AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996

REGISTRATION STATEMENT NO. 333-09345

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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

DEPUY, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

35-1989795
DELAWARE 3845 (I.R.S. EMPLOYER
(PRIMARY STANDARD IDENTIFICATION NUMBER)
(STATE OR OTHER INDUSTRIAL
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION) 700 ORTHOPAEDIC DRIVE
WARSAW, INDIANA 46581
(219) 267-8143
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

DEPUY, INC.
700 ORTHOPAEDIC DRIVE
WARSAW, INDIANA 46581
(219) 267-8143
ATTENTION: STEVEN L. ARTUSI, ESQ.
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------

COPIES TO:
JEFFREY E. COHEN, ESQ. FRANCIS J. MORISON, ESQ.
COUDERT BROTHERS DAVIS POLK & WARDWELL
1114 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
(212) 626-4400 (212) 450-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

----------------

THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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- -------------------------------------------------------------------------------

PROSPECTUS (Subject to Completion)

Issued October 29, 1996

14,780,000 Shares
DePuy, Inc.
COMMON STOCK

----------

OF THE 14,780,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 11,824,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 2,956,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITING." PRIOR TO THE OFFERING, ALL OF THE ISSUED AND OUTSTANDING
SHARES OF THE COMPANY'S COMMON STOCK WERE OWNED BY CORANGE LIMITED
("CORANGE") AND WHOLLY-OWNED SUBSIDIARIES OF CORANGE. CERTAIN OF THE
SHARES BEING OFFERED HEREBY ARE BEING SOLD BY CORANGE (THE "SELLING
STOCKHOLDER"). OF THE 11,824,000 SHARES OF COMMON STOCK BEING OFFERED BY
THE U.S. UNDERWRITERS, 6,224,000 SHARES ARE BEING SOLD BY THE COMPANY
AND 5,600,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. OF THE
2,956,000 SHARES OF COMMON STOCK BEING OFFERED BY THE INTERNATIONAL
UNDERWRITERS, 1,556,000 SHARES ARE BEING SOLD BY THE COMPANY AND
1,400,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. UPON
COMPLETION OF THE OFFERING, CORANGE AND ITS SUBSIDIARIES WILL
CONTINUE TO OWN APPROXIMATELY 84.8% OF THE COMMON STOCK. SEE
"PRINCIPAL STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ANTICIPATED THAT
THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $16 1/2 AND
$18 1/2 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.

----------

THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "DPU", SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.

----------

SEE "RISK FACTORS" COMMENCING ON PAGE 8 HEREOF, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

----------

PRICE $ A SHARE

----------

UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER
-------- --------------- ----------- -----------

Per Share...................... $ $ $ $
Total (3)...................... $ $ $ $

- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at $2,104,336.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 2,217,000 additional
Shares at the Price to Public less Underwriting Discounts and Commissions
for the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the Total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholder will be $ , $ , $ and $ , respectively. See
"Underwriting."

----------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1996, at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.

----------

MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
FURMAN SELZ

, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.

----------------

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS
TO, THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.

----------------

This Prospectus includes forward-looking statements concerning the Company's
operations, economic performance and financial condition. Such forward-looking
statements involve risks and uncertainties and are subject to change based on
various factors, including those under the caption "Risk Factors" in this
Prospectus.

Certain of the information contained in the "Prospectus Summary" and in
"Business" concerning the definition, size and development of the various
product markets in which the Company participates and the Company's general
expectations concerning the development of such product markets, both
domestically and internationally, are based on estimates prepared by the
Company using data from various sources (primarily Wessels, Arnold &
Henderson, Medifacts International, MDIS Publications, Theta Corporation and
Knowledge Enterprises, as well as data from the Company's internal research),
which data the Company has no reason to believe are unreliable, and on
assumptions made by the Company, based on such data and its knowledge of the
orthopedic industry, which the Company believes to be reasonable. While the
Company is not aware of any misstatements contained in these sections, the
Company's estimates, in particular as they relate to the Company's general
expectations concerning the product markets in which the Company participates,
involve risks and uncertainties and are subject to change based on various
factors, including those discussed under the caption "Risk Factors" in this
Prospectus. Sales and market share figures contained in the narrative portions
of the "Prospectus Summary" and the "Business" sections include sales of the
Company's 50% owned subsidiary, DePuy DuPont Orthopedics.

----------------

DePuy(R), ACE(R), OrthoTech(R), LCS(R), AMK(R), Charnley(R), MOSS(TM),
ENDURANCE(TM), CaptureWare(R), Profile(R) Check, Solution System(R),
Duraloc(R), Elite(TM), Coordinate(TM), Global(TM), STERILE VIEW(R),
STABILITY(R), POROCOAT(R) and Cida(TM) are trademarks of the Company or its
subsidiaries. Hylamer(R) is a registered trademark of DePuy Dupont
Orthopedics. Kevlar(R) is a registered trademark of E. I. DuPont de Nemours
and Company.

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TABLE OF CONTENTS

PAGE
----

Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Dilution................................................................. 15
Capitalization........................................................... 16
Pre-Offering Reorganization.............................................. 17
Selected Combined Financial Data......................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 28
Management............................................................... 47
Certain Transactions..................................................... 58
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale ......................................... 65
Certain U.S. Federal Income Tax Considerations........................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 71
Experts.................................................................. 71
Additional Information................................................... 71
Index to Combined Financial Statements................................... F-1

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised. Unless otherwise referred
to herein or the context otherwise requires, references to the "Company" or
"DePuy" shall mean DePuy, Inc. and its majority owned subsidiaries, after
giving effect to the pre-offering reorganization described later in this
Prospectus (the "Reorganization").

THE COMPANY

DePuy, Inc. is one of the world's leading designers, manufacturers and
distributors of orthopedic devices and supplies. The Company's products are
used primarily by orthopedic medical specialists and, in the case of the
Company's spinal implants, neurosurgeons in both surgical and non-surgical
therapy to treat patients with musculoskeletal conditions resulting from
degenerative diseases, deformities, trauma and sports-related injuries. The
Company's products cover a broad range of orthopedic needs and include primary
and revision hip, primary and revision knee and shoulder implants to
reconstruct damaged joints; spinal implants to facilitate fusion of elements of
the spine and to correct deformities; trauma products to reconstruct small and
large bone fractures; and implants, knee braces and other soft good supplies
for the rehabilitation of sports-related injuries. Additionally, the Company
markets complementary products for the operating room.

Geographical concentration of the global orthopedic market remains high. The
United States represents approximately 56% of the worldwide market, and five
countries--the United States, the U.K., Germany, France and Japan--represent
approximately 80% of the worldwide market. The Company believes that these
markets are fairly mature and that higher growth may be expected in emerging
market countries, which now have both the ability to pay for orthopedic
procedures and increasingly aging populations. Within the mature markets,
growth will largely be due to the increase in the number of people over age 65,
an increasingly fitness-oriented population that has subjected its joints to
greater wear, improvement in implant technology, the development of successful
orthopedic procedures for more body parts such as the shoulder and spine, and
increased use of implants in younger patients.

DePuy has established a leading market position through the continued
introduction of high quality, clinically-proven products in major segments of
the orthopedic industry, including one of the leading cemented hip implants and
the leading porous coated (non-cemented) hip system as measured in units.
Geographically, the

Company commenced the development of international distribution channels in
1988 and now has Company-owned distribution subsidiaries in all major markets
outside the U.S. International sales have increased to 45% of total sales in
1995, up from 11% in 1988. The Company's acquisitions and alliances have also
focused on the entry into the high growth markets of spinal implants, trauma
and sports medicine. In 1993, the Company entered the expanding market of
spinal implants through a joint venture with Biedermann Motech GmbH of Germany.
In 1994, the Company expanded its position in the trauma device market through
the acquisition of ACE Medical Company ("DePuy ACE"), a leading manufacturer of
titanium alloy trauma products and externally applied fixation devices for the
treatment of fractures. Also in 1994, DePuy International Limited ("DePuy
International," formerly Charles F. Thackray Limited, acquired by the Company
in 1990) acquired CMW Laboratories ("CMW"), the oldest orthopedic bone cement
manufacturer in the world. In March 1996, the Company expanded its position in
the fast-growing sports medicine device market through its acquisition of
Orthopedic Technology, Inc. ("DePuy OrthoTech"), a manufacturer and distributor
of external braces used in the prevention and rehabilitation of sports-induced
injuries. Many of the Company's target markets remain fragmented, providing
opportunities for continued consolidation. Technologically, the Company seeks
to remain on the leading edge of innovation and has established programs in the
area of bone and tissue regeneration and biomaterials.

In the United States, DePuy has been at the forefront of pursuing
opportunities in a managed care environment. As the pressure within the health
care industry to contain costs has increased, DePuy has actively pursued
contracts with national and regional hospital buying groups as well as
individual health care facilities, where the Company believes that the increase
in unit volume produced by high levels of product sales to such groups and the
opportunity for increased market share offset the financial impact of
discounting products. The Company has also created and introduced software
packages to help surgeons and health care facilities document and collect
reliable data on costs, clinical results, outcomes and patient satisfaction. By
demonstrating the superiority of its products through careful tracking,
evaluation and promotion of clinical outcomes, the Company believes that it is
well positioned for its customers to receive patient referrals from third-party
payors and integrated health care delivery networks.

Founded in 1895 by Revra DePuy, DePuy is the world's oldest manufacturer of
orthopedic devices and, at various points in its history, employed the founders
of many of its present-day major competitors. DePuy was sold to a group of
private investors in 1965, who in turn sold the Company to Bio-Dynamics, Inc.
in 1968. In 1974, Boehringer Mannheim GmbH ("Boehringer Mannheim"), a leading
European pharmaceutical, chemical and diagnostic company, purchased
Bio-Dynamics, Inc. and, with it, DePuy. In 1985, Corange Limited ("Corange")
was formed as a holding company for the Boehringer Mannheim and DePuy
businesses. The Company is currently wholly-owned by Corange and certain
wholly-owned subsidiaries of Corange.

The Company's principal executive offices are located at 700 Orthopaedic
Drive, Warsaw, Indiana 46581-0988 and its telephone number is (219) 267-8143.

THE OFFERING

Common Stock Offered(1):
International Offer-
ing.................. 2,956,000
United States Offer-
ing.................. 11,824,000
Total............... 14,780,000
Common Stock to be out-
standing after the Of-
fering(2).............. 97,780,000
Use of Proceeds......... It is anticipated that the net proceeds to the Company
from the Offering will be used for the expansion of the
Company's business through acquisitions, provided that
suitable acquisition opportunities can be identified
and such acquisitions can be consummated. The Company
will not receive any proceeds from the sale of Common
Stock by the Selling Stockholder. See "Use of
Proceeds."
Dividend Policy......... The Company anticipates that it will pay dividends on a
quarterly basis, provided that funds are legally
available therefor and subject to the discretion of the
Board of Directors. See "Dividend Policy."
New York Stock Exchange
Symbol................. "DPU"

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(1) Of the 11,824,000 Shares of Common Stock being offered in the United States
Offering, 6,224,000 Shares are being sold by the Company and 5,600,000
Shares are being sold by the Selling Stockholder. Of the 2,956,000 Shares
of Common Stock being offered in the International Offering, 1,556,000
Shares are being sold by the Company and 1,400,000 Shares are being sold by
the Selling Stockholder.
(2) Does not include shares of Common Stock issuable upon exercise of stock
options and conversion of phantom stock units granted under the Company's
incentive plan. See "Management--Employee Plans."

SUMMARY COMBINED FINANCIAL DATA

SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -----------------
1991 1992 1993 1994(1) 1995 1995 1996(1)
------ ------ ------ ------- ---------- ------ ----------
(IN MILLIONS, EXCEPT SHARE
DATA)

INCOME STATEMENT DATA:
Net sales............... $339.9 $419.9 $466.7 $551.8 $636.6 $323.3 $349.0
Gross profit............ 225.5 271.3 314.8 378.8 436.4 218.4 242.5
Operating income........ 85.7 102.0 129.6 151.1 170.3 89.2 97.7
Net income.............. 46.4 54.1(2) 72.2 86.8 94.9 51.5 55.6
Pro forma net income per
share.................. $ 1.05 $ .62
Pro forma weighted
average number of
shares outstanding..... 90,000,000 90,000,000

AT DECEMBER 31,
1995 AT JUNE 30, 1996
--------------- ----------------

BALANCE SHEET DATA
Working capital.............................. $ 176.8 $ 195.4
Total assets................................. $ 623.3 $ 692.6
Total noncurrent liabilities................. $ 73.5 $ 56.8
Shareholder's net investment................. $ 378.1 $ 461.1

- --------
(1) Financial results include the effects of acquisitions as outlined in Notes
1 and 14 of the Notes to Combined Financial Statements.
(2) Includes impact of charge of $3.8 million for the adoption of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."

RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT

In the United States, health care providers, such as hospitals and clinics,
who purchase the Company's products generally rely on third-party payors,
principally Federal Medicare, State Medicaid and private health insurance
plans, to reimburse all or part of the cost of the procedure in which the
product is being used, including the cost of the Company's product utilized in
such procedure. There can be no assurance that third-party reimbursement for
the Company's products will continue to be available or at what rate such
products will be reimbursed. Congress and certain state legislatures are
considering reforms in the health care industry that may affect current
reimbursement practices, including controls on health care spending through
limitations on the growth of Medicare and Medicaid spending. The development
of managed care programs in which the providers contract to provide
comprehensive health care to a patient population at a fixed cost per person
(referred to as capitation) has given rise to similar pressures on health care
providers to lower costs.

Outside the United States, the success of the Company's products is
dependent, in part, upon the availability of reimbursement and health care
payment systems. These reimbursement and health care payment systems vary
significantly by country, and include both government sponsored health care
and private insurance plans. Several governments (most notably Germany, France
and Japan) have recently attempted to dramatically reshape reimbursement
policies affecting medical devices.

The ability of physicians, hospitals and other users of a company's products
to obtain appropriate reimbursement from governmental and private third-party
payors for procedures in which the company's products are used is critical to
the success of all medical device companies around the world, including the
Company. Failure by such users of the Company's products to obtain sufficient
reimbursement from third-party payors for procedures in which the Company's
products are used or adverse changes in governmental and private payors'
policies toward reimbursement for such procedures could have a material
adverse effect on the Company's business, financial condition and results of
operations.

RESPONSES BY HEALTH CARE PROVIDERS TO PRICE PRESSURES; FORMATION OF BUYING
GROUPS

Within the U.S., health care reform and the emergence of managed care are
changing the dynamics of the orthopedic market, as the health care industry
seeks ways to control rising health care costs. The main customers for
orthopedic products are hospitals and clinics. As a result of health care
reform, the U.S. health care industry has seen a rapid expansion of managed
care at the expense of traditional private insurance. The advent of managed
care has resulted in greater attention to the tradeoff between patient need
and product cost, so-called demand matching, where patients are evaluated as
to age, need for mobility and other parameters and are then matched with an
orthopedic product that is cost effective in light of such evaluation. One
result of demand matching may be a shift toward less expensive products (such
as cemented implants), and any such shift in product mix could have an impact
on the Company's operating results with respect to hip and, to a lesser
extent, knee replacement systems. A further result of managed care and the
related pressure on costs has been the advent of hospital buying groups,
national purchasing contracts and various bidding procedures imposed by
hospitals or buying groups. Such buying groups often enter into extensive
preferred supplier arrangements with one or more manufacturers of orthopedic
or other medical products in return for price discounts. The extent to which
buying groups are able to obtain compliance by their constituent organizations
with such preferred supplier agreements varies considerably depending on the
particular buying groups. The Company, in response to the phenomenon of new
hospital buying groups, has recently entered into agreements with selected
groups and believes that the high levels of product sales to such groups and
the opportunity for increased market share can offset the financial impact of
discounting products. There can be no assurance, however, that the Company
will continue to be able to obtain preferred supplier commitments from major
buying groups, in which case the Company could lose significant potential
sales,

to the extent such groups are able to command a high level of compliance by
their constituent organizations. On the other hand, should the Company receive
preferred supplier commitments from particular groups which do not deliver
high levels of compliance, any increases in unit sales or in market share may
be insufficient to offset the negative impact of lower per unit prices. See
"Business--Industry Background" and "--Business Strategy."

COMPETITION

The orthopedic device industry is highly competitive and is characterized by
innovation, technological change and advancement. The Company currently
competes with a number of companies, including some that are part of corporate
groups that have significantly greater resources than the Company. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than the Company's or that
would render the Company's technology or products obsolete or uncompetitive.
Further, the Company's ongoing success requires the continued development and
commercialization of new products and the enhancement of existing products.
There can be no assurance that the Company will be able to continue to develop
successful new products and enhance existing products, to obtain required
regulatory approvals for such products, to merchandise such products in a
commercially viable manner or to gain market acceptance for such products. See
"Business--Competition."

PATENTS AND PROPRIETARY KNOW-HOW

The Company holds U.S. and foreign patents covering certain of its systems,
components and instrumentation, has patent applications pending with respect
to certain implant components and certain surgical instrumentation and
anticipates that it will apply for additional patents it deems appropriate.
There can be no assurance as to the breadth or degree of protection which
existing or future patents, if any, may afford, that any patent applications
will result in issued patents, or that patents will not be circumvented or
invalidated. In addition, the Company holds licenses from third parties to
utilize certain patents, patents pending and technology utilized in the design
of some of its devices. The loss of such licenses would prevent the Company
from manufacturing and selling certain of its products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's success also depends on non-patented
proprietary know-how, trade secrets, processes and other proprietary
information. The Company employs various methods to protect its proprietary
information, including confidentiality agreements and proprietary information
agreements. However, such methods may not provide adequate protection, and
there can be no assurance that such information will not become known to, or
be independently developed by, competitors, or that the Company's proprietary
rights in such knowledge will not be challenged. See "Business--Intellectual
Property" and "--Legal Proceedings."

GROWTH BY ACQUISITION

The Company's growth has been achieved, in part, by means of acquisitions.
The Company from time to time evaluates and enters into negotiations with
respect to potential acquisitions, and the Company intends to make additional
acquisitions in the future. There can be no assurance that the Company will be
able to locate suitable acquisition opportunities, that it will be able to
obtain the necessary financing for any future acquisitions, that it will be
able to effectively and profitably integrate into the Company any operations
that are acquired in the future or that any future acquisitions will not have
a material adverse effect on the Company's operating results or on the market
price of the Company's Common Stock, particularly during the periods
immediately following such acquisitions. In addition, to the extent that the
Company is unable to locate suitable acquisition opportunities, future
revenues will depend upon the Company's existing business. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

SIGNIFICANT INTERNATIONAL OPERATIONS

Approximately 45% of the Company's sales in fiscal 1995 and approximately
47% of the Company's sales for the six months ended June 30, 1996 were derived
from sales in foreign markets. The Company expects sales from international
markets to represent an increasing portion of total sales. Certain risks are
inherent in international operations, including exposure to currency
fluctuations, political and economic conditions, unexpected changes in
regulatory requirements, exposure to different legal standards, particularly
with respect to

intellectual property, future import and export restrictions, difficulties in
staffing and managing operations, difficulties in collecting receivables and
longer receivables payment cycles in certain countries and potentially adverse
tax consequences. There can be no assurance that the above factors will not
have material adverse effects on the Company. See "Business--Business
Strategy", "--Products" and "--Marketing and Sales."

PRODUCT LIABILITY

The development, manufacture and sale of medical devices and products entail
significant risk of product liability claims or recalls. The Company's
products are, in the substantial majority of cases, designed to be implanted
in the human body for long periods of time. Design defects, manufacturing
defects or inadequate disclosure of product-related risks, with respect to
products sold by the Company could result in exacerbation of a patient's
condition, further injury or even death of the patient. The occurrence of such
an event could result in product liability claims and/or a recall of one or
more of the Company's products. There can be no assurance that the Company's
current product liability insurance which it carries through joint policies
with its affiliate, Boehringer Mannheim Corporation, will be adequate to
protect the Company from any liabilities it might incur in connection with the
development, manufacture and sale of its current and potential products, or
that the Company will continue to be able to obtain insurance on satisfactory
terms or in adequate amounts. A successful claim or claims brought against the
Company and/or Boehringer Mannheim Corporation in excess of available
insurance coverage could have a material adverse effect on the Company.
Moreover, product liability claims or product recalls in the future could,
regardless of their outcome, have a material adverse effect on the Company's
reputation and on its ability to obtain and retain customers for its products.
See "Business--Legal Proceedings" and "Certain Transactions."

PATENT LITIGATION

The medical device industry has experienced extensive litigation regarding
patents and other intellectual property rights. There can be no assurance that
the Company or its products will not become subject to patent infringement
claims or litigation or interference proceedings declared by the United States
Patent and Trademark Office ("USPTO") to determine the priority of inventions.
The defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly
and time-consuming. Litigation may also be necessary to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the Company or
to determine the enforceability, scope and validity of the proprietary rights
of others. Any litigation or interference proceedings will result in
substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from a third party for royalties that may be
substantial or require the Company to cease using such technology. Any one of
these could have a material adverse effect on the Company. Furthermore, there
can be no assurance that necessary licenses would be available to the Company
on satisfactory terms, if at all. Accordingly, adverse determinations in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling certain of its
products, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Legal
Proceedings."

UNCERTAINTY OF DOMESTIC AND FOREIGN REGULATORY APPROVALS

The Company's products are subject to extensive regulation in the United
States by the federal Food and Drug Administration (the "FDA") and, in some
jurisdictions, by state authorities. In particular, in order for the Company
to market its products for clinical use in the United States, the Company must
obtain clearance from the FDA of a Section 510(k) Premarket Notification (a
"510(k)") or approval of a more extensive submission known as a Premarket
Approval ("PMA") application. With the exception of certain exempt devices,
all new products of the Company intended for implantation will be subject to
some form of FDA premarket clearance or approval. There can be no assurance
that the FDA will act favorably or quickly in its review of the Company's
510(k) or PMA submissions, or that significant difficulties and costs will not
be encountered by the Company in its efforts to obtain FDA clearance, all of
which could delay or preclude the Company from selling certain new products in
the United States. Furthermore, there can be no assurance that the FDA will
not request additional

data, require that the Company conduct additional tests or compile additional
data in support of a 510(k) submission or, instead of accepting a 510(k)
submission, require the Company to conduct a full clinical study to support a
PMA application. Any of these would cause the Company to incur further cost
and delay. There can be no assurance that the Company will be able to meet the
requirements to obtain 510(k) clearance or PMA approval or that any necessary
clearances or approvals will be granted by the FDA. In addition, there can be
no assurance that the FDA will not place significant limitations upon the
intended use of the Company's products as a condition to a 510(k) clearance or
PMA approval. Product approvals by the FDA can also be withdrawn due to
failure to comply with regulatory requirements or the occurrence of unforeseen
problems following initial approval. Failure to receive, or delays in receipt
of, FDA clearances or approvals, including the need to conduct clinical trials
or compile additional data as a prerequisite to clearance or approval, or any
FDA limitations on the intended use of the Company's products, or withdrawal
of any approval of any of the Company's existing or future products, could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company is also subject to regulations in many of the foreign countries
in which it sells its products in the areas of product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. In addition, the national health or social
security organizations in certain countries require the Company's products to
be qualified before they can be marketed in those countries. Failure to
receive, or delays in the receipt of, relevant foreign qualifications could
also have a material adverse effect on the Company's business, financial
condition and results of operations.

See "Business--Government Regulation."

DEPENDENCE UPON KEY PERSONNEL

The Company's continued success depends, in part, upon key managerial,
scientific and technical personnel, as well as the Company's ability to
continue to attract and retain additional highly qualified personnel. The
Company competes for such personnel with other companies, academic
institutions, government entities and other organizations. There can be no
assurance that the Company will be successful in retaining its current
personnel or in hiring or retaining qualified personnel in the future. Loss of
key personnel or the inability to hire or retain qualified personnel in the
future could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management."

DEPENDENCE ON SURGEON CHAMPIONS AND SALES ASSOCIATES

The Company's marketing success depends to a significant extent on the use
by, and study of, certain of the Company's key products by surgeons with
national and in many cases international reputations in a particular area of
orthopedic surgery or neurosurgery. The failure of the Company's leading
products to retain the support of such surgeons, or the failure of new
products of the Company to secure and retain similar support from leading
surgeons, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's marketing success
in the United States also depends largely upon marketing arrangements with
independent sales associates, who are managed by a Company employee (a
"Territory Sales Manager") or by an independent agent. The Company's success
depends upon its sales associates' sales and service expertise and
relationships with the customers in the marketplace. The failure by the
Company to attract and retain skilled sales associates could also have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Marketing and Sales."

CONTROL BY AND RELATIONSHIP WITH CORANGE

Upon completion of the Offering, Corange and three indirect wholly-owned
subsidiaries of Corange, Corange International Limited, Corange International
Holdings B.V. and Pharminvest S.A. (collectively, the "Corange Stockholders"),
will own approximately 84.8% of the outstanding Common Stock of the Company
(or 83.0% if the Underwriters' over-allotment option is exercised in full). As
a result, the Corange Stockholders will have sufficient voting power to elect
the entire Board of Directors of the Company, to control the direction and
policies of the Company, including dividends, acquisitions, mergers and
consolidations, and to prevent or cause a change in control of the Company.
See "Principal Stockholders."

Corange is party to a Note Purchase Deed dated December 22, 1993, as amended
(the "Debt Facility"). The Debt Facility, which is unsecured, requires Corange
to retain direct or indirect ownership of at least 65% of the Company's voting
stock. The Debt Facility contains covenants which limit aggregate borrowings
by all entities within the Corange group, absent a consent from the lenders
under the facility. All borrowings by Corange and its direct and indirect
subsidiaries, including the Boehringer Mannheim companies and the DePuy
companies, would be aggregated for purposes of determining whether such
aggregate limit on borrowings has been exceeded. Should the Company require
additional financing in the future, whether in connection with financing
acquisitions, capital expenditures, working capital or otherwise, the
Company's ability to borrow could be constrained, absent a consent by the
lenders, by the covenants in the Debt Facility; in addition, should the
Company wish to acquire any entity which has significant debt, the Company's
ability to consummate such transaction could also be constrained, absent a
consent by the lenders, by the covenants in the Debt Facility. The notes
issued under the Debt Facility have varying maturity dates, ranging from the
year 2003 to the year 2008. Corange may repay such notes at any time, subject
to certain conditions. The covenants contained in the Debt Facility will
continue to apply as long as any notes remain outstanding under the Debt
Facility. See "Certain Transactions."

MANAGEMENT DISCRETION OVER PROCEEDS OF THE OFFERING

The Company anticipates that, provided suitable acquisition opportunities
can be identified, the net proceeds to the Company from the Offering will be
used primarily to finance the expansion of the Company's business through
acquisitions, although there can be no assurance that the Company will be able
to locate, negotiate and close any acquisition. However, the Company's Board
of Directors, should it deem such use of proceeds appropriate, has the
discretion to apply the proceeds for the financing of joint ventures and
strategic alliances, for general corporate purposes, including construction or
improvement of facilities or the purchase of machinery or equipment, for the
funding of general working capital needs. No specific alternate uses of the
proceeds are currently under consideration by the Company. See "Use of
Proceeds."

ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the New York Stock
Exchange (subject to official notice of issuance), there can be no assurance
that an active trading market will develop or be sustained after the Offering,
or that purchasers of Common Stock will be able to resell their Common Stock
at prices equal to or greater than the initial public offering price.
The initial public offering price will be determined by negotiations among the
Company, the Selling Stockholder and the Underwriters and may not be
indicative of the prices that may prevail in the public market. Furthermore,
the market price of the Common Stock may be volatile. Factors such as
announcements of fluctuations in the Company's or its competitors' operating
results, changes in government regulations or health care policies and market
conditions in general could have a significant impact on the future price of
the Common Stock. In particular, with the current uncertainty about health
care policy, reimbursement and coverage in the United States, there has
recently been significant volatility in the market price and trading volume of
securities of medical device and other health care companies unrelated to the
performance of such companies. See "Underwriting."

DILUTION

The offering price is substantially higher than the net tangible book value
per share of Common Stock. Accordingly, investors participating in the
Offering will incur immediate and substantial dilution in the amount of $13.77
per share, assuming a public offering price of $17.50 per share (the mid-point
of the price range). See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial numbers of shares of Common Stock in the public market
after this Offering could adversely affect the market price of the Common
Stock. Of the 97,780,000 shares of Common Stock outstanding upon completion of
the Offering, approximately 14,780,000 shares will be freely tradeable without
restriction

under the Securities Act of 1933, as amended (the "Securities Act"), except
for any such shares which may be acquired by an "affiliate" of the Company.
The remaining 83,000,000 issued and outstanding shares will be held by the
Corange Stockholders. The Company and the Corange Stockholders have agreed not
to offer or sell any shares of Common Stock (other than, in the case of the
Company, in connection with the exercise of any option or the conversion of
phantom stock units issued under the Company's incentive plan or the issue of
options or the issue or purchase of Common Stock in connection with the
Company's employee stock option/purchase plan and, in the case of the Corange
Stockholders, in connection with transfers to other direct or indirect
subsidiaries of Corange, provided that such transferees will be subject to
such sale restrictions) for a period of 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. No prediction can be made as to the effect, if any, future sales
of Common Stock, or the availability of such shares for future sale, will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of such shares in the public
market, or the perception that such sales may occur, could adversely affect
the then prevailing market prices for the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities. See "Shares Eligible for Future Sale."

CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and by-laws
may have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of the
Company. Certain of these provisions allow the Company to issue Preferred
Stock without any vote or further action by the stockholders, limit the
ability of stockholders to call a special meeting of stockholders, require
advance notice for director nominations by stockholders and submission of
other proposals for consideration at stockholder meetings and provide for a
classified Board of Directors. Certain provisions of Delaware law, including
Section 203 of the Delaware General Corporation Law (the "DGCL"), could have
similar effects. The possible issuance of Preferred Stock, the limits placed
on the ability of stockholders to call a meeting at which directors could be
replaced, the advance notice requirements for director nominations and
stockholder proposals, the length of time required to replace sufficient
members of a classified Board of Directors to take control of the Company and
the provisions of Delaware law could have the effect of delaying, deferring or
preventing a change in control of the Company, including without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of the Company's Common Stock. These provisions could
inhibit certain investors from acquiring shares of the Company's Common Stock
and could also limit the price that investors might be willing to pay for
shares of the Company's Common Stock. See "Description of Capital Stock."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be $126.9 million (approximately
$163.7 million if the Underwriters exercise the over-allotment option in full)
assuming an initial public offering price of $17.50 per share (the mid-point
of the price range) and after deducting underwriting discounts and commissions
and offering expenses payable by the Company. The Company continually
evaluates potential acquisitions and anticipates that, provided suitable
acquisition opportunities can be identified, the net proceeds to the Company
from the Offering will be used primarily to finance the expansion of the
Company's business through acquisitions. In evaluating potential acquisition
candidates, the Company focuses principally on potential acquisitions which
would allow the Company to expand in geographical areas in which it has a
limited presence and in product areas complementary to its core product lines.
Prior to the Offering, the Company terminated all ongoing discussions with
potential acquisition candidates and, although the Company anticipates it will
reinstate discussions with certain such candidates following the Offering,
there can be no assurance that the Company will be able to negotiate and close
any acquisition or that the Company will be able to locate, negotiate and
close any alternative acquisitions. See "Risk Factors--Growth by Acquisition."
Pending any use of the Company's proceeds from the Offering in connection with
any acquisition, it is the Company's intention to invest the proceeds in
short-term, investment grade obligations. The Company may, should the Board of
Directors deem such use of some or all of the proceeds appropriate, apply the
proceeds for the financing of joint ventures and strategic alliances, for
general corporate purposes, including construction or improvement of
facilities or the purchase of machinery or equipment, or for the funding of
general working capital needs. However, no specific alternate uses of the
proceeds are currently under consideration by the Company.

The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholder. See "Principal Stockholders."

DIVIDEND POLICY

The Company anticipates that it will pay dividends on a quarterly basis,
provided that funds are legally available therefor. Any declaration and
payment of dividends will be subject to the discretion of the Board of
Directors of the Company, based on the Board's determination of the financial
condition, results of operations and cash requirements of the Company.

DILUTION

After giving effect to the Reorganization, the net tangible book value of
the Company at June 30, 1996 would have been approximately $237.5 million, or
$2.64 per share. Net tangible book value per share represents the amount of
the Company's net worth (net tangible assets less its total liabilities),
divided by the number of shares of Common Stock outstanding. After giving
effect to the Offering and the use of proceeds therefrom at an assumed initial
public offering price of $17.50 per share (the mid-point of the price range),
and after deducting estimated offering expenses and underwriting discounts and
commissions, the pro forma net tangible book value of the Common Stock as of
June 30, 1996 would have been approximately $364.4 million, or $3.73 per share
of Common Stock. This represents an immediate dilution of $13.77 per share to
new investors purchasing shares in the Offering.

The following table illustrates the per share dilution as of June 30, 1996:

Assumed initial public offering price.......................... $17.50
Net tangible book value per share as of June 30, 1996.......... 2.64
Increase in net tangible book value per share attributable to
new investors................................................. 1.09
----
Pro forma net tangible book value per share after the Offer-
ing........................................................... 3.73
------
Dilution per share to new investors............................ $13.77
======

The above computations assume no exercise of outstanding options. As of the
date hereof, the Company has granted options, effective as of the date of the
Offering, to purchase 1,274,250 shares of Common Stock at a weighted average
exercise price of $17.50 per share. To the extent all outstanding options are
exercised, there would be dilution of $13.60 per share to new investors.

CAPITALIZATION

The following table sets forth the capitalization of the Company at June 30,
1996 on an actual and as adjusted combined basis to give effect to the sale of
the 7,780,000 shares of Common Stock offered hereby by the Company (assuming
that the Underwriters' over-allotment option is not exercised), at an assumed
initial public offering price of $17.50 per share (the mid-point of the price
range) net of estimated offering expenses and underwriting discounts and
commissions. See "Use of Proceeds." This information should be read in
conjunction with the Combined Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.

AT JUNE 30, 1996
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)

Short-term debt............................................. $ 39.2 $ 39.2
====== ======
Long-term debt.............................................. $ 32.1 $ 32.1
Shareholder's equity:
Shareholder's net investment.............................. 461.0 --
Preferred stock, $1.00 par value; 10,000,000 shares
authorized and none issued and outstanding, as adjusted.. -- --
Common stock $.01 par value; 130,000,000 shares
authorized, no shares issued and outstanding; 97,780,000
shares issued and outstanding, as adjusted............... -- 1.0
Additional paid-in capital.................................. -- 586.9
------ ------
Total shareholder's net investment...................... 461.0 587.9
------ ------
Total capitalization.................................... $493.1 $620.0
====== ======

PRE-OFFERING REORGANIZATION

Founded in 1895, DePuy is the world's oldest manufacturer of orthopedic
devices. DePuy was sold to a group of private investors in 1965 who in turn
sold the company to Bio-Dynamics, Inc. in 1968. In 1974, Boehringer Mannheim,
a leading European pharmaceutical, chemical and diagnostic company, purchased
Bio-Dynamics, Inc. and, with it, DePuy. In 1985, Corange was formed in Bermuda
as a holding company for the Boehringer Mannheim and DePuy businesses.

A reorganization of the DePuy business prior to the Offering involved the
following steps:

1. Various actions were taken to consolidate the worldwide operations of
DePuy under Corange U.S. Holdings Inc., an Indiana corporation ("CUSHI"), a
direct subsidiary of Pharminvest S.A. ("Pharminvest") and an indirect wholly-
owned subsidiary of Corange. Prior to the reorganization, only the U.S.
companies within the DePuy group (including DePuy Orthopaedics, Inc., DePuy
ACE and DePuy OrthoTech), as well as Boehringer Mannheim Corporation ("BMC"),
were direct or indirect subsidiaries of CUSHI. Pursuant to the consolidation
of the worldwide operations of DePuy under CUSHI, DePuy International (DePuy's
major manufacturing facility outside the U.S.) and DePuy's network of non-U.S.
distribution subsidiaries (or, in certain cases, the assets of such
subsidiary) were transferred to CUSHI. Specifically, the consolidation
involved:

(i) The transfer to CUSHI by Corange International Holdings B.V., a
Netherlands corporation ("CIHBV") and an indirect wholly-owned subsidiary
of Corange, of its shareholding in certain offshore DePuy distribution
subsidiaries (located in France, Germany, Italy, Switzerland, Austria,
Spain, Sweden, Japan, Korea, Singapore, New Zealand, the Czech Republic and
Hungary), in exchange for the issuance to CIHBV of common stock of CUSHI.

(ii) The transfer to CUSHI by Corange of the 60.7% of the shares of
Corange U.K. Holdings Limited ("Corange U.K.") not already held
beneficially by a subsidiary of CUSHI; Corange U.K. owns 100% of the shares
of DePuy International.

(iii) The transfer to CUSHI by Corange International Limited ("CIL"), an
indirect wholly-owned subsidiary of Corange, of its shareholding in certain
offshore distribution subsidiaries (located in Taiwan and Argentina), in
exchange for the issuance to CIL of common stock of CUSHI.

(iv) The transfer by Farmaceuticas Lakeside SA de CV ("Lakeside"), the
Mexican distribution subsidiary of Corange affiliated with the Boehringer
Mannheim business of the Corange group, of such of its assets as are
related to the DePuy business to a newly-created subsidiary of CUSHI.

As a result of such transfers, prior to the Offering, all 90,000,000
outstanding shares of Common Stock of the Company will be owned by Corange and
three indirect wholly-owned subsidiaries of Corange: CIL, CIHBV and
Pharminvest. See "Principal Stockholders."

2. BMC, previously a wholly-owned subsidiary of CUSHI, was transferred out
of the CUSHI consolidated group by means of a sale to Pharminvest by CUSHI of
all of the outstanding shares of BMC. Pharminvest cancelled outstanding
indebtedness of CUSHI to Pharminvest in the amount of $496.9 million and made
a cash payment to CUSHI in the amount of $43.1 million, a portion of such
aggregate amount constituting payment to CUSHI for the BMC stock at its
appraised fair market value, with the remaining portion being a capital
contribution to CUSHI and (to a nominal extent) additional debt extended to
CUSHI. See "Certain Transactions."

3. In order to reincorporate CUSHI in Delaware, on September 30, 1996 CUSHI
was merged downstream into the Company, with the Company as the surviving
company in such merger. The Company was organized in Delaware on July 26, 1996
as a wholly-owned subsidiary of CUSHI for purposes of becoming a holding
company worldwide for the DePuy group after the Offering.

At or prior to the consummation of the Offering, the Company will enter into
a tax allocation and indemnity agreement with Corange and BMC which, among
other things, will require Corange and BMC to indemnify the Company with
respect to tax liabilities of the Corange group for periods prior to the
consummation of the Offering (except for tax liabilities of the Company and
other DePuy group entities), and will require Corange to indemnify the Company
with respect to tax liabilities arising as a result of the pre-offering
reorganization of the DePuy group. Under this agreement, the Company generally
will be responsible for taxes imposed on the Company and other DePuy group
entities in cases where separate tax returns have been, or will be, filed and
for the Company's allocable share of tax liabilities in cases where
consolidated, combined or unitary tax returns have been, or will be, filed
with the Corange group (except for tax liabilities arising as a result of the
DePuy group pre-offering reorganization, which are subject to indemnification
by Corange, as discussed above). The agreement would provide Corange and BMC
with certain rights with respect to the filing of tax returns and, generally,
the right to control tax contests which involve, in whole or in part, taxes
for which Corange and BMC are obligated to indemnify the Company.

SELECTED COMBINED FINANCIAL DATA

The following selected historical financial data as of and for the three
years ended December 31, 1995 are derived from combined financial statements
of the Company which have been audited by Price Waterhouse LLP, independent
accountants. Combined balance sheets at December 31, 1994 and 1995 and the
related combined statements of income and of cash flows for the three years
ended December 31, 1995 and notes thereto appear elsewhere in the Prospectus.
The selected combined financial data as of and for the years ended December
31, 1991 and 1992 are derived from unaudited financial statements prepared on
the same basis as the audited financial statements. Financial data as of June
30, 1996 and for the six months ended June 30, 1995 and 1996 were prepared on
the same basis as the audited financial statements, are unaudited and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year. The
following table should be read in conjunction with the Company's Combined
Financial Statements, the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which are included
elsewhere herein.

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ --------------
1991 1992 1993 1994(1) 1995 1995 1996(1)
------ ------ ------ ------- ------ ------ -------
(IN MILLIONS, EXCEPT PER
SHARE AND OTHER DATA)

INCOME STATEMENT DATA:
Net sales................. $339.9 $419.9 $466.7 $551.8 $636.6 $323.3 $349.0
Cost of sales............. 114.4 148.6 151.9 173.0 200.2 104.9 106.5
------ ------ ------ ------ ------ ------ ------
Gross profit............ 225.5 271.3 314.8 378.8 436.4 218.4 242.5
------ ------ ------ ------ ------ ------ ------
Selling, general and
administrative expenses.. 116.9 144.8 157.8 195.0 230.6 111.5 128.2
Research and development
expenses................. 12.6 13.8 17.4 18.6 21.3 10.5 10.0
Goodwill amortization..... 10.3 10.7 10.0 14.1 14.2 7.2 6.6
------ ------ ------ ------ ------ ------ ------
Operating income........ 85.7 102.0 129.6 151.1 170.3 89.2 97.7
------ ------ ------ ------ ------ ------ ------
Interest expense and
other, net............... 3.4 4.6 2.7 1.6 5.6 1.3 1.9
Provisions for income
taxes.................... 35.3 40.5 57.0 65.8 72.7 38.0 41.4
Equity in earnings (loss)
of uncombined affiliate.. (0.6) 1.0 2.3 3.1 2.9 1.6 1.2
Cumulative effect of
accounting change(2)..... -- 3.8 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income.............. $ 46.4 $ 54.1 $ 72.2 $ 86.8 $ 94.9 $ 51.5 $ 55.6
====== ====== ====== ====== ====== ====== ======
Pro forma net income per
share.................... $ 1.05 $ .62
====== ======
Pro forma weighted average
number of shares
outstanding.............. 90,000,000 90,000,000
========== ==========

AT DECEMBER 31,
---------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -----------

BALANCE SHEET DATA:
Working capital................. $ 62.5 $ 74.7 $ 99.3 $150.9 $176.8 $195.4
Total assets.................... $360.4 $356.7 $386.0 $567.5 $623.3 $692.6
Total noncurrent liabilities.... $ 8.3 $ 16.2 $ 22.7 $ 68.4 $ 73.5 $ 56.8
Shareholder's net investment.... $ 51.2 $ 33.4 $247.8 $357.1 $378.1 $461.1
OTHER DATA:
Full-time employee
equivalents.................. 1,768 2,157 2,298 2,775

- --------
(1) Financial results include the effects of acquisitions as outlined in Notes
1 and 14 of the Notes to Combined Financial Statements.
(2) Charge for adopting Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

OVERVIEW

The following discussion and analysis of the Company's results of operations
and financial condition should be read in conjunction with the Combined
Financial Statements of the Company and notes thereto contained elsewhere in
this Prospectus.

Prior to the Offering, the DePuy business was operated as the orthopedic
division of Corange, and those entities within the Corange group which were
engaged (or partly engaged) in the DePuy business were held by a number of
different entities in the Corange group. As a result of a pre-offering
reorganization, (i) the non-U.S. entities (or, in certain cases, the assets
thereof) which were involved in the DePuy business were transferred into the
Company's U.S. consolidated group, (ii) BMC, the U.S. operating subsidiary of
the Boehringer Mannheim companies (which are under common control with the
DePuy companies), was transferred outside the Company's U.S. consolidated
group, and (iii) the Company was reincorporated in Delaware. See "Pre-Offering
Reorganization." None of the transfers or exchanges made pursuant to the pre-
offering reorganization involved outside minority shareholders. Accordingly,
all transfers and exchanges will be accounted for on a predecessor basis.

Prior to the reorganization, the Company's cash flow in the U.S. was pooled
with that of Corange's other U.S. operations. In addition, services such as
tax, treasury and insurance were provided by Corange, and the Company was
charged for such services on an allocated cost basis. Following the Offering,
the Company will function on a stand-alone basis, but will continue to have
certain ongoing relationships, on an arms-length basis, with Corange and the
Boehringer Mannheim companies. See "Certain Transactions." In addition, the
Company expects that its selling, general and administrative expense would
increase to reflect the fact of it being a public company.

During the past three years, the Company has invested heavily in
restructuring and upgrading its sales infrastructure in the U.S. and abroad.
See "Business--Marketing and Sales." This has resulted, in the short-term, in
increases in selling, general and administrative expense, as a percentage of
sales, despite the concurrent introduction of significant operating and
administrative efficiencies. These increases reflect, among other things, (i)
the cost of strengthening the U.S. sales force infrastructure, particularly
with respect to the spinal implant business; (ii) the cost of establishing
additional local distribution subsidiaries abroad; and (iii) the cost of
providing to hospitals and other health care providers, without charge,
surgical instrumentation sets compatible with the Company's implants, whereas
previously the cost of such instrumentation was borne in full or in part by
the health care provider or by the Company's independent sales agents and
sales associates. Increases in the Company's selling, general and
administrative expenses also strongly reflect, beginning in late 1995, costs
relating to the assumption by the Company of the management of territorial
sales offices in the U.S. (which began in mid-1994), which required the
Company to assume costs that had previously been borne by independent sales
agents and certain attendant costs: buy-out costs in connection with the
termination of certain sales agents; salaries paid to new personnel in advance
of their establishment of a customer base; and the cost of supplying surgical
instrumentation sets to such offices, the cost of which had previously been
borne by the independent sales agents.

The orthopedic industry is experiencing a period of significant transition
as a result of health care reform. While cost containment issues have existed
for several years outside of the United States, these are relatively recent
phenomena in the U.S. orthopedic market. Trends in the U.S. market, which have
had an impact on the Company, include the increased movement toward the
provision of health care through managed care, significant emphasis on cost
control and related pressures.

The advent of managed care in the orthopedic products industry has meant
greater attention to tradeoffs of patient need and product cost, so-called
demand matching, where patients are evaluated as to their age, need for
mobility, and other parameters, and are then matched with a replacement
product that is cost effective in light of such evaluation. This has led
(particularly from mid-1995 onward) to an increase in unit sales of lower-
priced,

cemented products, sales of which constitute an increasing share of the
Company's overall unit growth. Such shift in product mix has and is expected
to continue to have an impact on the Company's sales with respect to hip
replacement systems and, to a lesser extent, knee replacement systems.

The main customers for orthopedic products are hospitals and clinics. Prior
to the emergence of managed care and its focus on the control of rising health
care costs, the surgeon had the main decision-making power with respect to
which orthopedic device to use. As a result of health care reform, the U.S.
health care industry has seen a rapid expansion of managed care at the expense
of traditional private insurance, the advent of hospital buying groups,
national purchasing contracts and various bidding procedures imposed by
hospitals or buying groups. These buying groups often enter into extensive
preferred supplier arrangements with one or more manufacturers of orthopedic
or other medical products in return for price discounts. The Company, in
responding to the phenomena of health care reform and the pressures of managed
care, has entered into agreements with selected buying groups such as
Columbia/HCA involving discounted pricing. The effect of this has been to
reduce the per unit margins for products sold to such groups, which reduction
is beginning to be offset by higher levels of product sales and increased
market share.

The Company's growth in recent years has been achieved, in part, by means of
acquisitions. Principally through several acquisitions, the Company has
substantially increased its revenue base, diversified its product offerings,
increased its market share in reconstructive devices and expanded its
geographical markets. In 1993, the Company entered into the spinal implant
market through the formation of a joint venture with Biedermann Motech GmbH.
In 1994, the Company expanded its position in the trauma device market through
the acquisition of DePuy ACE. Also in 1994, DePuy International acquired CMW,
a bone cement manufacturer. The 1996 acquisition of DePuy OrthoTech expanded
the Company's position in the sports medicine device market. In addition to
its expansion in product markets, the Company has also expanded its
geographical markets. Beginning in 1988 and continuing in the present, the
Company has implemented a plan to establish a separate, Company-owned
distribution subsidiary in each major market or potential major market.
Management is continuing to pursue its acquisition strategy and believes the
opportunity to pursue acquisitions and strategic alliances will allow the
Company to continue to expand its revenue base and further improve its market
share and breadth of product offerings.

For the full year 1995, 45% of the Company's sales were outside of the
United States. To manage the foreign exchange risk associated with the
operations outside of the United States, the Company's subsidiaries have, and
will for the immediate future enter into, foreign currency exchange contracts
with Corange to reduce exposure to exchange rate movements. Such contracts are
negotiated on an annual calendar year basis in June of each year. Realized
foreign currency gains and losses are recognized when incurred.

The Company has entered into arrangements with certain of its consultants
and former sales representatives whereby they are to receive future cash
payments as compensation for services to be rendered to the Company. The
Company is currently evaluating a plan to make one or more registered
offerings, as soon as administratively practicable after the Offering made
hereby, which would provide such consultants and/or sales representatives the
opportunity to receive stock options to purchase shares of the Company's
Common Stock, such options to be exercisable at the initial public offering
price, in lieu of the cash payments which would be payable to such persons by
the Company. In addition, the Company is considering a proposal whereby it
would offer to prepay the discounted cash value of some or all of the payments
which would be payable to such former sales representatives. There can be no
assurance that any such offers will be accepted or, if any are, how many will
be accepted and what would be the aggregate of the value of the options issued
and the amount of the prepayments made to persons accepting such offers. With
respect to any such offers which are accepted, the Company would recognize an
expense, in the fourth quarter of 1996, in respect of such aggregate of the
value of the options issued and the amounts of the prepayments made to such
persons, but would avoid expenses in future periods in respect of the cash
payments which would have been made to such consultants. The Company intends
to limit the aggregate of the value of any options so issued and the amount of
any such prepayments, so that the maximum expense, if any, recognized in the
fourth quarter of 1996 would not exceed $15 million.

The following table summarizes the selected financial information expressed
as a percentage of net sales and the change from year to year:

PERCENTAGE OF NET SALES PERCENTAGE CHANGE
------------------------------------------ ---------------------------
SIX MONTHS
ENDED JUNE
YEARS ENDED DECEMBER 31, 30, 1994 1995 JUNE 30, 1996
---------------------------- ------------ VS. VS. VS.
1993 1994 1995 1995 1996 1993 1994 JUNE 30, 1995
-------- -------- -------- ----- ----- ----- ----- -------------

Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 18.2% 15.4% 8.0%
Cost of sales........... 32.6 31.3 31.4 32.4 30.5 13.8 15.7 1.6
-------- -------- -------- ----- -----
Gross profit.......... 67.4 68.7 68.6 67.6 69.5 20.4 15.2 11.0
-------- -------- -------- ----- -----
Selling, general and
administrative
expenses............... 33.8 35.4 36.2 34.5 36.7 23.6 18.2 15.0
Research and development
expenses............... 3.7 3.4 3.4 3.3 2.9 7.3 14.6 (4.8)
Goodwill amortization... 2.1 2.5 2.2 2.2 1.9 40.2 .8 (8.4)
-------- -------- -------- ----- -----
Operating income...... 27.8 27.4 26.8 27.6 28.0 16.6 12.7 9.5
-------- -------- -------- ----- -----
Interest expense and
other (net)............ .6 .3 .9 .5 .6 (42.1) 246.2 39.0
-------- -------- -------- ----- -----
Income before taxes
and equity in
earnings of
uncombined
affiliate............ 27.2 27.1 25.9 27.1 27.4 17.8 10.2 9.0
-------- -------- -------- ----- -----
Provisions for income
taxes.................. 12.2 11.9 11.4 11.7 11.9 15.4 10.6 9.0
Equity in earnings of
uncombined affiliate... .5 .5 .4 .5 .4 32.0 (6.9) (22.5)
-------- -------- -------- ----- -----
Net Income............ 15.5% 15.7% 14.9% 15.9% 15.9% 20.3 9.3 8.1
======== ======== ======== ===== =====

The following table summarizes the Company's operating results by quarter
for 1994, 1995 and the first two quarters of 1996:

MARCH JUNE SEPT DECEMBER MARCH JUNE SEPT DECEMBER MARCH JUNE
------ ------ ------ -------- ------ ------ ------ -------- ------ ------
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
------ ------ ------ -------- ------ ------ ------ -------- ------ ------
(IN MILLIONS)

Net sales............... $129.9 $137.3 $136.0 $ 148.6 $161.1 $162.1 $148.4 $164.9 $173.1 $175.9
Cost of sales........... 43.9 43.8 44.5 40.7 52.6 52.2 46.9 48.4 53.4 53.1
Selling, general and
administrative
expenses............... 42.6 45.3 48.0 59.1 54.8 56.7 55.8 63.3 63.3 64.9
Research and development
expenses............... 4.5 5.1 4.9 4.1 5.2 5.3 5.4 5.4 5.0 5.0
Goodwill amortization... 3.0 3.7 3.7 3.7 3.4 3.8 3.6 3.4 3.1 3.5
------ ------ ------ ------- ------ ------ ------ ------ ------ ------
Operating income...... 35.9 39.4 34.9 41.0 45.1 44.1 36.7 44.4 48.3 49.4
------ ------ ------ ------- ------ ------ ------ ------ ------ ------
Interest expense and
other (net)............ .3 .5 .6 .2 .8 .5 .9 3.4 1.4 .6
Provisions for income
taxes.................. 15.7 17.1 15.1 17.9 18.8 19.2 16.1 18.6 20.2 21.1
Equity in earnings of
uncombined affiliate... .8 .8 .6 .8 .8 .8 .6 .7 .7 .5
------ ------ ------ ------- ------ ------ ------ ------ ------ ------
Net income............ $ 20.7 $ 22.6 $ 19.8 $ 23.7 $ 26.3 $ 25.2 $ 20.3 $ 23.1 $ 27.4 $ 28.2
====== ====== ====== ======= ====== ====== ====== ====== ====== ======

RECENT DEVELOPMENTS

The Company expects to report the following financial results for the
quarter and nine months ended September 30, 1996:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
PERCENTAGE PERCENTAGE
1995 1996 CHANGE 1995 1996 CHANGE
------ ------ ---------- ------ ------ ----------
(IN MILLIONS) (IN MILLIONS)

Net sales..................... $148.4 $167.3 12.7% $471.6 $516.3 9.5%
Operating income.............. 36.7 43.9 19.6 125.9 141.6 12.5
Net income.................... 20.3 24.0 18.2 71.8 79.6 10.9

The acquisition of DePuy OrthoTech contributed approximately 3% of the net
sales growth in the third quarter. The remaining approximately 10% increase in
net sales was primarily due to continued penetration of the worldwide spinal
implant market and increased international sales in all product lines, offset
by the continued impact of lower average prices on reconstructive products in
the U.S. Operating income as a percentage of net sales for the quarter ended
September 30, 1996 increased to 26% compared to 25% during the same period in
1995 primarily due to improved gross margins resulting from manufacturing
efficiencies, cost controls and increased volume. The increased margins were
partially offset by higher selling, general and administrative expenses
related to the continued costs associated with converting the Company's U.S.
distribution structure from independent sales agents to Company-managed
territories.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995

Net sales were $349.0 million for the six months ended June 30, 1996,
representing an increase of $25.7 million, or 8%. Continued penetration of the
spinal implant market caused total sales to increase by 2%. The acquisition of
DePuy OrthoTech in March 1996 resulted in additional sales growth of 2%. The
effects of foreign exchange rates in 1996 compared with 1995 resulted in an
unfavorable impact on sales of 2%. The remaining 6% increase in sales related
to market growth in international markets, partially offset by the negative
impact of lower average prices in the U.S. resulting from managed care
contracts.

Increased volume of 9% was the primary component of the worldwide sales
improvement with net pricing changes having a 1% positive impact on sales
growth.

Sales to unaffiliated customers within the United States rose $7.5 million,
or approximately 4%. This growth was primarily attributable to the acquisition
of DePuy OrthoTech in March 1996 and to increased sales of spinal and shoulder
implants.

International sales to unaffiliated customers rose $18.2 million, or 14%.
This increase in sales was related to continued expansion in the European,
Asia/Pacific and South American regions. Sales in these areas grew by 10%, 6%
and 1%, respectively, during the six months ended June 30, 1996 (exclusive of
the effects of foreign exchange). The negative effect of foreign exchange
rates caused the increase in international sales to be 5% less than it
otherwise would have been during such six-month period.

The Company's gross profit for the six months ended June 30, 1996 was $242.5
million, or 69.5% of sales, as compared to 67.6% of sales for the prior six-
month period. This margin improvement resulted from increased sales of spinal
products and manufacturing efficiencies obtained through cost controls and
higher unit sales, the combined impact of which more than offset the negative
impact of lower average prices realized in the U.S.

Selling, general and administrative expense totaled $128.2 million for the
first six months of 1996, or 36.7% of sales, as compared to 34.5% realized in
the first half of the prior year. The primary reason for this increase as a
percent of sales was the cost associated with converting 75% of the Company's
U.S. distribution structure from

independent sales agents to Company-managed territories under the
responsibility of Territory Sales Managers. As part of this conversion, the
Company incurred additional (in certain cases, one time) costs totalling $7.5
million, primarily related to new surgical instrumentation and additional
administration expenses incurred to set up the new territory offices. In
addition to these costs, the Company continued to invest in the development of
the U.S. sales infrastructure and in the expansion of its business in the
spinal and international markets.

Research and development expense decreased $.5 million during the first six
months of 1995 as compared to the same period in 1996, primarily as a result
of a modest decrease in such expenses and the timing of certain research
expenditures.

Goodwill amortization totaled $6.6 million for the first six months of the
year, representing an 8.4% decrease compared to the prior year. This decrease
primarily related to certain goodwill assets becoming fully amortized during
the third quarter of 1995.

The Company reported a 9% increase in operating income to $97.7 million for
the six months ended June 30, 1996, or 28.0% of sales, as compared to $89.2
million for the same period in 1995, or 27.6% of sales. The increase was
primarily attributable to improved gross margins, offset by additional
expenses incurred in selling, general and administrative expense and by the
negative impact of lower average prices in the U.S. resulting from managed
care contracts.

Interest expense was $3.4 million, representing a $.8 million increase over
the prior year. This higher expense primarily resulted from higher interest
expense related to additional indebtedness of approximately $7.0 million
incurred to fund the expansion of international operations in existing and new
subsidiaries.

The effective income tax rate was 43.2% in 1996 and 1995.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net sales were $636.6 million for the year ended December 31, 1995,
representing an increase of $84.8 million, or 15%, compared with the prior
year. Continued penetration of the spinal implant market caused total sales to
increase by 3%. The inclusion for a full year of sales by CMW (acquired in
November 1994), and DePuy ACE (acquired in March 1994), resulted in additional
sales of 3%. The remaining 9% increase in sales related to the effects of
favorable exchange rates and market growth in both the international and U.S.
markets. Increased volume of 12% was the primary component of the worldwide
sales improvement. The effect thereon of net pricing changes was
insignificant. The effects of a weaker dollar in 1995 compared with 1994
resulted in a favorable impact on sales of 2%.

Sales to unaffiliated customers within the United States rose $18.4 million
or 5%. This growth was primarily attributable to increased sales of knee and
spinal implants and continued growth in the trauma market.

International sales to unaffiliated customers rose $66.4 million or 34%. The
CMW acquisition contributed 6% of this international growth and the positive
effect of foreign currency rates contributed an additional 7% increase.
Expansion in the European, Asia/Pacific and other regions, excluding the
effects of foreign exchange, caused sales to grow by 11%, 6% and 4%,
respectively, during 1995.

The Company's gross profit for 1995 was $436.4 million, or 68.6% of sales,
decreasing slightly compared to 68.7% of sales reported for the prior year.
Manufacturing efficiency improvements offset the negative impact of lower
average prices in the U.S. resulting from managed care contracts.

Selling, general and administrative expense totaled $230.6 million for the
year, or 36.2% of sales, as compared to 35.4% of sales in the prior year. This
increase was primarily the result of higher selling expense incurred as
efforts continued to strengthen the U.S. sales force infrastructure and
investments were made to grow the spinal implant business and to expand
international distribution. Increased investment in surgical instrumentation
sets provided to customers also produced higher selling expense during the
current year. See "Business--Marketing and Sales."

Research and development expense increased 14.6% for the year, but remained
constant at 3.4% of sales. The Company continues to make investments in
technological advancements in order to remain competitive in the orthopedic
market and to provide its customers with the latest technology available.

