-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J6ZMu9qTNsAU0kCkZ96DYWjIzgY9XxJaQ6HA8RFETxLcLvDENdgEHkwNCKa9/K1w k++5027sycnDU06pdIvR5Q== 0000897101-00-000548.txt : 20000517 0000897101-00-000548.hdr.sgml : 20000517 ACCESSION NUMBER: 0000897101-00-000548 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST JUDE MEDICAL INC CENTRAL INDEX KEY: 0000203077 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411276891 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12441 FILM NUMBER: 636551 BUSINESS ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 BUSINESS PHONE: 6514832000 MAIL ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 2000 Commission File Number 0-8672 -------------- ------ ST. JUDE MEDICAL, INC. ---------------------- (Exact name of Registrant as specified in its charter) MINNESOTA 41-1276891 --------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) One Lillehei Plaza, St. Paul, Minnesota 55117 --------------------------------------------- (Address of principal executive offices) (651) 483-2000 -------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months; and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO The number of shares of common stock, par value $.10 per share, outstanding on April 28, 2000 was 83,828,478. 1 of 19 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------- Net sales $ 295,499 $ 266,734 Cost of sales 101,978 93,461 - ----------------------------------------------------------------------------------------------------------------- Gross profit 193,521 173,273 Selling, general and administrative expense 103,299 96,423 Research and development expense 32,394 27,143 Purchased in-process research and development expense -- 47,775 Special charge 26,101 -- - ----------------------------------------------------------------------------------------------------------------- Operating profit 31,727 1,932 Other income (expense) (7,106) (4,631) - ----------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 24,621 (2,699) Income tax expense 8,793 9,358 - ----------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 15,828 $(12,057) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Net earnings (loss) per share: Basic $ 0.19 $ (0.14) Diluted $ 0.19 $ (0.14) Weighted average shares outstanding: Basic 83,779 84,194 Diluted 83,991 84,194 - -----------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements. 2 of 19 ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, 2000 DECEMBER 31, (UNAUDITED) 1999 (SEE NOTE) - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 27,164 $ 9,655 Marketable securities 80,950 79,238 Accounts receivable, less allowances of $14,721 in 2000 and $13,529 in 1999 307,153 293,815 Inventories 226,396 235,407 Other current assets 75,511 72,184 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 717,174 690,299 Property, plant and equipment - at cost 581,061 574,531 Less accumulated depreciation (244,849) (231,751) - -------------------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 336,212 342,780 Other assets, net 520,512 520,959 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,573,898 $ 1,554,038 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 117,000 $ -- Accounts payable and accrued expenses 231,753 238,822 Income taxes payable 56,177 43,700 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 404,930 282,522 Long-term debt 360,675 477,495 Commitments and contingencies -- -- Shareholders' equity Preferred stock -- -- Common stock 8,383 8,378 Additional paid-in capital 1,281 109 Retained earnings 849,051 833,223 Accumulated other comprehensive income Cumulative translation adjustment (57,601) (53,977) Unrealized gain on available-for-sale securities 7,179 6,288 - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 808,293 794,021 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,573,898 $ 1,554,038 - --------------------------------------------------------------------------------------------------------------------------------
NOTE: THE BALANCE SHEET AT DECEMBER 31, 1999 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE. SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 of 19 ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Operating Activities Net earnings (loss) $ 15,828 $(12,057) Depreciation and amortization 22,894 19,608 Purchased in-process research and development expense -- 47,775 Special charge 26,101 -- Net investment gain (1,057) -- Working capital change, net of business acquisition (30,643) (6,065) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 33,123 49,261 Investing Activities Purchase of property, plant and equipment (8,988) (9,675) Proceeds from sale or maturity of marketable securities 1,332 -- Business acquisition -- (167,000) Other (8,890) (7,487) - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (16,546) (184,162) Financing Activities Proceeds from exercise of stock options 971 838 Borrowings under debt facilities 1,220,100 241,500 Payments under debt facilities (1,200,600) (95,700) Repurchase of convertible subordinated debentures (19,320) -- - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,151 146,638 Effect of currency exchange rate changes on cash (219) (1,288) - ------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 17,509 10,449 Cash and cash equivalents at beginning of period 9,655 3,775 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 27,164 $ 14,224 - -------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements. 4 of 19 ST. JUDE MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Certain 1999 amounts have been reclassified to conform to the 2000 presentation. NOTE 2 - INVENTORIES Inventories consist of the following: MARCH 31, DECEMBER 31, 2000 1999 - ----------------------------------------------------------------------- Finished goods $117,806 $ 108,449 Work in progress 35,497 41,466 Raw materials 73,093 85,492 - ----------------------------------------------------------------------- Total inventory $226,396 $ 235,407 - ----------------------------------------------------------------------- 5 of 19 NOTE 3 - LONG-TERM DEBT Long-term debt consists of the following: MARCH 31, DECEMBER 31, 2000 1999 - -------------------------------------------------------------------------- Committed credit facility borrowings $ -- $ 299,000 Commercial paper borrowings 386,000 -- Uncommitted credit facility borrowings 81,000 148,500 Convertible subordinated debentures 10,675 29,995 - -------------------------------------------------------------------------- Total debt 477,675 477,495 Less current portion 117,000 -- - -------------------------------------------------------------------------- Total long-term debt $360,675 $ 477,495 - -------------------------------------------------------------------------- At March 31, 2000, the Company had a $350,000 committed revolving credit facility that expires in March 2003 and a $150,000 committed revolving credit facility that expires in March 2001. The Company also borrows from time to time under uncommitted, due-on-demand credit facilities with various banks. During the first quarter of 2000, the Company repurchased $19,320 of its convertible subordinated debentures in open market transactions, recognizing an immaterial gain. The Company also began issuing commercial paper with maturities up to 270 days. These commercial paper borrowings are fully backed by committed credit facilities and bear interest at varying market rates. The Company classifies the above debt obligations as long-term on its balance sheet to the extent it has the ability to repay all or a portion of the short-term obligations with available cash under a long-term, committed credit facility. Management continually reviews the Company's cash flow projections and may from time to time repay a portion of the Company's borrowings. NOTE 4 - COMMITMENTS AND CONTINGENCIES IRS MATTERS: The Company and the Internal Revenue Service ("IRS") have reached a verbal agreement to settle the IRS Tax Court suit for the tax periods 1990-1991 and subsequent year disputes for the tax periods 1992-1995. The issues raised by the IRS related primarily to the Company's Puerto Rican operations. It is expected that an agreement between the Company and the IRS will be formalized in writing within 60 days. The proposed settlement is not expected to impact the Company's statement of earnings. LITIGATION: Five separate lawsuits have been asserted against the Company involving the Company's mechanical heart valves with a Silzone(R) coating. The Company recalled products with the Silzone(R) coating on January 21, 2000 (see Note 6 below) and sent a Recall Notice and Advisory concerning the recall to physicians and others at that time. A number of these cases are seeking monitoring of patients implanted with Silzone(R)-coated valves who have had no injury to date. Three of the five cases that have been asserted seek class action status. The Company intends to defend these cases. The Company's product liability insurance policies exclude coverage for two discontinued Pacesetter lead models. These discontinued lead models were the subject of class action product liability suits that have been settled. Management believes losses that might be sustained from any such future actions would not have a material adverse effect on the Company's liquidity or financial condition, but could potentially be material to the earnings of a particular future period if resolved unfavorably. The Company is involved in various other product liablilty lawsuits, claims and proceedings of a nature considered normal to its business. Subject to self-insured retentions, the Company has product liability insurance sufficient to cover such claims and suits. 6 of 19 NOTE 5 - SHAREHOLDERS' EQUITY CAPITAL STOCK: The Company's authorized capital consists of 25,000 shares of $1.00 per share par value preferred stock and 250,000 shares of $0.10 per share par value common stock. There were no shares of preferred stock issued or outstanding during 1999 or the first quarter of 2000. There were 83,828 and 83,781 shares of common stock outstanding at March 31, 2000 and December 31, 1999. SHARE REPURCHASES: During the third quarter of 1999, the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company's outstanding common stock over a three-year period. There were no share repurchases during the first quarter of 2000. NOTE 6 - SPECIAL CHARGES On January 21, 2000, the Company initiated a worldwide voluntary recall of all field inventory of heart valve replacement and repair products incorporating a Silzone(R) coating on the sewing cuff fabric. The Company concluded that it will no longer utilize the Silzone(R) coating. The Company recorded a special charge accrual totaling $26,101 during the first quarter of 2000 relating to asset write-downs ($9,465) and other costs, including monitoring expenses, ($16,636) associated with this recall and product discontinuance. The Company has utilized $10,631 of this special charge accrual through March 31, 2000. There can be no assurance that the final costs associated with this recall, including litigation-related costs, will not exceed management's estimates. The Company recorded a $9,754 special charge accrual in 1999 relating to the restructuring of its international operations, of which $6,055 has been utilized through March 31, 2000. The Company also recorded special charge accruals in 1997 totaling $58,669 relating to various activities, of which $56,354 has been utilized through March 31, 2000. 