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<SEC-DOCUMENT>0000950135-03-002096.txt : 20030331
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<ACCEPTANCE-DATETIME>20030331120045
ACCESSION NUMBER: 0000950135-03-002096
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030331
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BOSTON SCIENTIFIC CORP
CENTRAL INDEX KEY: 0000885725
STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
IRS NUMBER: 042695240
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-11083
FILM NUMBER: 03628201
BUSINESS ADDRESS:
STREET 1: ONE BOSTON SCIENTIFIC PL
CITY: NATICK
STATE: MA
ZIP: 01760-1537
BUSINESS PHONE: 5086508000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b45658bse10vk.txt
<DESCRIPTION>BOSTON SCIENTIFIC CORPORARION 10-K 12/31/2002
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
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 31,2002 Commission File No. 1-11083
--------------------------------------
BOSTON SCIENTIFIC CORPORATION
(Exact Name Of Company As Specified In Its Charter)
DELAWARE 04-2695240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537
(Address, Including Zip Code, Of Principal Executive Offices)
(508) 650-8000
(Company's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title Of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
--------------------------------------
Indicate by check mark whether the Company (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 (or for such shorter period that the Company was
required to file such reports), 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 Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes: X No ______
-1-
<PAGE>
The aggregate market value of Common Stock held by non-affiliates (persons other
than directors, executive officers, and related family entities) of the Company
was approximately $9.1 billion based on the closing price of the Common Stock on
June 28, 2002.
The number of shares outstanding of the Company's Common Stock as of March 21,
2003, was 409,947,858.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's 2002 Consolidated Financial Statements for the year ended December
31, 2002 which are filed with the Securities and Exchange Commission (the
"Commission") as an exhibit hereto and the Company's 2003 Proxy Statement to be
filed with the Securities and Exchange Commission on or about April 4, 2003 are
incorporated by reference into Parts I, II and III hereof.
-2-
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Boston Scientific Corporation (the "Company") is a worldwide developer,
manufacturer and marketer of less-invasive medical devices. The Company's
products are used in a broad range of interventional medical specialties,
including interventional cardiology, peripheral intervention, neurovascular,
electrophysiology, vascular surgery, gastroenterology, gynecology, oncology and
urology. The Company's products are generally inserted into the human body
through natural openings or small incisions in the skin and can be guided to
most areas of the anatomy to diagnose and treat a wide range of medical
problems. These products provide effective alternatives to traditional surgery
by reducing risk, trauma, cost, procedure time and the need for aftercare.
The Company's history began in the late 1960s when the Company's co-founder,
John Abele, acquired an equity interest in Medi-tech, Inc., a development
company. Medi-tech's initial products, a family of steerable catheters, were
introduced in 1969. They were used in some of the first less-invasive procedures
performed, and versions of these catheters are still being sold today. In 1979,
John Abele joined with Pete Nicholas to form the Company, which indirectly
acquired Medi-tech, Inc. This acquisition began a period of active, focused
marketing, new product development and organizational growth. Since then, the
Company's net sales have increased substantially, growing from $1.8 million in
1979 to more than $2.9 billion in 2002.
The Company's growth has been fueled in part by strategic acquisitions and
alliances designed to improve the ability of the Company to take advantage of
growth opportunities in less-invasive medicine. These acquisitions have helped
the Company to achieve a strategic mass which allows it to offer one of the
broadest product lines in the world for use in less-invasive procedures. The
Company's strategic mass has also enabled it to compete more effectively in, and
better absorb the pressures of, the current health care environment of cost
containment, managed care, large buying groups and hospital consolidations.
AVAILABLE INFORMATION. Copies of the Company's annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available free of charge through the
Company's website (www.bostonscientific.com) as soon as reasonably practicable
after the Company electronically files the material with or furnishes it to the
Securities and Exchange Commission ("SEC"). The Company's proxy statement and
Code of Conduct (and amendments thereto), which applies to all employees and
officers of the Company, including the Chief Executive Officer and Chief
Financial Officer, are also available on the Company's web site. Printed copies
of these materials are also available free of charge to shareholders that
request them in writing from Investor Relations. Information on the Company's
website or connected thereto is not incorporated by reference into this Form
10-K.
-3-
<PAGE>
CORONARY STENTS AND THE DRUG ELUTING STENT OPPORTUNITY
During 2002, the Company reestablished its position in the coronary stent market
with the highly competitive Express(TM) coronary stent system. The Company also
marketed its next-generation coronary angioplasty balloon, the Maverick(R)
balloon dilatation catheter, now the market leader. The Company then combined
the original Express stent with the advanced Maverick balloon catheter
technology to create the Express(2) stent system, which was launched in Europe
and the United States during the year. As a result, at the end of 2002 the
Company regained leadership in the cardiovascular and peripheral vascular
catheter labs.
The Company believes that the combination of drugs and coronary stents offers
the possibility of a more lasting solution for coronary artery disease,
particularly the processes that lead to instent restenosis, the growth of
neointimal tissue within an artery after angioplasty and stenting. Drug-eluting
stents are expected to reduce the need for repeat procedures - or more expensive
surgical procedures - and to significantly reduce health care costs, as well as
overall patient risk, trauma, procedure time and the need for post-procedural
care.
Since 1997, the Company has been developing a proprietary polymer-based,
paclitaxel-eluting stent technology for reducing coronary restenosis. The
Company's TAXUS(TM) paclitaxel-eluting coronary stent system is built on the
Express stent technology. The conformability of the stent within a diseased
coronary artery benefits the Company's polymer-based drug eluting technology and
contributes to the clinical differentiation of the TAXUS drug-eluting stent
platform from others.
The Company has invested in the TAXUS clinical program, a series of studies
designed to collect data on the TAXUS paclitaxel-eluting stent. Prior studies
have demonstrated promising results by dramatically reducing restenosis. The
proprietary polymer on the stent allows for controlled delivery of paclitaxel.
Paclitaxel is a multi-functional microtubular inhibitor that controls platelets,
smooth muscle cells and white blood cells, all of which are believed to
contribute to restenosis.
-4-
<PAGE>
An overview of the Company's TAXUS clinical program, initiated in 1997, is
presented below.
<TABLE>
<CAPTION>
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Overview Findings
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<S> <C> <C>
TAXUS I - A feasibility study designed to assess the safety of a - No stent thromboses were reported at six months.
slow release formulation, paclitaxel-eluting coronary stent - Thirty day MACE (Major Adverse Cardiac Events
for the treatment of de novo coronary lesions. including death, myocardial infarction and
- A 61-patient, randomized, double blind, revascularization) was zero percent.
multi-center safety trial. - This study is currently approaching 2 year
- Conducted at three centers in Germany. follow-up.
- ------------------------------------------------------------------------------------------------------------------------------------
TAXUS II - A 536-patient, 15 country, randomized, double - The slow release formulation cohort reported an
blind, controlled study of paclitaxeleluting coronary in-stent binary restenosis rate of 2.3 percent and
stents. an in-segment binary restenosis rate of 5.5 percent
- Two sequential cohorts of patients with standard at six months.
risk, de novo coronary artery lesions. - The moderate release formulation cohort reported an
- Slow release and moderate release formulations in-stent binary restenosis rate of 4.7 percent and
studied in separate cohorts. an in-segment binary restenosis rate of 8.6 percent
at six months.
- This study has recently completed one-year
follow-up.
- ------------------------------------------------------------------------------------------------------------------------------------
TAXUS III - A 29-patient, single-arm registry examining the - At six-month follow up, the trial confirmed
feasibility of implanting up to two paclitaxel-eluting safety and reported no stent thromboses.
stents for the treatment of in-stent restenosis. - An overall binary restenosis rate, including distal
- Patients with complex vascular disease having and proximal edges, of 16 percent, and an in-stent
recurrent occlusion in a stent, who tend to have an restenosis rate of 4 percent was reported at
increased probability of restenosis. six-month follow up.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- Overview - Findings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TAXUS IV - A pivotal trial studying 1,326 patients designed to - Thirty-day safety data showed an overall favorable
collect data to support regulatory filings for U.S. MACE rate of three percent.
product commercialization. - The trial has a primary endpoint based on nine-month
- A prospective, randomized, double-blind study target vessel revascularization.
assessing the safety and efficacy of a slow release - This study is currently approaching nine-month
formulation for the treatment of de novo coronary lesions. follow-up.
- The TAXUS IV trial uses the Company's internally developed
Express(TM) stent.
- ------------------------------------------------------------------------------------------------------------------------------------
TAXUS V - This multi-center trial will study a higher risk - This trial, which began in March 2003, has a primary
patient population than TAXUS IV, including patients with endpoint based on nine-month target vessel
smaller vessels and longer lesions. revascularization.
- The trial includes the use of multiple stents. - This study is currently enrolling patients.
- Received conditional approval from the FDA.
- This trial uses the Company's internally developed
Express stent.
- ------------------------------------------------------------------------------------------------------------------------------------
TAXUS VI - An International multi-center trail studying 448 patients - This trial has a primary endpoint based on
with complex coronary artery disease at 44 sites nine-month target vessel revascularization.
designed to establish the safety and efficacy of a - This study is currently approaching 30-day
moderate release formulation in the treatment of longer follow-up.
lesions of 18 to 40 mm in length.
- The trial includes the use of multiple stents.
- This trial uses the Company's internally developed
Express stent.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
The Company has also initiated a transitional registry program (WISDOM) as part
of a limited international commercial launch. This multi-center, prospective,
observational registry is collecting and analyzing "real world" data on the
performance of the TAXUS paclitaxel-eluting stent system for the treatment of
patients with coronary artery disease. A registry program enlists large numbers
of clinicians to document the performance of a specific therapy for a particular
disease or condition. To date, this registry has enrolled more than 400
patients.
In March 2003, the Company began a post-approval European registry (Milestone
II) with the TAXUS coronary stent system. This registry is targeting 100 sites
and plans to enroll 2,000 patients to study real-world usage patterns.
To support commercialization of the TAXUS coronary stent system in the United
States, the Company submitted the first two modules of its application for
Pre-Market Approval to the Food & Drug Administration ("FDA") during February
and March 2003. A total of five modules are expected to be submitted between
February and June 2003. The last module will include data from the TAXUS IV
clinical trial. In March 2003, the FDA notified the Company that it had granted
the TAXUS coronary stent system "expedited review" status, which means that the
application is designated to receive priority review before other pending
applications. The Company expects to launch the TAXUS paclitaxel-eluting
coronary stent in the United States in late 2003 and in Japan in early 2005,
pending regulatory approvals.
The worldwide coronary stent market is dynamic and highly competitive with
significant market share volatility. The introduction of drug-eluting stents is
likely to have a significant impact on the market size for coronary stents and
on the distribution of market share across the industry. The Company believes
drug-eluting stent technology represents one of the largest market opportunities
in the history of the medical device industry. It is estimated that the annual
worldwide market for coronary stents, including drug-eluting stents, may grow to
$5 billion by 2005, compared to approximately $2.2 billion today. Although the
Company believes it is positioned to be one of only two early entrants in this
market, uncertainties exist about the rate of development and size of this new
market. The Company's success with drug-eluting stents could be adversely
affected by more gradual physician adoption rates, changes in reimbursement
policies, delayed or limited regulatory approvals, unexpected variations in
clinical results, the earlier availability of a competitor's technology, third
party intellectual property, the outcome of litigation and the availability of
inventory to meet customer demand. A more gradual physician adoption rate may
limit the number of procedures in which the technology may be used and the price
at which institutions may be willing to purchase the technology. Together, these
and other factors contribute to the uncertainty surrounding the evolution of the
drug-eluting stent market and the Company's position in it.
-7-
<PAGE>
STRATEGIC ACQUISITIONS AND ALLIANCES
The Company has entered into a series of strategic acquisitions and alliances,
each intended to further expand the Company's ability to offer its customers
effective, quality medical devices that satisfy their interventional needs. Over
the last year, the Company completed the following representation of
acquisitions and alliances, adding new or complementary technologies to its
already diverse portfolio.
Acquisitions
- --------------------------------------------------------------------------------
BEI Medical Systems Acquisition of Hydro
Company, Inc. ThermAblator(R) (HTA(R)) System, a
less-invasive technology for global
endometrial ablation designed to treat
excessive uterine bleeding due to benign
causes. Expands the Company's product
offerings in the area of women's health.
- --------------------------------------------------------------------------------
Enteric Medical Acquisition that adds Enteryx(R)a
Technologies, Inc patented liquid polymer for the
treatment of gastroesophageal reflux
disease (GERD).
- --------------------------------------------------------------------------------
Smart Therapeutics, Inc. Acquisition that broadens the Company's
neurovascular portfolio with the
Neuroform(TM) Microdelivery stent system
for the treatment of wide neck
intracranial aneurysms.
- --------------------------------------------------------------------------------
Alliances
- --------------------------------------------------------------------------------
Advanced Neuromodulation Systems, Inc. Distribution rights in Japan of
implantable therapies to manage chronic
pain and other disorders of the central
nervous system.
- --------------------------------------------------------------------------------
Aspect Medical Systems, Inc. Strategic alliance that focuses on the
development and distribution of brain
monitoring technology specifically
designed to enhance the safety,
efficiency and delivery of sedation to
patients undergoing less-invasive
medical procedures.
- --------------------------------------------------------------------------------
Celsion Corporation Distribution rights to Celsion's
Microfocus BPH 800 Microwave
Urethroplasty(TM) system for the
treatment of benign prostatic
hyperplasia (BPH).
- --------------------------------------------------------------------------------
Therus Corporation Equity investment and exclusive
distribution rights which strengthens
and expands the Company's vascular
sealing device portfolio.
- --------------------------------------------------------------------------------
TriVascular, Inc. Exclusive international distribution
rights for percuataneous aortic stent
graft technology designed to improve the
outcome of procedures to treat abdominal
aortic aneurysm (AAA).
- --------------------------------------------------------------------------------
As the health care environment continues to undergo rapid change, the Company
expects that it will continue to focus on strategic initiatives and make
additional investments in its existing relationships.
-8-
<PAGE>
BUSINESS STRATEGY
The Company's mission is to improve the quality of patient care and the
productivity of health care delivery through the development and advocacy of
less-invasive medical devices and procedures. This is accomplished through the
continuing refinement of existing products and procedures and the investigation
and development of new technologies that can reduce risk, trauma, cost,
procedure time and the need for aftercare. The Company's approach to innovation
combines internally developed products and technologies with those obtained
externally through strategic acquisitions and alliances.
Key elements of the Company's overall business strategy are as follows:
Innovation. The Company is committed to driving growth through harnessing
technological innovation both in the near and long term. The Company's approach
to enhancing innovation includes a mixture of tactical and strategic initiatives
that are designed to offer sustainable growth. Combining internally developed
products and technologies with those obtained through acquisition and alliances
allows the Company to focus on and deliver new products currently in its
pipeline as well as strengthen the Company's technology portfolio and
development processes and tools.
Product Diversity. The Company offers products in numerous product categories
which are used by physicians throughout the world in a broad range of diagnostic
and therapeutic procedures. The breadth and diversity of the Company's product
lines permit medical specialists to satisfy many of their less-invasive medical
device requirements from a single source.
Clinical Excellence. The Company's commitment to innovation is further
demonstrated by its rapidly expanding clinical capabilities. The Company's
clinical teams are organized by therapeutic specialty to better align with
research and development, marketing and sales teams. During 2002, the clinical
organization planned, initiated and conducted a series of focused clinical
trials that support regulatory requirements and demonstrate the safe and
effective clinical performance of products and technologies.
Operational Excellence. The Company is focused on continuously improving its
supply chain effectiveness, strengthening its manufacturing processes and
optimizing its plant network in order to increase operational efficiencies
within the organization and generate savings. By centralizing its operations at
the corporate level and shifting global manufacturing along product lines, the
Company is able to leverage its existing resources and concentrate on new
product development and launch.
Focused Marketing. Each of the Company's business groups maintain dedicated
sales forces and marketing teams focusing on physicians who specialize in the
diagnosis and treatment of different medical conditions and offer products to
satisfy their needs. The Company believes that this focused disease state
management enables it to develop highly knowledgeable and dedicated sales
representatives and to foster close professional relationships with physicians.
-9-
<PAGE>
Active Participation In The Medical Community. The Company believes that it has
excellent working relationships with physicians and others in the medical
industry which enable it to gain a detailed understanding of new therapeutic and
diagnostic alternatives, and to respond quickly to the changing needs of
physicians and patients. Active participation in the medical community
contributes to physician understanding and adoption of less-invasive techniques
and the expansion of these techniques into new therapeutic and diagnostic areas.
Corporate Culture. Management believes that success and leadership evolve from a
motivating corporate culture which rewards achievement, respects and values
individual employees and customers, and has a long-term focus on quality,
technology, integrity and service. The Company believes that its success is
attributable in large part to the high caliber of its employees and the
Company's commitment to respecting the values on which its success has been
based.
PRODUCTS
The Company's products are offered by two dedicated business groups -
Cardiovascular and Endosurgery. During 2002, the Cardiovascular organization
focused on products and technologies for use in interventional cardiology,
interventional radiology, electrophysiology, peripheral vascular intervention
and neurovascular procedures. The Endosurgery organization focused on products
and technologies for use in oncology, vascular surgery, endoscopy, urology and
gynecology procedures. During 2002, approximately 68% of the Company's net sales
were derived from the Company's Cardiovascular business and approximately 32%
from its Endosurgery business.
The Company's principal Cardiovascular and Endosurgery products are offered in
the following medical areas:
CARDIOVASCULAR
Coronary Revascularization. The Company markets a broad line of products used to
treat patients with atherosclerosis. Atherosclerosis, a coronary vessel disease
and a principal cause of heart attacks, is characterized by a thickening of the
walls of the arteries and a narrowing of arterial lumens (openings) caused by
the progressive development of deposits of plaque. The majority of the Company's
products in this market are used in percutaneous transluminal coronary
angioplasty ("PTCA") and percutaneous transluminal coronary rotational
atherectomy and include PTCA balloon catheters, the Rotablator(R) and
Rotalink(R) rotational atherectomy systems, guide wires, guide catheters and
diagnostic catheters. In 2002, the Company's Maverick(R) balloon dilatation
catheter, offered for commercial sale around the world, became the market
leading angioplasty catheter. The Maverick balloon catheter features
TrakTip(TM), which creates a flexible kink-resistant taper. The TrakTip's low
lesion entry profile is designed to enable excellent crossability and easy
lesion engagement. In December 2002, the Company launched two new balloon
catheters in the United States, the Maverick(2)(TM) Monorail(R) Coronary Balloon
Dilatation Catheter and the Quantum(TM) Maverick(R) Coronary Balloon Dilatation
Catheter.
-10-
<PAGE>
The Company also offers the Cutting Balloon(TM) catheter, a balloon angioplasty
device that combines features of conventional angioplasty with advanced
microsurgical technology. During 2002, the Company launched the Cutting
Balloon(TM) Monorail(R) Device and expects to launch the Cutting Balloon
Ultra(2)(TM) Microsurgical Dilatation Catheter in the United States during 2003,
pending regulatory approval.
Coronary Stents. The Company markets both balloon-expandable and self-expanding
coronary stent systems. Coronary stents are tiny, mesh tubes used in the
treatment of coronary artery disease and implanted in patients to prop open
arteries and facilitate blood flow to the heart.
During 2002, the Company launched its Express(2)(TM) coronary stent system in
the United States, Europe and other international markets and expects to launch
the product in Japan later in 2003. The Express(2) coronary stent system,
developed exclusively by the Company, features two of its most impressive
technologies - the Express stent and the Maverick(R) balloon dilatation
catheter. The Express stent is a laser-cut, balloon-expandable stent that
features a unique design concept called Tandem Architecture(TM). The Tandem
Architecture stent design integrates short, thin Micro(TM) elements designed for
flexibility and conformability, with long, wide Macro(TM) elements designed to
enhance radiopacity. The Express(2) stent system features a laser-bonded,
flexible tip with a long, low profile designed for easier tracking.
Fluid Management. The Company markets a broad line of fluid delivery sets,
pressure monitoring systems, custom kits and accessories that provide for the
injection of contrast and saline or the withdrawal and disposal of bodily waste.
Electrophysiology. The Company's electrophysiology product offerings include
catheters and systems for use in less-invasive procedures to diagnose and treat
tachyarrhythmias (abnormally fast heart rhythms). The Company markets RF
generators, mapping systems, intracardiac ultrasound and steerable ablation
catheters, many of which incorporate proprietary steering, temperature
monitoring and control technology, as well as a line of diagnostic catheters and
associated accessories. The Company also offers the Chilli(R) cooled ablation
catheter and Realtime Position Management(TM) system. These products are
designed for ablating (neutralizing) the tissue in the heart that is responsible
for starting or maintaining the tachyarrhythmia and for navigating EP catheters
within the heart.
Peripheral Vascular Intervention. The Company sells various products designed to
treat patients with peripheral vascular disease (disease which appears in blood
vessels other than in the heart), including a broad line of medical devices used
in percutaneous transluminal angioplasty and thrombolysis (the catheter-based
delivery of clot dissolving agents directly to the site of a blood clot).
Additionally, the Company's peripheral vascular product line includes balloon
catheters, thrombectomy catheters, and stents (including the Wallstent(R)
endoprosthesis).
-11-
<PAGE>
Embolic Protection. One of the most promising areas in interventional medicine
is embolic protection. Internationally, the Company offers the Filterwire EX(TM)
device, which is designed to capture material dislodged into the bloodstream
during cardiovascular interventions, potentially preventing a heart attack or
stroke. The FilterWire EX device is available for use in coronary, saphenous
vein graft, carotid and peripheral vessel applications in markets outside the
United States. During the fourth quarter of 2002, the Company submitted an
application to the FDA for 510(k) clearance to market the Filterwire EX device
for saphenous vein graft application in the United States.
Caval Interruption Systems. The Company markets the Greenfield(R) vena cava
filter system for use in patients who are at risk of developing a pulmonary
embolism due to an existing medical condition or post-surgical complications.
Once the filter is implanted, circulating emboli (blood clots) can be captured
and held by the lattice design of the filter, allowing the clots to dissolve
naturally before they can reach the pulmonary system. The Company expects to
launch a new reduced profile vena cava filter, the Greenfield(R) RP Vena Cava
Filter, later in 2003, pending regulatory approval.
Intraluminal Ultrasound Imaging. The Company markets a family of intraluminal
catheter-directed ultrasound imaging catheters and systems for diagnostic use in
blood vessels, heart chambers and coronary arteries, as well as certain
nonvascular systems.
Neurovascular Interventions. The Company markets a line of micro-guidewires,
micro-catheters, guiding catheters and embolics to treat diseases of the
neurovascular system. The Company also markets the GDC(R) (Guglielmi Detachable
Coil) system to treat and prevent the rupture of cerebral aneurysms that are
otherwise either considered to be inoperable or high risk for surgery. Results
from the International Subarachnoid Aneurysm Trial (ISAT) demonstrated that
less-invasive endovascular treatment with detachable platinum coils, such as the
Company's GDC(R) coil, produce better outcomes than neurosurgical clipping for
patients suffering from ruptured brain aneurysms. During 2002, the Company
completed its acquisition of Smart Therapeutics, Inc. ("Smart"), a company that
has developed a stent system for treating "wide neck" aneurysms, which are among
the most difficult to treat. The combination of Smart's stent and the Company's
GDC coil may provide a less-invasive treatment alternative for patients whose
only previous option may have been open surgery.
The Company's next generation Matrix(TM) Detachable Coil features a proprietary
bioabsorbable polymer and leverages technology from the well known, clinically
proven GDC(R) system. The Matrix Detachable Coil has received clearance from the
FDA for endovascular treatment of cerebral aneurysms and was granted the CE Mark
in Europe. This technology is being introduced into selected worldwide markets
in conjunction with physician training programs.
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<PAGE>
ENDOSURGERY
Esophageal, Gastric And Duodenal (Small Intestine) Intervention. The Company
markets a broad range of products to diagnose, treat and palliate a variety of
gastrointestinal diseases and conditions, including those affecting the
esophagus, stomach and colon. Common disease states include esophagitis,
gastroesophageal reflux disease ("GERD"), portal hypertension, peptic ulcers and
esophageal cancer. The Company's products in this area include disposable single
and multiple biopsy forceps, balloon dilatation catheters and enteral feeding
devices. The Company also markets a family of esophageal stents designed to
offer improved dilatation force and greater resistance to tumor in-growth.
During 2002, the Company completed its acquisition of Enteric Medical
Technologies, Inc. ("EMT"), adding EMT's Enteryx(TM) liquid polymer technology,
designed to treat symptoms associated with chronic GERD, to the Company's
portfolio. Currently, the Enteryx product is under Pre-Market Approval (PMA)
review at the FDA, making it the first less-invasive medical device treatment
for GERD to undergo this stringent evaluation. In January 2003, the
Gastroenterology and Urology Device Panel voted unanimously to recommend to the
FDA the approval of the Enteryx product for the treatment of symptoms of GERD in
patients who require and respond to pharmaceutical therapy.
Colorectal Intervention. The Company markets a line of hemostatic catheters,
polypectomy snares, biopsy forceps, enteral stents and dilatation catheters for
the diagnosis and treatment of polyps, inflammatory bowel disease,
diverticulitis and colon cancer.
Pancreatico-Biliary Intervention. The Company sells a variety of products to
diagnose, treat and palliate benign and malignant strictures of the
pancreatico-biliary system (the gall bladder, common bile duct, hepatic duct,
pancreatic duct and the pancreas) and to remove stones found in the common bile
duct. The Company's products include diagnostic catheters used with contrast
media, balloon dilatation catheters and sphincterotomes. The Company also
markets self-expanding metal and temporary biliary stents for palliation and
drainage of the common bile duct.
Pulmonary Intervention. The Company markets devices to diagnose, treat and
palliate diseases of the pulmonary system. The major devices include pulmonary
biopsy forceps, transbronchial aspiration needles, cytology brushes and
tracheobronchial stents used to dilate strictures or for tumor management.
Included in this product offering is the Ultraflex(TM) Tracheobronchial Stent
System and the Wallstent(R) Tracheobronchial Endoprosthesis.
Urinary Tract Intervention and Bladder Disease. The Company sells a variety of
products designed primarily to treat patients with urinary stone disease,
including ureteral dilatation balloons used to dilate strictures or openings for
scope access; stone baskets used to manipulate or remove the stone;
intracorporeal shock wave lithotripsy devices and holmium laser systems used to
disintegrate stones; ureteral stents implanted temporarily in the urinary tract
to provide short-term or long-term drainage; and a wide variety of guidewires
used to gain access to a specific site. The Company has also developed other
devices to diagnose and treat bladder cancer and bladder obstruction.
-13-
<PAGE>
Prostate Intervention. For the treatment of Benign Prostatic Hyperplasia
("BPH"), the Company currently markets electro-surgical resection devices
designed to resect large diseased tissue sites and an automatic disposable
needle biopsy system, designed to take rapid core prostate biopsies. In January
2003, the Company announced an alliance with Celsion Corporation to distribute
Celsion's Microfocus BPH 800 Microwave Urethroplasty(TM) system for the
treatment of BPH.
Urinary Incontinence. The Company markets a line of less-invasive devices and
dermal sling materials to treat stress urinary incontinence, an affliction
commonly treated with various surgical procedures. The Company's Precision
Tack(R), Precision Twist(R) and Capio(R) devices and Vesica(R) systems offer
less-invasive alternatives for treating incontinence.
Gynecology. In 2002, the Company expanded its product offerings in the area of
women's health through the acquisition of BEI Medical Systems Company, Inc. BEI
designs, manufactures and markets the Hydro ThermAblator(R) (HTA(R)) System, a
less-invasive technology for the treatment of excessive uterine bleeding by
ablating the lining of the uterus, the tissue responsible for menstrual
bleeding.
Oncology Intervention. The Company markets a broad line of products designed to
treat, diagnose and palliate various forms of cancer. Its current suite of
products include a variety of microcatheters, embolic materials, coils and other
products used to restrict blood supply to targeted organs of other areas of the
body as well as biopsy devices. In addition, the Company also markets
radiofrequency based therapeutic devices for the ablation of various forms of
soft tissue lesions (tumors). In 2002, Contour(R) SE Microspheres, a novel
spherical embolization product used to treat hypervascular tumors and
arteriovenous malformations, was launched in the United States. The Contour(R)
SE Microsphere product is designed to shrink and destroy hypervascular tumors
and arteriovenous malformations by blocking the blood supply feeding them.
Central Venous Access. The Company offers a venous access line which includes
valved and non-valved product offerings. The innovative PASV(R) valve technology
is designed to reduce the incidence of occlusion and blood stream infection.
Surgical And Endovascular Grafts. The Company designs vascular grafts and
endovascular stent grafts for the treatment of thoracic dissection, dialysis
access, abdominal aortic aneurysms and peripheral vascular occlusive diseases,
including the Exxcel(TM) vascular graft for peripheral indications and dialysis
access and a line of Hemashield(R) grafts and fabrics for peripheral vascular
and cardiovascular indications. Effective January 1, 2003, this product line was
moved from the Endosurgery business group to the Cardiovascular business group.
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<PAGE>
MARKETING AND SALES
During 2002, the Company marketed and sold its products through six divisions.
To best serve its customers, the sales and marketing organizations of these six
divisions were aligned and centralized under two groups, Cardiovascular and
Endosurgery. During 2002, Scimed, EP Technologies and the peripheral vascular
business of Medi-tech operated within the Cardiovascular Group. The Target
Therapeutics division remained a distinct marketing and sales organization
within the Cardiovascular Group. The Medi-tech Surgery/Oncology, Microvasive
Urology and Microvasive Endoscopy businesses operated within the Endosurgery
Group.
In early 2003, Boston Scientific announced a master branding initiative. This
initiative marks the Company's evolution from a collection of divisional
identities into one, unified organization. The master brand will enable the
Company to better focus efforts on strengthening the recognition of the Boston
Scientific name and building equity in that name, as well as conveying the depth
and breadth of the Company, growing the business, recruiting and retaining
strong talent, and ultimately increasing shareholder value.
The Company's tag line: Delivering what's next.(TM)conveys the essence of Boston
Scientific: a committed, forward-looking company executing on its promises and
bringing the latest medical innovations to its customers and their patients.
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<PAGE>
Following the launch of the Company's branding initiative later in 2003, the
Company will market its products through nine principal operating businesses,
each focusing upon physicians who specialize in the diagnosis and treatment of
different medical conditions and disease states. An overview of the Company's
2002 divisional and 2003 operating business structure is outlined below.
Cardiovascular Group
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
2002 2003
- ----------------------------------------------------------------------------------------------------
Divisional Identity Market New Business Descriptor
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Scimed Markets devices to * Interventional Cardiology
interventional * Peripheral Interventions
cardiologists,
interventional
radiologists and
vascular surgeons for
the diagnosis and
treatment
of coronary and
peripheral vascular
disease and other
cardiovascular
disorders.
- ----------------------------------------------------------------------------------------------------
Target Markets a line of * Neurovascular
micro-guidewires,
micro-catheters,
coils,
embolics and other
medical devices which
aid neuroradiologists
and neurosurgeons in
the treatment of
neurovascular
diseases.
- ----------------------------------------------------------------------------------------------------
EP Technologies Offers a * Electrophysiology
line of
electrophysiology
catheters and systems
for use
by interventional
electrophysiologists
in the diagnosis and
treatment of
tachyarrhythmias.
- ----------------------------------------------------------------------------------------------------
Medi-tech Markets devices to * Vascular Surgery
cardiologists,
interventional
radiologists and
vascular surgeons who
treat abdominal aortic
aneurysmal disease.
- ----------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
Endosurgery Group
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
2002 2003
- -----------------------------------------------------------------------------------------------------
Divisional Identity Market New Business Descriptor
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Microvasive Endoscopy Markets therapeutic, * Endoscopy
diagnostic and
palliative devices,
which aid
gastroenterologists
and pulmonologists in
performing flexible
endoscopic procedures
involving the
digestive tract and
lungs.
- -----------------------------------------------------------------------------------------------------
Microvasive Urology Offers a line * Urology
of therapeutic and * Gynecology
diagnostic devices
which aid
urologists and
urogynecologists in
performing
ureteroscopic and
other less-invasive
endoscopic procedures
as well as devices to
treat urinary
incontinence and
abnormal bleeding.
- -----------------------------------------------------------------------------------------------------
Medi-tech Markets devices to * Oncology
interventional
radiologists and
surgical
oncologists who treat
diseases requiring
management of
cancerous and
non-cancerous tumors
as well as patients
requiring venous
access.
- -----------------------------------------------------------------------------------------------------
</TABLE>
A dedicated sales force of approximately 1,200 individuals in over 40 countries
internationally and over 800 in the United States marketed the Company's
products worldwide as of December 31, 2002. Sales in countries where the Company
has direct sales organizations accounted for approximately 99% of the Company's
net sales during 2002. A network of distributors and dealers who offer the
Company's products in more than 35 countries worldwide accounts for the
remaining sales. The Company also has a dedicated corporate sales organization
in the United States focused principally on selling to major buying groups and
large integrated health care networks.
In 2002, the Company sold its products to over 10,000 hospitals, clinics,
out-patient facilities and medical offices. The Company is not dependent on any
single institution and no single institution accounted for more than 10% of the
Company's net sales in 2002. Large group purchasing organizations, hospital
networks and other buying groups have, however, become increasingly important to
the Company's business. The trend toward managed care and economically motivated
and more sophisticated buyers in the United States may result in continued
pressure on selling prices of certain products and resulting compression on
gross margins. These purchasers of medical devices also tend to limit the number
of suppliers from whom they purchase medical
-17-
<PAGE>
products. There can be no assurance that these entities will continue to
purchase products from the Company.
The Company also distributes certain products for third parties, including an
introducer sheath and certain guidewires. Together, these distributed products
represented less than 10% of the Company's 2002 net sales. Leveraging its sales
and marketing strength, the Company expects to continue to seek new
opportunities for distributing complementary products as well as new
technologies. The Company expects that it will continue to enter into
distribution arrangements that include options to acquire technology from third
parties at pre-established future dates. These distribution arrangements often
allow the Company to evaluate new technologies prior to acquisition.
INTERNATIONAL OPERATIONS
Internationally, the Company operates through three business segments divided
among the geographic regions of Europe, Japan and Inter-Continental. Maintaining
and expanding its international presence is an important component of the
Company's long-term growth plan. Through its international presence, the Company
seeks to increase net sales and market share, leverage relationships with
leading physicians and their clinical research programs, accelerate the time
within which new products can be brought to market and gain access to worldwide
technological developments that may be implemented across its product lines.
In 2002, international sales accounted for approximately 40% of the Company's
net sales. Net sales, operating income (excluding special charges) and total
assets attributable to significant geographic areas are presented in Note P to
the Company's 2002 Consolidated Financial Statements, which are filed with the
Securities and Exchange Commission as an exhibit to this document.
In recent years, the Company has expanded its direct sales presence worldwide so
as to be in a position to take advantage of expanding market opportunities. As
of December 31, 2002, the Company had direct marketing and sales operations in
over 40 countries internationally. The Company believes that it will continue to
leverage its infrastructure in markets where commercially appropriate and to use
third parties in those smaller markets where it is not economical or strategic
to establish a direct presence.
The Company has four international manufacturing facilities in Ireland.
Presently, approximately 30% of the Company's products sold worldwide are
manufactured at these facilities. The Company also maintains an international
research and development facility in Ireland and a training and research and
development center in Miyazaki, Japan.
The Company's international presence exposes it to certain financial and other
risks. Principal among these is the potentially negative impact of foreign
currency fluctuations on the Company's sales and expenses. Although the Company
engages in nonspeculative hedging transactions that may offset the effect of
fluctuations in foreign currency exchange rates on foreign currency denominated
assets, liabilities, earnings and cash flows, financial exposure may
-18-
<PAGE>
nonetheless result, primarily from the timing of transactions, forecast
volatility and the movement of exchange rates. International markets are also
being affected by economic pressure to contain reimbursement levels and health
care costs. The Company's profitability from its international operations may be
limited by risks and uncertainties related to economic conditions in these
regions, regulatory and reimbursement approvals, competitive offerings,
infrastructure development, rights to intellectual property, and the ability of
the Company to implement its overall business strategy. Any significant changes
in the competitive, political, regulatory, reimbursement or economic environment
where the Company conducts international operations may have a material impact
on revenues and profits, especially in Japan, given its high profitability
relative to its contribution to revenues. The Company's Japan business is
expected to be under continued pressure, particularly in the coronary stent
market, due to competitive product offerings and the lack of physician
acceptance of the NIR(R) coronary stent platform. Deterioration in the Japanese
and/or Inter-Continental economies may impact the Company's ability to grow its
business and to collect its accounts receivable in international markets.
Additionally, the trend in countries around the world toward more stringent
regulatory requirements for product clearance, changing reimbursement models and
more vigorous enforcement activities has generally caused or may cause medical
device manufacturers to experience more uncertainty, greater risk and higher
expenses.
MANUFACTURING; RAW MATERIALS
The Company designs and manufactures the majority of its products in twenty
technology centers around the world. During 2000, the Company approved and
committed to a global operations plan consisting of a series of strategic
initiatives designed to increase productivity and enhance innovation. The plan
includes manufacturing process and supply chain programs and a plant
optimization initiative. During the second quarter of 2002, the Company
substantially completed its plant optimization initiative. The plant
optimization initiative has created a better allocation of the Company's
resources by forming a more effective network of manufacturing and research and
development facilities. The Company's plan resulted in the consolidation of
manufacturing operations along product lines and the shifting of significant
amounts of production to the Company's facilities in Miami and Ireland and to
contract manufacturing. The Company's plan included the discontinuation of
manufacturing activities at three facilities in the United States, and included
the planned displacement of approximately 1,950 manufacturing, manufacturing
support and management employees.
Most components used in the manufacture of the Company's products are readily
fabricated from commonly available raw materials or off-the-shelf items
available from multiple supply sources. The fabricated items are custom made for
the Company to meet its specifications. The Company believes that in most cases,
redundant capacity exists at the suppliers and that alternative sources of
supply are available or could be developed within a reasonable period of time.
Generally, the Company has been able to obtain adequate supplies of raw
materials and components in a timely manner from established sources. In certain
cases, the Company may not be able to quickly establish additional or
replacement suppliers for specific components or materials, largely due to the
FDA approval system and other regulatory requirements and the complex nature of
the manufacturing processes employed by the Company and many suppliers.
-19-
<PAGE>
The reduction or interruption in supply, an inability to develop and validate
alternative sources if required, or a significant increase in the price of raw
materials or components could adversely affect the Company's operations and
financial condition.
QUALITY ASSURANCE
The Company is committed to providing high quality products to its customers. To
meet this commitment, the Company has implemented state-of-the-art 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. These
systems enable the Company to satisfy the quality system regulations of the FDA
with respect to products sold the United States. Many of the Company's
operations are certified under ISO 9001, ISO 9002, ISO 13485, ISO 13488, EN46001
and EN46002 international quality system standards. ISO 9002 requires, 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. These
certifications can be obtained only after a complete audit of a company's
quality system by an independent outside auditor. Maintenance of these
certifications requires that these facilities undergo periodic reexamination.
During 2002, the Company established an initiative to seek ISO 14001
certification at various plants around the world. The ISO 14001, a standard in
the ISO 14000 series, provides a voluntary approach regarding environmental
management systems that helps organizations assure positive environmental
performance. This initiative will continue until our facilities become
certified. In March 2003, the Company received corporate certification to
ISO 9001, MDD and EN 46001 standards.
COMPETITION
The Company encounters significant competition across its product lines and in
each market in which its products are sold from various entities, some of which
may have greater financial and marketing resources than the Company. The
Company's primary competitors include: Abbott Laboratories, Inc., C.R. Bard,
Inc., Cook, Inc., Guidant Corporation (including its subsidiary Advanced
Cardiovascular Systems, Inc.), Johnson & Johnson (including its subsidiary,
Cordis Corporation), Medtronic, Inc. (including its subsidiary, Medtronic AVE,
Inc.) and Tyco International, as well as a wide range of companies which sell a
single or limited number of competitive products or participate only in specific
market segment. In addition, the worldwide coronary stent market is dynamic and
highly competitive, with significant market share volatility. Technology and
competitive offerings, particularly a competitor's prior entry in the
drug-eluting stent market, may negatively impact the Company's revenues. The
Company also faces competition from non-medical device companies, such as
pharmaceutical companies, which may offer non-surgical alternative therapies for
disease states which are currently or intended to be treated using the Company's
products.
-20-
<PAGE>
The Company believes that its products compete primarily on the basis of their
ability to safely and effectively perform diagnostic and therapeutic procedures
in a less-invasive manner, ease of product use, product reliability and
physician familiarity. In the current environment of managed care, economically
motivated buyers, consolidation among health care providers, increased
competition and declining reimbursement rates, the Company has also been
increasingly required to compete on the basis of price, value and efficiency.
The Company believes that its continued competitive success will depend upon its
ability to create or acquire scientifically advanced technology, apply its
technology cost-effectively across product lines and markets, develop or acquire
proprietary products, attract and retain skilled development personnel, obtain
patent or other protection for its products, obtain required regulatory and
reimbursement approvals, manufacture and successfully market its products either
directly or through outside parties and supply sufficient inventory to meet
customer demand.
RESEARCH AND DEVELOPMENT
Enhancements of existing products or expansions of existing product lines, which
are typically developed within the Company's manufacturing and marketing
operations, contribute to each year's sales growth. The Company believes that
streamlining, prioritization and coordination of its technology pipeline and new
product development activities are essential to its ability to stimulate growth
and maintain leadership positions in its markets. By centralizing platform
technology development at the corporate level, the Company is able to pursue
technologies that can be leveraged across multiple markets. The Company's
approach to new product design and development is through focused, cross
functional efforts. The Company believes that its formal process for technology
and product development aids in its ability to offer innovative and
manufacturable products in a consistent and timely manner. Involvement of the
R&D, clinical, quality, regulatory, manufacturing and marketing teams early in
the process is the cornerstone of a product development cycle. This
collaboration allows the team to concentrate resources on the most viable and
profitable new products and technologies and get them to market in a timely
manner.
-21-
<PAGE>
In 2002, the Company expended approximately $343 million on research and
development, representing approximately 12 percent of the Company's 2002 net
sales. The investment in research and development dollars reflects spending on
new product development programs as well as regulatory compliance and clinical
research. The increase in research and development expense from 2001 levels is
primarily due to investment in the development of, and clinical trials related
to, the Company's TAXUS(TM) drug-eluting stent program and to investment in
development programs acquired in connection with the Company's business
combinations. The Company currently anticipates research and development
expenses as a percentage of net sales to remain at approximately 12 percent in
2003. There can be no assurance, however, that the Company's performance will
not be affected by management's decisions relating to investments in research
and development at anticipated levels during 2003.
In addition to internal development, the Company works with hundreds of leading
research institutions, universities and clinicians around the world in
developing, evaluating and clinically testing its products. The Company believes
its future success will depend upon the strength of its development efforts.
There can be no assurance that the Company will realize financial benefit from
its development programs, will continue to be successful in identifying,
developing and marketing new products or enhancing its existing products, or
that products or technologies developed by others will not render the Company's
products or technologies non-competitive or obsolete.
REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by numerous regulatory bodies, including the FDA and comparable
international regulatory agencies. These agencies require manufacturers of
medical devices to comply with applicable laws and regulations governing the
development, testing, manufacturing, labeling, marketing and distribution of
medical devices. Devices are generally subject to varying levels of regulatory
control, the most comprehensive of which requires that a clinical evaluation
program be conducted before a device receives approval for commercial
distribution.
