increase
shareholder value, since stock options have value only if the stock price
increases over time. The Company's options, granted at the market price on the
date of grant and with terms not to exceed 10 years, ensure that management
and other employees and consultants are oriented to growth over the long term
and not simply to short-term profits. In addition, the options create an
incentive to remain with the Company for the long term because they carry a
vesting period and, if not exercised, are forfeited if the employee leaves the
Company before retirement. Options granted during 1998 to the executive
officers of the Company contain a vesting provision where the options vest
after a three-year period. During 1998, the Committee granted employees
options to purchase approximately 7,870,850 shares of the Company's common
stock at an option price of $34.27, as adjusted to reflect the Company's two
for one stock split which was effective in January 1999. The exercise price
for all options was the fair market value on the date of grant. The size of
the grants was based on the recipient's level of responsibility and
performance. The Committee also considered the size of previous option grants
made to individuals and internal relativity.
Deductibility Cap on Executive Compensation. Beginning in 1994, a new
federal tax law disallows corporate deductibility for certain compensation
paid in excess of $1 million to the chief executive officer and the four other
most highly paid executive officers of publicly held companies. "Performance-
based compensation," as defined in the tax law, is not subject to the
deductibility limitation, provided certain shareholder approval and other
requirements are met. During 1998, the deductibility cap had an immaterial
impact on the Company. At the present time, it is not known whether the
deductibility cap will have an impact on the Company in 1999, although it is
possible. However, the Company believes that options and performance awards
granted previously under the 1994 Plan, which were disclosed in the Company's
prospectus for the Offering, currently qualify for an exception to the rules
governing the deductibility cap. The Company also believes that the 1998 Stock
Plan will qualify future option grants for this exception and will allow the
Committee to decide whether future performance award grants will qualify. The
Committee decided, however, to not qualify the EVA(R) Bonus Plan as
"performance-based compensation" at this time since to do so would have
limited the Committee's flexibility in the administration of the plan. The
Committee believes that flexibility is important in the administration of the
EVA(R) Bonus Plan. The anticipated future loss of deductibility, if any, is
expected to be immaterial. The Committee will continue to review the Company's
executive compensation plans on a regular basis to determine what changes, if
any, should be made as a result of the limitation on deductibility.
C. Compensation of the Chairman and Chief Executive Officer
In 1998, the compensation of James M. Cornelius, Chairman, and Ronald W.
Dollens, President and Chief Executive Officer, consisted of the same
components as for other senior executives -- base salary, bonus and stock
options.
In 1998, Mr. Cornelius' and Mr. Dollens' initial base salaries (at the
annual rates of $650,200 and $426,000, respectively) were set so as to be
within the middle range relative to persons in similar positions in the
Guidant Peer Group. Their base salaries will be reviewed on 12-month cycles by
the Committee. Mr. Cornelius' salary was increased approximately $25,000 in
1998 from 1997. Mr. Dollens' salary in 1998 was increased approximately
$38,760 over 1997. The Committee believes that these increases were
appropriate in light of the increased responsibilities undertaken by Mr.
Cornelius and Mr. Dollens since the Company became independent from Lilly.
14
<PAGE>
For 1998, Mr. Cornelius and Mr. Dollens earned $1,300,000 and $680,000,
respectively, under the EVA(R) Bonus Plan, which was paid in early 1999. Mr.
Dollens elected to defer 50% of this bonus under the Company's deferred
compensation plan. The increase in bonus payout for 1998 over 1997 reflects
increased target bonus payouts for both Mr. Cornelius and Mr. Dollens. The
target payouts were increased in order to place a greater emphasis on
performance based compensation. The target payout was also increased in 1998,
in part, as a result of the elimination of performance awards as part of
compensation which became effective in 1997. For 1998, consistent with the
goal of linking a greater portion of executive officer compensation to Company
performance, Mr. Cornelius' and Mr. Dollens' total compensation program was
structured such that if the Company achieved or exceeded certain EVA(R)
targets, the performance-based bonus would represent a higher proportion of
combined salary and bonus.