Goodwill amortization totaled $14.2 million for the year, representing a 1%
increase over the prior year. This increase related primarily to the goodwill
recorded in conjunction with the acquisition of CMW in November 1994 and to
the full year amortization of goodwill relating to the acquisition of DePuy
ACE in March 1994, partially offset by certain goodwill assets becoming fully
amortized during the first half of 1995.

Operating income for the year was $170.3 million, or 26.8% of sales, a 13%
increase as compared to operating income of $151.1 million, or 27.4% of sales
in the prior year. The decrease in operating income as a percentage of sales
was primarily attributable to additional expenses incurred as the Company
continued to invest in the strengthening of the U.S. sales infrastructure, the
expansion of the international and spinal implant markets and the increased
cost of providing surgical instrument sets. The negative impact of managed
care cost constraints was also a contributing factor.

Interest expense was $6.5 million, representing a $4.2 million increase over
the prior year. This higher expense primarily resulted from interest related
to additional indebtedness of approximately $35.0 million incurred to fund the
CMW acquisition.

The effective income tax rate remained essentially constant, at 44.1% in
1995 compared to 44.0% in 1994.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

DePuy reported net sales of $551.8 million for the year ended December 31,
1994, representing an increase of $85.0 million or 18%. The Company acquired
DePuy ACE in March 1994, resulting in a sales increase of $29.5 million
representing 6% of the total sales increase. Sales of spinal implants
increased $9.3 million in 1994, contributing 2% of the increased sales as
compared to 1993, reflecting the growth in this market which DePuy entered in
1993. The remaining 10% growth in sales related to U.S. and international
market growth and to a favorable impact from currency exchange rates.

Increased volume of 15% was the primary component of the worldwide sales
improvement. Net pricing changes were responsible for an increase of 2% and
the effects of a weaker dollar in 1994 compared with 1993 resulted in a
favorable impact on sales of 1%.

Sales to unaffiliated customers within the United States rose $51.9 million
or 17%. The majority of this increase was attributable to the DePuy ACE
acquisition which contributed $29.5 million to the United States sales.
Excluding DePuy ACE, sales rose by 7% as a result of increased market share in
both the hip and knee implant markets with record sales of the LCS, AMK and
Coordinate knee systems, and the Endurance and Stability hip systems.

International sales to unaffiliated customers increased $33.2 million
representing a 21% increase in sales as compared to 1993. The Asia/Pacific
region contributed 8% of this growth, realizing a 32% increase in sales as
compared to the prior year. The remaining 13% growth resulted primarily from
increased sales in European countries associated with a gain in market share.

The Company's gross profit for 1994 was $378.8 million, or 68.7% of sales as
compared to 67.4% for the prior year. This improvement was due to favorable
shifts in the sales mix of certain products and to manufacturing efficiencies
obtained through cost controls and higher unit volume sales.

Selling, general and administrative expense was $195.0 million for the year,
or 35.4% of sales, as compared to 33.8% in the prior year. This increase was
primarily the result of higher selling expenses incurred to strengthen the
U.S. sales force infrastructure, investments made to grow the spinal implant
business and to expand international distribution. Increased investment in
surgical instrumentation sets provided to customers also

produced higher selling expense during 1994. See "Business--Marketing and
Sales." In addition, general and administrative expense increased slightly as
a percentage of sales due to the acquisition of DePuy ACE, which had
relatively higher general and administrative expense as a percentage of sales.

Research and development expense increased 7.3% for the year, but decreased
as a percentage of sales to 3.4% as compared to 3.7% for the prior year. This
decrease reflected the effect of sales growing at a proportionately higher
rate than research costs. The Company continues to make investments in
technological advancements in order to remain competitive in the orthopedic
market and to provide its customers with the latest technology available.

Goodwill amortization amounted to $14.1 million for the year, representing a
40% increase over the prior year. Substantially all of this increase related
to the goodwill recorded in connection with the acquisition of DePuy ACE in
March 1994.

The Company reported operating income of $151.1 million in 1994, or 27.4% of
sales, as compared to $129.6 million in 1993, or 27.8% of sales. This slight
decrease as a percentage of sales was primarily attributable to higher selling
expenses related to continued investment in the growth of the business.

The effective income tax rate decreased from 44.9% in 1993 to 44.0% in 1994,
primarily due to increased nondeductible goodwill and other miscellaneous
permanent differences.

LIQUIDITY AND CAPITAL RESOURCES

Cash generated from operations is the principal source of funding available
and provides adequate liquidity to meet the Company's operational needs. Cash
and cash equivalents totaled $44.7 million at June 30, 1996, compared with
$46.9 million at December 31, 1995.

Working capital at June 30, 1996, was $195.4 million, representing an $18.6
million increase from December 31, 1995. The annualized inventory turnover
ratio for the six months ended June 30, 1996 was 1.7, which was the same rate
experienced during the twelve months ended December 31, 1995. The annualized
accounts receivable turnover rate was 5.6 for the first six months of 1996,
decreasing slightly from 5.8 in 1995.

Operating activities generated $64.5 million in cash during the first six
months of 1996 as compared to $66.5 million of cash provided in the prior
year. The $2.0 million decrease resulted primarily from a higher investment in
inventories during the first six months of 1996 caused by changes in the
Company's method of distribution and higher investments in surgical
instrumentation sets offset by receipt of payment during the first six months
of 1996 of an affiliate receivable outstanding at December 31, 1995.

Cash flows used for investing activities totaled $65.0 million in the first
six months of 1996 including $45.9 million paid in consideration for the
acquisition of DePuy OrthoTech (net of cash received), capital expenditures of
$13.1 million and $6.0 million of deferred payments made in 1996 related to
the DePuy ACE and CMW acquisitions. In 1995, cash flows used for investing
activities of $23.8 million included deferred payments on previous
acquisitions of $17.5 million and $6.3 million for purchases of machinery and
equipment. The increase in capital expenditures from six-month period to six-
month period primarily was the result of items being deferred from the second
half of 1995 to the first half of 1996.

Cash flows used for financing activities were $.2 million in the first six
months of 1996 and included $35.0 million of advances received from CUSHI, an
affiliate, as part of the centralized cash management system described below,
used for the DePuy OrthoTech acquisition offset by a net decrease in debt of
$31.4 million and $3.8 million in dividends paid to another affiliate. During
the first six months of 1995, cash flows used by financing activities totaled
$39.3 million resulting from $29.1 million of advances to CUSHI, representing
advances under the cash management system described below, and a $10.2 million
decrease in debt.

Prior to the Offering, the U.S. subsidiaries of DePuy participated in a
centralized cash management system with CUSHI. Cash generated by the Company
in the U.S. was advanced to CUSHI and classified as a reduction in
shareholder's net investment on the balance sheet. As of June 30, 1995 and
1996, these advances totaled $202.9 million and $220.6 million, respectively.
After the reorganization of the Company, the cash generated by the Company
will be maintained in its own accounts and will be available for use by the
Company. The Company has $60.5 million in principal amount in indebtedness to
affiliates in the Corange group, which indebtedness will remain outstanding
following the Offering, of which $29.3 million in principal amount of such
indebtedness is due in 1996. See "Certain Transactions." $6.1 million is in
the form of demand notes with no specified maturity dates. The Company does
not believe it has any present need for additional financing to fund existing
operations. If financing becomes necessary, the Company will pursue credit
facilities from commercial sources.

The Debt Facility limits aggregate borrowings by all entities of the Corange
group, including the Boehringer Mannheim companies and the DePuy companies,
and such covenants may limit the Company's ability to borrow money or to
acquire any entity which has significant indebtedness, unless Corange is able
to procure a waiver of such covenants from the lenders under the facility. See
"Certain Transactions."

The Company anticipates that it will pay dividends on a quarterly basis,
provided that funds are legally available therefor and subject to the
discretion of the Board of Directors. See "Dividend Policy." Capital
expenditures are expected to be approximately $22.0 million in 1996, primarily
consisting of purchases of machinery and equipment. In addition to these
funding requirements, the Company expects to continue to evaluate potential
acquisitions to expand its business.

The Company has historically been able to fund its capital and operating
needs through its cash flow from operations and expects to be able to continue
to do so through the end of its next full fiscal year and beyond. The Company
believes that the net proceeds from the Offering made hereby and its ability
to issue additional shares of Common Stock and to obtain credit lines,
together with its cash flow from operations, will provide it with the ability
to fund its acquisition strategy.

REGULATORY AND LEGAL MATTERS

DePuy and BMC jointly are insured for product liability through Bellago
Insurance Limited of Hamilton, Bermuda ("Bellago"), a wholly-owned subsidiary
of Corange, for $2.0 million per occurrence, $5.0 million per group of related
claims and $10.0 million in the aggregate annually. Claims in excess of these
stated limits are currently insured through joint policies with commercial
carriers. See "Certain Transactions." On an annual basis, the Company attempts
to obtain the optimal premium and the optimal coverage level. The Company has
not experienced any difficulty to date in obtaining insurance coverage and
does not anticipate any problems in the future.

The Company is subject to a number of lawsuits and claims during the normal
course of business. Management does not expect that resulting liabilities
beyond provisions already recorded will have a material adverse effect on the
Company's financial position, results of operations or cash flows. See
"Business--Legal Proceedings."

The Company is subject to the regulations of the Medical Device Amendments
of 1976 to the Food, Drug and Cosmetic Act and additional regulations
promulgated by the FDA. These regulations require adherence to certain safety
standards and ensure the quality and effectiveness of the medical devices
being manufactured. See "Business--Government Regulation."

BUSINESS

THE COMPANY

DePuy, Inc. is one of the world's leading designers, manufacturers and
distributors of orthopedic devices and supplies. The Company's products are
used primarily by orthopedic medical specialists and, in the case of the
Company's spinal implants, neurosurgeons in both surgical and non-surgical
therapy to treat patients with musculoskeletal conditions resulting from
degenerative diseases, deformities, trauma and sports-related injuries. The
Company's products cover a broad range of orthopedic needs and include primary
and revision hip, primary and revision knee, shoulder, elbow, wrist and ankle
implants to reconstruct damaged joints; spinal implants to facilitate fusion
of elements of the spine and to correct deformities; trauma products to
reconstruct small and large bone fractures; and implants, instruments, knee
braces and other soft good supplies for the rehabilitation of sports-related
injuries. Additionally, the Company markets complementary products for the
operating room.

Founded in 1895 by Revra DePuy, DePuy is the world's oldest manufacturer of
orthopedic devices and, at various points in its history, employed the
founders of many of its present-day major competitors. DePuy was sold to a
group of private investors in 1965, who in turn sold the Company to Bio-
Dynamics, Inc. In 1974, Boehringer Mannheim, a leading European
pharmaceutical, chemical and diagnostic company, purchased Bio-Dynamics and,
with it, DePuy. In 1985, Corange was formed as a holding company for the
Boehringer Mannheim and DePuy businesses. The Company is currently wholly-
owned by Corange and certain wholly-owned subsidiaries of Corange.

INDUSTRY BACKGROUND

The orthopedic industry consists of reconstructive implants for joint
replacement, spinal implants, trauma products, arthroscopic and sports
medicine and soft goods products, bone cement and related products and
instruments.

The orthopedic product market is believed by the Company to have had
approximately $7.0 billion in 1995 sales worldwide, with U.S. sales
constituting approximately $3.9 billion of that total. The Company estimates
that reconstructive products accounted for approximately $3.1 billion of the
1995 worldwide orthopedic market, with the U.S. and international markets
split equally with approximately $1.5 billion each. The reconstructive
products market may further be divided into hip devices (with 1995 worldwide
sales of approximately $1.6 billion), knee devices (with 1995 worldwide sales
of approximately $1.4 billion), and extremities devices for shoulders, wrists,
elbows and ankles (with 1995 worldwide sales of approximately $80 million).
The Company believes that it is one of the leading manufacturers of
reconstructive products worldwide, having a worldwide market share of
approximately 15% in 1995 and the second leading manufacturer in the U.S.,
having approximately a 17% market share in 1995. With respect to hip products,
the Company believes that it is one of the three leading manufacturers
worldwide and one of the two leaders in the U.S., having market shares of
approximately 16% and 23%, respectively, in 1995. Within the knee market, the
Company believes it is the fourth leading manufacturer worldwide and in the
U.S., having market shares of approximately 13% and 12%, respectively, in
1995. The Company believes it is the leading manufacturer within the
extremities market, with an approximate 26% market share worldwide and 29%
market share in the U.S. in 1995. The spinal market, one of the fastest
growing segments in musculoskeletal surgery, is believed by the Company to
have had approximately $400 million in 1995 sales worldwide, with
approximately $200 million of such sales in the U.S. The Company believes
that, within this segment, it is the fourth leading manufacturer worldwide and
in the U.S. The Company estimates that the remaining 1995 worldwide markets
were as follows: approximately $980 million for trauma products used in the
internal and external fixation of fractures and approximately $790 million in
the arthroscopy, sports medicine and soft goods market.

markets, growth will largely be due to the increase in the number of people
over age 65, an increasingly fitness-oriented population that has subjected
its joints to greater wear, improvement in implant technology, the development
of successful orthopedic procedures for more body parts such as the shoulder
and spine, and increased use of implants in younger patients. The population
over 65 years of age in these countries continues to grow, both in absolute
terms and as a percentage of the population, and the continuing aging of the
population increases the number of individuals whose joints will be subject to
failure. Further, the so-called "baby-boomer" generation is approaching the
age where arthritis and osteoporosis begin to require orthopedic products. By
2020, the U.S. Census Bureau predicts a 63% increase in the population over
age 65, from 35 million to 53 million. The same trends exist in Japan, Germany
and other highly developed countries. As this segment of the population
continues to age, an increasing demand for orthopedic products is anticipated.
Finally, some of the earlier generations of hip and knee implants have begun
to reach the end of their useful lives, resulting in an increased demand for
hip and knee revision surgeries. While an older population represents a strong
long-term market potential for the Company, an increasingly health-conscious,
athletic and physically active population will continue to build the market
for sports medicine and arthroscopy products as well as joint replacement
products.

Significant growth opportunities in the reconstructive product market over
the next decade should result from the emergence of strong economies in Asia,
such as Korea and Taiwan. These countries now have both the ability to pay for
advanced orthopedic procedures and increasingly aging populations. Joint
replacement surgeries are relatively new in these countries, and penetration
of these markets is comparatively lower than in the United States, Europe and
Japan. In addition, emerging market countries, including countries in South
America and Asia as well as countries in the former Eastern Bloc, are untapped
markets with respect to orthopedic procedures.

The main customers for orthopedic products are hospitals and clinics. Within
the U.S., health care reform and the emergence of managed care are changing
the dynamics of the health care industry. During the last few years, the major
third-party payors of hospital services--Medicare, Medicaid and commercial
health care insurers--have substantially revised their payment methodologies
to contain rising health care costs. The resulting and anticipated changes in
third-party reimbursement levels, and the overall escalating cost of medical
products and services, have placed increasing pressure on health care
providers (i.e., hospitals and clinics) to reduce the cost of such products
and services.

In response, health care providers have attempted to control costs by
authorizing fewer elective surgical procedures, requiring the use of less
expensive products and devices, instituting review committees to review buying
decisions and pressuring product manufacturers to lower prices. Traditionally,
the orthopedic surgeon had the main decision-making power with respect to
which orthopedic devices and supplies to use. The advent of hospital buying
groups, national purchasing contracts and various bidding procedures imposed
by hospitals or buying groups to increase buying power and encourage lower
prices have added to the number of people who make or influence the purchasing
decision. These trends have expanded the traditional customer base in the
orthopedic industry beyond the individual surgeon to include hospital
administrators, material management personnel, purchasing agents and review
committees. As hospitals and surgeons focus more on the economics of
orthopedic procedures, manufacturers are facing new dynamics in their
marketing practices, and in certain cases there has been a more conservative
use of higher priced implants.

The emergence of managed care is also increasing the importance of clinical
and patient satisfaction data. In a managed care environment, physicians and
hospitals rely more heavily for patient referrals on the relationships and
contracts they have with local third party payors and integrated health care
delivery networks. Payors and health care networks are demanding that surgeons
and health care facilities prove their status as suppliers of quality health
care. In order to prove their status, surgeons and health care facilities are
increasingly seeking documented clinical outcomes results, such as time to
failure/survival rates (the probability an implant is still functioning in
patients for a given period), and patient satisfaction data and are electing
to use products for which such data is available. Given the Company's high
survival rates for key products, compiled for the longest time periods
available in the orthopedic industry, and extensive experience in collecting
clinical data, the Company believes it is well positioned for this
environment. See "--Business Strategy."

The Company believes that the dynamics of the orthopedic product market
require companies to: (i) offer broad based product lines, (ii) offer
technologically advanced devices, (iii) focus on the changes in the U.S.
health care industry, including managed care, (iv) expand into additional and
emerging geographical markets and (v) focus on developing new and innovative
products and materials. The Company believes it is well positioned to meet
these requirements.

BUSINESS STRATEGY

The Company believes a number of significant competitive advantages have
allowed it to establish a leading market position including:

(i) high quality, clinically-proven products in the major segments of
the reconstructive product market;

(ii) product lines with cutting edge technology in the major growth
segments of the orthopedics industry;

(iii) a history of successful product innovation and enhancement;

(iv) access to future technologies through joint venture relationships
and cooperative research projects with third parties;

(v) an early focus on the changing dynamics of the industry in the
managed care environment;

(vi) global marketing and distribution networks;

(vii) cost-effective manufacturing;

(viii) a seasoned management team with broad experience in the
orthopedic industry; and

(ix) proven success in making and integrating acquisitions.

The Company's strategy is to leverage these competitive strengths with new
products and acquisitions and to further expand into growing orthopedic
markets. The principal elements of this strategy are outlined below.

Continue to increase market position and leverage across segments: DePuy's
core products are, and have traditionally been, reconstructive implant devices
for hips and knees. The Company believes it is one of the leading
manufacturers of reconstructive products worldwide with 1995 sales of $450.1
million and a worldwide market share of approximately 15%. In the U.S., the
Company believes it is the second leading manufacturer with a market share of
approximately 17% in 1995. The Company achieved this market penetration and
seeks to continue to gain market share through its reputation and history of
over one hundred years of advanced research and development, product
innovation and quality products with proven clinical results. Currently, these
products are marketed primarily to orthopedic medical specialists through a
network of approximately 500 independent, commissioned sales associates in the
U.S. and 18 non-U.S. distribution subsidiaries internationally.

Having established itself as one of the market leaders in reconstructive
implant devices throughout the world, the Company has adopted a strategy to
expand its product line to cover the full range of orthopedic products through
internal development, alliances and acquisitions that are compatible with its
core implant business. Since 1993, the Company has completed four joint-
venture or acquisition transactions, expanding into the spinal implant, trauma
device, bone cement and sports-medicine device markets. As with reconstructive
implant devices, these products are marketed primarily to orthopedic or spinal
medical specialists, allowing the Company to leverage its historic success
into other and, in certain cases faster growing, segments of the orthopedic
products market.

Increase presence in international markets: As part of its business
strategy, the Company intends to increase its position in target geographical
markets, including emerging markets. Recognizing that much of the future
growth in its core orthopedic implant industry would come from international
markets, the Company began focusing in the late 1980s on increasing its sales
outside the United States by acquiring distribution channels outside the U.S.
International sales have increased to 45% of total sales in 1995, up from 33%
in 1991 and 11% in 1988. In 1990, DePuy acquired Charles F. Thackray Limited
("Thackray") based in England thereby

acquiring not only the Charnley Hip System (the "Charnley Hip"), the industry
standard for cemented hip implant systems, but also critical additional
penetration of the European market. Beginning in 1988 with the acquisition of
the former Chevalier A.G. (renamed De Puy A.G.), located in Switzerland, and
continuing to the present time, the Company has implemented a plan to
establish a separate, Company-owned distribution subsidiary in each major
market or potential major market. Currently, the Company has distribution
subsidiaries in England, Canada, Germany, France, Italy, Switzerland, Austria,
Spain, Sweden, Japan, Korea, Singapore, Mexico (to begin operations in the
fourth quarter of 1996), Taiwan, Hungary, the Czech Republic, Australia, New
Zealand and Argentina and is forming a subsidiary in India. In addition, the
Company is increasing its investment in emerging markets, including pursuing a
joint venture in China. See "--Marketing and Sales."

Increase presence in growth segments: In addition to its geographical
expansion, the Company plans to continue its expansion into markets
complementary to its core reconstructive products. The Company's acquisitions
and alliances have focused not only on geographic expansion, but also on the
entry into high growth markets such as spine, trauma and sports medicine. In
1993, the Company entered the expanding market of spinal implants through the
formation of DePuy Motech, Inc. ("DePuy Motech"), a joint venture with
Biedermann Motech GmbH of Germany, which is 80% owned by the Company. By 1995,
this effort resulted in the Company becoming the fourth largest participant in
the worldwide spinal implant market, with sales of $30.6 million. In 1994, the
Company expanded its position in the trauma device market though the
acquisition of DePuy ACE, a leading manufacturer of titanium alloy trauma
products and externally applied fixation devices used for the treatment of
fractures. Sales by DePuy ACE in 1995 were $49 million worldwide. Also, in
1994, DePuy International (formerly Thackray, acquired by the Company in 1990)
acquired CMW, the oldest orthopedic bone cement manufacturer in the world. In
April 1996, the Company also expanded its position in the fast-growing sports
medicine device market through its acquisition of DePuy OrthoTech, a
manufacturer and distributor of external braces used in the prevention or
rehabilitation of sports induced knee injuries. Many of the Company's target
markets remain fragmented, providing opportunities for continued
consolidation.

Develop orthobiological and enhanced materials technologies: While striving
to improve, enhance and expand the market of its present product lines, the
Company is also looking toward the next generation of products for the next
century by following a multi-pronged strategy of strategic alliances,
licensing of technology and in-house research. The Company believes the next
generation of orthopedic products will be based on biotechnology (which the
Company has termed orthobiologics), which encompasses tissue engineering
and/or regeneration, growth factors and proteins, cell technology and gene
therapy. As part of its long-range research efforts in orthobiologics, the
Company is investigating the use of Transforming Growth Factor Beta One
("TGFb-1"), a bioactive protein which stimulates cell growth, in bone
regeneration and cartilage repair and/or regeneration. As another aspect of
its research efforts, the Company is studying the use of Small Intestine
Submucosa ("SIS"), a collagen-based naturally occurring biomaterial, for
ligament, tendon, bone, cartilage, meniscus and rotator cuff applications.
Also, the Company, in collaboration with R&D Biologicals, Inc. ("R&D
Biologicals"), is initiating research to develop technology for the repair
and/or regeneration of articular cartilage using a bioresorbable device. In
addition, the Company conducts advanced material research with E.I. DuPont de
Nemours and Company ("DuPont"). This collaboration has already produced
advanced polymers used as bearing surfaces in some of the Company's implants.
See "--Products--Product Development."

Pursue opportunities in the managed care environment: The transition in the
U.S. toward managed care has created increased pressure on the health care
industry to contain costs while providing quality health care. The Company
plans to aggressively address managed care and believes it is well positioned
to do so.

The Company has actively pursued contracts with national and regional
hospital buying groups as well as individual health care facilities, where the
Company believes that the increase in unit volume produced by high levels of
product sales to such groups and the opportunity for increased market share
offset the financial impact of discounting products. In June 1995, the Company
negotiated agreements with hospital groups such as Columbia/HCA that have
resulted in substantial increases in unit volumes of implants and trauma
products sold to such facilities. Such agreements condition the full benefit
of the discounts on the level of compliance with the purchasing contract each
group produces from its constituent hospitals. Following a similar strategy of

"performance-based contracting," the Company has recently signed or
renegotiated contracts with several other hospital groups.

The Company has also created and introduced the CaptureWare and Profile
Check software packages to help surgeons and health care facilities document
and collect reliable data on costs, clinical results, outcomes and patient
satisfaction. The CaptureWare program is the most comprehensive outcomes
management tool on the market for collecting orthopedic outcomes data. The
Profile Check program assists the physician or health care facility in
standardizing the implant selection process by allowing the physician or
health care facility to match the appropriate DePuy implant technology to an
individual patient's physiological demand level.

Demonstrate superiority of products through careful tracking, evaluation and
promotion of clinical outcomes: By demonstrating the superiority of its
products through careful tracking, evaluation and promotion of clinical
outcomes, the Company believes that it is well positioned in an environment in
which its customers often seek patient referrals from third-party payors and
integrated health care delivery systems. A pioneer in outcomes research, the
Company was the first to evaluate the success of its joint replacement
products using survivorship analysis and plans to continue vigorous outcomes
analysis for new products. The Company has compiled clinical results for the
Charnley Hip and the AML Total Hip System (the "AML Hip") for unmatched
periods of 34 and 19 years, respectively. The Company has compiled long-term
clinical results for the LCS Total Knee System (the "LCS Knee") for 19 years.
The survivorship estimates of these implants are, with respect to the Charnley
femoral hip stem 90% or better at 20 years, with respect to the AML femoral
hip stem 99% at 10 years and with respect to the LCS Knee 97% at 7 years.

Reduce costs through manufacturing efficiencies: As part of its business
strategy, the Company has inventory management and control systems as well as
certain manufacturing procedures to reduce costs and improve efficiencies. The
Company is incorporating manufacturing efficiencies into the design of
instruments and is redesigning certain instruments to reduce manufacturing
costs. Due in large measure to these process improvements, manufacturing lead
times have been considerably reduced, from 25 days in 1994 to 7.2 days in 1996
in the U.S., and from 30 days in 1994 to 15 days in 1996 at DePuy
International in the United Kingdom. The Company also employs robotics as
another means to increase the efficiency of its manufacturing processes.

PRODUCTS

The Company's core products are, and have traditionally been, reconstructive
implant devices for hips and knees. Having established itself as a market
leader in the United States in hip and knee replacements, the Company began,
in the late 1980s, to expand its product line to cover the full range of
orthopedic products through strategic acquisitions and alliances. The
following chart traces the expansion of the Company's product lines during the
last five years. In the chart, reconstructive products include implants for
hips, knees and extremities. See "--Business Strategy."

YEARS ENDED DECEMBER 31, (DOLLARS IN MILLIONS)

SIX MONTHS
ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
-------------- -------------- -------------- -------------- -------------- --------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
NET OF NET OF NET OF NET OF NET OF NET OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------

Reconstructive Prod-
ucts.................. $251.8 74% $317.2 76% $363.2 78% $405.9 74% $450.6 71% $242.2 69%
Spinal Implants........ -- -- -- -- 3.2 1 12.5 2 30.6 5 19.5 6
Trauma Products........ 8.4 3 9.2 2 8.5 2 38.5 7 49.4 8 26.6 8
Sports Medicine(1)..... -- -- -- -- -- -- 27.7 5 29.4 4 21.7 6
Other Products......... 79.7 23 93.5 22 91.8 19 67.2 12 76.6 12 39.0 11
------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
Total................. $339.9 100% $419.9 100% $466.7 100% $551.8 100% $636.6 100% $349.0 100%
====== === ====== === ====== === ====== === ====== === ====== ===

- --------
(1)Prior to 1994, sales of sports medicine products were included in other
products.

At the same time, recognizing that much of the future growth in its core
implant industry would come from international markets, the Company also began
focusing in the late 1980s on increasing its sales outside the United States
by developing distribution channels in countries outside the U.S. See "--
Business Strategy" and "--Marketing and Sales." From 1991 to 1995, non-U.S.
revenue increased from 33% to 45% of total revenues. The following table sets
forth the geographical sources of the Company's revenues for the past five
years, based on customer location during each such year.

YEARS ENDED DECEMBER 31, (DOLLARS IN MILLIONS)

United States........... $226.3 66% $266.3 64% $296.7 64% $333.3 61% $349.9 55% $186.2 53%
Europe.................. 84.9 25 106.6 25 112.6 24 132.8 24 172.2 27 99.8 29
Asia/Pacific............ 18.6 6 35.1 8 42.9 9 68.3 12 90.6 14 50.5 14
Other................... 10.1 3 11.9 3 14.5 3 17.4 3 23.9 4 12.5 4
------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
Total.................. $339.9 100% $419.9 100% $466.7 100% $551.8 100% $636.6 100% $349.0 100%
====== === ====== === ====== === ====== === ====== === ====== ===

PRODUCTS AND MATERIALS INNOVATION

The industry has evolved by the successive development of a series of
solutions to the problems of joint deterioration. DePuy has been at the
forefront of innovation for the past century, and is known for its "firsts" in
the design of certain key orthopedic products and the development of various
new and better materials. The Company strives to be the first to identify a
problem, to seize an opportunity and to design and market an innovative
solution.

. First low friction total hip arthroplasty; first cementless total hip
technology: In 1962, to provide a solution to the problem of arthritic
pain and loss of joint mobility, Sir John Charnley developed the first
low friction total hip implant. His development, the Charnley Hip, now
manufactured and sold by the Company, was also the first total hip
system to use acrylic cement for fixation. In the late 1970s, the
Company began to evaluate alternative methods of fixation, suspecting
cement breakdown and loosening might be causing premature failure in
total hip arthroplasty. In 1977, the Company was the first orthopedic
device manufacturer to introduce a system of cementless fixation,
Porocoat Porous Coating, with the Company's AML Hip. "Porocoat" is the
Company's trademark for its patented porous implant coating, which is
designed to encourage tissue to grow into an implant, thus eliminating
the need for cement. In 1983, the AML Hip became the first implant to be
cleared by the FDA to be indicated for use without cement (i.e., for
biological fixation). In 1990, the Company introduced the Solution
System for revision hip surgery which was the first extensively coated
revision system on the market. The Porocoat coating on the Solution
System hip stem provides additional stability to the surgical procedure
that is inherently delicate since revision surgery is only done when a
prior implant must be replaced.

. First to offer a mobile-bearing knee system: Clinical trials of the LCS
Knee, incorporating mobile-bearings into the design to align the implant
and to more closely simulate the anatomic movement of a natural knee,
began in 1977. In 1985, the LCS Knee became the first mobile-bearing
total knee replacement prosthesis to be approved for marketing by the
FDA, and continues to be the only mobile-bearing knee commercially
available for use in the U.S.