In the United States, permission to distribute a new device generally can be met
in one of two ways. The first process requires that a pre-market notification
(the "510(k) Submission") be made to FDA to demonstrate that the device is as
safe and effective, that is, substantially equivalent to a legally marketed
device that is not subject to pre-market approval ("PMA"). Applicants must
compare this device to one or more similar devices commercially available in the
United States and make and support their substantial equivalency claims. A
legally marketed device is a device that (i) was legally marketed prior to May
28, 1976, (ii) has been reclassified from Class III to Class II or I, or (iii)
has been found to be substantially equivalent to a device following a 510(k)
Submission. The legally marketed device(s) to which equivalence is drawn is
known as the "predicate" device(s). Applicants must submit descriptive data and,
when necessary, performance data to establish that the device is substantially
equivalent to a predicate device. In some instances, data from human clinical
trials must also be submitted in support of a
-22-
<PAGE>
510(k) Submission. If so, these data must be collected in a manner that conforms
with specific requirements in accordance with federal regulations. The FDA must
issue an order finding substantial equivalence before commercial distribution
can occur.
Changes to existing devices covered by a 510(k) Submission which do not
significantly affect safety or effectiveness can generally be made by the
Company without additional 510(k) Submissions.
The second process requires that an application for PMA be made to the FDA to
demonstrate that the device is safe and effective for its intended use as
manufactured. This approval process applies to certain Class III devices. In
this case, two steps of FDA approval are generally required before marketing in
the United States can begin. First, the Company must comply with investigational
device exemptions ("IDE") regulations in connection with any human clinical
investigation of the device in the United States. Second, the FDA must review
the Company's PMA application which contains, among other things, clinical
information acquired under the IDE. The FDA will approve the PMA application if
it finds that there is a reasonable assurance that the device is safe and
effective for its intended purpose.
The FDA can ban certain medical devices, detain or seize adulterated or
misbranded medical devices, order repair, replacement or refund of these
devices, and require notification of health professionals and others with regard
to medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may also enjoin and restrain certain violations of the
Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to
medical devices, or initiate action for criminal prosecution of such violations.
International sales of medical devices manufactured in the United States that
are not approved by the FDA for use in the United States, or are banned or
deviate from lawful performance standards, are subject to FDA export
requirements. The Export Reform Act of 1996 has simplified the process of
exporting devices which have not been approved for sale in the United States.
Exported devices are subject to the regulatory requirements of each country to
which the device is exported. Some countries do not have medical device
regulations, but in most foreign countries medical devices are regulated. In
many of these countries the medical device regulations are similar to drug
regulations. The majority of the Company's products are expected to be so
regulated in these countries. Frequently, regulatory approval may first be
obtained in a foreign country prior to application in the United States to take
advantage of differing regulatory requirements. The Company has completed CE
Mark registrations for substantially all of its products in accordance with the
implementation of various medical device directives in the European Union.
The process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which the Company sells
products and can delay the marketing and sale of new products. Countries around
the world have recently adopted more stringent regulatory requirements which are
expected to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of supporting such
releases. No assurance can be given that any of the Company's new medical
devices will be
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<PAGE>
approved on a timely basis, if at all. In addition, regulations regarding the
development, manufacture and sale of medical devices are subject to future
change. The Company cannot predict what impact, if any, such changes might have
on its business. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also subject to environmental laws and regulations both in the
United States and abroad. 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. The
Company believes that compliance with environmental laws will not have a
material impact on its financial position, results of operations, or liquidity.
Given the scope and nature of these laws, there can, however, be no assurance
that environmental laws will not have a material impact on the Company.
-24-
<PAGE>
THIRD-PARTY COVERAGE AND REIMBURSEMENT
The Company's products are purchased by hospitals, doctors and other health care
providers who are reimbursed for the health care services provided to their
patients by third-party payors, such as governmental programs (e.g., Medicare
and Medicaid), private insurance plans and managed care programs. Third party
payors may provide or deny coverage for certain technologies and associated
procedures based on assessment criteria as determined by the third-party payor.
Reimbursement by third-party payors for these services is based on a wide range
of methodologies that may reflect the services' assessed resource costs,
clinical and economic value. These reimbursement methodologies confer different,
and often conflicting, levels of financial risk and incentives to health care
providers and patients, and these methodologies are subject to frequent
refinements. Third party payers are also increasingly adjusting reimbursement
rates and challenging the prices charged for medical products and services.
There can be no assurance that the Company's products will be automatically
covered by third-party payors, that reimbursement will be available or, if
available, that the third-party payors' coverage policies will not adversely
affect the Company's ability to sell its products profitably.
Initiatives to limit the growth of healthcare costs, including price regulation,
are also underway in many countries in which the Company does business.
Implementation of healthcare reforms in significant markets such as Japan,
Europe, and other countries may limit the price of, or the level at which
reimbursement is provided for, the Company's products and may influence a
physician's selection of products used to treat patients.
PROPRIETARY RIGHTS AND PATENT LITIGATION
The Company relies on a combination of patents, trademarks, trade secrets and
non-disclosure agreements to protect its intellectual property. The Company
generally files patent applications in the United States and foreign countries
where patent protection for its technology is appropriate and available. The
Company holds more than 2,800 United States patents (many of which have foreign
counterparts) and has more than 4,600 patent applications pending worldwide that
cover various aspects of its technology. In addition, the Company holds
exclusive and non-exclusive licenses to a variety of third party technologies
covered by patents and patent applications. There can be no assurance that
pending patent applications will result in issued patents, that patents issued
to or licensed by the Company will not be challenged or circumvented by
competitors, or that such patents will be found to be valid or sufficiently
broad to protect the Company's technology or to provide the Company with a
competitive advantage.
The Company relies on non-disclosure and non-competition agreements with
employees, consultants and other parties to protect, in part, trade secrets and
other proprietary technology. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, that others will not independently develop equivalent proprietary
information or that third parties will not otherwise gain access to the
Company's trade secrets and proprietary knowledge.
-25-
<PAGE>
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry, particularly in the areas in
which the Company competes. The Company has defended, and will likely continue
to defend, itself against claims and legal actions alleging infringement of the
patent rights of others. Adverse determinations in any patent litigation could
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties, and, if licenses are not available,
prevent the Company from manufacturing, selling or using certain of its
products, some of which could have a material adverse effect on the Company.
Additionally, the Company may find it necessary to initiate litigation to
enforce its patent rights, to protect its trade secrets or know-how and to
determine the scope and validity of the proprietary rights of others. Patent
litigation can be costly and time-consuming, and there can be no assurance that
the Company's litigation expenses will not be significant in the future or that
the outcome of litigation will be favorable to the Company. Accordingly, the
Company may seek to settle some or all of its pending litigation. Settlement may
include cross-licensing of the patents which are the subject of the litigation
as well as other intellectual property of the Company and may involve monetary
payments to or from third parties.
OTHER LITIGATION AND RISK MANAGEMENT
The testing, marketing and sale of human health care products entails an
inherent risk of product liability claims. The Company is involved in various
lawsuits arising in the normal course of business from product liability claims,
and product liability claims may be asserted in the future relative to events
not known to management at the present time. As a result of current economic
factors impacting the insurance industry, at the beginning of the third quarter
of 2002, the Company elected to become substantially self-insured with respect
to general and product liability claims. Losses for claims in excess of the
limits of purchased insurance would be recorded at the time and to the extent
they are probable and estimable. Management believes that the Company's risk
management practices, including limited insurance coverage, are reasonably
adequate to protect against anticipated general and product liability losses.
However, unanticipated catastrophic losses could have a material adverse impact
on the Company's financial position, results of operations and liquidity.
See the "Legal Proceedings" section below and Note L - Commitments and
Contingencies to the Company's 2002 Consolidated Financial Statements (Exhibit
13.1 filed herewith) for a further discussion of patent and other litigation and
proceedings involving the Company.
EMPLOYEES
As of December 31, 2002, the Company had approximately 13,900 employees,
including more than 7,800 in operations, 1,400 in administration, 1,400 in
clinical and research and development and 3,200 in selling, marketing,
distribution and related administrative support. Of these employees,
approximately 2,100 were employed in the Company's international operations. The
Company believes that the continued success of its business will depend, in
part, on its ability to attract and retain qualified personnel.
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<PAGE>
SEASONALITY
Worldwide sales do not reflect any significant degree of seasonality, however
customer purchases have been lighter in the third quarter of prior years than in
other quarters. This reflects, among other factors, lower demand during summer
months, particularly in European countries.
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<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Cautionary Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995 appearing on pages 15 through
16 of the Company's 2002 Consolidated Financial Statements (Exhibit 13.1 filed
herewith) is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's world headquarters are located in Natick, Massachusetts. It
maintains regional headquarters in Tokyo, Japan; Paris, France; and Singapore.
As of December 31, 2002, the Company's manufacturing, research, distribution
and other key facilities totaled approximately 5 million square feet, of which
approximately 50% was owned by the Company and the balance was leased. As of
December 31, 2002, the Company's principal technology centers were located in
Massachusetts, Indiana, Minnesota, New Jersey, Florida, California, Utah, New
York and Ireland, and its distribution centers were located in Massachusetts,
The Netherlands and Japan. As of December 31, 2002, the Company maintained
twenty technology centers, sixteen in the United States and four in
Ireland. Many of these facilities produce and manufacture products for more than
one of the Company's divisions and include research facilities. The Company
believes that its facilities are adequate to meet its current needs and
continues to assess its plant network strategy.
ITEM 3. LEGAL PROCEEDINGS
Note L - Commitments and Contingencies to the Company's 2002 Consolidated
Financial Statements, appearing on pages 36 through 43 thereto (Exhibit 13.1
filed herewith), is incorporated herein by reference. The following paragraphs
update the disclosure appearing in Note L.
RECENT PATENT LITIGATION ACTIVITY
Litigation with Johnson & Johnson
On March 13, 2002, the Company and Boston Scientific Scimed, Inc. filed suit for
patent infringement against the Johnson & Johnson and Cordis Corporation
(Cordis), a subsidiary of Johnson & Johnson, alleging that its Cypher(TM)
drug-eluting stent infringes a patent owned by the Company. The suit was filed
in the District Court of Delaware seeking monetary and injunctive. On March 20,
2003, the Company filed a motion seeking a preliminary injunction with respect
to the sale of the Cypher stent in the United States.
On January 13, 2003, Cordis filed suit for patent infringement against the
Company and Scimed Life Systems, Inc. (SCIMED) alleging the Company's
Express(2)(TM) coronary stent is infringed by a U.S. patent owned by Cordis. The
suit was filed in the U.S. District Court for the District of Delaware seeking
monetary and injunctive relief. On February 14, 2003, Cordis filed a motion
requesting a preliminary injunction. On March 5, 2003, the Company answered the
complaint,
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denying the allegations, and filed a counterclaim against Cordis, alleging that
certain products sold by Cordis infringe a patent owned by the Company. A
hearing on the preliminary injunction motion has been scheduled for June 23 and
24, 2003, with post-hearing briefing to follow.
On February 20, 2003, Janssen Pharmaceuticals NV, an affiliate of Johnson &
Johnson, filed suit against the Company (through its subsidiaries) and Medinol
alleging that BX Velocity stents manufactured in Belgium do not infringe a
European patent owned by Medinol and exclusively licensed to the Company. The
suit was filed in Belgium seeking a declaration of invalidity and
noninfringement of the Medinol patent and monetary relief. A hearing is
scheduled for June 16, 2003.
On March 30, 2000, the Company (through its subsidiary) filed suit for patent
infringement against two subsidiaries of Cordis alleging that Cordis' BX
Velocity stent delivery system infringes a published utility model owned by
Medinol and exclusively licensed to the Company. The complaint was filed in the
District Court of Dusseldorf, Germany seeking monetary and injunctive relief. A
hearing was held on March 15, 2001, and on June 6, 2001, the Court issued a
written decision that Cordis' BX Velocity stent delivery system infringes the
Medinol published utility model. Cordis appealed the decision of the German
court. A hearing on the appeal has been suspended until a decision is rendered
in a related action pending in the U.S. District Court for the Southern District
of New York between the Company and Medinol.
Litigation with Guidant Corporation
On December 3, 2002, Advanced Cardiovascular Systems, Inc. (ACS), a subsidiary
of Guidant Corporation (Guidant), filed suit for patent infringement against the
Company and SCIMED alleging the Company's Express(TM) stent infringes a U.S.
patent owned by ACS. The suit was filed in the U.S. District Court for the
Northern District of California seeking monetary and injunctive relief. On
January 30, 2003, the Company filed an answer denying allegations of the
complaint and concurrently filed a counterclaim seeking declaratory judgment of
patent invalidity and noninfringement and alleging that certain ACS products
infringe five U.S. patents owned by the Company. The Company seeks monetary and
injunctive relief. On March 17, 2003, ACS filed an amended complaint alleging an
additional patent is infringed by the Company's product.
On December 30, 2002, the Company and certain of its subsidiaries filed suit for
patent infringement against Guidant, and Guidant Sales Corporation and ACS
alleging that certain stent delivery systems (Multi-Link Zeta(TM) and Multi-Link
Penta(TM)) and balloon catheter products (Agil-Trac(TM)) sold by Guidant and ACS
infringe nine U.S. patents owned by the Company. The complaint was filed in The
U.S. District Court for the Northern District of California seeking monetary and
injunctive relief. On February 21, 2003, Guidant filed an answer denying the
allegations of the complaint and filed a counterclaim seeking declaratory
judgment of patent invalidity and noninfringement and alleging that certain
Company products infringe patents owned by ACS. A scheduling conference has been
set for May 9, 2003.
On July 30, 2002, Guidant and Cook Group Incorporated, the parent of Cook, Inc.
announced their agreement to merge Cook Group Incorporated into a wholly-owned
subsidiary of Guidant. On the same day, Guidant filed suit against the Company
seeking a declaratory judgment that
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upon completion of the merger, the license granted under the License Agreement
among Angiotech Pharmaceuticals, Inc. (Angiotech), Cook and the Company may be
assigned or sublicensed by Cook to ACS and that ACS is entitled to use the
information, data or technology generated or gathered for the purposes of
obtaining regulatory approval for a coronary stent utilizing the Angiotech
technology. The Company answered the complaint and counterclaimed for
declaratory and injunctive relief alleging that Guidant is tortiously
interfering with Cook's performance under the Agreement. Guidant has announced
the termination of their agreement to merge with Cook, and on March 13, 2003,
the Company and Guidant filed a joint motion to dismiss the claims and
counterclaims between the parties without prejudice. On March 14, 2003, the
Court granted the joint motion.
On June 30, 1998, Cook, Inc. (Cook), filed suit in the Regional Court,
Dusseldorf Division for Patent Disputes, in Dusseldorf, Germany against the
Company alleging that the Company's Passager(TM) peripheral vascular stent graft
and Vanguard(TM) endovascular aortic graft products infringe the same Cook
patent. A hearing was held on July 22, 1999, and a decision was received in
September 1999 finding that the Company's products infringe the Cook patent. The
Company appealed the decision. The hearing originally scheduled for March 27,
2003 has been postponed until March 25, 2004.
Litigation with Medinol Ltd.
On September 10, 2002, the Company filed suit against Medinol Ltd. (Medinol)
alleging Medinol's NIRFlex(TM) and NIRFlex(TM) Royal products infringe two
patents owned by the Company. The suit was filed in Dusseldorf, Germany seeking
monetary and injunctive relief. A hearing previously scheduled for February 4,
2003 has been rescheduled for September 23, 2003.
Other Proceedings
On October 31, 2000, the Federal Trade Commission (FTC) filed suit against the
Company for alleged violations of a Consent Order dated May 5, 1995, pursuant
to which the Company had licensed certain intravascular ultrasound technology
to Hewlett-Packard Company (HP). The suit was filed in the U.S. District Court
for the District of Massachusetts seeking civil penalties and injunctive
relief. The Company filed a motion to dismiss the complaint and the FTC filed a
motion for summary judgment. On October 5, 2001, the Court dismissed three of
the five claims against the Company and granted summary judgment of liability
in favor of the FTC on the two remaining claims. On March 28, 2003, the Court
entered a judgment against the Company in the amount of approximately $7
million. The Company is evaluating whether to appeal the judgment.
The Company is involved in various lawsuits from time to time. In management's
opinion, the Company is not currently involved in any legal proceedings other
than those specifically identified above or in Note L - Commitments and
Contingencies to the Company's 2002 Consolidated Financial Statements which,
individually or in the aggregate, could have a material effect on the financial
condition, operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company as of December 31, 2002 were
as follows:
DIRECTORS:
<TABLE>
<S> <C> <C>
John E. Abele 65 Director, Founder
Ursula M. Burns 44 Director, Senior Corporate Vice President and
President, Business Group Operations, Xerox
Corporation
Joseph A. Ciffolillo 64 Director, Private Investor
Joel L. Fleishman 68 Director, Senior Advisor to the Atlantic
Philanthropies and Professor of Law and Public
Policy, Duke University
Marye Anne Fox, Ph.D. 55 Director, Chancellor of North Carolina State
University
Ray J. Groves 67 Director, President and Chief Executive Officer of
Marsh Inc.
Lawrence L. Horsch 68 Director, Chairman of Eagle Management &
Financial Corp.
Ernest Mario, Ph.D. 64 Director, Chairman and Chief Executive Officer,
IntraBiotics Pharmaceuticals, Inc.
N.J. Nicholas, Jr. 63 Director, Private Investor
Peter M. Nicholas 61 Director, Founder, Chairman of the Board
Uwe E. Reinhardt, Ph.D. 65 Director, James Madison Professor, Princeton
University
Senator Warren B. Rudman 72 Director, Former U.S. Senator, Partner, Paul, Weiss,
Rifkind, Wharton, & Garrison
James R. Tobin 58 Director, President and Chief Executive Officer
</TABLE>
At the Company's 2003 Annual Meeting of Stockholders, stockholders will be asked
to vote for the election of John E. Pepper, age 64, to serve as a Class III
member of the Board of Directors of the Company. Mr. Lawrence L. Horsch, a Class
II Director, is retiring from the Board and will not be standing for
re-election.
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EXECUTIVE OFFICERS:
<TABLE>
<S> <C> <C>
Lawrence C. Best 52 Senior Vice President-Finance & Administration and
Chief Financial Officer
Fredericus A. Colen 50 Senior Vice President and Chief Technology Officer
Paul Donovan 47 Vice President, Corporate Communications
Paul A. LaViolette 45 Senior Vice President and Group President,
Cardiovascular
Robert G. MacLean 59 Senior Vice President-Human Resources
Stephen F. Moreci 51 Senior Vice President and Group President,
Endosurgery
Paul W. Sandman 55 Senior Vice President, Secretary and General Counsel
James H. Taylor, Jr. 63 Senior Vice President, Corporate Operations
James R. Tobin 58 Director, President and Chief Executive Officer
</TABLE>
On February 25, 2003, Dennis A. Ocwieja, age 57, was appointed to the Executive
Committee of the Company as Senior Vice President - Regulatory Affairs.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has standing Audit, Executive Compensation
and Human Resources, Strategic Investment and Governance Committees. Joel L.
Fleishman, Marye Anne Fox, Ernest Mario, Uwe E. Reinhardt, and Warren B. Rudman
currently serve on the Audit Committee. Ursula M. Burns, Joseph A. Ciffolillo,
Ray J. Groves, and Lawrence L. Horsch currently serve on the Executive
Compensation and Human Resources Committee. Ursula M. Burns, Joseph A.
Ciffolillo, Marye Anne Fox, Ernest Mario, N.J. Nicholas, Jr. and James R. Tobin
currently serve on the Strategic Investment Committee. Joel L. Fleishman, Ray J.
Groves, Peter M. Nicholas, Uwe E. Reinhardt, and Warren B. Rudman currently
serve on the Governance Committee. A description of the committees of the Board
of Directors of the Company is set forth in the Company's definitive Proxy
Statement to be filed with the Commission on or about April 4, 2003, and is
incorporated herein by reference.
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<PAGE>
BIOGRAPHICAL SUMMARIES
John E. Abele, a co-founder of the Company, has been a Director of the Company
since 1979 and Founder Chairman since 1995. Mr. Abele held the position of
Treasurer from 1979 to 1992, Co-Chairman from 1979 to 1995 and Vice Chairman and
Founder, Office of the Chairman from February 1995 to March 1996. He was
President of Medi-tech, Inc. from 1970 to 1983, and prior to that served in
sales, technical and general management positions for Advanced Instruments, Inc.
Mr. Abele is the Chairman of the Board of the FIRST (For Inspiration and
Recognition of Science and Technology) Foundation and is also a member of
numerous not-for-profit boards. Mr. Abele received a B.A. degree from Amherst
College.
Lawrence C. Best has served as Senior Vice President and Chief Financial Officer
for the Company since 1992. Prior to his work with the Company, Mr. Best was a
partner in the accounting firm of Ernst & Young, where he specialized in serving
multinational companies in the high technology and life sciences fields. He
served a two-year fellowship at the Securities and Exchange Commission from 1979
to 1981 and a one-year term as a White House-appointed Presidential Exchange
Executive in Washington, D.C. He serves on the Board of Directors of Biogen,
Inc. Mr. Best received a B.B.A. degree from Kent State University.
Ursula M. Burns became a Director of the Company in 2002. Ms. Burns is President
of the Business Group Operations and Corporate Senior Vice President of Xerox
Corporation. Ms. Burns joined Xerox in 1980, advancing through several
engineering and management positions. Ms. Burns served as Vice President and
General Manager, Departmental Business Unit from 1997 to 1999, Senior Vice
President, Worldwide Manufacturing and Supply Chain Services from 1999 to 2000,
Senior Vice President, Corporate Strategic Services from 2000 to October 2001
and President of Document Systems and Solutions Group until her most recent
appointment in January 2003. She serves on the Boards of Directors of Banta
Corporation, the National Association of Manufacturers, the University of
Rochester and the Rochester Business Alliance. Ms. Burns earned a Bachelor of
Science degree from Polytechnic Institute of New York and a Master of Science
degree in mechanical engineering from Colombia University.
Joseph A. Ciffolillo joined the Company in 1983 as President of Medi-tech, Inc.
During his tenure at the Company, he also served as President of Microvasive,
Inc. and as Executive Vice President and Chief Operating Officer from 1989 until
his retirement in 1996. In 1992, Mr. Ciffolillo became a director of the
Company. Previously, Mr. Ciffolillo spent twenty years with Johnson & Johnson
where he held a number of management positions including President, Johnson &
Johnson Orthopedic Company. Mr. Ciffolillo is a member of the Spray Venture Fund
Investment Committee and a member of the Board of Directors of MedSource
Technologies, Inc. He also serves on a number of for-profit and not-for-profit
boards. Mr. Ciffolillo is Chairman of the Advisory Board of the Health Science
Technology Division of Harvard University and the
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Massachusetts Institute of Technology. He is also Chairman of the President's
Council of the Massachusetts General Hospital and a Director of South Coast
Health Systems. Mr. Ciffolillo received his B.A. from Bucknell University, where
he also serves as a Member of the Board of Trustees.
Fredericus A. Colen was appointed to the Executive Committee of the Company in
July 2001 as Senior Vice President and Chief Technology Officer. Mr. Colen
joined the Company in 1999 as Vice President of Research and Development of
Scimed and, in February 2001, he was promoted to Senior Vice President,
Cardiovascular Technology of Scimed. Before joining the Company, he worked for
several medical device companies, including Guidant, where he launched the Delta
T DDD Pacemaker platform, and St. Jude Medical, where he served as Managing
Director for the European subsidiary of the Cardiac Rhythm Management Division
and as Executive Vice President, responsible for worldwide R & D for implantable
pacemaker systems. Mr. Colen was educated in The Netherlands and Germany and
holds the U.S. equivalent of a Master's Degree in Electrical Engineering with
focus on medical technology from the Technical University in Aachen, Germany. He
was the Vice President of the International Association of Prosthesis
Manufacturers (IAPM) in Brussels from 1995 to 1997.
Paul Donovan joined the Company in March 2000 as Vice President, Corporate
Communications. Most recently, Mr. Donovan was the Executive Director of
External Affairs at Georgetown University Medical Center, where he directed
media, government and community relations as well as employee communications
since 1998. From 1997 to 1998, Mr. Donovan was Chief of Staff at the United
States Department of Commerce. From 1993 to 1997, Mr. Donovan served as Chief of
Staff to Senator Edward M. Kennedy and from 1989 to 1993 as Press Secretary to
Senator Kennedy. Mr. Donovan received a B.A. degree from Dartmouth College.
Joel L. Fleishman joined the Company as a Director in October 1992. Mr.
Fleishman served as President of The Atlantic Philanthropies from September 1993
until January 2001, when he became Senior Advisor of that organization. He is
also Professor of Law and Public Policy and has served in various administrative
positions, including First Senior Vice President at Duke University, since 1971.
Mr. Fleishman is a founding member of the governing board of the Duke Center for
Health Policy Research and Education and was the founding director of Duke
University's Terry Sanford Institute of Public Policy. He is the director of the
Samuel and Ronnie Heyman Center for Ethics, Public Policy and the Professions.
Mr. Fleishman also serves as Chairman of the Board of Trustees of The John and
Mary Markle Foundation, Vice-Chairman of the Board of Trustees of the Urban
Institute and as a director of Polo Ralph Lauren Corporation. Mr. Fleishman
received A.B., M.A. and J.D. degrees from the University of North Carolina at
Chapel Hill, and an LL.M. degree from Yale University.
Marye Anne Fox became a Director of the Company in October 2001. Dr. Fox is
Chancellor of North Carolina State University and Distinguished University
Professor of Chemistry. From 1976 to 1998, she was a member of the faculty at
the University of Texas, where she taught chemistry and held the Waggoner
Regents Chair in Chemistry from 1991 to 1998. She served as the University's
Vice President for Research from 1994 to 1998. Dr. Fox is the Co-Chair of the
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National Academy of Sciences' Government-University-Industry Research Roundtable
and serves on President Bush's Council of Advisors on Science and Technology.
She has served as the Vice Chair of the National Science Board. She also serves
on the boards of a number of other scientific, technological and civic
organizations, and is a member of the Boards of Directors of Red Hat Corp.,
Pharmaceutical Product Development, Inc., Burroughs-Wellcome Trust and the
Camille and Henry Dreyfus Foundation. Dr. Fox also serves on the Board of
Directors of W.R. Grace Co., a specialty chemical company that filed a petition
for reorganization under Chapter 11 of the Federal Bankruptcy Code in April
2001. She has been honored by a wide range of educational and professional
organizations, and she has authored more than 350 publications, including five
books. Dr. Fox holds a B.S. in Chemistry from Notre Dame College, an M.S. in
Organic Chemistry from Cleveland State University, and a Ph.D. in Organic
Chemistry from Dartmouth College.
Ray J. Groves joined the Company as a Director in May 1999. Mr. Groves is
President and Chief Executive Officer of Marsh Inc., a subsidiary of Marsh &
McLennan Companies, Inc. He served as Chairman of Legg Mason Merchant Banking,
Inc. from 1995 to 2001. Mr. Groves served as Chairman and Chief Executive
Officer of Ernst & Young for 17 years until his retirement in 1994. Mr. Groves
currently serves as a member of the Boards of Directors of Electronic Data
Systems Corporation, The Gillette Company, and Marsh & McLennan Companies, Inc.
Mr. Groves serves on the Board of Trustees of the New York State Public Policy
Institute and is a member of the Council on Foreign Relations. He is a former
member of the Board of Governors of the American Stock Exchange and the National
Association of Securities Dealers. Mr. Groves is former Chairman of the Board of
Directors of the American Institute of Certified Public Accountants. He is a
member and former Chair of the Board of Directors of The Ohio State University
Foundation and a member of the Dean's Advisory Council of the Fisher College of
Business. He is a former member of the Board of Overseers of The Wharton School,
University of Pennsylvania and served as the Chairman of its Center for the
Study of the Service Sector. Mr. Groves is a managing director, a member of the
executive committee and Secretary-Treasurer of the Metropolitan Opera
Association. Mr. Groves received a B.S. degree from The Ohio State University.
Lawrence L. Horsch joined the Company as a Director in February 1995.
Previously, he had been Chairman of the Board of SCIMED Life Systems, Inc. from
1977 to 1994, director from 1977 to 1995 and Acting Chief Financial Officer from
1994 to 1995. Since 1990, Mr. Horsch has served as Chairman of Eagle Management
& Financial Corp., a management consulting firm. He was Chairman and Chief
Executive Officer of Munsingwear, Inc., from 1987 to 1990. Mr. Horsch also
serves on several private company boards. Mr. Horsch received a B.A. degree from
the University of St. Thomas and an M.B.A. degree from Northwestern University.
Paul A. LaViolette joined the Company as President, Boston Scientific
International, and Vice President--International in January 1994. In February
1995, Mr. LaViolette was elected to the position of Senior Vice President and
Group President--Nonvascular Businesses. In October 1998, Mr. LaViolette was
appointed President, Boston Scientific International, and in February 2000
assumed responsibility for the Company's Scimed, EPT and Target businesses as
Group President, Cardiovascular. In March, 2001, he also assumed the position of
President, SCIMED.
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<PAGE>
Prior to joining the Company, he was employed by C.R. Bard, Inc. in various
capacities, including President, U.S.C.I. Division, from July 1993 to November
1993, President, U.S.C.I. Angioplasty Division, from January 1993 to July 1993,
Vice President and General Manager, U.S.C.I. Angioplasty Division, from August
1991 to January 1993, and Vice President U.S.C.I. Division, from January 1990 to
August 1991. Mr. LaViolette received his B.A. degree from Fairfield University
and an M.B.A. degree from Boston College.
Robert G. MacLean joined the Company as Senior Vice President--Human Resources
in April 1996. Prior to joining the Company, he was Vice President--Worldwide
Human Resources for National Semiconductor Corporation in Santa Clara,
California from October 1992 to March 1996. Mr. MacLean has held various human
resources management positions in the U.S. and Europe during his career. Prior
to his business endeavors, he was Economics Professor at the University of the
Pacific. Mr. MacLean received his B.A. and M.A. degrees and completed his
doctoral studies in economics from Stanford University.
Ernest Mario became a Director of the Company in October 2001. Dr. Mario is
currently the Chairman of IntraBiotics Pharmaceuticals, Inc., a pharmaceutical
development company, and has served as a senior executive of a number of major
international companies. From 1993 to 1997, Dr. Mario served as Co-Chairman and
Chief Executive Officer of ALZA Corporation, a research-based pharmaceutical
company with leading drug-delivery technologies, and Chairman and Chief
Executive Officer from 1997 to 2001. Dr. Mario presently serves on the Boards of
Directors of Catalytica Energy Systems, Inc., Maxygen, Inc., Orchid Biosciences,
Inc., Pharmaceutical Product Development, Inc. and SonoSite, Inc. He is also a
Trustee of Duke University and Chairman of the Board of the Duke University
Health System. He is the Chairman of the American Foundation for Pharmaceutical
Education and serves as an advisor to the colleges of pharmacy at the University
of Maryland, the University of Rhode Island and Rutgers University. Dr. Mario
holds a B.S. in Pharmacy from Rutgers, and an M.S. and a Ph.D. in Physical
Sciences from the University of Rhode Island.
Stephen F. Moreci was appointed to the Executive Committee of the Company as
Senior Vice President and Group President, Endosurgery in December 2000. Mr.
Moreci joined the Company in 1989 and most recently served as the Company's
President of its Medi-tech division since 1999. From 1989 until 1999, Mr. Moreci
held a variety of management positions within the Company, including Vice
President and General Manager of Cardiac Assist from 1989 to 1991, Vice
President and General Manager of Microvasive Endoscopy from 1991 until 1995,
Group Vice President of Nonvascular from 1995 until 1996 and President of
Microvasive Endoscopy from 1996 until 1999. Mr. Moreci received a B.S. degree
from Pennsylvania State University.
N.J. Nicholas, Jr. joined the Company as a Director in October 1994. Mr.
Nicholas served as President of Time, Inc. from September 1986 to May 1990 and
Co-Chief Executive Officer of Time Warner, Inc. from May 1990 until February
1992. N.J. Nicholas, Jr. is a director of Xerox Corporation and Priceline.com.
Mr. Nicholas received an A.B. degree from Princeton University and an M.B.A.
degree from Harvard Business School. He is also the brother of Peter M.
Nicholas, Chairman of the Board of the Company.
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<PAGE>
Peter M. Nicholas, a co-founder of the Company, has been the Chairman of the
Board of the Company since 1995. He has been a Director since 1979 and served as
the Chief Executive Officer from 1979 to March 1999 and Co-Chairman of the Board
from 1979 to 1995. Prior to joining the Company, he was corporate director of
marketing and general manager of the Medical Products Division at Millipore
Corporation, a medical device company, and served in various sales, marketing
and general management positions at Eli Lilly and Company. He is currently Vice
Chairman of the Board of Trustees of Duke University and a member of the Board's
Executive Committee. Mr. Nicholas is also a member of the American Academy of
Achievement and has recently received the Phoenix Lifetime Achievement Award. He
is also a recent recipient of the Ellis Island Medal of Honor, and is a Fellow
of the American Academy of Arts and Sciences. He is a member of the
Massachusetts Business Roundtable and currently serves on the boards of the Boys
& Girls Club of Boston, Massachusetts High Technology Council, and CEO's for
Charter Schools. Mr. Nicholas also serves on several for profit and
not-for-profit boards. After college, Mr. Nicholas served as an officer in the
U.S. Navy, resigning his commission as lieutenant in 1966. Mr. Nicholas received
a B.A. degree from Duke University, and an M.B.A. degree from The Wharton School
of the University of Pennsylvania. He is also the brother of N.J. Nicholas, Jr.,
a Director of the Company.
Dennis A. Ocwieja was appointed to the Executive Committee of the Company as
Senior Vice President - Regulatory Affairs on February 25, 2003. Mr. Ocwieja
joined the Company in February 2000 as Vice President of Corporate Quality. In
February 2002, his role was expanded to Vice President, Corporate Quality and
Regulatory Affairs. From 1995 until 2000, Mr. Ocwieja was an independent
consultant to several Fortune 100 companies in the medical product industry. He
also served as Vice President, Quality and Regulatory Affairs for the Clintec
Nutrition Company from 1993 until 1995 and Vice President, Quality and
Regulatory Affairs for Arjo-Century from 1992 through 1993. From 1968 until 1992
Mr. Ocwieja held a variety of positions at Baxter Healthcare in Product
Development, Product Service, Corporate Documentation and Quality/Regulatory.
Mr. Ocwieja received a Bachelor of Science in Biology from Roosevelt University.
John E. Pepper is Chairman of the Executive Committee of the Board of Directors
of The Procter & Gamble Company where has served in various capacities since
1963, including Chairman from 2000 to 2002, Chief Executive Officer and Chairman
of the Board from 1995 to 1999, President from 1986 to 1995 and director since
1984. Mr. Pepper is a member of the Board of Directors of Xerox Corporation and
Motorola Inc. and served as a member of the Board of Directors of the Company
from November 1999 until May 2001. Mr. Pepper is a Fellow of The Yale
Corporation and a Trustee of the Christ Church Endowment Fund. He serves on the
boards of Partnership for a Drug Free America and the National Advisory Board of
the National Underground Railroad Freedom Center. Mr. Pepper graduated from Yale
University in 1960 and holds honorary doctorate degrees from Ohio State
University, Xavier University, Mount St. Joseph College and St. Petersburg
University (Russia).
Uwe E. Reinhardt, Ph.D. became a Director in 2002. Dr. Reinhardt is the James
Madison Professor of Political Economy and Professor of Economics and Public
Affairs at Princeton University, where he has taught since 1968. Dr. Reinhardt
is a senior associate of the University of Cambridge, England and Trustee of
Duke University, the Duke University Health System, H&Q Healthcare Investors and
H&Q Life Sciences Investors. He also serves on the Boards of Directors of the
Amerigroup Corporation and Triad Hospital, Inc. Dr. Reinhardt is a member of the
National Advisory Council (NAC) for Health Care Policy, Research and Evaluation
for the Agency for Healthcare Research and Quality, U.S. Department of Health
and Human Services. Dr. Reinhardt received a Bachelor of Commerce degree from
the University of Saskatchewan, Canada and a Ph.D. in economics from Yale
University.
Senator Warren B. Rudman joined the Company as a Director in October 1999.
Senator Rudman became a partner in the international law firm Paul, Weiss,
Rifkind, Wharton, and Garrison in
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1992 after serving two terms as a U.S. Senator from New Hampshire from 1980 to
1992. As of January 1, 2003, he became Of Counsel to Paul, Weiss, Rifkin,
Wharton & Garrison LLP. Senator Rudman serves on the Boards of Trustees of the
Brookings Institution, and the Council on Foreign Relations. He also serves on
the boards of Allied Waste Industries, Inc., The Chubb Corporation, Collins &
Aikman Corporation, Raytheon Corporation and several funds managed by the
Dreyfus Corporation. He is also the founding co-chairman of the Concord
Coalition. Senator Rudman received a B.S. from Syracuse University and a LL.B.
from Boston College Law School and served in the U.S. Army during the Korean
War.
Paul W. Sandman joined the Company as Senior Vice President, Secretary and
General Counsel in May 1993. From March 1992 through April 1993, he was Senior
Vice President, General Counsel and Secretary of Wang Laboratories, Inc., where
he was responsible for legal affairs. From 1984 to 1992, Mr. Sandman was Vice
President and Corporate Counsel of Wang Laboratories, Inc., where he was
responsible for corporate and international legal affairs. Mr. Sandman received
his A.B. from Boston College, and his J.D. from Harvard Law School.
James H. Taylor, Jr. joined the Company as Senior Vice President of Corporate
Operations in August 1999. Mr. Taylor most recently served as Vice President of
Global Technology at Nestle Clinical Nutrition from 1995 to 1997. Prior to
joining Nestle, he completed a thirty-year career at Baxter International, where
he held a broad range of positions in operations management, including from 1992
to 1995, the position of Corporate Vice President of Manufacturing Operations
and Strategy. Mr. Taylor received his B.A. degree from the University of North
Carolina.
James R. Tobin joined the Company as Director, President and Chief Executive
Officer in March 1999. Prior to joining the Company, Mr. Tobin served as
President and Chief Executive Officer of Biogen, Inc. from 1997 to 1998 and
Chief Operating Officer of Biogen from 1994 to 1997. From 1972 to 1994, Mr.
Tobin served in a variety of executive positions with Baxter International,
including President and Chief Operating Officer from 1992 to 1994. Previously,
he served at Baxter as Managing Director in Japan, Managing Director in Spain,
President of Baxter's I.V. Systems Group and Executive Vice President. Mr. Tobin
currently serves on the Boards of Directors of Beth Israel Deaconess Medical
Center, the Carl J. Shapiro Institute for Education and Research, Curis, Inc.,
Osiris, Inc. and Applera Corporation (formerly PE Corporation). Mr. Tobin holds
an A.B. from Harvard College and an M.B.A. from Harvard Business School. Mr.
Tobin also served as a lieutenant in the U.S. Navy from 1968 to 1972.
-38-
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under the
symbol "BSX".
The information set forth under the caption "Market for the Company's Common
Stock and Related Matters" included in the Company's 2002 Consolidated Financial
Statements (Exhibit 13.1 filed herewith) is incorporated herein by reference.
The closing price of the Company's Common Stock on March 21, 2003 was $47.40
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five-Year Selected Financial Data"
included in the Company's 2002 Consolidated Financial Statements (Exhibit 13.1
filed herewith) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements and information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's 2002 Consolidated Financial Statements (Exhibit 13.1
filed herewith) are incorporated herein by reference.
-39-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subcaption "Market Risk Disclosures"
contained under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included on page 14 of the Company's 2002
Consolidated Financial Statements (Exhibit 13.1 filed herewith) is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
included in the Company's 2002 Consolidated Financial Statements (Exhibit 13.1
filed herewith) are incorporated herein by reference. The statements and
information set forth under the caption "Quarterly Results of Operations"
included in the Company's 2002 Consolidated Financial Statements (Exhibit 13.1
filed herewith) are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-40-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The required information concerning directors and executive officers set forth
in the Company's definitive Proxy Statement to be filed with the Commission on
or about April 4, 2003 is incorporated herein by reference. See also "Directors
and Executive Officers of the Company" following Item 4 herein.
ITEM 11. EXECUTIVE COMPENSATION
The required information concerning executive compensation set forth in the
Company's definitive Proxy Statement to be filed with the Commission on or about
April 4, 2003 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The required statements concerning security ownership of certain beneficial
owners and management and related stockholder matters set forth in the Company's
definitive Proxy Statement to be filed with the Commission on or about April 4,
2003 are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required statements concerning certain relationships and related
transactions set forth in the Company's definitive Proxy Statement to be filed
with the Commission on or about April 4, 2003 are incorporated herein by
reference.
-41-
<PAGE>
ITEM 14. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Within 90 days prior to the date of this report (the Evaluation Date), the
Company carried out an evaluation, under the supervision of its President and
Chief Executive Officer and Senior Vice President - Finance & Administration and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the
Company's President and Chief Executive Officer and Senior Vice President -
Finance & Administration and Chief Financial Officer concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in ensuring that material information relating to the Company required to be
included in the Company's periodic filings with the Securities and Exchange
Commission was made known to them on a timely basis. It should be noted that any
system of controls is designed to provide reasonable, but not absolute,
assurances that the system will achieve its stated goals under all potential
circumstances.
Changes in internal controls
There were no significant changes in the Company's internal controls, or to the
Company's knowledge, in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the Evaluation Date.
-42-
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements.
The response to this portion of Item 15 is set forth under
Item 8.
(a)(2) Financial Schedules.
The response to this portion of Item 15 is filed herewith as a
separate attachment to this report.
(a)(3) Exhibits (* documents filed herewith).
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
-- -----
<S> <C>
3.1 Second Restated Certificate of Incorporation of the Company
(Exhibit 3.1, Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-11083).
3.2 Certificate of Amendment of the Second Restated Certificate of
Incorporation of the Registrant (Exhibit 3.2, Annual Report on
Form 10-K for the year ended December 31, 1994, File No.
1-11083).
3.3 Certificate of Second Amendment of the Second Restated
Certificate of Incorporation of the Registrant (Exhibit 3.3,
Annual Report on Form 10-K for the year ended December 31,
1998, File No. 1-11083).
3.4 Restated By-laws of the Company (Exhibit 3.2, Registration No.
33-46980).
4.1 Specimen Certificate for shares of the Company's Common Stock
(Exhibit 4.1, Registration No. 33-46980).
4.2 Description of Capital Stock contained in Exhibits 3.1, 3.2,
3.3 and 3.4.
4.3 Form of Debt Securities Indenture (Exhibit 4.4, Registration
Statement on Form S-3 of the Company, BSC Capital Trust, BSC
Capital Trust II and BSC Capital Trust III, Registration No.
333-64887).
4.4 Form of First Supplemental Indenture dated as of December 6,
2001 (Exhibit 4.4, Annual Report on Form 10-K for the year
ended December 31, 2002, File No. 1-110830).
4.5 6.625% Promissory Notes due March 15, 2005 issued by the
Company in the aggregate principal amount of $500 million,
each dated as of March 10, 1998 (Exhibit Nos. 4.1, 4.2 and 4.3
to the Company's Current Report on Form 8-K dated March 30,
1998, File No. 1-11083).
10.1 Form of Credit Agreement among the Company, The Several
Lenders and Banc of America Securities LLC dated as of August
15, 2001 (Exhibit 10.2, Quarterly Report on Form 10-Q for
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
-- -----
<S> <C>
the quarter ended September 30, 2001, File No. 1-11083).
10.2 Form of Credit Agreement among the Company and The Several
Lenders dated as of May 31, 2002 (Exhibit 10.1, Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002, File
No. 1-11083).
10.3 Form of Credit and Security Agreement dated as of August 16,
2002 among Boston Scientific Funding Corporation, the Company,
Blue Ridge Asset Funding Corporation, Victory Receivables
Corporation The Bank of Tokyo-Mitsubishi Ltd., New York Branch
and Wachovia Bank, N.A. (Exhibit 10.1, Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002, File No.