In May, 1998, the Committee granted Mr. Cornelius and Mr. Dollens options to
purchase 450,000 and 288,000 shares, respectively, of Company common stock at
$34.27, the fair market value of the Company common stock on the date of grant
(split adjusted). In determining the size of the grant, the Committee
considered a number of factors, including option grants to other executive
officers in similar positions in the Guidant Peer Group, the size of the
option grant relative to grants received by other Company personnel and the
responsibility of Mr. Cornelius and Mr. Dollens for the management of the
Company, and considered various value estimations which the Committee
determined were consistent with Mr. Cornelius' and Mr. Dollens'
responsibilities to the Company. The Company also considered the size of
previous grants of options to these individuals. The Committee believed the
size of the grants was sufficient to give Mr. Cornelius and Mr. Dollens a
substantial equity position that would provide appropriate incentives to
increase long-term shareholder value. The value of the stock options granted
to Mr. Cornelius and Mr. Dollens were both increased in 1998 over 1997. This
increase was attributed to the Committee's desire to have a greater proportion
of total compensation directly linked with value created for shareholders.
Also, the stock option grants were increased to partially substitute for the
performance awards that were discontinued effective in 1997.
D. Adjustments for Economic Value Added Bonus
Reported earnings for 1998 include special charges totaling $378.7 million
associated with the settlement of litigation with C.R. Bard and Intermedics as
well as expenses associated with the Company's 1998 acquisition of InControl
and the 1997 acquisition of Neocardia. The incentive formulas under the
Company's economic value added bonus were adjusted to eliminate the effect of
the InControl and Intermedics charges which occurred late in the year.
However, since the C.R. Bard and Neocardia transactions occurred in the first
half of 1998, the value of these transactions, $88.7 million, was removed from
net income but included as an asset for the purposes of calculating the
economic value added bonus. The Committee generally believes that employees
should not be penalized in the current year by the implementation of strategic
business actions in the latter portion of the year which are designed to
prepare the Company for enhanced competitiveness in the future. However, the
assets will be included in the cost of capital charge in future economic value
added calculations.
Management Development and Compensation Committee
Eugene L. Step (Chair)
Enrique C. Falla Susan B. King Mark Novitch, M.D.
15
<PAGE>
Performance Graph
The following performance graph compares the cumulative total shareholder
return on the Company's common stock with Standard & Poor's 500 Stock Index
and Standard & Poor's Health Care (Medical Products and Supplies) Index for
the period beginning on December 13, 1994 (the date of the Offering) and
ending on December 31, 1998. The graph is constructed on the assumption that
$100 was invested on December 13, 1994 in each of the Company's common stock,
Standard & Poor's 500 Stock Index and Standard & Poor's Health Care Index. The
companies in the Standard & Poor's Health Care Index are the same companies in
the Guidant Peer Group used by the Company's Management Development and
Compensation Committee to compare compensation levels for the Company's
executive officers. These companies are C.R. Bard, Bausch & Lomb, Baxter
International, Becton, Dickinson, Biomet, Boston Scientific, Guidant,
Medtronic and St. Jude Medical.
Comparison of Cumulative Total Return*
Among Guidant, S&P 500 Stock Index,
and S&P Health Care Index
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
12/13/94 1994 1995 1996 1997 1998
-------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Guidant 100 110 292 394 863 1,517
S&P 500 100 103 141 174 232 268
S&P Health Care 100 106 179 205 256 338
</TABLE>
- - - --------
*Total return assumes reinvestment of dividends.
2. PROPOSAL TO AMEND THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved an amendment to the
Company's Amended and Restated Articles of Incorporation ("Articles") which
would increase the Company's authorized common stock from 500,000,000 to
1,000,000,000 shares. Currently, the total number of authorized shares is
550,000,000, consisting of 500,000,000 shares of common stock and 50,000,000
shares of preferred stock. Accordingly, the Company's total number of
authorized shares would also be increased from 550,000,000 to 1,050,000,000.
The language in Article 3 and the first sentence of Section 4(a) would be
amended to read as follows:
"3. The total number of authorized shares is 1,050,000,000.
4. (a) Common Stock consisting of 1,000,000,000 shares."
16
<PAGE>
The Board of Directors recommends that the shareholders approve the amendment
by voting in favor of Proposal No. 2.
On December 21, 1998, the Company authorized a two-for-one stock split to be
effected in the form of a 100% stock dividend. The stock dividend was paid on
January 27, 1999 to shareholders of record on January 13, 1999. As a result of
that action, the number of authorized but unissued shares of common stock
available to the Company for future use was reduced significantly. As of March
8, 1999, there were 301,927,483 shares of common stock issued and outstanding
and an additional approximately 68,000,000 shares of common stock were
reserved for issuance under the Company's stock plans. None of the preferred
stock is outstanding.