. First to develop a new generation of acetabular cups: In 1990, the
Company began an extensive research and design program to identify the
factors that could contribute to early failures of the acetabular
components, which replace the socket of the hip joint, including
inadequacies of the locking mechanism, insufficient polyethylene
thickness and design shortcomings in the modular polyethylene

liners which, in combination, allowed the liner to migrate after being
implanted. From its findings, the Company was the first to design a
second generation of modular acetabular cup technology, the patented
Duraloc Acetabular Cup System, which featured an advanced sensor locking
ring, a thicker layer of polyethylene throughout the liner and a total
surface-to-surface contact of the shell and liner construct. This
combination provides for the necessary structural support while still
allowing surgical flexibility, component selection and positioning to
match anatomic constraints.

RECONSTRUCTIVE IMPLANTS

Until the early 1960s the orthopedic industry was primarily involved with
the manufacture and sale of products which were intended for treatment of
injuries, most often traumatic injuries. As a result of developments which
began in the late 1950s and the early 1960s, products and procedures were
developed for the treatment of joint disease, such as arthritis, as well.
Total joint replacement surgery replaces worn joints with components made of
stainless steel, titanium alloy or cobalt chromium alloy, depending on the
design, and ultra-high molecular weight polyethylene, a medical grade plastic.
The first widely used products were various forms of hip replacements, some of
which, especially in the early years, involved the replacement of the femoral
side only, but as the years progressed total joint replacement became the
norm. Development of total knee systems followed the development of total hip
replacements.

The worldwide market for reconstructive implant devices in 1995 was
approximately $3.1 billion in sales. Of these sales, approximately 50% were in
the U.S. and 50% were in the rest of the world. Reconstructive products may be
further broken down by category into cemented products, cementless products
and revision products. Cemented products are secured to the bone with a grout
made of polymethylmethacrylate ("cement" or "bone cement"), whereas cementless
products are "biologically fixed," which means the surrounding tissue grows
into the implant's porous, beaded coating, or macro texture features, securing
it without the use of cement. When a primary implant wears out or becomes
loose after years of use, revision surgery is performed.

The Company designs, manufactures and markets a full line of joint
reconstruction implants for the hip, knee, shoulder, elbow, wrist and ankle.

Hip Systems. The Company believes the market for hip implant products in
1995 was approximately $1.6 billion in sales worldwide and $670 million in
sales in the U.S. The Company believes it is one of the three leading
manufacturers of hip implant products worldwide, having sales in 1995 of $268
million, or approximately 16% of the worldwide market, and is one of the two
leaders in the United States, with U.S. sales in 1995 of $152 million, or
approximately 23% of the market.

In hip arthroplasty, the "ball and socket" of the hip joint are replaced
with several components, depending on the product design. The stem, made of
stainless steel, titanium alloy or cobalt chromium alloy, supports the head,
which is comprised of a "ball and neck." The acetabular component, which
usually consists of a polyethylene liner and metal cup or an all polyethylene
cup, replaces the socket. DePuy offers a full line of hip implants to meet
patient needs and surgeon preferences. Its two leading total hip systems are
the Charnley Hip and the AML Hip. The Charnley Hip is one of the leading
cemented hip implants in the world in terms of unit volume. The AML Hip, the
Solution System and the Duraloc Acetabular Cup System are, respectively, the
leading porous coated hip system, the leading revision hip system and the
leading acetabular cup in the U.S. in terms of unit volume.

AML Total Hip System. The AML Hip is a cementless system that uses a
proprietary porous implant coating to secure the implant in place through
biological fixation. Considered the Company's flagship product, the AML hip
stem was the first implant to be cleared by the FDA to be indicated for use
without cement and has the longest clinical history of any cementless hip
implant on the market today, with a 99% survivorship estimate at 10 years for
the AML femoral hip stem. The AML Hip family of products is the most widely
used family of cementless implants in the U.S.

Charnley Hip System. Unlike the U.S., in the U.K. and much of Europe
cemented hip systems, which are less expensive, continue to be preferred. The
Charnley Hip is a specialized stainless steel alloy cemented hip

implant. It was the world's first low friction total hip implant and has the
longest clinical history of any implant on the market. The Charnley femoral
hip stem has a 90% or better survivorship at 20 years. The Charnley Hip is one
of the leading cemented hip implants in the world in terms of unit volume. The
new generation of the Charnley family, the Elite Plus Total Hip, was
introduced in 1995, and can utilize a zirconian femoral bearing surface
designed to further minimize wear of the surface and prolong the life of the
arthroplasty. In the U.S., the ENDURANCE System has been designed using the
principles of the Charnley Hip. Manufactured from a cobalt chromium alloy, the
ENDURANCE System was introduced in 1994.

Solution System. Revision hip surgery is performed when infection occurs or
the supporting bone or primary implant wears out from years of use. Introduced
in 1990, the Solution System was the first extensively coated revision system
on the market. The Porocoat coating helps provide the additional stability
required in revision hip surgery. The Solution System has a substantial share
of the revision market in the U.S. DePuy also markets a cemented revision
implant as part of the ENDURANCE System.

Duraloc Acetabular Cup System. The Duraloc Acetabular Cup System uses a
sensor-ring lock, uniform dome loading and optimal polyethylene thickness for
the specific patient application. This combination permits mobility without
sacrificing structural support. The patented Duraloc Acetabular Cup System is
the leading cup system in the U.S.

Knee Systems. The Company believes the worldwide and U.S. markets in 1995
for knee implants were $1.4 billion and $822 million, respectively, in sales.
Within that market, the Company had 1995 sales worldwide of $182 million (or
approximately 13% of the market) and U.S. sales of $100 million (or
approximately 12% of the market).

Total knee arthroplasty consists of several components depending on the
product design: the femoral component or components, the tibial component or
components and the patellar component or components. The Company offers a full
range of implants, including the LCS Knee, the AMK Knee and the Coordinate
Revision Knee System.

LCS Total Knee System. The LCS Total Knee System is a mobile-bearing knee
system. The mobile bearings incorporated into the design allowed the implant
to more closely simulate the anatomic movement of a natural knee while
minimizing stresses on the implant components. The patented LCS Knee design,
which was launched in 1985 after extensive clinical trials, has FDA Pre-Market
Approval for both cemented and cementless indications for use. The LCS Knee
design was the first, and continues to be the only, mobile-bearing knee
commercially available for use in the U.S. The LCS Knee has 19 years,
including initial development and clinical trials, of clinical history with a
97% survival estimate at 7 years. The LCS Knee is the number one selling
mobile-bearing knee implant worldwide and in the U.S. Within the U.S. sales
have been increasing as the implant's success rate becomes more widely known
and its clinical history is extended, providing more clinical data of its
success.

AMK Total Knee System. Introduced in 1987, the AMK Total Knee System (the
"AMK Knee") is a fixed-bearing knee system which has left and right, rather
than universal, femoral components. The AMK Knee may be used for primary and
revision knee surgery needs and has nine years of clinical follow-up history.
In 1990, the Company introduced the AMK PS (Posterior Stabilized) design,
which is a complementary product intended to address another industry trend
toward posterior stabilization of the knee joint, the fastest growing area in
the knee implant market.

Coordinate System. The Coordinate System is a revision knee system which
uses the same instrumentation as the AMK Knee family of products.

Extremities. The Company believes the worldwide and U.S. markets in 1995
for extremities implants (shoulder, ankles, elbows and wrists) were $80
million and $54 million, respectively. Within the extremities market, shoulder
implants accounted for over 65% of 1995 sales worldwide and in the U.S. DePuy
believes it is the leading manufacturer of extremities implant products in
general and shoulder implants specifically with 1995 sales at $21 million
worldwide and $15 million in the U.S., representing approximately 26% and
approximately 29% of the worldwide and U.S. markets, respectively. U.S. sales
are comprised almost exclusively of shoulder

implant sales. The Global Total Shoulder System, introduced in 1992, has in
just four years become the market leader with approximately a 40% market share
in the U.S. shoulder market. Once considered a difficult surgery with
questionable outcomes, the improved technology embodied in the Global Shoulder
has helped the procedure gain acceptance, and, shoulder surgery is now one of
the fastest growing segments in orthopedics.

SPINAL IMPLANTS

Another of the fastest growing markets in musculoskeletal surgery, the
spinal implants market for 1995 was approximately $400 million in sales
worldwide, with $200 million in sales in the U.S. In 1993, the Company entered
the spinal market through a joint venture with Biedermann Motech GmbH of
Germany. The resulting company, DePuy Motech, is 80% owned by DePuy. This
joint venture has resulted in the Company becoming fourth worldwide in the
sale of spinal implant devices in less than three years after its entry into
the market. The Company's 1995 worldwide sales were $30.6 million.

The primary goals of spinal instrumentation systems are to correct for
spinal deformity or imbalance, to reestablish stability of the spine and to
eliminate pain. Hooks, rods, screws and anterior support devices (metallic,
ceramic and bone) acting as the equivalent of modular spinal anchoring
devices, are constructed by the surgeon to create an internal bracing
mechanism. Surgeons adapt these components to the specific pathology of the
individual patient, creating an implant construct that is intended to
reconstruct and restore normal spinal biomechanics or facilitate bone fusion.

DePuy Motech has differentiated itself from other manufacturers of spinal
implants by basing its implants on "load sharing", which advocates the support
of the spine both anteriorly (front) and posteriorly (back). This philosophy
has now become an important surgical trend in spinal surgery.

Among the Company's products is the MOSS System, the first system to address
the concept of load sharing and recognize the importance of anterior column
support to restore and balance the natural forces in the spine. The MOSS Miami
System, introduced in 1995, set new design standards, while continuing to
adhere to the Company's basic design philosophies. These are complete systems
made of stainless steel and include anatomical hooks, monoaxial and polyaxial
screws and rods, and are designed for universal application in spinal surgery
for deformities, tumor, trauma and degenerative diseases of the spinal column.
These systems are marketed in the U.S. as spinal devices for fusion and for
bone repair under 510(k) clearances. Within the U.S., DePuy markets the hooks
and pedicle screws for use in certain lumbar regions. Outside the U.S.,
marketing of pedicle screws for more general use, and the labeling and
marketing of the Company's surgical mesh product for use between vertebrae, is
allowed. The MOSS Miami System is also available in titanium alloy which
allows surgeons to use Magnetic Resonance Imaging and Computer Aided
Tomography evaluation following surgery and provides an implant system for
patients who may be sensitive to the nickel content of stainless steel.

Among DePuy Motech's other recent products is Titanium Surgical Mesh,
designed in Europe by Professor Jurgen Harms and Biedermann Motech to provide
a synthetic device to reinforce weak bony tissue. This product has gained
market acceptance outside the U.S. and is marketed in the U.S. pursuant to
510(k) clearance received by Biedermann Motech in 1990. DePuy Motech is
conducting an IDE study to further evaluate specific indications for use of
Titanium Surgical Mesh. In June 1996, the Company's Peak Anterior Cervical
Compression Plate and Peak Channeled Reconstruction Plate, part of the Peak
Fixation System, were offered for sale outside the U.S. The Peak Anterior
Cervical Compression Plate addresses degenerative diseases of the anterior
cervical spine and the Peak Channeled Reconstruction Plate is used in surgery
to stabilize bony structures. These products are expected to be marketed in
the near future in the U.S. following applicable 510(k) clearances.

TRAUMA DEVICES

The orthopedic trauma field, which involves the management of fractures, has
as its objective the achievement of complete bone healing, or "union," and
restoration of alignment and full range of motion in

patients who have sustained fractures. The worldwide market for trauma
products in 1995 was approximately $980 million in sales, of which
approximately $430 million, or 44%, were sales in the U.S. The Company's
fixation devices may be classified generally as external fixation devices and
internal fixation devices. The acquisition of DePuy ACE in 1994 added critical
mass to the Company's trauma product offerings, specifically adding products
in the growing market of external fixation. Within the trauma market the
Company, through DePuy ACE, is a leading manufacturer of titanium alloy trauma
products and externally applied fixation devices for the treatment of
fractured bones. DePuy ACE was a pioneer in the use of titanium alloy implants
in the orthopedic trauma market. Titanium alloy more closely replicates the
physical properties of bone than stainless steel and is associated with a
higher degree of biocompatibility than stainless steel implants. The Company
had sales of $49 million worldwide in 1995 and $26 million in the U.S.,
representing 5% and 6%, respectively, of the market. DePuy ACE capitalized on
its products through early entry in the second largest geographical market for
trauma products, Japan, where it holds a leading position.

SPORTS MEDICINE PRODUCTS

The sports medicine market, which includes arthroscopy instruments,
implants, braces, cold therapy and supports, amounted to approximately $790
million in sales worldwide in 1995, including approximately $590 million in
the U.S. The Company expanded its position in this area through its
acquisition of DePuy OrthoTech in March 1996, which added critical mass and
expanded product lines. DePuy OrthoTech's sales in 1995 were $18.4 million
worldwide.

Among the Company's products are arthroscopy instruments, anterior cruciate
ligament reconstructive guide systems, tissue fixation devices, cold therapy
management systems, foot and ankle supports and orthopedic knee braces. Within
its knee brace product line, the Company offers a complete line of custom-made
braces which are used by professional athletes in a number of sports. The
Company also offers a complete line of high-quality, off-the-shelf knee
braces.

CEMENT

To complement cemented reconstructive product lines, the Company entered the
bone cement market in 1994 through the acquisition of CMW. CMW manufactures
different types of bone cements used with reconstructive implants and had 1995
sales of approximately $13 million. CMW does not presently market cement
directly in the U.S. but expects to do so in the near future; a PMA for
certain of these products is pending.

OPERATING ROOM PRODUCTS

To complement its reconstructive products, the Company developed a
comprehensive line of products designed to shield health care workers,
surgeons and patients from cross-contamination and contact with body fluids
which could contain potentially infectious bacteria and viruses during
surgery. Orthopedic reconstructive surgery carries a higher risk of such
contamination or contacts than many other types of surgeries as a result of
the instrumentation required, which scatters microscopic particles, including
bone and blood.

Among the Company's product offerings are a series of cut, stick and
puncture resistant glove liners, developed and marketed by DePuy DuPont
Orthopedics, which incorporate Kevlar material, a lightweight fabric used in
military helmets and in flack jackets that is stronger than steel. Other
products include the Sterile View System ("space suits" that filter airborne
particulates), and the Cida-system, a line of germicidal products designed to
ensure the cleanest possible surgical environment. In addition, the Company
markets power and manual instruments, wound drainage and tourniquet systems,
smoke evacuation systems and instrument repair services.

PRODUCT DEVELOPMENT

The Company conducts its research and development programs and maintains its
proprietary position by making improvements to existing products and by
developing new generations of products focused on new materials, biologic
biomaterials, and new non-invasive or minimally-invasive forms of treatment
for afflictions and injuries currently requiring surgery.

In-house, company-sponsored research and development programs at Warsaw,
Indiana focus on enhancements to the metallic and polyethylene components of
the implant and instrument devices manufactured by the Company by increasing
their strength, corrosion or oxidation resistance, fatigue resistance, or
focusing on bearing surface improvements to the artificial joint being
replaced in the human body. In addition, research is being done on artificial
joint simulators and enhancements to the bearing interface.

In 1990, as part of its long-range product development efforts, the Company
initiated programs in the biotechnology arena with an emphasis on
orthobiologics and biologic biomaterials. The Company is researching
technologies for the next century in the area of bone substitutes, cartilage
regeneration, ligament and tendon reconstruction and musculoskeletal tissue
engineering. These efforts, however, if successful, are not expected to
produce material product revenue until, at the earliest, the beginning of the
next decade.

Bone and Tissue Regeneration. In the early 1990s, the demand for
musculoskeletal tissue to repair traumatic and sports related injuries
increased. At present, there are limited means of repairing a rotator cuff
deficiency or a meniscus tear. For certain other types of injury (ligaments
and tendons), the treatment requires the use of tissue from another site on
the patient's body, thereby increasing chances of morbidity and surgery costs.
To address these problems, in March 1992, DePuy moved into tissue engineering
research by entering into an exclusive license agreement with Purdue
University to develop a tissue engineering concept using SIS. SIS is a
patented biomaterial that may be used as a scaffold in tissue engineering
applications. SIS has been shown to facilitate the regeneration, repair and
re-growth of the patient's own tissues at various anatomical sites. The
Company is investigating SIS for ligament, tendon, bone, cartilage, meniscus
and rotator cuff applications. The Company recently filed an IDE application
for anterior cruciate ligament replacement using SIS.

With orthopedic surgeons identifying cartilage repair and bone substitute
materials as significant needs, DePuy entered into an exclusive license
agreement with Genentech, Inc. in February 1992 which allows DePuy to evaluate
the use of TGFb-1 for orthopedic applications. TGFb-1 has been shown to aid in
bone regeneration and remodeling and to inhibit bone resorption, along with
stimulating articular cartilage repair and regeneration. Preclinical studies
have demonstrated the efficacy of TGFb-1 formulated with other biomaterials
for bone substitute applications. However, the preclinical studies also
disclosed potential systemic effects of TGFb-1 when delivered at a bony site
which may preclude the use of TGFb-1 administered directly to bone. The
Company is studying alternate methods of utilizing TGFb-1 for bone
regeneration through gene therapy and is investigating the effects, both local
and systemic, of direct applications of TGFb-1 to stimulate cartilage repair
and regeneration.

Another orthobiologic program of the Company is aimed at addressing joint
trauma and degeneration. The Company is researching cartilage repair through
collaborations with the Boehringer Mannheim group of companies and others
utilizing resorbable polymers, cell technology applications and gene therapy
delivery mechanisms. In addition, the Company is beginning work with R&D
Biologicals, in which the Company recently acquired a minority interest, to
research and develop cartilage repair products, including materials,
procedures and related instrumentation, without the need for prosthetics. One
focus of this collaboration is the development of technology for the repair
and/or regeneration of articular cartilage using a bioresorbable device which
can be placed at the site of defects to promote the body's own ability to
repair cartilage damage.

Biomaterials. In July 1987, DePuy signed an exclusive research agreement
with DuPont to investigate the use of advanced biomaterials (polymers,
composites and resorbables) in orthopedic applications and formed a
partnership, DePuy DuPont Orthopedics, in 1989 to distribute new products
developed by the joint venture. This venture has already introduced a number
of new products, including the Hylamer family of orthopedic bearing polymers
consisting of ultra high molecular weight bearing surfaces. The polymers,
available for use exclusively in the Company's hip, knee and shoulder
implants, are designed to resist wear, deformation and material degradation,
providing greater strength than traditional polymers. Current research
projects involve composite implant designs, resorbable suture anchors,
resorbable materials for screws, anchors and other fixation devices, as well
as continued research in the area of fibers, elastomers and other polymers at
various stages in the research and product development cycle.

MARKETING AND SALES

The Company markets and distributes its products through a global
distribution network. Distribution within the U.S. is through a combination of
Company-owned sales offices that supervise independent commissioned sales
associates and a number of independent commissioned sales agents. Outside the
U.S., the majority of the Company's sales are conducted through Company-owned
distribution outlets, although the Company still distributes some products
through independent distributors in certain international markets. To promote
its key products, the Company collaborates with surgeons with national and, in
many cases, international reputations in the relevant area of orthopedic
surgery and neurosurgery. These "surgeon champions" use and study the product
and participate in learning centers and other educational or professional
activities to educate other doctors on the use of the product.

UNITED STATES

The Company markets its orthopedic implant products in the United States
through a network of approximately 500 independent, commissioned sales
associates managed by 31 Company-employed Territory Sales Managers and 11
independent sales agents as of September 1996. This structure has been
evolving since 1994. The salesforce was reorganized as described below to
create a structure where requisite investments in personnel, training and
instruments would be made in the Company's new product areas such as spinal
implants and trauma products. The reorganization also allowed the Company to
ensure that sales associates were receiving appropriate incentives and
compensation and to eliminate the involvement of those sales agents who were
unproductive.

For many decades, as was typical in the industry, the Company distributed
its products in the U.S. exclusively through a network of independent
commissioned sales agents, each assigned a geographic territory in which the
agent had the exclusive right to solicit orders for the Company's products.
Sales agents established and maintained personal contact with customers and
provided services related to the products sold, such as attending surgeries to
ensure that the surgeon had the correct size of implant and the necessary
instrumentation. In exchange for soliciting orders, the sales agents were paid
a commission on the invoice price of all orders shipped to their respective
territory.

As the Company's business expanded, in terms of both product offering and
share of market, in the 1980s and 1990s the sales agents were no longer able
to maintain personal customer contact with all of the customers in their
respective territories. As a result they began hiring independent sales
associates who they assigned to segments of their territories and who in time
took over customer and surgeon contact. The sales associates were compensated
by the sales agent in accordance with separate arrangements between the sales
agent and sales associates.

In mid-1994, the Company began to replace sales agents who were not managing
their areas and sales associates to the Company's satisfaction with Territory
Sales Managers who are now charged with managing the territory and the sales
associates who work there. Sales associates continue to function as before but
are now compensated directly by the Company through commissions. The Company
provides the investment in training, support and general administrative
services.

Trauma and sports medicine products are both marketed through a combination
of dedicated sales representatives and the Company's reconstructive implant
marketing system of sales associates, sales agents and Territory Sales
Managers. In some areas, the Company has dedicated sales representatives for
each product line while in others the sales agents and sales associates sell
all of the Company's product lines. In addition to the Company's sales agents,
sales associates and Territory Sales Managers, DePuy ACE uses five independent
sales agents and one independent distributor who do not carry any other DePuy
products. DePuy OrthoTech's dedicated salesforce consists of its own 50-person
employee sales organization and one regional distributor. Spinal implant
products are marketed through a specialized sales force.

To address the changing customer base in the U.S. orthopedic market
resulting from health care reform and the emergence of managed care, the
Company has strengthened its national contracts department and added a managed
care area to its sales department. See "--Industry Background" and "--Business
Strategy."

INTERNATIONAL

The Company distributes its products outside the United States and Canada,
for the most part, through a number of distribution subsidiaries. Establishing
a separate distribution channel in each country has been a critical part of
the Company's strategy for marketing abroad. Knowledge of, and on site
compliance with, each country's regulatory scheme requires the presence and
unique knowledge of a local distributor. The ability to communicate with
physicians, nurses and other operating room personnel in their own language,
is also important. In addition, successful marketing requires an understanding
of each country's health care system and its purchasing and reimbursement
practices. Until 1988, all of the Company's sales outside the United States
and Canada were to distributors who purchased the products, sold on their own
account and established prices to their customers. Beginning in 1988 with the
acquisition of the former Chevalier A.G. (now De Puy A.G.) in Switzerland, and
continuing through the present time, the Company has followed a strategy of
establishing a separate Company-owned subsidiary with DePuy employed salesmen
in each major market or potential major market. These subsidiaries establish
the prices for the products sold in their respective countries, first
purchasing them from the Company and then reselling them at retail. In major
markets, this process has sometimes involved the acquisition of the Company's
previous distributor or entering into a joint venture with such distributor.
In other markets, new companies have been created or are being formed at the
present time. The Company now has distribution subsidiaries in England,
Canada, Germany, France, Italy, Switzerland, Austria, Spain, Sweden, Japan,
Korea, Singapore, Mexico (to begin operations in the fourth quarter of 1996),
Taiwan, Hungary, the Czech Republic, Australia, New Zealand and Argentina and
is forming a subsidiary in India.

Japan represents a significant market for the Company's trauma products.
DePuy ACE has a longstanding exclusive arrangement with Japan Medical Dynamic
Marketing, an independent distributor, to sell DePuy ACE's products.

In the sports medicine market, DePuy OrthoTech has an exclusive distribution
arrangement with Beiersdorf AG covering Germany, Austria, Belgium, Spain and
The Netherlands.

For a breakdown of the Company's sales by geographical region and product,
see "--Products" and Note 13 to the Combined Financial Statements contained
elsewhere in this Prospectus.

INTELLECTUAL PROPERTY

The Company holds United States and foreign patents covering certain of its
systems, components and instrumentation, has patent applications pending with
respect to certain implant components and certain surgical instrumentation and
anticipates that it will apply for additional patents it deems appropriate. In
addition, the Company holds licenses from third parties to utilize certain
patents, patent applications and technology utilized in the design of some of
its devices. See "--Legal Proceedings" for information concerning patent
infringement suits involving the Company.

In addition, the Company relies on non-patented proprietary know-how, trade
secrets, process and other proprietary information, which the Company protects
through a variety of methods, including confidentiality agreements and
proprietary information agreements.

The Company markets its LCS Knee through an exclusive, worldwide license to
manufacture and sell the LCS Knee under patents owned by Biomedical
Engineering Trust ("BET").

The Company and its subsidiaries market their products under a number of
trademarks.

MANUFACTURING

The Company's manufacturing operations are carried out at a number of
facilities owned or leased by the Company or its subsidiaries. See "--
Property." In 1995 and 1996, the Company obtained ISO 9001 series registration
for its manufacturing facilities in Warsaw, Indiana; Leeds, England;
Blackpool, England; and Los Angeles, California and ISO 9002 for its
Albuquerque, New Mexico facilities. The Company is in the process of obtaining
appropriate ISO registration for its other facilities. ISO 9001 and ISO 9002
are internationally

recognized quality standards for manufacturing. ISO certification assists the
Company in marketing its products in certain foreign markets. See "--
Government Regulation."

The Company devotes significant attention to quality control in
manufacturing its products. At the main reconstructive products manufacturing
facilities, the quality control measures begin with an inspection of all raw
materials and castings to be used in implants. Each piece is inspected at each
step of the manufacturing process. As a final step, products pass through a
"clean room" environment designed and maintained to reduce product exposure to
particulate matter. In addition, the Company utilizes a new gas plasma
sterilization system for its implants. The Company cleared use of gas plasma
sterilization with the FDA through the 510(k) process, making the Company the
first and only company to receive such clearance for the industrial
application of gas plasma sterilization. This process reduces the possibility
of oxidation of polyethylene and is believed not to pose the environmental
threats of other methods of sterilization.

Approximately 75% of the Company's products are manufactured in-house, with
the remaining 25% outsourced. Approximately 70% of DePuy ACE's trauma products
are presently outsourced. It is the Company's intention to bring all trauma
implant manufacturing in-house over time. The primary raw materials used by
the Company in the manufacture of its reconstructive products are cobalt
chromium alloy, stainless steel alloys, titanium alloy and ultra high
molecular weight polyethylene. Certain components used by the Company,
primarily castings and forgings which are the major material components of
most implants, are purchased from a limited number of suppliers. However, the
Company has back-up sources for all of its materials and believes that
adequate capacity exists at its suppliers to meet all anticipated needs.

As part of its business strategy, the Company has implemented certain
manufacturing procedures to reduce costs and improve efficiencies as well as
inventory management and control systems and is incorporating manufacturing
efficiencies into the design of instruments and is redesigning current
instruments to reduce manufacturing costs. Due in large measure to these
process improvements, manufacturing lead times have been considerably reduced,
from 25 days in 1994 to 7.2 days in 1996 in the U.S., and from 30 days in 1994
to 15 days in 1996 at DePuy International. Robotics is another means employed
to increase the manufacturing efficiency of its orthopedic products. In 1996,
the Company purchased one of its major instrument suppliers to further reduce
costs and shorten the time required to get instruments to market.

In its trauma products, the Company uses commercial titanium and titanium
alloy in addition to stainless steel alloys. The Company competes with both
government and commercial aerospace requirements for titanium, as well as golf
equipment manufacturers. The aerospace industry controls both the price and
supply of titanium products and can dramatically affect both the cost and
availability of such materials. DePuy ACE has entered into a long-term
agreement with its primary supplier of titanium to address this concern.

In its sports medicine products, the Company uses rolled cloth goods,
metals, plastics and foams, all of which are of standard stock and are readily
available from a number of sources.

COMPETITION

The orthopedic device industry is highly competitive and has been
characterized by innovation, technological change and advancement. Major
companies that compete in the total joint implant market, some of which also
market complementary non-implant lines that compete with the Company's other
products, include Biomet Inc.; Zimmer, Inc., a subsidiary of the Bristol-Myers
Squibb Company; Howmedica, Inc., a subsidiary of Pfizer, Inc.; Smith & Nephew
Orthopedics, a division of Smith & Nephew Ltd.; Osteonics, Inc., a subsidiary
of the Stryker Corporation; Johnson & Johnson Orthopaedics, Inc., a subsidiary
of Johnson & Johnson; and Protek, Allopro and Intermedics Orthopedics, all
divisions of Sulzer Limited. In the spinal instrumentation area, the Company's
main competitors are Sofamor Danek Group, Inc.; Synthes; Acromed, Corp.; Smith
& Nephew Ltd. and Spine-Tech, Inc. Competition within the orthopedic implant
industry is primarily based on customer service, product design and
performance, ease of use, peer influence among surgeons and results of the
product over time.

In recent years, price has become increasingly important as the industry
matures and health care providers become more concerned with costs. At the
present time, price is a factor in the sale of those devices where
differentiation of the product cannot be clearly proven and the decision to
buy is not significantly influenced by the surgeon. Additionally, as health
care providers become more cost-conscious, the use of higher-priced devices
has became increasingly limited to younger, more active patients, while
lesser-priced devices are used in patients with a lower demand (i.e., shorter
life expectancy and/or lower activity level). The Company believes that its
future success depends upon providing high quality service to all customers,
offering a wide range of quality products at different pricing points,
continuing to promote its key products and their already existing long-term
successful outcomes and clinical results, pursuing additional strategic
agreements with buying groups, offering a wide array of ancillary products
utilized by the orthopedic community and continuing to pursue, through
research and development efforts, new products and services that can set the
Company apart from its competitors.

The Company's trauma product lines compete with products of Biomet Inc.;
Zimmer, Inc.; Richards Manufacturing Co., Inc., a subsidiary of Smith & Nephew
Ltd; Synthes and Orthofix International N.V. Competition in this area is
primarily based on service, product design and performance, technological
advances, reputation and price.

In the sports medicine product area, the Company competes with numerous
other companies, principally Don Joy, a division of Smith & Nephew Ltd.,
Innovation Sports, and Lenox Hill, a division of Hanger Orthopedic Group, Inc.
The Company believes that the principal competitive factors affecting the
sports medicine product field are customer service, product performance,
technology, reputation and price. It believes that its service and technology
distinguish it favorably from its competitors in the marketing and sale of its
products.

In the cement market, the Company competes with numerous other companies,
primarily Howmedica, Inc., Schering-Plough Corp., and Zimmer, Inc.