1-11083).
10.4 Form of Receivables Sale Agreement dated as of August 16, 2002
between the Company and each of its Direct or Indirect
Wholly-Owned Subsidiaries that Hereafter Becomes a Seller
Hereunder, as the Sellers, and Boston Scientific Funding
Corporation, as the Buyer (Exhibit 10.2, Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002, File No.
1-11083).
*10.6 License Agreement among Angiotech Pharmaceuticals, Inc., Cook
Incorporated and the Company dated July 9, 1997, and related
Agreement dated December 13, 1999.
10.7 Agreement Containing Consent Decree, dated as of February 23,
1995, between the Company and the Federal Trade Commission
(Exhibit 10.16, Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-11083).
10.8 Letter Agreement, dated June 22, 1992, between the Company and
Lawrence C. Best (Exhibit 10.11, Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 1-11083).
10.9 Letter Agreement dated March 17, 1999, between the Company and
James R. Tobin (Exhibit 10.34, Annual Report on Form 10-K for
the year ended December 31, 1998, File No. 1-11083).
10.10 Form of Indemnification Agreement between the Company and
certain Directors and Officers (Exhibit 10.16, Registration
No. 33-46980).
10.11 Form of Retention Agreement between the Company and certain
Executive Officers (Exhibit 10.23, Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-11083).
*10.12 Boston Scientific Corporation 401(k) Retirement Savings Plan,
as Amended and Restated, Effective January 1, 2001, and
amended as of January 1, 2003.
10.13 Boston Scientific Corporation Global Employee Stock Ownership
Plan, as Amended and Restated (Exhibit 10.18, Annual Report on
Form 10-K for the year ended December 31, 1997,
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
-- -----
<S> <C>
Exhibit 10.21, Annual Report on Form 10-K for the year ended
December 31, 2000, Exhibit 10.22, Annual Report on Form 10-K
for the year ended December 31, 2000, File No. 1-11083).
10.14 Boston Scientific Corporation Deferred Compensation Plan,
Effective January 1, 1996 (Exhibit 10.17, Annual Report on
Form 10-K for the year ended December 31, 1996, File No.
11083).
10.15 Boston Scientific Corporation 1992 Non-Employee Directors'
Stock Option Plan, as amended (Exhibit 10.2, Annual Report on
Form 10-K for the year ended December 31, 1996, Exhibit 10.3,
Annual Report on Form 10-K for the year ended December 31,
2000, File No. 1-11083).
10.16 Boston Scientific Corporation 2000 Long Term Incentive Plan
(Exhibit 10.20, Annual Report on Form 10-K for the year ended
December 31, 1999, Exhibit 10.18, Annual Report on Form 10-K
for the year ended December 31, 2001, File No. 1-11083).
10.17 Boston Scientific Corporation 1995 Long-Term Incentive Plan,
as amended (Exhibit 10.1, Annual Report on Form 10-K for the
year ended December 31, 1996, Exhibit 10.5, Annual Report on
Form 10-K for the year ended December 31, 2001, File No.
1-11083)
10.18 Boston Scientific Corporation 1992 Long-Term Incentive Plan,
as amended (Exhibit 10.1, Annual Report on Form 10-K for the
year ended December 31, 1996, Exhibit 10.2, Annual Report on
Form 10-K for the year ended December 31, 2001, File No.
1-11083).
10.19 SCIMED Life Systems, Inc. 1991 Directors Stock Option Plan, as
amended (Exhibit 4.2, Registration No. 33-89772 which was
incorporated by reference to Exhibit A to SCIMED's Proxy
Statement dated June 8, 1994 for its 1994 Annual Meeting of
Shareholders, Commission File No. 0-9301).
10.20 SCIMED Life Systems, Inc. 1992 Stock Option Plan (Exhibit 4.1,
Registration No. 33-89772 which was incorporated by reference
to Exhibit A to SCIMED's Proxy Statement dated May 26, 1992
for its 1992 Annual Meeting of Shareholders, Commission File
No. 0-9301).
10.21 Heart Technology, Inc. Restated 1989 Stock Option Plan
(Exhibit 4.5, Registration No. 33-99766 which was incorporated
by reference to Exhibit 10.4 to the Registration Statement on
Form S-1 of Heart Technology, Registration No. 33-45203).
10.22 EP Technologies, Inc. 1991 Stock Option/Stock Issuance Plan
(Exhibit 4.6, Registration No. 33-80265 which was incorporated
by reference to EPT's Registration Statement on Form S-8, File
No. 33-82140).
10.23 EP Technologies, Inc. 1993 Stock Option/Stock Issuance Plan,
(Exhibit 4.5, Registration No. 33-80265 which was incorporated
by reference to EPT's Registration Statement on Form S-8,
Registration No. 33-93196).
10.24 Target Therapeutics, Inc. 1988 Stock Option Plan (Exhibit
10.2, Quarterly Report of Target Therapeutics, Inc. on Form
10-Q for the quarter ended September 30, 1996, File No.
0-19801).
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
-- -----
<S> <C>
10.25 Target Therapeutics, Inc. 1988 Stock Option Plan, (Exhibit
10.3 Quarterly Report of Target Therapeutics, Inc. on Form
10-Q for the quarter ended September 30, 1996, File No.
0-19801).
10.26 Embolic Protection Incorporated 1999 Stock Plan (Exhibit 10.1,
Registration Statement on Form S-8 of the Company,
Registration No. 333-61060).
10.27 Quanam Medical Corporation 1996 Equity Incentive Plan (Exhibit
10.2, Registration Statement on Form S-8 of the Company,
Registration No. 333-61060).
10.28 Quanam Medical Corporation 1996 Stock Plan (Exhibit 10.3,
Registration Statement on Form S-8 of the Company,
Registration No. 333-61060).
10.29 RadioTherapeutics Corporation 1994 Stock Incentive Plan
(Exhibit 10.1, Registration Statement on Form S-8 of the
Company, Registration No. 333-76380).
11 Statement regarding computation of per share earnings
(included in Note O to the Company's 2002 Consolidated
Financial Statements for the year ended December 31, 2002,
filed as Exhibit 13.1 hereto).
*12.1 Statement regarding computation of ratios of earnings to fixed
charges.
*13.1 The Company's 2002 Consolidated Financial Statements for the
year ended December 31, 2002.
13.2 Report of Independent Auditors, Ernst & Young LLP (included in
the Company's 2002 Consolidated Financial Statements for the
year ended December 31, 2002, filed as Exhibit 13.1 hereto).
*21.1 List of the Company's subsidiaries as of March 21, 2003.
*23.1 Consent of Independent Auditors, Ernst & Young LLP.
*99.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
*99.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
</TABLE>
-46-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March 31, 2003 BOSTON SCIENTIFIC CORPORATION
By: /s/ Lawrence C. Best
----------------------------------
Lawrence C. Best
Chief Financial Officer
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 Company and in
the capacities and on the dates indicated.
Dated: March 31, 2003 /s/ John E. Abele
--------------------------------------
John E. Abele
Director, Founder
Dated: March 31, 2003 /s/ Lawrence C. Best
--------------------------------------
Lawrence C. Best
Senior Vice President--Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Dated: March 31, 2003 /s/ Ursula M. Burns
--------------------------------------
Ursula M. Burns
Director
Dated: March 31, 2003 /s/ Joseph A. Ciffolillo
--------------------------------------
Joseph A. Ciffolillo
Director
Dated: March 31, 2003 /s/ Joel L. Fleishman
--------------------------------------
Joel L. Fleishman
Director
-47-
<PAGE>
Dated: March 31, 2003 /s/ Marye Anne Fox
--------------------------------------
Marye Anne Fox
Director
Dated: March 31, 2003 /s/ Ray J. Groves
--------------------------------------
Ray J. Groves
Director
Dated: March 31, 2003 /s/ Lawrence L. Horsch
--------------------------------------
Lawrence L. Horsch
Director
Dated: March 31, 2003 /s/ Ernest Mario
--------------------------------------
Ernest Mario
Director
Dated: March 31, 2003 /s/ N.J. Nicholas, Jr.
--------------------------------------
N.J. Nicholas, Jr.
Director
Dated: March 31, 2003 /s/ Peter M. Nicholas
--------------------------------------
Peter M. Nicholas
Director, Chairman of the Board
Dated: March 31, 2003 /s/ Uwe E. Reinhardt, Ph.D.
--------------------------------------
Uwe E. Reinhardt, Ph.D.
Director
Dated: March 31, 2003 /s/ Warren B. Rudman
--------------------------------------
Warren B. Rudman
Director
Dated: March 31, 2003 /s/ James R. Tobin
--------------------------------------
James R. Tobin
Director, President and
Chief Executive Officer
(Principal Executive Officer)
-48-
<PAGE>
CERTIFICATIONS
I, James R. Tobin, certify that:
1. I have reviewed this annual report on Form 10-K of Boston Scientific
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ James R. Tobin
_______________________
James R. Tobin
Chief Executive Officer
-49-
<PAGE>
CERTIFICATIONS
I, Lawrence C. Best, certify that:
1. I have reviewed this annual report on Form 10-K of Boston Scientific
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Lawrence C. Best
_______________________
Lawrence C. Best
Chief Financial Officer
-50-
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Charges to
Balance at Charges to (Deductions from) Balance at
Beginning Costs and Other End of
Description of Period Expenses Deductions Accounts Period
- ----------- --------- -------- ---------- -------- ------
(In millions)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2002
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances $62 3 6(a) (1)(b) $58
YEAR ENDED DECEMBER 31, 2001
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances $67 9 7(a) (7)(b) $62
YEAR ENDED DECEMBER 31, 2000
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances $63 8 9(a) 5(b) $67
</TABLE>
- ----------
(a) Uncollectible accounts written off.
(b) Charges for sales returns and allowances, net of actual sales returns
Certain prior years' amounts have been reclassified to conform to the current
year's presentation.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>b45658bsexv10w6.txt
<DESCRIPTION>LICENSE AGREEMENT AMONG ANGIOTECH PHARMACEUTICALS
<TEXT>
<PAGE>
Exhibit 10.6
LICENSE AGREEMENT
This License Agreement, dated as of July 9, 1997, is by and among
Angiotech Pharmaceuticals, Inc., a corporation organized under the laws of the
Province of British Columbia ("Angiotech"); Boston Scientific Corporation, a
Delaware corporation ("BSC"); and Cook Incorporated, an Indiana corporation
("Cook").
WITNESSETH
WHEREAS, Angiotech owns certain domestic and foreign patents and patent
applications and has acquired licenses to other domestic and foreign parents and
patent applications relating to the use of paclitaxel as a coating for certain
medical devices;
WHEREAS, Angiotech has also developed and owns certain products and
technology in the area of the use of paclitaxel as a coating for certain medical
devices;
WHEREAS, Angiotech has the right to grant licenses with respect to such
patents, patent applications, products and technology for use in specified
areas; and
WHEREAS, each of BSC and Cook desires to receive a co-exclusive
license, subject only to the grant of such a license to the other party, for the
use of such patents, patent applications, products and technology for the
duration of the United States and foreign patents covering such products and
technology for certain applications in the fields of vascular and alimentary
tract and liver applications, and Angiotech is willing to grant such a license
to each of BSC and Cook.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Angiotech, BSC and Cook hereby
agree as follows:
1. DEFINITIONS
Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meaning as set forth below:
"Affiliate" means any entity that, directly or indirectly, through one
or more intermediaries, controls, is controlled by or is under common control
with a party to this Agreement. For purposes of this definition, control means
the direct or indirect ownership of at least fifty percent (50%) (or such lesser
percentage which is the maximum allowed to be owned by a foreign corporation in
a particular jurisdiction), of (a) the outstanding voting securities of such
entity, or (b) the decision making authority of such entity.
"Agreement" means this License Agreement, together with all exhibits
annexed hereto, as the same shall be modified and in effect from time to time.
"Allowable Fees" has the meaning set forth in Section 8.7.
<PAGE>
"Angiotech" shall have the meaning set forth in the Preamble to this
Agreement.
"Angiotech Technology" shall mean (a) the Patent Rights, license rights
and existing technology set forth on Exhibit A hereto, (b) any New Angiotech
Technology which Cook or BSC, as the case may be, elects to have included in the
Angiotech Technology pursuant to Section 2.3, (c) any and all improvements to
the foregoing developed by Angiotech, or, subject to limitations and
restrictions on Angiotech's rights to technology licensed from third parties,
for Angiotech, during the term of this Agreement (including those arising under
the CRADA to the extent solely owned by Angiotech), and (d) Technical
Information that is useful or necessary to practice the foregoing.
"Base Unit Number" shall be calculated for each of BSC and Cook and
their respective Affiliates in each Geographical Area at such times as BSC or
Cook or their respective Affiliates, as the case may be, makes its first
commercial sale of an Eligible Stent Product in such Geographical Area for a
vascular application (each, a "Calculation Date") and shall mean, with respect
to BSC or Cook, as the case may be, the number of units of Stent Products sold
for vascular applications by BSC or Cook, as the case may be, to non-Affiliates
in such Geographical Area during the last Contract Quarter ending prior to the
applicable Calculation Date.
"BSC" has the meaning set forth in the preamble to this Agreement.
"BSC Endoluminal Royalty" has the meaning set forth in Section 3.2(c).
"BSC GI Sales Royalty" has the meaning set forth in Section 3.2(b).
"BSC IDE Approval Date" has the meaning set forth Section 3.1(b)(i).
"BSC IDE Filing Date" has the meaning set forth in Section 3.1(a).
"BSC License" shall have the meaning set forth in Section 2.1(a).
"BSC Milestone License Fees" has the meaning set forth in Section 3.1.
"BSC PMA Filing Date" has the meaning set forth in Section 3.1(b).
"BSC Royalty Payments" has the meaning set forth in Section 3.2 and
includes royalties under Section 3.3.
"BSC Sales Milestone License Fee" has the meaning set forth in Section
3.1(c).
"BSC Vascular Sales Royalty" has the meaning set forth in Section
3.2(a).
"Confidential Information" means all information and data provided by
the parties, to each other hereunder in written or other tangible medium and
marked as confidential, or if
-2-
<PAGE>
disclosed orally or displayed, confirmed in writing as confidential within
thirty (30) days after disclosure, except any portion thereof which:
(a) is known to the receiving party, as evidenced by the
receiving party's written records, before receipt thereof under this Agreement;
(b) is disclosed to the receiving party by a third person
who is under no obligation of confidentially to the disclosing party hereunder
with respect to such information and who otherwise has a right to make such
disclosure;
(c) is or becomes generally known in the trade through no
fault of the receiving party;
(d) is independently developed by the receiving party, as
evidenced by the receiving party's written records, without access to such
information; or
(e) is required to be disclosed by applicable statute,
rule or regulation of any court or regulatory authority with competent
jurisdiction; provided, that the party whose information is to be disclosed
shall be notified as soon as possible and the party that is being required to
disclose such information shall, if requested by the party whose information is
to be disclosed, use reasonable good faith efforts, at the expense of the
requesting party, to assist in seeking a protective order (or equivalent) with
respect to such disclosure or otherwise take reasonable steps to avoid making
such disclosure.
"Contract Quarter" means a calendar quarter or any part thereof.
"Contract Year" shall mean each successive period of four consecutive
Contract Quarters, with the first such Contract Year beginning on the first day
of the first full Contract Quarter beginning after the date hereof.
"Cook" has the meaning set forth in the Preamble to this Agreement.
"Cook Endoluminal Royalty" has the meaning set forth in Section 4.2(c).
"Cook GI Sales Royalty" has the meaning set forth in Section 4.2(b).
"Cook IDE Approval Date" has the meaning set forth in Section
4.1(b)(i).
"Cook IDE Filing Date" has the meaning set forth in Section 4.1(a).
"Cook License" shall have the meaning set forth in Section 2.1(b).
"Cook Milestone License Fees" has the meaning set forth in Section 4.1.
"Cook PMA Filing Date" has the meaning set forth in Section 4.1(b).
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"Cook Royalty Payments" has the meaning set forth in Section 4.2 and
includes royalties under Section 4.3.
"Cook Sales Milestone License Fee" has the meaning set forth in Section
4.1(c).
"Cook Vascular Sales Royalty" has the meaning set forth in Section
4.2(a).
"CRADA" has the meaning set forth in Section 6.1.
"Eligible Endoluminal Products" means any Endoluminal Products that
incorporate Angiotech Technology and are sold by BSC, Cook or their Affiliates,
respectively, provided, however, that "Eligible Endoluminal Products" shall not
include any Eligible Stent Products.
"Eligible Products" means Eligible Stent Products and Eligible
Endoluminal Products.
"Eligible Stent Products" means any Stent Products that incorporate
Angiotech Technology and are sold by BSC, Cook or their Affiliates,
respectively; provided, however, that "Eligible Stent Products" shall not
include any Eligible Endoluminal Products.
"Endoluminal Products" means endoluminal drug delivery devices,
including stent grafts and stent-like devices, as well as balloons and other
endoluminal delivery systems used for drug delivery, but excluding vascular
grafts and Stent Products.
"Entity" means any corporation, association, partnership (general or
limited), joint venture, trust, estate, limited liability company, limited
liability partnership or other legal entity or organization.
"FDA" means the United States Food and Drug Administration.
"Geographical Areas" means the five areas of the world comprised of the
(a) United States, (b) the countries of the European Union, as comprised on the
date of this Agreement, (c) Japan, (d) Canada, and (e) the remaining countries
of the world, respectively.
"GI" means the alimentary tract and liver.
"Investment Documentation" means that certain Investment Agreement
between Angiotech, BSC and Cook and related documents, each dated as of the date
of this Agreement, pursuant to which BSC and Cook shall each agree to purchase,
and Angiotech shall agree to sell to each of BSC and Cook, 190,042 Class C
Preference shares of Angiotech's capital stock for the purchase price, and
subject to the terms and conditions, specified therein.
"Licensed Application" shall means the use of Angiotech Technology in
the Licensed Field of Use on or incorporated in Stent Products and Endoluminal
Products, but specifically excluding systemic treatments and pastes,
micropheres, films, sprays and similar formulations in circumstances where such
are not applied to or incorporated in either a Stent Product or an Endoluminal
Product, as the case may be.
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"Licensed Field of Use" means endoluminal vascular and GI applications.
"Licenses" has the meaning set forth in Section 7.2(d).
"Net Sales" means gross sales from the sale, rent, lease or otherwise
making available to third parties of Eligible Products, less the fol1owing, to
the extent the same are credited or deducted from the invoiced amount:
discounts, refunds, replacement or credits allowed to purchasers for return of
Eligible Products or as reimbursement for damaged Eligible Products, freight,
postage, insurance, and other shipping charges, sales and use taxes, customs
duties, and any other governmental tax or charge (except income taxes) imposed
on or at the time of the production, importation, use, or sale of Eligible
Products (if separately invoiced), including any value added taxes (VAT), as
adjusted for rebates and refunds, and transfers at or below cost by or on behalf
of BSC or Cook of Eligible Products or the practice of the Angiotech Technology
in connection with compassionate use, emergency use, bona fide research,
treatment, Investigational New Drug Applications (IND's) or the like authorized
by the FDA or corresponding foreign agencies, provided, however, that in the
case of an Eligible Product sold by BSC or Cook in combination with one or more
Non-Stent Products (collectively, a "Combination Product"), Net Sales shall
exclude the Value (as defined below) of any Non-Stent Products included in the
Combination Product (e.g., where a Stent Product is combined with a balloon for
delivery). No deductions shall be made for commissions paid to individuals,
whether they be with independent agencies or regularly employed by BSC, Cook,
their Affiliates and on their respective payrolls, or for the cost of
col1ections. "Value," for purposes of this subparagraph, shall mean fair market
value, as determined by the commercial sales price of the Non-Stent Product(s)
sold separately, or, if not sold separately, the fair market value of such
Non-Stent Product(s) reasonably determined by BSC or Cook, as the case may be,
with notice of such fair market value to be given to Angiotech together with the
basis upon which such determination was made. If Angiotech does not agree with
the fair market value determined by BSC or Cook, as the case may be, Angiotech
may submit the matter to arbitration in accordance with Section 10.2. The
calculation of Net Sales of Combination Products will be subject to the audit
rights set forth in Section 6.4(b).
"New Angiotech Technology" has the meaning set forth in Section 2.3(a).
"NIH" has the meaning set forth in Section 6.1.
"NIH Agreement" has the meaning set forth in Section 6.1.
"NIH License" means the licenses granted to Angiotech and its
sublicensees under the NIH Agreement.
"NIH Patent Rights" means the intellectual property rights covered
under the NIH Agreement.
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"NIH Royalty" shall mean the percentage of Net Sales required to be
paid to the NIH under the NIH Agreement with respect to sales of Eligible
Products by BSC or Cook, as the case may be, in a Particular country.
"Non-Licensed Products" has the meaning set forth in Section 8.11.
"Non-Stent Product" means all Products of BSC and Cook other than
Endoluminal Products and Stent Products.
"Patent Rights" means all of the following intellectual property or
other rights of Angiotech:
(a) all United States and foreign patents, patent
applications and provisional applications concerning the Angiotech Technology
listed on Exhibit A hereto; including without limitation the patents owned or
filed by, or licensed to, Angiotech listed on Exhibit A hereto; and
(b) all United States and foreign patents issued with
respect to the applications identified in clause (a) hereof including
divisionals, continuations, re-examinations and re-issues of such applications
or patents.
"Remaining Licensee" has the meaning set forth in Section 9.3.
"Stent Products" means stents.
"Technical Information" means all know-how, data and other proprietary
information in the possession of or developed or acquired by Angiotech during
the term of this Agreement that directly relates to the Patent Rights, license
rights and technology set forth on Exhibit A hereto or otherwise relates to the
use of chemotherapeutic or anti-angiogenic compounds or is necessary or useful
to practice the licenses set forth in Section 2.1(a) or 2.l(b), as the case may
be.
"Technology Transfer" means delivery of all Angiotech Technology to BSC
and Cook, including all applicable documentation related thereto, including but
not limited to the documentation and procedures specified in Exhibit B annexed
hereto.
2. LICENSES
2.1 Grants. Subject to the terms and conditions hereof, the
following licenses are granted hereby, each effective as of the date of this
Agreement:
(a) BSC Technology License. In consideration for the
execution, delivery and performance of the Investment Documentation and the
assumption by BSC of its payment and other obligations hereunder and subject to
all the other terms and conditions of this license, Angiotech hereby grants to
BSC an exclusive (subject only to the rights granted to Cook and reserved to
Angiotech in paragraphs (b) and (c) below and the reservations in favor of the
NIH, the United States Government and third parties specified under the NIH
Agreement), worldwide
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right and license to use, manufacture, have manufactured, distribute and sell,
and to grant sublicenses to its Affiliates to use, manufacture, have
manufactured, distribute and sell, the Angiotech Technology in the Licensed
Field of Use solely for use in the Licensed Applications (the "BSC License").
(b) Cook Technology License. In consideration for the
execution, delivery and performance of the Investment Documentation and the
assumption by Cook of its payment and other obligations hereunder and subject to
all the other terms and conditions of this license, Angiotech hereby grants to
Cook an exclusive (subject only to the rights granted to BSC and reserved to
Angiotech pursuant to paragraphs (a) above and (c) below and the reservations in
favor of the NIH, the United States Government and third parties under the NIH
Agreement) worldwide right and license to use, manufacture, have manufactured,
distribute and sell, and to grant sublicenses to its Affiliates to use,
manufacture, have manufactured, distribute and sell, the Angiotech Technology in
the Licensed Field of Use solely for use in the Licensed Applications (the "Cook
License").
(c) Reservation of Rights. Angiotech reserves all rights
to the Angiotech Technology for (i) any use or purpose outside the Licensed
Field of Use and Licenced Applications and (ii) noncommercial research purposes
in all fields and applications, including the Licensed Field of Use and Licensed
Applications.
2.2 Duration and Term. The BSC License, the Cook License and this
Agreement shall each, subject to the early termination provisions of Sections
5.1, 5.2 and 9.1, have a term from the date hereof until the last expiration
date of any United States or foreign patents included in the Angiotech
Technology (including any United States or foreign patents which become part of
the Angiotech Technology after the date of this Agreement), provided, however,
that the terms of Sections 6.4(b) and (c), 8.3 through 8.6 (but only with
respect to rights or obligations that arise prior to the termination of this
Agreement), 8.9, 9.2, 9.3, 10 and 11 shall survive the expiration or termination
of the Agreement or any licenses granted hereunder.
2.3 New Inventions or License Rights. Subject to the rights of
third parties that may exist at any time and from time to time, Angiotech hereby
grants to each of BSC and Cook, jointly or individually, a right to elect to
include in the BSC License (in the event that BSC so elects), and in the Cook
License (in the event that Cook so elects), (a) as "Angiotech Technology," any
new inventions and developments, and (b) as "Patent Rights," any patents and
patent applications, all of the foregoing which are made by, or for, or licensed
to, Angiotech (including those arising from the CRADA), to the extent such new
inventions, developments, patents and patent applications relate to the patents,
patent applications, license rights and other technology described on Exhibit A
hereto or may be used in the Licensed Field of Use (other than Angiotech
Technology) ("New Angiotech Technology"). Angiotech shall notify BSC and Cook in
writing of such inventions and developments, providing a description of the
technology and any financial and other obligations under any applicable third
party license, and each of BSC and Cook may, by giving written notice to
Angiotech at any time during the BSC License and Cook License elect to include
the New Angiotech Technology as Angiotech Technology or
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Patent Rights, whichever is applicable, under this Agreement (to the extent an
election is made, the " Electing Parties"); provided, that an Electing Party
will be obligated to reimburse Angiotech for all of the costs and expenses of
Angiotech under any third party license (apportioned between BSC and Cook by
agreement between BSC and Cook, if both parties elect, and by Angiotech, acting
reasonably, notice of such apportionment to be given to BSC and Cook together
with the basis upon which the apportionment determination was made, between the
uses authorized in this Agreement and uses outside the scope of this Agreement,
subject to the right of BSC or Cook to review the determination and submit the
determination to arbitration pursuant to Section 10.2) and will be obligated to
pay royalties on sales as required by any third party license in addition to the
royalties payable under this Agreement. In addition, an Electing Party will be
subject to all performance, minimum sales and other obligations set forth in the
third party license (or apportioned by Angiotech) relating to such New Angiotech
Technology. Notwithstanding the foregoing, Angiotech shall be free to license
the New Angiotech Technology to third parties outside the Licensed Applications
and the Licensed Field of Use. Notwithstanding the foregoing, in no event shall
any failure by BSC or Cook to elect to include any New Angiotech Technology in
the Angiotech Technology pursuant to this Section 2.3 be deemed to grant any
right to Angiotech to use, manufacture, have manufactured, distribute or sell,
or grant any license to any third party to do any of the same, any Angiotech
Technology in the Licensed Field of Use for use in any Licensed Applications.
3. BSC ROYALTIES & FEES
3.1 BSC Milestone License Fees. In consideration for the license
granted under Section 2.1 (a) of this Agreement, BSC shall pay the following
amounts to Angiotech as license fees at the times, and subject to the
conditions, set forth below (col1ectively, the "BSC Milestone License Fees"):
(a) BSC IDE Fee. Within twenty (20) business days after
the date of the first filing by BSC of an Investigational Device Exemption with
the FDA or an equivalent filing with an appropriate governmental agency in one
or more European countries with respect to a product of BSC incorporating or
utilizing the Angiotech Technology in a vascular application (the "BSC IDE
Filing Date"), BSC shall pay a license fee calculated as follows:
(i) if the BSC IDE Filing Date is on or after
October 15, 1998, the amount of $1,275,000; or
(ii) if the BSC IDE Filing Date is prior to
October 15, 1998, the amount of (x) $1,275,000 minus (y) the product of $125,000
for each complete thirty (30) day period by which the BSC IDE Filing Date
precedes October 15, 1998; provided, however, that in no event shall any fee
calculated pursuant to this Section 3.1(a)(ii) be less than $525,000.
(b) BSC PMA Fee. Within twenty (20) business days after
the date of the first filing by BSC of a Pre-Market Approval Application or
Section 510(k) Pre-Marketing Notification with the FDA, or an equivalent filing
with an appropriate governmental agency in Europe, with respect to a product of
BSC incorporating or utilizing the Angiotech Technology in
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a vascular application (the "BSC PMA Filing"), BSC shall pay an additional
license fee calculated as follows:
(i) subject to Section 3.1(b)(iii) below, if the
date of the BSC PMA Filing is on or after the twenty-four month anniversary of
the date on which the FDA (or appropriate governmental agency in Europe)
approves the applicable IDE or equivalent European filing filed by BSC (the
"BSC IDE Approval Date"), the amount of $2,050,000; or
(ii) if the date of the BSC PMA Filing is prior
to the twenty-four month anniversary of the BSC IDE Approval Date, the amount of
(x) $2,050,000,minus (y) the product of $200,000 for each complete thirty (30)
day period by which the date of the BSC PMA Filing precedes the twenty-four
month anniversary of the BSC IDE Approval Date, provided, however, that in no
event shall any fee calculated pursuant to this Section 3.1(b)(ii) be less than
$800,000; or
(iii) if, and to the extent, prior to the date of
the BSC PMA Filing, the FDA requires clinical follow-up in excess of nine (9)
months and BSC is unable to make the BSC PMA Filing prior to expiration of the
"twenty-four (24) month" period referenced in Section 3.2(b)(ii) above, the
amount of (x) $2,050,000, minus (y) the product of $100,000 for each complete
thirty (30) day period by which the date of the BSC PMA Filing precedes the
Extended BSC PMA Filing Date, provided, however, that in no event shall any fee
calculated pursuant to this Section 3.1(b)(iii) be less than $800,000. For
purposes of this paragraph, "Extended BSC PMA Filing Date" means the date which
is twenty-four (24) months following the BSC IDE Approval Date plus the number
of months the FDA requires clinical follow-up in excess of nine (9) months.
(c) BSC Milestone License Fee. Within twenty (20)
business days after the end of the first Contract Quarter in which the Net Sales
by BSC of Eligible Stent Products for such Contract Quarter and the immediately
preceding Contract Quarter together exceed $5,000,000, BSC shall pay Angiotech
an additional license fee (the "BSC Sales Milestone License Fee") equal to the
difference of (x) $4,500,000 minus (y) one-half of the amount of any BSC Royalty
Payments paid by BSC pursuant to Section 3.2 prior to or on the date on which
the BSC Sales Milestone License Fee is actually paid.
3.2 BSC Royalties. As additional consideration for the license
granted under Section 2.1(a) of the Agreement BSC shall pay the following
royalties to Angiotech (collectively, the "BSC Royalty Payments").
(a) Vascular Sales Royalty on Eligible Stent Products.
Within sixty (60) days after the end of each Contract Quarter during the term of
the BSC License, BSC shall pay Angiotech a royalty (the "BSC Vascular Sales
Royalty") on Net Sales of Eligible Stent Products that are covered in the
country of sale by one or more valid and enforceable claims included in the
Patent Rights, by BSC and its Affiliates during such Contract Quarter for
vascular applications in each of the Geographical Areas, calculated as the sum
of the following:
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(i) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications from zero to the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by 1.25, the
royalty shall be an amount equal to five percent (5%) of the Net Sales of such
units of Eligible Stent Products;
(ii) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications from (x) the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by 1.25, to (y)
the product of the Base Units Number of such Eligible Stent Products for such
Geographical Area multiplied by two, the royalty shall be an amount equal to
seven percent (7%) of the Net Sales of such units of Eligible Stent Products:
and
(iii) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications above the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by two, the
royalty shall be an amount equal to ten (l0%) percent of the Net Sales of such
units of Eligible Stent Products, provided, however, that from and after the
date on which the aggregate amount of BSC Royalty Payments made by BSC pursuant
to this Section 3.2(a)(iii) during the term of the BSC License exceed
$100,000,000, any further royalties payable under this Section 3.2(a)(iii) shall
be calculated as an amount equal to eight percent (8%) of the Net Sales of such
Eligible Stent Products.
(iv) by way of example but not limitation,
Exhibit E sets forth an example of calculating BSC Royalty Payments based on the
Base Unit Number.
(b) GI Sales Royalty on Eligible Stent Products. Within
sixty (60) days after the end of each Contract Quarter during the term of the
BSC License, BSC shall pay Angiotech an additional royalty (the "BSC GI Sales
Royalty") on Net Sales of Eligible Stent Products that are covered in the
country of sale by one or more valid and enforceable claims included in the
Patent Rights, by BSC and its Affiliates during such Contract Quarter for GI
applications in each of the Geographical Areas, calculated as five percent (5%)
of the Net Sales of such Eligible Stent Products.
(c) Royalties on Eligible Endoluminal Products. Within
sixty (60) days after the end of each Contract Quarter during the term of the
BSC License, BSC shall pay Angiotech an additional royalty (the "BSC Endoluminal
Royalty") on Net Sales of Eligible Endoluminal Products that are covered in the
country of sale by one or more valid and enforceable claims included in the
Patent Rights, by BSC and its Affiliates during such Contract Quarter in each of
the Geographical Areas, calculated as five percent (5%) of the Net Sales of such
Eligible Endoluminal Products.
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(d) Royalties in Japan. Notwithstanding anything contrary
in this Agreement, for purposes of determining whether a particular Eligible
Product is covered in Japan by one or more valid and enforceable claims included
in the Patent Rights for purposes of Sections 3.2(a), (b) and (c), such Product
shall be deemed to be covered in Japan by one or more valid and enforceable
claims included in the Patent Rights if (i) the particular Eligible Product is
covered by a valid and enforceable claim of a patent included in the Patent
Rights which has been issued in Japan, or (ii) the particular Eligible Product
is covered by a claim of a pending patent application in Japan, and BSC has "de
facto exclusivity" (as defined in Section 3.3(a) below) in Japan with respect to
that Eligible Product.
3.3 Patent Coverage and De Facto Exclusivity
(a) De Facto Exclusivity Defined. BSC shall be deemed to
have "de facto exclusivity" for a particular Eligible Product in a particular
country unless a third party (other than Cook or an Affiliate of BSC or Cook)
(i) has obtained approval for sale (if required) in that country for a product
which is competitive to a particular Eligible Product in that country and (ii)
has made at least one commercial sale for value of that product in that country
within six (6) months prior to or after the Contract Quarter in which the
royalty calculation is being made, provided, however, that BSC shall not be
deemed to have "de facto exclusivity" in a particular country to the extent that
such "de facto exclusivity" is primarily attributable to patent rights (other
than the Patent Rights) owned by, or licensed to, BSC.
(b) Patent Coverage Defined. BSC shall be deemed to have
"Patent Coverage" for a particular Eligible Product in a country if there is a
valid claim that, but for the licenses granted to BSC under this Agreement,
would be infringed by the manufacture, use or sale of such Eligible Product in
such country or by the manufacture of such Eligible Product in the country of
manufacture.
(c) De Facto Royalty. For countries in which there is no
Patent Coverage, if at any time BSC does have de facto exclusivity for a
particular Eligible Product in a particular country, then BSC shall pay
Angiotech a royalty on its Net Sales of that Eligible Product in that country of
three percent (3%) during such period of de facto exclusivity, which payments
shall also constitute BSC Royalty Payments. If, during the term of the BSC
License, BSC does not have de facto exclusivity for a particular Eligible
Product in a particular country and there is no Patent Coverage for such
Eligible Product in that country, but an NIH Royalty is still payable by
Angiotech for Net Sales by BSC of such Eligible Product in such country, BSC
shall be responsible for the payment of such NIH Royalty during such period(s).
3.4 Reduction of BSC Royalties. After the BSC Sales Milestone
License Fee has been paid, BSC shall be entitled to reduce the amount of any BSC
Royalty Payments that may become payable with respect to any Contract Quarter by
an amount equal to one-half of the aggregate amount of such payment (calculated
without regard to any other possible reductions in such fees pursuant to the
terms of this Agreement) until the aggregate amount of the reductions made to
the BSC Royalty Payments pursuant to this Section 3.4 equal the amount of
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the BSC Sales Milestone License fee actually paid and not already offset by BSC
Royalty Payments pursuant to Section 3.1(c), after which time no further
reductions will be made.
3.5 Sales to Affiliates. On sales of Eligible Products by BSC to
its Affiliates, or on sales made in other than an arm's-length transaction, the
value of the Net Sales attributed under this Section 3 to such a transaction
shall be that which would have been received in an arm's-length transaction.
Notwithstanding the foregoing, sales between and among BSC and its Affiliates
that are intended for resale shall not be included in Net Sales.
3.6 Reporting of BSC Royalties. BSC shall deliver to Angiotech
within sixty (60) days after the end of each Contract Quarter during the term of
the BSC License, a written account, including quantities, of the aggregate of
BSC's and its Affiliates' sales subject to royalty payments hereunder and the
amount of the royalty payment due to Angiotech for such Contract Quarter. Each
royalty report shall be certified as correct by an authorized employee of BSC
and shall include a reasonably detailed listing of all deductions made to
determine Net Sales and to calculate the royalties payable hereunder.
3.7 Payment of BSC Milestone License Fees and BSC Royalties. BSC
Milestone License Fees and BSC Royalties due under this Section 3 shall be paid
in U.S. dollars. For conversion of foreign currency to U.S. dollars, the
conversion rate shall be the conversion rate used by BSC to convert the
applicable sales into U.S. dollars for purposes of the preparation of BSC's
consolidated financial statements, such conversion to be calculated in
accordance with generally accepted accounting principles in the United States,
applied consistently. All payments shall be made by wire transfer to Angiotech's
account in accordance with the following instructions:
Chase Manahattan Bank
New York, NY
ABM# 021000021
For credit to the account of:
Angiotech Pharmaceuticals, Inc.
Account #401-217-5
Branch #7400
Institution #003
Royal Bank of Canada - Pender & Bute Branch
1205 West Pender Street
Vancouver, B.C. V6E 2V5
Any loss of exchange, value, taxes, or other expenses incurred
in the transfer or conversion to U.S. dollars shall be paid entirely by BSC. The
royalty report required by Section 3.6 shall accompany each such payment.
3.8 Late Payments. Late charges will be assessed by Angiotech as
additional royalties on any overdue payments at one percent (1%) per month,
compounded monthly (an
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effective annual rate of twelve and 68/100 percent (12.68%) per annum). The
payment of such late charges will not prevent Angiotech from exercising any
other rights it may have as a consequence of the lateness of any payment.
3.9 Governmental Filings. Except for taxes based on Angiotech's
income, BSC will be solely responsible for determining if any tax on Net Sales
and royalty payments is owed to any governmental authority and shall pay any
such tax and be responsible for all filings with appropriate governmental
authorities.
3.10 Estimation of Net Sales. In the event that BSC is unable to
report and pay royalties due under this Section 3 on actual Net Sales in any
Contract Quarter. BSC will make a good faith estimate of Net Sales for those
jurisdictions in which actual Net Sales information is not readily available and
will make Royalty Payments based on such estimate. When actual Net Sales
information becomes available for those jurisidictions for which estimates had
previously been made, BSC will promptly determine, and give notice to Angiotech
of, the appropriate adjustment necessary to reconcile the estimated Royalty
Payment with the actual Royalty Payment due to Angiotech based on actual Net
Sales (each a "Reconciliation"). The next Royalty Payment due Angiotech from BSC
under this Agreement will include an adjustment to reflect such Reconciliation,
or the amount of such Reconciliation will be paid in cash if no further
royalties are anticipated.
4. COOK ROYALTIES & FEES
4.1 Cook Milestone License Fees. In consideration for the license
granted under Section 2.1(b) of this Agreement, Cook shall pay the following
amounts to Angiotech as license fees at the times, and subject to the
conditions, set forth below (collectively, the "Cook Milestone License Fees"):
(a) Cook IDE Fee. Within twenty (20) business days after
the date of the first filing by Cook of an Investigational Device Exemption with
the FDA or an equivalent filing with an appropriate governmental agency in one
or more European countries with respect to a product of Cook incorporating or
utilizing the Angiotech Technology in a vascular application (the "Cook IDE
Filing Date"), Cook shall pay a license fee calculated as follows:
(i) if the Cook IDE Filing Date is on or after
October 15, 1998, the amount of $1,275,000; or
(ii) if the Cook IDE Filing Date is prior to
October 15, 1998, the amount of (x) $1,275,000 minus (y) the product of $125,000
for each complete thirty (30) day period by which the Cook IDE Filing Date
precedes October 15, 1998; provided, however, that in no event shall any fee
calculated pursuant to this Section 4.1(a)(ii) be less than $525,000.
(b) Cook PMA Fee. Within twenty (20) business days after
the date of the first filing by Cook of a Pre-Market Approval Application or
Section 510(k) Pre-Marketing Notification with the FDA, or an equivalent filing
with an appropriate governmental agency in
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Europe, with respect to a product of Cook incorporating or utilizing the
Angiotech Technology in a vascular application (the "Cook PMA Filing"), Cook
shall pay an additional license fee calculated as follows:
(i) subject to Section 4.1(b)(iii) below, if
the date of the Cook PMA Filing is on or after the twenty-four (24) month
anniversary of the date on which the FDA (or appropriate governmental agency in
Europe) approves the applicable IDE or equivalent European filing filed by Cook
(the "Cook IDE Approval Date"), the amount of $2,050,000; or
(ii) if the date of the Cook PMA Filing is prior
to the twenty-four (24) month anniversary of the Cook IDE Approval Date, the
amount of (x) $2,050,000, minus (y) the product of $200,000 for each complete
thirty (30) day period by which the date of the Cook PMA Filing precedes the
twenty-four month anniversary of the Cook IDE Approval Date, Provided, however,
that in no event shall any fee calculated pursuant to this Section 4.1(b)(ii)
be less than $800,000; or
(iii) if, and to the extent, prior to the date of
the Cook PMA Filing, the FDA requires clinical follow-up in excess of nine (9)
months and Cook is unable to make the Cook PMA Filing prior to expiration of the
"twenty-four (24) month" period referenced in Section 4.2(b)(ii) above, the
amount of (x) $2,050,000, minus (y) the product of $100,000 for each complete
thirty (30) day period by which the date of the Cook PMA Filing precedes the
Extended Cook PMA Filing Date, provided, however, that in no event shall any fee
calculated pursuant to this Section 4.1(b)(iii) be less than $800,000. For
purposes of this paragraph, "Extended Cook PMA Filing Date" means the date
which is twenty-four (24) months following the Cook IDE Approval Date plus the
number of months the FDA requires clinical follow-up in excess of nine (9)
months.
(c) Cook Sales Milestone License Fee. Within twenty (20)
business days after the end of the first Contract Quarter in which the Net Sales
by Cook of Eligible Stent Products for such Contract Quarter and the immediately
preceding Contract Quarter together exceed $5,000,000, Cook shall pay Angiotech
an additional license fee (the "Cook Sales Milestone License Fee") equal to the
difference of (x) $4,500,000 minus (y) one-half of the amount of any Cook
Royalty Payments paid by Cook pursuant to Section 4.2 prior to or on the date on
which the Cook Sales Milestone License Fee is actually paid.
4.2 Cook Royalties. As additional consideration for the license
granted under Section 2.1(a) of the Agreement, Cook shall pay the following
royalties to Angiotech (collectively, the "Cook Royalty Payments").
(a) Vascular Sales Royalty on Eligible Stent Products.