The proposed increase in the number of shares of authorized common stock
will insure that shares will be available, if needed, for issuance in
connection with stock splits, acquisitions, and other corporate purposes. The
Board of Directors believes that the availability of the additional shares for
such purposes without delay or the necessity for a special shareholders'
meeting would be beneficial to the Company. The Company does not have any
immediate plans, arrangements, commitments or understandings with respect to
the issuance of any of the additional shares of common stock which would be
authorized by the proposed amendment.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the additional shares of common stock
unless required by applicable law or regulatory agencies or by the rules of
any stock exchange on which the Company's securities may then be listed.
The holders of any of the additional shares of common stock issued in the
future would have the same rights and privileges as the holders of the shares
of common stock currently authorized and outstanding. Those rights do not
include preemptive rights with respect to the future issuance of any
additional shares.
As stated above, the Company has no immediate plans, arrangements,
commitments or understandings with respect to the issuance of any additional
shares of common stock which would be authorized by the proposed amendment.
However, the increased authorized shares could be used to make a takeover
attempt more difficult such as by using the shares to make a counter-offer for
the shares of the bidder or by selling shares to dilute the voting power of
the bidder. As of this date, the Board is unaware of any effort to accumulate
the Company's shares or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
The Articles contain certain other provisions that may be viewed as having
possible anti-takeover effects. Under these provisions the Company's Board of
Directors is divided into three classes, with approximately one-third of the
members of the Board nominated for election each year. Thus, two annual
meetings of shareholders are necessary for a majority shareholder to replace a
majority of the incumbent directors. In addition, directors may be removed,
with or without cause, only upon the affirmative vote of the holders of 80% of
the outstanding voting power of the Company. The Articles further provide
that, in certain situations, the affirmative vote of the holders of 80% of the
Company's outstanding voting power is required to approve certain business
transactions (such as mergers or sales of assets) involving another entity
which beneficially owns 5% or more of the voting power of the Company. The
current Articles also provide that the Board, when evaluating such
transactions, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Company and its shareholders,
give due consideration to all relevant factors, including the effects on
employees, suppliers and customers of the Company, communities in which
offices or other facilities of the Company are located and any other factors a
Director considers pertinent.
On October 17, 1994, the Company adopted a Shareholder Rights Plan (the
"Plan"). Under the terms of the Plan, all shareholders received, for each
share owned, a preferred stock purchase right ("Right") entitling them to
purchase from the Company one four-hundredth of a share of Series A
Participating Preferred Stock at an exercise price of $10.88. The Company also
authorized the issuance of a Right with respect to each share of common stock
of the Company that becomes outstanding thereafter. The rights are not
exercisable until after the date on which the Company's right to redeem has
expired. The Company may redeem the rights for $0.0025 per
17
<PAGE>
right up to and including the tenth business day after the date of a public
announcement that a person (the "Acquiring Person") has acquired ownership of
stock having 10% or more of the Company's general voting power (the "Stock
Acquisition Date"). The Plan provides that if the Company is acquired in a
business combination transaction at any time after a Stock Acquisition Date,
generally each holder of a Right will be entitled to purchase at the exercise
price a number of shares of the acquiring company's common stock having a
market value of twice the exercise price. The Plan also provides that in the
event of certain other business combinations, certain self-dealing
transactions, or the acquisition by a person of stock having 15% or more of
the Company's general voting power, generally each holder of a Right will be
entitled to purchase at the exercise price a number of shares of the Company's
common stock having a market value of twice the exercise price. Any Rights
beneficially owned by an Acquiring Person shall not be entitled to the benefit
of the adjustments with respect to the number of shares described above. The
Rights will expire on October 17, 2004, unless redeemed earlier by the
Company.
The Company also has 50,000,000 shares of authorized preferred stock which
have not been issued. A total of 1,500,000 shares of the preferred stock have
been designated as Series A Participating Preferred Stock and reserved for
issuance pursuant to the Shareholder Rights Plan discussed above. The Board
(subject to applicable laws or rules of regulatory agencies and requirements
of stock exchanges) has the power to issue the existing preferred stock
without further shareholder approval, with such rights as the Board deems
advisable, including conversion rights, redemption rights, voting rights and
liquidation rights. The stock could be issued to deter a takeover by
establishing the terms of the existing preferred stock so as to make the
takeover substantially more expensive. The preferred stock could also be
issued with voting rights intended to make an acquisition of the Company more
difficult.