PROPERTIES

As of September 1996, the Company owned or leased the following facilities:

APPROXIMATE LEASED
LOCATION TYPE OF FACILITY SQUARE FOOTAGE OR OWNED
-------- ---------------- -------------- --------

Warsaw, Indiana(1)........ Executive Offices, 242,200 Owned
Research and
Development,
Manufacturing and
Distribution
El Segundo, Califor- Executive Offices, 114,000 Leased
nia(2)................... Research and
Development,
Manufacturing and
Distribution
St. Louis, Missouri....... Warehousing and 100,900 Leased
Distribution
Tracy, California(3)...... Corporate Offices and 80,000 Leased
Manufacturing
Jackson, Michigan......... Warehousing 44,000 Leased
Jackson, Michigan......... Manufacturing 24,000 Owned
Albuquerque, New Mexico... Manufacturing 20,600 Leased
Westminster, California... Manufacturing and Repair 15,500 Leased
Services
Ontario, California....... Manufacturing 10,000 Leased
Dayton, Ohio.............. Manufacturing 7,700 Leased
Leeds, England(4)......... Corporate Offices, 158,000 Owned
Research and
Development,
Manufacturing and
Warehousing
Leeds, England............ Manufacturing 32,400 Owned
Barnet, England........... Manufacturing and 30,000 Owned
Research and Development
Blackpool, England........ Manufacturing 28,500 Leased
Garforth, England......... Manufacturing 23,000 Leased

- --------
(1) The Company's principal executive offices and primary U.S. manufacturing
plant for reconstructive devices. The facility also currently serves as a
distribution facility.
(2) Corporate offices of DePuy ACE and main manufacturing plant for trauma
products.
(3) Corporate offices of DePuy OrthoTech and main manufacturing plant for
sports medicine products.
(4) Corporate offices and primary manufacturing facility for DePuy
International.

The Company believes that its facilities are adequate for the development,
manufacture and marketing of all its products.

EMPLOYEES

As of September 1996, the Company had approximately 2,780 employees
worldwide, including approximately 1,230 engaged in the Company's U.S.
reconstructive device business, approximately 40 employed by DePuy Motech,
approximately 180 employed by DePuy ACE, approximately 280 employed by DePuy
OrthoTech, and approximately 1,050 engaged in the Company's international
businesses.

Approximately 320 employees in the Warsaw, Indiana facility are represented
by the United Paperworkers International Union, Local No. 7809, and are
subject to a five year collective bargaining agreement expiring in June 1997.
Approximately 230 employees in the Leeds, England facility are represented by
the Amalgamated Engineering and Electrical Union and are subject to a
collective bargaining agreement which expires in April, 1997. In addition,
approximately 25 employees at the Leeds, England facility are represented by
the Manufacturing Scientific and Finance Union. Prior to July 31, 1996,
approximately 15 employees in the metals department at the Tracy, California
facility for sports medicine products were also represented by a union; the
union was decertified on that date.

The Company believes that its employee relations are satisfactory, and that
its relationships with all unions representing its workers are non-adversarial
and cooperative.

GOVERNMENT REGULATION

The Company's operations are subject to rigorous governmental agency
regulation in the United States and certain other countries.

The FDA regulates the testing, labeling, manufacturing and marketing of
medical devices to ensure that medical products distributed in the United
States are safe and effective for their intended uses. Additionally, the FDA
regulates the export of medical devices manufactured in the United States to
international markets.

Under the Food, Drug and Cosmetic Act, as amended, medical devices are
classified into one of three classes depending on the degree of risk imparted
to patients by the medical device. Class I devices are those for which safety
and effectiveness can be assured by adherence to General Controls, which
include compliance with Good Manufacturing Practices ("GMPs"), facility and
device registrations and listings, reporting of adverse medical events, and
appropriate truthful and non-misleading labeling, advertising and promotional
materials. Some Class I devices also require premarket review and clearance by
the FDA through the 510(k) Premarket Notification process described below.
Class II devices are those which are subject to General Controls as well as
premarket demonstration of adherence to certain Performance Standards or other
Special Controls as specified by the FDA. Premarket review and clearance by
the FDA for these devices is accomplished through the 510(k) Premarket
Notification procedure. In the 510(k) Premarket Notification procedure, the
manufacturer submits appropriate information to the FDA in a Premarket
Notification submission. If the FDA determines that the

device is "substantially equivalent" to a device that was legally marketed
prior to May 28, 1976, the date upon which the Medical Device Amendments of
1976 were enacted, or to another commercially available similar device
subsequently cleared through the 510(k) Premarket Notification process, it
will grant clearance to commercially market the device. It generally takes
from three to 12 months from the date of submission to obtain clearance of a
510(k) submission, but may take longer. If the FDA determines that the device,
or its labeled intended use, is not "substantially equivalent," the FDA will
automatically place the device into Class III.

A Class III product is a product which has a wholly new intended use or is
based on advances in technology for which the device's safety and
effectiveness cannot be assured solely by the General Controls, Performance
Standards and Special Controls applied to Class I and II devices. These
devices often require formal clinical investigation studies to assess their
safety and effectiveness. A PMA from the FDA is required before marketing of a
Class III product can proceed. The PMA process is much more extensive than the
510(k) Premarket Notification process. In order to obtain a PMA, Class III
devices, or a particular intended use of any such devices, usually must
undergo clinical trials pursuant to an application submitted by the
manufacturer for an IDE. An approved IDE exempts the manufacturer from the
otherwise applicable FDA regulations and grants approval for the conduct of
the human clinical investigation to generate the clinical data necessary to
scientifically evaluate the safety and efficacy of the Class III device or
intended use.

When a manufacturer believes that sufficient pre-clinical and clinical data
has been generated to prove the safety and efficacy of the new device or new
intended use, it may submit a PMA application to the FDA. An FDA review of a
PMA application generally takes one to two years from the date the PMA
application is accepted for filing, but may take significantly longer. In
approving a PMA application, the FDA may also require some form of post-market
surveillance whereby the manufacturer follows certain patient groups for a
number of years, making periodic reports to the FDA on the clinical status of
those patients, to ensure that the long-term safety and effectiveness of the
device are adequately monitored for adverse events. Most pre-amendment devices
(those marketed prior to the enactment of the Medical Device Amendment of
1976) are, in general, exempt from such Premarket Approval requirements, as
are Class I and Class II devices.

The Company's products include both pre-amendment and post-amendment Class
I, II and III medical devices. All currently marketed devices hold the
relevant exemptions or premarket clearances or approvals, as appropriate,
required under federal medical device law.

In addition, the Company's manufacturing processes are required to comply
with GMP regulations which cover the methods and documentation of the design,
testing, production, control, quality assurance, labeling, packaging and
shipping of the Company's products. The Company's facilities, records and
manufacturing processes are subject to periodic unscheduled inspections by the
FDA or other agencies.

Failure to comply with applicable U.S. medical device regulatory
requirements could result in, among other things, warning letters, fines,
injunctions, civil penalties, repairs, replacements, refunds, recalls or
seizures of products, total or partial suspensions of production, refusal of
the FDA to grant future pre-market clearances or approvals, withdrawals or
suspensions of current clearances or approvals, and criminal prosecution.
There are currently no adverse regulatory compliance issues or actions pending
with the FDA at any of the Company's facilities and none of the recent FDA GMP
audits conducted at Company facilities have resulted in any adverse compliance
enforcement actions by the Agency.

The Company is also subject to regulations in many of the foreign countries
in which it sells its products in the areas of product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. Many of the regulations applicable to the
Company's devices and products in such countries are similar to those of the
FDA. The national health or social security organizations of certain such
countries require the Company's products to be qualified before they can be
marketed in those countries. To date, the Company has not experienced
difficulty in complying with these regulations.

The Company is also implementing policies and procedures intended to allow
the Company to position itself for the changing international regulatory
environment. The ISO 9000 series of standards has been developed as an
internationally recognized set of guidelines that are aimed at ensuring the
design and manufacture of quality products. A company that passes an ISO audit
and obtains ISO registration becomes internationally recognized as being well
run and functioning under a competent quality system. In certain foreign
markets, it may be necessary or advantageous to obtain ISO 9000 series
certification, which, in some ways, is analogous to compliance with the FDA's
GMP requirements. The European Union has promulgated rules which require that
medical products receive a CE mark by mid-1998. A CE mark is an international
symbol of adherence to certain standards and compliance with applicable
European medical device requirements and certification. ISO 9000 series
certification is one of the prerequisites for CE marking of most of the
Company's products. ISO 9001 is the highest level of ISO certification,
covering both the quality system for manufacturing as well as that for product
design control; ISO 9002 covers the quality system for manufacturing
operations that do not include product design. Certain of the Company's
facilities have received ISO certification and ISO certification is being
pursued at the others. See "--Manufacturing."

The Company must obtain export certificates from the FDA before it can
export some of its products.

Certain provisions of the Social Security Act, commonly known as the
"Medicare Fraud and Abuse Statute," prohibit entities, such as the Company,
from offering, paying, soliciting or receiving any form of remuneration in
return for the referral of Medicare or state health program patients or
patient care opportunities, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by Medicare or
state health programs. Violation of the Anti-Kickback Statute is a felony,
punishable by fines up to $25,000 per violation and imprisonment for up to
five years. In addition, the Department of Health and Human Services may
impose civil penalties excluding violators from participation in Medicare or
state health programs. Many states have adopted similar prohibitions against
payments intended to induce referrals of Medicaid and other third party payor
patients.

Federal physician self-referral legislation prohibits, subject to certain
exemptions, a physician or a member of his immediate family from referring
Medicare or Medicaid patients to an entity providing "designated health
services" in which the physician has an ownership or investment interest, or
with which the physician has entered into a compensation arrangement. The
penalties for violations include a prohibition on payment by these government
programs and civil penalties of as much as $15,000 for each violative referral
and $100,000 for participation in a "circumvention scheme."

LEGAL PROCEEDINGS

In 1990, the Company voluntarily recalled certain acetabular cups. Of all
such products sold and implemented, less than 2% have resulted in incidents of
product failure reported by the Company. Of those reported incidents, as of
October 1996, 268 resulted in claims against the Company for product failure,
of which all but 40 have been settled. Of those settled incidents, 65 were in
litigation. Forty-three claims remain in litigation. All such claims and suits
have been treated as one occurrence under the applicable insurance policies.
Any additional claims will be paid by the Company's insurers.

On April 20, 1994, DePuy Motech was served with a class action complaint,
entitled Barbara Brown et al v. DePuy Motech et al, filed in the U.S. District
Court for the Eastern District of Louisiana on behalf of individuals who claim
to have been damaged through the use of various types of surgical screws
implanted in spinal pedicles. DePuy ACE was subsequently served with this
complaint as well. Numerous other manufacturers of spinal products, hospitals,
physicians, medical societies and other associations were also sued. The suits
allege tortious misconduct against all manufacturers engaged in spinal product
manufacture and sale, several surgeons, industry associations and professional
medical associations. Specific counts range from product liability and
negligence to various conspiracies allegedly involving efforts to mislead the
FDA into approving the use of the screws in spinal pedicles. DePuy Motech has
been named in approximately 600 lawsuits for damages filed on behalf of
individuals who claim to have been damaged through the use of various types of
surgical screws in spinal pedicles. On August 4, 1994, the Federal Judicial
Panel on multi-district litigation ordered that all federal court cases be
transferred to and consolidated for pretrial proceedings, including the
determination of class certification, in the Federal District Court for the
Eastern District of Pennsylvania. On February 22, 1995, Chief

Judge Emeritus Louis C. Bechtle denied class certification. Individual suits
followed that denial. A hearing ordered by the Court to determine if any
factual basis exists to support the conspiracy count was held July 23, 1996.
On August 22, 1996, Judge Bechtle issued an order dismissing without prejudice
claims based on allegations of conspiracy and fraud and requiring that any
amended complaint be filed by September 30, 1996, which deadline was
subsequently extended to October 30, 1996. The Company believes that it has
substantial defenses to these claims and will continue to defend them
vigorously, although no assurance can be given of the eventual outcome of this
litigation.

On February 25, 1995, DePuy filed suit against BET, its licensor for
technology used in the LCS Knee in the U.S. District Court for the Northern
District of Indiana. The case was transferred to the U.S. District Court for
the District of New Jersey on April 25, 1996. DePuy is seeking a declaratory
judgment as to the proper construction of contract language relating to the
calculation of royalties on sales of various licensed products to purchasers
outside the United States. BET has counterclaimed seeking damages and a
declaration ordering DePuy to continue to pay royalties after the expiration
of the patents to which the royalties relate. DePuy has filed a motion for
partial summary judgment.

Joint Medical Products Corporation ("Joint Medical") filed a complaint on
April 3, 1995 in the U.S. District Court of Connecticut against DePuy Inc. and
several other manufacturers of orthopedic devices. The suit seeks injunctive
relief and treble damages for DePuy's alleged infringement of a patent owned
by Joint Medical. DePuy has filed a counterclaim seeking to have the patent
declared invalid and unenforceable. The Company believes it has substantial
defenses and is aggressively defending this action. The same patent was the
subject of an interference proceeding in the USPTO between Joint Medical and a
patentee from whom the Company has a license. On October 3, 1996, Joint
Medical announced that it had prevailed in the interference proceeding,
establishing its right to ownership of the patent. The resolution of the
interference proceeding does not affect the defenses the Company has against
the claims of Joint Medical.

On September 22, 1994, the Company filed a patent infringement suit against
Biomet, Inc. in the U.S. District Court for the Northern District of Indiana
seeking injunctive relief and damages. DePuy claims that Biomet, Inc.
infringed a DePuy patent for a modular hip by making and selling infringing
hip prostheses. On April 17, 1995, the Company filed an amended complaint,
adding claims for infringement of a second modular hip patent and for
misappropriation of trade secrets, adding a prior DePuy employee who went to
work for Biomet as a defendant. DePuy subsequently added claims for inducing
infringement and contributory infringement as well as claims for infringement
of a supertaper patent. A motion by DePuy for leave to file second amendments
to the amended complaint and a second supplemental complaint was granted
during July 1996. Claims for interference with contract, additional claims for
misappropriation of trade secrets, as well as claims for infringement of an
additional patent were added.

On February 8, 1994, Sofamor Danek filed a patent infringement suit against
DePuy Motech in the United States District Court for the Southern District of
Indiana, Indianapolis Division seeking injunctive relief and damages. DePuy
and Biedermann Motech GmbH were later added as additional parties. Sofamor
Danek claimed that DePuy Motech's MOSS Miami spinal system infringes three
patents owned by Sofamor Danek Group, Inc. On April 9, 1996, the Court ordered
a stay of all activity pending the Court's disposition of DePuy Motech's
Motions for Summary Judgment. On June 19, 1996, the Court entered a summary
judgment order in favor of DePuy Motech as to infringement of one patent and
on October 11, 1996, the Court entered a summary judgment order in favor of
DePuy Motech as to infringement of the other two patents.

In addition, the Company is party to certain other routine litigation
incidental to its business. The Company does not believe that any litigation
to which it is a party is likely, individually or in the aggregate, to have a
material adverse effect on the Company's business, financial condition and
results of operations.

On June 26, 1996, the Supreme Court decided the case Medtronic, Inc. v.
Lohr, holding that the Medical Device Amendments to the Food, Drug, and
Cosmetics Act does not preempt state law tort actions when there exists no
specific counterpart federal products regulation. The Company does not
anticipate at this time that the decision will have a material adverse effect
on the Company. However, it is not possible to predict what impact, if any,
the decision may have.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages, positions and a brief description of
the Company's directors and executive officers:

NAME AGE POSITION
---- --- --------

James A. Lent...................... 53 Chairman of the Board and Chief Executive Officer
Michael J. Dormer.................. 45 President and Chief Operating Officer
R. Michael McCaffrey............... 54 President, DePuy Development, Inc.
William E. Tidmore, Jr. ........... 54 President, DePuy Motech
Robert E. Morel.................... 59 President, DePuy ACE
Calvin G. Andre.................... 48 President, DePuy OrthoTech
James M. Taylor.................... 40 President, DePuy International
Steven L. Artusi................... 52 Senior Vice President, General Counsel and Secretary
Thomas J. Oberhausen............... 44 Senior Vice President, Chief Financial Officer and Treasurer
G. Taylor Seward................... 50 Senior Vice President, Personnel
Richard C. Bolesky................. 64 Director
Richard A. Gilleland............... 52 Director
Gerald C. Hanes.................... 59 Director
M.L. Lowenkron..................... 65 Director
Robert Volz, M.D................... 64 Director
Anthony Williams................... 50 Director

James A. Lent has been Chairman and Chief Executive Officer of DePuy since
1991, having served as President from 1985 to 1991. Prior to joining DePuy,
Mr. Lent worked for Johnson & Johnson from 1967 to 1985, serving as President
of J&J Orthopaedics from 1982 to 1985. Mr. Lent is a member of the Board of
Directors of Corange and also serves on the Board of Directors of
Spectranetics Inc., a cardiovascular device company.

Michael J. Dormer has been President and Chief Operating Officer of DePuy
since August 1996. Prior to that, he served as President of DePuy
International since 1993 and as Executive Vice President from 1992 until 1993.
Before joining DePuy International, he worked for Johnson & Johnson as
Managing Director, J&J Orthopaedics Europe and J&J Professional Products
Europe.

R. Michael McCaffrey became President of DePuy Development, Inc., which is
engaged in business development for the DePuy worldwide group, in August 1996.
Prior to that, from 1994 until 1996, he was President of DePuy Motech, from
1990 until 1994 he was President of DePuy, and from 1985 until 1990 held
various positions at DePuy in management, marketing and sales.

William E. Tidmore, Jr. has served as President of DePuy Motech since August
1996. Prior to that, he served as President of DePuy Orthopedics, a division
of DePuy, from 1994 to 1996, as Executive Vice President of DePuy from 1993 to
1994, as President of DePuy International from 1992 to 1993 and as Vice
President, International of DePuy Inc. from 1988 until 1992. Mr. Tidmore
joined DePuy in 1986.

Robert E. Morel has served as President and Chief Executive Officer of DePuy
ACE since May 1996. From 1993 until 1996, he served as Senior Vice President,
Operations for DePuy. From 1985, when he originally joined DePuy, until 1993,
he was Vice President, Operations.

Calvin G. Andre has been President of DePuy OrthoTech (which was acquired by
DePuy in 1996) since 1992 and Chief Executive Officer since 1994. Prior to
1992, Mr. Andre held various positions at Decora, Inc., a manufacturer of
specialty decorative products, and acted as president of various Decora, Inc.
subsidiaries.

James M. Taylor has been President of DePuy International since August 1996.
He joined DePuy in July 1994 as Vice President, Operations. From June 1993
until April 1994, Mr. Taylor was the Chief Executive Officer of MSS Group in
the U.K. From 1989 to June 1993, Mr. Taylor was employed by Chloride
Industrial Batteries Ltd., as Operations Director.

Steven L. Artusi has served as the Company's Senior Vice President, General
Counsel and Secretary since 1992. Mr. Artusi served as Vice President, Legal
and Regulatory Affairs for the DePuy, Division of BMC from 1987 to 1992 and as
Corporate Counsel of BMC from 1985 to 1987.

Thomas J. Oberhausen has served as Senior Vice President and Chief Financial
Officer of DePuy since 1992 and from 1993 to 1995, he also served as the
Finance Director for DePuy International. He joined Bio-Dynamics, Inc., a
subsidiary of BMC, in 1980.

G. Taylor Seward has served as Senior Vice President, Personnel of DePuy
since 1990. Mr. Seward joined DePuy in 1978 and prior to 1990 held various
positions in DePuy's human resources department, including Personnel Manager,
Director of Personnel and Vice President, Personnel.

Richard C. Bolesky has been a Director of the Company since July 1996. Mr.
Bolesky served as Vice President, Research and Development of DePuy from 1982
until 1990. From 1990 until his retirement in 1994 he was Senior Vice
President, Technology. Since retiring in 1994, Mr. Bolesky has served as a
consultant to DePuy.

Robert Volz, M.D. has been a Director of the Company since July 1996. Dr.
Volz is a Professor of Surgery at the University of Arizona, Health Services
Center, and served as Chief of Orthopedic Surgery from 1985 to 1992. Dr. Volz
is on the staff at Tucson Veterans' Administration Hospital, Tucson Medical
Center and Tucson General Hospital. Dr. Volz has served as a design consultant
to DePuy since 1986 and is President of Robert G. Volz & Co., which provides
services to the Company. In connection with such design services, the Company
paid to Dr. Volz and Robert G. Volz & Co. an aggregate of approximately
$1,300,000 in royalty fees in 1995.

Richard A. Gilleland has been a Director of the Company since July 1996.
From 1995 until 1996, he served as President and Chief Executive Officer of
AMSCO International, Inc., a healthcare supplies manufacturer. He served from
1990 until 1995 as Chairman, President and Chief Executive Officer of Kendall
International, Inc., a medical supplies manufacturer. Mr. Gilleland is a
Director of Quest Medical Inc., Ornda Healthcorp, Tyco International, Ltd. and
Physicians Resource Group.

Gerald C. Hanes has been a Director of the Company since July 1996. Since
1988, Mr. Hanes has been President of Personal Investment Consultants, Inc.

M. L. Lowenkron has been a Director of the Company since July 1996. From
1995 until June 1996, he was President and Chief Executive Officer of G.
Heileman Brewing Company, Inc. and a Director from 1994. Mr. Lowenkron was
Chief Executive Officer of A&W Brands, Inc. from 1980 until 1993 and Chairman
from 1991. He also serves as a Director of Triarc Companies, Inc., a holding
company of various food distributors.

Anthony Williams has been a Director of the Company since July 1996. Mr.
Williams is a partner at the law firm of Coudert Brothers, which firm provides
legal services to the Company. Mr. Williams is also a Director of Corange.

BOARD COMMITTEES

The Board of Directors has two standing committees, a Compensation Committee
and an Audit Committee, each of which was formed in September 1996.

Audit Committee. The Audit Committee will meet with the Company's
independent public accountants to discuss the scope and results of their
examination of the books and records of the Company. It will also meet with
the independent public accountants to discuss the adequacy of the Company's
accounting and control systems. The Committee will review the audit schedule
and consider any issues raised by any member of the Committee, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. The Audit
Committee consists of Messrs. Lowenkron (Chairman), Gilleland and Volz.

Compensation Committee. The Compensation Committee will establish overall
employee compensation policies and recommend to the Board major compensation
programs. The Compensation Committee will review the performance of corporate
officers and will review and approve compensation of directors and corporate
officers, including bonus compensation and stock option and other stock
awards, except that the Stock Option and Bonus Subcommittee of the
Compensation Committee (the "Compensation Subcommittee") will administer the
Company's employee stock purchase plan and equity incentive plan described
below and will review and approve certain compensation to corporate officers
to the extent necessary for such compensation to be deductible by the Company
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). The
Compensation Committee consists of Messrs. Gilleland, Hanes and Williams, and
the Compensation Subcommittee consists of Messrs. Gilleland and Hanes.

DIRECTOR COMPENSATION

Directors receive no annual retainer for services provided in that capacity
but, except for any director who is also an employee of the Company, receive a
meeting fee of $3,000 plus expenses for each meeting of the Board attended and
a meeting fee of $1,000 plus expenses for each meeting (including telephonic
meetings) attended as a member of a Board committee at a time other than at a
regular Board meeting. In addition, the DePuy, Inc. 1996 Equity Incentive Plan
(the "Incentive Plan") (as described below) provides for formula-based grants
of options to non-employee directors. See "--Employee Plans--1996 Equity
Incentive Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For the last fiscal year, the Company did not have a Compensation Committee.
Compensation for the Company's executive officers, other than the Chairman,
was recommended by the Chairman to and approved by the Board of Directors of
Corange. The compensation of the Company's Chairman was determined by the
Board of Directors of Corange.

EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and four other most highly compensated
executive officers (the "Named Officers") by the Company or its subsidiaries
during the fiscal year 1995.

LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS(1)
-------------------------------------------- ---------------------------------------
PAYOUTS
(PAYMENT
OF VESTED
OTHER ANNUAL PRIOR ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS) ($) AWARDS ($) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ---------------- ----------- ---------- ----------------

James A. Lent........... 1995 529,038 300,000(2) -- 192,758 229,770 7,498(6)
Chairman of the Board
and
Chief Executive Officer
Michael J. 1995 209,723 97,094 -- 41,442 116,155 --
Dormer(3)(4)...........
President and Chief
Operating Officer
R. Michael McCaffrey.... 1995 264,575 102,000 -- 137,414 144,552 8,745(6)
President, DePuy
Development, Inc.
William E. Tidmore, Jr. 1995 211,045 85,000 -- 44,364 94,712 12,594(6)
.......................
President, DePuy Motech
Robert E. Morel(5)...... 1995 173,442 70,000 -- 75,112 80,936 12,890(6)
President, DePuy ACE

- --------
(1) Awards made under LTIP I and LTIP II, as described below.
(2) Mr. Lent's compensation includes $75,000 of additional compensation paid
for serving as chief spokesperson for the Corange Group.
(3) Mr. Dormer's compensation, which was paid to him in the United Kingdom,
has been converted into U.S. dollars based on an exchange rate of $1.5535
per British Pound, the Noon Buying Rate in New York for cable transfers
payable in foreign currencies as of December 29, 1995, as certified for
customs purposes by the Federal Reserve Bank of New York (the "Federal
Reserve Rate"). In 1995, the Noon Buying Rate ranged from a high of
$1.6440 to a low of $1.5302 per British pound.
(4) Mr. Dormer's compensation for 1995 reflects his prior position as
President of DePuy International. Mr. Dormer was appointed President and
Chief Operating Officer of the Company, effective August 5, 1996, at a
salary of $350,000.
(5) Mr. Morel's compensation for 1995 reflects his prior position as Senior
Vice President, Operations of the Company. Mr. Morel was appointed
President of DePuy ACE, effective May 1996, at a salary of $250,000.
(6) Includes contributions by the Company to the Corange Retirement Income
Plan and to the Corange Cash Accumulation Plan.

EMPLOYEE PLANS

Management Annual Incentive Plan. The Company maintains an annual incentive
program for certain officers and key employees (the "Bonus Plan"). Under the
Bonus Plan, cash awards are made to individuals at the discretion of the
Company's management, based on the performance of the Company with respect to
predetermined objectives set forth in the Company's Management by Objective
program and the contribution of the individual towards reaching such
objectives. The amount of awards made under the Bonus Plan to Messrs. Lent,
Dormer, McCaffrey, Tidmore and Morel in 1995 was $300,000 ($75,000 of which
was additional compensation for serving as chief spokesperson for the Corange
group), $97,094, $102,000, $85,000 and $70,000 respectively.

Long-Term Incentive Plan. The Company has adopted a long-term incentive plan
("LTIP I"), which is sponsored by Corange for eligible senior executives of
Corange and its worldwide affiliates, including the Company, based on the
global performance of Corange. To be eligible, an executive must be determined
by a committee of Corange officers to have a direct impact on the long-term
performance of Corange and be approved by the Board of Directors of Corange.
Currently, fourteen of the Company's executives participate, including the
Named Officers. Under LTIP I, an executive is awarded performance units, the
number of which is based on the

committee's overall assessment of the performance of Corange and the
individual executive's performance and potential impact on the performance of
Corange. Each outstanding performance unit has an initial value determined in
U.S. dollars as of the date of grant and, once granted, can only increase in
value. Awards may be increased annually, based on the corporate results of
Corange, except that any annual increase cannot be less than the corresponding
annual increase in the U.S. long-term Treasury bill interest rate. Any annual
increase in the value of a new performance unit award automatically increases
the value of any outstanding performance units. In the case of an employee who
elects to defer payment of an award beyond the fifth anniversary of the grant
date, the value of the performance units subject to such award cannot be
increased after the fifth anniversary of the grant date, except to reflect any
annual increase in the U.S. long-term Treasury bill interest rate. LTIP I
awards are subject to a four-year graded vesting schedule, such that an
employee who has received an award of performance units will vest cumulatively
as to 40% of the performance units awarded on the first anniversary of the
grant date and 20% of the performance units on each of the second, third and
fourth anniversaries of the grant date. LTIP I awards are paid to the
executive as soon as practicable after they have vested, except that employees
may elect to defer payment of a portion or all of their LTIP I awards until
the end of any calendar year between the date of vesting and the fifteenth
anniversary of the grant date. The value of units awarded during 1995 under
LTIP I to Messrs. Lent, Dormer, McCaffrey, Tidmore and Morel, based on a unit
value of $12.42 as of December 31, 1995, was $229,770, $69,550, $69,552,
$44,712, and $9,936 respectively.

Additional Long-Term Incentive Plan. The additional long-term incentive plan
("LTIP II") is an annual incentive plan which provides annual cash awards to
employee participants, based on the Company's worldwide performance for the
prior year as well as a participant's individual performance. Awards vest
cumulatively over a three-year period such that 25% of an award and earnings
thereon vests on the January 1 following the January 1 on which the award was
made, an additional 25% vests on the following January 1 and the award vests
fully on the third January 1 following the award date. Awards which vest on
January 1st of any year are paid to the participant, to the degree vested, at
such time. The LTIP II covers 48 executives of the Company (not including Mr.
Lent). Awards made to participants are invested by the Company in mutual
funds; however, a return of no less than the return on a 30-year Treasury Bill
is guaranteed on such invested awards. The plan provides for a target payout
to a participant of 20% of his or her base salary and a maximum payout of 30%
of his or her base salary. The value of awards made during 1995 under LTIP II
to Messrs. Dormer, McCaffrey, Tidmore and Morel was $46,605, $75,000, $50,000,
and $71,000 respectively.

No additional awards will be made under LTIP I or LTIP II subsequent to
April 30, 1996. In addition, prior to the date of the Offering, LTIP I will be
amended to provide that any awards which were granted to participants under
LTIP I prior to or as of April 30, 1996 will vest immediately and in full as
of the date on which the participant executes an agreement with the Company
pursuant to which the participant will receive phantom stock units under the
Incentive Plan (see "--1996 Equity Incentive Plan"), and, on such date, the
participant's vested awards under LTIP I will be cancelled. It is expected
that all fourteen of the Company's executives who participate in LTIP I will
receive phantom stock units under the Incentive Plan and that all awards
granted to such executives under LTIP I will be cancelled.