Within sixty (60) days after the end of each Contract Quarter during the term of
the Cook License, Cook shall pay Angiotech a royalty (the "Cook Vascular Sales
Royalty") on Net Sales of Eligible Stent Products that are covered in the
country of sale by one or more valid and enforceable claims included in the
Patent Rights, by Cook and its Affiliates during such Contract Quarter for
vascular applications in each of the Geographical Areas, calculated as the sum
of the following:
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(i) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications from zero to the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by 1.25, the
royalty shall be an amount equal to five percent (5%) of the Net Sales of such
units of Eligible Stent Products:
(ii) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications from (x) the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by 1.25, to (y)
the product of the Base Unit Number of such Eligible Stent Products for such
Geographical Area multiplied by two, the royalty shall be an amount equal to
seven percent (7%) of the Net Sales of such units of Eligible Stent Products;
and
(iii) with respect to sales during a Contract
Quarter of units of Eligible Stent Products covered in the country of sale by
one or more valid and enforceable claims included in the Patent Rights for
vascular applications above the product of the Base Unit Number for such
Eligible Stent Products for such Geographical Area multiplied by two, the
royalty shall be an amount equal to ten (10%) percent of the Net Sales of such
units of Eligible Stent Products, provided, however, that from and after the
date on which the aggregate amount of Cook Royalty Payments made by Cook
pursuant to this Section 4.2(a)(iii) during the term of the Cook License exceed
$100,000,000, any further royalties payable under this Section 4.2(a)(iii) shall
be calculated as an amount equal to eight percent (8%) of the Net Sales of such
Eligible Stent Products.
(iv) by way of example but not limitation,
Exhibit E sets forth an example of calculating Cook Royalty Payments based on
the Base Unit Number.
(b) GI Sales Royalty on Eligible Stent Products. Within
sixty (60) days after the end of each Contract Quarter during the term of the
Cook License, Cook shall pay Angiotech an additional royalty (the "Cook GI Sales
Royalty") on Net Sales of Eligible Stent Products that are covered in the
country of sale by one or more valid and enforceable claims included in the
Patent Rights, by Cook and its Affiliates during such Contract Quarter for GI
applications in each of the Geographical Areas, calculated as five percent (5%)
of the Net Sales of such Eligible Stent Products.
(c) Royalties on Eligible Endoluminal Products. Within
sixty (60) days after the end of each Contract Quarter during the term of the
Cook License, Cook shall pay Angiotech an additional royalty (the "Cook
Endoluminal Royalty") on Net Sales of Eligible Endoluminal Products that are
covered in the country of sale by one or more valid and enforceable claims
included in the Patent Rights, by Cook and its Affiliates during such Contract
Quarter in each of the Geographical Areas, calculated as five percent (5%) of
the Net Sales of such Eligible Endoluminal Products.
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(d) Royalties in Japan. Notwithstanding anything contrary
in this Agreement, for purposes of determining whether a particular Eligible
Product is covered in Japan by one or more valid and enforceable claims included
in the Patent Rights for purposes of Sections 4.2(a), (b) and (c), such Product
shall be deemed to be covered in Japan by one or more valid and enforceable
claims included in the Patent Rights if (i) the particular Eligible Product is
covered by a valid and enforceable claim of a patent included in the Patent
Rights which has been issued in Japan, or (ii) the particular Eligible Product
is covered by a claim of a pending patent application in Japan, and Cook has "de
facto exclusivity" (as defined in Section 4.3(a) below) in Japan with respect to
that Eligible Product.
4.3 Patent Coverage and De Facto Exclusivity
(a) De Facto. Exclusivity Defined. Cook shall be deemed
to have "de facto exclusivity" for a particular Eligible Product in a particular
country unless a third party (other than BSC or an Affiliate of BSC or Cook) (i)
has obtained approval for sale (if required) in that country for a product which
is competitive to a particular Eligible Product in that country and (ii) has
made at least one commercial sale for value of that product in that country
within six (6) months prior to or after the Contract Quarter in which the
royalty calculation is being made, provided, however, that Cook shall not be
deemed to have "de facto exclusivity" in a particular country to the extent that
such "de facto exclusivity" is primarily attributable to patent rights (other
than the Patent Rights) owned by, or licensed to, Cook.
(b) Patent Coverage Defined. Cook shall be deemed to have
"Patent Coverage" for a particular Eligible Product in a country if there is
valid claim that, but for the licenses granted to Cook under this Agreement,
would be infringed by the manufacture, use or sale of such Eligible Product in
such country or by the manufacture of such Eligible Product in the country of
manufacture.
(c) De Facto Royalty. For countries in which there is no
Patent Coverage, if at any time Cook does have de facto exclusivity for a
particular Eligible Product in a particular country, then Cook shall pay
Angiotech a royalty on its Net Sales of that Eligible Product in that country of
three percent (3%) during such period of de facto exclusivity, which payments
shall also constitute Cook Royalty Payments. If, during the term of the Cook
License, Cook does not have de facto exclusivity for a particular Eligible
Product in a particular country and there is no Patent Coverage for such
Eligible Product in that country, but an NIH Royalty is still payable by
Angiotech for Net Sales by Cook of such Eligible Product in such country, Cook
shall be responsible for the payment of such NIH Royalty during such period(s).
4.4 Reduction of Cook Royalties. After the Cook Sales Milestone
License Fee has been paid, Cook shall be entitled to reduce the amount of any
Cook Royalty Payments that may become payable with respect to any Contract
Quarter by an amount equal to one-half of the aggregate amount of such payment
(calculated without regard to any other possible reductions in such fees
pursuant to the terms of this Agreement) until the aggregate amount of the
reductions made to the Cook Royalty Payments pursuant to this Section 4.4 equal
the amount of
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the Cook Sales Milestone License Fee actually paid and not already offset by
Cook Royalty Payments pursuant to Section 4.1(c), after which time no further
reductions will be made.
4.5 Sales to Affiliates. On sales of Eligible Products by Cook to
its Affiliates, or on sales made in other than an arm's-length transaction, the
value of the Net Sales attributed under this Section 4 to such a transaction
shall be that which would have been received in an arm's-length transaction.
Notwithstanding the foregoing, sales between and among Cook, its Affiliates that
are intended for resale shall not be included in Net Sales.
4.6 Reporting of Cook Royalties. Cook shall deliver to Angiotech
within sixty (60) days after the end of each Contract Quarter during the term of
the Cook License, a written account, including quantities, of the aggregate of
Cook's and its Affiliates' sales subject to royalty payments hereunder and the
amount of the royalty payment due to Angiotech for such Contract Quarter. Each
royalty report shall be certified as correct by an authorized employee of Cook
and shall include a detailed listing of all deductions made to determine Net
Sales and to ca1culate the royalties payable hereunder.
4.7 Payment of Cook Milestone License Fees and Cook Royalties.
Cook Milestone License Fees and Cook Royalties due under this Section 4 shall be
paid in U.S. dollars. For conversion of foreign currency to U.S. dollars, the
conversion rate shall be the conversion rate used by Cook to convert the
applicable sales into U.S. dollars for purposes of the preparation of Cook's
consolidated income statements, such conversion to be calculated in accordance
with generally accepted accounting principles in the United States, applied
consistently. All payments shall be made by wire transfer to Angiotech's account
in accordance with the following instructions:
Chase Manahattan Bank
New York, NY
ABM# 021000021
For credit to the account of:
Angiotech Pharmaceuticals, Inc.
Account #401-217-5
Branch #7400
Institution #003
Royal Bank of Canada - Pender & Bute Branch
1205 West Pender Street
Vancouver, B.C. V6E 2V5
Any loss of exchange, value, taxes, or other expenses incurred
in the transfer or conversion to U.S. dollars shall be paid entirely by Cook.
The royalty report required by Section 4.6 shall accompany each such payment.
4.8 Late Payments. Late charges will be assessed by Angiotech as
additional royalties on any overdue payments at one percent (1%) per month,
compounded monthly (an
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effective annual rate of twelve and 68/100 percent (12.68%) per annum). The
payment of such late charges will not prevent Angiotech from exercising any
other rights it may have as a consequence of the lateness of any payment.
4.9 Governmental Filings. Except for taxes based on Angiotech's
income. Cook will be solely responsible for determining if any tax on Net Sales
and royalty payments is owed to any governmental authority and shall pay any
such tax and be responsible for all filings with appropriate governmental
authorities.
4.10 Estimation of Net Sales. In the event that Cook is unable to
report and pay royalties due under this Section 4 on actual Net Sales in any
Contract Quarter, Cook will make a good faith estimate of Net Sales for those
jurisdictions in which actual Net Sales information is not readily available and
will make Royalty Payments based on such estimate. When actual Net Sales
information becomes available for those jurisdictions for which estimates had
previously been made, Cook will promptly determine, and give notice to Angiotech
of, the appropriate adjustment necessary to reconcile the estimated Royalty
Payment with the actual Royalty Payment due to Angiotech based on actual Net
Sales (each a "Reconciliation"). The next Royalty Payment due Angiotech from
Cook under this Agreement will include an adjustment to reflect such
Reconciliation, or the amount of such Reconciliation will be paid in cash if no
further royalties are anticipated.
5. TERMINATIONS AND AMENDMENTS RELATING TO ANGIOTECH TECHNOLOGY
5.1 Termination by BSC -- Vascular Paclitaxel-Based Technology. In
the event that BSC reasonably determines that the use of the paclitaxel-based
technology contained in the Angiotech Technology with vascular Stent Products is
not commercially viable, BSC shall have the right, subject to giving written
notice to Angiotech setting forth in reasonable detail the basis for its
determination, to cause the BSC License, insofar as it relates to such
paclitaxel-based technology in the use of vascular Stent Products, to be
terminated. In the event of any such termination, (a) the BSC License, insofar
as it relates to the Angiotech Technology other than paclitaxel-based technology
in the Licensed Field of Use, shall remain in full force and effect, (b) the
amount of any BSC Milestone License Fees which may become due after the date on
which BSC gives Angiotech notice of its intent to terminate pursuant to this
Section 5.l, shall be reduced by fifty percent (50%) and (c) the minimum amounts
payable under Sections 6.2 and 6.3 shall terminate.
5.2 Termination by Cook -- Vascular Paclitaxel-Based Technology.
In the event that Cook reasonably determines that the use of the
paclitaxel-based technology contained in the Angiotech Technology with vascular
Stent Products is not commercially viable, Cook shall have the right subject to
giving written notice to Angiotech setting forth in reasonable detail the basis
for its determination, to cause the Cook License, insofar as it relates to such
paclitaxel-based technology in the use of vascular Stent Products, to be
terminated. In the event of any such termination, (a) the Cook License, insofar
as it relates to the Angiotech Technology other than paclitaxel-based technology
in the Licensed Field of Use, shall remain in full force
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and effect, (b) the amount of any Cook Milestone License Fees which may become
due after the date on which Cook gives Angiotech notice of its intent to
terminate pursuant to this Section 5.2, shall be reduced by fifty percent (50%)
and (c) the minimum amounts payable under Sections 6.2 and 6.3 shall terminate.
5.3 Amendment to Include Additional NIH License Rights. The
parties acknowledge that Angiotech intends to negotiate in good faith with the
NIH for an exclusive license to the NIH Patents Rights for vascular applications
(an "Exclusive License"). The parties anticipate that any Exclusive License may
be conditioned upon Angiotech and its sublicensees assuming additional
obligations, including performance milestones. The parties agree that if and
when such Exclusive License is granted, they will negotiate in good faith
amendments to this Agreement that are not inconsistent with the obligations and
terms of such Exclusive License.
6. OTHER OBLIGATION OF BSC, COOK AND ANGIOTECH
6.1 CRADA Study. Angiotech covenants to pay the National
Institutes of Health ("NIH") all amounts owed to NIH under the License Agreement
dated as of November 26, 1996, between Angiotech and NIH relating to "Drug
Delivery Systems and Methods of Treating Fibroproliterative Vascular Diseases
using Microtubial Stabilizing Agents," a copy of which is attached hereto as
Exhibit B (the "NIH Agreement") and all amounts owed to NIH under its
cooperative research and development agreement with NIH (the "CRADA"). Each of
BSC and Cook shall reimburse Angiotech, within thirty (30) days of receipt of an
invoice therefor, for fifty percent (50%) of all direct expenditures made by
Angiotech for research relevant to determining the effect of Eligible Products
in the treatment of vascular disease under the CRADA, up to a maximum of
$351,500 for each of BSC and Cook. In addition, if the research conducted under
the CRADA is expanded at the request of BSC or Cook, BSC or Cook, as the case
may be, will reimburse Angiotech for one hundred percent (100%) of any
additional expenditures as a result thereof (with each of BSC and Cook
reimbursing Angiotech for fifty percent (50%) of such cost if both parties so
request, and solely if only one party so requests). Cook and BSC agree to
provide a reasonable number of stents and other endoluminal devices necessary
for the research to be conducted under the CRADA at no cost; provided, however,
that BSC and Cook shall not be required to provide any stents or other
endoluminal devices for any study protocols which they have not approved in
advance in writing (such approval not to be untimely or unreasonably withheld).
6.2 Regulatory Approvals. Each of BSC and Cook shall be
responsible for obtaining all regulatory approvals for their respective Eligible
Products in all Geographical Areas which such parties, in their sole discretion,
deem necessary or advisable, including funding all pre-clinical and clinical
studies deemed by such parties to be necessary or advisable for obtaining
regularly approvals, provided, however, that each of BSC and Cook agrees that
during the term of their respective licenses granted under Sections 2.1(a) and
2.1(b) hereof, they will each commit to spend a minimum of $ 1,750 000
(including any amounts reimbursed to Angiotech pursuant to Section 6.1, and
subject to reduction under Sections 5.1 and 5.2) on
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clinical studies relating to products which may incorporate or utilize Angiotech
Technology. Angiotech agrees to provide reasonable assistance upon request by
BSC or Cook in the pursuit of regulatory approvals for products incorporating or
utilizing Angiotech Technology; provided that BSC or Cook, as the case may be,
reimburse Angiotech for its reasonable expenses of providing such assistance.
6.3 Market Launch. During the term of their respective licenses
granted under Section 2.1, each of BSC and Cook agrees to commit a minimum of
$1,000,000 in direct marketing and sales expenses for Eligible Products that
incorporate Angiotech Technology (subject to reduction pursuant to Sections 5.1
and 5.2).
6.4 Reporting
(a) Progress Reports. BSC and Cook shall each provide
written annual reports on their respective product development progress or
efforts to commercialize the Angiotech Technology for each of the Licensed
Applications and Licensed Fields of Use within forty-five (45) days after
December 31 of each calendar year. These progress reports shall include, but not
be limited to, progress on research and development, status of applications for
regulatory approvals, manufacturing, sublicensing, marketing, and sales during
the preceding calendar year, as well as plans for the present calendar year. BSC
and Cook each agree to provide any additional information reasonably required by
Angiotech to evaluate their respective performance under this Agreement and to
allow Angiotech to fulfill its obligations under the NIH Agreement.
(b) Audit Rights. BSC and Cook shall each keep accurate
records of all of their respective operations and of reports of operations by
their Affiliates within the scope of this Agreement for five (5) years following
a given reporting period, and Angiotech, at its expense, shall have the right,
exercisable with respect to each of BSC and Cook no more frequently than once
per Contract Year, to have a certified public accountant, reasonably acceptable
to BSC or Cock, as the case may be, inspect such records at the offices of BSC
or Cook, as applicable, no later than three (3) years after the end of the
Contract Quarter to which they pertain upon two (2) weeks prior notice by
Angiotech. Any such certified public accountant shall be required to agree in
writing to be bound by reasonable confidentiality provisions with respect to
such information prior to receiving access to such information. In the event the
examination shows an underpayment of more than five percent (5%) for any
Contract Year due to an error on the part of the record-keeping party, such
party shall pay the examining party the amounts underpaid, together with
interest pursuant to Section 3.8 or 4.8, as applicable, and the actual cost of
such examination.
(c) NIH Reporting. BSC and Cook shall use their
reasonable best efforts to assist Angiotech in fulfilling its reporting
obligations under the NIH Agreement, including but not limited to notifying
Angiotech of the date of First Commercial Sale (as defined in the NIH Agreement)
in each country within sixty (60) days of such occurrence, and providing the
information necessary to determine royalties due to NIH for Combined Products
(as defined in
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the NIH Agreement). BSC and Cook hereby consent to the delivery to NIH by
Angiotech of any reports and information provided under this Agreement.
Angiotech agrees to (i) only provide such information to NIH as is required by
the NIH Agreement and (ii) take steps reasonably necessary under the NIH
Agreement to protect the confidentiality of such information.
6.5 Patent Applications and Foreign Filing. Angiotech shall be
entitled to fi1e, prosecute and maintain in force any and all patents and patent
applications included in the Patent Rights (excluding the NIH Patent Rights
which are governed by the NIH Agreement); provided, that with respect to the
Angiotech Patent Rights, Angiotech will provide BSC and Cook a reasonable
opportunity to review and comment on the same. The filing, prosecution and
maintenance of patents and patent applications pursuant to this Section shall be
done through patent counsel selected by Angiotech. Angiotech shall keep BSC and
Cook reasonably informed of all office actions, proposed responses or other
patent prosecution activities involving the Patent Rights.
6.6 Supply of Paclitaxel. If requested by either or both of BSC
and Cook, Angiotech agrees to use commercially reasonable efforts to assist such
party or parties in acquiring sufficient quantities of Paclitaxel to practice
the Angiotech Technology under the license granted to such party or parties
under Section 2.1.
7. REPRESENTATIONS AND COVENANTS
7.1 Mutual Representations. Angiotech, BSC and Cook each represent
and warrant to the other parties that:
(a) Organization & Power. The party is a corporation duly
organized and validly existing under the laws of its state of incorporation and
has all requisite corporate power and authority to enter into this Agreement;
(b) Authorization. The party is duly authorized by all
requisite action to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby, and that the same do not
conflict or cause a default with respect to its obligations under any other
agreement; and
(c) Execution & Delivery. The party has duly executed and
delivered this Agreement.
7.2 Angiotech Technology Representations and Warranties. Angiotech
represents and warrants to BSC and Cook that:
(a) Except as set forth on Exhibit A hereto, Angiotech is
the sole and exclusive owner of the Angiotech Technology, including without
limitation, the Patent Rights, free of any liens or encumbrances;
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(b) Except as set forth on Exhibit A hereto, Angiotech
has not received any notice from any person or Entity claiming to have any
right, title or interest in or to the Angiotech Technology and, to Angiotech's
knowledge, there is no reason to expect that any such notice is forthcoming; and
(c) Except as set forth on Exhibit A hereto, Angiotech
has not entered into, and is not aware of, any outstanding options, licenses or
agreements relating to the Angiotech Technology; and
(d) Each of the Patent Rights included in the Angiotech
Technology which is listed on Exhibit A as being licensed to Angiotech is
subject to a valid and enforceable license (the "Licenses"), except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights and (ii) general principles of equity that
restrict the availability of equitable remedies. Neither Angiotech nor, to the
knowledge of Angiotech, the other party to any of such Licenses is in material
breach or violation of such License.
7.3 Covenants Regarding Licenses. Angiotech, BSC and Cook each
hereby covenant and agree to take all commercially reasonable actions necessary
to perform all of their respective obligations under the Licenses and remain in
compliance with any conditions of such Licenses. Angiotech agrees to notify each
of BSC and Cook in the event of any material breach of any of the Licenses. Upon
receipt of such notice from Angiotech, and provided Angiotech has not commenced
to cure, diligently pursued such cure and in fact cured such breach, within a
reasonable time period, each of BSC and Cook shall be permitted, acting
individually or in concert and upon prior written notice to Angiotech, to Cure
any such breach on behalf of Angiotech and shall be permitted to recover the
amount of any damages, losses or expenses (including any reasonable attorney's
fees and expenses) incurred by such party in connection with curing such breach,
or offset any such amounts against any obligations that such party shall have to
pay to Angiotech hereunder.
7.4 Compliance with NIH License. BSC and Cook each hereby agree to
comply with the covenants and conditions of the NIH Agreement set forth in
Exhibit C hereto as if they were a party to the NIH Agreement. To the extent the
NIH Agreement is amended to include additional terms and conditions, the parties
agree to amend Exhibit C to include such terms and conditions as are relevant to
the BSC License and Cook License; provided, that any such amendment to the NIH
Agreement will not impair the rights of BSC or Cook under this Agreement; and
provided further, that any such amendment to the NIH Agreement that imposes
additional obligations on BSC or Cook, or may reduce the benefits to either of
BSC or Cook of the NIH Agreement, will not be entered into without the prior
written consent of BSC and Cook, which consent will not be untimely or
unreasonably withheld.
7.5 Technical Assistance. Commencing promptly after the execution
of this Agreement. Angiotech shall use reasonable best efforts to complete the
Technology Transfer.
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8. INFRINGEMENT AND OTHER PRODUCTS
8.1 Notification of Infringement. Each of BSC, Cook and Angiotech
agrees to promptly notify the other parties hereto of any infringements of any
rights contained within the Angiotech Technology in the Licensed Field of Use of
which they become aware.
8.2 Action by Angiotech. Subject to Angiotech's obligations to NIH
and any other third party licensors, Angiotech shall have in the first instance
the right, in its sole discretion and at its expense, to prosecute any alleged
infringements of the Angiotech Technology in its own name. Each of BSC and Cook
agrees to allow Angiotech to include it, at the expense of Angiotech, as a
plaintiff in any suit brought with respect to such infringement and Angiotech
agrees to consult with counsel for BSC and Cook on any significant matters
related to such litigation.
8.3 Actions by BSC or Cook. Subject to Angiotech's obligations to
NIH and any other third party licensors, in the event that Angiotech, within one
hundred twenty (120) days after being notified by BSC or Cook of any
infringement of the Angiotech Technology in the Licensed Field of Use, shall
have been unsuccessful in negotiating with the alleged infringer to cease and
desist such infringement and shall not have brought an infringement action, or
shall have notified BSC and Cook that it has determined not to bring an action
against the alleged infringer, then, in those events, BSC and Cook shall have
the right to bring an action against such infringer. Prior to instituting any
such action, Cook and BSC shall consult with one another to agree upon a
mutually acceptable strategy for pursuing such action. Angiotech agrees to allow
each of BSC and Cook to include it, at the expense of the requesting party or
parties, as a plaintiff in any suit brought with respect to any such
infringement and each of BSC and Cook agree to consult with counsel for
Angiotech on any significant matters relating to such litigation.
8.4 Damages. Any recovery of damages for each suit shall be
applied as follows: (a) first, to pay any amounts owed to NIH under the
corresponding infringement language in the NIH Agreement, (b) second, to the
party or parties bringing the action, to reimburse it or them for its or their
expenses of the litigation or suit, including reasonable attorneys' fees; (c)
third, to the other party or parties to reimburse it or them for its or their
expenses of the litigation or suit, including reasonable attorneys' fees; then
(d) fourth, twenty-five percent (25%) of the balance to Angiotech, then (e)
fifth, the remaining balance to each of BSC and Cook in amounts to be agreed
upon by BSC and Cook, giving appropriate weight to all relevant factors
including, but not limited to, historical and projected sales of products and
the relative market shares of BSC and Cook in the area or areas which are the
subject of such action, and the expenses of such parties incurred in pursuing
such action.
8.5 Disposition. No settlement, consent judgment or other
voluntarily final disposition of any such action relating to an alleged
infringement of the Angiotech Technology in the Licensed Field of Use may be
entered into (a) without the consent of Angiotech, BSC and Cook, as applicable,
if such party participates in the infringement action, which consent shall
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not be unreasonably withheld by such party, and (b) without the Consent of NIH
to the extent required under the NIH Agreement.
8.6 Cooperation. In any infringement suit, any party shall be
entitled to request the cooperation and assistance of the other parties, at the
requesting party's expense, as may be reasonably necessary for the suit. Each
party agrees to make available relevant records, papers, information, samples
and specimens, as well as to have its employees testify upon request.
8.7 Third Party Licenses. Angiotech represents that, to its
knowledge, except as set forth on Exhibit A, there are no third parties to whom
license fees must be paid to utilize the Angiotech Technology in a manner
contemplated by the licenses granted in Section 2.1 of this Agreement. If use of
the Angiotech Technology in a manner contemplated by the licenses granted in
Section 2.1 of this Agreement would infringe third party rights such that BSC or
Cook require a license from such third party to use the Angiotech Technology for
any of the Licensed Applications (provided that this Section 8.7 shall not apply
(i) to the extent BSC or Cook, or an Affiliate of either BSC or Cook, decide to
use an agent, drug delivery technology or composition that would require a third
party license, even though an alternative agent, drug delivery technology or
composition might be available, or developed, that would not require a third
party license or (ii) to New Inventions licensed from third parties under
Section 2.3, in which event the license with the third party will govern the
rights of BSC and Cook), then BSC or Cook may obtain a license from such third
party and shall be permitted to offset the total of any royalties or other
amounts paid thereunder (subject to the limitation set out in this Section 8.7)
against any BSC Royalty Payments or Cook Royalty Payments, unless the third
party is BSC or Cook or an Affiliate of the party obtaining the license
("Allowable Fees"). Fifty percent (50%) of Allowable Fees which become due to
such third parties by BSC or Cook shall be credited against any BSC Royalty
Payments or Cook Royalty Payments owed by BSC or Cook, as the case may be, to
Angiotech in respect of the applicable period when paid, provided, however,
that, subject to any recoveries, reductions or offsets made by BSC or Cook, as
the case may be, pursuant to other Sections of this Agreement, in no event shall
any BSC Royalty Payments or Cook Royalty Payments be reduced by virtue of this
Section 8.7 below the following amounts:
<TABLE>
<CAPTION>
Minimum Royalty in
Royalty: each Geographical Area:
- -------- -----------------------
<S> <C>
BSC Vascular Sales Royalty 4% of Net Sales of Eligible Products
BSC GI Sales Royalty 3% of Net Sales of Eligible Products
Cook Vascular Sales Royalty 4% of Net Sales of Eligible Products
Cook GI Sales Royalty 3% of Net Sales of Eligible Products
BSC Endoluminal Royalty 3% of Net Sales of Eligible Products
Cook Endoluminal Royalty 3% of Net Sales of Eligible Products
</TABLE>
For purposes of determining whether or not of the Angiotech Technology in a
manner contemplated by the licenses granted in Section 2.1 of this Agreement
would infringe third party
- 24 -
<PAGE>
rights such that BSC or Cook will require a license from such third party to use
the Angiotech Technology for any of the Licensed Applications, in the absence of
determination by a court or pursuant to arbitration under Section 10.2, BSC,
Cook or their Affiliates, as the case may be, shall be entitled to rely upon an
infringement opinion from a law firm reasonably acceptable to Angiotech, which
opinion shall be controlling for purposes of this Section 8.7.
8.8 Reduction Relating to Claims. In the event that BSC or Cook
incurs or accrues any expenses in connection with any claim or objection of any
third party that any of the Angiotech Technology infringes a patent or other
right of such third party relating to the Angiotech Technology, or other
intellectual property in which Angiotech has an ownership or licensee interest,
whether or not BSC or Cook, as the case may be, is a party to such litigation.
such party shall be entitled, from the date of such claim or objection until the
claim or objection is resolved favorably to Angiotech, BSC or Cook, as the case
may be, to reduce the amount of any payments in respect of royalties which may
otherwise be due in accordance with the terms of Sections 3.1 and 3.2, in the
case of BSC, or Sections 4.1 and 4.2, in the case of Cook (calculated without
regard to any other possible reductions in such fees pursuant to the terms of
this Agreement), by an amount equal to up to fifty percent (50%) of any such
payment; provided, however, that, subject to any recoveries, reductions or
offsets made by BSC or Cook, as the case may be, pursuant to other sections of
this Agreement, in no event shall the royalty payments be reduced by virtue of
this Section 8.8 below the minimum amounts set forth in Section 8.7 above.
8.9 Indemnification
(a) BSC and each of its Affiliates shall indemnify and
hold Cook, its Affiliates and Angiotech and their respective officers,
directors, employees, consultants, contractors and agents harmless from and
against any and all liability, damage, loss, Cost (including reasonable
attorneys' fees) and expense resulting from any claim of bodily injury or
property damage (i) relating to the development, manufacture, use, distribution
or sale of any Eligible Product by BSC, or its Affiliates, or (ii) due to the
negligence or willful misconduct of BSC, its Affiliates, or their respective
employees or agents.
(b) Cook and each of its Affiliates shall indemnify and
hold BSC and its Affiliates, and Angiotech and their respective officers,
directors, employees, consultants, contractors and agents harmless from and
against any and all liability, damage, loss, cost (including reasonable
attorneys' fees) and expense resulting from any claim of bodily injury or
property damage (i) relating to the development, manufacture, use, distribution
or sale of any Eligible Product by Cook or its Affiliates, or (ii) due to the
negligence or willful misconduct of Cook, its Affiliates, or their respective
employees or agents.
(c) Angiotech shall indemnify and hold BSC, Cook and
their respective Affiliates, officers, directors, employees, consultants,
contractors and agents harmless from and against any and all liability, damage,
loss, cost (including reasonable attorneys' fees) and expense resulting from any
claim of bodily injury or property damage (i) relating to the
- 25 -
<PAGE>
development, manufacture, use, distribution or sale of any product by Angiotech
or its sublicensees (other than BSC, Cook or their respective Affiliates), or
(ii) due to the negligence or willful misconduct of Angiotech or its employees
or agents.
8.10 Insurance. BSC, Cook and each of their Affiliates shall
procure and maintain, during the term of this Agreement, public liability,
product liability and errors and omissions insurance in the minimum amounts, and
with the insurance carriers (or other insurance carriers of comparable
reputation and financial credibility), set forth on Exhibit D. BSC, Cock and
each of their Affiliates will provide Angiotech with a certificate of insurance
evidencing the insurance coverage required by this Section 8.10.
8.11 Strength of Patent Rights. In the event that, during the term
of any license granted Angiotech pursuant to this Agreement, one or more
products are marketed or sold by one or more Entities which are not Affiliates
of either of BSC or Cook, in one or more countries, that (a) employ delivery of
paclitaxel, or an analog or derivative thereof, on Stent Products in the
Licensed Field of Use that are competitive to the Eligible Products, (b) do not
infringe the Patent Rights, and (c) represent a market share of three percent
(3%) or more in such country or countries (collectively, "Non-License
Products"), then each of BSC, Cook or their respective Affiliates, as the case
may be, may either (i) upon written notice to Angiotech terminate the license
granted to such party with respect to such country or countries in which such
Non-License Products are marketed or sold, or (ii) give written notice of such
Non-License Products to Angiotech and all BSC Royalty Payments and Cook Royalty
Payments, as the case may be, due to Angiotech for such country or countries, on
and after notice to Angiotech of such Non-Licensed Products, shall be reduced to
a royalty rate equal to the NIH Royalty plus one percent (1%) of Net Sales of
Eligible Products (of any class) in such country or countries. For purposes of
determining whether or not the product or products infringe the Patent Rights,
in the absence of determination by a court or pursuant to arbitration under
Section 10.2, BSC, Cook or their Affiliates, as the case may be, shall be
entitled to rely upon an infringement Opinion from a law firm reasonably
acceptable to Angiotech, which opinion shall be controlling for purposes of this
Section 8.11.
9. TERMINATION
9.1 Early Termination of Licenses. Notwithstanding the foregoing,
and subject to the limitations set forth below, Angiotech shall be entitled in
the following circumstance to terminate one or more of the licenses granted to a
party pursuant to Section 2.1 in the following circumstances:
(a) Material Breach. If either BSC or Cook materially
breaches this Agreement, Angiotech shall have the right, at its election, to
terminate any or all 1icenses granted by it to such breaching party under this
Agreement upon forty-five (45) days, or thirty (30) days in the case of breach
for non-payment, prior written notice, provided, however, that if the breaching
party shall cure the breach or default within the forty-five (45) or thirty (30)
day period, as applicable, all such licenses and agreements shall continue in
full force and effect.
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<PAGE>
(b) Insolvency, Etc. If either BSC or Cook shall file a
petition in bankruptcy or if an involuntary petition shall be filed against it
and such petition shall not be dismissed within sixty (60) days, or if it shall
become insolvent or admit its inability to pay its debts when due, or if a
receiver or guardian shall be appointed for it, then all licenses granted to
such party under this Agreement shall immediately terminate.
(c) Abandonment. If either Cook or BSC shall have
acknowledged in writing its intention to abandon the commercial development of
products based on the Angiotech Technology, Angiotech shall have the right, at
its election, to terminate any and all licenses granted by it to such abandoning
party under this Agreement upon thirty (30) days prior written notice.
(d) Failure to Exploit. In the event that either BSC or
Cook shall have failed to (i) file an Investigational Device Exemption with the
FDA or an equivalent filing with an appropriate governmental authority in one or
more European countries with respect to a product incorporating or utilizing the
Angiotech Technology prior to the thirty-month anniversary of the date of this
Agreement, or (ii) file a Pre-market Approval Application or Section 510(K)
Pre-Marketing Notification with the FDA or equivalent filing with an appropriate
governmental authority in one or more European countries prior to the
sixty-month anniversary of the date of this Agreement, then Angiotech shall have
the right, at its election, to terminate any and all licenses granted by it to
such party under this Agreement upon thirty (30) days prior written notice at
any time prior to such filing.
(e) Limitation on Stent Products. If, for a period of
five (5) years during the term of this Agreement, BSC or Cook is unable to
obtain approval for, and gain significant sales of, an Eligible Stent Product in
the United States, Angiotech shall have the right, at its election, to terminate
any and all licenses in the United States granted by it to such party under this
Agreement upon thirty (30) days prior written notice.
(f) Termination of NIH Agreement. In the event of a
termination of the NIH License, (i) the Cook License and the BSC License,
insofar as they relate to the NIH License only, shall terminate; provided,
however, that BSC and Cook shall have the right, in accordance with the terms of
Section 4.03 of the NIH Agreement, to convert the NIH License to a direct
license between NIH and BSC and Cook, and (ii) each of BSC and Cook shall be
permitted to terminate this Agreement as it relates to the licenses granted to
such parties hereunder and such party's obligations thereunder, upon thirty (30)
days prior written notice to Angiotech.
9.2 Termination-Supply of Paclitaxel. In the event that either BSC
or Cook, as the case may be, is unable to acquire a supply of paclitaxel at
commercially reasonable prices sufficient to enable BSC or Cook to practice the
Angiotech Technology in accordance with the licenses granted under this
Agreement, then the party which is unable to acquire such supply shall have the
right, upon thirty (30) days prior written notice to Angiotech, to terminate the
license granted to such party.
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<PAGE>
9.3 Effect of Termination. Promptly after termination of any
license, or part thereof, pursuant to Sections 9.1 or 9.2, Angiotech shall
deliver notice of such termination to the other licensee, if any, remaining
under Section 2.1 ( the "Remaining Licensee"). In the event of the termination
of some or all of the BSC License or the Cook License, as the case may be, the
obligations of the party to such license under Sections 3.1, 3.2 and 3.3, in the
case of BSC, or Sections 4.1, 4.2 and 4.3, in the case of Cook, and Sections 6.1
to 6.4, shall also terminate, other than with respect to royalty payments which
may have accrued in respect of sales of Eligible Products by such party during
the current Contract Quarter, and such termination shall have no effect on the
remaining license granted pursuant to Section 2.1. Within sixty (60) days of
delivery of such notice of termination to any Remaining Licensee, such party
shall have the option to cause the license granted to such party under such
Section 2.1 to become exclusive as to all other parties by delivering notice of
such election to Angiotech. In the event that such Remaining Licensee makes such
an election, such party shall assume the obligations of such terminated licensee
to make any unpaid milestone fees under Sections 3.1 or 4.1, as the case may be,
and the amount of such Remaining Licensee's original royalty obligations under
Section 3.2 or Section 4.2, as the case may be shall be increased by one percent
(1%) of Net Sales of Eligible Products. If the remaining licensee does not make
such an election within the period of sixty (60) days after delivery of notice
of any such termination pursuant to this Section 9.3, Angiotech shall be
permitted to grant a license to the Angiotech Technology to a single third
party.
9.4 Accrued Obligations. Upon termination of any license granted
under this Agreement for any reason, each of Angiotech and the holder of such
license shall remain liable for those obligations that accrued with respect to
such license prior to the effective date of the termination. The party to such
terminated license may, for a period of no longer than six (6) months after the
effective date of the termination of such license, complete and sell any or all
products containing Angiotech Technology that it can demonstrate were in the
process of manufacture or in inventory on the effective date of the
termination; provided, however, that such party shall remain obligated to pay
any applicable royalties thereon as provided in this Agreement. Within thirty
(30) days after receipt of notice of termination, each party to such license
shall provide the other with an accounting of products incorporating the
Angiotech Technology then on hand and in process and its best estimate of when
within the one (1) year period sales of such products will conclude.
10. DISPUTE RESOLUTION
10.1 Negotiation of Parties. In the event of any dispute with
respect to the interpretation of any provision of this Agreement or with respect
to the performance of either party under this Agreement, either party may at any
time provide the other party written notice specifying the terms of such
disagreement in reasonable detail. As soon as practicable after receipt of such
notice, the President of Angiotech and a designated officer with appropriate
settlement authority from BSC and/or Cook shall meet at a mutually agreed upon
time and location for the purpose of resolving such disagreement. They shall
engage in good faith discussions and/or negotiations for a period of up to
thirty (30) days to resolve the disagreement
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<PAGE>
or negotiate an interpretation of revision of the applicable portion of this
Agreement which is mutually agreeable to both parties, without the necessity of
formal procedures relating thereto. During the course of such discussion and/or
negotiation, the parties shall reasonably cooperate and provide information that
is not materially confidential in order so that each of the parties may be fully
informed with respect to the issues in dispute.
10.2 Arbitration. In the event any dispute arising between the
parties concerning this Agreement is not resolved pursuant to Section 10.1, then
the same shall be submitted by the parties to arbitration in Seattle, Washington
in accordance with the then-current commercial arbitration rules of the American
Arbitration Association ("AAA") except as otherwise provided herein. The parties
shall choose, by mutual agreement, one (1) arbitrator within thirty (30) days
of receipt of notice of the intent to arbitrate. If no arbitrator is appointed
within the times herein provided or any extension of time which is mutually
agreed upon, the AAA shall make such appointment within thirty (30) days of such
failure. The judgment rendered by the arbitrator shall include costs of
arbitration, reasonable attorneys' fees and reasonable costs for expert and
other witnesses. Nothing in this Agreement shall be deemed as preventing either
party from seeking injunctive relief (or any other provisional remedy) pursuant
to Section 11.1 herein. If the issues in dispute involve scientific, technical
or commercial matters, any arbitrator chosen hereunder shall have educational
training and/or industry experience sufficient to demonstrate a reasonable level
of relevant scientific, medical and industry knowledge.
10.3 NIH Agreement. Sections 10.1 or 10.2 shall not prevent
Angiotech from seeking any remedies in law or equity it may have to protect its
rights under the NIH Agreement.
11. GENERAL PROVISIONS
11.1 Remedies. The parties acknowledge and agree that, in the event
of a breach or a threatened breach by either party of this Agreement for which
it will have no adequate remedy at law, the other party may suffer irreparable
damage and, accordingly, shall be entitled to injunctive and other equitable
remedies to prevent or restrain such breach or threatened breach, without the
necessity of posting any bond or surety, in addition to any other remedy they
might have at law or at equity.
11.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington in force
therein without regard to its conflict of law rules. Subject to Sections 10.1
and 10.2, all parties agree that by executing this Agreement they consent to the
exclusive jurisdiction of the courts of the State of Washington.
11.3 Confidentiality. It is contemplated that in the course of the
performance of this Agreement each party may, from time to time, disclose
Confidential Information to the other. Each party agrees that for the term of
this Agreement and for a period of five (5) years thereafter, the receiving
party shall keep confidential and shall not publish or otherwise disclose, and
will take all reasonable steps to prevent disclosure of, such Confidential
Information and will not use any Confidential Information except for the limited
purposes set forth in this Agreement; provided, however, that no provision of
this Agreement shall be construed to
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<PAGE>
preclude such disclosure of Confidential Information as may be necessary or
appropriate (i) to obtain from any governmental agency any necessary approval
(subject to Section 11.9), (ii) to obtain patents that are included in the
Angiotech Technology or (iii) to fulfill Angiotech's obligations under the CRADA
and the NIH Agreement; provided, further, however, that the party whose
information is to be disclosed shall be notified as soon as possible and the
party that is being required to disclose such information shall, if requested
by the party whose information is to be disclosed, use reasonable good faith
efforts, at the expense of the requesting party, to assist in seeking a
protective order (or equivalent) with respect to such disclosure or otherwise
avoid making such disclosure.
11.4 Amendment and Waiver. No provision of or right under this
Agreement shall be deemed to have been waived by any act or acquiescence on the
part of any party, its agents or employees, but only by an instrument in writing
signed by an authorized officer of such party. No waiver by either party of any
breach of this Agreement by any other party shall be effective as to any other
breach, whether of the same or any other term or condition and whether occurring
before or after the date of such waiver.
11.5 Intellectual Property
(a) Trademarks. During the term of their respective
licenses granted pursuant to Sections 2.1(a) and 2.1(b), each of BSC and Cook
shall have the right to market and advertise products incorporating or utilizing
Angiotech Technology under their respective names, trademarks, trade names,
labels, or other designations, and the same shall remain the property of their
respective owners, and Angiotech shall have no rights therein.
(b) Patents. BSC and Cook each agree to mark the Eligible
Products or their packaging sold in the United States with all applicable U.S.
patent numbers and similarly to indicate "Patent Pending" status. All Eligible
Products manufactured in, shipped to, or sold in other countries shall be marked
in such a manner as to protect and preserve the Patent Rights in such countries.
11.6 Independent Contractors. Each party represents that it is
acting on its own behalf as an independent contractor and is not acting as an
agent for or on behalf of any third party. This Agreement and the relations
hereby established by and among Angiotech, BSC and Cook do not constitute a
partnership, joint venture, agency or contract of employment between them.
11.7 Assignment. Except with respect to any sublicenses granted by
BSC or Cook pursuant to Section 2.1, no party may assign its rights or
obligations hereunder without the prior written consent of the other parties,
which consent shall not be unreasonably withheld in the case of any assignment
pursuant to a merger, consolidation or sale of substantially all of the assets
or stock; provided, however, that either BSC or Cook may assign their respective
rights and obligations to an Affiliate of such party without consent if BSC or
Cook, as the case may be, agrees to remain liable for their obligations under
this Agreement and provided, that no purported assignment under this Section
11.7 shall be effective unless and until the proposed assignee under this
Section 11.7 agrees in writing to assume all of the obligations of the
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<PAGE>
assignor party under this Agreement and shall remain effective only so long as
the proposed assignee remains an Affiliate.
11.8 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
11.9 Press Release. The parties agree that the public announcement
of the execution of this Agreement shall be in the form of a press release to be
agreed upon by the parties. Thereafter, Angiotech, BSC and Cook shall be free to
use the information set forth in such press release in future public
announcements. With respect to other public statements that reference a party,
including submissions to the Securities and Exchange Commission or stock
exchange or market system on which its securities are listed, such statements
shall be submitted to the referenced party for review and approval, which
approval shall not be untimely or unreasonably withheld.
11.10 Publications
(a) Subject to obligations under the NIH Agreement and
agreements with third party collaborators, if any, BSC and Cook each agree that
they shall not publish or present the results of studies carried out under this
Agreement without the opportunity for prior review by Angiotech. Each of BSC and
Cook shall provide to Angiotech the opportunity to review any proposed
abstracts, manuscripts or presentations (including information to be presented
orally) covering information arising from the use of the Angiotech Technology
under this Agreement and not previously disclosed at least thirty (30) days
prior to their intended submission for publication and such submitting party
agrees, upon written request from Angiotech, not to submit such abstract or
manuscript for publication or to make such presentation until Angiotech is given
a reasonable period of time to secure patent protection for any material in such
publication or presentation which it believes is patentable.