7 of 19 NOTE 7 - NET EARNINGS (LOSS) PER SHARE The table below sets forth the computation of basic and diluted net earnings (loss) per share: THREE MONTHS ENDED MARCH 31, 2000 1999 - ------------------------------------------------------------------------------- Numerator: Net earnings (loss) $ 15,828 $(12,057) Denominator: Basic-weighted average shares outstanding 83,779 84,194 Effect of dilutive securities: Employee stock options 168 - Restricted shares 44 - - ------------------------------------------------------------------------------- Diluted-weighted average shares outstanding 83,991 84,194 - ------------------------------------------------------------------------------- Basic net earnings (loss) per share $ .19 $ (.14) - ------------------------------------------------------------------------------- Diluted net earnings (loss) per share $ .19 $ (.14) - ------------------------------------------------------------------------------- Net earnings (loss) and diluted-weighted average shares outstanding have not been adjusted for the Company's convertible debentures or for certain employee stock options and awards since the effect of these securities would have been anti-dilutive. NOTE 8 - COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) consists of unrealized gains or losses on available-for-sale marketable securities and foreign currency translation adjustments, net of taxes. Other comprehensive loss was $(2,733) and $(21,450) for the three months ended March 31, 2000 and 1999. Total comprehensive income (loss) combines reported net earnings (loss) and other comprehensive income (loss). Total comprehensive income (loss) was $13,095 and $(33,507) for the three months ended March 31, 2000 and 1999. NOTE 9 - ACQUISITION On March 16, 1999, the Company purchased the Angio-Seal(TM) business of Tyco International Ltd. for $167,000 in cash. The Angio-Seal(TM) acquisition was recorded using the purchase method of accounting and the operating results of Angio-Seal(TM) was included in the Company's consolidated statement of earnings from the date of acquisition. Pro forma results of operations have not been presented for this acquisition since the effect of this acquisition was not material to the Company's consolidated results of operations for the periods presented. See the Company's 1999 Annual Report to Shareholders on Form 10-K for further information on the Company's Angio-Seal(TM) acquisition. 8 of 19 NOTE 10 - OTHER INCOME (EXPENSE) Other income (expense), consists of the following: THREE MONTHS ENDED MARCH 31, 2000 1999 - ------------------------------------------------------------------- Interest expense $ (7,799) $ (5,822) Other 693 1,191 - ------------------------------------------------------------------- Other income (expense) $ (7,106) $ (4,631) - ------------------------------------------------------------------- NOTE 11 - SEGMENT INFORMATION The Company has two reportable segments: Cardiac Rhythm Management (CRM) and Heart Valve Disease Management (HVDM). The CRM segment, which includes the results from the Company's Cardiac Rhythm Management Division and Daig Division, develops, manufactures and distributes bradycardia pulse generator and tachycardia implantable cardioverter defibrillator systems, electrophysiology and interventional cardiology catheters and vascular closure devices. The HVDM segment develops, manufactures and distributes mechanical and tissue heart valves and valve repair products and is in the process of developing suture-free devices to facilitate coronary artery bypass graft anastomoses. The following table presents certain financial information about the Company's reportable segments:
CRM HVDM ALL OTHER (1) TOTAL - ------------------------------------------------------------------------------------------------------- QUARTER ENDED MARCH 31, 2000 External net sales $ 225,258 $ 70,241 $ -- $ 295,499 Operating profit (loss) 32,094 35,120 (35,487) 31,727 QUARTER ENDED MARCH 31, 1999 External net sales $ 192,441 $ 74,293 $ -- $ 266,734 Operating profit (loss) 18,259 39,894 (56,221) 1,932 - -------------------------------------------------------------------------------------------------------
(1) AMOUNTS RELATE PRIMARILY TO CORPORATE ACTIVITIES, SPECIAL CHARGES AND PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES. ALL OTHER OPERATING PROFIT (LOSS) AMOUNTS INCLUDE A SPECIAL CHARGE TOTALING $26,101 IN 2000 AND A PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF $47,775 IN 1999. 9 of 19 NOTE 12 - NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), which is required to be adopted in years beginning after June 15, 2000, although early adoption as of the beginning of any fiscal quarter is permitted. Statement 133 requires companies to recognize all derivatives on the balance sheet at fair value. Derivatives not qualifying as hedges must be adjusted to fair value through earnings. If the derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management is continuing to review the impact of Statement 133 on the Company's financial statements. 10 of 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS ACQUISITIONS: The Company acquired the Angio-Seal(TM) business of Tyco International Ltd. on March 16, 1999 and the outstanding common stock of Vascular Science, Inc. (VSI) on September 27, 1999. These acquisitions have been recorded using the purchase method of accounting. The operating results of each of these acquisitions are included in the Company's consolidated statements of earnings from the date of each acquisition. NET SALES: Net sales for the first quarter of 2000 totaled $295,499, a 10.8% increase over the $266,734 reported in the first quarter of 1999. Unfavorable foreign currency effects due to a stronger U.S. dollar primarily against the major Western European currencies reduced first quarter 2000 net sales as compared with 1999 by approximately $7,800. Cardiac rhythm management (CRM) net sales for the first quarter of 2000 were $225,258, a 17.1% increase over the $192,441 recorded in the first quarter of 1999. The increase in CRM net sales for the first quarter of 2000 was primarily attributable to increased bradycardia net sales, increased electrophysiology (EP) catheter unit sales, and the effect of a full quarter of Angio-Seal net sales. The increase in bradycardia net sales is due to the Company's on-going rollout of the Affinity(R) pacemaker family and to an expanded U.S. sales organization. Heart valve disease management (HVDM) net sales for the first quarter of 2000 were $70,241, a 5.5% decrease from the $74,293 recorded in 1999. The decrease in HVDM net sales was attributable to the effects of the stronger U.S. dollar and a slight clinical preference shift from mechanical valves to tissue valves in the U.S. market where HVDM holds significant mechanical valve market share and a smaller share of the tissue valve market. GROSS PROFIT: Gross profit for the first quarter of 2000 totaled $193,521 or 65.5% of net sales, as compared with $173,273, or 65.0% of net sales, during the first quarter of 1999. The slight improvement in the gross profit percentage is due primarily to higher CRM sales volumes and improved CRM manufacturing efficiencies. SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense for the first quarter of 2000 totaled $103,299, a 7.1% increase over the $96,423 reported in the first quarter of 1999. The increase in SG&A expense in the first quarter of 2000 was primarily attributable to increased sales activities and to the effect of a full quarter of Angio-Seal expenses. 11 of 19 RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expenses in the first quarter of 2000 totaled $32,394, or 11.0% of net sales, compared with $27,143, or 10.2% of net sales, for the first quarter of 1999. The slight increase in R&D expenses as a percentage of net sales is primarily attributable to increased CRM activities relating primarily to ICDs and products treating emerging indications in atrial fibrillation and congestive heart failure. PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSE: The Company recorded a purchased in-process research and development charge totaling $47,775 during the first quarter of 1999 in connection with its acquisition of Angio-Seal(TM). The Company acquired certain in-process technologies in connection with its acquisition of VSI in September 1999. The appraised value of the VSI in-process technologies was determined to be $95,500, of which $67,453 was recorded at close. The remaining balance of the in-process research and development valuation ($28,047) is expected to be recorded in the Company's financial statements as purchased in-process research and development when payment of future contingent consideration is assured beyond a reasonable doubt. All other contingent consideration payments in excess of the $28,047 are expected to be capitalized as goodwill. Management currently anticipates additional in-process research and development charges in 2000 related to VSI. Management believes that the financial statement projections used in the Angio-Seal and VSI acquisitions are still materially valid; however, there can be no assurance that the projected results will be achieved. Certain in-process technologies acquired in the Angio-Seal acquisition have been developed to the point of commercial production and sale to customers. Management expects to continue the development of the other in-process technologies acquired in the Angio-Seal and VSI acquisitions and continues to believe that there is a reasonable chance of successfully completing such development efforts. However, there is risk associated with the completion of the in-process technologies and there can be no assurance that any technologies will meet with either technological or commercial success. Failure to successfully develop and commercialize these in-process technologies would result in the loss of the expected economic return inherent in the original fair value allocation. Additionally, the value of other intangible assets acquired may become impaired. SPECIAL CHARGE: On January 21, 2000, the Company initiated a worldwide voluntary recall of all field inventory of heart valve replacement and repair products incorporating a Silzone(R) coating on the sewing cuff fabric. The Company concluded that it will no longer utilize the Silzone(R) coating. The Company recorded a special charge accrual totaling $26,101 during the first quarter of 2000 relating to asset write-downs ($9,465) and other costs, including monitoring expenses, ($16,636) associated with this recall and product discontinuance. The Company has utilized $10,631 of the special charge accrual through March 31, 2000. Other than the effect of this special charge, management believes that this recall will not materially impact the Company's future earnings or cash flows based primarily on the fact that the Company's non-Silzone(R) coated products, which represent 75% of the Company's HVDM shipments, are not affected by this recall. However, there can be no assurance that the final costs associated with this recall, including litigation-related costs, will not exceed management's estimates. 