Corange Retirement Income Plan. The Corange Retirement Income Plan (the
"RIP") is a tax-qualified target benefit plan sponsored by CUSHI for the
benefit of the employees of CUSHI and its affiliates, including the Company.
The RIP covers substantially all of the non-union employees of the Company.
Under the RIP, the Company is required to make a prescribed annual
contribution to the plan, up to statutorily prescribed limits, payable ratably
on a monthly basis, in an amount determined necessary to meet the projected
targeted benefit under the RIP when all of such contributions and earnings
thereon (at an assumed rate of return specified in the plan) are accumulated
to the participant's attainment of age 65, the normal retirement date under
the plan. The targeted benefit with respect to any participant is equal to the
product of 30% of the participant's average compensation (determined with
respect to the three calendar years out of the most recent four calendar years
in which the participant received the largest amount of compensation) and the
amount of the participant's credited service (determined in months, up to a
maximum of 360) divided by 360. A separate account is established with respect
to each participant under the plan. Amounts contributed under the RIP are
invested by the plan's trustee, currently the NBD Bank, N.A., and the benefit
which is payable under the RIP is the amount which can be

provided from the assets accumulated in the participant's account under the
plan. Thus, there is no guaranty under the RIP that the amount available at
retirement will be sufficient to provide the targeted benefit. Retirement
before age 65 can be elected under certain conditions. Benefits under the plan
are generally payable in the form of a 50% joint and survivor annuity with the
participant's spouse as the joint annuitant, although a participant may elect,
with the consent of his or her spouse in the case of a married participant, to
receive a single lump sum payment or certain other forms of annuity payments.
The Company made a contribution to the RIP in 1995 in the amount of $897,558.
A participant generally vests 100% in the Company contributions made to the
RIP upon completing five years of service. A separate successor RIP will be
established by the companies (other than the Company) which participate in the
RIP, and, in accordance therewith, assets currently allocated on behalf of
employees of such other companies under the RIP will be transferred as soon as
practicable following the Offering from the RIP to the successor plan
established by such other companies.

Corange Cash Accumulation Plan. The Corange Cash Accumulation Plan (the
"401(k) Plan") is a tax-qualified employee savings and retirement plan
maintained by CUSHI for the benefit of the employees of Corange and its
affiliates, including the Company. The 401(k) Plan covers substantially all of
the Company's non-union employees. Employees eligible to participate may elect
to contribute, on a before-tax basis, between 2% and 11% of their
compensation, up to statutorily prescribed limits, to the 401(k) Plan as a
savings contribution. The Company matches 100% of the pre-tax contributions
made by a participant, up to 4% of the participant's compensation. The
Company's contribution to the 401(k) Plan for the 1995 year was $1,250,360. A
participant's interest in his or her pre-tax contributions, after-tax
contributions and rollover contributions to the 401(k) Plan are 100% vested
when contributed to the plan. A participant's interest in the Company's
matching contributions generally vests 100% upon the participant's completion
of three years of service with the Company or with certain affiliates of the
Company. A separate successor 401(k) Plan will be established by the companies
(other than the Company) which participate in the 401(k) Plan, and, in
accordance therewith, assets currently allocated on behalf of employees of
such other companies under the 401(k) Plan will be transferred as soon as
practicable following the Offering from the 401(k) Plan to the successor plan
established by such other companies.

Corange U.S. Holdings, Inc. Retirement Excess Plan. The Corange U.S.
Holdings, Inc. Retirement Excess Plan (the "Excess Plan") is maintained by
CUSHI for the benefit of eligible employees of CUSHI and its affiliates,
including the Company. The Excess Plan is intended to offset the limitations
under the Code that are placed on benefits under the RIP by providing eligible
employees benefits in excess of those available to such employees under the
RIP. Employees are eligible to participate in the Excess Plan in the year
following the year in which the amounts allocable to their accounts under the
RIP are limited by the limit imposed under the Code. Under the unfunded Excess
Plan, a recordkeeping account is established on behalf of each participant
which is credited, annually, with the difference between the amount of the
employer contribution that would have been credited to the participant under
the RIP had the Code limit not applied and the amount of the employer
contribution that actually was credited to the participant under the RIP
because of such limit, provided that no more than $10,000 may be credited to a
participant's account for any single calendar year. A participant's benefit
under the Excess Plan becomes 100% vested and nonforfeitable after five years
of service with the Company and becomes payable, in a single lump sum payment,
at the time that the participant becomes eligible to receive benefits under
the RIP. In the event of a participant's death, the benefit credited to his or
her account is payable as a death benefit to the participant's beneficiary.
Currently, the Excess Plan covers Mr. Morel and other employees of the
Company.

Supplemental Retirement Plan (Plan No. 1). The Company has adopted the CUSHI
Supplemental Retirement Plan (Plan No. 1) (the "SERP 1") which is sponsored by
CUSHI for the senior executives of the companies in the CUSHI consolidated
group, including the Company. Plan participants are selected by the Chief
Executive Officer of Corange or the Board of CUSHI from the senior executives
of the companies in the CUSHI consolidated group, including the Company. Upon
reaching the normal retirement date under the plan (defined as the last day of
the CUSHI pay period immediately following a participant's 65th birthday)
while employed by CUSHI or any of its affiliates, a participant is eligible
for supplemental retirement benefits under the plan in an annual amount,
payable for the participant's lifetime, equal to 60% of the participant's
final average CUSHI income, reduced by the sum of the participant's retirement
income from sources other than CUSHI, the benefit

payable to the participant under the RIP, any benefit payable to the
participant under any defined benefit retirement arrangement maintained by
Corange or by any non-U.S. based affiliate of Corange and by one-half of the
participant's primary social security benefits. For purposes of the plan, the
participant's final average CUSHI income is determined as the annual average
of the 36-month period ending on the date of the participant's termination of
employment and includes, with respect to a fiscal year, base salary, one-half
of the annual cash bonus paid to the participant by CUSHI, participant
deferrals pursuant to a 401(k) plan maintained by CUSHI, salary or bonus
amounts deferred under any CUSHI nonqualified deferred compensation
arrangement and amounts excluded from wages pursuant to a cafeteria plan
maintained by CUSHI. The plan also provides for reduced supplemental early
retirement, disability and death benefits. A participant forfeits benefits
under the plan if the participant's employment is terminated for cause or, if
terminated upon death or disability, before completing 5 years of service or
reaching age 60 or, if terminated other than upon retirement, death or
disability, before completing 10 years of service with CUSHI. In addition, a
participant's continuing right to receive benefits is conditioned on the
participant's compliance with certain noncompetition, nonsolicitation and
confidentiality plan requirements. Currently, the SERP 1 covers Mr. Lent.

Supplemental Retirement Plan (Plan No. 2). The CUSHI Supplemental Retirement
Plan (Plan No. 2) (the "SERP 2") is sponsored by CUSHI for the executives of
CUSHI and its affiliates, including the Company. The SERP 2 covers executives
not covered by the SERP 1. The SERP 2 provides the same level of benefits
provided in the SERP 1 and generally contains the same provisions as described
above with respect to the SERP 1. However, for purposes of determining the
participant's final average CUSHI income, any annual cash bonus paid to the
participant with respect to a fiscal year or any bonus amount which is
deferred under any CUSHI nonqualified deferred compensation arrangement is not
taken into account. Currently, the SERP 2 covers Messrs. Tidmore, McCaffrey
and other senior executives of the Company.

Amounts necessary to fund the benefits under the SERP 1 and the SERP 2 are
determined by the Company's actuarial consultants and such amounts are then
paid into a grantor trust to provide the benefits under the plans. While the
purpose of the trust is to provide plan participants with greater security
that their benefits will be paid, the assets held under the trust become
available to be paid to the Company's creditors in the event of the Company's
insolvency. The Company is liable for any payments under the plans to the
extent that payments are not made from the trust. A separate successor SERP 1
and SERP 2 will be established by the companies (other than the Company) which
participate in SERP 1 and SERP 2, and, in accordance therewith, assets
currently allocated on behalf of employees of such other companies under the
SERP 1 and under the SERP 2 will be transferred as soon as practicable
following the Offering from the SERP 1 and the SERP 2, as applicable, to the
successor plans established by such other companies.

Estimated Retirement Benefits Under the RIP, the Excess Plan, the SERP I and
the SERP II. If Messrs. Lent, McCaffrey, Tidmore and Morel continue in the
positions identified above and retire at their respective normal retirement
dates set forth under the RIP and the SERP I or the SERP II, as the case may
be, the estimated annual pension amounts payable under the RIP and the SERP I
or the SERP II, as the case may be, would be, respectively, with respect to
Mr. Lent, $36,000 and $344,012, with respect to Mr. McCaffrey $34,500 and
$116,757 and with respect to Mr. Tidmore, $33,000 and $86,244. With respect to
Mr. Morel, such amounts would be $25,500 and 0 (Mr. Morel does not participate
in the SERP I or the SERP II) and an additional estimated annual pension
amount of $1,410, stated as a single life annuity amount attributable to his
participation in the Excess Plan. As described above, the actual benefit under
the RIP is the amount actually accumulated in the participant's account as of
the payment date. The amount stated herein is the targeted single life annuity
benefit amount. The amount stated for the SERP I or the SERP II, as
applicable, is expressed as a joint and 50% survivor annuity amount.

DePuy International Ltd Pension and Life Assurance Scheme. DePuy
International has adopted the DePuy International Ltd Pension and Life
Assurance Scheme (the "UK Pension Plan") for the benefit of the permanent
salaried staff employees and employees at the director level of DePuy
International who are at least age 18, are not age 60 at the time that
participation commences and who elect to participate in the plan. Currently,
Mr. Dormer is the only Named Officer in the UK Pension Plan. Participants in
the plan are required to contribute 5% of their

basic salaries plus specified allowances to the UK Pension Plan, except that
employees who are at the director level contribute at a 6% rate. Under the UK
Pension Plan, a participating employee who retires at age 65 (age 60 for
employees at the director level), the normal retirement date specified in the
plan, will receive a pension calculated as follows: 1/60th (other amounts may
be applicable with respect to participants who joined the plan before 1978)
multiplied by the employee's final pensionable salary (as defined below)
multiplied by the employee's pensionable service (as defined below). The
pension with respect to a plan participant who is at the director level
accrues at the rate of 1/30th of final pensionable salary for each year of
pensionable service, to a maximum benefit equal to two-thirds of such salary.
For purposes of the plan, an employee's pensionable salary is his or her basic
annual salary and the final pensionable salary is the average of the three
highest consecutive years of pensionable salaries during the ten-year period
preceding normal retirement or earlier date of termination of participation in
the plan. Pensionable service, for purposes of the UK Pension Plan generally
is an employee's consecutive years and months of participation in the plan.
Participants who retire may elect to receive a portion of their benefits in
the form of a tax-free lump sum payment, in which event benefits remaining to
be paid under the plan will be reduced.

Pensions payable under the plan are increased annually to reflect cost of
living increases. Pension benefits are guaranteed for five years and provide
for surviving spouse benefits payable on a joint and 50% survivor annuity
basis. If a participant dies while working for the Company, a lump sum life
assurance benefit and refund of the accumulated value of contributions made by
the participant will be paid pursuant to the direction of the plan's trustees
and a lifetime pension under the plan will be payable to the participant's
spouse. Participants who have attained age 50 may elect to receive a reduced
early retirement pension. The reduction may be waived by the plan's trustees
if the retirement is due to the serious ill health of the participant.
Participants can elect to make additional voluntary contributions under the
plan in order to provide additional pension benefits. Participants who leave
the employ of the company after they have completed two or more years of plan
membership are eligible to receive a deferred vested pension or to have the
value of their accrued benefits transferred to another plan. Participants who
terminate their employment prior to completing two years of plan membership
will receive a refund of their accumulated contributions. Participants in the
plan also receive long-term disability insurance benefits. Approximately 900
employees currently are participating in the UK Pension Plan. The aggregate
contribution of participating employers during 1995 to the UK Pension Plan was
$855,169 (based on a conversion at the Federal Reserve Rate).

DePuy International Executive Retirement Benefits Scheme. DePuy
International has adopted the DePuy International Executive Retirement
Benefits Scheme (the "UK Serp"). Currently, Mr. Dormer is the only participant
in the UK Serp. Under the UK Serp, DePuy International contributes an amount
which is actuarially determined each year as necessary to provide the
projected targeted benefit under the plan. The targeted benefit is two-thirds
of the participant's final pensionable salary (as such term is defined above)
when the benefits under the UK Serp are added to the benefits under the UK
Pension Plan. A separate account is established with respect to each
participant in the plan. Amounts under the UK Serp are invested and the
benefit which is payable under the plan is the amount which can be provided
from the assets accumulated in the participant's account under the plan. Thus,
there is no guaranty under the UK Serp that the amount available at retirement
will be sufficient to provide the targeted benefit. In the event of Mr.
Dormer's death, a lump sum death benefit is also payable under the plan. The
actuary with respect to the UK Serp has determined that the contribution with
respect to Mr. Dormer should be approximately 38.8% of his pensionable salary.
The targeted benefit under the UK Serp with respect to Mr. Dormer is $155,350
(inclusive of the benefit of $79,456 expected to be payable to him under the
UK Pension Plan), and the amount contributed with respect to Mr. Dormer to the
plan in 1995 was $39,964 (based on a conversion at the Federal Reserve Rate).

1996 Equity Incentive Plan. The Company will adopt, effective as of the date
of the Offering and subject to the approval of shareholders of the Company,
the Incentive Plan for the benefit of (1) the executive personnel, key
employees, sales representatives and consultants of the Company and its
affiliates and (2) the non-employee directors of the Company. Employees, sales
representatives and consultants will be selected to participate in the
Incentive Plan by a committee of the Board designated to administer the plan,
which is currently the

Compensation Subcommittee. However, the Compensation Subcommittee has no
discretion to select non-employee directors to participate in the Incentive
Plan, which contains specific provisions with respect to the automatic
participation of the non-employee directors. Under the Incentive Plan,
participants may be awarded stock options, stock appreciation rights,
restricted stock and phantom stock units, performance awards payable in cash
or shares of stock and other stock-based awards.

Subject to the terms of the plan, the Compensation Subcommittee has the sole
discretion to administer the plan, including the discretion to make awards,
and to determine the number of shares to be covered by an option, stock
appreciation right, restricted stock or restricted stock unit, phantom stock
unit or other stock-based awards, the exercise price with respect to options,
the length of the restricted period with respect to restricted stock, the
performance goals to be achieved with respect to performance awards and the
form of payment thereof, vesting requirements and other terms and conditions
of the awards. The Incentive Plan provides that the aggregate number of shares
of the Company's stock which will be available under the Incentive Plan for
award to participants will be 9,400,000 plus the number of shares as equals
the value of vested awards under LTIP I divided by the initial public offering
price per share. The number of shares with respect to which awards may be
granted to any participant during any calendar year under the plan may not
exceed 1,000,000 shares. The maximum number of shares available for restricted
stock awards under the plan is 350,000. Upon a change of control of the
Company (as defined in the plan), all outstanding awards held by participants
will vest fully, become immediately exercisable or payable or have all
restrictions removed, as applicable, and no outstanding stock appreciation
right may be terminated, amended or suspended, unless it is determined that
the net after-tax amount to be realized by the participant would be greater if
such vesting did not occur. Specifically with respect to non-employee
directors, stock option awards made under the plan will vest in equal
cumulative annual installments over a three-year period from the grant date.

The Incentive Plan provides for an automatic grant of options, effective as
of the date of the Offering and with an exercise price equal to the initial
public offering price, with respect to 20,000 shares, to each non-employee
director of the Company immediately following the Offering. No director who is
a full-time employee of the Company or who owns beneficially more than 10% of
the total voting power of all classes of stock of the Company is eligible to
participate. The exercise price of options granted under the Incentive Plan to
non-employee directors shall be the fair market value as determined under the
plan as of the date of grant, and the options shall vest in equal cumulative
annual installments over three years.

The Compensation Subcommittee has granted, effective as of the date of the
Offering and with an exercise price equal to the initial public offering
price, option awards under the Incentive Plan to Mr. Lent, with respect to
150,000 shares, to Mr. Dormer, with respect to 75,000 shares, to Mr.
McCaffrey, Mr. Tidmore, Mr. Morel, Mr. Artusi, Mr. Oberhausen and Mr. Seward,
with respect to 40,000 shares each, and to Mr. Andre and Mr. Taylor, with
respect to 20,000 shares each, for a total option award to executive officers
with respect to 505,000 shares. In addition, the Compensation Subcommittee has
granted, effective as of the date of the Offering and with an exercise price
equal to the initial public offering price, option awards to managers with
respect to approximately 250,000 shares. The Compensation Subcommittee has
granted, effective as of the date of the Offering and with an exercise price
equal to the initial public offering price, option awards to sales
representatives with respect to approximately 400,000 shares. In addition,
approximately 6 non-employee directors have been granted, effective as of the
date of the Offering and with an exercise price equal to the initial public
offering price, option awards under the plan, for a total option grant to non-
employee directors with respect to 120,000 shares. In addition, the
Compensation Subcommittee is expected to grant, effective as of the date of
the Offering, vested phantom stock units to the participants in LTIP I, as
described above. The number of phantom stock units to be granted shall be
determined by reference to the initial public offering price of the stock of
the Company. The Compensation Subcommittee is also expected to provide certain
consultants, as soon as administratively practicable after the Offering, the
opportunity to exchange their right to receive in the future certain cash fees
in respect of services to be provided to the Company for options under the
Incentive Plan exercisable at the initial public offering price. The number of
such options that a consultant may receive in exchange for future amounts
payable by the Company will be determined pursuant to a formula developed by

the Company's financial advisors. Any such exchange offer will be made
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "Commission") setting forth the terms of such exchange. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

DePuy, Inc. Employee Stock Option/Purchase Plan. The Company will adopt,
effective as of January 1, 1997 or as soon as practicable thereafter, and
subject to shareholder approval, the DePuy, Inc. Employee Stock
Option/Purchase Plan (the "Stock Purchase Plan") for the purpose of providing
the employees of the Company and its subsidiary corporations with an
opportunity to participate in equity ownership of the Company by purchasing
stock of the Company at a discount. The maximum aggregate number of shares to
be issued under the Stock Purchase Plan will be 600,000. Under the Stock
Purchase Plan, four annual offerings of the Company's common stock will be
made, beginning as of January 1, 1997 or as soon as practicable thereafter,
and on each anniversary of the effective date thereafter for three years, and
running for a period of twelve months. Alternatively, each such annual
offering may be divided into two six-month offerings beginning as of January
1, 1997 or as soon as practicable thereafter, and on each anniversary of such
date thereafter, and on the date which is six months subsequent to such date
and each anniversary thereafter and terminating, respectively, on the
following June 30 and December 31. The committee administering the plan will
determine the maximum number of shares to be issued under the Stock Purchase
Plan during each annual period, except that the maximum number of shares to be
issued during the 1997 annual period will be 150,000. All employees who have
completed 90 days of employment with the Company are eligible to participate
in offerings under the Stock Purchase Plan. In order to participate, an
eligible employee must authorize payroll deductions at a rate of 1% to 10% of
base pay, which deductions are credited to the participant's plan account. On
the commencement date of each offering, a participant is deemed to have been
granted an option to purchase an amount of stock determined by a formula which
takes into account the percentage elected for payroll deductions, the amount
of the employee's base pay and the value assigned to the stock under the plan
for such date. The option price of the stock under the Stock Purchase Plan is
the lower of 85% of the fair market value of the stock on the offering
commencement date or 85% of the fair market value on the offering termination
date. No employee may be granted an option to participate in the plan if,
immediately after such grant, the employee would own stock or have outstanding
options to buy stock possessing 5% or more of the total voting power of the
stock of the Company or an option to participate which allows the employee's
rights to buy stock under all stock purchase plans of the Company to accrue at
a rate exceeding $25,000 in the fair market value of the stock for each year
in which such award is outstanding. A participant will be deemed to have
automatically exercised his or her option to purchase shares of the Company
during any offering, unless the participant elects otherwise in writing. Upon
termination of employment, all payroll deductions are returned to the
employee, except that if the employee dies, his or her beneficiary has the
right to use the accumulated payroll deductions to date to exercise the
participant's option to purchase stock. The Stock Purchase Plan is intended to
be a global plan, and it is expected that the Stock Purchase Plan will be
amended to cover certain employees of the Company outside the U.S., subject to
and in accordance with applicable local law.

The Stock Purchase Plan will be administered by a committee appointed by the
Board, which is currently the Compensation Subcommittee. The members of the
committee will not be eligible to participate in the Stock Purchase Plan.

EMPLOYMENT AND TERMINATION OF EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with the Named Officers.
The agreements require the Company to provide the executive with 24 months'
advance notice (36 months, in the case of Mr. Lent, and 3 months, in the case
of Mr. Dormer) if the Company terminates his employment for any reason other
than for cause, as defined in the agreement, or constructively terminates the
executive's employment (also with respect to Mr. Dormer, a previous agreement
with the Company provides that the Company must provide him with 24 months'
advance notice, at a rate of compensation lower than that in effect during the
term of his current employment agreement, if the Company terminates his
employment for any reason other than for cause, which provision remains
effective). An executive may terminate his employment with the Company upon 6
months'

advance notice. During the applicable notice period, following notice given by
either the Company or the executive, during which the Company may discontinue
its use of the executive's services, the executive will receive continuation
of his salary, a prorated bonus with respect to such period, continuation of
his car allowance and continuation of participation in the 401(k) Plan (except
for Mr. Dormer who does not participate in such plan), the RIP (except for Mr.
Dormer who does not participate in the RIP), the SERP I or the SERP II, as
applicable (except for Messrs. Dormer and Morel who do not participate in the
SERP I or the SERP II), LTIP I, LTIP II and any successor stock plans, and the
Company's medical plans (under certain conditions, certain Named Officers may
be entitled to medical coverage for life). In addition, the employment
agreements with respect to Messrs. Lent, McCaffrey and Tidmore provide for
acceleration of eligibility to receive benefits under the applicable SERP at
age 55 if the executive's notice period is in effect and, if the Company's
notice period is in effect, the Company will make such funding as necessary to
provide the executive with enhanced benefits under the applicable SERP equal
to the amount that the executive would have received under the RIP and the
applicable SERP had he been employed by the Company for three years past the
last day of the Company's notice period.

Pursuant to Mr. Dormer's agreement, the Company will continue contributions
on his behalf to the UK Pension Plan and the UK Serp, at the rate effective on
the date notice is given, through the applicable notice period. In addition,
the Company will contribute to the UK Serp on Mr. Dormer's behalf a sum equal
to two years' contributions.

The current agreements with the Named Officers, as described above, will
cease to be effective as of May 31, 1997 (and any prior existing agreement
with respect to such terms shall again become effective) if, by such date, the
Offering or other form of transfer of all, or a part, of the ownership of the
Company, whether by public or private sale, has not taken place.

CERTAIN TRANSACTIONS

The Company and BMC jointly insure the first level of their Product
Liability and Completed Operations Insurance coverage with Bellago, a wholly-
owned subsidiary of Corange. Pursuant to a policy effective November 15, 1994,
Bellago extended to the Company defense and indemnity protection for claims
arising from occurrences for which the Company is, or might be alleged to be,
liable to third parties during the period June 1, 1986 through May 31, 1994
and defense and indemnity protection for all claims brought against the
Company and/or BMC during the period June 1, 1994 through May 31, 1995. The
policy was renewed in 1995 and will be renewed in 1996. The policy provides
for insurance of $2.0 million per occurrence, $5.0 million per group of
related claims and $10.0 million in the aggregate annually. The limit of
coverage during each policy period corresponds with, and is equal to, that
amount of potential liability which is not covered by insurance coverage from
other insurance companies. Claims of DePuy and BMC in excess of the stated
limits of the Bellago policy are currently insured through policies with such
other insurance companies. The Company has not yet determined whether or not
it will continue to purchase joint coverage with BMC at the respective times
such policies are next renewed.

Prior to the Offering, the shares of BMC were transferred by CUSHI (the
predecessor of the Company) out of the CUSHI consolidated group. Pharminvest
cancelled outstanding indebtedness of CUSHI to Pharminvest in the amount of
$496.9 million and made a cash payment to CUSHI in the amount of $43.1
million, a portion of such aggregate amount constituting payment to CUSHI for
the BMC stock at its appraised fair market value, with the remaining portion
being a capital contribution to CUSHI and (to a nominal extent) additional
debt extended to CUSHI. See "Pre-Offering Reorganization."

Various subsidiaries of the Company have issued promissory notes in favor of
non-DePuy entities in the Corange group. Those notes, which will remain
outstanding following the Offering, call for the payment of various rates of
interest. Such notes involve an aggregate indebtedness of $60.5 million. Of
such amount, a total of $29.3 million in principal amount will become due in
1996. A total of $23.9 million will become due in 1999 and $1.2 million in the
year 2001. The remaining $6.1 million is in the form of demand notes with no
specified maturity dates.

The Debt Facility requires Corange to retain direct or indirect ownership of
at least 65% of the Company's voting stock. The Debt Facility contains
covenants which limit aggregate borrowings by all entities within the Corange
group, absent a consent from the lenders under the facility. All borrowings by
Corange and its direct and indirect subsidiaries, including the Boehringer
Mannheim companies and the DePuy companies, would be aggregated for purposes
of determining whether such aggregate limit on borrowings has been exceeded.
Should the Company require additional financing in the future, whether in
connection with financing acquisitions, capital expenditures, working capital
or otherwise, the Company's ability to borrow could be constrained (absent a
consent by the lenders) by the covenants in the Debt Facility; in addition,
should the Company wish to acquire any entity which has significant debt, the
Company's ability to consummate such transaction could also be constrained
(absent a consent by the lenders) by the covenants in the Debt Facility. The
notes issued under the Debt Facility have varying maturity dates, ranging from
the year 2003 to the year 2008. Corange may repay such notes at any time,
subject to certain conditions. The covenants contained in the Debt Facility
will continue to apply as long as any notes remain outstanding under the Debt
Facility.

At or prior to the consummation of the Offering, the Company and the Corange
Stockholders will enter into a Registration Rights Agreement, pursuant to
which the Corange Stockholders have the right (which right is assignable in
connection with any non-public sale of shares) to require the Company to file
one or more registration statements with the Commission registering, for
resale to the public, the shares of Common Stock held by the Corange
Stockholders. See "Shares Eligible for Future Sale."

The Company funds, pursuant to an oral arrangement, ongoing research being
conducted by BMC in Indianapolis, Indiana. This arrangement involves research
performed by BMC relating to orthobiologic materials that might be used in
regeneration of human bone and cartilage, cell therapies and tissue
engineering. DePuy will have exclusive rights to all intellectual property
developed from the research. The arrangement began in 1992 and continues to
the present. From the beginning of this project through the end of 1996, the
Company expects to have spent approximately $2.5 million in the aggregate. It
is the Company's intention to continue this arrangement following the
Offering.

In connection with the Company's pre-offering reorganization, Lakeside, the
Mexican subsidiary affiliated with the Boehringer Mannheim business of the
Corange group, transferred certain of its assets attributable to the DePuy
business to a newly created subsidiary of CUSHI. See "Pre-Offering
Reorganization." In connection with such transfers the Company's newly-formed
subsidiary in Mexico, DePuy, Mexico, S.A. de C.V. has negotiated a two-year
Shared Services Agreement with Lakeside, which, among other things, would
require Lakeside to provide office and warehouse space, clerical assistance
and general administrative services, including accounting and bookkeeping
services, in exchange for a fee equal to 110% of the direct and indirect costs
of furnishing the services.

To manage foreign exchange risk associated with operations outside the U.S.,
the Company's subsidiaries have, and will for the immediate future enter into,
foreign currency exchange contracts with Corange to reduce exposure to
exchange rate movements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

PRINCIPAL STOCKHOLDERS

Prior to the Offering, all 90,000,000 outstanding shares of Common Stock of
the Company will be owned by Corange and three indirect wholly-owned
subsidiaries of Corange: CIL, CIHBV and Pharminvest. After the Offering, the
Corange Stockholders (after giving effect to the shares being sold by Corange
in the Offering) will continue to own 83,000,000 shares of the Common Stock of
the Company, or approximately 84.8% of the Common Stock outstanding (or
approximately 83.0% of the Common Stock outstanding, if the Underwriters'
over-allotment option is fully exercised).

The following table sets forth certain information regarding the beneficial
ownership by Corange and its subsidiaries of the Company's Common Stock
immediately prior to the Offering and as adjusted to reflect the sale of
Common Stock sold in the Offering (assuming no exercise by the Underwriters of
the over-allotment option):

BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NUMBER NUMBER OF SHARES NUMBER
NAME OF BENEFICIAL OWNER OF SHARES PERCENT BEING OFFERED OF SHARES PERCENT
- ------------------------ ------------- --------- ---------------- ------------- ---------

Corange Limited......... 10,168,745 11.3% 7,000,000 3,168,745 3.2%
22 Church Street
HM 11
P.O. Box HM 2026
Hamilton, HM HX
Bermuda
Corange International
Limited................ 528,247 0.6 0 528,247 0.5
P.O. Box HM 2026
Hamilton HM HX
Bermuda
Corange International
Holdings B.V........... 13,272,193 14.7 0 13,272,193 13.6
Tripolis Building 100
Burgerweeshuispad 141
NL-1076 EW
Amsterdam, The Nether-
lands
Pharminvest S.A......... 66,030,815 73.4 0 66,030,815 67.5
145, rue de Treves
Luxembourg, G.D.

The Corange Stockholders have no present intention of selling additional
shares of Common Stock and have entered into an agreement with the
Representatives of the Underwriters not to sell any such shares (other than in
connection with transfers to other direct or indirect subsidiaries of Corange,
provided such transferees will be subject to such sale restrictions) for a
period of 180 days after the date of this Prospectus without the consent of
Morgan Stanley & Co. Incorporated. See "Underwriting."

Pursuant to the Debt Facility, Corange is required to retain, as long as the
Debt Facility remains outstanding, direct or indirect ownership of at least
65% of the Company's voting stock. See "Certain Transactions."

At or prior to the consummation of the Offering, the Company and the Corange
Stockholders will enter into a Registration Rights Agreement, pursuant to
which the Corange Stockholders have the right (which right is assignable in
connection with any non-public sale of shares) to require the Company to file
one or more registration statements with the Commission registering, for
resale to the public, shares of Common Stock held by the Corange Stockholders.
See "Certain Transactions."

