In
connection with a proposed notes offering of Boston Scientific Corporation (the
“Company”) pursuant to a shelf registration statement on Form S-3 (File No.
333-163621), the Company will include the following disclosure under the heading
“Risk Factors” in the prospectus supplement forming part of the registration
statement. In addition to the other information contained in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008 and its quarterly reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 2009, the following risk factors should be carefully
considered in evaluating our business.
Risk
Factors
Risks
Relating to the Notes and Our Business
The
notes are structurally subordinated to the liabilities of our
subsidiaries.
The notes
are obligations exclusively of Boston Scientific and not of any of our
subsidiaries. A significant portion of our operations is conducted through our
subsidiaries. Our subsidiaries are separate legal entities that have no
obligation to pay any amounts due under the notes or to make any funds available
therefor, whether by dividends, loans or other payments. Except to the extent we
are a creditor with recognized claims against our subsidiaries, all claims of
creditors (including trade creditors) and holders of preferred stock, if any, of
our subsidiaries will have priority with respect to the assets of such
subsidiaries over our claims (and therefore the claims of our creditors,
including holders of the notes). Consequently, the notes will be effectively
subordinated to all liabilities of any of our subsidiaries and any subsidiaries
that we may in the future acquire or establish. As of September 30, 2009, before
giving effect to this offering, our subsidiaries had approximately $3.0 billion
of outstanding indebtedness, consisting primarily of $2.1 billion outstanding
under our bank term loan and a $900 million subordinated loan from Abbott
Laboratories. In October 2009, we prepaid an additional $250 million of our bank
term loan. Our wholly owned subsidiary, BSC International Holding Limited, is
the borrower, and Boston Scientific is the guarantor, under the bank term loan
and the subordinated loan from Abbott Laboratories.
The
notes will be effectively junior to any secured indebtedness that we may issue
in the future.
The notes
are unsecured. As of October 31, 2009, we had no secured debt outstanding.
Holders of our secured debt that we may issue in the future may foreclose on the
assets securing such debt, reducing the cash flow from the foreclosed property
available for payment of unsecured debt, including the notes. Holders of our
secured debt also would have priority over unsecured creditors in the event of
our bankruptcy, liquidation or similar proceeding. As a result, the notes will
be effectively junior to any secured debt that we may issue in the
future.
We
may issue additional notes.
Under the
terms of the indenture that governs each series of the notes, including the
notes offered hereby, we may from time to time without notice to, or the consent
of, the holders of the applicable series of notes, create and issue additional
notes of a new or existing series, which notes, if of an existing series, will
be equal in rank to the notes of that series in all material respects so that,
subject to certain tax considerations, the new notes may be consolidated and
form a single series with such notes and have the same terms as to the status,
redemption or otherwise as such notes.
Redemption
may adversely affect your return on the notes.
The notes
are redeemable at our option, and therefore we may choose to redeem the notes at
times when prevailing interest rates are relatively low. As a result, you may
not be able to reinvest the proceeds you receive from the redemption in a
comparable security at an effective interest rate as high as the interest rate
on your notes being redeemed.
We
may not be able to repurchase all of the notes upon a Change of Control
Repurchase Event.
As
described under “Description of the Notes — Repurchase at the Option of Holders
Upon Change of Control Repurchase Event”, we will be required to offer to
repurchase the notes upon the occurrence of a Change of Control Repurchase
Event. There can be no assurance that we will have sufficient funds available at
the time of any Change of Control Repurchase Event, and consummate a Change of
Control Offer for all notes then outstanding, at a purchase price for 101% of
their principal amount, plus accrued and unpaid interest to the Change of
Control Payment Date. In addition, a change of control (as described herein) and
certain other change of control events would constitute an event of default
under certain of our credit agreements. As a result, we may not be able to make
any of the required payments on, or repurchases of, the notes without obtaining
the consent of the lenders under certain of our credit agreements or have the
ability to arrange financing on acceptable terms.
The
notes do not restrict our ability to incur additional debt or prohibit us from
taking other action that could negatively impact holders of the
notes.