12 of 19 OTHER INCOME (EXPENSE): Interest expense was $7,799 during the first quarter of 2000 as compared with $5,822 in 1999. The increase in interest expense is due primarily to increased debt levels resulting primarily from the Company's acquisitions and share repurchases in 1999. INCOME TAXES: The Company's effective income tax rate was 25% for the first quarters of 2000 and 1999, exclusive of the 2000 special charge and the 1999 purchased in-process research and development charge which were primarily recorded in taxing jurisdictions with a low income tax rate. OUTLOOK: The Company expects that market demand, government regulation and societal pressures will continue to change the worldwide health care industry resulting in further business consolidations and alliances. The Company participates with industry groups to promote the use of advanced medical device technology in a cost conscious environment. Customer service in the form of cost-effective clinical outcomes will continue to be a primary focus for the Company. The Company's HVDM business is in a highly competitive market. The market is segmented between mechanical heart valves, tissue heart valves, and repair products. During 1999 and the first quarter of 2000, the U.S. market continued its slight shift to tissue valve and repair products from mechanical heart valves resulting in a small market share loss. Competition is anticipated to place pressure on pricing and terms, and health care reform is expected to result in further hospital consolidations over time. The Company's CRM business is also in a highly competitive industry that is undergoing consolidation. The number of principal suppliers has decreased from four to three. The Company's two principal competitors each have substantially more assets, sales and sales personnel than the Company. In addition, the Company's two principal competitors in the ICD market have dual-chamber ICDs on the market that represent an increasing percentage of the overall ICD market. The Company began clinical evaluation of a dual-chamber ICD in late 1999, and also received CE mark approval in March 2000. However, until the Company commercially introduces a dual-chamber ICD into the U.S. and other global markets, the continued growth of dual-chamber ICDs at the expense of single-chamber ICDs could adversely affect the Company. Rapid technological change is expected to continue, requiring the Company to invest heavily in R&D and to effectively market its products. The global medical device market is highly competitive. Competitors have historically employed litigation to gain a competitive advantage. In addition, the Company's products must continually improve technologically and provide improved clinical outcomes due to the competitive nature of the industry. Group purchasing organizations (GPOs) in the U.S. continue to consolidate the purchasing for some of the Company's customers. Several such GPOs have executed contracts with the Company's CRM market competitors, which exclude the Company. These contracts, if enforced, may adversely affect the Company's sales of CRM products to members of these GPOs. The Company and the IRS have reached a verbal settlement regarding litigation over a tax issue. See Part II, Item 1, Legal Proceedings below for further discussion. 13 of 19 FINANCIAL CONDITION The Company's liquidity and cash flows remained strong through March 31, 2000. The Company's current assets to current liabilities ratio was 1.8 to 1 at March 31, 2000 as compared with 2.4 to 1 at December 31, 1999. The decrease in the current ratio is due to the classification of certain interest-bearing debt as a current liability at March 31, 2000 (see further discussion below). Accounts receivable increased $13,338 from December 31, 1999 to March 31, 2000 due primarily to higher sales in the first quarter of 2000 as compared with the fourth quarter of 1999. Total interest bearing debt remained relatively constant from December 31, 1999 through March 31, 2000. The Company classifies its interest-bearing debt obligations as long-term on its balance sheet to the extent it has the ability to repay all or a portion of its short-term, interest-bearing debt obligations with available cash under a long-term, committed credit facility. Management continually reviews the Company's cash flow projections and may from time to time repay a portion of the Company's borrowings. During the third quarter of 1999, the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company's outstanding common stock over a three-year period. There were no share repurchases during the first quarter of 2000. Management believes that cash generated from operations and cash available under its credit facilities will be sufficient to meet the Company's working capital and share repurchase plan needs in the near term. Should suitable investment opportunities arise, management believes that the Company's earnings, cash flows and balance sheet will permit the Company to obtain additional debt financing or equity capital, if necessary. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from December 31, 1999 through March 31, 2000 in the Company's market risk, other than the maturity in January 2000 of its interest rate swap contract that hedged a substantial portion of the Company's variable interest rate risk on $138,000 of the Company's revolving credit facility borrowings. For further information on market risk, refer to Item 7A in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. 14 of 19 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GUIDANT LITIGATION Guidant's Claims Against SJM: On November 26, 1996, Guidant Corporation (a competitor of Pacesetter and Ventritex) ("Guidant") and related parties filed a lawsuit against St. Jude Medical, Inc. ("St. Jude Medical"), Pacesetter, Inc. ("Pacesetter"), Ventritex, Inc. ("Ventritex") and certain members of the Telectronics Group in State Superior Court in Marion County, Indiana (the "Telectronics Action"). The lawsuit alleges, among other things, that, pursuant to an agreement entered into in 1993, certain Guidant parties granted Ventritex intellectual property licenses relating to cardiac stimulation devices, and that such licenses would terminate upon the consummation of the merger of Ventritex into Pacesetter (the "Merger"). The lawsuit further alleges that, pursuant to an agreement entered into in 1994 (the "Telectronics Agreement"), certain Guidant parties granted the Telectronics Group intellectual property licenses relating to cardiac stimulation devices. The lawsuit seeks declaratory and injunctive relief, among other things, to prevent and invalidate the transfer of the Telectronics Agreement to Pacesetter in connection with Pacesetter's acquisition of Telectronics' assets (the "Telectronics Acquisition") and the application of license rights granted under the Telectronics Agreement to the manufacture and sale by Pacesetter of Ventritex's products following the consummation of the Merger. The court overseeing this case issued a stay of this matter in July 1998 so that the issues could be addressed in an arbitration requested by the Telectronics Group and Pacesetter. Guidant and related parties also filed suit against St. Jude Medical, Pacesetter and Ventritex on November 26, 1996 in the United States District Court for the Southern District of Indiana. This second lawsuit seeks (i) a declaratory judgment that Pacesetter's manufacture, use or sale of cardiac stimulation devices of the type or similar to the type which Ventritex manufactured and sold at the time the Guidant parties filed their complaint would, upon consummation of the Merger, be unlicensed and constitute an infringement of patent rights owned by certain Guidant parties, (ii) to enjoin the manufacture, use or sale by St. Jude Medical, Pacesetter or Ventritex of cardiac stimulation devices of the type which Ventritex manufactured at the time the Guidant parties filed their complaint, and (iii) certain damages and costs. This second lawsuit was stayed by the court in July 1998 given the order to arbitrate which is mentioned below. St. Jude Medical and Pacesetter believe that the foregoing state and federal court complaints contain a number of significant factual inaccuracies concerning the Telectronics Acquisition and the terms and effects of the various intellectual property license agreements referred to in such complaints. For these reasons and others, St. Jude Medical and Pacesetter believe that the allegations set forth in the complaints are without merit. St. Jude Medical and Pacesetter have vigorously defended their interests in these cases, and will continue to do so. Order to Arbitrate/Guidant Lawsuits Stayed: As a result of the state and federal lawsuits brought by Guidant and related parties, the Telectronics Group and Pacesetter filed a lawsuit in the United States District Court for the District of Minnesota seeking (i) a declaratory judgment that the Guidant parties' claims, as reflected in the Telectronics Action, are subject to arbitration pursuant to the arbitration provisions of the Telectronics Agreement, (ii) an order that the defendants arbitrate their claims against the Telectronics Group and Pacesetter in accordance with the arbitration provisions of the Telectronics Agreement, (iii) to enjoin the defendants 15 of 19 preliminarily and