(b) Subject to obligations Under the NIH Agreement and
agreements with third party collaborators, if any, Angiotech agrees that it
shall not publish or present the results of studies relating to the Angiotech
Technology licensed under this Agreement without the opportunity for prior
review by BSC and Cook. Angiotech shall provide BSC and Cook the opportunity to
review any proposed abstracts, manuscripts or presentations (including
information to be presented orally) covering information related to the
Angiotech Technology in the Licensed Field of Use under this Agreement and not
previously disclosed at least thirty (30) days prior to its intended submission
for publication.
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<PAGE>
11.11 Notices. All communications hereunder shall be in writing and
shall be deemed to have been duly given upon receipt by the addressee at the
addresses set forth below, or such other address as either party may specify by
notice sent in accordance with this section:
If to BSC: Boston Scientific Corporation
One Boston Scientific Place
Natick, Massachusetts 01760
Attention: Frank Grillo
Director, New Business
Development
with a copy to: General Counsel
Boston Scientific Corporation
One Boston Scientific Place
Natick, Massachusetts 01760-1537
If to Angiotech: Angiotech Pharmaceuticals, Inc.
6660 N. W. Marine Drive
Vancouver, BC, Canada V6T lZ4
Attention: President and Vice
President-Corporate Affairs
with a copy to: Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
Attention: William W. Ericson, Esq.
If to Cook: Cook Incorporated
925 South Curry Pike
Bloomington, Indiana 47403
Attention: Brian L. Bates
with a copy to: Sommer and Barnard
4000 Bank One Tower
111 Monument Circle
Indianapolis, Indiana 46204
Attention: Erick Ponader, Esq.
11.12 Severabi1ity. In the event any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other term or provision hereof. The parties agree that they wil1 negotiate in
good faith or will permit a court or arbitrator to replace any provision hereof
so held invalid, illegal or unenforceable with a valid provision which is as
similar as possible in substance to the invalid, illegal or unenforceable
provision.
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<PAGE>
11.13 Conflict of Inconsistency. In the event of any conflict or
inconsistency between the terms and conditions hereof and any terms or
conditions set forth in any purchase order or other document relating to the
transactions contemplated by this Agreement, the terms and conditions set forth
in this Agreement shall prevail.
11.14 Captions. Captions of the Sections and subsections of this
Agreement are for reference purposes only and do not constitute terms or
conditions of this Agreement and shall not limit or affect the terms and
conditions hereof.
11.15 Word Meanings. Words such as herein, hereinafter, hereof and
hereunder refer to this Agreement as a whole and not merely to a Section or
paragraph in which such words appear, unless the context otherwise requires. The
singular shall include the plural, and each masculine, feminine and neuter
reference shall include and refer also to the others, unless the context
otherwise requires.
11.16 Entire Agreement. This Agreement and the Investment Agreement
contain the entire understanding of each of the parties hereto with respect to
the transactions and matters contemplated hereby, including without limitation
any licensing of the Angiotech Technology, supersedes all prior agreements and
understandings relating to the subject matter hereof, and no representations,
inducements, promises or agreements, whether oral or otherwise, between such
parties not contained herein or incorporated herein by reference shall be of any
force or affect.
11.17 Rules of Construction. The parties agree that they have
participated equally in the formation of this Agreement and that the language
and terms of this Agreement shall not be presumptively construed against any of
them.
11.18 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, and have duly delivered
and executed this Agreement under seal as of the date first set forth above.
ANGIOTECH PHARMACEUTICALS, INC.
/s/ William L. Hunter
-------------------------
By: WILLIAM L. HUNTER
Title: CHAIRMAN & CEO
BOSTON SCIENTIFIC CORPORATION
_____________________________
By:__________________________
Title:_______________________
COOK INCORPORATED
_____________________________
By:__________________________
Title:_______________________
SIGNATURE PAGE TO LICENSE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, and have duly delivered
and executed this Agreement under seal as of the date first set forth above.
ANGIOTECH PHARMACEUTICALS, INC.
_____________________________
By:__________________________
Title:_______________________
BOSTON SCIENTIFIC CORPORATION
/s/ Lawrence C. Best
-------------------------
BY: Lawrence C. Best
Title: Sr. Vice President and
Chief Financial Officer
COOK INCORPORATED
_____________________________
By:__________________________
Title:_______________________
SIGNATURE PAGE TO LICENSE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, and have duly delivered
and executed this Agreement under seal as of the date first set forth above.
ANGIOTECH PHARMACEUTICALS, INC.
_____________________________
By:__________________________
Title:_______________________
BOSTON SCIENTIFIC CORPORATION
_____________________________
By:__________________________
Title:_______________________
COOK INCORPORATED
/s/ Brian Bates
-------------------------
By: BRIAN BATES
Title: VICE PRESIDENT, PRODUCT DEVELOPMENT
SIGNATURE PAGE TO LICENSE AGREEMENT
<PAGE>
AGREEMENT WITH RESPECT TO
LICENSE AGREEMENT
AMONG
ANGIOTECH PHARMACEUTICALS, INC.
BOSTON SCIENTIFIC CORPORATION
AND
COOK INCORPORATED
This Agreement with respect to License Agreement is made and entered
into as of this 13th day of December, 1999, by and between Angiotech
Pharmaceuticals, Inc., a corporation organized under the laws of the Province of
British Columbia ("Angiotech") and Boston Scientific Corporation, a Delaware
corporation ("BSC").
WHEREAS, Angiotech, BSC and Cook Incorporated, an Indiana corporation
("Cook"), have entered into a License Agreement dated as of July 9, 1997,
pursuant to which Angiotech agreed to license to each of BSC and Cook certain
patents, patent applications, products and technology relating to the use of
paclitaxel as a coating for certain medical devices (as may be amended from time
to time, the "License Agreement");
WHEREAS, Angiotech and BSC desire to modify certain provisions of the
License Agreement as they relate to Angiotech and BSC as provided herein;
NOW THEREFORE, Angiotech and BSC hereby agree as follows:
1. As between Angiotech and BSC, to replace Sections 3.1(a) and 3.1(b) in
their entirety with the following:
3.1(a) BSC IDE Fee. Within twenty (20) business days after the date
of the (x) first filing by BSC of an Investigational Device
Exemption ("IDE") with the FDA or an equivalent filing in one
or more European countries or Canada or (y) initiation of a
BSC sponsored human clinical trial anywhere in the world, with
respect to a product incorporating or utilizing the Angiotech
Technology in a vascular application (the "BSC IDE Filing
Date"), BSC shall pay a license fee in the amount of
$1,275,000.
3.1(b) BSC PMA Fee. Within twenty (20) business days after the date
of the (x) first filing by BSC of a Pre-Market Approval
Application or Section 510(k) Pre-Market Notification
(collectively, "PMA") with the FDA or an equivalent filing in
on or more European. countries or Canada or (y) initiation of
commercial sale by BSC anywhere in the world, with respect to
a product incorporating or utilizing the Angiotech Technology
in a vascular application (the "BSC PMA Filing"), BSC shall
pay an additional license fee calculated as follows:
<PAGE>
(i) subject to Section 3.1(b)(iii) below, if the date of
the BSC PMA Filing is on or after the twenty-four
month anniversary of the date on which the applicable
IDE or other equivalent filing in one or more
European countries or Canada is approved or a BSC
sponsored human clinical trial is initiated anywhere
in the world (the "BSC IDE Approval Date"), the
amount of $2,050,000; or
(ii) if the date of the BSC PMA Filing is prior to the
twenty-four month anniversary of the BSC IDE Approval
Date, the amount of (x) $2,050,000 minus (y) the
product of $200,000 for each complete thirty (30)
days period by which the date of the BSC PMA Filing
precedes the twenty-four month anniversary of the BSC
IDE Approval Date, provided, however, that in no
event shall any fee calculated pursuant to this
Section 3.1(b)(ii) be less than $800,000; or
(iii) if, and to the extent prior to the date of the BSC
PMA Filing, the FDA or similar authority in Europe or
Canada requires clinical follow-up in excess of nine
(9) months and BSC is unable to make the BSC PMA
Filing prior to the expiration of the "twenty-four
(24) month" period referenced in Section 3.1(b)(ii)
above, the amount of (x) $2,050,000, minus (y) the
product of $1,00,000 for each compete thirty (30)
day period by which the date of the BSC PMA Filing
precedes the Extended BSC PMA Filing Date, provided,
however, that in no event shall any fee calculated
pursuant to this Section 3.1(b)(iii) be less than
$800,000. For purposes of this paragraph," Extended
BSC PMA Filing Date" means the date which is
twenty-four (24) months following the BSC IDE
Approval Date plus the number of months of required
clinical follow-up in excess of nine (9) months.
2. As between Angiotech and BSC, to add as Section 3.11 of the License
Agreement, the following;
3.11 NeoRx License Fee Effective December 17, 1998, Angiotech
entered into an exclusive license agreement (the "NeoRx
License) with NeoRx Corporation ("NeoRx") which grants
Angiotech an exclusive license, with right to sublicense,
certain NeoRx Technology (as defined in the NeoRx License)
relating to paclitaxel and its structural analogs for vascular
applications. Angiotech and BSC agree that the BSC License
shall be deemed to include a co-exclusive sublicense (with
Cook) of the NeoRx Technology granted under the NeoRx License
for the Field, are the terms and subject to the limitations
and reservations set out in Section 2.1. As partial
consideration of this sublicense, BSC agrees to pay to
Angiotech an additional license fee in the maximum aggregate
amount of Five Hundred Thousand Dollars ($500,000) as follows:
<PAGE>
(i) Two Hundred Fifty Thousand Dollars ($250,000)
payable on December 15, 1999; and
(ii) up to Two Hundred Fifty Thousand Dollars ($250,000)
as negotiated in good faith by the parties on or
prior to December 31, 2003.
Subject to the terms and conditions of the NeoRx License,
Angiotech will provide BSC with a reasonable opportunity to
review and provide input with respect to the preparation,
filing, prosecution and maintenance of the NeoRx Patents and
the NeoRx Interference. Angiotech, to the extent not
prohibited by the NeoRx License, will forward copies to BSC of
all materials available to it with respect to the NeoRx
Patents. Under no circumstances may Angiotech surrender to
NeoRx its rights to the NeoRx Patents, or any portion thereof,
to the extent they relate to the Licensed Field of Use without
the written consent of BSC.
3. As between Angiotech and BSC, to replace Section 9.1(d) in its entirety
with the following
9.1(d) Failure to Exploit. In the event that BSC shall have failed to
(i) file an Investigational Device Exemption ("IDE") with the
FDA or an equivalent filing in one or more European countries
or Canada or initiate a BSC sponsored human clinical trial
anywhere in the world, with respect to a product incorporating
or utilizing the Angiotech Technology prior to December 31,
2000 (the "BSC IDE Target Date"), or (ii) file a Pre-Market
Approval Application or Section 51O(k) Pre-Marketing
Notification (collectively, "PMA") with the FDA or equivalent
filing in one or more European countries or Canada or initiate
commercial sale anywhere in the world, with respect to a
product incorporating or utilizing Angiotech Technology prior
to December 31, 2003 (the "BSC PMA Target Date") then
Angiotech shall have the right, at its election, to terminate
any and all licenses granted by it to BSC under this Agreement
upon thirty (30) days prior written notice at any time prior
to such filing; provided however BSC may extend the BSC IDE
Target Date and/or the BSC PMA Target Date by up to twelve
(12) months by written notice to Angiotech, in which case the
next amount due of the BSC IDE Fee and the BSC PMA Fee shall
be increased by One Million Dollars ($1,000,000). In any
event, if clause (i) above is not satisfied by December 31,
2000, BSC shall pay Angiotech within twenty (20) business days
the amount of Five Hundred Thousand Dollars ($500,000).
As between Angiotech and Cook, the original Section 9.1(d) shall remain
in full force and effect until modified by Angiotech and Cook.
<PAGE>
4. As between Angiotech and BSC, to replace Section 9.1(e) in its entirety
with the following
9.1(e) Limitation on Stent Products. If, for a period of seven (7)
years during the term of this Agreement BSC or Cook is unable
to obtain approval for, and gain significant sales of, an
Eligible Stent Product in the United States, Angiotech shall
have the right, at its election, to terminate any and all
licenses in the United States granted by it to such party
under this Agreement upon thirty (30) days prior written
notice.
As between Angiotech and Cook, the original Section 9.1(e) shall remain
in full force and effect until modified by Angiotech and Cook.
5. As between Angiotech and BSC, to add Section 9.1(f) as follows:
9.1(f) Unanticipated Regulatory Requirements. Both parties
acknowledge the necessity to meet all applicable regulatory
requirements in the major markets of the world (U.S., Europe
and Japan). Both parties also acknowledge the uncertain
regulatory requirements for a combination drug device product.
If regulatory requirements create significantly longer
timelines than currently anticipated (for instance, due to the
requirements of a separate and distinct dose finding trial in
a major market of the world), both parties shall meet to
review the impact on timelines and to negotiate in good faith
an extension to the BSC PMA Target Date and an extension to
the seven year period described in Section 9.1(e) above.
6. Angiotech and BSC agree that, except as provided in this Agreement, the
License Agreement shall remain unmodified and shall continue in full
force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first set forth above.
ANGIOTECH PHARMACEUTICALS, INC.
By: /s/ Kenneth Mellquist
-------------------------
Name: Kenneth Mellquist
Title: Senior VP, Corporate Affairs
BOSTON SCIENTIFIC CORPORATION
By: /s/ Lawrence C. Best
-------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>b45658bsexv10w12.txt
<DESCRIPTION>401(K) RETIREMENT SAVINGS PLAN AS OF 1/1/2003
<TEXT>
<PAGE>
EXHIBIT 10.12
BOSTON SCIENTIFIC CORPORATION
401(k) RETIREMENT SAVINGS PLAN
(Amended and Restated, Effective January 1, 2001)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. INTRODUCTION................................................................................... 1
1.1. Qualification and Purpose....................................................................... 1
1.2. Rights under Plans.............................................................................. 1
1.3. Defined Terms................................................................................... 1
ARTICLE 2. PARTICIPATION.................................................................................. 2
2.1. Date of Participation........................................................................... 2
2.2. Duration of Participation....................................................................... 2
ARTICLE 3. CONTRIBUTIONS.................................................................................. 4
3.1. Elective Contributions.......................................................................... 4
3.2. Form and Manner of Elections.................................................................... 4
3.3. Matching Contributions.......................................................................... 4
3.4. Discretionary Contributions..................................................................... 5
3.5. Qualified Nonelective Contributions............................................................. 5
3.6. Rollover Contributions.......................................................................... 5
3.7. Employee Contributions.......................................................................... 5
3.8. Other Employer Contributions.................................................................... 5
3.9. Crediting of Contributions...................................................................... 6
3.10. Time for Making Contributions.................................................................. 6
3.11. Certain Limits Apply........................................................................... 6
3.12. Return of Contributions........................................................................ 6
3.13. Establishment of Trust......................................................................... 6
ARTICLE 4. PARTICIPANT ACCOUNTS........................................................................... 7
4.1. Accounts........................................................................................ 7
4.2. Adjustment of Accounts.......................................................................... 7
4.3. Investment of Accounts.......................................................................... 7
4.4. Appointment of Investment Manager or Named Fiduciary............................................ 8
4.5. Section 404(c) Compliance....................................................................... 8
4.6. Transfers From Other Plans...................................................................... 9
ARTICLE 5. VESTING OF ACCOUNTS............................................................................ 10
5.1. Immediate Vesting of Certain Accounts........................................................... 10
5.2. Deferred Vesting of Discretionary Contribution Accounts......................................... 10
5.3. Special Vesting Rules........................................................................... 10
5.4. Changes in Vesting Schedule..................................................................... 10
5.5. Forfeitures..................................................................................... 11
5.6. Vesting of Accounts Transferred From Other Plans................................................ 12
ARTICLE 6. WITHDRAWALS PRIOR TO SEVERANCE FROM EMPLOYMENT................................................. 13
6.1. Hardship Withdrawals............................................................................ 13
6.2. Withdrawals After Age 59 1/2.................................................................... 14
6.3. Withdrawal from Rollover Account................................................................ 14
6.4. Withdrawal on Account of Disability............................................................. 14
6.5. Withdrawal of Employee Contributions............................................................ 14
6.6. Restrictions on Certain Distributions........................................................... 14
6.7. Limitation of Withdrawable Amount............................................................... 15
6.8. Required Distributions After Required Beginning Date............................................ 15
</TABLE>
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<TABLE>
<S> <C>
6.9. Distributions Required by a Qualified Domestic Relations Order.................................. 15
6.10. Withdrawals by Certain Former Participants in Other Plans...................................... 15
ARTICLE 7. LOANS TO PARTICIPANTS.......................................................................... 16
7.1. In General...................................................................................... 16
7.2. Rules and Procedures............................................................................ 16
7.3. Maximum Amount of Loan.......................................................................... 16
7.4. Minimum Amount of Loans; Limit on Number of Loans............................................... 16
7.5. Note; Security; Interest........................................................................ 16
7.6. Repayment....................................................................................... 17
7.7. Repayment Upon Distribution..................................................................... 17
7.8. Default......................................................................................... 17
7.9. Note as Trust Asset............................................................................. 17
7.10. Nondiscrimination.............................................................................. 18
7.11. Designation of Accounts........................................................................ 18
7.12. Spousal Consent to Loans to Certain Former Participants in Other Plans......................... 18
ARTICLE 8. BENEFITS UPON DEATH OR SEVERANCE FROM EMPLOYMENT............................................... 19
8.1. Severance From Employment for Reasons Other Than Death.......................................... 19
8.2. Time of Distributions........................................................................... 19
8.3. Amount of Distribution.......................................................................... 20
8.4. Distributions After a Participant's Death....................................................... 20
8.5. Designation of Beneficiary...................................................................... 21
8.6. Direct Rollovers of Eligible Distributions...................................................... 21
8.7. Protected Forms of Benefit...................................................................... 23
8.8. Distribution Restrictions for Elective Contributions............................................ 23
ARTICLE 9. ADMINISTRATION................................................................................. 24
9.1. Committee....................................................................................... 24
9.2. Powers of Committee............................................................................. 24
9.3. Effect of Interpretation or Determination....................................................... 24
9.4. Reliance on Tables, etc......................................................................... 24
9.5. Claims and Review Procedures.................................................................... 25
9.6. Indemnification of Committee and Assistants..................................................... 25
9.7. Annual Report................................................................................... 25
ARTICLE 10. AMENDMENT AND TERMINATION..................................................................... 26
10.1. Amendment...................................................................................... 26
10.2. Termination.................................................................................... 26
10.3. Distributions upon Termination of the Plan..................................................... 26
10.4. Merger or Consolidation of Plan; Transfer of Plan Assets....................................... 26
ARTICLE 11. LIMITS ON CONTRIBUTIONS....................................................................... 27
11.1. Code Section 404 Limits........................................................................ 27
11.2. Code Section 415 Limits........................................................................ 27
11.3. Code Section 402(g) Limits..................................................................... 28
11.4. Code Section 401(k)(3) Limits.................................................................. 29
11.5. Code Section 401(m) Limits..................................................................... 33
ARTICLE 12. SPECIAL TOP-HEAVY PROVISIONS.................................................................. 37
12.1. Provisions to apply............................................................................ 37
12.2. Minimum Contribution........................................................................... 37
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
12.3. Adjustment to Limitation on Benefits........................................................... 38
12.4. Definitions.................................................................................... 38
ARTICLE 13. MISCELLANEOUS................................................................................. 41
13.1. Exclusive Benefit Rule......................................................................... 41
13.2. Limitation of Rights........................................................................... 41
13.3. Nonalienability of Benefits.................................................................... 41
13.4. Adequacy of Delivery........................................................................... 41
13.5. Reclassification of Employment Status.......................................................... 41
13.6. Veterans' Reemployment and Benefits Rights..................................................... 42
13.7. Governing law.................................................................................. 42
13.8. Authority to Correct Operational Defects....................................................... 42
13.9. Electronic Forms............................................................................... 42
ARTICLE 14. DEFINITIONS................................................................................... 43
14.1. "Accounts"..................................................................................... 43
14.2. "Affiliated Employer".......................................................................... 43
14.3. "Beneficiary".................................................................................. 43
14.4. "Board of Directors"........................................................................... 43
14.5. "Code"......................................................................................... 43
14.6. "Committee".................................................................................... 43
14.7. "Company Stock"................................................................................ 43
14.8. "Compensation"................................................................................. 43
14.9. "Disability"................................................................................... 44
14.10. "Discretionary Contribution".................................................................. 44
14.11. "Discretionary Contribution Account".......................................................... 44
14.12. "Elective Contribution"....................................................................... 45
14.13. "Elective Contribution Account"............................................................... 45
14.14. "Eligible Employee"........................................................................... 45
14.15. "Employee".................................................................................... 45
14.16. "Employee Contribution"....................................................................... 45
14.17. "Entry Date".................................................................................. 45
14.18. "ERISA"....................................................................................... 45
14.19. "Highly Compensated Employee"................................................................. 45
14.20. "Hour of Service"............................................................................. 46
14.21. "Leased Employee"............................................................................. 47
14.22. "Matching Contribution Account"............................................................... 47
14.23. "Normal Retirement Age"....................................................................... 47
14.24. "Participant"................................................................................. 47
14.25. "Participating Employer"...................................................................... 47
14.26. "Plan"........................................................................................ 47
14.27. "Plan Sponsor"................................................................................ 47
14.28. "Plan Year"................................................................................... 47
14.29. "Predecessor Employer"........................................................................ 47
14.30. "Qualified Domestic Relations Order".......................................................... 48
14.31. "Qualified Nonelective Contribution".......................................................... 48
14.32. "QNEC Account"................................................................................ 48
14.33. "Regulation".................................................................................. 48
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
14.34. "Required Beginning Date"..................................................................... 48
14.35. "Rollover Contribution"....................................................................... 48
14.36. "Section"..................................................................................... 48
14.37. "Trust"....................................................................................... 48
14.38. "Trustee"..................................................................................... 48
14.39. "Valuation Date".............................................................................. 48
14.40. "Year of Service for Vesting"................................................................. 48
</TABLE>
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<PAGE>
ARTICLE 1. INTRODUCTION.
1.1. QUALIFICATION AND PURPOSE. This document amends and restates the
provisions of the Boston Scientific Corporation 401(k) Retirement Savings Plan,
effective as of January 1, 2001 unless otherwise stated herein. Mergers and
account transfers of certain other plans into the Plan shall have such effective
dates as are provided in Schedule B. The original effective date of the Plan was
January 1, 1987. The Plan and its related Trust are intended to qualify as a
profit-sharing plan and trust under Code sections 401(a) and section 501(a), the
cash or deferred arrangement forming part of the Plan is intended to qualify
under Code section 401(k). The Plan is intended to constitute a plan described
in section 404(c) of ERISA. The provisions of the Plan and Trust shall be
construed and applied accordingly. The purpose of the Plan is to provide
benefits to Participants in a manner consistent and in compliance with such Code
sections and Title I of ERISA. Notwithstanding the general effective date
specified above, any provision of this restatement that is intended to comply
with changes in law made by the Uniform Services Employment and Reemployment
Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer
Relief Act of 1997, the Uruguay Round Agreements Act, or Internal Revenue
Service regulations or other guidance thereunder, or Department of Labor
guidance shall be effective as of the effective dates specified for such changes
in the applicable statute, regulation, or guidance. In addition, this
restatement contains certain provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 ("EGTRRA"). These provisions are intended as good
faith compliance with the requirements of EGTRRA and are to be construed in
accordance with EGTRRA and guidance issued thereunder. Except as otherwise
provided, the EGTRRA provisions shall be effective as of the first day of the
first Plan Year beginning after December 31, 2001. The EGTRRA provisions shall
supersede the provisions of the Plan to the extent those provisions are
inconsistent with the EGTRRA provisions.
1.2. RIGHTS UNDER PLANS. The rights of Participants in this Plan or any
other plan which has been merged into this Plan, who ceased to be employed by
the applicable employer prior to January 1, 2001 or, if later, the applicable
merger date provided in Schedule B and have not thereafter been reemployed by
the Plan Sponsor or an Affiliated Employer, and the rights of their
beneficiaries, shall be determined in accordance with the terms of the
applicable plan at the time they ceased to be employed.
1.3. DEFINED TERMS. All capitalized terms used in the following
provisions of the Plan have the meanings given them under Article 14.
<PAGE>
ARTICLE 2. PARTICIPATION.
2.1. DATE OF PARTICIPATION.
(a) Any individual who was a Participant on December 31, 2000
and is an Eligible Employee on January 1, 2001 will, subject to Section
2.2, continue to be a Participant.
(b) Any other individual will become a Participant on the
Entry Date coinciding with or next following the latest of
(1) January 1, 2001;
(2) the date on which he or she becomes an Eligible
Employee;
(3) the date on which he or she attains age 21; and
(4) the 30th day after the date he or she completes
an Hour of Service;
provided that (i) he or she is an Eligible Employee on such Entry Date
and (ii) he or she has in effect on such Entry Date a compensation
reduction authorization described in Section 3.2 which was submitted in
the manner prescribed by the Committee. Unless otherwise provided by
the Committee, an Employee who has satisfied the requirements of (1),
(2), (3) and (4) above, but who has failed to satisfy the requirements
of (i) or (ii) above, will become a Participant on the first Entry Date
coinciding with or next following the date on which the requirements of
both (i) and (ii) are satisfied.
(c) Unless otherwise provided in Schedule B, in the event the
Plan Sponsor acquires a business of another employer, through an
acquisition of either assets or stock, an Employee who was employed by
such other employer immediately prior to such acquisition shall have
his or her prior service with such other employer taken into account,
as if it were service with an Affiliated Employer, for purposes of
(b)(4) above and Section 14.14(b).
(d) An Employee who, immediately before becoming an Eligible
Employee, has a contribution agreement in effect with an Affiliated
Employer under a separate plan described in section 401(k) of the Code
shall become a Participant on the payroll date coinciding with or next
following the date he or she becomes an Eligible Employee, provided
that he or she has a compensation reduction authorization in effect on
such payroll date.
2.2. DURATION OF PARTICIPATION. An individual who has become a
Participant under the Plan will remain a Participant for as long as an Account
is maintained under the Plan for his or her benefit, or until his or her death,
if earlier. Notwithstanding the
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<PAGE>
preceding sentence and unless otherwise expressly provided for under the Plan,
no contributions shall be made with respect to a Participant who is not an
Eligible Employee. In the event a Participant remains an Employee but ceases to
be an Eligible Employee and becomes ineligible for contributions, such Employee
will again become eligible for contributions immediately upon returning to the
class of Eligible Employees. In the event an Employee who is not an Eligible
Employee becomes an Eligible Employee, such Employee will become a Participant
on the first Entry Date on or after becoming an Eligible Employee, if he or she
has satisfied the requirements of Section 2.1. A Participant or former
Participant who is reemployed as an Eligible Employee shall again become
eligible for contributions on the first Entry Date on or after reemployment.
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<PAGE>
ARTICLE 3. CONTRIBUTIONS.
3.1. ELECTIVE CONTRIBUTIONS. On behalf of each Participant for whom
there is in effect, for any pay period, a compensation reduction authorization
described in Section 3.2 and who is receiving Compensation from a Participating
Employer during such pay period, such Participating Employer will contribute to
the Trust, as an Elective Contribution, an amount equal to the amount by which
such Compensation was reduced pursuant to the compensation reduction
authorization. Elective Contributions for any pay period in a Plan Year may not
be less than 1 percent nor exceed 15 percent of the Participant's Compensation
for such pay period.
3.2. FORM AND MANNER OF ELECTIONS. A "compensation reduction
authorization" is an authorization from an Eligible Employee to a Participating
Employer which satisfies the requirements of this Section 3.2. Each compensation
reduction authorization shall be in a form prescribed or approved by the
Committee, and may be entered into as of any Entry Date upon such prior notice
as the Committee may prescribe. A compensation reduction authorization may be
changed by the Participant, with such prior notice as the Committee may
prescribe, as of the first day of any payroll period. A compensation reduction
authorization shall be effective with respect to Compensation payable on and
after the applicable Entry Date. A compensation reduction authorization may be
revoked by the Participant at any time, upon such prior notice as the Committee
may prescribe. A Participant who revokes a compensation reduction authorization
may enter into a new authorization only as of a subsequent Entry Date.
3.3. MATCHING CONTRIBUTIONS.
(a) On a bi-weekly basis, each Participating Employer will
make a Matching Contribution to the Trust for the benefit of each
Participant on whose behalf it made Elective Contributions for the
period. The amount of Matching Contributions made by a Participating
Employer for the period shall be equal to (i) 100% of the Elective
Contributions made on behalf of the Participant for the period which do
not exceed 2% of the Participant's Compensation for such period, plus
(ii) 50% of the Elective Contributions made on behalf of the
Participant for the period which exceed 2% but do not exceed 4% of the
Participant's Compensation for such period.
(b) If (i) a Participant is an Eligible Employee on the last
day of the Plan Year, and (ii) the aggregate Matching Contributions
made by his or her Participating Employer under paragraph (a) above to
the Trust for the benefit of such Participant with respect to such Plan
Year are less than the lesser of (1) 100% of the Participant's Elective
Contributions for such Plan Year which do not exceed 2% of the
Participant's Compensation for such Year plus 50% of the Participant's
Elective Contributions for such Plan Year which exceed 2% but do not
exceed 4% of the Participant's Compensation for such Year; or (2) 3% of
such Participant's Compensation in such Plan Year, then the
Participating Employer shall make a further contribution to the Trust,
for the benefit of such Participant, to be credited
- 4 -
<PAGE>
to his or her Matching Contribution Account, such that the aggregate
Matching Contributions made by the Participating Employer for the
benefit of such Participant for the Plan Year under this Section shall
equal the lesser of the amounts set forth in clauses (1) and (2) above.
3.4. DISCRETIONARY CONTRIBUTIONS. For each Plan Year, the Participating
Employers shall contribute to the Plan such other amounts, if any, as the Board
of Directors, in its sole discretion, may determine. Any such Discretionary
Contribution for a Plan Year shall be made in cash or, if the Board of Directors
so directs, in Company Stock, and shall be allocated among and credited to the
Accounts of each Participant who:
(a) is an Eligible Employee on the last day of the Plan Year;
or
(b) has ceased to be an Eligible Employee during the Plan Year
by reason of death or severance from employment after attaining age 62
or on account of Disability,
in proportion to their relative amounts of Compensation for such Plan Year.
3.5. QUALIFIED NONELECTIVE CONTRIBUTIONS. To the extent necessary to
satisfy the Code Section 401(k)(3) limits with respect to Elective Contributions
or the Code Section 401(m) limits with respect to Matching Contributions, the
Plan Sponsor, in its discretion, may determine whether a Qualified Nonelective
Contribution shall be made to the Trust for a Plan Year and, if so, the amount
to be contributed by such Participating Employer. If the Plan Sponsor determines
that a Qualified Nonelective Contribution shall be made, each Participating
Employer shall contribute its designated portion. Qualified Nonelective
Contributions shall be fully vested and subject to the same distribution rules
as Elective Contributions as of the time such Qualified Nonelective
Contributions are made to the Plan.
3.6. ROLLOVER CONTRIBUTIONS. An Eligible Employee (whether or not a
Participant) may make a Rollover Contribution to the Plan upon demonstration to
the Committee that the contribution is eligible for transfer to the Plan
pursuant to the rollover provisions of the Code.
3.7. EMPLOYEE CONTRIBUTIONS. A Participant may elect to make after-tax
Employee Contributions under the Plan in the form and manner prescribed or
approved by the Committee. Employee Contributions for any pay period in a Plan
Year may not be less than 1 percent nor exceed 10 percent of the Participant's
Compensation for such period.
3.8. OTHER EMPLOYER CONTRIBUTIONS. The Participating Employers shall
contribute to the Plan such other amounts as the Board of Directors determines
on behalf of certain eligible Participants as set forth on Schedule C. Such
contributions shall be made in cash and shall be allocated to an Employer
Contribution Account of each eligible Participant as set forth on Schedule C.
- 5 -
<PAGE>
3.9. CREDITING OF CONTRIBUTIONS. Each type of contribution for a Plan
Year shall be allocated among and credited to the respective Accounts of
Participants eligible to share in the contributions as of the Valuation Date
next following the date the contributions are received by the Trustee.
3.10. TIME FOR MAKING CONTRIBUTIONS. Elective Contributions will be
paid in cash to the Trust as soon as such contributions can reasonably be
segregated from the general assets of the Participating Employer, but in any
event no later than the time set forth in Department of Labor Regulations
section 2510.3-102.
3.11. CERTAIN LIMITS APPLY. All contributions to the Plan are subject
to the applicable limits set forth under Code sections 401(k), 402(g), 401(m),
404, and 415, as further described elsewhere in the Plan. In addition, certain
minimum allocations may be required under Code section 416, as also further
described elsewhere in the Plan.
3.12. RETURN OF CONTRIBUTIONS. If any contribution by a Participating
Employer to the Trust is (a) made by reason of a mistake of fact, or (b)
believed by the Participating Employer in good faith to be deductible under Code
section 404, but the deduction is disallowed, the Trustee shall, upon request by
the Participating Employer, return to the Participating Employer the excess of
the amount contributed over the amount, if any, that would have been contributed
had there not occurred a mistake of fact or a mistake in determining the
deduction. Such excess shall be reduced by the losses of the Trust attributable
thereto, if and to the extent such losses exceed the gains and income
attributable thereto. In no event shall the return of a contribution hereunder
cause any Participant's Accounts to be reduced to less than they would have been
had the mistaken or nondeductible amount not been contributed. No return of a
contribution hereunder shall be made more than one year after the mistaken
payment of the contribution, or disallowance of the deduction, as the case may
be.
3.13. ESTABLISHMENT OF TRUST. The Plan Sponsor will establish a Trust
to accept and hold contributions made under the Plan. The Trust shall be
governed by an agreement between the Plan Sponsor and the Trustee the terms of
which shall be consistent with the Plan provisions and intended qualification
under Code sections 401(a) and 501(a).
- 6 -
<PAGE>
ARTICLE 4. PARTICIPANT ACCOUNTS.
4.1. ACCOUNTS. The Committee will establish and maintain (or cause the
Trustee to establish and maintain) for each Participant, such Accounts as are
necessary to carry out the purposes of this Plan.
4.2. ADJUSTMENT OF ACCOUNTS. As of each Valuation Date, each Account
will be adjusted to reflect the fair market value of the assets allocated to the
Account. In so doing,
(a) each Account balance will be increased by the amount of
contributions, income and gain allocable to such Account since the
prior Valuation Date; and
(b) each Account balance will be decreased by the amount of
distributions from the Account and expenses and losses allocable to the
Account since the prior Valuation Date.
Income, expense, gain or loss which is generated by a particular investment
within the Trust shall be allocated among the Accounts invested in that
investment in proportion to the balances of such Accounts as of the immediately
preceding Valuation Date. Any expenses relating to a specific Account or
Accounts, including without limitation commissions or sales charges with respect
to an investment in which the Account participates, but excluding costs relating
to the processing of Qualified Domestic Relations Orders, may be charged solely
to the particular Account or Accounts.
4.3. INVESTMENT OF ACCOUNTS.
(a) A Participant's Accounts shall be invested by the Trustee
as the Participant directs from among such investment options as the
Plan Sponsor may make available from time to time in accordance with
the investment policy established by the Committee. The Committee shall
prescribe the manner in which such directions may be made or changed,
the dates as of which they shall be effective, and the allocation of
Accounts with respect to which no directions are submitted. Any other
assets of the Trust not specified above in this Section shall be
invested by the Trustee in the sole discretion of the Trustee and in
accordance with its fiduciary duties under ERISA; provided, that if an
investment manager or other named fiduciary has been appointed with
respect to all or a portion of such assets, the Trustee shall invest
such portion as the investment manager or other named fiduciary
directs.
(b) The Committee is specifically authorized to establish a
Company Stock investment option. To the extent such Company Stock has
voting rights, or in the event of any tender or exchange offer by any
person for such Company Stock, Participants invested in such Company
Stock fund may direct the Trustee as to the voting and tender of such
Company Stock in accordance with procedures established by the
Committee. The Committee may also provide for the temporary suspension
of the right of Participants subject to Section 16 of the Securities
Exchange Act of 1934 to invest further amounts in the Company Stock
fund following any withdrawal from the portion of such Participants'
Accounts theretofore invested in such Company Stock fund. The Committee
may also establish from time to time a maximum percentage of any
Participant's Accounts which may be invested in the Company Stock fund.
- 7 -
<PAGE>
(c) In connection with the acquisition of Schneider (USA) Inc.
and Corvita Corporation, the Company established an investment fund to
hold shares of Pfizer Inc. common stock transferred from the Pfizer
Savings and Investment Plan. No contributions under this Plan may be
invested in the Pfizer stock fund, and dividends and interest payable
on the assets of the Pfizer stock fund allocated to the Accounts of a
Participant will be invested according to such Participant's current
investment election for contributions under the Plan. A Participant may
direct that amounts held in the Pfizer stock fund on his or her behalf
be transferred to one or more other investment funds made available by
the Committee from time to time, and any amounts so transferred shall
not be reallocated to the Pfizer stock fund.
4.4. APPOINTMENT OF INVESTMENT MANAGER OR NAMED FIDUCIARY. The Plan
Sponsor may appoint in writing one or more investment managers or other "named
fiduciaries" (within the meaning of ERISA section 402(a)(2)) to manage the
investment of all or designated portions of the assets held in the Trust. The
appointment shall be effective upon acknowledgment in writing by the investment
manager or other named fiduciary that it is a fiduciary with respect to the
Plan. An investment manager must be (a) registered as an investment adviser
under the Investment Advisers Act of 1940, (b) a bank as defined in that Act, or
(c) an insurance company qualified under the laws of more than one state to
manage, acquire or dispose of any assets of the Plan.
4.5. SECTION 404(c) COMPLIANCE. The Plan is intended to be an "ERISA
section 404(c) plan" as described in section 404(c) of ERISA and title 29 of the
Code of Federal Regulations section 2550.404c-1, and shall be administered and
interpreted in a manner consistent with that intent. The investment direction
requirements of Department of Labor regulation section 2550.404c-1(b)(2)(i)(B)
(1)(iv) and (b)(2)(i)(A) and the requirements relating to the investment
alternatives under the Plan are intended to be satisfied by Section 4.3 above,
in each case taking into account related communications to Participants and
beneficiaries under the summary plan description for the Plan and other
communications. For purposes of ERISA section 404(c), the "identified plan
fiduciary" obligated to comply with Participant and Beneficiary investment
instructions (except as provided in such section and regulations thereunder),
the identified plan fiduciary obligated to provide Participants and
Beneficiaries with the materials set forth in Department of Labor regulations
section 2550.404c-1(b)(2)(i)(B) and the identified plan fiduciary obligated to
comply with the confidentiality requirements and procedures under Department of
Labor regulations section 2550.404c-1(d)(2)(ii)(E)(4)(viii) relating to employer
securities shall be the Committee. The Committee may decline to implement
Participant and Beneficiary investment instructions which would result in a
prohibited transaction described in ERISA section 406 or section 4975 of the
Code or which would generate income that would be taxable to the Plan.
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<PAGE>
4.6. TRANSFERS FROM OTHER PLANS.
(a) Unless otherwise provided herein, in the event that
another plan is merged into the Plan, or accounts are otherwise
transferred to the Plan from another plan, the assets transferred to
the Plan shall be allocated as follows:
(1) Assets attributable to an individual's elective
contributions and qualified nonelective contributions (if any)
shall be allocated to an Elective Contribution Account for his
or her benefit under the Plan;
(2) Assets attributable to matching employer
contributions (if any), shall be allocated to a Matching
Contribution Account for his or her benefit under the Plan;
(3) Assets attributable to other employer
contributions (if any), shall be allocated to a Discretionary
Contribution Account for his or her benefit under the Plan;
and
(4) Assets attributable to an individual's after-tax
contributions (if any) shall be allocated to an after-tax
contribution account for his or her benefit under the Plan.
The assets transferred may be separately accounted for in
sub-accounts under the Plan as determined to be necessary by the
Committee in order to administer the provisions of Articles 5, 6, 7 and
8. Unless otherwise provided in Schedule B or in an acquisition
agreement between a Participating Employer and the employer maintaining
such transferor plan, all assets transferred under this Section 4.6
shall be invested in accordance with investment directions by the
Participant under Section 4.3 above or, absent such directions, in a
fund designated by the Committee.
(b) Any individual for whom accounts have been transferred
under this Section 4.6 and who has not become a Participant under
Section 2.1, or pursuant to such other special eligibility rules
provided in Schedule B, shall be treated as a Participant for purposes
of Articles 4, 5, 8, 9, 10 and 13 and, so long as he or she is an
Employee, Articles 6 and 7. Such an individual shall become a
Participant for all purposes of the Plan to the extent such individual
satisfies the requirements of Section 2.1 or any other special
eligibility rules provided in Schedule B which apply to such
individual.
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<PAGE>
ARTICLE 5. VESTING OF ACCOUNTS.
5.1. IMMEDIATE VESTING OF CERTAIN ACCOUNTS. A Participant shall at all
times have a vested interest in 100% of the following accounts, as applicable:
Elective Contribution Account, Employee Contribution Account, QNEC Account,
Matching Contribution Account, his or her Rollover Account, and other accounts
that the Committee may establish, unless explicitly provided otherwise herein.
5.2. DEFERRED VESTING OF DISCRETIONARY CONTRIBUTION ACCOUNTS.
(a) A Participant who on December 31, 1992 had at least three
Years of Service for purposes of calculating vesting, shall have a
vested interest in 100% of his or her Discretionary Contribution
Account, if any.
(b) A Participant not described in (a) above, shall have a
vested interest in a percentage of his or her Discretionary
Contribution Account, if any, determined in accordance with the
following schedule and based on his or her Years of Service for
Vesting:
<TABLE>
<CAPTION>
Years of Service Applicable
for Vesting Nonforfeitable Percentage
---------------- -------------------------
<S> <C>
less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
</TABLE>
5.3. SPECIAL VESTING RULES. Notwithstanding any provision of the Plan
to the contrary, a Participant will have a vested interest in 100% of the
Accounts maintained for his or her benefit upon the happening of any one of the
following events:
(a) the Participant's attainment of age 62 while an Employee;
(b) the Participant's severance from employment on account of
Disability;
(c) the Participant's death while an Employee;
(d) the termination of the Plan or the complete discontinuance
of Contributions under the Plan; or
(e) the partial termination of the Plan with respect to the
Participant.
5.4. CHANGES IN VESTING SCHEDULE. If the Plan's vesting schedule is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of a Participant's vested percentage (or if the Plan changes to
or from a top-heavy vesting schedule), each Participant who
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<PAGE>
has completed 3 years of Vesting Service may elect, within the period described
below, to have his or her vested percentage determined without regard to such
amendment or change. The period referred to in the preceding sentence will begin
on the date the amendment of the vesting schedule is adopted and will end 60
days after the latest of the following dates:
(a) the date on which such amendment is adopted;
(b) the date on which such amendment becomes effective; and
(c) the date on which the Participant is issued written notice
of such amendment by the Committee.
5.5. FORFEITURES.
(a) In general. Any portion of a Participant's Account in
which he or she is not vested upon severance from employment for any
reason will be forfeited as of the earlier of
(1) the expiration of 5 consecutive Plan Years during
each of which the Participant does not complete 501 Hours of
Service, or
(2) the distribution of the vested portion of the
Account if such distribution is made as a result of the
Participant's severance from employment.
Any Participant who separates from the service of the Affiliated Employers prior
to earning a vested interest in any of his or her Accounts shall be deemed to
have received a complete distribution of his or her vested interest on the day
he or she separates from service.