Corange is managed by a five-man Board of Directors consisting of the
following persons: Curt Engelhorn, James A. Lent, Gerhard Moller, Anthony
Williams and Michael Drew. Mr. Lent and Mr. Williams are also members of the
Board of Directors of DePuy. The shares of Corange are beneficially owned by
four family branches who are descended from the founders of the Boehringer
Mannheim companies in Germany. The family

of Curt Engelhorn beneficially owns approximately 37.3% of the shares, the
family of Christof Engelhorn beneficially owns approximately 22.3% of the
shares, the family of Peter Engelhorn beneficially owns approximately 22.3% of
the shares and Christa Gelpke beneficially owns approximately 18.0% of the
shares. Messrs. Curt Engelhorn and Christof Engelhorn and Madame Traudl
Engelhorn (the widow of Peter Engelhorn) may be deemed to control the
shareholdings of their respective family branches. There are no agreements
among the four branches as to the voting of their shares in Corange, and since
none of such family branches owns a majority of shares of Corange, no branch
(except insofar as any branch may act in concert with one or more other
branches from time to time) is in a position to cause the election of
particular directors or to cause the shareholders to approve any matter with
respect to which shareholder approval may be required or sought.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Pursuant to the Company's Certificate of Incorporation, the Company's
authorized capital stock consists of 130,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value
$1.00 per share (the "Preferred Stock"), of which 90,000,000 shares of Common
Stock and no shares of Preferred Stock were outstanding immediately prior to
the Offering. Upon completion of the Offering, there will be 97,780,000 shares
of Common Stock outstanding. The Company's Certificate of Incorporation
provides that the Company may not issue more than an aggregate of 115,000,000
shares of Common Stock, (including, without limitation, any shares of Common
Stock reserved and/or in respect of options, warrants or other rights or in
respect of any securities convertible into or exchangeable for Common Stock),
without first receiving the consent in writing of any person who, directly
and/or through any direct or indirect over fifty percent-owned subsidiary,
owns over fifty percent of the Company's outstanding Common Stock.

The Certificate of Incorporation and by-laws contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of
the Company.

The following summary of certain provisions of the Company's capital stock
describes provisions of, but does not purport to be complete and is subject
to, and qualified in its entirety by, the Certificate of Incorporation and the
by-laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held on
all matters on which holders of Common Stock are entitled to vote and, except
as otherwise required by law and except for any voting rights applicable to
any outstanding series of Preferred Stock, the holders of Common Stock possess
all voting power held by stockholders of the Company. All holders of shares of
Common Stock, subject to any preferences that may be applicable to any
outstanding series of Preferred Stock, are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of the Company, holders of shares of Common Stock would be entitled to share
ratably in the Company's assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of shares of Common Stock have
no preemptive or other subscription rights. In addition, there are no
cumulative voting rights with respect to the election of directors. The
rights, preferences and privileges of the holders of shares of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate in the
future.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series, each
of such series to have such terms, rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as may be determined by the Board of Directors.
Issuance of Preferred Stock, while providing desirable flexibility in
connection with possible financing, acquisitions and other corporate purposes,
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company. The Board of
Directors has no present plans to issue any shares of Preferred Stock. The
Board of Directors will make any determination to issue shares of Preferred
Stock based on its judgment as to the best interests of the Company and its
stockholders.

CERTAIN CHARTER, BY-LAW AND DELAWARE LAW PROVISIONS

Certain provisions of the DGCL and the Company's Certificate of
Incorporation and by-laws, summarized below, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.

Number of Directors; Classified Board. The Certificate of Incorporation
provides that there be between three and fifteen directors, the exact number
of directors to be determined from time to time by the Board of Directors. The
Certificate of Incorporation and by-laws divide the Board of Directors into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. Any vacancy on
the Board of Directors, including those created by an increase in the size of
the Board, may be filled by the vote of a majority of the directors in office,
even if less than a quorum. Any director elected to fill a vacancy will hold
office for a term coincident with the term of the class to which he or she was
elected which will not necessarily be the next annual stockholders meeting.
Directors may be removed from office with or without cause by the affirmative
vote of the holders of more than fifty percent of the outstanding stock of the
corporation then entitled to vote generally for the election of directors,
considered as one class. The provision of the Certificate of Incorporation
providing for a staggered Board could prevent a party who acquires control of
a majority of the outstanding voting stock from obtaining control of the Board
of Directors until the fourth annual stockholders meeting following the date
the acquiror obtains the controlling stock interest. This provision could have
the effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.

Special Stockholder Meetings. The Certificate of Incorporation and by-laws
provide, subject to the rights of holders of any class or series of stock
having a preference as to dividend or upon liquidation, that special meetings
of stockholders may be called by the Board of Directors, the Chairman or the
President. Thus, stockholders, in their capacity as such, are not entitled to
call a special meeting of stockholders.

Advance Notice Procedures. The Certificate of Incorporation and by-laws also
establish a 30-day advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before a meeting of stockholders of the Company. Stockholders may only
consider proposals or nominations brought before the meeting in accordance
with this procedure or by the Board of Directors. Although the Board of
Directors has no power to approve or disapprove stockholder nominations of
candidates or stockholder proposals regarding other business to be conducted
at a stockholders' meeting, the advance notice procedure may have the effect
of precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or deter a potential acquiror
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.

Indemnification. The Certificate of Incorporation provides that the Company
will indemnify, to the full extent authorized or permitted by the DGCL, any
person made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
officer of the Corporation or by reason of the fact that such director or
officer, at the request of the Corporation, is or was serving any other
corporation, partnership, joint venture, trust or other enterprise as a
director, officer, employee or agent.

Limitation of Liability. The Certificate of Incorporation provides that no
director of the Corporation will be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
a director as a director other than for: (i) any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) authorization of illegal dividends, or (iv) any transaction from
which such director derived an improper personal benefit.

Delaware Anti-Takeover Law. The Company is subject to Section 203 of the
DGCL which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in a broad range of "business combinations" with any
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) for a period of three years from the
date of the transaction in which the person became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by persons who are directors and also officers and by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is First
Chicago Trust Company of New York. Its telephone number is (201) 222-5686.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 97,780,000 shares of
Common Stock outstanding. Of these shares, the 14,780,000 shares sold in the
Offering (16,997,000 shares, if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company as that term is defined in Rule 144 under the
Securities Act. Persons who may be deemed to be affiliates generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include directors and executive officers of
the Company. Shares purchased by affiliates of the Company may generally be
sold in compliance with the resale limitations of Rule 144.

The 83,000,000 shares of Common Stock which continue to be held by the
Corange Stockholders upon completion of this Offering will be "restricted
securities" within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act or unless an exemption from
registration is available, including the exemptions contained in Rule 144
under the Securities Act.

In general, under Rule 144, persons such as the Corange Stockholders who
hold restricted securities and who have beneficially owned restricted
securities for at least two years would be entitled to sell within any three-
month period a number of restricted securities that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume on the New York Stock Exchange during the four calendar
weeks preceding such sale, provided that the seller files a Form 144 with
respect to such sale, that certain public information concerning the Company
is available and that the seller complies with certain requirements concerning
the manner of sale. A person who is deemed to be an affiliate of the Company,
including members of the Board of Directors and executive officers of the
Company, would also need to comply with the restrictions and requirements of
Rule 144, other than the two-year holding period requirement, in order to sell
shares of Common Stock that are not restricted securities, unless such sale is
registered under the Securities Act.

Additionally, under Rule 144(k), a person who holds restricted shares and
who is not an affiliate of the Company, and who has not been an affiliate of
the Company at any time during the 90 days preceding a sale by such person,
would be entitled to sell restricted securities without regard to the
limitations described above, provided that the restricted securities have been
beneficially owned for at least three years. The Commission has proposed
reducing the three year and two year restrictions described above to two and
one year restrictions, respectively. It is not known at this time whether this
proposal will be adopted.

The Company and the Corange Stockholders have entered into an agreement with
the Representatives of the Underwriters not to offer or sell any shares of
Common Stock (other than, in the case of the Company, in connection with the
exercise of any option or the conversion of phantom stock units issued under
the Company's incentive plan or the issue of options or the issue or purchase
of Common Stock in connection with the Company's employee stock/option
purchase plan, and in the case of the Corange Stockholders, in connection with
transfers to other direct or indirect subsidiaries of Corange, provided such
transferees will be subject to such sale restrictions) for a period of 180
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. See "Underwriting."

Pursuant to the Debt Facility, Corange is required to retain, as long as the
Debt Facility is outstanding, direct or indirect ownership of at least 65% of
the Company's voting stock. See "Certain Transactions."

At or prior to the consummation of the Offering, the Company and the Corange
Stockholders will enter into a Registration Rights Agreement, pursuant to
which the Corange Stockholders have the right (which right is assignable in
connection with any non-public sale of shares) to require the Company to file
one or more registration statements with the Commission registering, for
resale to the public, shares of Common Stock held by the Corange Stockholders.
See "Certain Transactions."

Prior to consummation of the Offering, there has been no public market for
the Common Stock, and no prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, or the availability of such shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the then-prevailing market prices for the Common Stock.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a discussion of the material U.S. federal income and estate
tax consequences of the ownership and disposition of Common Stock by a "Non-
U.S. Holder." A "Non-U.S. Holder" is a person or entity that, for U.S. federal
income tax purposes, is a non-resident alien individual, a foreign
corporation, a foreign partnership, or a non-resident fiduciary of a foreign
estate or trust.

This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which are subject to change, including changes with
retroactive effect. This discussion does not address all aspects of U.S.
federal income and estate taxation that may be relevant to Non-U.S. Holders in
light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign
jurisdiction.

Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations generally are proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the Proposed Regulations would
have if adopted.

Prospective holders should consult their tax advisors with respect to the
particular tax consequences to them of owning and disposing of Common Stock,
including the consequences under U.S. federal law as well as under the laws of
any state, local or foreign jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, the Company ordinarily will
presume that dividends paid to an address in a foreign country are paid to a
resident of such country absent knowledge that such presumption is not
warranted.

Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder generally would be required to provide an
Internal Revenue Service ("IRS") Form W-8 certifying such Non-U.S. Holder's
entitlement to benefits under a treaty. The Proposed Regulations also would
provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an
entity should be treated as paid to the entity or to those holding an interest
in that entity.

There will be no withholding tax on dividends paid to a Non-U.S. Holder that
are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if the Non-U.S. Holder files a valid IRS
Form 4224 (or, if and when the Proposed Regulations become effective, a Form
W-8) stating that the dividends are so connected. Instead, the effectively
connected dividends will be subject to regular U.S. income tax in the same
manner as if the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation
receiving effectively connected dividends also may be subject to an additional
"branch profits tax" which is imposed, under certain circumstances, at a rate
of 30% (or such lower rate as may be specified by an applicable treaty) of the
non-U.S. corporation's effectively connected earnings and profits, subject to
certain adjustments.

Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to tax treaties or
certain other agreements, the IRS may make its reports available to tax
authorities in the recipient's country of residence.

Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption

or to provide a correct taxpayer identification number and certain other
information. The Proposed Regulations would, if adopted, alter the foregoing
rules in certain respects, including by providing certain presumptions under
which a Non-U.S. Holder would be subject to backup withholding in the absence
of the certification from the holder as to non-U.S. status, regardless of
whether dividends are paid to a U.S. or non-U.S. address.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States, (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the Common Stock as a capital
asset, such individual is present in the United States for 183 or more days in
the taxable year of disposition, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) the Company is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. The Company is not, and does not anticipate becoming,
a U.S. real property holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of
a disposition of Common Stock paid to or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds outside the
United States if (A) the payment is made through an office outside the United
States of a broker that is either (i) a U.S. person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (iii) a "controlled
foreign corporation" for U.S. federal income tax purposes and (B) the broker
fails to maintain documentary evidence that the holder is a Non-U.S. Holder
and that certain conditions are met, or that the holder otherwise is entitled
to an exemption.

The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-U.S. Holder would be subject to backup
withholding in the absence of certification from the holder as to non-U.S.
status.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.

UNDERWRITING

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Stockholder have agreed to sell an aggregate of 14,780,000
shares of Common Stock and the U.S. Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Cowen & Company and
Furman Selz LLC are serving as U.S. Representatives, have severally agreed to
purchase, and the International Underwriters named below, for whom Morgan
Stanley & Co. International Limited, Bear, Stearns International Limited,
Cowen & Company and Furman Selz LLC are serving as International
Representatives, have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:

NUMBER OF
NAME SHARES
---- ---------

U.S. Underwriters:
Morgan Stanley & Co. Incorporated.......................................
Bear, Stearns & Co. Inc.................................................
Cowen & Company.........................................................
Furman Selz LLC.........................................................
----
Subtotal...............................................................
----
International Underwriters:
Morgan Stanley & Co. International Limited..............................
Bear, Stearns International Limited.....................................
Cowen & Company.........................................................
Furman Selz LLC.........................................................
----
Subtotal...............................................................
----
Total................................................................
====

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters". The Underwriting Agreement provides that
the obligations of the several Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the shares of Common Stock
offered hereby if any such shares are taken.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (a) it is not purchasing any U.S. Shares (as defined
below) being sold by it for the account of anyone other than a United States
or Canadian Person (as defined below) and (b) it has not offered or sold, and
will not offer or sell, directly or indirectly, any U.S. Shares or distribute
any prospectus relating to the U.S. Shares outside the United States or Canada
or to anyone other than a United States or Canadian Person. Pursuant to the
Agreement Between U.S. and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions, (a) it
is not purchasing any International Shares (as defined below) being sold by it
for the account of any United States or Canadian Person and (b) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the
International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations
and agreements (i) made by it in its capacity as a U.S. Underwriter shall
apply only to shares purchased by it in its capacity as a U.S. Underwriter,
(ii) made by it in its capacity as an International Underwriter shall apply
only to shares purchased by it in its capacity as an International
Underwriter, and (iii) do not restrict its ability to distribute any
prospectus relating to the shares of Common Stock to any person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. Underwriters and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada or any
corporation, pension, profit-sharing, or other trust or other entity organized
under the laws of the United

States or Canada or of any political subdivision thereof (other than a branch
located outside the United States and Canada of any United States or Canadian
Person) and includes any United States or Canadian branch of a person who is
otherwise not a United States or Canadian Person. All shares of Common Stock
to be purchased by the U.S. Underwriters and the International Underwriters
under the Underwriting Agreement are referred to herein as the "U.S. Shares"
and the "International Shares," respectively.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and
International Underwriters of any number of shares of Common Stock to be
purchased pursuant to the Underwriting Agreement as may be mutually agreed.
The per share price of any shares so sold shall be the Price to Public set
forth on the cover page hereof, in United States dollars, less an amount not
greater than the per share amount of the concession to dealers set forth
below.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock,
directly or indirectly, in Canada in contravention of the securities laws of
Canada or any province or territory thereof and has represented that any offer
of shares of Common Stock in Canada will be made only pursuant to an exemption
from the requirements to file a prospectus in the province or territory of
Canada in which such offer is made. Each U.S. Underwriter has further agreed
to send any dealer who purchases from it any shares of Common Stock a notice
stating in substance that, by purchasing such shares of Common Stock, such
dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares of Common Stock in
Canada or to, or for the benefit of, any resident of Canada in contravention
of the securities laws of Canada or any province or territory thereof and that
any offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province of Canada
in which such offer is made, and that such dealer will deliver to any other
dealer to whom it sells any of such shares of Common Stock a notice to the
foregoing effect.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that
(a) it has not offered or sold and will not offer or sell any shares of Common
Stock in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations (1995) (the "Regulations"); (b) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
and the Regulations with respect to anything done by it in relation to the
shares of Common Stock offered hereby in, from, or otherwise involving the
United Kingdom; and (c) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock, other than any
document which consists of, or is part of, listing particulars, supplementary
listing particulars, or any other document required or permitted to be
published by listing rules under Part IV of the Financial Services Act 1986,
if that person is of a kind described in Article 9(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or to
any person to whom the document may lawfully be issued or passed on.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that
it has not offered or sold, and agrees not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident thereof, any of
the shares of Common Stock acquired in connection with the distribution
contemplated hereby, except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter further agrees to send to any dealer who purchases
from it any of the shares of Common Stock a notice stating in substance that,
by purchasing such shares, directly or indirectly in Japan or to or for the
account of any resident thereof except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan, and
that such dealer will send to any other dealer to whom it sells any of such
shares of Common Stock a notice containing substantially the same statement as
contained in the foregoing.

The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession
not in excess of $ a share below the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain dealers. After the initial offering
of the shares of Common Stock, the offering price and other selling terms may
from time to time be varied by the Underwriters.

Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, certain shares offered hereby for
directors, officers, employees, business associates, and related persons of
the Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.

Pursuant to the Underwriting Agreement, the Company has granted the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 2,217,000 additional shares of Common Stock at
the Price to Public set forth on the cover page hereof, less Underwriting
Discounts and Commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offering. To the extent such option is exercised, each
U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the U.S. Underwriters hereby.

The Company, all of the Company's executive officers and directors, and all
existing stockholders of the Company, have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, they will not (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right, or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are now owned by such stockholder
or acquired after the date of the Prospectus), or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, (other than,
in the case of the Company, in connection with the Company's incentive plan
and employee stock option/purchase plan and, in the case of the stockholders
of the Company, in connection with transfers to other direct or indirect
subsidiaries of Corange, provided that all such transferees will be subject to
the above sale restrictions) for a period of 180 days after the date of this
Prospectus, other than the sale to the Underwriters of any shares of Common
Stock pursuant to the Underwriting Agreements.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

From time to time, Furman Selz LLC has provided financial advisory services
to the Company.

PRICING OF OFFERING

Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price
was determined by negotiation among the Company, the Selling Stockholder, and
the Representatives. Among the factors considered in determining the initial
public offering price were the Company's records of operations, the Company's
current financial condition and future prospects, the experience of its
management, the economics of the industry in general, the general condition of
the equity securities market, and the market prices of similar securities of
companies considered comparable to the Company. There can be no assurance that
a regular trading market for the shares of Common Stock will develop

after the Offering or, if developed, that a public trading market can be
sustained. There can be no assurance that the prices at which the Common Stock
will sell in the public market after the Offering will not be lower than the
price at which it is issued by the Underwriters in the Offering.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Coudert Brothers, New York, New York. Anthony Williams, a partner
in Coudert Brothers, is a member of the Board of Directors of Corange and the
Company. Certain legal matters relating to the Offering will be passed upon
for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The combined financial statements as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants given on the authority of said firm as experts in
auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits and schedules thereto, and as amended and
supplemented from time to time, the "Registration Statement"), pursuant to the
provisions of the Securities Act and the rules and regulations promulgated
thereunder, for the registration of the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus concerning the contents of any contract or
other document are not necessarily complete and, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit in
the Registration Statement, and each such statement shall be deemed qualified
in its entirety by such reference. The Registration Statement may be inspected
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New
York, New York, 10048 and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.

As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish holders of the Common Stock with annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm. The Company also intends to furnish such
other reports from time to time as it may determine or as may be required by
law.

DEPUY, INC.

INDEX TO COMBINED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Accountants......................................... F-2
Combined Statements of Income for each of the three years in the period
ended December 31, 1995 and for each of the six-month periods ended June
30, 1995 (unaudited) and June 30, 1996 (unaudited)....................... F-3
Combined Balance Sheets as of December 31, 1994, December 31, 1995 and
June 30, 1996 (unaudited)................................................ F-4
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 and for each of the six-month periods
ended June 30, 1995 (unaudited) and June 30, 1996 (unaudited)............ F-5
Combined Statement of Changes in Shareholder's Equity for each of the
three years in the period ended December 31, 1995 and for the six-month
period ended June 30, 1996 (unaudited)................................... F-6
Notes to Combined Financial Statements.................................... F-7

F-1

DEPUY, INC.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder of DePuy, Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows and of changes in shareholder's
equity present fairly, in all material respects, the financial position of
DePuy, Inc. at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

Price Waterhouse LLP

Indianapolis, Indiana
July 31, 1996

F-2

DEPUY, INC.

COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------------
1993 1994 1995 1995 1996
-------- -------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)

Net sales................. $466,734 $551,773 $ 636,561 $323,250 $ 349,014
Cost of sales............. 151,962 172,939 200,139 104,807 106,516
-------- -------- ---------- -------- ----------
Gross Profit............ 314,772 378,834 436,422 218,443 242,498
-------- -------- ---------- -------- ----------
Selling, general and ad-
ministrative expenses.... 157,734 195,011 230,578 111,519 128,228
Research and development
expenses................. 17,341 18,609 21,320 10,508 10,004
Goodwill amortization..... 10,047 14,088 14,201 7,202 6,592
-------- -------- ---------- -------- ----------
Operating Income........ 129,650 151,126 170,323 89,214 97,674
-------- -------- ---------- -------- ----------
Interest expense, affili-
ate...................... 1,319 909 4,479 2,003 2,473
Interest expense, other... 2,307 1,358 2,061 617 976
Other income, net......... (861) (665) (994) (1,221) (1,505)
-------- -------- ---------- -------- ----------
Income before taxes and
equity in earnings of
uncombined affiliate... 126,885 149,524 164,777 87,815 95,730
-------- -------- ---------- -------- ----------
Provisions for income
taxes.................... 57,001 65,758 72,707 37,951 41,359
Equity in earnings of
uncombined affiliate..... 2,326 3,070 2,859 1,588 1,230
-------- -------- ---------- -------- ----------
Net Income............ $ 72,210 $ 86,836 $ 94,929 $ 51,452 $ 55,601
======== ======== ========== ======== ==========
Unaudited pro forma da-
ta:......................
Net income per share.... $ 1.05 $ .62
========== ==========
Weighted average number
of shares outstanding.. 90,000,000 90,000,000
========== ==========

The accompanying notes are an integral part of these Combined Financial
Statements.

F-3

DEPUY, INC.

COMBINED BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents...................... $ 32,131 $ 46,909 $ 44,743
Accounts receivable, net of allowances of
$5,677 (1994), $6,628 (1995) and $6,696
(1996)........................................ 103,908 115,452 133,679
Receivable from affiliates, net................ -- 24,265 1,671
Inventories at lower of cost or market......... 118,455 116,566 130,437
Deferred income taxes.......................... 20,825 25,275 28,650
Prepaid expenses and other current assets...... 15,999 18,023 28,252
-------- -------- --------
Total Current Assets......................... 291,318 346,490 367,432
-------- -------- --------
NONCURRENT ASSETS
Goodwill, net of accumulated amortization of
$47,718 (1994), $60,312 (1995) and $67,053
(1996)........................................ 188,179 181,208 221,990
Other intangible assets, net of accumulated
amortization of $177 (1994), $245 (1995) and
$547 (1996)................................... 1,416 1,278 1,551
Deferred income taxes.......................... 2,104 4,876 4,876
Investment in affiliate........................ 2,482 2,081 2,143
Other assets................................... 8,423 10,634 10,935
-------- -------- --------
202,604 200,077 241,495
-------- -------- --------
Property, plant and equipment, net............. 73,606 76,683 83,712
-------- -------- --------
TOTAL ASSETS................................. $567,528 $623,250 $692,639
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Short-term debt payable to affiliates.......... $ 13,861 $ 31,717 $ 35,377
Short-term debt................................ 19,170 21,048 3,838
Accounts payable............................... 25,857 26,090 26,515
Accounts payable to affiliates, net............ 3,082 -- --
Income taxes payable........................... 15,639 23,088 29,378
Income taxes payable to affiliate.............. 9,608 10,738 11,303
Accrued royalties.............................. 13,683 16,596 18,347
Accrued employee compensation.................. 15,294 16,121 14,645
Other accrued expenses......................... 24,201 24,282 32,582
-------- -------- --------
Total Current Liabilities.................... 140,395 169,680 171,985
-------- -------- --------
NONCURRENT LIABILITIES
Long-term debt payable to affiliates........... 39,317 42,591 25,129
Long-term debt................................. 8,528 5,342 6,947
Long-term employee benefits.................... 15,525 17,756 17,558
Noncurrent deferred income tax liability....... 4,030 5,585 6,635
Other noncurrent liabilities................... 984 2,236 552
-------- -------- --------
Total Noncurrent Liabilities................. 68,384 73,510 56,821
-------- -------- --------
CONTINGENCIES (Note 8)
MINORITY INTEREST................................ 1,699 1,961 2,783
-------- -------- --------
SHAREHOLDER'S EQUITY
Shareholder's Net Investment................... 357,050 378,099 461,050
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY... $567,528 $623,250 $692,639
======== ======== ========

The accompanying notes are an integral part of these Combined Financial
Statements.

F-4

DEPUY, INC.

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------------
1993 1994 1995 1995 1996
-------- --------- -------- ----------- -----------

CASH FLOWS FROM OPERAT-
ING ACTIVITIES: (UNAUDITED) (UNAUDITED)
Net income.............. $ 72,210 $ 86,836 $ 94,929 $ 51,452 $ 55,601
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amor-
tization............. 18,630 25,718 26,635 13,426 13,865
Deferred income tax-
es................... (4,285) (909) (5,668) (312) (2,325)
Other, net............ 717 287 843 (205) 760
Changes in operating
assets and
liabilities, net of
effects of
acquisitions:
Accounts receiv-
able............... (17,842) (15,448) (11,474) (16,468) (16,355)
Inventories......... 1,607 (17,878) 3,052 (3,477) (12,821)
Amounts payable to
or receivable from
affiliates......... (5,242) 712 (28,215) 11,622 22,335
Prepaid expenses and
other current as-
sets............... 281 (10,661) (2,090) (313) (10,202)
Other noncurrent as-
sets............... (2,822) (6,153) (3,553) (3,035) (886)
Accounts payable.... 5,568 338 45 (3,221) (448)
Accrued employee
compensation &
other.............. (2,665) 6,543 2,348 2,725 5,875
Other current and
noncurrent liabili-
ties............... 1,137 4,105 4,940 3,239 1,665
Income taxes pay-
able............... 8,283 7,452 8,554 11,106 7,438
-------- --------- -------- ----------- -----------
Net Cash Provided by
Operating Activi-
ties............... 75,577 80,942 90,346 66,539 64,502
-------- --------- -------- ----------- -----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Capital expenditures.... (10,850) (14,015) (15,598) (6,332) (13,132)
Business acquisitions,
net of cash acquired... -- (107,634) (17,500) (17,500) (51,851)
-------- --------- -------- ----------- -----------
Net Cash Used for
Investing Activi-
ties............... (10,850) (121,649) (33,098) (23,832) (64,983)
-------- --------- -------- ----------- -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Payments of short-term
debt................... (10,432) (15,631) (6,550) (5,772) (13,519)
Proceeds from issuance
of short term debt..... 10,115 4,747 38,378 -- 1,092
Payments of long-term
debt .................. -- (2,876) (1,027) (4,346) (18,996)
Proceeds from issuance
of long-term debt...... 5,215 41,476 487 -- --
Advances (to) from af-
filiate................ (60,662) 19,000 (76,558) (29,140) 34,991
Capital contributions
from affiliates........ -- 1,625 4,000 -- --
Dividends paid to affil-
iate................... -- -- (1,868) -- (3,770)
-------- --------- -------- ----------- -----------
Net Cash (Used For)
Provided by
Financing
Activities......... (55,764) 48,341 (43,138) (39,258) (202)
-------- --------- -------- ----------- -----------
Effect of exchange rate
changes on cash........ 4,399 (2,268) 668 (2,947) (1,483)
-------- --------- -------- ----------- -----------
Increase in Cash and
Cash Equivalents... 13,362 5,366 14,778 502 (2,166)
-------- --------- -------- ----------- -----------

Cash and Cash Equiva-
lents at Beginning of
Period................. 13,403 26,765 32,131 32,131 46,909
-------- --------- -------- ----------- -----------
Cash and Cash Equiva-
lents at End of Peri-
od..................... $ 26,765 $ 32,131 $ 46,909 $ 32,633 $ 44,743
======== ========= ======== =========== ===========

The accompanying notes are an integral part of these Combined Financial
Statements.

F-5

DEPUY, INC.

COMBINED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)

Balance at December 31, 1992........................................ $233,386
Net income for the year........................................... 72,210
Change in net transfers to affiliate.............................. (60,646)
Foreign currency translation adjustments.......................... 2,682
Minimum pension liability adjustment.............................. 186
--------
Balance at December 31, 1993........................................ 247,818
--------
Net income for the year........................................... 86,836
Change in net transfers to affiliate.............................. 19,000
Foreign currency translation adjustments.......................... 1,693
Minimum pension liability adjustment.............................. 78
Capital contributions from affiliates............................. 1,625
--------
Balance at December 31, 1994........................................ 357,050
--------
Net income for the year........................................... 94,929
Dividend to affiliate............................................. (1,868)
Change in net transfers to affiliate.............................. (76,526)
Foreign currency translation adjustments.......................... 333
Minimum pension liability adjustment.............................. 181
Capital contribution from affiliate............................... 4,000
--------
Balance at December 31, 1995........................................ $378,099
========

(UNAUDITED)

Unaudited for Six Months Ended June 30, 1996:
Net income for the first six months of 1996....................... 55,601
Dividend to affiliate............................................. (3,770)
Change in net transfers to affiliate.............................. 34,996
Foreign currency translation adjustments.......................... (3,876)
--------
Balance at June 30, 1996............................................ $461,050
========

The accompanying notes are an integral part of these Combined Financial
Statements.

F-6

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

NOTE 1--ORGANIZATION/ACQUISITIONS

Corange Limited ("Parent") intends to realign its worldwide DePuy operations
into a stand-alone entity and sell shares of the realigned entity to the
public through an initial public offering. DePuy's primary business is the
development, manufacture and sale of orthopedic joint implants (primarily
hips, knees and shoulders), spinal implants, related surgical instruments,
trauma products and sports medicine soft goods.

The combined financial statements of DePuy, Inc. (the "Company") are
comprised of DePuy Orthopaedics, Inc. (formerly DePuy Inc., renamed DePuy
Orthopaedics, Inc. on September 5, 1996) and other U.S. and international
orthopedic subsidiaries, branches and divisions of the Parent. Combined
financial statements have not previously been prepared for the combined
entities. These combined financial statements have been prepared from the
historical accounting records of the combined affiliates.

The Company plans to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission for the sale of shares of Common Stock (the
"Offering") of the realigned entity. The Company plans to use the net proceeds
from the sale of shares of its Common Stock primarily to finance the expansion
of the Company's business.