Approval of a majority of the Company's outstanding shares of common stock
is required for adoption of the proposal to amend the Articles. If the
proposal is adopted, the amendment will become effective upon the requisite
filing under the Indiana Business Corporation Law. Abstention from voting on
the proposed amendment and broker non-votes will have the practical effect of
voting against the amendment since the affirmative vote of a majority of the
Company's outstanding shares is required for adoption of the proposal. If not
otherwise specified, properly executed proxies will be voted in favor of the
proposal.
The Board of Directors recommends that the shareholders vote FOR approval of
the amendment to the Amended and Restated Articles of Incorporation.
3. PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee, has
appointed the firm of Ernst & Young LLP as independent auditors for the
Company for the year 1999. In accordance with the By-laws of the Company, this
appointment will be submitted to the shareholders for ratification. Ernst &
Young LLP served as the independent auditors for the Company in 1998.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting and will be available to respond to appropriate questions. Those
representatives will have the opportunity to make a statement if they desire
to do so.
Ratification of this appointment requires that the number of votes cast in
favor of ratification exceed the number of votes cast opposing ratification.
Only votes cast for or against ratification will be counted, except that the
accompanying proxy will be voted in favor of ratification in the absence of
instructions to the contrary. Abstentions and broker non-votes will not change
the number of votes cast for or against the proposal.
The Board of Directors recommends that the shareholders vote FOR
ratification of the appointment of Ernst & Young LLP as independent auditors
for the year 1999.
18
<PAGE>
4. OTHER MATTERS
As of the date of this Proxy Statement, the management of the Company has no
knowledge of any matters to be presented for consideration at the meeting
other than those described in this Proxy Statement. If any other matters
properly come before the meeting, the accompanying proxy confers discretionary
authority with respect to those matters, and the persons named in the
accompanying form of proxy intend to vote that proxy to the extent entitled in
accordance with their best judgment. The Securities and Exchange Commission
(the "SEC") has amended Rule 14a-4, which governs the use by the Company of
discretionary voting authority with respect to shareholder proposals. SEC Rule
14a-4(c)(1) provides that, if the proponent of a shareholder proposal fails to
notify the Company at least 45 days prior to the month and day of mailing the
prior year's proxy statement, the proxies of the Company's management would be
permitted to use their discretionary authority at the Company's next annual
meeting of shareholders if the proposal were raised at the meeting without any
discussion of the matter in the proxy statement. For purposes of the Company's
2000 Annual Meeting of Shareholders, this deadline is February 14, 2000.
All expenses in connection with solicitation of proxies will be borne by the
Company. The Company will pay brokers, nominees, fiduciaries or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies primarily by mail, but directors,
officers and other employees of the Company may also solicit in person, by
telephone, by telegraph, or by mail. The Company may retain D. F. King & Co.,
Inc. to assist in the solicitation of proxies. If retained, the firm will
solicit proxies by personal interview, telephone, telegraph, and mail. It is
anticipated that the fee for those services will not exceed $10,000 plus
reimbursement of customary out-of-pocket expenses.
First Chicago Trust Company of New York has been retained to receive and
tabulate proxies and to provide representatives to act as inspectors of
election for the Annual Meeting.
Shareholder Proposals for 2000 Annual Meeting.
The date by which shareholder proposals must be received by the Company for
inclusion in the proxy materials relating to the 2000 Annual Meeting of
Shareholders is December 1, 1999.
By order of the Board of Directors,
Bruce J Barclay
Secretary
March 30, 1999
19
<PAGE>
[GUIDANT LOGO]
<PAGE>
Request for Admittance Card
Guidant Corporation
1999 Annual Meeting of Shareholders
Monday, May 17, 1999
10:00 a.m.
The 1999 Annual Meeting of Shareholders of Guidant Corporation will be held on
Monday, May 17, 1999 at 10:00 a.m. at the Hilbert Circle Theatre in
Indianapolis, Indiana.