(b) Certain Restorations. Notwithstanding the preceding
paragraph, if a Participant forfeits any portion of an Account as a
result of the complete distribution of the vested portion of the
Account but thereafter returns to the employ of an Affiliated Employer,
the amount forfeited will be recredited to the Participant's Account if
he or she repays to the Plan the entire amount distributed, without
interest, prior to the earlier of (i) the close of the fifth
consecutive Plan Year in each of which the Participant does not
complete at least 501 Hours of Service or (ii) the fifth anniversary of
the date on which the Participant is reemployed. In the case of a
Participant who had earlier separated from service prior to earning a
vested interest in any of his or her Accounts and was deemed to have
received a distribution of such vested interest, the amount forfeited
will be restored upon the Participant's reemployment prior to the close
of the fifth consecutive Plan Year in each of which the Participant
does not complete at least 501 Hours of Service. A Participant's vested
percentage in the amount recredited under this paragraph will
thereafter be determined under the terms of the Plan as if no
forfeiture had occurred. The money required to effect the restoration
of a Participant's Account shall come from other Accounts forfeited
during the Plan Year of restoration, and to the extent such funds are
inadequate, from a special contribution by the Participant's
Participating Employer.
(c) If a Participant forfeits any part of his or her Accounts
under paragraph (a) above, the amount of the forfeiture will be
applied, first, toward any restoration of any
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<PAGE>
amount previously forfeited as required under paragraph (a) above, and,
then, toward the Matching Contributions required to be made to the Plan
under Section 3.3.
5.6. VESTING OF ACCOUNTS TRANSFERRED FROM OTHER PLANS. In the event
that another plan is merged into the Plan, or accounts are otherwise transferred
to the Plan from another plan, the portion of each Account under this Plan that
is attributable to a vested and nonforfeitable account, or portion of an
account, under the transferor plan shall remain vested and nonforfeitable under
this Plan. The remaining portion of each Account under this Plan that is
attributable to a transferor plan account shall vest in accordance with Section
5.2, unless otherwise provided in Schedule B.
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<PAGE>
ARTICLE 6. WITHDRAWALS PRIOR TO SEVERANCE FROM EMPLOYMENT.
6.1. HARDSHIP WITHDRAWALS.
(a) Immediate and heavy financial need. A Participant may make
a withdrawal from his or her Elective Contribution Account in the event
of an immediate and heavy financial need arising from
(i) expenses for medical care described in Code
section 213(d) previously incurred by the Participant, his or
her spouse or any of his or her dependents (as defined in Code
section 152) or amounts necessary for these persons to obtain
such medical care;
(ii) costs directly related to the purchase of a
principal residence of the Participant (excluding mortgage
payments);
(iii) the payment of tuition, room and board expenses
and related educational fees for the next 12 months of
post-secondary education for the Participant, his or her
spouse, children or dependents (as defined in Code section
152);
(iv) payments necessary to prevent the eviction of
the Participant from his or her principal residence or
foreclosure on the mortgage on that principal residence; or
(v) any other need identified by the Commissioner of
Revenue as a "financial hardship" for purposes of section
401(k) plans through the publication of revenue rulings,
notices and other guidance of general applicability.
The Committee's determination of whether there is an immediate and
heavy financial need as defined above shall be made solely on the basis
of written evidence furnished by the Participant. Such evidence must
also indicate the amount of such need.
(b) Distribution of amount necessary to meet need. As soon as
practicable after the Committee's determination that an immediate and
heavy financial need exists with respect to the Participant, that the
Participant has obtained all other distributions (other than hardship
distributions) and all nontaxable loans currently available under the
Plan and all other plans maintained by the Affiliated Employers, and
that no other resources are reasonably available to the Participant to
satisfy the need, the Committee will direct the Trustee to pay to the
Participant the amount necessary to meet the need created by the
hardship (but not in excess of the value of the Participant's Elective
Contribution Account, determined as of the Valuation Date that
authorized distribution directions are received by the Trustee). The
amount necessary to meet the need may include any amounts necessary to
pay any federal, state, or local income taxes or penalties reasonably
anticipated to result from the distribution. Distribution will be made
solely from the Participant's Elective Contribution Account, and shall
not include any portion of the Account that is attributable to income
earned after December 31, 1988.
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<PAGE>
6.2. WITHDRAWALS AFTER AGE 59 1/2. A Participant who is an Employee and
has attained age 59 1/2 may make a withdrawal from any one or more of his or her
Accounts for any reason, upon such prior notice as the Committee may prescribe.
Any such withdrawal shall be in the amount specified by the Participant, up to
the vested value of the particular Account determined as of the Valuation Date
that authorized distribution directions are received by the Trustee. Payment to
the Participant shall be made as soon as practicable after such Valuation Date.
6.3. WITHDRAWAL FROM ROLLOVER ACCOUNT. A Participant who is an Employee
may make a withdrawal from his or her Rollover Account for any reason, upon such
prior notice as the Committee may prescribe. Any such withdrawal shall be in the
amount specified by the Participant, up to the value of the Rollover Account
determined as of the Valuation Date that authorized distribution directions are
received by the Trustee. Payment to the Participant shall be made as soon as
practicable after such Valuation Date.
6.4. WITHDRAWAL ON ACCOUNT OF DISABILITY. A Participant who is an
Employee and who has a Disability, may make a withdrawal from his or her
Accounts upon such prior notice as the Committee may prescribe. Any such
withdrawal shall be in the amount specified by the Participant, up to the vested
value of the Accounts determined as of the Valuation Date that authorized
distribution directions are received by the Trustee. Payment to the Participant
shall be made as soon as practicable after such Valuation Date.
6.5. WITHDRAWAL OF EMPLOYEE CONTRIBUTIONS. A Participant who is an
Employee may make a withdrawal from his or her Employee Contribution Account for
any reason upon such prior notice and in accordance with such procedures as the
Committee may prescribe. Any such withdrawal shall be in the amount specified by
the Participant in accordance with procedures prescribed by the Committee, up to
the value of the Participant's Employee Contribution Account, determined as of
the Valuation Date that authorized distribution directions are received by the
Trustee. Payment to the Participant shall be made as soon as practicable after
such Valuation Date.
6.6. RESTRICTIONS ON CERTAIN DISTRIBUTIONS. In the case of a
Participant whose Accounts are valued in excess of $5,000 and who has not yet
attained the Normal Retirement Age, no distribution may be made to the
Participant under this Article unless
(a) between the 30th and 90th day prior to the date
distribution is to be made, the Committee notifies the Participant in
writing that he or she may defer distribution until the Normal
Retirement Age and provides the Participant with a written description
of the material features and (if applicable) the relative values of the
forms of distribution available under the Plan; and
(b) the Participant consents to the distribution in writing
after the information described above has been provided to him or her.
Notwithstanding the foregoing, such distribution may commence less than 30 days
after the required notification described above is given, provided that (i) the
Committee clearly informs the Participant that the Participant has a right to a
period of at least 30 days after receiving the notice to consider whether or not
to elect a distribution; and (ii) the Participant, after receiving the notice,
elects a distribution.
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<PAGE>
For purposes of this Section, a Participant's Accounts will be considered to be
valued in excess of $5,000 if the value of his or her Accounts exceeds such
amount at the time of the distribution in question. For the avoidance of doubt,
nothing in this Section confers a substantive distribution right to any
Participant; a Participant must be eligible to receive a distribution pursuant
to the other provisions of this Article 6 in order for this Section to apply.
6.7. LIMITATION OF WITHDRAWABLE AMOUNT. In the event that there is
allocated to a Participant's Account a promissory note with respect to a loan
made from the Plan, the maximum amount of cash that may be withdrawn from the
Account prior to the Participant's severance from employment shall be determined
without regard to the value of such note.
6.8. REQUIRED DISTRIBUTIONS AFTER REQUIRED BEGINNING DATE. In the case
of a Participant who remains an Employee on or after his or her Required
Beginning Date, such Participant's Accounts will be distributed, beginning on
his or her Required Beginning Date, in accordance with the applicable
requirements of Code section 401(a)(9) and the Regulations promulgated
thereunder.
6.9. DISTRIBUTIONS REQUIRED BY A QUALIFIED DOMESTIC RELATIONS ORDER. To
the extent required by a Qualified Domestic Relations Order, the Committee shall
make distributions from a Participant's Accounts to alternate payees named in
such order in a manner consistent with the distribution options otherwise
available under the Plan, regardless of whether the Participant is otherwise
entitled to a distribution at such time under the Plan.
6.10. WITHDRAWALS BY CERTAIN FORMER PARTICIPANTS IN OTHER PLANS.
(a) In addition to the rights to take withdrawals prior to
severance from employment as described above, in the case of a
Participant for whom amounts have been transferred under Section 4.6,
the Participant shall be entitled to take withdrawals hereunder in the
circumstances in which withdrawals prior to severance from employment
would have been permitted under the transferor plan, as set forth in
Schedule B.
(b) In the case of a married Participant for whom amounts have
been transferred under Section 4.6 from another plan and who has at any
time elected an annuity form of payment under Section 8.7, no
withdrawal may be made under this article unless (i) his or her spouse
consents in writing to such withdrawal, such consent acknowledges the
effect of the withdrawal and is witnessed by a Plan representative or a
notary public, and such consent specifies the form of the withdrawal
(i.e., a lump sum cash payment), or (ii) it is established to the
satisfaction of the Committee that the foregoing consent may not be
obtained because the spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may prescribe.
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<PAGE>
ARTICLE 7. LOANS TO PARTICIPANTS.
7.1. IN GENERAL. Upon the written request of a Participant on a form
acceptable to the Committee, and subject to the conditions of this Article, the
Committee shall direct the Trustee to make a loan from the Trust to the
Participant. Notwithstanding the foregoing, a Participant who is an
owner-employee or member of the family (as defined in Code section 267(e)(4) of
an owner-employee is not eligible to receive a loan under this Article 7. An
"owner-employee" shall mean an owner employee as defined in Code section
401(c)(3), and shall include an employee or officer of an electing small
business (Subchapter S) corporation which is an Affiliated Employer who owns (or
is considered as owning within the meaning of Code section 318(a)(1)), on any
day during the taxable year of such corporation, more than 5% of the outstanding
stock of such corporation. For purposes of this Article, "Participant" includes
any Participant who is an Employee of a Participating Employer, and any other
Participant (or Beneficiary of a deceased Participant) who is a "party in
interest" within the meaning of ERISA section 3(14).
7.2. RULES AND PROCEDURES. The Committee shall promulgate such rules
and procedures, not inconsistent with the express provisions of this Article, as
it deems necessary to carry out the purposes of this Article including, but not
limited to, rules for charging loan fees directly to a Participant's Accounts.
All such rules and procedures shall be deemed a part of the Plan for purposes of
the Department of Labor regulation section 2550.408b-1(d). Loans shall not be
made available to Participants who are Highly Compensated Employees in an amount
(determined under Department of Labor regulation section 2550.408b-1(b)) greater
than the amount made available to other Participants.
7.3. MAXIMUM AMOUNT OF LOAN. The following limitations shall apply in
determining the amount of any loan to a Participant hereunder:
(a) The amount of the loan, together with any other
outstanding indebtedness of the Participant under the Plan or any other
qualified retirement plans of the Affiliated Employers, shall not
exceed $50,000 reduced by the excess of (i) the highest outstanding
loan balance of the Participant from such plans during the one-year
period ending on the day prior to the date on which the loan is made,
over (ii) the Participant's outstanding loan balance from such plans
immediately prior to the loan.
(b) The amount of the loan shall not exceed 50% of the
Participant's vested interest in his or her Accounts, determined as of
the Valuation Date immediately preceding the date of the loan.
7.4. MINIMUM AMOUNT OF LOANS; LIMIT ON NUMBER OF LOANS. The amount of
any single loan under this Plan shall not be less than $1,000. No more than two
loans may be outstanding to a Participant at any one time.
7.5. NOTE; SECURITY; INTEREST. Each loan shall be evidenced by a note
signed by the Participant and shall be secured by the Participant's vested
interest in his or her Accounts, including in such security the note evidencing
the loan. The loan shall bear interest at a reasonable annual percentage
interest rate to be determined by the Committee. In determining the interest
rate, the
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<PAGE>
Committee shall take into consideration interest rates currently being charged
by persons in the business of lending money with respect to loans made in
similar circumstances.
7.6. REPAYMENT. Each loan made to a Participant who is receiving
regular payments of compensation from a Participating Employer shall be
repayable by payroll deduction. Loans made to other Participants (and, in all
events, where payroll deduction is no longer practicable) shall be repayable in
such manner as the Committee may from time to time determine. The documents
evidencing a loan shall provide that payments shall be made not less frequently
than quarterly and over a specified term as determined by the Committee (but not
to exceed five years; ten years if the loan is being applied toward the purchase
of a principal residence for the Participant); such documents shall also require
that the loan be amortized with level payments of principal and interest. A
Participant may prepay all, but not less than all, of his or her loan at any
time, without penalty, by paying the loan principal then outstanding together
with interest accrued and unpaid to the date of payment. Notwithstanding the
foregoing, loan repayments may be suspended with respect to a Participant during
any period he or she is performing qualified military service (as defined under
Code section 414(u)) in accordance with Code section 414(u)(4).
7.7. REPAYMENT UPON DISTRIBUTION. If, at the time benefits are to be
distributed (or to commence being distributed) to a Participant with respect to
a severance from employment, there remains any unpaid balance of a loan
hereunder, such unpaid balance shall, to the extent consistent with Department
of Labor regulations, become immediately due and payable in full. Such unpaid
balance, together with any accrued but unpaid interest on the loan, shall be
deducted from the Participant's Accounts, subject to the default provisions
below, before any distribution of benefits is made. Except as may be required in
order to comply (in a manner consistent with continued qualification of the Plan
under Code section 401(a)) with Department of Labor regulations, no loan shall
be made or remain outstanding with respect to a Participant under this Article
after the time distributions to the Participant with respect to a severance from
employment are to be paid or commence.
7.8. DEFAULT. In the event of a default in making any payment of
principal or interest when due under the note evidencing any loan under this
Article, if such default continues for more than 90 days of the due date
thereof, the unpaid principal balance of the note shall immediately become due
and payable in full. Such unpaid principal, together with any accrued but unpaid
interest, shall thereupon be deducted from the Participant's Accounts, subject
to the further provisions of this Section. The amount so deducted shall be
treated as distributed to the Participant and applied by the Participant as a
payment of the unpaid interest and principal (in that order) under the note
evidencing such loan. In no event shall the Committee apply the Participant's
Accounts to satisfy the Participant's repayment obligation, whether or not he or
she is in default, unless the amount so applied otherwise could be distributed
in accordance with the Plan.
7.9. NOTE AS TRUST ASSET. The note evidencing a loan to a Participant
under this Article shall be an asset of the Trust which is allocated to the
Account of such Participant, and shall for purposes of the Plan be deemed to
have a value at any given time equal to the unpaid principal balance of the note
plus the amount of any accrued but unpaid interest.
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<PAGE>
7.10. NONDISCRIMINATION. Loans shall be made available under this
Article to all Participants on a reasonably equivalent basis, except that the
Committee may make reasonable distinctions based on creditworthiness.
7.11. DESIGNATION OF ACCOUNTS. Loans shall be made from the
Participant's Accounts in such order as may be designated by the Committee, and
loan repayments shall be credited to such Accounts in the same order. Loan
repayments shall be allocated among the investment options in accordance with
the Participant's then-effective instructions regarding the investment of
contributions made on his or her behalf.
7.12. SPOUSAL CONSENT TO LOANS TO CERTAIN FORMER PARTICIPANTS IN OTHER
PLANS. In the case of a married Participant for whom amounts have been
transferred under Section 4.6 from a transferor plan and who has at any time
elected an annuity form of payment under Section 8.7 or under the transferor
plan, no loan shall be made unless (a) the Participant's spouse consents in
writing to such loan and to the use of the Participant's Accounts as security
for the loan, and such consent acknowledges the effect of the loan and the use
of the Accounts as security, is witnessed by a Plan representative or a notary
public, and is provided no more than 90 days before the date on which the loan
is to be secured by the Accounts, or (b) it is established to the satisfaction
of the Committee that the foregoing consent may not be obtained because there is
no spouse, because the spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may prescribe.
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<PAGE>
ARTICLE 8. BENEFITS UPON DEATH OR SEVERANCE FROM EMPLOYMENT
8.1. SEVERANCE FROM EMPLOYMENT FOR REASONS OTHER THAN DEATH. Following
a Participant's severance from employment of an Affiliated Employer for any
reason other than death, the Participant will receive the vested portion of his
or her Accounts in cash in a single sum or, if the Participant elects and the
value of such portion exceeds $5,000, in monthly, quarterly, semi-annual, or
annual installments, fixed installments or variable installments over a period
certain not to exceed the Participant's life expectancy or the joint life and
last survivor expectancy of the Participant and his or her Beneficiary. An
election to receive monthly, quarterly, semi-annual, or annual installment
distributions in lieu of a single sum, and the period over which such
installments are to be made, shall be made by the Participant on a form approved
by the Committee. Notwithstanding the foregoing, for Plan Years beginning on or
after January 1, 2002, the installment options described above shall be
available only with respect to a Participant whose annuity starting date is
earlier than the earlier of (i) the 90th day after notice that such benefit
forms will no longer be available is provided in accordance with Regulation
section 1.411(d)-4, Q&A-2(e)(1) and (ii) the first day of the second Plan Year
following the Plan Year in which the form of optional benefit is eliminated by
amendment.
8.2. TIME OF DISTRIBUTIONS. Distribution with respect to a
Participant's severance from employment normally will be made as soon as
practicable after such severance. In the case of a Participant whose Accounts
are valued in excess of $5,000 and who has not yet attained the Normal
Retirement Age, however, distribution may not be made under this Section unless
(a) between the 30th and 90th day prior to the date
distribution is to be made, the Committee notifies the Participant in
writing that he or she may defer distribution until the Normal
Retirement Age; and
(b) the Participant consents to the distribution in writing
after the information described above has been provided to him or her,
and files such consent with the Committee.
Notwithstanding the foregoing, such distribution may commence less than 30 days
after the required notification described above is given, provided that (i) the
Committee clearly informs the Participant that the Participant has a right to a
period of at least 30 days after receiving the notice to consider whether or not
to elect a distribution; and (ii) the Participant, after receiving the notice,
elects a distribution.
A Participant's Accounts will be considered to be valued in excess of $5,000 if
the value of such Accounts exceeds such amount at the time of the distribution
in question. Distribution under this Section in all events will be made no later
than the 60th day after the close of the Plan Year in which occurs the later of
the Participant's severance from employment or the Participant's attainment of
the Normal Retirement Age.
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8.3. AMOUNT OF DISTRIBUTION.
(a) Single Sums. In the case of a distribution to be made in a
single sum, the amount of the distribution shall be determined as of
the Valuation Date on which authorized distribution directions are
received by the Trustee.
(b) Installments. To the extent allowed in Section 8.1, in the
case of distributions to be made in monthly, quarterly, semi-annual, or
annual installments, the aggregate installment amount for a particular
calendar year (the "installment year") shall be determined by dividing
(i) the value of the vested portion of the
Participant's Accounts as of the last Valuation Date preceding
the distribution date by
(ii) the lesser of (A) the number of remaining
installment years in the installment period elected by the
Participant as of the beginning of the installment year and
(B) the number of years in the applicable remaining life
expectancy for the installment year determined pursuant to
regulations under Code section 401(a)(9).
8.4. DISTRIBUTIONS AFTER A PARTICIPANT'S DEATH.
(a) Death Prior to Severance From Employment. If a Participant
dies prior to his or her severance from the service of the
Participating Employers, the Participant's Beneficiary will receive the
Participant's Accounts in either of the following forms, as elected by
the Beneficiary on a form approved by the Committee:
(i) in cash in a single sum as soon as practicable
following the Participant's death (but in no event later than
December 31 of the calendar year following the year of the
Participant's death); or
(ii) in monthly, quarterly, semi-annual, or annual
installments over a period certain not to exceed the life
expectancy of the Beneficiary, such installments to begin not
later than December 31 of the calendar year following the year
of the Participant's death and to be made in amounts
determined in the same manner as under Section 8.3(b) above.
(b) Death After Severance From Employment. If a Participant
dies after severance from employment but before the complete
distribution of his or her Accounts has been made, the Participant's
Beneficiary will receive the vested portion of the Participant's
Accounts. Distribution will be made in cash in a single sum as soon as
practicable following the Participant's death (but no later than
December 31 of the calendar year following the year of the
Participant's death) provided, however, that if distribution to the
Participant had begun following his or her severance from employment in
a form elected by the Participant, distribution will continue to be
made to the Beneficiary at least as rapidly in such form unless the
Beneficiary elects to receive the distribution in cash in a single sum
as soon as practicable following the Participant's death. Any such
election must be made on a
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form approved by the Committee and must be received by the Committee
within such period following the Participant's death as the Committee
may prescribe.
Any distribution to a Beneficiary under this Section shall be determined as of
the Valuation Date that authorized distribution directions are received by the
Trustee.
8.5. DESIGNATION OF BENEFICIARY. Subject to the provisions of this
Section, a Participant's Beneficiary shall be the person or persons and entity
or entities, if any, designated by the Participant from time to time on a form
approved by the Committee. In the absence of an effective beneficiary
designation, the full amount payable upon the death of the Participant shall be
paid to his or her surviving spouse or, if none, to his or her estate. If any
Beneficiary survives the Participant but dies prior to receipt of his or her
interest in the Participant's Account, such Beneficiary's remaining interest
shall be paid to the Beneficiary's estate (unless the Participant had
effectively designated a successor or contingent Beneficiary for the
Beneficiary's remaining interest). A nonspouse beneficiary designation by a
Participant who is married at the time of his or her death shall not be
effective unless
(a) prior to the Participant's death, the Participant's
surviving spouse consented to and acknowledged the effect of the
Participant's designation of a specific non-spouse Beneficiary
(including any class of Beneficiaries or any contingent Beneficiaries)
on a written form approved by the Committee and witnessed by a notary
public or a duly authorized Plan representative; or
(b) it is established to the satisfaction of the Committee
that spousal consent may not be obtained because there is no spouse,
because the spouse has died (evidenced by a certificate of death),
because the spouse cannot be located (based on information supplied by
a government agency or independent investigator), or because of such
other circumstances as the Secretary of the Treasury may prescribe; or
(c) the spouse had earlier executed a general consent form
permitting the Participant (i) to select from among certain specified
beneficiaries without any requirement of further consent by the spouse
(and the Participant designates a Beneficiary from the specified list),
or (ii) to change his or her Beneficiary without any requirement of
further consent by the spouse. Any such general consent shall be on a
form approved by the Committee, and must acknowledge that the spouse
has the right to limit consent to a specific beneficiary and that the
spouse voluntarily elects to relinquish such right.
In the event a spouse is legally incompetent to give consent, the spouse's legal
guardian, even if the guardian is the Participant, may give consent on behalf of
the spouse. Any consent and acknowledgment by (or on behalf of) a spouse, or the
establishment that the consent and acknowledgment cannot be obtained, shall be
effective only with respect to such spouse, but shall be irrevocable once made.
8.6. DIRECT ROLLOVERS OF ELIGIBLE DISTRIBUTIONS. Notwithstanding any
provision of the Plan to the contrary that may otherwise limit a distributee's
election under this Section, a distributee
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may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. For purposes
of this Section, the following terms have the following meanings:
(a) an "eligible rollover distribution" is any distribution of
all or any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives of the distributee
and the distributee's Beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is
required under Code section 401(a)(9); any distribution that is made on
account of hardship; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
Notwithstanding the foregoing, with respect to distributions made after
December 31, 2001, a portion of a distribution shall not fail to be an
eligible rollover distribution merely because the portion consists of
after-tax Employee Contributions which are not includible in gross
income. However, such portion may be transferred only to an individual
retirement account or annuity described in section 408(a) or (b) of the
Code, or to a qualified defined contribution plan described in section
401(a) or 403(a) of the Code that agrees to account separately for
amounts so transferred, including separately accounting for the portion
of such distribution which is includible in gross income and the
portion of such distribution which is not so includible.
(b) with respect to a distributee, an "eligible retirement
plan" is an individual retirement account described in Code section
408(a), an individual retirement annuity described in Code section
408(b), an annuity plan described in Code section 403(a), or a
qualified trust described in Code section 401(a). With respect to
distributions made after December 31, 2001, an "eligible retirement
plan" shall also mean an annuity contract described in section 403(b)
of the Code and an eligible plan under section 457(b) of the Code which
is maintained by a state, political subdivision of a state, or any
agency or instrumentality of a state or political subdivision of a
state and which agrees to account separately for amounts transferred
into such plan from this Plan. Notwithstanding the foregoing, for
distributions prior to January 1, 2002, with respect to a distributee
who is a Participant's surviving spouse or a spouse or former spouse
who is the alternate payee under a qualified domestic relations order
as defined in section 414(p) of the Code, an eligible retirement plan
is only an individual retirement account or an individual retirement
annuity.
(c) a "distributee" includes an employee or former employee.
In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse, who is an
alternate payee under a Qualified Domestic Relations Order, are
distributees with regard to the interest of the spouse or former
spouse.
(d) a "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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<PAGE>
8.7. PROTECTED FORMS OF BENEFIT. Notwithstanding any provision of this
Plan to the contrary, in the event that the Plan Sponsor directs the Trustee to
accept Plan assets for the benefit of Participants from another qualified
retirement plan in connection with a merger or acquisition, or the adoption of
the Plan by a Participating Employer, the Account balance attributable to such
benefit shall be payable in the benefit form or forms so provided under the
predecessor plan to the extent required by Code section 411(d)(6) and
Regulations promulgated thereunder, or any successor Code provision (which forms
of benefits shall be set forth on Schedule B to this Plan and identified with
the appropriate Participating Employer); provided that, a form of benefit shall
be retained pursuant to this Section only with respect to a Participant whose
annuity starting date is earlier than the earlier of (i) the 90th day after
notice that such form of optional benefit will no longer be available is
provided in accordance with Regulation section 1.411(d)-4, Q&A-2(e)(1) and (ii)
the first day of the second Plan Year following the Plan Year in which the term
of optional benefit is eliminated by amendment.
8.8. DISTRIBUTION RESTRICTIONS FOR ELECTIVE CONTRIBUTIONS.
Notwithstanding anything in the Plan to the contrary, a Participant's Elective
Contribution Account shall be distributable only in accordance with Code section
401(k).
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<PAGE>
ARTICLE 9. ADMINISTRATION.
9.1. COMMITTEE. The Plan will be administered by a committee of
individuals selected by the Board of Directors to serve at its pleasure. The
Committee will be a "named fiduciary" for purposes of Section 402(a)(1) of ERISA
with authority to control and manage the operation and administration of the
Plan, and will be responsible for complying with all of the reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA. The
Committee will not, however, have any authority over the investment of assets of
the Trust in its capacity as Committee.
9.2. POWERS OF COMMITTEE. The Committee will have full discretionary
power to administer the Plan in all of its details, subject, however, to the
requirements of ERISA. For this purpose the Committee's discretionary power will
include, but will not be limited to, the following authority:
(a) to make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan or
required to comply with applicable law;
(b) to interpret the Plan;
(c) to decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) to compute the amounts to be distributed under the Plan,
and to determine the person or persons to whom such amounts will be
distributed;
(e) to authorize the payment of distributions;
(f) to keep such records and submit such filings, elections,
applications, returns or other documents or forms as may be required
under the Code and applicable regulations, or under other federal,
state or local law and regulations;
(g) to allocate and delegate its ministerial duties and
responsibilities and to appoint such agents, counsel, accountants and
consultants as may be required or desired to assist in administering
the Plan; and
(h) to allocate and delegate its fiduciary responsibilities in
accordance with ERISA section 405.
9.3. EFFECT OF INTERPRETATION OR DETERMINATION. Any interpretation of
the Plan or other determination with respect to the Plan by the Committee shall
be final and conclusive on all persons in the absence of clear and convincing
evidence that the Committee acted arbitrarily and capriciously.
9.4. RELIANCE ON TABLES, ETC. In administering the Plan, the Committee
will be entitled, to the extent permitted by law, to rely conclusively on all
tables, valuations, certificates, opinions and reports which are furnished by
any accountant, trustee, counsel or other expert who is employed or engaged by
the Committee or by the Plan Sponsor on the Committee's behalf.
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<PAGE>
9.5. CLAIMS AND REVIEW PROCEDURES. The Committee shall adopt procedures
for the filing and review of claims in accordance with ERISA section 503.
9.6. INDEMNIFICATION OF COMMITTEE AND ASSISTANTS. Each Participating
Employer agrees, jointly and severally, to indemnify and defend to the fullest
extent of the law any Employee or former Employee (a) who serves or has served
as a Committee member, (b) who has been appointed to assist the Committee in
administering the Plan, or (c) to whom the Committee has delegated any of its
duties or responsibilities against any liabilities, damages, costs and expenses
(including attorneys' fees and amounts paid in settlement of any claims approved
by the Plan Sponsor) occasioned by any act or omission to act in connection with
the Plan, if such act or omission to act is in good faith and without gross
negligence.
9.7. ANNUAL REPORT. The Committee shall submit annually to the Plan
Sponsor a report showing in reasonable summary form, the financial position of
the Trust and giving a brief account of the operations of the Plan for the past
year, and such further information as the Plan Sponsor may reasonably require.
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<PAGE>
ARTICLE 10. AMENDMENT AND TERMINATION.
10.1. AMENDMENT. The Plan Sponsor reserves the power at any time or
times to amend the provisions of the Plan and Trust to any extent and in any
manner that it may deem advisable. Upon delivery to the Trustee and each
Participating Employer of an amendment adopted by the Board of Directors, the
Plan shall be amended at the time and in the manner set forth therein, and all
Participants and all persons claiming an interest hereunder shall be bound
thereby. Notwithstanding the foregoing, no action by the Board of Directors
shall be required to amend the Plan to revise Schedule A, regarding the addition
or removal of Participating Employers, or Schedule B, regarding a merger of, or
transfer of accounts from, another plan into the Plan. Moreover, the Plan
Sponsor may amend or modify any plan provisions which relate to ERISA section
404(c) compliance, including changes which would eliminate the Plan's status as
an ERISA section 404(c) plan. However, the Plan Sponsor will not have the power:
(a) to amend the Plan or Trust in such manner as would cause
or permit any part of the assets of the Trust to be diverted to
purposes other than for the exclusive benefit of each Participant and
his or her Beneficiary (except as permitted by the Plan with respect to
Qualified Domestic Relations Orders or the return of contributions upon
nondeductibility, mistake of fact, or the failure to qualify
initially), unless such amendment is required or permitted by law,
governmental regulation or ruling; or
(b) to amend the Plan or Trust retroactively in such a manner
as would reduce the accrued benefit of any Participant, except as
otherwise permitted or required by law. For purposes of this paragraph,
an amendment which has the effect of decreasing a Participant's Account
balance or eliminating an optional form of benefit, with respect to
benefits attributable to service before the amendment, shall be treated
as reducing an accrued benefit.
10.2. TERMINATION. The Plan Sponsor has established the Plan and
authorized the establishment of the Trust with the bona fide intention and
expectation that contributions will be continued indefinitely, but may
discontinue contributions under the Plan or terminate the Plan at any time by
written notice delivered to the Trustee without liability whatsoever for any
such discontinuance or termination. In addition, the Participating Employers
will have no obligation or liability whatsoever to maintain the Plan for any
given length of time and may cease to be Participating Employers in a manner
acceptable to the Plan Sponsor.
10.3. DISTRIBUTIONS UPON TERMINATION OF THE PLAN. Upon termination of
the Plan by the Plan Sponsor, the Trustee will distribute to each Participant
(or other person entitled to distribution) the value of the Participant's
Accounts in a single sum as soon as practicable following such termination. The
amount of such distribution shall be determined as of the Valuation Date that
authorized distribution directions are received by the Trustee.
10.4. MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS. In case
of any merger or consolidation of the Plan with, or transfer of assets and
liabilities of the Plan to, any other plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit he or she would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
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<PAGE>
ARTICLE 11. LIMITS ON CONTRIBUTIONS.
11.1. CODE SECTION 404 LIMITS. The sum of the contributions made by
each Participating Employer under the Plan for any Plan Year shall not exceed
the maximum amount deductible under the applicable provisions of the Code. All
contributions under the Plan made by a Participating Employer are expressly
conditioned on their deductibility under Code section 404 for the taxable year
when paid (or treated as paid under Code section 404(a)(6)).
11.2. CODE SECTION 415 LIMITS.
(a) Incorporation by reference. Code section 415 is hereby
incorporated by reference into the Plan.
(b) Annual addition. The Committee shall determine an "annual
addition" for each Participant for each limitation year, which shall
consist of the following amounts:
(i) Elective Contributions allocated to the
Participant's Accounts for the year;
(ii) Matching Contributions allocated to the
Participant's Accounts for the year;
(iii) Qualified Nonelective Contributions allocated
to the Participant's Accounts for the year;
(iv) Employee Contributions allocated to the
Participant's Accounts for the year;
(v) forfeitures;
(vi) amounts allocated to an individual medical
amount (as defined in Code section 415(l)(2)) which is part of
a pension or annuity plan maintained by an Affiliated
Employer; and
(vii) amounts derived from contributions paid or
accrued which are attributable to post-retirement medical
benefits allocated to the separate account of a key employee
(as defined in Code section 419A(d)(3)) under a welfare
benefit fund (as defined in Code section 419(e)) maintained by
an Affiliated Employer.
(c) General limitation on annual additions. The annual
addition of a Participant under (b) above for any limitation year, when
added to the annual additions to his or her accounts for such year
under all other defined contribution plans maintained by the Affiliated
Employers, shall not exceed the lesser of (i) $30,000 (increased from
time to time in accordance with Code section 415(d)), or (ii) 25% of
the Participant's Compensation for such limitation year. For Plan Years
beginning on or after January 1, 2002, the amount in (i) above shall be
$40,000 (increased from time to time in accordance with Code section
415(d) and the amount in (ii) above shall be 100% of the Participant's
Compensation for
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<PAGE>
such limitation year (or such other percentage as provided by Code
section 415). The compensation limit referred to in (ii) above shall
not apply to any contribution for medical benefits after separation
from service (within the meaning of section 401(h) or section
419A(f)(2) of the Code), which is otherwise treated as an annual
addition.
(d) Limitation Year. For purposes of determining the Code
section 415 limits under the Plan, the "limitation year" shall be the
Plan Year.
(e) Order of reductions. To the extent necessary to satisfy
the limitations of Code section 415 for any Participant, the annual
addition which would otherwise be made on behalf of the Participant
under the Plan shall be reduced before the Participant's benefit is
reduced under any and all defined benefit plans, and before the
Participant's annual addition is reduced under any other defined
contribution plan.
(f) Return of excess contributions. If, as a result of a
reasonable error in estimating a Participant's Compensation for a Plan
Year or limitation year, a reasonable error in determining the amount
of elective deferrals (within the meaning of Code section 402(g)(3))
that may be made with respect to any individual under the limits of
Code section 415, or under such other facts and circumstances as may be
permitted under regulation or by the Internal Revenue Service, the
annual addition under the Plan for a Participant would cause the Code
section 415 limitations for a limitation year to be exceeded, the
excess amounts shall be treated in accordance with the rules provided
in Internal Revenue Service Reg. Section 1.415-6(b)(6).
11.3. CODE SECTION 402(G) LIMITS.
(a) In general. The maximum amount of Elective Contributions
made on behalf of any Participant for any calendar year, when added to
the amount of elective deferrals under all other plans, contracts and
arrangements of an Affiliated Employer with respect to the Participant
for the calendar year), shall in no event exceed the maximum applicable
limit in effect for the calendar year under Regulation section
1.402(g)-1(d). For purposes of the Plan, an individual's elective
deferrals for a taxable year are the sum of the following:
(i) Any elective contribution under a qualified cash
or deferred arrangement (as defined in Code section 401(k)) to
the extent not includible in the individual's gross income for
the taxable year on account of Code section 402(a)(8) (before
applying the limits of Code section 402(g) or this section);
(ii) Any employer contribution to a simplified
employee pension (as defined in code section 408(k) to the
extent not includible in the individual's gross income for the
taxable year on account of Code section 402(h)(1)(B) (before
applying the limits of Code section 402(g)); and
(iii) Any employer contribution to a custodial
account or annuity contract under section 403(b) under a
salary reduction agreement (within the meaning of Code section
3121(a)(5)(D)), to the extent not includible in the
individual's gross
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<PAGE>
income for the taxable year on account of Code section 403(b)
before applying the limits of Code section 402(g).
A Participant will be considered to have made "excess deferrals" for a
taxable year to the extent that the Participant's elective deferrals
for the taxable year exceed the applicable limit described above for
the year.
(b) Distribution of excess deferrals. In the event that an
amount is included in a Participant's gross income for a taxable year
as a result of an excess deferral under Code section 402(g), and the
Participant notifies the Committee on or before the March 1 following
the taxable year that all or a specified part of an Elective
Contribution made for his or her benefit represents an excess deferral,
the Committee shall make every reasonable effort to cause such excess
deferral, adjusted for allocable income, to be distributed to the
Participant no later than the April 15 following the calendar year in
which such excess deferral was made. The income allocable to excess
deferrals is equal to the allocable gain or loss for the taxable year
of the individual, but not the allocable gain or loss for the period
between the end of the taxable year and the date of distribution (the
"gap period"). Income allocable to excess deferrals for the taxable
year shall be determined by multiplying the gain or loss attributable
to the Participant's Elective Contribution Account for the taxable year
by a fraction, the numerator of which is the Participant's excess
deferrals for the taxable year, and the denominator of which is the sum
of the Participant's Elective Contribution Account balance as of the
beginning of the taxable year plus the Participant's Elective
Contributions for the taxable year. No distribution of an excess
deferral shall be made during the taxable year of a Participant in
which the excess deferral was made unless the correcting distribution
is made after the date on which the Plan received the excess deferral
and both the Participant and the Plan designate the distribution as a
distribution of an excess deferral. The amount of any excess deferrals
that may be distributed to a Participant for a taxable year shall be
reduced by the amount of Elective Contributions that were excess
contributions and were previously distributed to the Participant for
the Plan Year beginning with or within such taxable year.
(c) Treatment of excess deferrals. For other purposes of the
Code, including Code sections 401(a)(4), 401(k)(3), 404, 409, 411, 412,
and 416, excess deferrals must be treated as employer contributions
even if they are distributed in accordance with paragraph (b) above.
However, excess deferrals of a non-Highly Compensated Employee are not
to be taken into account for purposes of Code section 401(k)(3) (the
actual deferral percentage test) to the extent the excess deferrals are
prohibited under Code section 401(a)(30). Excess deferrals are also to
be treated as employer contributions for purposes of Code section 415
unless distributed under paragraph (b) above.
11.4. CODE SECTION 401(K)(3) LIMITS.
(a) In general. Elective Contributions made under the Plan are
subject to the limits of Code section 401(k)(3), as more fully
described below. The Plan provisions relating to the 401(k)(3) limits
are to be interpreted and applied in accordance with Code sections
401(k)(3) and 401(a)(4), which are hereby incorporated by reference,
and in such manner as
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<PAGE>
to satisfy such other requirements relating to Code section 401(k) as
may be prescribed by the Secretary of the Treasury from time to time.
(b) Actual deferral ratios. For each Plan Year, the Committee
will determine the "actual deferral ratio" for each Participant who is
eligible for Elective Contributions. The actual deferral ratio shall be
the ratio, calculated to the nearest one-hundredth of one percent, of
the Elective Contributions (plus any Qualified Nonelective
Contributions treated as Elective Contributions) made on behalf of the
Participant for the Plan Year to the Participant's Compensation for the
Plan Year. For purposes of determining a Participant's actual deferral
ratio,
(i) Elective Contributions will be taken into account
only if each of the following requirements are satisfied:
(A) the Elective Contribution is allocated
to the Participant's Elective Contribution Account as
of a date within the Plan Year is not contingent upon
participation in the Plan or performance of services
on any date subsequent to that date, and is actually
paid to the Trust no later than the end of the
12-month period immediately following the Plan Year
to which the contribution relates; and
(B) the Elective Contribution relates to
Compensation that either would have been received by
the Participant in the Plan Year but for the
Participant's election to defer under the Plan, or is
attributable to services performed in the Plan Year
and, but for the Participant's election to defer,
would have been received by the Participant within 2
1/2 months after the close of the Plan Year.
To the extent Elective Contributions which meet the
requirements of (A) and (B) above constitute excess deferrals,
they will be taken into account for each Highly Compensated
Employee, but will not be taken into account for any
non-Highly Compensated Employee;
(ii) in the case of a Participant who is a Highly
Compensated Employee for the Plan Year and is eligible to have
elective deferrals (and qualified nonelective contributions,
to the extent treated as elective deferrals) allocated to his
or her accounts under two or more cash or deferred
arrangements described in Code section 401(k) maintained by an
Affiliated Employer, the Participant's actual deferral ratio
shall be determined as if such elective deferrals (as well as
qualified nonelective or qualified) are made under a single
arrangement, and if two or more of the cash or deferred
arrangements have different Plan Years, all Plan Years ending
with or within the same calendar year shall be treated as a
single Plan Year;
(iii) the applicable period for determining
Compensation for each Participant for a Plan Year shall be the
12-month period ending on the last day of such Plan Year;
provided, that to the extent permitted under Regulations, the
Committee may
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<PAGE>
choose, on a uniform basis, to treat as the applicable period
only that portion of the Plan Year during which the individual
was eligible to make Elective Contributions;
(iv) Qualified Nonelective Contributions made on
behalf of Participants who are eligible to receive Elective
Contributions shall be treated as Elective Contributions to
the extent permitted by Regulation section 1.401(k)-1(b)(5);
(v) in the event that the Plan satisfies the
requirements of Code sections 401(k), 410(a)(4), or 410(b)
only if aggregated with one or more other plans with the same
plan year, or if one or more other plans with the same Plan
Year satisfy such Code sections only if aggregated with this
Plan, then this section shall be applied by determining the
actual deferral ratios as if all such plans were a single
plan;
(vi) An employee who would be a Participant but for
the failure to make Elective Contributions shall be treated as
a Participant on whose behalf no Elective Contributions are
made; and
(vii) Elective Contributions which are made on behalf
of non-Highly Compensated Employees which could be used to
satisfy the Code section 401(k)(3) limits but are not
necessary to be taken into account in order to satisfy such
limits, may instead be taken into account for purposes of the
Code section 401(m) limits to the extent permitted by
Regulation sections 1.401(m)-1(b)(5).
(c) Actual deferral percentages. Each Plan Year, the actual
deferral ratios for all Highly Compensated Employees who are eligible
for Elective Contributions for a Plan Year shall be averaged to
determine the actual deferral percentage for the highly compensated
group for the Plan Year, and the actual deferral ratios for all
Employees who are not Highly Compensated Employees but are eligible for
Elective Contributions for the Plan Year shall be averaged to determine
the actual deferral percentage for the nonhighly compensated group for
the Plan Year.
(d) Actual deferral percentage tests. For a Plan Year, at
least one of the following tests must be satisfied:
(i) the highly compensated group's actual deferral
percentage for the Plan Year does not exceed 125% of the prior
year actual deferral percentage for the prior year nonhighly
compensated group; or
(ii) the excess of the actual deferral percentage for
the highly compensated group for the Plan Year over the prior
year actual deferral percentage for the prior year nonhighly
compensated group does not exceed two percentage points, and
the actual deferral percentage for the highly compensated
group for the Plan Year does not exceed twice the prior year
actual deferral percentage for the prior year nonhighly
compensated group.
For purposes of satisfying the above tests for a Plan Year, the "prior
year actual deferral percentage for the prior year nonhighly
compensated group" refers to the actual deferral
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percentage determined for the immediately preceding Plan Year for the
nonhighly compensated group existing during such preceding Plan Year.
Notwithstanding the foregoing, in satisfying the above tests, the
Committee may elect, in accordance with Code section 401(k)(3) and
applicable regulations, to use the actual deferral percentage for the
nonhighly compensated group determined for the current Plan Year.