We are
not restricted under the terms of the notes or the indenture governing the notes
from incurring additional indebtedness. The terms of the indenture limit our
ability to merge or consolidate with another entity or transfer all or
substantially all of our property and assets, and create, grant or incur liens.
However, these limitations are subject to numerous exceptions. See “Description
of Debt Securities” in the accompanying prospectus. In addition, the notes do
not require us to achieve or maintain any minimum financial results relating to
our financial position or results of operations. Our ability to recapitalize,
incur additional debt, secure existing or future debt, or take a number of other
actions that are not limited by the terms of the indenture and the notes,
including repurchasing indebtedness or capital stock, or paying dividends, could
have the effect of diminishing our ability to make payments on the notes when
due.
Our
financial performance and other factors could adversely impact our ability to
make payments on the notes.
Our
ability to make scheduled payments with respect to our indebtedness, including
the notes, will depend on our financial and operating performance, which, in
turn, are subject to prevailing economic conditions and to financial, business
and other factors beyond our control.
There
is no public market for the notes.
The notes
are new issues of securities for which there currently is no trading market. As
a result, we can give no assurances that a market will develop for the notes or
that you will be able to sell the notes. If any of the notes are traded after
their initial issuance, they may trade at a discount from their initial offering
price. Future trading prices of the notes will depend on many factors, including
prevailing interest rates, the market for similar securities, general economic
conditions, our financial condition and performance, as well as other factors.
Accordingly, you may be required to bear the financial risk of an investment in
the notes for an indefinite period of time. We do not intend to apply for
listing or quotation of the notes of either series on any securities exchange or
automated dealer quotation system, respectively.
We
have undertaken corporate restructurings in the past and we may undertake
further restructurings in the future, which are likely to result in pre-tax
charges and cash outlays and we cannot assure you that any future restructuring
will achieve its intended benefits.
From time
to time, our management undertakes various cost improvement measures intended to
better align operating expenses with our expected revenue levels and reallocate
resources to better support growth initiatives intended to improve overall gross
profit margins. For example, we undertook a number of restructuring activities
under our 2007 Restructuring plan that are expected to result in pre-tax
expenses of approximately $425 million to $450 million with approximately $385
million to $405 million of these pre-tax expenses resulting in cash outlays and
our 2009 Plant Network Optimization plan that is expected to result in pre-tax
charges of approximately $135 million to $150 million with approximately $115
million to $125 million of these charges resulting in cash outlays. We are
currently reviewing our operations and corporate structure which may result in
the formulation of additional restructuring plans. However, we have not
determined the scope of our future restructuring plans. Any future restructuring
plans will involve risks and uncertainties and will likely result in pre-tax
charges and cash outlays, which may be significant and may exceed forecasts that
we make at the time any plan is approved by our Board of Directors. We cannot
assure that any future restructuring will achieve its intended benefits,
including resulting in cost-savings to the company.
We
are subject to numerous regulatory and quality requirements which, if not
strictly adhered to, may result in physician advisories, product recalls, or
other field actions. Field actions could also result from later discovered
product issues.
We have
in the past, and may again in the future, initiate physician advisories, product
recalls or other field actions as a result of a failure to strictly comply with
regulatory or quality requirements or our internal policies or of unsatisfactory
product performance. Field actions could also result from a previously unknown
issue with a product, component or supplier or a developing complaint trend.
Field actions could negatively impact physician confidence in our products and
therefore adversely affect our revenue, market share and customer relations as
well as result in extensive execution and replacement costs. In addition, we
could become subject to governmental investigations and/or increased product
liability litigation or shareholder litigation as a result of field actions. If
we lose and are unable to regain market share and revenue or do not regain
market share and revenue on a timely basis, our business, financial condition or
results of operations could be materially adversely affected. For example, on
December 1, 2009, we issued a physician advisory with respect to the subpectoral
implantation of certain of our CRM products. There can be no assurance that this
or other field actions will not negatively affect customer perception of our
products, physician acceptance of these types of products in the market
generally and our market position.