If you plan to attend the meeting, please complete and return the Request for
Admittance Card attached below. An admittance card will be sent to you and
will be required to admit you to the meeting. If you plan to attend the
meeting, you are encouraged to return this card by May 10, 1999, so that an
admittance card can be mailed to you in time for the meeting.
Request for Admittance Card
Guidant Corporation
Annual Meeting of Shareholders I plan to attend the meeting.
Monday, May 17, 1999, 10:00 a.m. Please type or print clearly:
Indianapolis, Indiana
-------------------------------------------
Please return this card only if Name
you plan to attend the meeting. -------------------------------------------
If you do not plan to attend, Street Address
you only need to return the -------------------------------------------
enclosed proxy. Even if you plan CityState Zip Code
to attend the meeting, you are
encouraged to return the proxy.
An admittance card, directions to the Hilbert Circle Theatre in Indianapolis,
Indiana, and suggested parking alternatives will be sent to all shareholders
who indicate that they plan to attend the meeting. If you plan to attend, you
are encouraged to return this card by May 10, 1999, so that an admittance card
can be mailed to you in time for the meeting.
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE UNITED
STATES
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 2659 INDIANAPOLIS IN
POSTAGE WILL BE PAID BY ADDRESSEE
GUIDANT CORPORATION
111 MONUMENT CIRCLE 2900
INDIANAPOLIS IN 46209-6388
<PAGE>
Proxy Card -- Front
GUIDANT CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints J.M. Cornelius, J.B. King and R.W.
Dollens, and each of them, as proxies of the undersigned, each with full power
to act without the others and with full power of substitution, to vote all the
shares of Common Stock of GUIDANT CORPORATION held in the name of the
undersigned at the close of business on March 8, 1999, at the Annual Meeting of
Shareholders to be held on May 17, 1999 at 10:00 a.m. (local time), and at any
adjournment thereof, with all the powers the undersigned would have if
personally present, as set forth on the reverse side.
This Proxy may also reflect shares held by employees or former
employees of Guidant Corporation in The Guidant Employee Savings and Stock
Ownership Plan ("ESSOP") or The Guidant Corporation Employee Stock Ownership
Plan for Puerto Rico Affiliates ("ESOP"). With respect to those shares, if any,
the undersigned hereby directs the trustee under the ESSOP or ESOP, as
applicable, to vote the number of shares credited to the undersigned's account
as set forth on the reverse side.
Change of Address:
- - - ----- ----------------------------
- - - ----- ----------------------------
- - - ----- ----------------------------
- - - ----- ----------------------------
- - - ----- ----------------------------
(If you have written in the above
space, please mark the
corresponding box on the reverse
side of this card.)
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------------
SEE REVERSE
SIDE
-----------------
- - - --------------------------------------------------------------------------------
.FOLD AND DETACH HERE.
Guidant Corporation
1999 Annual Meeting of Shareholders
DATE: MAY 17, 1999
TIME: 10:00 A.M. (LOCAL TIME)
PLACE: HILBERT CIRCLE THEATRE
45 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
<PAGE>
Proxy Card - Back
[X] Please mark your votes as in this example
If this Proxy is properly executed and returned, the shares represented thereby
will be voted in the manner directed by the undersigned shareholder. If no
direction is made, this Proxy will be voted FOR Proposals 1, 2, and 3.
The Board of Directors recommends a vote FOR each of the following:
FOR WITHHELD Nominees:
1. Election of Directors [_] [_] 1. J. B. King
2. S. B. King
3. J. K. Moore
4. R. E. Wager
FOR, except vote withheld from the following nominee(s):
----------------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided above.
2. Approval of the Amendment to the Amended FOR AGAINST ABSTAIN
and Restated Articles of Incorporation [_] [_] [_]
3. Ratification of the appointment by the FOR AGAINST ABSTAIN
Board of Directors of Ernst & Young LLP [_] [_] [_]
as independent auditors for 1999.
4. In their discretion, upon such other matters as may properly come before the
meeting, all in accordnace with the accompanying Notice and Proxy Statement.
If you would like us to change your address on our records, please [_]
check this box and indicate your new address in the space provided
on the other side of this card.
If you plan to attend the meeting, please check this box and return [_]
the enclosed Request for Admittance Card.
- - - ------------------------------------------------------ ----------------------
Signature(s) Date
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing in a representative capacity, please give full title. Your signature
serves as acknowledgement of receipt of the accompanying Notice and Proxy
Statement.