(e) Adjustments by Committee. If, prior to the time all
Elective Contributions for a Plan Year have been contributed to the
Trust, the Committee determines that Elective Contributions are being
made at a rate which will cause the Code section 401(k)(3) limits to be
exceeded for the Plan Year, the Committee may, in its sole discretion,
limit the amount of Elective Contributions to be made with respect to
one or more Highly Compensated Employees for the balance of the Plan
Year by suspending or reducing Elective Contribution elections to the
extent the Committee deems appropriate. Any Elective Contributions
which would otherwise be made to the Trust shall instead be paid to the
affected Participant in cash.
(f) Excess contributions. If the Code section 401(k)(3) limits
have not been met for a Plan Year after all contributions for the Plan
Year have been made, the Committee will determine the amount of excess
contributions with respect to Participants who are Highly Compensated
Employees in the manner prescribed by Code section 401(k)(8) and by
applicable regulations.
(g) Distribution of excess contributions. A Participant's
excess contributions, adjusted for income, will be designated by the
Participating Employer as a distribution of excess contributions and
distributed to the Participant. The income allocable to excess
contributions is equal to the allocable gain or loss for the Plan Year,
but not the allocable gain or loss for the period between the end of
the Plan Year and the date of distribution (the "gap period"). Income
allocable to excess contributions for the Plan Year shall be determined
by multiplying the gain or loss attributable to the Participant's
Elective Contribution Account and QNEC Account balances by a fraction,
the numerator of which is the excess contributions for the Participant
for the Plan Year, and the denominator of which is the sum of the
Participant's Elective Contribution Account and QNEC Account balances
as of the beginning of the Plan Year plus the Participant's Elective
Contributions and Qualified Nonelective Contributions for the Plan
Year. Distribution of excess contributions will be made after the close
of the Plan Year to which the contributions relate, but within 12
months after the close of such Plan Year. Excess contributions shall be
treated as annual additions under the Plan, even if distributed under
this paragraph.
(h) Special rules. For purposes of distributing excess
contributions, the amount distributed with respect to a Highly
Compensated Employee for a Plan Year shall be reduced by the amount of
excess deferrals previously distributed to the Highly Compensated
Employee for his or her taxable year ending with or within such Plan
Year.
(i) Recordkeeping requirement. The Committee, on behalf of the
Participating Employers, shall maintain such records as are necessary
to demonstrate compliance with the
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Code section 401(k)(3) limits, including the extent to which Qualified
Nonelective Contributions are taken into account in determining the
actual deferral ratios.
(j) Excise tax where failure to correct. If the excess
contributions are not corrected within 2 1/2 months after the close of
the Plan Year to which they relate, the Participating Employers will be
liable for a 10 percent excise tax on the amount of excess
contributions attributable to them, to the extent provided by Code
section 4979. Qualified Nonelective Contributions properly taken into
account under this Section for the Plan Year may enable the Plan to
avoid having excess contributions, even if the contributions are made
after the close of the 2 1/2 month period.
11.5. CODE SECTION 401(m) LIMITS.
(a) In General. Matching Contributions made under the Plan are
subject to the limits of Code section 401(m), as more fully described
below. The Plan provisions relating to the 401(m) limits are to be
interpreted and applied in accordance with Code sections 401(m) and
401(a)(4), which are hereby incorporated by reference, and in such
manner as to satisfy such other requirements relating to Code section
401(m) as may be prescribed by the Secretary of the Treasury from time
to time.
(b) Actual contribution ratios. For each Plan Year, the
Administrator will determine the "actual contribution ratio" for each
Participant who is eligible for Matching Contributions. The actual
contribution ratio shall be the ratio, calculated to the nearest
one-hundredth of one percent, of the sum of the Matching Contributions
and Qualified Nonelective Contributions which are not treated as
Elective Contributions made on behalf of the Participant for the Plan
Year, to the Participant's Compensation for the Plan Year. For purposes
of determining a Participant's actual contribution ratio,
(i) A Matching Contribution will be taken into
account only if the Contribution is allocated to a
Participant's Account as of a date within the Plan Year, is
actually paid to the Trust no later than 12 months after the
close of the Plan Year, and is made on behalf of a Participant
on account of the Participant's Elective Contributions for the
Plan Year;
(ii) in the case of a Participant who is a Highly
Compensated Employee for the Plan Year and is eligible to have
Matching Contributions or employee contributions (including
amount treated as Matching Contributions) allocated to his or
her accounts under two or more plans maintained by an
Affiliated Employer which may be aggregated for purposes of
Code sections 410(b) and 401(a)(4), the Participant's actual
contribution ratio shall be determined as if such
contributions are made under a single plan, and if two or more
of the plans have different Plan Years, all Plan Years ending
with or within the same calendar year shall be treated as a
single Plan Year;
(iii) the applicable period for determining
Compensation for each Participant for a Plan Year shall be the
12-month period ending on the last day of such Plan Year;
provided that to the extent permitted under Regulations, the
Administrator
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may choose, on a uniform basis, to treat as the applicable
period only that portion of the Plan Year during which the
individual was eligible for Matching Contributions;
(iv) Elective Contributions not applied to satisfy
the Code section 401(k)(3) limits and Qualified Nonelective
Contributions not treated as Elective Contributions may be
treated as Matching Contributions to the extent permitted by
Regulation section 1.401(m)-1(b)(5);
(v) in the event that the Plan satisfies the
requirements of Code sections 401(k), 410(a)(4), or 410(b)
only if aggregated with one or more other plans with the same
Plan Year, or if one or more other plans with the same Plan
Year satisfy such Code sections only if aggregated with this
Plan, then this section shall be applied by determining the
actual deferral ratios as if all such plans were a single
plan; and
(vi) any forfeitures under the Plan which are applied
against Matching Contributions shall be treated as Matching
Contributions.
(c) Actual contribution percentages. Each Plan Year, the
actual contribution ratios for all Highly Compensated Employees who are
eligible for Matching Contributions for a Plan Year shall be averaged
to determine the actual contribution percentage for the highly
compensated group for the Plan Year, and the actual contribution ratios
for all Employees who are not Highly Compensated Employees but are
eligible for Matching Contributions for the Plan Year shall be averaged
to determine the actual contribution percentage for the nonhighly
compensated group for the Plan Year.
(d) Actual contribution percentage tests. For a Plan Year, at
least one of the following tests must be satisfied:
(i) the highly compensated group's actual
contribution percentage for the Plan Year does not exceed 125%
of the prior year actual contribution percentage for the prior
year nonhighly compensated group; or
(ii) the excess of the actual contribution percentage
for the highly compensated group for the Plan Year over the
prior year actual contribution percentage for the prior year
nonhighly compensated group does not exceed two percentage
points, and the actual contribution percentage for the highly
compensated group for the Plan Year does not exceed twice the
prior year actual contribution percentage for the prior year
nonhighly compensated group.
For purposes of satisfying the above tests for a Plan Year, the "prior
year actual contribution percentage for the prior year nonhighly
compensated group" refers to the actual contribution percentage
determined for the immediately preceding Plan Year for the nonhighly
compensated group existing during such preceding Plan Year.
Notwithstanding the foregoing, in satisfying the above tests, the
Committee may elect, in accordance with Code section 401(m)(2) and
applicable regulations, to use the actual contribution percentage for
the nonhighly compensated group calculated for the current Plan Year.
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<PAGE>
(e) Multiple use test. In the event that (i) the actual
deferral percentage and actual contribution percentage for the highly
compensated group exceed 125% of the respective actual deferral and
actual contribution percentages for the nonhighly compensated group,
and (ii) the sum of the actual deferral percentage and the actual
contribution percentage for the highly compensated group exceeds the
"aggregate limit" within the meaning of Regulation section
1.401(m)-2(b)(3), the Administrator shall reduce the actual
contribution ratios of Highly Compensated Employees who had both an
actual deferral ratio and an actual contribution ratio for the Plan
Year to the extent required by such section and in the same manner as
described in paragraph (f) below. The multiple use test described in
Treasure Regulation section 401(m)-2 and this Section shall not apply
for Plan Years beginning after December 31, 2001.
(f) Adjustments by Administrator. If, prior to the time all
Matching Contributions for a Plan Year have been contributed to the
Trust, the Administrator determines that such contributions are being
made at a rate which will cause the Code section 401(m) limits to be
exceeded for the Plan Year, the Administrator may, in its sole
discretion, limit the amount of such contributions to be made with
respect to one or more Highly Compensated Employees for the balance of
the Plan Year by limiting the amount of such contributions to the
extent the Administrator deems appropriate.
(g) Excess aggregate contributions. If the Code section 401(m)
limits have not been satisfied for a Plan Year after all contributions
for the Plan Year have been made, the excess of the aggregate amount of
the Matching
Contributions (and any Qualified Nonelective Contribution or elective
deferral taken into account in computing the actual contribution
percentages) actually made on behalf of Highly Compensated Employees
for the Plan Year over the maximum amount of such contributions
permitted under Code section 401(m)(2)(A) shall be considered to be
"excess aggregate contributions". The Committee will determine the
amount of excess aggregate contributions with respect to Participants
who are Highly Compensated Employees in the manner prescribed by Code
section 401(m)(6)(C) and by applicable regulations
(h) Distribution of excess aggregate contributions. A
Participant's excess aggregate contributions, adjusted for income, will
be designated by the Participating Employer as a distribution of excess
aggregate contributions, and distributed to the Participant. The income
allocable to excess aggregate contributions is equal to the allocable
gain or loss for the taxable year of the individual, but not the
allocable gain or loss for the period between the end of the taxable
year and the date of distribution (the "gap period"). Income allocable
to excess aggregate contributions for the taxable year shall be
determined by multiplying the gain or loss attributable to the
Participant's Matching Contribution Account balances by a fraction, the
numerator of which is the excess aggregate contributions for the
Participant for the Plan Year, and the denominator of which is the sum
of the Participant's Matching Contribution Account balances as of the
beginning of the Plan Year plus the Participant's Matching
Contributions for the Plan Year. Distribution of excess aggregate
contributions will be made after the close of the Plan Year to which
the contributions relate, but within 12 months after the close of such
Plan Year. Excess aggregate contributions shall be treated as
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employer contributions for purposes of Code sections 401(a)(4), 404,
and 415 even if distributed from the Plan.
(i) Recordkeeping requirement. The Administrator, on behalf of
the Participating Employers, shall maintain such records as are
necessary to demonstrate compliance with the Code section 401(m)
limits, including the extent to which Elective Contributions and
Qualified Nonelective Contributions are taken into account in
determining the actual contribution ratios.
(j) Excise tax where failure to correct. If the excess
aggregate contributions are not corrected within 2 1/2 months after the
close of the Plan Year to which they relate, the Participating
Employers will be liable for a 10 percent excise tax on the amount of
excess aggregate contributions attributable to them, to the extent
provided by Code section 4979. Qualified Nonelective Contributions
properly taken into account under this section for the Plan Year may
enable the Plan to avoid having excess aggregate contributions, even if
the contributions are made after the close of the 2 1/2 month period.
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ARTICLE 12. SPECIAL TOP-HEAVY PROVISIONS.
12.1. PROVISIONS TO APPLY. The provisions of this Article shall apply
for any top-heavy Plan Year notwithstanding anything to the contrary in the
Plan.
12.2. MINIMUM CONTRIBUTION. For any Plan Year which is a top-heavy plan
year, the Participating Employers shall contribute to the Trust a minimum
contribution on behalf of each Participant who is not a key employee for such
year and who has not separated from service from the Affiliated Employers by the
end of the Plan Year, regardless of whether or not the Participant has elected
to make Elective Contributions for the Year. The minimum contribution shall, in
general, equal 3% of each such Participant's Compensation, but shall be subject
to the following special rules:
(a) If the largest contribution on behalf of a key employee
for such year, taking into account only Elective Contributions,
Matching Contributions (if any), Discretionary Contributions and
Qualified Nonelective Contributions, is equal to less than 3% of the
key employee's Compensation, such lesser percentage shall be the
minimum contribution percentage for Participants who are not key
employees. This special rule shall not apply, however, if the Plan is
required to be included in an aggregation group and enables a defined
benefit plan to meet the requirements of Code section 401(a)(4) or 410.
(b) No minimum contribution will be required with respect to a
Participant who is also covered by another top-heavy defined
contribution plan of an Affiliated Employer which meets the vesting
requirements of Code section 416(b) and under which the Participant
receives the top-heavy minimum contribution.
(c) If a Participant is also covered by a top-heavy defined
benefit plan of an Affiliated Employer, "5%" shall be substituted for
"3%" above in determining the minimum contribution.
(d) The minimum contribution with respect to any Participant
who is not a key employee for the particular year will be offset by any
Discretionary Contributions and any Qualified Nonelective
Contributions, but not any other type of contribution otherwise made
for the Participant's benefit for such year. Notwithstanding the
foregoing, for Plan Years beginning after December 31, 2001, the
minimum contribution described above will be offset also by any
Matching Contributions made for the Participant's benefit for such
year.
(e) If additional minimum contributions are required under
this Section, such contributions shall be credited to the Participant's
Discretionary Contribution Account.
(f) A minimum contribution required under this Section shall
be made even though, under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation for the year because
of (i) the Participant's failure to complete 1,000 hours of service (or
any equivalent provided in the Plan), or (ii) the Participant's failure
to make mandatory contributions or Elective Contributions to the Plan,
or (iii) Compensation less than a stated amount.
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<PAGE>
12.3. ADJUSTMENT TO LIMITATION ON BENEFITS. With respect to Plan Years
prior to January 1, 2001, for purposes of the Code section 415 limits, the
definitions of "defined contribution plan fraction" and "defined benefit plan
fraction" contained therein shall be modified, for any Plan Year which is a
top-heavy Plan Year, by substituting "1.0" for "1.25" in Code sections
415(e)(2)(B) and 415(e)(3)(B).
12.4. DEFINITIONS. For purposes of these top-heavy provisions, the
following terms have the following meanings:
(a) "key employee" means a key employee described in Code
section 416, and "non-key employee" means any employee who is not a key
employee (including employees who are former key employees);
(b) "top-heavy plan year" means a Plan Year if any of the
following conditions exist:
(i) the top-heavy ratio for the Plan exceeds 60
percent and the Plan is not part of any required aggregation
group or permissive aggregation group of plans;
(ii) this Plan is a part of a required aggregation
group of plans but not part of a permissive aggregation group
and the top-heavy ratio for the group of plans exceeds 60
percent; or
(iii) the Plan is part of a required aggregation
group and part of a permissive aggregation group of plans and
the top-heavy ratio for the permissive aggregation group
exceeds 60 percent.
(c) "top-heavy ratio":
(i) If the employer maintains one or more defined
contribution plans (including any Simplified Employee Pension
Plan) and the employer has not maintained any defined benefit
plan which during the 5-year period ending on the
determination date(s) has or has had accrued benefits, the
top-heavy ratio for the Plan alone or for the required or
permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of the account balances of all
key employees on the determination date(s) (including any part
of any account balance distributed in the 1-year period ending
on the determination date(s)), and the denominator of which is
the sum of all account balances (including any part of an
account balance distributed in the 1-year period ending on the
determination date(s) and in the case of a distribution made
for a reason other than separation from service, death or
disability, including any such amount distributed in the
5-year period ending in determination dates(s)), both computed
in accordance with Code section 416. Both the numerator and
the denominator of the top-heavy ratio are increased to
reflect any contribution not actually made as of the
determination date, but which is required to be taken into
account on that date under Code section 416.
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<PAGE>
(ii) If the employer maintains one or more defined
contribution plans (including any Simplified Employee Pension
Plan) and the employer maintains or has maintained one or more
defined benefit plans which during the 5-year period ending on
the determination date(s) has or has had any accrued benefits,
the top-heavy ratio for any required or permissive aggregation
group as appropriate is a fraction, the numerator of which is
the sum of the account balances under the aggregated defined
contribution plan or plans for all key employees, determined
in accordance with (i) above, and the present value of accrued
benefits under the aggregated defined benefit plan or plans
for all key employees as of the determination date(s), and the
denominator of which is the sum of the account balances under
the aggregated defined contribution plan or plans for all
participants, determined in accordance with (i) above, and the
present value of all accrued benefits under the defined
benefit plan or plans for all participants as of the
determination date(s), all determined in accordance with Code
section 416. The accrued benefits under a defined benefit plan
in both the numerator and denominator of the top-heavy ratio
are increased for any distribution of an accrued benefit made
in the 1-year period ending on the determination date.
(iii) For purposes of (i) and (ii) above, the value
of account balances and the present value of accrued benefits
will be determined as of the most recent valuation date that
falls within or ends with the 12-month period ending on the
determination date, except as provided in Code section 416 for
the first and second plan years of a defined benefit plan. The
account balances and accrued benefits of a participant (A) who
is not a key employee but who was a key employee in a prior
year, or (B) who has not been credited with at least one Hour
of Service with any employer maintaining the plan at any time
during the 1-year period ending on the determination date will
be disregarded. The calculation of the top-heavy ratio, and
the extent to which distributions, rollovers, and transfers
are taken into account will be made in accordance with Code
section 416. Deductible employee contributions will not be
taken into account for purposes of computing the top-heavy
ratio. When aggregating plans, the value of account balances
and accrued benefits will be calculated with reference to the
determination dates that fall within the same calendar year.
(iv) The accrued benefit of a Participant other than
a key employee shall be determined under (A) the method, if
any, that uniformly applies for accrual purposes under all
defined benefit plans maintained by the employer, or (B) if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Code section 411(b)(1)(C).
(d) The "permissive aggregation group" is the required
aggregation group of plans plus any other plan or plan of the employer
which, when considered as a group with the required aggregation group,
would continue to satisfy the requirements of Code sections 401(a)(4)
and 410.
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<PAGE>
(e) The "required aggregation group" is (i) each qualified
plan of the employer in which at least one key employee participates or
participated at any time during the determination period (regardless of
whether the plan has terminated), and (ii) any other qualified plan of
the employer which enables a plan described in (i) to meet the
requirements of Code sections 401(a)(4) and 410(b).
(f) For purposes of computing the top-heavy ratio, the
"valuation date" shall be the last day of the applicable plan year.
(g) For purposes of establishing present value to compute the
top-heavy ratio, any benefit shall be discounted only for mortality and
interest based on the interest and mortality rates specified in the
defined benefit plan(s), if applicable.
(h) The term "determination date" means, with respect to the
initial plan year of a plan, the last day of such plan year and, with
respect to any other plan year of a plan, the last day of the preceding
plan year of such plan. The term "applicable determination date" means,
with respect to the Plan, the determination date for the Plan Year of
reference and, with respect to any other plan, the determination date
for any plan year of such plan which falls within the same calendar
year as the applicable determination date of the Plan.
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<PAGE>
ARTICLE 13. MISCELLANEOUS.
13.1. EXCLUSIVE BENEFIT RULE. No part of the corpus or income of the
Trust allocable to the Plan will be used for or diverted to purposes other than
for the exclusive benefit of each Participant and Beneficiary, except as
otherwise provided under the provisions of the Plan relating to Qualified
Domestic Relations Orders, the payment of reasonable expenses of administering
the Plan, the return of contributions upon nondeductibility or mistake of fact,
or the failure of the Plan to qualify initially.
13.2. LIMITATION OF RIGHTS. Neither the establishment of the Plan or
the Trust, nor any amendment thereof, nor the creation of any fund or account,
nor the payment of any benefits, will be construed as giving to any Participant
or other person any legal or equitable right against any Participating Employer
or Committee or Trustee, except as provided herein, and in no event will the
terms of employment or service of any Participant be modified or in any way be
affected hereby. It is a condition of the Plan, and each Participant expressly
agrees by his or her participation herein, that each Participant will look
solely to the assets held in the Trust for the payment of any benefit to which
he or she is entitled under the Plan.
13.3. NONALIENABILITY OF BENEFITS. The benefits provided hereunder will
not be subject to the voluntary or involuntary alienation, assignment,
garnishment, attachment, execution or levy of any kind, and any attempt to cause
such benefits to be so subjected will not be recognized, except to such extent
as may be required by law, except that if the Committee receives any Qualified
Domestic Relations Order that requires the payment of benefits hereunder or the
segregation of any Account, such benefits shall be paid, and such Account
segregated, in accordance with the applicable requirements of such Order. In
addition, the Account balance may be pledged as security for a loan from the
Plan in accordance with the Plan's loan procedures.
13.4. ADEQUACY OF DELIVERY. Any payment to be made under the Plan by
the Trustee may be made by the Trustee's check. Mailing to a person or persons
entitled to distributions hereunder at the addresses designated by the
Participating Employer or Committee shall be adequate delivery by the Trustee of
such distributions for all purposes. In the event the whereabouts of a person
entitled to benefits under the Plan cannot be determined after diligent search
by the Committee, the Committee may place the benefits in a federally insured,
interest-bearing bank account opened in the name of such person. Such action
shall constitute a full distribution of such benefits under the terms of the
Plan and Trust.
13.5. RECLASSIFICATION OF EMPLOYMENT STATUS. Notwithstanding anything
herein to the contrary, an individual who is not characterized or treated as a
common law employee of a Participating Employer shall not be eligible to
participate in the Plan. However, in the event that such an individual is
reclassified or deemed to be reclassified as a common law employee of a
Participating Employer, the individual shall be eligible to participate in the
Plan as of the actual date of such reclassification (to the extent such
individual otherwise qualifies as an Eligible Employee hereunder). If the
effective date of any such reclassification is prior to the actual date of such
reclassification, in no event shall the reclassified individual be eligible to
participate in the Plan retroactively to the effective date of such
reclassification.
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13.6. VETERANS' REEMPLOYMENT AND BENEFITS RIGHTS. Effective December
12, 1994 and notwithstanding any provision of the Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code section 414(u).
13.7. GOVERNING LAW. The Plan and Trust will be construed, administered
and enforced according to the laws of Massachusetts to the extent such laws are
not preempted by ERISA.
13.8. AUTHORITY TO CORRECT OPERATIONAL DEFECTS. The Committee will have
full discretionary power and authority to correct any "operational defect" of
the Plan in any manner or by any method it deems appropriate in its sole
discretion in order to cause the Plan (i) to operate in accordance with its
terms or (ii) to maintain its tax-qualified status under the Code. For purposes
of this Section, an "operational defect" is any operational or administrative
action (or inaction) in connection with the Plan which, in the judgement of the
Committee, fails to conform with the terms of the Plan or causes or could cause
the Plan to lose its tax-qualified status under the Code.
13.9. ELECTRONIC FORMS. Notwithstanding any Plan provision to the
contrary, to the extent the Committee allows any form or document under the Plan
to be provided, completed or changed by means of telephone, computer or other
paperless media, a paper document shall not be required for such form or
document to be effective under the Plan.
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ARTICLE 14. DEFINITIONS.
Wherever used in the Plan, the following terms have the following
meanings:
14.1. "ACCOUNTS" mean, for any Participant, the accounts established
under the Plan to which contributions made for the Participant's benefit, and
any allocable income, expense, gain and loss, are allocated.
14.2. "AFFILIATED EMPLOYER" means (a) the Plan Sponsor, (b) any
corporation that is a member of a controlled group of corporations (as defined
in Code section 414(b)) of which the Plan Sponsor is also a member, (c) any
trade or business, whether or not incorporated, that is under common control (as
defined in Code section 414(c)) with the Plan Sponsor, (d) any trade or business
that is a member of an affiliated service group (as defined in Code section
414(m)) of which the Plan Sponsor is also a member, or (e) to the extent
required by Regulations issued under Code section 414(o), any other
organization; provided, that the term "Affiliated Employer" shall not include
any corporation or unincorporated trade or business prior to the date on which
such corporation, trade or business satisfies the affiliation or control tests
of, (b), (c), (d) or (e) above. In identifying any "Affiliated Employers" for
purposes of the Code section 415 limits, the definitions in Code sections 414(b)
and (c) shall be modified as provided in Code section 415(h).
14.3. "BENEFICIARY" means any person entitled to receive benefits under
the Plan upon the death of a Participant.
14.4. "BOARD OF DIRECTORS" means the members of the Board of Directors
of Boston Scientific Corporation.
14.5. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. Reference to any section or subsection of the Code includes
reference to any comparable or succeeding provisions of any legislation which
amends, supplements or replaces such section or subsection, and also includes
reference to any Regulation issued pursuant to or with respect to such section
or subsection.
14.6. "COMMITTEE" means the entity or persons appointed by the Board of
Directors to administer the Plan pursuant to its provisions.
14.7. "COMPANY STOCK" means any stock of the Plan Sponsor or an
Affiliated Employer constituting a "qualifying employer security" within the
meaning of section 407(d)(5) of ERISA.
14.8. "COMPENSATION" means,
(a) for purposes of determining the Code section 415 limits,
the amount of any minimum contribution under the special top-heavy
provisions, and determining the status of an individual as a "highly
compensated employee" or a "key employee", the Participant's wages as
defined in Code section 3401(a) for purposes of income tax withholding
at the source, but (i) determined without regard to any rules that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed, and
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<PAGE>
(ii) increased by any such amounts that would have been received by the
individual from the Employer but for an election under Code section
125, 132(f)(4), 401(k), 402(h) or 403(b);
(b) for purposes of determining the Code section 415 limits
and the amount of any minimum contribution under the special top-heavy
provisions, the Participant's wages as defined in Code section 3401(a)
for purposes of income tax withholding at the source but determined
without regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed;
(c) for purposes of the limits under Sections 11.4 and 11.5,
"compensation" as defined under Code section 414(s) and the Treasury
regulations thereunder; and
(d) for all other purposes under the Plan, the same as in (a)
above, reduced by all of the following items (even if includable in
gross income): cost-of-living adjustments, reimbursements or other
expense allowances, pay in lieu of vacation upon termination of
employment, bonuses, deferred compensation, payments under the
Supplemental Severance Plan, and moving expenses, provided however that
any elective contributions made by the Participating Employer that are
not includible in gross income by reason of Code section 125 or
402(e)(3) shall in all cases be includible as "Compensation" for
purposes of this paragraph (d). Notwithstanding the foregoing, for
purposes of allocating Discretionary Contributions for a Plan Year,
commissions paid to any field sales commissioned Employee who is a
Highly Compensated Employee for such Plan Year shall be taken into
consideration only to the extent of the lesser of (i) fifty percent of
the amount of the commissions so paid, or (ii) the amount, not in
excess of the commissions so paid, which when added to all other
amounts paid such Employee and qualifying as Compensation results in an
aggregate amount of Compensation of $85,000 or less.
(e) Compensation shall include only that compensation which is
actually paid to the Participant during the applicable Plan Year. For
all purposes under the Plan, Compensation for any individual will be
limited for any Plan Year as provided under Code section 401(a)(17)
(which for the 2001 Plan Year is $170,000 and for the 2002 Plan Year is
$200,000). If the period for determining Compensation used in
calculating a Participant's allocation for a determination period is
shorter than 12 months, the annual Compensation limit shall be an
amount equal to the otherwise applicable limit multiplied by a
fraction, the numerator of which is the number of months in the period,
and the denominator of which is 12.
14.9. "DISABILITY" means an injury or sickness which makes a
Participant unable to perform each of the "essential functions" (as defined in
the Boston Scientific Long Term Disability Plan) of any "gainful occupation" (as
defined in the Boston Scientific Long Term Disability Plan) for which the
Participant is reasonably fitted by training, education or experience.
14.10. "DISCRETIONARY CONTRIBUTION" means a contribution made for the
benefit of a Participant by a Participating Employer in the discretion of the
Board of Directors.
14.11. "DISCRETIONARY CONTRIBUTION ACCOUNT" means an Account to which
Discretionary Contributions are allocated.
- 44 -
<PAGE>
14.12. "ELECTIVE CONTRIBUTION" means a contribution made to the Plan
for the benefit of a Participant pursuant to a compensation reduction
authorization.
14.13. "ELECTIVE CONTRIBUTION ACCOUNT" means an Account to which
Elective Contributions are allocated.
14.14. "ELIGIBLE EMPLOYEE" means, subject to Section 13.5, any Employee
who
(a) is employed by a Participating Employer, and who, in the
opinion of his or her Participating Employer, may reasonably be
expected to complete 1,000 or more Hours of Service with a
Participating Employer in a Plan Year; or
(b) any other Employee employed by a Participating Employer
who has completed 1,000 or more Hours of Service in a computation
period or has previously been an Eligible Employee described in (a)
above.
The initial computation period shall be the 12-consecutive month period
beginning on the date the Employee first performs an Hour of Service
(the "employment commencement date"). The succeeding computation
periods commence with the first Plan Year commencing after the
Employee's employment commencement date. In no event will an individual
become an Eligible Employee while he or she is characterized by an
Affiliated Employer as (i) a Leased Employee, or (ii) a short-term
employee.
14.15. "EMPLOYEE" means any individual employed by an Affiliated
Employer, including any Leased Employee and any other individual required to be
treated as an employee pursuant to Code sections 414(n) and 414(o).
14.16. "EMPLOYEE CONTRIBUTION" means the voluntary after-tax
contribution made by a Participant under the Plan.
14.17. "ENTRY DATE" means the first day of each pay period during the
Plan Year.
14.18. "ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended, and any successor statute or statutes of
similar import.
14.19. "HIGHLY COMPENSATED EMPLOYEE" means each individual employed by
an Affiliated Employer who (i) during such Plan Year or preceding Plan Year, is
a "5% owner" within the meaning of Code section 414(q), or (ii) during the
preceding Plan Year received Compensation in excess of $85,000 (as adjusted
under such Code section) and was in the "top paid group" as defined therein for
such Plan Year.
- 45 -
<PAGE>
14.20. "HOUR OF SERVICE" means, with respect to any Employee,
(a) Each hour for which the Employee is paid or entitled to
payment for the performance of duties for an Affiliated Employer, each
such hour to be credited to the Employee for the computation period in
which the duties were performed;
(b) Each hour for which the Employee is directly or indirectly
paid or entitled to payment by any Affiliated Employer (including
payments made or due from a trust fund or insurer to which the
Affiliated Employer contributes or pays premiums) on account of a
period of time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to vacation,
holiday, illness, incapacity, disability, layoff, jury duty, military
duty, or leave of absence, each such hour to be credited to the
Employee for the computation period in which such period of time
occurs, subject to the following rules;
(i) No more than 501 Hours of Service shall be
credited under this paragraph (b) to the Employee on account
of any single continuous period during which the Employee
performs no duties;
(ii) Hours of Service shall not be credited under
this paragraph (b) to an Employee for a payment which solely
reimburses the Employee for medically related expenses
incurred by the Employee, or which is made or due under a plan
maintained solely for the purpose of complying with applicable
workers' compensation, unemployment compensation or disability
insurance laws; and
(iii) If the period during which the Employee
performs no duties falls within two or more computation
periods, and if the payment made on account of such period is
not calculated on the basis of units of time, the number of
Hours of Service credited with respect to such period shall be
allocated between not more than the first two such periods
based on the amount of the payment divided by the Employee's
most recent hourly rate of Compensation before the period
during which no duties were performed;
(c) Each hour not counted under paragraph (a) or (b) for which
back pay, irrespective of mitigation of damages, has been either
awarded or agreed to be paid by any Affiliated Employer, each such hour
to be credited to the Employee for the computation period to which the
award or agreement for back pay pertains, provided that crediting of
Hours of Service under this paragraph (c) with respect to periods
described in paragraph (b) above shall be subject to the limitations
and special rules set forth in clauses (i), (ii) and (iii) of paragraph
(b);
(d) Each noncompensated hour while an Employee during a period
of absence from any Affiliated Employer in the armed forces of the
United States if the Employee returns to work for any Affiliated
Employer at a time when he or she has reemployment rights under federal
law, and each noncompensated hour while an Employee on an unpaid leave
of absence granted by the Employer; and
- 46 -
<PAGE>
(e) Solely for purposes of Section 5.5, each hour not counted
under paragraph (a) or (b) for which the Employee is absent from work
for maternity or paternity reasons, provided that no more than 501
Hours of Service shall be credited under this paragraph (e) to the
Employee. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence (1) by reason of the
pregnancy of the individual, (2) by reason of the birth of a child of
the individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement.
Hours of Service to be credited to an Employee under (a), (b) and (c) above will
be calculated and credited pursuant to paragraphs (b) and (c) of Section
2530.200b-2 of the Department of Labor Regulations, which are incorporated
herein by reference. Hours of Service to be credited to an Employee during a
period described in (d) and (e) above will be determined by the Committee with
reference to the individual's most recent normal work schedule, or at the rate
of eight hours per day in the event the Committee is unable to establish such
schedule.
14.21. "LEASED EMPLOYEE" means, for Plan Years beginning on or after
January 1, 1997, any person (other than an employee of the Employer) who
pursuant to an agreement between the recipient and any other person has
performed services for the recipient (or for the recipient and related persons
determined in accordance with Code section 414(n)(6)) on a substantially
full-time basis for a period of at least one year, and such services are
performed under the primary direction or control by the recipient.
14.22. "MATCHING CONTRIBUTION ACCOUNT" means an Account to which
Matching Contributions are allocated.
14.23. "NORMAL RETIREMENT AGE" means age 62.
14.24. "PARTICIPANT" means each Eligible Employee who participates in
the Plan pursuant to its provisions.
14.25. "PARTICIPATING EMPLOYER" means the Plan Sponsor and each other
Affiliated Employer listed on Schedule A.
14.26. "PLAN" means the Boston Scientific Corporation 401(k) Retirement
Savings Plan set forth herein, and all subsequent amendments thereto.
14.27. "PLAN SPONSOR" means Boston Scientific Corporation, a Delaware
Corporation.
14.28. "PLAN YEAR" means the calendar year.
14.29. "PREDECESSOR EMPLOYER" means any trade or business acquired by a
Participating Employer, or any entity from which a Participating Employer has
acquired substantially all of its assets.
- 47 -
<PAGE>
14.30. "QUALIFIED DOMESTIC RELATIONS ORDER" means any judgment, decree
or order (including approval of a property settlement agreement) which
constitutes a "qualified domestic relations order" within the meaning of Code
section 414(p). A judgment, decree or order may still be considered to be a
Qualified Domestic Relations Order if it requires a distribution to an alternate
payee (or the segregation of accounts pending distribution to an alternate
payee) before the Participant is otherwise entitled to a distribution under the
Plan.
14.31. "QUALIFIED NONELECTIVE CONTRIBUTION" means a contribution made
in the discretion of the Plan Sponsor which is designated by the Plan Sponsor as
a Qualified Nonelective Contribution and which falls within the definition of a
"qualified nonelective contribution" under Regulation section 1.401(k)-1(g)(13).
14.32. "QNEC ACCOUNT" means an Account to which Qualified Nonelective
Contributions are allocated.
14.33. "REGULATION" means a regulation issued by the Department of
Treasury, including any final regulation, proposed regulation, temporary
regulation, as well as any modification of any such regulation contained in any
notice, revenue procedure, or similar pronouncement issued by the Internal
Revenue Service.
14.34. "REQUIRED BEGINNING DATE" for a Participant shall be determined
as follows:
(a) For a Participant who is a five percent owner (as defined
in Code section 416), the Required Beginning Date is April 1 following
the calendar year in which the Participant attains age 70 1/2.
(b) For a Participant who is not a five percent owner, the
Required Beginning Date is April 1 following the later of (A) the
calendar year in which the Participant attains age 70 1/2 or (B) the
calendar year in which the Participant incurs a severance from
employment from the Participating Employers.
14.35. "ROLLOVER CONTRIBUTION" means a contribution made by a
Participant which satisfies the requirements for rollover contributions as set
forth in the Plan.
14.36. "SECTION" means a section of the Plan.
14.37. "TRUST" means the trust established under Section 3.13.
14.38. "TRUSTEE" means the person or persons who are at any time acting
as trustee under the Trust.
14.39. "VALUATION DATE" means each day on which the New York Stock
Exchange is open for trading.
14.40. "YEAR OF SERVICE FOR VESTING" means a Plan Year during which the
Employee completes at least 1,000 Hours of Service. The following special rules
shall apply:
- 48 -
<PAGE>
(a) Unless otherwise provided in Schedule B, in the event the
Plan Sponsor acquires a business of another employer, through an
acquisition either of assets or stock of such other employer, an
Employee who was employed by such other employer immediately prior to
such acquisition shall have his or her prior service with such other
employer taken into account, as if it were service with an Affiliated
Employer.
(b) A Leased Employee shall accrue Years of Service for
vesting purposes and shall be credited with such Years of Service for
Vesting upon hire by a Participating Employer as a common law employee.
IN WITNESS WHEREOF, the Plan Sponsor has caused this instrument to be
signed in its name and on its behalf by its duly authorized officer, this __day
of ____________________, 2002.
BOSTON SCIENTIFIC CORPORATION
By: __________________________
- 49 -
<PAGE>
Schedule A
(As of January 1, 2001, except as otherwise noted)
<TABLE>
<CAPTION>
Participating Employer State of Incorporation
---------------------- ----------------------
<S> <C>
Boston Scientific Corporation Delaware
Boston Scientific Corporation
Northwest Technology Center, Inc. Washington
Boston Scientific Sales, Inc. Delaware
Boston Scientific Technology, Inc. Minnesota
BSC Finance Corporation Indiana
BSC International Corporation Delaware
BSC Technology, Inc. Minnesota
Cardiac Pathways, Inc.
(effective January 1, 2002) Delaware
Cardiovascular Imaging Systems, Inc. California
Catheter Innovations, Inc.
(effective January 1, 2002) Delaware
Celltechnix Corporation New Jersey
Corvita Corporation Florida
Embolic Protection, Inc.
(effective January 1, 2002) Delaware
EP Technologies, Inc. Delaware
EP Technologies Sales, Inc. California
Heart Technology Manufacturing, Inc. Washington
</TABLE>
- 50 -
<PAGE>
<TABLE>
<CAPTION>
Participating Employer State of Incorporation
---------------------- ----------------------
<S> <C>
Interventional Technologies, Inc.
(effective January 1, 2002) California
Meadox Distribution Company New Jersey
Meadox Instruments, Inc. New Jersey
Meadox Medicals, Inc. New Jersey
Meadox Medicals Sales, Inc. New Jersey
Meadox Technology, Inc. Minnesota
Quanam Medical Corporation
(effective January 1, 2002) California
Schneider (USA) Inc. Minnesota
Scimed Life Systems, Inc. Minnesota
Scimed, Inc. Minnesota
Scimed Technology Inc. Minnesota
Symbiosis Corporation Florida
Target Therapeutics, Inc.
Vesica Medical, Inc. California
</TABLE>
- 51 -
<PAGE>
Schedule B
Special Provisions Regarding Former Participants in Other Plans
The following plans have been merged into this Plan as of the dates
indicated below. Any elections made by participants in such plans with respect
to contributions, beneficiaries, investments, loans or benefit distributions
shall carry over and be treated as if made under this Plan, except as otherwise
provided by the Committee.
1. Cardiovascular Imaging Systems, Inc. 401(k) Salary Reduction Plan
and Trust
On October 3, 1995, the Cardiovascular Imaging Systems, Inc. 401(k)
salary reduction plan was merged into this Plan.
Special participation rules (Section 2.1(c)): No
Special rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): Yes
Optional forms of payment to preserve
(Sections 8.1 and 8.7):
Immediate life annuity.
Immediate life annuity with a period certain of 10, 15, or 20
years.
Immediate annuity for the life of the Participant, with a
survivor annuity for the Participant's beneficiary which is
100%, 66 2/3% or 50% of the amount payable during the life of
the Participant.
Any combination of the above options and the benefit forms
described in Section 8.1.
2. Scimed Life Systems, Inc. Retirement Savings and Profit Sharing Plan
Effective January 1, 1996, the Scimed Life Systems, Inc. Retirement
Savings and Profit Sharing Plan was merged into this Plan.
Special participation rules (Section 2.1(c)): No
- 52 -
<PAGE>
Special rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): No
3. Symbiosis Corporation 401(k) Plan and Trust
Effective June 1, 1996, the Symbiosis Corporation 401(k) Plan and Trust
was merged into this Plan.
Special Participation rules (Section 2.1(c)): No
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
4. American Home Products Corporation Savings Plan
Effective June 1, 1996, the accounts under the American Home Products
Corporation Savings Plan attributable to Participants employed by Symbiosis
Corporation were merged into this Plan.
Special Participation rules (Section 2.1(c)): No
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting Rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)):
- 53 -
<PAGE>
Withdrawal from after-tax contribution account
(Once per Plan Year; $500 minimum)
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
5. EPT 401(k) Plan
Effective as of the close of business on December 31, 1996, the EPT
401(k) Plan is hereby merged into this Plan.
Special participation rules (Section 2.1(c)): Yes
(i) Any individual who is a participant in the EPT 401(k) Plan
(the "Former Plan") on December 31, 1996 shall become a
Participant in the Plan as of January 1, 1997.
(ii) Each other Employee of EP Technologies, Inc. shall be
subject to the participation rules under Section 2.1.
Special rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): Yes
(i) Any individual who is a participant in the EPT 401(k) Plan
(the "Former Plan") on December 31, 1996 and who is actively
employed by the Plan Sponsor or an Affiliated Employer on or
after December 31, 1996 shall have a 100% nonforfeitable
interest in the portion of his or her Accounts under this Plan
that are attributable to the transfer of his or her employer
matching contribution account balance, if any, from the Former
Plan.
(ii) Any individual who is actively employed by EP
Technologies, Inc. on December 31, 1996 and who has 3 or more
years of service for purposes of calculating vesting (as
determined under the Former Plan) shall have a vested interest
in a percentage of his or her Discretionary Contribution
Account under the Plan, if any, determined in accordance with
the following schedule and based on his or her Years of
Service for Vesting:
<TABLE>
<CAPTION>
Years of Service Applicable
for Vesting Nonforfeitable Percentage
---------------- -------------------------
<S> <C>
3 but less than 4 75%
4 or more 100%
</TABLE>
- 54 -
<PAGE>
Special in-service withdrawal rules (Section 6.10(a)):
Hardship withdrawals allowed from any account
which is 100% vested.
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
6. Heart Technology, Inc. 401(k) Profit Sharing Plan
Effective as of the close of business on December 31, 1996, the Heart
Technology, Inc. 401(k) Profit Sharing Plan is hereby merged into this Plan.
Special Participation rules (Section 2.1(c)): Yes
(i) Any individual who is a participant in the Heart
Technology, Inc. 401(k) Profit Sharing Plan (the "Former
Plan") on December 31, 1996 shall become a Participant in the
Plan as of January 1, 1997.
(ii) Any individual who is an active employee of Boston
Scientific Corporation Northwest Technology Center, Inc. on
December 31, 1996 and who has satisfied the eligibility
requirements under the Former Plan as of December 31, 1996
(age 18 and the earlier of 6 months continuous employment or 1
year of service), but who has not yet enrolled in the Former
Plan shall become a Participant in the Plan on the first Entry
Date on or after January 1, 1997 on which such individual (a)
is an Eligible Employee and (b) has in effect a compensation
reduction authorization described in Section 3.2.
(iii) Any individual who is an active employee of Boston
Scientific Corporation Northwest Technology Center, Inc. on
December 31, 1996 and who has not yet satisfied the
eligibility requirements under the Former Plan as of December
31, 1996 shall become a Participant in the Plan as of the
Entry Date coinciding with or next following the date on which
the individual (a) satisfies the eligibility requirements
under Section 2.1, substituting age 18 for age 21 in Section
2.1(b)(3), (b) is an Eligible Employee and (c) has in effect a
compensation reduction authorization described in Section 3.2.
(iv) Each other Employee of Boston Scientific Corporation
Northwest Technology Center, Inc. shall be subject to the
participation rules under Section 2.1.