permanently from litigating their dispute with the Telectronics Group and Pacesetter in any other forum, and (iv) certain costs. After the Eighth Circuit Court of Appeals ruled on an appeal in favor of the Telectronics Group and Pacesetter in May 1998, the United States District Court for the District of Minnesota issued an order on July 8, 1998 directing the arbitration requested by the Telectronics Group and Pacesetter to proceed. Status of Arbitration: An arbitrator for the arbitration has been selected by the parties. The arbitrator has issued some interim rulings, including that Pacesetter and St. Jude Medical should not participate in the initial arbitration proceeding concerning whether the Telectronics Agreement transferred to Pacesetter. The Telectronics Group and the Guidant parties will be involved in this initial arbitration proceeding. This initial arbitration proceeding occurred in late April 2000. A decision in the arbitration is not expected until a post proceeding briefing is completed, which means a decision is not likely until June or July 2000. Background Concerning Patents Involved In Guidant's Claims: In the federal court lawsuit in Indiana which has been stayed pending the result of the above-described arbitration, Guidant asserted patent infringement claims against St. Jude Medical and its Pacesetter subsidiary involving four separate patents. One of these patents expired May 3, 1998. The other patents involved expire March 7, 2001, February 25, 2003 and December 22, 2003. Although Guidant has requested injunctive relief and damages as part of the federal court lawsuit in Indiana, the request for an injunction would be barred for any expired patent. Guidant's claims for damages for the period prior to expiration of a patent could still be asserted if Guidant's claims for infringement remain after the above-mentioned arbitration is completed. In connection with the three patents that have yet to expire, a third party initiated a Reexamination Request in the U.S. Patent Office. The Patent Office Reexamination Action resulted in the preliminary rejection of all of the claims in two of the unexpired patents. With respect to the third unexpired patent, the Patent Office preliminarily rejected some of the claims in the patent and upheld others. It is St. Jude Medical's understanding that Guidant is in the process of responding to the Patent Examiner's preliminary position as part of its Reexamination procedure. If the Patent Examiner maintains his position, St. Jude Medical management believes that Guidant will appeal the adverse rulings by the Patent Office concerning these three patents, a process that typically takes between six and twelve months. IRS MATTERS The Company and the Internal Revenue Service ("IRS") have reached a verbal agreement to settle the IRS Tax Court suit for the tax periods 1990-1991 and subsequent year disputes for the tax periods 1992-1995. The issues raised by the IRS related primarily to the Company's Puerto Rican operations. It is expected that an agreement between the Company and the IRS will be formalized in writing within 60 days. The proposed settlement is not expected to impact the Company's statement of earnings. SILZONE(R) MATTERS Five separate lawsuits have been asserted against the Company involving the Company's mechanical heart valves with a Silzone(R) coating. The Company recalled products with the Silzone(R) coating on January 21, 2000 (see Note 6 to the Company's March 31, 2000 financial statements) and sent a Recall Notice and Advisory concerning the recall to physicians and others at that time. A number of these cases are seeking monitoring of patients implanted with Silzone(R)-coated valves who have had no injury to date. Three of the five cases that have been asserted seek class action status. The Company intends to defend these cases. 16 of 19 OTHER LITIGATION AND PROCEEDINGS The Company is unaware of any other pending legal proceedings which it regards as likely to have a material adverse effect on its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of shareholders on May 10, 2000. In conjunction therewith, proxies were solicited in accordance with Regulation 14A. The following actions were taken: (1) Ronald A. Matricaria, Walter L. Sembrowich and Daniel J. Starks were elected to the Board of Directors for terms ending in 2003. Shareholders approved management's nominees to the Board of Directors by votes as follows: 58,484,940, 58,522,162 and 58,595,575 in favor, 3,259,315, 3,222,093 and 3,148,680 withheld for Messrs Matricaria, Sembrowich and Starks, respectively. Seven other directors are serving unexpired terms as follows: Gail R. Wilensky, Lowell C. Anderson, David A. Thompson, and Terry L. Shepherd - through 2001; Thomas H. Garrett III, Roger G. Stoll, and Stuart M. Essig - through 2002. (2) The shareholders ratified and approved the St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan by a vote of 41,429,400 in favor, 4,094,025 opposed and 372,554 abstaining from voting. (3) The shareholders ratified and approved the St. Jude Medical, Inc. 2000 Stock Plan by a vote of 33,153,597 in favor, 12,176,350 opposed and 566,032 abstaining from voting. (4) The shareholders ratified the reappointment of Ernst & Young LLP as the Company's independent auditor for the current fiscal year by a vote of 61,101,217 in favor, 355,772 opposed and 287,266 abstaining from voting. 17 of 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Number Exhibit ------ ------- 10.15 St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan 10.16 St. Jude Medical, Inc. 2000 Stock Plan 27 Financial data schedule (b) Reports on Form 8-K None 18 of 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ST. JUDE MEDICAL, INC. May 12, 2000 /s/ JOHN C. HEINMILLER - ------------ ----------------------- DATE JOHN C. HEINMILLER Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 19 of 19 EX-10.15 2 2000 EMPLOYEE STOCK PURCHASE SAVINGS PLAN EXHIBIT 10.15 St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan I Purpose The purpose of the 2000 Employee Stock Purchase Savings Plan is to provide a greater community of interest between St. Jude Medical, Inc. shareholders and its employees, and to facilitate purchase by employees of additional shares of common stock in the Company. It is believed the Plan will encourage employees to remain in the employ of the Company and will also permit the Company to compete with other corporations offering similar plans in obtaining and retaining the services of competent employees. It is intended that options issued pursuant to this Plan shall constitute options issued pursuant to an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended. II Definitions A. "Plan" means the 2000 St. Jude Medical, Inc. Employee Stock Purchase Savings Plan. B. "Code" means the Internal Revenue Code of 1986, as amended. C. "Company" means St. Jude Medical, Inc., and any of its subsidiaries (as that term is defined by Section 425(f) of the Code) to which St. Jude Medical, Inc. and such respective subsidiaries, by action of their Boards of Directors, shall make this Plan applicable. D. "Employee" means any person, including an officer, who is customarily employed twenty (20) hours or more per week and more than five (5) months in a calendar year by the Company. E. "Eligible Employee" means an Employee of the Company who is eligible for participation in the Plan in accordance with Article IV. F. "Participant" means an Eligible Employee who has elected to participate in the Plan in accordance with Article V. G. "Committee" means the committee provided for in Article XI. H. The "Commencement Date" of the Plan means August l, 2000 or a date established by the Committee not to exceed fourteen days following registration of the options and shares reserved pursuant to the Plan with the United States Securities and Exchange Commission. I. "Base Pay" means regular straight time earnings annualized as of the date of commencement of a phase excluding payments, if any, for overtime, incentive compensation, commissions, incentive payments, premiums, bonuses and any other special remuneration. J. "Termination Date" shall mean the earlier of (i) the date of the one year anniversary following the commencement of a particular phase of the Plan, or (ii) such time as any merger or consolidation in which St. Jude Medical, Inc. is not the surviving corporation becomes effective. K. "Shares" shall mean common shares of St. Jude Medical, Inc. of the par value of $.10, subject to adjustments which may be made in accordance with Articles XVI and XVII. III Term and Phases of the Plan A. The Plan will commence on the Commencement Date and will terminate ten (10) years and six (6) months thereafter, except that any phase commenced prior to such termination shall, if necessary, be allowed to continue beyond such termination until completion. Notwithstanding the foregoing, this Plan shall be considered of no force or effect and any options granted shall be null and void unless the holders of a majority of shares of the common stock of the Company, represented at a meeting in person or by proxy, approve the Plan within twelve (12) months before or after the date of its adoption by the Board of Directors. B. The Plan shall be carried out in ten (10) phases, each phase being for a period of one year. No phase shall run concurrently. A phase may commence immediately after the termination of the preceding phase. The commencement of each phase shall be determined by the Committee, provided that the commencement of the first phase shall be within twelve (12) months before or after the date of approval of the Plan by the shareholders of the Company. In the event all of the stock reserved for grant of options hereunder is issued pursuant to the terms hereof prior to the commencement of one or more phases scheduled by the Committee or the number of shares remaining is so small, in the opinion of the Committee, as to render administration of any succeeding phase impracticable, such phase or phases shall be canceled. Phases shall be numbered successively as Phase 1, Phase 2, Phase 3, etc. IV Eligibility A. Any Employee of the Company who has completed at least one month of continuous service on or prior to the commencement of a phase of the Plan shall be eligible to participate in the Plan, subject to the limitations imposed by Section 423 of the Code. B. Any Employee who is a member of the Board of Directors of the Company shall be eligible to participate in the Plan. 2000 Stock Purchase Plan 2 C. Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted an option: 1. if such Employee, immediately after the option is granted, owns shares possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or a parent or a subsidiary of the Company. For purposes of determining share ownership, the rules of Section 424(d) of the Code shall apply, and shares which the Employee may purchase under outstanding options shall be treated as shares owned by the Employee; or 2. which permits the Employee to purchase shares under such plans of the Company or a subsidiary of the Company to accrue at a rate which exceeds $25,000 of the fair market value of such shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. The term "accrue" shall be interpreted as in Section 423(b)(8) of the Code. V Participation A. An Eligible Employee may elect to enroll as, and become a Participant in, any phase of the Plan by completing a payroll deduction authorization on the form provided by the Company and filing it the personnel office prior to or on the date the phase commences. B. Payroll deductions for a Participant shall commence on the date when his or her payroll deduction authorization becomes effective and shall end on the last payday immediately prior to or coinciding with the Termination Date of the particular phase, unless sooner terminated by the Participant as provided in Article IX or as otherwise provided herein. C. A Participant who ceases to be an Eligible Employee, although still employed by the Company, thereupon shall be deemed to discontinue his or her participation in the Plan, and he or she shall have the rights provided in Article IX. D. Participation in the Plan shall be voluntary. VI Payroll Deductions A. Upon enrollment, a Participant shall elect to make contributions to the Plan by payroll deductions (in full dollar amounts calculated to be as uniform as practicable throughout the period of the phase), in the aggregate amount not in excess of the sum of 10% of such Participant's Base Pay for the term of the phase, as determined on the basis of his or her annual or annualized Base Pay at the commencement of the phase. The minimum authorized payroll deduction must aggregate to not less than $10 per month. 2000 Stock Purchase Plan 3 B. All payroll deductions made for Participants shall be credited to their accounts under the Plan. The Participant may not make any separate cash payments into such account. C. A Participant may discontinue his or her participation in the phase and terminate his or her payroll deduction authorized at any time as provided in Article IX. D. A Participant may reduce the amount of his or her payroll deduction by completing an amended payroll deduction authorization on the form provided and filing it with his or her personnel office, but no change can be made during a phase of the Plan which would either change the time or increase the rate of his or her payroll deductions. VII Terms and Conditions of Options A. Stock options granted pursuant to the Plan may be evidenced by agreements in such form as the Committee shall approve, provided that all Employees shall have the same rights and privileges and provided further that such options shall comply with and be subject to the following terms and conditions. The Committee may conclude that agreements are not necessary. B. As of the commencement of a phase when a Participant's payroll deduction authorization becomes effective, the Participant shall be granted an option for as many full shares as he or she will be able to purchase with the payroll deduction credited to his or her account during his or her participation in the phase, subject to the limitations of Article X. The maximum number of shares subject to purchase by a Participant shall equal the total amount credited to the Participant's account under Section VI hereof divided by the option price set forth in Section VII, Paragraph C.1 hereof. C. The option price of shares purchased with payroll deductions for an Employee who becomes a Participant as of the commencement of a phase shall be the lower of: 1. 85% of the fair market value of the shares on the date the phase commences; or, 2. 85% of the fair market value of the shares on the Termination Date of the phase. D. The fair market value of the shares shall be determined by the Committee for each valuation date in a manner consistent with Section 423 of the Code. 2000 Stock Purchase Plan 4 VIII Exercise of Option A. Unless a Participant gives written notice to the Company as provided in Article IX, his or her option for the purchase of shares will be exercised automatically for him or her as of the Termination Date of the phase for the purchase of the number of full shares which the accumulated payroll deductions in his or her account at that time will purchase at the applicable option price; but in no event shall the number of full shares be greater than the number of full shares to which the Participant would have been eligible to receive when he or she first became a Participant under the phase if he or she had elected a payroll deduction rate of 10% of his or her then annual or annualized Base Pay and as if the option price were solely based under Paragraph C.1 of Article VII. B. By written notice to the Company within the period commencing three (3) months prior to and extending five (5) business days following the Termination Date of the phase and after delivery to the Participant of a prospectus covering the shares to be issued under the Plan, a Participant may elect, effective as of the Termination Date, to: 1. withdraw all the accumulated payroll deductions in his or her account at the time, with interest; or, after receipt of a prospectus as set forth above, 2. exercise his or her option for a specified number of full shares less than the number of full shares which the accumulated payroll deductions in his or her account will purchase at the applicable option price and withdraw the balance in his or her account without interest; but in no event shall the number of full shares be greater than the number of full shares to which a Participant would have been eligible to receive when he or she first became a Participant under the phase if he or she had elected a payroll deduction rate of 10% of his or her then annual or annualized Base Pay and as if the option price were solely based under Paragraph C.1 of Article VII. C. Notwithstanding the provisions of Paragraphs A and B above, if a Participant files reports pursuant to Section 16 of the Securities Exchange Act of 1934 (at the commencement of a phase or becomes obligated to file such reports during a phase) then such a Participant shall not have the right to withdraw all or a portion of the accumulated payroll deductions except in accordance with Article IX, Paragraphs A and B. IX Death, Withdrawal or Termination A. In the event of death of a Participant, the person or persons specified in Article XVIII may give notice to the Company within sixty (60) days of the death of the Participant electing to purchase the number of full shares which the accumulated payroll deductions in the account of such deceased Participant will purchase under the option at the applicable option price specified in Paragraph C of Article VII and have the balance in the account distributed in cash 2000 Stock Purchase Plan 5 without interest. If no such notice is received by the Company within said sixty (60) days, the accumulated payroll deductions will be distributed in cash plus interest. B. Except as provided in the next sentence, upon termination of the Participant's employment for any reason other than the death of the Participant, the payroll deductions credited to his or her account, plus interest, shall be returned to him or her. In the event the Participant's employment is terminated by the Company due to the elimination of the Participant's position or in connection with a corporate transaction, or such other similar circumstances as approved by the Committee, with respect to such Participants designated by the Committee, the Termination Date of the Phase shall be a date prior to or coincident with their last day of employment; provided, however, that if the termination of employment occurs within 90 days of the Termination Date of a Phase, the original Termination Date shall apply. C. Except for a Participant governed by Paragraph C of Article VIII, a Participant may withdraw payroll deductions credited to his or her account under the Plan at any time by giving written notice to the Company. All of the Participant's payroll deductions credited to his or her account, plus interest, shall be paid to him or her promptly after receipt of his or her notice of withdrawal and no further payroll deductions shall be made from his or her compensation. X Shares Under Option A. The shares to be sold to a Participant under the Plan may, at the election of the Company, be either treasury shares or shares originally issued for such purpose. The maximum number of shares which shall be made available for purchase under the Plan shall be 1,000,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in Articles XVI and XVII. If the total number of shares for which options are to be granted on any date in accordance with Article VII exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Committee shall make a pro rata allocation of the shares remaining available in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable. In such event, payroll deductions to be made shall be reduced accordingly and the Committee shall give written notice of such reduction to each Participant affected thereby. B. As promptly as practicable after the Termination Date of a phase, the Company shall deliver to each Participant the full shares purchased under exercise of his or her option, together with a cash payment equal to the balance (without interest) of any payroll deductions credited to his or her account which were not used for the purchase of shares. C. The Participant will have no interest in shares covered by his or her option until such option has been exercised. 