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
- 55 -
<PAGE>
Special Vesting Rules (Sections 5.6 and 14.40): Yes
Any individual who is a participant in the Heart Technology,
Inc. 401(k) Profit Sharing Plan (the "Former Plan") on
December 31, 1996 and who is an active employee of the Plan
Sponsor or an Affiliated Employer on or after December 31,
1996 shall have a 100% nonforfeitable interest in the portion
of his or her Accounts under this Plan that are attributable
to the transfer of his or her employer matching contribution
account balance, if any, from the Former Plan.
Special in-service withdrawal rules (Section 6.10(a)): Yes
In-service withdrawals of rollover account; limited to once
per year.
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
7. Meadox Medicals, Inc. Employees' Savings Plan
Effective as of the close of business on December 31, 1996, the Meadox
Medicals, Inc. Employees' Savings Plan is hereby merged into this Plan.
Special Participation rules (Section 2.1(c)): Yes
(i) Any individual who is a participant in the Meadox
Medicals, Inc. Employees' Savings Plan (the "Former Plan") on
December 31, 1996 shall become a Participant in the Plan as of
January 1, 1997.
(ii) Any individual who is an active employee of Meadox
Medicals, Inc. on December 31, 1996, but who has not yet
enrolled in the Former Plan shall become a Participant in the
Plan on any Entry Date on or after January 1, 1997, provided
on such Entry Date such individual (a) is an Eligible Employee
and (b) has in effect a compensation reduction authorization
described in Section 3.2.
(iii) Each other Employee of Meadox Medicals, Inc. shall be
subject to the participation rules under Section 2.1.
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting Rules (Sections 5.6 and 14.40): Yes
Any individual who is a participant in the Meadox Medicals,
Inc. Employees' Retirement Plan (the "Former Plan") on
December 31, 1996 and is an active
- 56 -
<PAGE>
employee of the Plan Sponsor or an Affiliated Employer on or
after December 31, 1996 shall have a 100% nonforfeitable
interest in the portion of his or her Accounts under this Plan
that are attributable to the transfer of his or her employer
matching contribution account balance, if any, from the Former
Plan.
Special in-service withdrawal rules (Section 6.10(a)): Yes
After-tax contribution account. No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
8. Target Therapeutics, Inc. 401(k) Plan and Trust
Effective as of the close of December 31, 1997, the Target
Therapeutics, Inc. 401(k) Plan and Trust was merged into this Plan.
Special Participation rules (Section 2.1(c)): No
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
9. Pfizer Savings and Investment Plan
Effective as of the close of November 30, 1998, the portion of the
Pfizer Savings and Investment Plan and trust benefitting employees of Schneider
(USA) Inc. and Corvita Corporation was merged into this Plan.
Special Participation rules (Section 2.1(c)): Yes
(i) Individuals who were employed by Schneider (USA) Inc. or
Corvita Corporation on September 10, 1998 may participate in
this Plan pursuant to Section 2.1(c) without regard to the age
requirement of that Section.
- 57 -
<PAGE>
(ii) Any Employee who was a participant in the Pfizer Savings
and Investment Plan on September 9, 1998 shall become a
Participant in this Plan as of September 10, 1998.
(iii) Each other individual who becomes an Employee of
Schneider (USA) Inc. or Corvita Corporation shall be subject
to the general participation rules of Section 2.1.
Special Rules re allocation of transferred accounts
(Section 4.6(a)): Yes
In order to administer special distribution options with
respect to contributions attributable to the NAMIC USA
Corporation Profit Sharing and Incentive Savings Plan, Pfizer
matching contributions and Pfizer after-tax employee
contributions (and earnings on all such contributions) such
contributions (and related earnings) shall be transferred into
separate accounts or subaccounts under this Plan.
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): Yes
The Pfizer matching contribution account, after-tax employee
contribution account, and former NAMIC accounts (attributable
to contributions other than elective contributions) can be
withdrawn in-service at any time.
Pfizer and NAMIC elective contribution accounts can be
withdrawn on account of hardship or disability.
QJSA rules applicable (Section 8.7): Yes
(i) Former participants of the Pfizer Savings and Investment
Plan must obtain spousal consent for loans and hardship
withdrawals from their Pfizer accounts.
(ii) Accounts of Participants for whom NAMIC Accounts are
maintained (i.e., former participants of the NAMIC USA
Corporation Profit Sharing and Incentive Plan) are subject to
the QJSA rules with respect to those accounts.
Optional forms of payment to preserve
(Sections 8.1 and 8.7): Yes
(i) Lump sum withdrawals or distributions from the Pfizer
stock fund can be distributed in shares of Pfizer common stock
(with cash in lieu of any fractional shares) at the
Participant's election.
(ii) NAMIC Accounts, in addition to the benefit forms
described under Section 8.1 and 8.7, can be distributed as
follows:
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<PAGE>
[ ] Immediate annuity for the life of the
Participant, with a survivor annuity for the
Participant's beneficiary which is 50% of
the amount payable during the life of the
Participant.
[ ] Immediate life annuity.
[ ] Other annuity options.
10. Catheter Innovations, Inc. 401(k) Retirement Savings Plan
Effective as of the close of December 31, 2001, the Catheter
Innovations, Inc. 401(k) Retirement Savings Plan (the "Catheter Innovations
Plan") and Trust shall be merged into this Plan.
Special Participation rules (Section 2.1(c)): No
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): Yes
Optional forms of payment to preserve
(Sections 8.1 and 8.7):
50% joint and survivor annuity.
Straight life annuity.
Single life annuity with period of certain of five, ten or
fifteen years.
Single life annuity with installment refund
50%, 66(BETA)%, or 100% joint and survivor annuity with
installment refund.
Fixed period annuity for any period of whole months which is
not less than sixty and does not exceed the life expectancy of
the Participant and the named Beneficiary.
Installments.
11. Quanam Medical Corporation 401(k) Plan
Effective as of the close of December 31, 2001, the Quanam Medical
Corporation 401(k) Plan (the "Quanam Plan") and Trust shall be merged into this
Plan.
Special Participation rules (Section 2.1(c)): No
- 59 -
<PAGE>
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40): No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
12. Interventional Technologies, Inc. 401(k) Plan
Effective as of the close of December 31, 2001, the Interventional
Technologies, Inc. 401(k) Plan (the "IVT Plan") and Trust shall be merged into
this Plan.
Special Participation rules (Section 2.1(c)): No
Special Rules re allocation of transferred accounts
(Section 4.6(a)): No
Special Vesting rules (Sections 5.6 and 14.40 No
Special in-service withdrawal rules (Section 6.10(a)): No
QJSA rules applicable (Section 8.7): No
Optional forms of payment to preserve
(Sections 8.1 and 8.7): None
- 60 -
<PAGE>
Schedule C
Special 1998 Contribution
Pursuant to Section 3.8, during the 1998 Plan Year, the
Participating Employers made a special contribution on behalf of
certain Participants (as listed below) in the amounts as indicated:
<TABLE>
<CAPTION>
Participants Receiving Amount of Special
Special 1998 Contribution 1998 Contribution
- ------------------------- -----------------
<S> <C> <C>
Anderson Connie $1,196.07
Colon Eleanor $ 702.99
Davis Andrew $3,621.51
Khammanivong Lounh $ 133.28
Lynch Elizabeth $ 955.41
Montuori John $ 59.59
Munoz Mauro $ 498.25
Murley Joyce $ 113.59
Ouk Dara $ 139.34
Panescu Dorin $ 210.66
Reineck Jean $ 17.25
Shah Krunal $ 287.47
Vierra Jean $1,277.98
Zweirs Douglas $3,323.15
Schallehn Marcia $ 494.02
Lambert Jose $ 974.21
Miranda Gilbert $1,817.55
Vnuk Theresa $ 216.67
Bliss Mark $1,123.34
McCoy Michael $ 936.33
Bautista Amalia $ 81.91
Bean Jr James I $ 210.87
Born John $ 861.98
Brennan Eileen F. $ 181.17
Duran Julio $ 192.01
Fissenden Lawrence P $ 176.37
Gomez Boris $ 188.68
Johnson Jeffrey $ 624.93
Laguerre Anne G $ 117.76
Lindberg Berndt E $ 170.25
Meintsma Kathryn $ 305.60
Mistry Illa $ 284.25
Murley Rebecca $ 85.38
Nguyen Amy N $ 56.07
Ooley Adam C $ 90.99
</TABLE>
- 61 -
<PAGE>
<TABLE>
<S> <C> <C>
Rooney Robert J. $ 63.53
Sabic Tereza $ 27.88
Scouton Patricia A $ 80.82
Springer James A $ 76.49
Stewart Jack D $ 323.88
Sutherlin Todd $ 487.28
Swenson Gregory $ 633.79
Teoh Clifford $ 647.08
Tyburski Karen $ 337.98
Vanarsdale Timothy L $ 48.98
Williams Denny L $ 112.18
Winders Patricia L $ 61.21
Mack Aggie $ 135.08
Mendez Rafael $ 446.86
Brown Roland $ 554.46
Hanson Ilene A $ 132.66
Hass Katherine A $ 123.31
Panuganti Vijayasri $ 166.80
Pless Nina M $ 58.07
Nguon Sokha $ 110.47
Capece Brian $ 349.39
Hanley Steven $ 584.17
Duffy James $ 763.93
Bot Marc $ 896.45
Bergquist Jonathan $ 386.20
Croci Steven $3,008.25
Horkey Natasha $ 105.39
Martinez Lisa $ 609.11
Quinn Patricia $ 326.29
Vela Juan $ 373.92
Wathen Peggy $ 9.83
Watson Gisela $ 28.49
White William $ 19.66
Bennett Michael $4,334.80
Caneda Jorge $ 561.89
Cielinski Carrie $ 285.85
Duckett Tammie $ 939.51
Koprowski Janet $2,590.23
Leblanc Ronald $1,521.94
Robertson Tammy $ 93.24
Schmidt Jennifer $ 202.93
Singh Sarwesh $ 440.24
Smith Johnnie $ 68.57
Stephenson Marie $ 65.00
Takock Aykham $ 227.72
Talbot Connie $ 471.05
</TABLE>
- 62 -
<PAGE>
<TABLE>
<S> <C> <C>
Tool Sandra $ 840.78
Wei Kuo-Shiun $4,630.44
Carrillo Jr. Oscar $ 703.96
Josef Corazon $ 382.88
Khao Sarith $ 232.73
Roberts Barbara $1,278.94
Vennes Robert $2,278.61
Zhong Sheng-Ping $2,054.13
Miller Connie $1,531.31
Miller Paul $1,573.04
Jertson John $ 266.33
Colonna Douglas $ 310.94
Markle Charlotte $ 287.02
Flores Anita $ 130.32
Oza Paritosh $ 276.74
</TABLE>
Special Year 2000 Contribution
Pursuant to Section 3.8, during the 2000 Plan Year, the
Participating Employers made a special contribution on behalf of
certain Participants (as listed below) in the amounts as indicated:
<TABLE>
<CAPTION>
Participants Receiving Amount of Special
Special 2000 Contribution 2000 Contribution
- ------------------------- -----------------
<S> <C> <C>
Poublon John A. $ 123.42
O'Mara Robert J. $ 122.92
Hauer Lillian R. $ 259.15
Paige Corrine F. $ 213.16
Carpenter Flo $ 129.82
Wetherbee William A. $ 147.18
Greer David A. $ 7.54
Randall Bryan L. $ 94.76
Hebert Charles B. $ 131.84
Bennett Ronald W. $ 138.69
Chow Stephen Y. $ 262.10
Silveira Rachelle L. $1,151.11
Oukaroune Souphaly $ 10.64
Fedie Byron $ 25.12
</TABLE>
- 63 -
<PAGE>
Special Contribution for Certain Former Employees of Cardiac Pathways
Pursuant to Section 3.8, the Participating Employers will make, in
2002, a special contribution on behalf of each Participant who (i) formerly
participated in the Cardiac Pathways Corporation 401(k) Plan (the "Cardiac
Plan"), (ii) earned in the aggregate less than $60,000 in 2001 from Boston
Scientific Corporation and Cardiac Pathways Corporation, and (iii) was actively
employed by Boston Scientific Corporation as of the last day of the Plan Year.
Such contribution for each eligible Participant shall equal 35% of such
Participant's "projected elective deferral amount". For purposes of this
paragraph, "projected elective deferral amount" means the amount that the
Participant would have deferred under the Cardiac Plan from August 8, 2001
through December 31, 2001 if the Cardiac Plan had not been terminated and if the
Participant's elective deferral election under the Cardiac Plan as of August 7,
2001 had remained the same for the remainder of the year.
- 64 -
<PAGE>
FORM OF
BOSTON SCIENTIFIC CORPORATION
401(k) RETIREMENT SAVINGS PLAN
FIRST AMENDMENT
Pursuant to Section 10.1 of the Boston Scientific Corporation 401(k)
Retirement Savings Plan as amended and restated effective January 1, 2001 (the
"Plan"), Boston Scientific Corporation hereby amends the Plan, effective January
1, 2003, as follows:
1. Section 3.1 is amended by deleting the last sentence thereof and by
replacing it with the following:
"Elective Contributions for any pay period in a Plan Year may not be
less than 1 percent of the Participant's Compensation for such pay
period and the maximum amount of Elective Contributions for any pay
period shall be the least of:
(a) 25 percent of the Participant's Compensation for such pay
period;
(b) the maximum amount permitted under Article 11; and
(c) any further limit placed on Highly Compensated Employees
by the Committee in its discretion in anticipation of satisfying the
actual deferral percentage or actual contribution percentage limits
described in Article 11.
In addition, effective January 1, 2003, Participants who have attained
age 50 before the close of a Plan Year shall be eligible to have
catch-up Elective Contributions made on their behalf for the Plan Year
in accordance with, and subject to, the limitations of Code section
414(v). Such catch-up Elective Contributions shall not be taken into
account for purposes of compliance by the Plan with the required
limitations of Code sections 402(g) and 415. The Participating
Employers will not make Matching Contributions on account of catch-up
Elective Contributions."
2. Section 3.3 (a) is amended by deleting the last sentence thereof and
by replacing it with the following:
"The amount of Matching Contributions made by a Participating Employer
for the period shall be equal to (i) 100% of the Elective Contributions
(excluding catch-up Elective Contributions) made on behalf of the
Participant for the period which do not exceed 2% of the Participant's
Compensation for such period, plus (ii) 50% of the Elective
Contributions (excluding catch-up Elective Contributions) made on
behalf of the Participant for the period which exceed 2% but do not
exceed 4% of the Participant's Compensation for such period."
-1-
<PAGE>
3. Section 4.3(a) is amended by adding the following to the end
thereof:
"Notwithstanding the foregoing, all investments under the Plan are
subject to the rules and limitations contained in the prospectus or
other documents that describe the investment."
4. Section 5.5 is amended by deleting paragraph (c) and replacing it
with the following:
"(c) If a Participant forfeits any part of his or her Accounts under
paragraph (a) above, the amount of the forfeiture will be applied,
first, toward any restoration of any amount previously forfeited as
required under paragraph (a) above, and then, toward either (i) the
payment of reasonable expenses of administering the Plan, or (ii) the
Matching Contributions required to be made to the Plan under Section
3.3, as determined by the Committee."
5. Section 6.6 is amended by deleting the first sentence in the last
paragraph and replacing it with the following:
"For purposes of this Section, a Participant's Accounts will be
considered to be valued in excess of $5,000 if the value of his or her
Accounts (excluding any Rollover Contributions and any earnings
thereon) exceeds such amount at the time of the distribution in
question."
6. Section 6.6 is further amended by adding the following to the end
thereof:
"Notwithstanding the foregoing, periodically the Committee will
distribute terminated Participants' Accounts that no longer have a
value in excess of $5,000."
7. Section 6.8 is amended by adding the following to the end thereof:
"With respect to distributions under the Plan made for calendar years
beginning on or after January 1, 2003, the Plan will apply the minimum
distribution requirements of Code section 401(a)(9) in accordance with
the Final and Temporary Regulations that were issued on April 17,
2002."
8. Section 8.2 is amended by deleting the first sentence in the last
paragraph and replacing it with the following:
"A Participant's Accounts will be considered to be valued in excess of
$5,000 if the value of such Accounts (excluding Rollover Contributions
and any earnings thereon) exceeds such amount at the time of the
distribution in question."
9. Section 8.2 is further amended by adding the following to the end
thereof:
"Notwithstanding the foregoing, periodically the Committee will
distribute terminated Participants' Accounts that no longer have a
value in excess of $5,000."
-2-
<PAGE>
10. Article 9 is amended by adding a new Section 9.8 to read as
follows:
"9.8 Expenses of Plan. The Committee may direct the Trustee to pay from
the Trust any or all expenses of administering the Plan, to the extent
such expenses are reasonable. The Committee will determine what
constitutes a reasonable expense of administering the Plan, and whether
such expenses shall be paid from the Trust. Any such expenses not paid
out of the Trust shall be paid by the Company; provided, however, that
to the extent permitted by ERISA, the Committee may direct the Trustee
to reimburse the Company out of the Trust for a reasonable expense of
administering the Plan which is paid by the Company prior to a
determination with respect to such expense."
IN WITNESS WHEREOF, Boston Scientific Corporation has caused this
amendment to be executed in its name and on its behalf this ________ day of
____________________, 2002.
BOSTON SCIENTIFIC CORPORATION
By: _______________________________
Title: ____________________________
-3-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>5
<FILENAME>b45658bsexv12w1.txt
<DESCRIPTION>COMPUTATION OF RATIOS OF EARNINGS
<TEXT>
<PAGE>
.
.
.
EXHIBIT 12.1
BOSTON SCIENTIFIC CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense and debt issuance costs $ 43 $ 60 $ 70 $ 122 $ 74
Interest portion of rental expense 11 12 15 15 16
---------------------------------------------------
Total fixed charges $ 54 $ 72 $ 85 $ 137 $ 90
===================================================
Earnings:
Income (loss) before income taxes and cumulative
effect of change in accounting $ 549 $ 44 $ 527 $ 562 ($ 275)
Fixed charges per above 54 72 85 137 90
Net distributed/(undistributed) equity in earnings of equity investees (13) 13 (1)
Less: capitalized interest 1 4
---------------------------------------------------
Total earnings, as adjusted $ 603 $ 103 $ 625 $ 697 ($ 189)
===================================================
Ratio of earnings to fixed charges 11.21 1.41 7.31 5.09
===================================================
Coverage deficiency(1) ($ 279)
======
Supplemental pro forma coverage deficiency(2) ($ 346)
======
</TABLE>
(1) Includes noncash special charges of $646 million recorded in connection
with the acquisition of Schneider Worldwide and other merger-related
initiatives.
(2) Reflects the coverage deficiency as if the acquisition of Schneider
Worldwide occurred at the beginning of 1998, with pro forma adjustments to
give effect to amortization of intangibles, an increase in interest expense
on acquisition financing and certain other adjustments.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>6
<FILENAME>b45658bsexv13w1.txt
<DESCRIPTION>CONSOLIDATED FINANCIAL STATEMENTS
<TEXT>
<PAGE>
.
.
.
Exhibit 13.1
2 0 0 2
CONSOLIDATED FINANCIAL STATEMENTS
BOSTON SCIENTIFIC AND SUBSIDIARIES
<TABLE>
<CAPTION>
FINANCIAL TABLE OF CONTENTS
<S> <C>
Management's discussion and analysis of financial condition and results of operations 2
Consolidated statements of operations ............................................... 17
Consolidated balance sheets ......................................................... 18
Consolidated statements of stockholders' equity ..................................... 20
Consolidated statements of cash flows ............................................... 21
Notes to consolidated financial statements .......................................... 22
Report of independent auditors ...................................................... 48
Five-year selected financial data ................................................... 49
Quarterly results of operations ..................................................... 50
Market for the Company's common stock and related matters ........................... 51
</TABLE>
(PHOTOS)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Boston Scientific Corporation (Boston Scientific or the Company) is a worldwide
developer, manufacturer and marketer of medical devices that are used in a broad
range of interventional medical specialties. The Company's mission is to improve
the quality of patient care and the productivity of health care delivery through
the development and advocacy of less-invasive medical devices and procedures.
This is accomplished through the continuing refinement of existing products and
procedures and the investigation and development of new technologies that can
reduce risk, trauma, cost, procedure time and the need for aftercare. The
Company's approach to innovation combines internally developed products and
technologies with those obtained externally through strategic acquisitions and
alliances.
The Company's products are used in a broad range of interventional medical
specialties, including interventional cardiology, peripheral intervention,
neurovascular intervention, electrophysiology, vascular surgery,
gastroenterology, gynecology, oncology and urology.
RESULTS OF OPERATIONS
FINANCIAL SUMMARY
YEARS ENDED DECEMBER 31, 2002 AND 2001
Net sales for the year ended December 31, 2002 were $2,919 million as compared
to $2,673 million in 2001. For the year ended December 31, 2002, the impact of
foreign currency fluctuations was not material. The reported net income for 2002
was $373 million, or $0.90 per share (diluted), as compared to a reported net
loss of $54 million, or $0.13 per share, in 2001. The reported results for 2002
include net after-tax charges of $40 million, which include provisions for:
purchased research and development primarily associated with the acquisitions of
Enteric Medical Technologies, Inc. (EMT) and Smart Therapeutics, Inc. (Smart);
costs associated with the Company's recently completed global operations plan;
an endowment to fund a newly created philanthropic foundation; special credits
for net amounts received in connection with settlements of litigation related to
rapid exchange catheter technology; and a reduction in income tax expense as a
result of a tax refund of previously paid taxes. The reported results for 2001
include after-tax charges of $377 million, which include provisions for:
purchased research and development related to acquisitions consummated in 2001;
costs associated with the Company's global operations plan; a provision for
excess inventory due to declining demand for the NIR(R) coronary stent
technology; and a write-down of intangible assets related to discontinued
technology platforms. Exclusive of these charges, net income for 2002 was $413
million, or $1.00 per share (diluted), as compared to net income of $323
million, or $0.80 per share (diluted), in 2001.
NET SALES
United States (U.S.) revenues increased approximately 10 percent to $1,756
million during 2002. U.S. revenues increased primarily due to revenue growth in
the Company's Endosurgery product lines, increased sales of the Cutting
Balloon(R) catheter, and the launch of the Company's internally developed
Express2(TM) coronary stent in the U.S., offset by decreases in NIR(R) coronary
stent sales.
International revenues increased approximately 8 percent to $1,163 million
during 2002. The increase in international revenues for the year ended December
31, 2002 was primarily due to growth in the Company's Endoscopy product lines
and increased sales of coronary stents within the Company's Europe and
Inter-Continental operating segments, partially offset by decreases in NIR(R)
coronary stent sales in Japan.
Worldwide coronary stent sales declined approximately 8 percent to $318 million
during 2002 due to the lack of physician acceptance of the NIR(R) coronary stent
platform and competitive product launches. In September 2002, the Company
launched its Express2 coronary stent system in the U.S. The product has been
well received in the market, increasing the Company's domestic coronary stent
market share to greater than 20 percent during the fourth quarter of 2002. The
Company anticipates the launch of its Express2 coronary stent system in Japan in
the third quarter of 2003.
2
BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides sales by region and relative change on an actual
and constant foreign currency basis for the years ended December 31, 2002 and
2001, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, CHANGE
---------------------- ------------------------
AT AT
ACTUAL CONSTANT
CURRENCY CURRENCY
(in millions) 2002 2001 BASIS BASIS
------ ------ ------ ------
<S> <C> <C> <C> <C>
United States $1,756 $1,598 10% 10%
Europe 442 365 21% 15%
Japan 494 522 (5%) (3%)
Inter-Continental 227 188 21% 27%
------ ------ ------ ------
WORLDWIDE $2,919 $2,673 9% 9%
====== ====== ====== ======
</TABLE>
The following table provides worldwide sales by division and relative change on
an actual and constant foreign currency basis for the years ended December 31,
2002 and 2001, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, CHANGE
---------------------- -----------------------
AT AT
ACTUAL CONSTANT
CURRENCY CURRENCY
(in millions) 2002 2001 BASIS BASIS
------ ------ ------ ------
<S> <C> <C> <C> <C>
SCIMED $1,709 $1,608 6% 6%
EPT 101 82 23% 22%
Target 169 151 12% 11%
------ ------ ------ ------
CARDIOVASCULAR $1,979 $1,841 7% 8%
Medi-tech $ 231 $ 212 9% 11%
Endoscopy 513 451 14% 13%
Urology 196 169 16% 16%
------ ------ ------ ------
ENDOSURGERY $ 940 $ 832 13% 13%
------ ------ ------ ------
WORLDWIDE $2,919 $2,673 9% 9%
====== ====== ====== ======
</TABLE>
The Company's international operating regions and divisions are managed on a
constant currency basis, while market risk from changes in currency exchange
rates is managed at the corporate level.
GROSS PROFIT
Gross profit increased to $2,049 million, or 70.2 percent of net sales, in 2002
from $1,754 million, or 65.6 percent of net sales, in 2001. The increase in
gross profit in 2002 was primarily due to the increase in net sales, a $33
million reduction in costs related to the global operations plan and a $49
million provision recorded in 2001 for excess NIR(R) coronary stent inventories.
Excluding these charges, gross profit percentage improved to 71.2 percent in
2002 from 69.8 percent in 2001 due to operational cost improvements achieved
through the Company's global operations plan and to shifts in the Company's
product sales mix toward higher margin products, primarily the Express(TM)
coronary stent, partially offset by higher margin revenue declines in Japan.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales
decreased to 34 percent in 2002 from 35 percent in 2001 and increased
approximately $76 million to $1,002 million in 2002. The increase in expenses in
2002 is primarily attributable to costs incurred to expand and to strengthen the
Company's SCIMED field sales force in Europe and the Endosurgery field sales
force in the U.S.
AMORTIZATION EXPENSE
Amortization expense decreased to $72 million in 2002 from $136 million in 2001
and decreased as a percentage of net sales to 2 percent from 5 percent. The
decrease in 2002 is primarily a result of the adoption of Financial Accounting
Standards Board Statement No. 142, Goodwill and Other Intangible Assets. As a
result of adoption of Statement No. 142, the Company realized a pre-tax benefit
of approximately $46 million of amortization reductions for goodwill and
indefinite-lived intangible assets in 2002. This benefit was partially offset by
amortization of intangible assets related to businesses acquired in 2002 and
2001. The decrease is also a result of a $24 million pre-tax write-down of
intangible assets in the second quarter of 2001 related to discontinued
technology platforms. During 2002, the Company completed
3
BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
impairment reviews required by Statement No. 142; the Company did not recognize
any impairment charges as a result of these reviews.
ROYALTIES
During 2002, royalties remained at approximately 1 percent of net sales. The
Company expects that its royalty expenses will increase in 2003 primarily due to
royalties payable on sales of the Company's TAXUS(TM) paclitaxel-eluting stent
system.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $343 million in 2002 from $275
million in 2001 and increased as a percentage of net sales to 12 percent from 10
percent. The investment in research and development dollars reflects spending on
new product development programs as well as regulatory compliance and clinical
research. The increase in research and development expense during 2002 is
primarily attributable to investment in the development of and clinical trials
relating to the Company's TAXUS drug-eluting stent program and to investment
in development programs acquired in connection with the Company's business
combinations consummated in 2001, primarily related to the Embolic Protection,
Inc. (EPI) Filterwire(TM) embolic protection device. The Company spent
approximately $60 million and $30 million on its drug-eluting stent program in
2002 and 2001, respectively. In addition, the Company spent approximately $30
million and $10 million on its EPI Filterwire platform in 2002 and 2001,
respectively. The Company currently anticipates research and development
expenses as a percentage of net sales to remain at approximately 12 percent in
2003, including $100 million of estimated spending on its drug-eluting stent
program and $15 million of spending on its EPI Filterwire platform.
The TAXUS clinical program is a series of studies designed to collect data on
Boston Scientific's proprietary polymer-based, paclitaxel-eluting stent
technology for reducing coronary restenosis, the growth of neointimal tissue
within an artery after angioplasty and stenting. Prior studies have demonstrated
promising results by dramatically reducing restenosis. The proprietary polymer
on the stent allows for controlled delivery of paclitaxel. Paclitaxel is a
multifunctional microtubular inhibitor that controls platelets, smooth muscle
cells and white blood cells, all of which are believed to contribute to
restenosis. The Company initiated the TAXUS program in 1997.
The TAXUS I trial confirmed safety and reported zero thrombosis and zero
restenosis. Clinical follow-up through 12 months continues to show favorable
results. The TAXUS II trial studied the treatment of de novo coronary lesions
and demonstrated both safety and efficacy using slow- and moderate-release
formulations. Significant improvements were seen for clinical, angiographic and
intravascular measures of stent performance compared with the bare metal control
stent. The TAXUS III trial is a single-arm registry examining the feasibility of
implanting up to two paclitaxel-eluting stents for the treatment of in-stent
restenosis. The trial enrolled patients with complex vascular disease having
recurrent occlusion in a stent, who have an increased probability of restenosis.
Final six-month results from the TAXUS III trial confirmed safety and reported
no stent thromboses. The TAXUS IV trial completed enrollment in August 2002 and
nine-month follow-up is underway. TAXUS IV is a pivotal study designed to assess
the safety and efficacy of the slow-release formulation to support regulatory
filings for U.S. product commercialization; the Company plans on completing its
Pre-Market Approval submission to the U.S. Food and Drug Administration (FDA) by
the end of the second quarter of 2003. The TAXUS V trial has received
conditional approval from the FDA to enroll patients and will study a higher
risk patient population than TAXUS IV, including patients with disease in
smaller vessels and longer lesions. TAXUS VI is studying patients with complex
coronary artery disease and completed enrollment in January 2003. Boston
Scientific has also initiated a transitional registry program (WISDOM) in a
number of countries as part of a limited commercial launch of its TAXUS
paclitaxel-eluting stent system. A European post-market registry (Milestone II)
is expected to begin in the first quarter of 2003.
4
BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST EXPENSE AND OTHER, NET
Interest expense decreased to $43 million in 2002 from $59 million in 2001. The
overall decrease in interest expense is primarily attributable to lower average
interest rates. Other, net, was an expense of approximately $18 million in 2002
and income of approximately $3 million in 2001. The change is primarily due to a
charitable donation of $18 million made during 2002 to fund the newly created
Boston Scientific Foundation and to net losses of approximately $3 million
related to the Company's equity investment portfolio. The Boston Scientific
Foundation is a philanthropic organization whose mission is to improve the
health of individuals and communities, and to enhance educational opportunities.
TAX RATE
The Company's reported tax rate was 32 percent and 223 percent in 2002 and 2001,
respectively. The decrease was primarily due to a reduction in net special
charges in 2002 and a refund of previously paid taxes, which resulted in a
reduction of income tax expense of $15 million. The Company's effective tax
rate, excluding the impact of after-tax special charges and credits, decreased
to 29 percent in 2002 from 30 percent in 2001. Management currently estimates
that the 2003 effective tax rate will be approximately 27 percent. The decreases
are primarily attributable to shifts in the mix between the Company's U.S. and
international businesses. The effective tax rate could be positively or
negatively impacted by changes in the geographic mix of the Company's income or
by future acquisitions, if any.
YEARS ENDED DECEMBER 31, 2001 AND 2000
Net sales for the year ended December 31, 2001 were $2,673 million as compared
to $2,664 million in 2000. Without the adverse impact of approximately $92
million arising from foreign currency fluctuations, net sales for 2001 increased
4 percent. The reported net loss for 2001 was $54 million, or $0.13 per share,
as compared to reported net income of $373 million, or $0.91 per share
(diluted), in 2000. The reported results for 2001 include after-tax charges of
$377 million, which include a provision for purchased research and development
related to acquisitions consummated in 2001; costs associated with the Company's
global operations plan; a provision for excess inventory due to declining demand
for the current NIR(R) coronary stent technology; and a write-down of
intangible assets related to discontinued technology platforms. The reported
results for 2000 include after-tax charges of $47 million, which include costs
associated with the Company's global operations plan and a provision for excess
NIR(R) coronary stent inventory. Exclusive of these charges, net income for 2001
was $323 million, or $0.80 per share (diluted), as compared to net income of
$420 million, or $1.03 per share, in 2000.
NET SALES
U.S. revenues increased approximately 1 percent to $1,598 million during 2001,
while international revenues decreased approximately 1 percent to $1,075
million. U.S. revenues increased due to revenue growth in the Company's product
lines, including revenue generated by businesses acquired in 2001, offset by
decreases in coronary stent sales. International revenues were negatively
impacted by approximately $92 million of foreign exchange fluctuations. The
decrease in international revenues was also due to declines in NIR(R) coronary
stent sales. The reductions to international sales were partially offset by
growth in the Company's product lines, including sales of products available
through acquisitions, and the launch of the Company's internally developed
Express(TM) coronary stent in European and other international markets.
GROSS PROFIT
Gross profit decreased to $1,754 million and 65.6 percent of net sales in 2001
from $1,832 million and 68.8 percent of net sales in 2000. The decline in gross
profit in 2001 is primarily due to a pre-tax provision recorded in 2001 of $49
million for excess NIR(R) coronary stent inventory. The excess position was
driven primarily by declining demand for the NIR(R) coronary stent technology.
The Company recorded a pre-tax provision of $5 million for excess NIR(R)
coronary stent inventory in 2000.
5
BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit for the year ended December 31, 2001 was also negatively impacted
by $62 million of pre-tax expenses associated with the Company's global
operations plan, as compared to $11 million of such expenses in 2000. Excluding
these charges, the gross profit percentage improved to 69.8 percent in 2001 from
69.4 percent in 2000 due to operational cost improvements and the Company's
hedging activities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales
increased to 35 percent of sales in 2001 from 33 percent in 2000 and increased
approximately $59 million to $926 million in 2001. The increase in expenses in
2001 is primarily attributable to costs associated with the businesses acquired
in 2001 and incremental costs incurred to strengthen the Company's field sales
force.
AMORTIZATION EXPENSE
Amortization expense increased to $136 million in 2001 from $91 million in 2000
and increased as a percentage of net sales to 5 percent from 3 percent. The
increase in 2001 is primarily a result of a $24 million write-down of intangible
assets related to discontinued technology platforms and amortization of
intangible assets related to businesses acquired in 2001.
ROYALTIES
During 2001, royalties remained at approximately 1 percent of net sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $275 million in 2001 from $199
million in 2000 and increased as a percentage of net sales to 10 percent from 7
percent. The increase in research and development is primarily due to increased
funding for the development of, and the clinical trials related to, new
products, including the Company's Express(TM) coronary stent platform, its
TAXUS(TM) drug-eluting stent program, its carotid program and programs acquired
in connection with the Company's business combinations consummated in 2001.
INTEREST EXPENSE AND OTHER, NET
Interest expense decreased to $59 million in 2001 from $70 million in 2000. The
overall decrease in interest expense is primarily attributable to lower average
interest rates. Other income, net, decreased to approximately $3 million in 2001
from approximately $17 million in 2000. The change is primarily due to net gains
recognized on sales of available-for-sale securities in 2000 and to net gains
recorded on derivative financial instruments in 2000.
TAX RATE
The Company's reported tax rate was 223 percent and 29 percent in 2001 and 2000,
respectively. The increase was primarily due to an increase in special charges
in 2001. The Company's effective tax rate, excluding the impact of in-process
research and development related to the 2001 acquisitions and
restructuring-related charges, was 30 percent for both 2001 and 2000.
GLOBAL OPERATIONS STRATEGY UPDATE
During 2000, the Company approved and committed to a global operations plan
consisting of a series of strategic initiatives designed to increase
productivity and enhance innovation. The plan includes manufacturing process and
supply chain programs and a plant optimization initiative. The plant
optimization initiative has created a better allocation of the Company's
resources by forming a more effective network of manufacturing and research and
development facilities.
During the second quarter of 2002, the Company substantially completed the
plant optimization initiative. The Company recorded pre-tax expenses of
approximately $23 million as
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cost of sales in 2002 primarily related to transition costs associated with the
plant optimization plan and to abnormal production variances related to
underutilized plant capacity. In addition, during the second quarter of 2002,
the Company recorded a $6 million pre-tax charge to cost of sales for severance
and related costs associated with its global operations strategy. The
approximately 250 affected employees included manufacturing, manufacturing
support and management employees. The reductions resulted from the Company's
continued achievement of operational efficiencies within its plant network and
its continued effort to manage costs. During 2001, the Company recorded pre-tax
expenses of approximately $62 million as cost of sales, primarily related to
transition costs and accelerated depreciation on fixed assets whose useful lives
were reduced as a result of the initiative. During 2000, the Company recorded a
$58 million pre-tax special charge for severance and related costs associated
with the displacement of the approximately 1,700 manufacturing, manufacturing
support and management employees under the plan. In addition, the Company
recorded pre-tax expenses of $11 million during 2000 related to transition costs
and accelerated depreciation. At December 31, 2002, the Company had made cash
outlays of approximately $160 million since the inception of the global
operations strategy and had approximately $4 million of accrued severance and
related costs remaining associated with its global operations strategy
initiatives. The accrued costs are expected to be paid by the end of 2003.
During 2002, the Company achieved pre-tax operating savings, relative to the
plan's base year of 1999, of approximately $220 million. The Company estimates
that the global operations plan will achieve future pre-tax operating savings,
relative to the base year, of approximately $250 million in annualized savings
in 2003 and thereafter. These savings will be realized primarily as reduced cost
of sales. Savings to date have been partially offset by price erosion and the
effects of foreign currency fluctuations relative to the base year.
Additionally, the Company continues to use the majority of these savings to fund
its increased investment in research and development.
LITIGATION SETTLEMENTS
During the third quarter of 2002, the Company entered into an agreement to
settle a number of patent infringement lawsuits between the Company and
Medtronic, Inc. (Medtronic). The settlement resolved the Company's damage claims
against Medtronic arising out of a German court case and a U.S. arbitration
proceeding involving Medtronic rapid exchange stent delivery systems and
angioplasty dilatation balloon catheters. In accordance with the settlement
agreement, during the third quarter of 2002, Medtronic paid the Company
approximately $175 million to settle damage award claims for past infringement.
In addition, during the third quarter of 2002, the Company recorded a net charge
of approximately $76 million for settlement of litigation related to rapid
exchange catheter technology.
PURCHASED RESEARCH AND DEVELOPMENT
During 2002, the Company paid approximately $187 million in cash to acquire
Smart Therapeutics, Inc. (Smart), BEI Medical Systems Company, Inc. and Enteric
Medical Technologies, Inc. (EMT). During 2001, the Company paid approximately
$620 million in cash and issued approximately 1.9 million shares valued at $40
million to acquire RadioTherapeutics Corporation, Cardiac Pathways Corporation,
Interventional Technologies, Inc. (IVT), Quanam Medical Corporation, Catheter
Innovations, Inc. and Embolic Protection, Inc. (EPI). These acquisitions are
intended to strengthen the Company's leadership position in interventional
medicine. The acquisitions were accounted for using the purchase method of
accounting. The consolidated financial statements include the operating results
for each acquired entity from its respective date of acquisition. Pro forma
information is not presented, as the acquired companies' results of operations
prior to their date of acquisition are not material, individually or in the
aggregate, to the Company.
The purchase price recorded for each acquisition has been allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of acquisition. The estimated excess of purchase price over the fair value of
the net tangible assets acquired was allocated to identifiable intangible
assets, as valued by an independent appraiser using information and assumptions
provided by management. Based upon these
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valuations, the Company recorded charges of approximately $85 million in 2002
and $282 million in 2001 to account for purchased research and development. The
valuation of purchased research and development, for which management is
primarily responsible, represents the estimated fair value at the date of
acquisition related to in-process projects. As of the date of acquisition, the
in-process projects had not yet reached technological feasibility and had no
alternative future uses. The primary basis for determining the technological
feasibility of these projects is obtaining regulatory approval to market the
product. Accordingly, the value attributable to these projects, which had not
yet obtained regulatory approval, was expensed in conjunction with the
acquisition. If the projects are not successful or completed in a timely manner,
the Company may not realize the financial benefits expected for these projects.
The income approach was used to establish the fair values of purchased research
and development. This approach establishes fair value by estimating the
after-tax cash flows attributable to the in-process project over its useful life
and then discounting these after-tax cash flows back to a present value. Revenue
estimates were based on estimates of relevant market sizes, expected market
growth rates, expected trends in technology and expected product introductions
by competitors. In arriving at the value of the in-process research and
development projects, the Company considered, among other factors, the
in-process project's stage of completion, the complexity of the work completed
as of the acquisition date, the costs already incurred, the projected costs to
complete, the contribution of core technologies and other acquired assets, the
expected introduction date and the estimated useful life of the technology. The
discount rate used to arrive at a present value as of the date of acquisition
was based on the time value of money and medical technology investment risk
factors. For the purchased research and development programs acquired in
connection with the 2002 acquisitions, risk-adjusted discount rates ranging from
17 percent to 26 percent were utilized to discount the projected cash flows. For
the purchased research and development programs acquired in connection with the
2001 acquisitions, risk-adjusted discount rates ranging from 16 percent to 28
percent were utilized to discount the projected cash flows. The Company believes
that the estimated purchased research and development amounts so determined
represent the fair value at the date of acquisition and do not exceed the amount
a third party would pay for the projects.
The most significant projects, relative to the purchased research and
development charge recorded in connection with the acquisitions consummated in
2002, are EMT's Enteryx(TM) technology for the treatment of gastroesophageal
reflux disease (GERD) and Smart's atherosclerosis stent, which collectively
represent approximately 82 percent of the 2002 in-process value. Enteryx is a
patented liquid polymer for the treatment of GERD. The atherosclerosis stent is
a self-expanding nitinol stent designed to treat narrowing of the arteries
around the brain. As of the date of acquisition, the projects were expected to
be completed and the products commercially available on a worldwide basis within
one to four years, with an estimated cost to complete of approximately $2
million to $13 million.
The most significant projects, relative to the purchased research and
development charge recorded in connection with the acquisitions consummated in
2001, are IVT's next-generation Cutting Balloon(R) catheter, the next-generation
Infiltrator(R) transluminal drug-delivery catheter and EPI's next-generation
embolic protection devices, which collectively represent approximately 63
percent of the 2001 in-process value. The Cutting Balloon is a novel balloon
angioplasty device with mounted scalpels that relieve stress in the artery,
reducing the force necessary to expand the vessel. This contributes to less
inadvertent arterial trauma and injury as compared to standard balloon
angioplasty. The Infiltrator transluminal drug-delivery catheter is designed to
deliver therapeutic agents directly into the wall of the artery with high levels
of efficiency. The embolic protection devices are filters that are mounted on a
guidewire and are used to capture embolic material that is dislodged during
cardiovascular interventions. As of the date of acquisition, the projects were
expected to be completed and the products to be commercially available on a
worldwide basis within one to four years, with an estimated cost to complete of
approximately $30 million to $45 million.
The Company's acquired research and development projects are generally
progressing in line with the estimates set forth above, with the exception of
IVT's next-generation Infiltrator transluminal drug-delivery catheter project.
Due to alternative
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drug-delivery products available to the Company, the Company has reduced its
future revenue projections for this product. The Company expects to continue to
pursue this and other research and development projects acquired in connection
with its business combinations and believes it has a reasonable chance of
completing the projects.
OUTLOOK
The worldwide coronary stent market is dynamic and highly competitive with
significant market share volatility. The introduction of drug-eluting stents is
likely to have a significant impact on the market size for coronary stents and
on the distribution of market share across the industry. The Company believes
drug-eluting stent technology represents one of the largest market opportunities
in the history of the medical device industry. It is estimated that the annual
worldwide market for coronary stents, including drug-eluting stents, may grow to
$5 billion by 2005, compared to approximately $2.2 billion today. Although the
Company believes it is positioned to be one of only two early entrants in this
market, uncertainties exist about the rate of development and size of this new
market.
The Company believes it is poised to take advantage of the drug-eluting stent
opportunity for a variety of reasons, in