2000 Stock Purchase Plan 6 XI Administration The Plan shall be administered by a Committee consisting of not less than two (2) members who shall be appointed by the Board of Directors of the Company. Each member of such Committee shall be either a director, an officer or an employee of the Company. Such Committee shall be vested with full authority to make, administer, and interpret such rules and regulations as it deems necessary to administer the Plan, and any such determination, decision or action of such Committee with respect to any action in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding on all Participants and any and all other persons claiming under or through any Participant. It is provided, however, that the provisions of the Plan shall be construed so as to extend and limit participation in the Plan only in a manner consistent with the requirements of Section 423 of the Code. XII Amendment of the Plan The Board of Directors of the Company may at any time amend the Plan, except that no amendment may make any change in any option theretofore granted which would adversely affect the rights of any Participant, and no amendment shall be made without prior approval of the shareholders of the Company if such amendment would require sale of more shares than are authorized under Article X of the Plan. XIII Non-transferability Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant and any such attempted assignment, transfer, pledge or other disposition shall be null and void and without effect, but the Company may treat such act as an election to withdraw funds in accordance with Article IX. XIV Use of Funds All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purposes and the Company shall not be obligated to segregate such payroll deductions. 2000 Stock Purchase Plan 7 XV Interest In any situation where the Plan provides for the payment of interest on a Participant's payroll deductions, such interest shall be determined by averaging the balance in the Participant's account for the period of his or her participation and computing interest thereon at the rate of 4% per annum (simple interest). The Committee may change the rate of interest for a particular phase, provided such change is made prior to the commencement of the phase. XVI Changes in Capitalization, Merger, etc. A. Subject to any required action by the shareholders, the number of shares covered by each outstanding option, the price per share thereof in each such option, and the maximum number of shares available for purchase pursuant to options issued under the Plan shall be deemed proportionately adjusted for any increase or decrease in the number of issued shares of the Company resulting from a subdivision or consolidation of shares or the payment of a share dividend (but only on the shares) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company. B. If the Company shall be involved in any merger or consolidation, whether or not it is the surviving corporation, each outstanding option shall pertain to and apply to the securities to which a holder of the number of shares subject to the option would have been entitled. A dissolution or liquidation of the Company shall cause each outstanding option to terminate, provided in such event that, immediately prior to such dissolution or liquidation, each Participant shall be repaid the payroll deductions credited to his or her account, plus interest. C. In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the shares within the meaning of this Plan. XVII Adjustments to Shares A. To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Committee, and its determination in that respect shall be final, binding and conclusive, provided that each option granted pursuant to this Plan shall not be adjusted in a manner that causes the option to fail to continue to qualify as an option issued pursuant to an "employee stock purchase plan" within the meaning of Section 423 of the Code. 2000 Stock Purchase Plan 8 B. Except as hereinbefore expressly provided in Articles XVI and XVII, the optionee shall have no right by reason of any subdivision or consolidation of shares of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue by the Company of shares of any class, or securities convertible into shares of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to the option. C. The grant of an option pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. XVIII Beneficiary Designation A Participant may file a written designation of a beneficiary who may elect to purchase shares or receive cash to the Participant's credit under the Plan in the event of such Participant's death prior to delivery to him or her of such shares and cash. Such designation of beneficiary may be changed by the Participant at any time by written notice. Upon the death of a Participant and upon receipt by the Company of proof deemed adequate by it of the identity and existence at the Participant's death of a beneficiary validly designated by him or her under the Plan, the Company shall deliver such shares and cash to such beneficiary in accordance with Section A of Article IX. If, upon the death of a Participant, there is no surviving beneficiary duly designated as above provided, the Company shall deliver accumulated payroll deductions to the executor or administrator of the estate of the Participant or, if no such executor or administrator has been appointed (to the knowledge of the Company) within sixty (60) days following the Participant's death, the Company shall deliver such accumulated payroll deductions to the surviving spouse, if any, as though named as the designated beneficiary hereunder or, if there is no such surviving spouse or child, then to such relatives of the Participant as would be entitled to such cash under the laws of intestacy in the deceased Participant's domicile as though named as the designated beneficiary hereunder. The Company shall not be liable for any distribution made of shares or cash pursuant to any will or other testamentary disposition made by such Participant, or because of the provisions of law concerning intestacy, or otherwise. No designated beneficiary shall, prior to the death of the Participant by whom he or she has been designated, acquire any interest in the shares or cash credited to the Participant under the Plan. XIX Registration and Qualification of Shares The offering of the shares hereunder shall be subject to the effecting by the Company of any registration or qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to or in connection with 2000 Stock Purchase Plan 9 the offering or the issue or purchase of the shares covered thereby. The Company shall make every reasonable effort to effect such registration or qualification or to obtain such consent or approval. XX Plan Preconditions The Plan is expressly made subject to approval of shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after adoption by the Board of Directors, this Plan shall not come into effect. In such case, the accumulated payroll deductions credited to the account of each Participant shall forthwith be repaid to him or her with interest. ADOPTED BY BOARD OF DIRECTORS: March 8, 2000 APPROVED BY SHAREHOLDERS: May 10, 2000 2000 Stock Purchase Plan 10 EX-10.16 3 2000 STOCK PLAN EXHIBIT 10.16 ST. JUDE MEDICAL, INC. 2000 STOCK PLAN SECTION CONTENTS PAGE - ------- -------- ---- 1. General Purpose of Plan; Definitions .................. 1 2. Administration ........................................ 3 3. Stock Subject to Plan ................................. 4 4. Eligibility ........................................... 4 5. Stock Options ......................................... 5 6. Transfer, Leave of Absence, etc. ...................... 9 7. Restricted Stock ...................................... 9 8. Amendments and Termination ............................ 11 9. Unfunded Status of Plan ............................... 11 10. General Provisions .................................... 12 11. Effective Date of Plan ................................ 13 ST. JUDE MEDICAL, INC. 2000 STOCK PLAN SECTION 1. General Purpose of Plan; Definitions. The name of this plan is the St. Jude Medical, Inc. 2000 Stock Plan (the "Plan"). The purpose of the Plan is to enable St. Jude Medical, Inc. and its Subsidiaries (hereinafter, the "Company") to retain and attract executives and other key employees, non-employee directors and consultants who contribute to the Company's success by their ability, ingenuity and industry, and to enable such individuals to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company. For purposes of the Plan, the following terms shall be defined as set forth below: a. "Board" means the Board of Directors of the Company as it may be comprised from time to time. b. "Cause" means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, willful misconduct, dishonesty or intentional violation of a statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the business or reputation of the Company. c. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. d. "Committee" means the Committee referred to in Section 2 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board, unless the Plan specifically states otherwise. e. "Consultant" means any person, including an advisor, engaged by the Company, the Parent Corporation or a Subsidiary of the Company to render services and who is compensated for such services and who is not an employee of the Company, the Parent Corporation or any Subsidiary of the Company. A Non-Employee Director may serve as a Consultant. f. "Continuous Status as an Employee or Consultant" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Administrator, provided that such leave of absence is for a period of 90 days or less, unless reemployment after such leave of absence is guaranteed by contract or statute. g. "Company" means St. Jude Medical, Inc., a corporation organized under the laws of the State of Minnesota (or any successor corporation). 1 h. "Disability" means permanent and total disability as determined by the Committee. i. "Early Retirement" means retirement, with consent of the Committee at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the Company. j. "Fair Market Value" of Stock on any given date shall be determined by the Committee as follows: (a) if the Stock is listed for trading, on the New York Stock Exchange or one of more national securities exchanges, the last reported sales price on the New York Stock Exchange or such principal exchange on the date in question, or if such Stock shall not have been traded on such principal exchange on such date, the last reported sales price on the New York Stock Exchange or such principal exchange on the first day prior thereto on which such Stock was so traded; or (b) if (a) is not applicable, by any means fair and reasonable by the Committee, which determination shall be final and binding on all parties. k. "Incentive Stock Option" means any Stock Option intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. l. "Non-Employee Director" means a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934. m. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option, and is intended to be and is designated as a "Non-Qualified Stock Option" or an Incentive Stock Option that ceases to so qualify due to an amendment to such Stock Option. n. "Normal Retirement" means retirement from active employment with the Company and any Subsidiary or Parent Corporation of the Company on or after age 65. o. "Outside Director" means a Director who: (a) is not a current employee of the Company or any member of an affiliated group which includes the Company; (b) is not a former employee of the Company who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year; (c) has not been an officer of the Company; (d) does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a director, except as otherwise permitted under Code Section 162(m) and regulations thereunder. For this purpose, remuneration includes any payment in exchange for good or services. This definition shall be further governed by the provisions of Code Section 162(m) and regulations promulgated thereunder. p. "Parent Corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 2 q. "Restricted Stock" means an award of shares of Stock that are subject to restrictions under Section 7 below. r. "Retirement" means Normal Retirement or Early Retirement. s. "Stock" means the Common Stock of the Company. t. "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5 below. u. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 2. Administration. The Plan shall be administered by the Board of Directors or by a Committee appointed by the Board of Directors of the Company consisting of at least two Directors, all of whom shall be Outside Directors and Non-Employee Directors, who shall serve at the pleasure of the Board. The Committee shall have the power and authority to grant to eligible employees or Consultants, pursuant to the terms of the Plan: (i) Incentive Stock Options, (ii) Non-Qualified Stock Options, and (iii) Restricted Stock. In particular, the Committee shall have the authority: (i) to select the officers and other key employees of the Company and its Subsidiaries and other eligible persons to whom Stock Options or Restricted Stock may from time to time be granted hereunder; (ii) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options or Restricted Stock or a combination of each, are to be granted hereunder; (iii) to determine the number of shares to be covered by each such award granted hereunder; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, any restriction on any Stock Option or other award and/or the shares of Stock relating thereto), which authority shall be exclusively vested in the Committee (and not the Board); provided, however, that in the event of a merger or asset sale, the applicable 3 provisions of Sections 5(c) of the Plan shall govern the acceleration of the vesting of any Stock Option; (v) to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may delegate to the President and/or Chief Executive Officer of the Company the authority to exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who are not either the chief executive officer of the Company or the four highest paid officers of the Company other than the chief executive officer. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. SECTION 3. Stock Subject to Plan. The total number of shares of Stock reserved and available for distribution under the Plan shall be 5,000,000. Such shares may consist, in whole or in part, of authorized and unissued shares. If any shares that have been optioned cease to be subject to Stock Options, or if any shares that have been optioned are forfeited, such shares shall again be available for distribution in connection with future awards under the Plan. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, other change in corporate structure affecting the Stock, or spin-off or other distribution of assets to shareholders, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, and in the number and option price of shares subject to outstanding options granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. SECTION 4. Eligibility. Officers, other key employees of the Company or any Parent Corporation or Subsidiary, members of the Board of Directors, and Consultants who are responsible for or contribute to the management, growth and profitability of the business of the Company and its Subsidiaries are eligible to be granted Stock Options under the Plan. The optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award. 4 Notwithstanding the foregoing, no person shall receive grants of Stock Options under this Plan which exceed 500,000 shares during any fiscal year of the Company. SECTION 5. Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options shall be granted under the Plan after March 7, 2010. The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of options. To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude any modification or amendment to an outstanding Incentive Stock Option, whether or not such modification or amendment results in disqualification of such Stock Option as an Incentive Stock Option, provided the optionee consents in writing to the modification or amendment. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable. (a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be no less than 100% of Fair Market Value on the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the option price shall be no less than 110% of Fair Market Value of the Stock on the date the option is granted. The Committee may not reprice options without shareholder approval. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than eight years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five years from the date of grant. 5 (c) Exercisability. Stock Options shall be exercisable at such time or times as determined by the Committee at or after grant, subject to the restrictions stated in Section 5(b) above. If the Committee provides, in its discretion, that any option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time. Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, extend or vary the term of any Stock Option or any installment thereof, whether or not the optionee is then employed by the Company, if such action is deemed to be in the best interests of the Company; provided, however, that in the event of a merger or sale of assets, the provisions of this Section 5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless the Stock Option provides otherwise, any Stock Option granted under this Plan shall be exercisable in full, without regard to any installment exercise provisions, for a period specified by the Committee, but not to exceed sixty (60) days, prior to the occurrence of any of the following events: (i) dissolution or liquidation of the Company other than in conjunction with a bankruptcy of the Company or any similar occurrence, (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity or (iii) the transfer of substantially all of the assets of the Company or 50% or more of the outstanding Stock of the Company. The grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. (d) Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by check, or by any other form of legal consideration deemed sufficient by the Committee and consistent with the Plan's purpose and applicable law, including promissory notes or a properly executed exercise notice together with irrevocable instructions to a broker acceptable to the Company to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price. As determined by the Committee at the time of grant or exercise, in its sole discretion, payment in full or in part may also be made in the form of Stock already owned by the optionee (which in the case of Stock acquired upon exercise of an option have been owned for more than six months on the date of surrender) or, in the case of the exercise of a Non-Qualified Stock Option (based, in each case, on Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee), provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted, and provided further that in the event payment is made in the form of shares of restricted stock under another plan of the Company, the optionee will receive a portion of the option shares in the form of, and in an amount equal to, the restricted stock tendered as payment by the optionee. If the terms of an option so permit, an optionee may elect to pay all or part of the option exercise price by having the Company withhold from the shares of Stock that would otherwise be issued upon exercise that number of shares of Stock having a Fair Market Value 6 equal to the aggregate option exercise price for the shares with respect to which such election is made. No shares of Stock shall be issued until full payment therefor has been made. An optionee shall generally have the rights to dividends and other rights of a shareholder with respect to shares subject to the option when the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in paragraph (a) of Section 9. (e) Non-transferability of Options. No Incentive Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and all such Incentive Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. Non-Qualified Stock Options may be transferred by gift, without consideration, by the optionee under a written instrument acceptable to the Committee, to a member of the optionee's family, as defined in Section 267 of the Code, or to a trust or similar entity whose sole beneficiaries are the optionee and/or members of the optionee's family; provided, however, that such transfer and the exercise thereof shall not violate any federal or state securities laws. Upon the transfer, the donee shall have all rights of the optionee and shall be subject to all the terms and conditions imposed on such Options. (f) Termination by Death. If an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of death, any Stock Option may thereafter be exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, but may not be exercised after twelve months from the date of such death or the expiration of the stated term of the option, whichever period is shorter. In the event of termination of employment by reason of death, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (g) Termination by Reason of Disability. If an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after twelve months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Disability, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (h) Termination by Reason of Retirement. If an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Retirement, but may not be exercised after thirty-six months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Retirement, if, pursuant to its terms, any Incentive Stock Option is exercised after the 7 expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (i) Other Termination. If an optionee's Continuous Status as an Employee or Consultant terminates (other than upon the optionee's death, Disability or Retirement), any Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after 90 days after such termination, or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason other than death, Disability or Retirement and if pursuant to its terms any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. In the event an Optionee's employment with the Company is terminated for Cause, all unexercised Options granted to such Optionee shall immediately terminate. (j) Annual Limit on Incentive Stock Options. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent Corporation is exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. (k) Grants of Stock Options to Non-Employee Directors. Each Non-Employee Director who, after March 8, 2000 is (i) elected, re-elected or serving an unexpired term as a Director of the Company at any annual meeting of holders of the common Stock of the Company; or (ii) elected as a Director of the Company at any special meeting of holders of common Stock of the Company, shall, as of the date of such election, re-election or annual or special meeting, automatically be granted a Stock Option to purchase 3,000 shares of Stock at an option price per share equal to 100% of Fair Market Value of the Company's Stock on such date. In the case of a special meeting, the action of the holders of shares in electing a Non-Employee Director shall constitute the granting of the Stock Option to such Director and, in the case of an annual meeting, the action of the holders of shares in electing or re-electing a Non-Employee Director shall constitute the granting of the Stock Option to such Director and to any other Non-Employee Director who shall be designated as serving an unexpired term as a Director of the Company in the notice or proxy materials for the meeting; and the date when the holders of shares shall take such action shall be the date of grant of the Stock Option. All such Options shall be designated as Non-Qualified Stock Options and shall be subject to the same terms and provisions as are then in effect with respect to the grant of Non-Qualified Stock Options to officers and key employees of the Company, except that (1) the term of each such Option shall be equal to eight years, which term, notwithstanding the provisions in Section 5(i), shall not expire upon the termination of service as a Director; and (2) the Option shall become exercisable beginning six months after the date the Option is granted. Upon termination of such Director's service as a Director of the Company, the unvested portion of an Option held by such Director shall not thereafter be exercisable. Subject to the foregoing, all provisions of this Plan not inconsistent with the foregoing shall apply to Options granted pursuant to this Section 5(k), except that any Options granted to a Non-Employee Director shall be administered in 8 accordance with the terms of this Plan solely by the Board of Directors and not by the Committee. Options issued under this Section 5(k) shall be in lieu of and in substitution for any new awards of Options in accordance with the St. Jude Medical, Inc. 1997 Stock Option Plan from and after March 8, 2000. Nothing herein shall limit the right of the Board of Directors to issue Stock Options to any Non-Employee Director under the terms of this Plan in addition to those provided for under this Section 5(k), provided that no Non-Employee Director shall be granted Stock Options under this Plan, including the Options awarded under this Section 5(k), in excess of 5,000 shares in any calendar year. SECTION 6. Transfer, Leave of Absence, etc. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another; (b) a leave of absence, approved in writing by the Committee, for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days (or such longer period as the Committee may approve, in its sole discretion); and (c) a leave of absence in excess of ninety (90) days, approved in writing by the Committee, but only if the employee's right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any leave of absence, the employee returns to work within 30 days after the end of such leave. SECTION 7. Restricted Stock. (a) Administration. Up to 50,000 shares of Restricted Stock may be issued either alone or in addition to other awards granted under the Plan. The Committee shall determine the officers and key employees of the Company and Subsidiaries to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. The Committee may also condition the grant of Restricted Stock upon the attainment of specified performance goals. The provisions of Restricted Stock awards need not be the same with respect to each recipient. (b) Awards and Certificates. The prospective recipient of an award of shares of Restricted Stock shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions. 9 (i) Each participant shall be issued a stock certificate in respect of shares of Restricted Stock awarded under the Plan. Such certificate shall be registered in the name of the participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form: "The transferability of the certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the St. Jude Medical, Inc. 2000 Stock Plan and an Agreement entered into between the registered owner and the Company." (ii) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power endorsed in blank, relating to the Stock covered by such award. (c) Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions: (i) Subject to the provisions of this Plan and the award agreement, during a period set by the Committee commencing with the date of such award (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (ii) Except as provided in paragraph (c) (i) of this Section 7, the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash dividends. The Committee, in its sole discretion, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional shares of Restricted Stock to the extent shares are available under Section 3. Certificates for shares of unrestricted Stock shall be delivered to the grantee promptly after, and only after, the period of forfeiture shall have expired without forfeiture in respect of such shares of Restricted Stock. (iii) Subject to the provisions of the award agreement and paragraph (c) (iv) of this Section 7, upon termination of employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. (iv) In the event of special hardship circumstances of a participant whose employment is terminated (other that for Cause), including death, Disability or Retirement, or in the event of an unforeseeable emergency of a participant still in 10 service, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to such participant's shares of Restricted Stock. (v) Notwithstanding the foregoing, all restrictions with respect to any participant's shares of Restricted Stock shall lapse, on the date determined by the Committee, prior to, but in no event more that sixty (60) days prior to, the occurrence of any of the following events: (i) dissolution or liquidation of the Company, other than in conjunction with a bankruptcy of the Company or any similar occurrence, (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity or (iii) the transfer of substantially all of the assets of the Company or 50% or more of the outstanding Stock of the Company. SECTION 8. Amendments and Termination. The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made (i) which would impair the rights of an optionee or participant under a Stock Option theretofore granted, without the optionee's or participant's consent, or (ii) which without the approval of the shareholders of the Company would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory requirements. The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively to the extent such amendment is consistent with the terms of this Plan, but no such amendment shall impair the rights of any holder without his or her consent except to the extent authorized under the Plan. However, the Committee may not reprice options, either by lowering the exercise price of outstanding options or canceling outstanding options and granting replacement options with lower exercise prices, without shareholder approval. SECTION 9. Unfunded Status Of Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing contained herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. 11 SECTION 10. General Provisions. (a) The Committee may require each person purchasing shares pursuant to a Stock Option under the Plan to represent to and agree with the Company in writing that the optionee is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for shares of Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company, Parent Corporation or a Subsidiary to terminate the employment of any of its employees at any time. (c) Each participant shall, no later than the date as of which any part of the value of an award first becomes includible as compensation in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company, Parent Corporation and a Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. With respect to any award under the Plan, if the terms of such award so permit, a participant may elect by written notice to the Company to satisfy part or all of the withholding tax requirements associated with the award by (i) authorizing the Company to retain from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii) delivering to the Company from shares of Stock already owned by the participant, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the participant under this Section 9(c). Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings. 12 SECTION 11. Effective Date of Plan The Plan shall be effective on March 8, 2000 (the date of approval by the Board of Directors), subject to the approval by shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after this Plan's adoption by the Board of Directors, this Plan shall not come into effect. The offering of the shares hereunder shall be also subject to the effecting by the Company of any registration or qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to or in connection with, the offering or the issue or purchase of the shares covered thereby. The Company shall make every reasonable effort to effect such registration or qualification or to obtain such consent or approval. 13 EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 MAR-31-2000 27,164 80,950 321,874 14,721 226,396 717,174 581,061 244,849 1,573,898 404,930 360,675 0 0 8,383 799,910 1,573,898 295,499 295,499 101,978 101,978 0 1,637 7,799 24,621 8,793 15,828 0 0 0 15,828 .19 .19
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