Various actions will be taken to (i) consolidate the worldwide operations of
DePuy under Corange U.S. Holdings, Inc. an Indiana corporation ("CUSHI"), (ii)
transfer out of the CUSHI consolidated group Boehringer Mannheim Corporation
("BMC"), and (iii) merge CUSHI downstream into DePuy, Inc., which was created
on July 26, 1996 for purposes of becoming the holding company for the DePuy
worldwide operations, with DePuy, Inc. as the surviving company in the merger,
the effect of which was to reincorporate CUSHI in Delaware under the name
"DePuy, Inc." The combined financial statements of DePuy, Inc. do not include
the financial results of BMC . None of the various actions will involve
outside minority shareholders. Accordingly, the consolidation of the entities
will be accounted for on a predecessor basis.

In 1993, the Company established a new entity, Argentina Joints S.A., funded
through a capital contribution of $1,000 from its parent. An additional $4,000
in capital was contributed during 1994.

On March 8, 1994, the Company acquired ACE Medical Company ("Ace"), a
developer and manufacturer of orthopedic trauma products, for $70,500 in cash
and $10,000 in a note paid in January 1995. Under the terms of the purchase
agreement, contingent upon Ace achieving certain sales and profit levels, the
Company paid, and recorded goodwill of, $5,000 in 1995. The Company made a
payment, and recorded goodwill, of $5,000 in March 1996, and anticipates
making an additional contingent payment of $10,000 in 1997. The purchase
method of accounting was applied to this acquisition, and $69,500 of goodwill
has been recorded.

The operating results of Ace have been included in the combined statements
of income from the date of acquisition. Had the acquisition taken place at the
beginning of 1993, combined net sales would have been $496,649 and $557,786
for the years ended December 31, 1993 and 1994, respectively, and combined net
income would have been $72,619 and $86,925 for fiscal years 1993 and 1994,
respectively. This unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated as of
the above dates, nor are they necessarily indicative of future operating
results.

On November 22, 1994, the Company acquired certain assets and assumed
certain liabilities of CMW Laboratories, a division of Dentsply Limited, for
$35,000 in cash consideration. Under terms of the purchase agreement,
additional payments totalling $2,500 were made in 1995, and recorded as
goodwill, after certain milestones were achieved. The Company also made a
payment, and recorded goodwill, of $1,000 in June 1996 and anticipates making
additional contingent payments of $5,000 over the next six years based upon
certain

F-7

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

milestones being achieved. These milestones relate to obtaining FDA approval
of a new product and achieving certain sales objectives for this product over
the next five years. The additional contingent payments will be recorded as
goodwill when earned. The purchase method of accounting was applied to this
acquisition and $33,700 of goodwill has been recorded. CMW is a manufacturer
of bone cement for the orthopedic implant procedures. CMW net sales and net
income are not material to combined net sales or combined net income.

NOTE 2--ACCOUNTING POLICIES

Principles of Combination

The combined financial statements include the accounts of the Company as
defined in Note 1. All significant intercompany balances and transactions have
been eliminated. Minority interest earnings are immaterial and are included in
other income, net. Investments in uncombined affiliates which are between 20-
50% owned are carried at cost plus equity in undistributed earnings since
acquisition.

Revenue Recognition

Revenues from product sales are recognized at the time of shipment to the
customer.

Translation of Foreign Currency

Assets and liabilities of foreign subsidiaries are translated to U.S.
dollars using exchange rates in effect as of the balance sheet date. Revenues
and expenses are translated using the average exchange rates throughout the
period. Translation gains and losses are included in shareholder's equity.
Foreign currency transaction gains and losses are included in other income,
net and are not material to the results of operations.

Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market, with cost being
determined under the first-in, first-out method. Inventories consisted of the
following:

DECEMBER 31,
-----------------
1994 1995 JUNE 30, 1996
-------- -------- ---------------
(UNAUDITED)

Finished products.......................... $ 93,373 $ 98,887 $108,374
Work in process............................ 10,397 7,656 8,532
Raw materials.............................. 14,685 10,023 13,531
-------- -------- --------
$118,455 $116,566 $130,437
======== ======== ========

Goodwill and Other Intangible Assets

The Company's acquisitions have generated goodwill. The Company determines
the initial amortization period for goodwill based upon an evaluation of
criteria which would be indicators of future success of the businesses
acquired. Such criteria include, but are not limited to: past and expected
profitability and cash flows, customer base, existing and new product
offerings, and key contractual relationships. Based upon the evaluations, the
Company is amortizing goodwill on a straight-line basis over the periods of
expected benefit which range from 5 to 30 years, the majority of which is over
a period of 30 years. Other intangible assets are amortized over their
estimated useful lives ranging from 1 to 3 years. The Company assesses the
recoverability of long lived assets including goodwill and other intangible
assets whenever adverse events or changes in circumstances or business climate
indicate that an impairment may have occurred. If the future cash flows
(undiscounted and without interest) expected to result from the use of the
related assets are less than the carrying value of such assets, an impairment
has incurred and a loss is recognized to reduce the carrying value of the long
lived assets,

F-8

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

including goodwill, based on the expected discounted cash flows or market
prices. Expected cash flows are discounted at a rate commensurate with the
risk involved.

Property, Plant and Equipment

Property, plant and equipment are reported at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which generally range from 10 to 40 years for buildings and improvements and
from 3 to 20 years for machinery and equipment. Amounts expended for
maintenance and repairs are charged to expense as incurred. Upon disposition,
any related gain or loss is credited or charged to other income, net.
Depreciation expense of $8,600, $11,600, and $12,400 was recorded in 1993,
1994, and 1995, respectively. At December 31, property, plant and equipment
consisted of the following:

1994 1995
-------- --------

Land..................................................... $ 1,904 $ 1,918
Buildings and improvements............................... 35,514 37,037
Machinery and equipment.................................. 95,325 108,507
-------- --------
132,743 147,462
Less allowance for depreciation.......................... (59,137) (70,779)
-------- --------
$ 73,606 $ 76,683
======== ========

The Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of," (FAS 121) in 1996. The adoption of FAS 121 did not have a
material impact on the Company's combined financial condition, results of
operations or cash flows.

Financial Instruments and Concentrations of Credit Risk

The Company uses forward exchange contracts to manage its exposure to
fluctuating foreign currency exchange rates. All of the Company's forward
exchange contracts are with Corange International Limited ("CIL"), a related
affiliate. Gains or losses on these contracts are recognized in the basis of
the transaction being hedged.

Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivables.
The risk is limited due to the large number and types of entities comprising
the Company's customer base and their dispersion across many geographic
regions. At December 31, 1995, the Company had no significant concentrations
of credit risk.

Risk and Uncertainties

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Shareholder's Net Investment

The Company participates in a centralized cash management system for all of
its U.S. operations through an affiliate. Substantially all cash receipts and
disbursements are processed through CUSHI and the Company is charged or
credited for the net of cash receipts, cash disbursements, and other CUSHI
allocated charges each month. The net effect of this monthly activity is
charged or credited to shareholder's net investment.

F-9

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Income Taxes

Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" (FAS 109) and
have been computed on the separate return method. The current provision for
income taxes is computed on the pretax income of the combined entities located
within each taxing country based upon the tax law in effect during the
respective period. Deferred income taxes result from the future tax
consequences associated with temporary differences between the tax basis of
assets and liabilities and the reported amounts of those assets and
liabilities for financial accounting purposes. Incremental United States
income taxes have not been provided on the cumulative undistributed earnings
of the foreign subsidiaries totaling $22,531 as of December 31, 1995. These
earnings, which reflect full provision for non-U.S. income taxes, are expected
to be reinvested indefinitely in non-U.S. operations or to be remitted
substantially free of additional tax due to the availability of foreign tax
credits.

Unaudited Interim Financial Data

The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows of the Company for the interim periods.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.

Unaudited Pro Forma Net Income Per Share

Prior to the planned reorganization described in Note 1, the Company was not
a legal entity and did not have a separately identifiable pool of capital.
Accordingly, historical per share data has been omitted from the combined
financial statements. Pro forma net income per share is based on historical
net income and the number of shares of common stock which will be outstanding
after the reorganization.

NOTE 3--INVESTMENT IN AFFILIATE

The Company has a 50% investment interest in a joint venture with E.I.
DuPont de Nemours and Company for the purpose of sharing in the production and
sale of advanced technologies primarily in North American countries. The
Company received pre-tax distributions of $3,805, $5,138, and $5,264 from this
venture in 1993, 1994 and 1995, respectively. This investment is reported
using the equity method as described in Note 2--Principles of Combination.

NOTE 4--RELATED PARTY TRANSACTIONS

The Company recorded amounts receivable from (payable to) affiliates, net,
of ($3,082) and $24,265 at December 31, 1994 and 1995, respectively. The
balance at December 31, 1995, includes advances to an affiliate of $21,921,
which was repaid during the first quarter of 1996. The remaining balances
represent advances between affiliated companies for transactions incurred in
the normal course of business. In addition, the Company obtained financing
from affiliated entities as described in Note 6 and participates in a
centralized cash management system described in Note 2. Related party
transactions are also disclosed concerning forward exchange contracts, income
taxes, and employee benefit plans in Notes 2, 5, 9, 11, and 12.

The combined financial statements reflect the results of operations,
financial condition and cash flows of the Company as a component of the Parent
and may not be indicative of actual results of the Company under other
ownership. Management believes that the combined statements of income include
a reasonable allocation of administrative expenses incurred by CUSHI on behalf
of the Company. The allocations of administrative expenses were based upon
actual time and expenses incurred totaling $871, $739 and $779 in 1993, 1994,
and 1995, respectively. In the near term, the Company anticipates obtaining
the same level of administrative services at approximately the same cost as
the most recent year.

F-10

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Beginning in 1994, the Company is insured for product liability through an
affiliated captive insurance company, Bellago Insurance Limited of Hamilton
Bermuda ("Bellago"), for $2,000 per occurrence, $5,000 per group of related
claims and $10,000 in the aggregate. Excess claims are insured through
commercial carriers. Insurance premiums of $556 and $1,900 were paid to
Bellago in 1994 and 1995, respectively.

In 1992, the Company entered into an oral arrangement with BMC to fund
research in the area of orthobiologics. Total expenses incurred related to
this arrangement were $549, $506 and $638 for the years ended December 31,
1993, 1994 and 1995, respectively.

NOTE 5--INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of
FAS 109. This standard requires, among other things, recognition of future tax
expense or benefits, measured by enacted tax rates attributable to temporary
differences between financial reporting and income tax bases of assets and
liabilities, and net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not.

The Company's domestic operations have been a member of a U.S. group filing
a consolidated Federal corporation income tax return with other affiliated
companies. The group has had no tax sharing or allocation agreement and taxes
have been allocated on a separate return basis. The Company anticipates
entering into a tax indemnity agreement with the Parent that limits the
Company's liability for taxes to those arising out of the Company's
operations. The parent company of this group has been responsible for
remitting all Federal and State income tax payments for all members of the
group. Therefore, while the Company has not actually made payments of Federal
or State taxes, it is assumed that the Company paid 90% of its current Federal
and State provision during the year and the remaining 10% prior to the filing
of its U.S. tax returns in the subsequent year. Total income taxes paid were
$57,529, $64,273 and $71,852 in 1993, 1994 and 1995, respectively.

Earnings from operations before income taxes and equity in earnings of
uncombined affiliate were as follows:

1993 1994 1995
-------- -------- --------

United States.................................. $102,102 $112,645 $123,944
International.................................. 24,783 36,879 40,833
-------- -------- --------
Total Earnings Before Taxes.................. $126,885 $149,524 $164,777
======== ======== ========

The provision for income taxes are summarized as follows:

1993 1994 1995
-------- -------- --------

Current:
Federal...................................... $ 35,949 $ 42,410 $ 48,303
International................................ 13,511 19,128 21,647
State........................................ 8,197 8,758 8,425
-------- -------- --------
57,657 70,296 78,375
-------- -------- --------
Deferred:
Federal (12) (6,542) (3,658)
International................................ (701) 2,922 (1,497)
State........................................ 57 (918) (513)
-------- -------- --------
(656) (4,538) (5,668)
-------- -------- --------
Income tax expense............................. $ 57,001 $ 65,758 $ 72,707
======== ======== ========

F-11

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation of the effective income tax rate follows:

1993 1994 1995
---- ---- ----

United States federal tax rate ............................ 35.0% 35.0% 35.0%
Add (deduct):
Effect of international operations....................... .9% 1.6% 2.4%
State taxes, net of federal tax benefit.................. 4.2% 3.4% 3.1%
Impact of nondeductible goodwill......................... 2.8% 3.0% 2.8%
Other, net............................................... 2.0% 1.0% .8%
---- ---- ----
Effective income tax rate.............................. 44.9% 44.0% 44.1%
==== ==== ====

Significant components of the Company's deferred tax assets and liabilities
are comprised of the following at December 31:

1994 1995
------- --------

Deferred tax assets:
Inventory.............................................. $ 5,390 $ 7,271
Profit in inventory.................................... 8,191 10,597
Royalties.............................................. 2,757 2,753
Amortization other than goodwill....................... 1,761 3,942
Deferred compensation.................................. 6,147 7,845
Other.................................................. 4,858 5,938
Valuation allowances................................... (333) (902)
------- --------
Net deferred tax assets................................ $28,771 $ 37,444
======= ========
Deferred tax liabilities:
Depreciation........................................... $(9,836) $(12,497)
Other.................................................. (36) (381)
------- --------
Net deferred tax liabilities......................... $(9,872) $(12,878)
======= ========

F-12

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6--LINES OF CREDIT AND LONG-TERM DEBT

At December 31, 1995, the Company had lines of credit with affiliated
finance companies totaling $76,448, of which $74,308 have been used. No
compensating balances are required or maintained.

The Company has outstanding borrowings as follows:

1994 1995
------- -------

Short-Term Debt:
Borrowings from affiliates, variable interest rates rang-
ing from 6.63% to 11.1%, principal and interest due at
various maturity dates .................................. $13,861 $31,717
Short-term bank debt--
7% interest rate, due 1/12/96............................. -- 17,263
6.5625% interest rate, due 1/4/95......................... 8,573 --
Acquisition related debt, 6.5% interest rate, due 1/95.... 10,000 --
Other debt, variable interest rates ranging from 6.5% to
7.5%, principal and interest due at various maturity
dates.................................................... 597 3,785
------- -------
Total Short-Term Debt..................................... $33,031 $52,765
======= =======
Long-Term Debt:
Note payable to affiliate, interest rate varies quarterly
based upon LIBOR plus 37.5 basis points, due 11/22/99.... $39,317 $38,815
Note payable, 8%, due 12/31/02............................ 1,186 1,287
Note payable to affiliate, 3.25%, due 1/1/01.............. -- 2,513
Note payable to affiliate, 8.5%, due 1/1/01............... -- 1,263
Other debt, variable interest rates ranging from 6.5% to
7.5%, principal and interest due at various maturity
dates.................................................... 7,342 4,055
------- -------
Total Long-Term Debt...................................... $47,845 $47,933
======= =======

At December 31, 1995, aggregate maturities of long-term debt, including
capitalized lease obligations, are as follows:

1997.................................................................. $3,505
1998.................................................................. 550
1999.................................................................. 38,815
2000.................................................................. --
Thereafter............................................................ 5,063

Acquisition related debt comprises the $10,000 note payable issued in
conjunction with the acquisition of Ace, described in Note 1.

Interest paid was $1,422, $1,371 and $4,276 for 1993, 1994 and 1995,
respectively, including $939, $1,214 and $3,638 paid to affiliates in 1993,
1994 and 1995, respectively.

In the second quarter of 1996, $15,600 of a long-term affiliate note payable
was paid in advance of its maturity date to utilize excess cash and reduce
future affiliate interest expense.

F-13

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--LEASES

The Company is a lessee under a number of cancelable and noncancelable
operating leases. Total rental expense was approximately $4,676, $6,023 and
$4,153 for the years ended December 31, 1993, 1994 and 1995, respectively.
Future minimum rental commitments under noncancelable operating leases are as
follows:

YEARS ENDING DECEMBER 31: OPERATING LEASES CAPITAL LEASES
------------------------- ---------------- --------------

1996...................................... $ 4,025 $384
1997...................................... 3,413 329
1998...................................... 2,365 85
1999...................................... 1,957 1
2000...................................... 1,889 --
Thereafter................................ 6,415 --
------- ----
Total minimum lease payments................ $20,064 799
======= ====
Less amount representing interest........... (76)
----
Present value of net minimum lease pay-
ments...................................... 724
Less current portion of capital leases...... 349
----
Long term portion of capital leases......... $375
====

Property, plant and equipment at December 31, 1995 included $1,083 of
equipment under leases that have been capitalized. Accumulated depreciation
for such equipment was $566. Equipment leased under capital leases in 1994 was
not significant.

NOTE 8--CONTINGENCIES

The Company is subject to a number of investigations, lawsuits and claims
during the normal course of business. Management does not expect that
resulting liabilities beyond provisions already recorded will have a
materially adverse effect on the Company's combined financial position,
results of operations and cash flows. The loss provisions recorded have not
been reduced for any material amounts of anticipated insurance recoveries.

NOTE 9--EMPLOYEE PENSION PLANS AND OTHER BENEFIT PLANS

Eligible Company employees participate in a noncontributory defined
contribution plan sponsored by CUSHI which covers substantially all non-union
employees of the Company in the U.S. This plan provides for targeted benefits
based on the employee's average compensation in the years preceding
retirement. In general, the Company's policy is to contribute actuarially
determined amounts which are sufficient to meet projected benefit payment
requirements. Pension expense for this plan was $996, $693 and $692 for 1993,
1994 and 1995, respectively, and was allocated based upon the ratio of the
target benefits for the Company's participants relative to the total target
benefits for all participants of the Plan. As soon as practicable after the
planned Offering, the companies (other than the Company) who participate in
such plan will establish a separate successor noncontributory defined
contribution plan which will replace the CUSHI sponsored plan.

Employees of international subsidiaries are covered by various pension
benefit arrangements, some of which are considered to be defined benefit plans
for financial reporting purposes. Assets of the plans are comprised primarily
of equity securities. Benefits under these plans are primarily based upon
levels of compensation. Funding policies are based on legal requirements, tax
considerations, and local practices. Pension expense for the most significant
of these international plans was $740, $1,032 and $1,476 for 1993, 1994 and
1995, respectively.

F-14

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The following assumptions were made to develop net periodic benefit
obligations for the international defined benefit plan for 1993, 1994 and
1995:

Expected long-term rate of return....................................... 9.0%
Weighted average discount rate.......................................... 9.0%
Rate of increase in compensation levels................................. 7.0%

The U.S. operating division also has a noncontributory defined benefit
pension plan which covers substantially all of the Company's union employees
who meet eligibility requirements. This plan generally provides pension
benefits based on the employee's years of service with normal retirement at
age 65. Pension expense for this plan was $386, $405 and $381 for 1993, 1994
and 1995, respectively.

The following table provides the assumptions used to develop net periodic
pension cost and the actuarial present value of projected benefit obligations
for the domestic defined benefit plan:

1993 1994 1995
---- ---- ----

Expected long-term rate of return on plan assets........... 7.75% 7.75% 7.50%
Weighted average discount rate............................. 6.5% 7.0% 7.0%

The Company recorded a pension liability as required by Financial Accounting
Standards Board Statement No. 87, "Employers' Accounting for Pensions" (FAS
87) representing the amount by which the actuarial present value of the
accumulated benefit obligation exceeds the fair value of the plan's assets. A
corresponding amount is recognized as an intangible asset to the extent of the
unamortized prior service cost and transition obligation. The excess is
charged directly to shareholder's equity.

The amounts recorded for the years ended December 31, 1994 and 1995, are as
follows:

DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------------- ---------------------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
------------- ------------- ------------- -------------

Actuarial present value
of accumulated benefit
obligation:
Vested............... $(2,422) $(12,762) $(2,793) $(15,617)
Non-Vested........... (694) -- (589) --
------- -------- ------- --------
(3,116) (12,762) (3,382) (15,617)
Effect of projected fu-
ture salary increases.. -- (2,916) -- (3,574)
------- -------- ------- --------
Projected benefit
obligation............. (3,116) (15,678) (3,382) (19,191)
Plan assets at fair val-
ue..................... 1,972 19,963 2,475 25,044
------- -------- ------- --------
Projected benefit obli-
gation (in excess of)
or less than plan as-
sets................... (1,144) 4,285 (907) 5,853
Unamortized transition
asset.................. (18) (4,769) (15) (4,488)
Unrecognized net actuar-
ial losses (gains)..... 222 996 39 (752)
Unrecognized prior serv-
ice costs.............. 875 -- 806 --
Adjustment to recognized
minimum liability...... (1,079) -- (830) --
------- -------- ------- --------
Net (pension liability)
prepaid pension cost
recognized in the com-
bined balance sheets... $(1,144) $ 511 $ (907) $ 613
======= ======== ======= ========
Amount reflected as an
intangible asset....... $ (875) $ -- $ (806) $ --
======= ======== ======= ========
Amount reflected as a
minimum pension liabil-
ity
adjustment............. $ (204) $ -- $ (24) $ --
======= ======== ======= ========

F-15

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The Company participates in a 401(k) plan sponsored by CUSHI for non-union
employees of its domestic operations. The Company made contributions under
this plan of $850, $1,017 and $1,250 in 1993, 1994 and 1995, respectively. As
soon as practicable after the planned Offering, the companies (other than the
Company) who participate in the 401(k) plan will establish a separate
successor 401(k) plan which will replace the CUSHI sponsored plan.

The Company's management participates in various long-term incentive plans
sponsored by the Company and CUSHI. Expenses under these plans totaled $1,481,
$2,215 and $2,472 for 1993, 1994 and 1995, respectively. In conjunction with
the planned Offering, no additional awards under certain of the long-term
incentive plans will be made subsequent to April 30, 1996. Expenses under such
plans were $1,000, $1,700 and $1,700 in 1993, 1994 and 1995, respectively.

NOTE 10--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Certain domestic subsidiaries of the Company sponsor unfunded postretirement
healthcare benefit plans that cover either salaried or union employees. In
general, the Company pays a defined portion of an eligible retiree's
healthcare premium. The plans are contributory based on years of service, with
contributions adjusted annually. Net periodic postretirement benefits cost
included the following components:

1993 1994 1995
---- ---- ----

Benefits cost for service during the year and other......... $458 $426 $305
Interest cost on accumulated postretirement benefit
obligation................................................. 432 403 409
---- ---- ----
Net periodic postretirement benefit cost.................... $890 $829 $714
==== ==== ====

The following table sets forth the combined status of the plans reconciled
with the amount included in the combined balance sheet at December 31:

1994 1995
------ ------

Accumulated postretirement benefit obligation:
Retirees.................................................... $ 594 $ 782
Fully eligible active plan participants..................... 215 317
Other active plan participants.............................. 4,527 6,194
------ ------
Total accumulated postretirement benefit obligation........... 5,336 7,293
Unrecognized net actuarial gains............................ 2,624 1,313
------ ------
Accrued postretirement benefit obligation..................... $7,960 $8,606
====== ======

Expenditures for these benefits during 1993, 1994 and 1995 were immaterial.

The assumed healthcare cost trend rates used to measure the expected cost of
benefits for 1994 ranged from 9.7% for a post-65 retiree plan to 13.3% for a
pre-65 retiree plan and for 1995 ranged from 9.3% for a post-65 retiree plan
to 12.7% for a pre-65 retiree plan. The healthcare trend rates for 1994 are
assumed to decrease ratably over a 12 year period down to 6% and for 1995 are
assumed to decrease ratably over an 11 year period down to 6%. An increase in
this annual trend rate of 1% would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $1,441 and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for the year then ended by approximately $247.

The weighted-average discount rate used to measure the accumulated
postretirement benefit obligation as of December 31, 1994 and 1995, was 7.75%
and 6.75%, respectively.

F-16

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--DERIVATIVE FINANCIAL INSTRUMENTS

Foreign Exchange Risk Management

The Company uses forward exchange contracts to manage its global foreign
exchange exposure. The forward contracts serve primarily to hedge non-
functional currency denominated transactions and commitments for the purchase
of inventory within the combined group and with affiliates expected to occur
within the year. Such contracts are with CIL, an affiliate outside of the
combined group. The Company does not hold or issue derivative financial
instruments for trading purposes or use leveraged derivatives in its financial
management program. The Company does not anticipate any material adverse
effect on its financial position resulting from its involvement in these
instruments, nor does it anticipate non-performance by its counterparty. The
notional amounts of the Company's forward contracts at December 31, 1994 and
1995 were $74,841 and $134,734, respectively. The Company's domestic and
international operations are committed, under terms of the forward contracts,
to purchase the following currencies:

1994 1995
------ ------

U.S. Dollars................................................... 42,791 81,571
British Pounds................................................. 19,161 29,690
French Francs.................................................. 9,575
Deutsche Marks................................................. 3,200 5,985
Swiss Francs................................................... 1,078

Concentrations of Credit Risk

Concentrations of credit risk may arise due to financial instruments
existing for groups of customers or counterparties where they have similar
economic characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions. The Company anticipates, however, that counterparties will be able
to satisfy fully their obligations under the contracts. The Company does not
obtain collateral or other security to support financial instruments subject
to credit risk, but monitors the credit standing of the counterparty.

NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1995.
Financial Accounting Standards Board Statement No. 107, "Disclosures about
Fair Value of Financial Instruments" (FAS 107) defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties:

1994 1995
-------------------------- --------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------

Nonderivatives:
Long-term debt...... $47,845 $47,647 $47,933 $47,638
======= ======= ======= =======
Derivatives:
Forward contracts... $ -- $ 133 $ -- $ 5,094
======= ======= ======= =======

The fair value of the long-term debt is estimated by discounting expected
cash flows at the rates likely to be offered to the Company for debt of the
same remaining maturities. The fair value of the forward contracts comprised
solely of contracts with CIL, an affiliate, represents the amount of hedging
gain (or loss) deferred and generally reflects the estimated amounts that the
Company would receive or pay to terminate the contracts at the reporting date
based on dealer quotes. All other financial instruments approximate fair
value.

F-17

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one dominant industry segment which includes the
manufacturing and marketing of joint implants, surgical instruments, trauma
products and sports medicine soft goods used primarily by orthopedic medical
specialists in both surgical and non-surgical therapy.

Net sales, operating income and identifiable assets by geographic area are
presented in the following table:

1 9 9 3
------------------------------------------------------------------
UNITED STATES ASIA /PACIFIC EUROPE OTHER ELIMINATIONS TOTAL
------------- ------------- -------- ------- ------------ --------

Sales to unaffiliated
customers.............. $306,893 $41,857 $107,628 $10,356 $ -- $466,734
Sales to affiliated cus-
tomers................. 27,535 -- 26,421 -- (53,956) --
-------- ------- -------- ------- -------- --------
Total Sales........... $334,428 $41,857 $134,049 $10,356 $(53,956) $466,734
======== ======= ======== ======= ======== ========
Operating income
(loss)................. $113,252 $ 9,853 $ 13,532 $ 1,410 $ (8,397) $129,650
======== ======= ======== ======= ======== ========
Identifiable assets..... $191,622 $26,929 $210,968 $ 5,096 $(55,448) $379,167
======== ======= ======== ======= ======== ========

1 9 9 4
------------------------------------------------------------------
UNITED STATES ASIA /PACIFIC EUROPE OTHER ELIMINATIONS TOTAL
------------- ------------- -------- ------- ------------ --------

Sales to unaffiliated
customers.............. $358,840 $55,206 $125,068 $12,659 $ -- $551,773
Sales to affiliated cus-
tomers................. 45,226 -- 27,796 -- (73,022) --
-------- ------- -------- ------- ---------- --------
Total Sales........... $404,066 $55,206 $152,864 $12,659 $ (73,022) $551,773
======== ======= ======== ======= ========== ========
Operating income
(loss)................. $119,053 $16,816 $ 24,863 $ 353 $ (9,959) $151,126
======== ======= ======== ======= ========== ========
Identifiable assets..... $298,854 $39,635 $314,426 $16,154 $ (101,541) $567,528
======== ======= ======== ======= ========== ========

1 9 9 5
-------------------------------------------------------------------
UNITED STATES ASIA /PACIFIC EUROPE OTHER ELIMINATIONS TOTAL
------------- ------------- -------- ------- ------------ --------

Sales to unaffiliated
customers.............. $377,264 $71,549 $166,652 $21,096 $ -- $636,561
Sales to affiliated cus-
tomers................. 54,695 982 40,416 26 (96,119) --
-------- ------- -------- ------- --------- --------
Total Sales........... $431,959 $72,531 $207,068 $21,122 $ (96,119) $636,561
======== ======= ======== ======= ========= ========
Operating income
(loss)................. $132,737 $20,710 $ 25,972 $ (931) $ (8,165) $170,323
======== ======= ======== ======= ========= ========
Identifiable assets..... $309,439 $54,940 $355,800 $18,410 $(115,339) $623,250
======== ======= ======== ======= ========= ========

Intercompany transfers are made at negotiated prices which include profit
margin.

For the years ended December 31, 1993, 1994 and 1995, there were no customers
which accounted for 10% or more of the Company's sales.

Sales to unaffiliated customers based on the customer location were as
follows:

1993 1994 1995
-------- -------- --------

United States.................................... $296,700 $333,310 $349,909
Europe........................................... 112,608 132,794 172,189
Asia / Pacific................................... 42,903 68,297 90,595
Other regions.................................... 14,523 17,372 23,868
-------- -------- --------
Total sales to unaffiliated customers.......... $466,734 $551,773 $636,561
======== ======== ========

F-18

DEPUY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--SUBSEQUENT EVENTS

On March 11, 1996, the Company acquired all of the outstanding shares of
common stock of Orthopedic Technology, Inc. ("OrthoTech"), a manufacturer of
orthopedic products primarily for the sports medicine market, for $46,300 in
cash consideration. For the year ended September 30, 1995, OrthoTech reported
sales of $18,400 and net income of $600 (unaudited). The purchase method of
accounting was applied to this acquisition and a total of $41,600 was
allocated to goodwill. The acquisition was funded by available internal
resources and is reflected in changes in net transfers to affiliate in the
unaudited combined statement of changes in shareholder's equity for the six
months ended June 30, 1996.

The results of OrthoTech operations, since the date of acquisition, are
included in the unaudited combined statement of income for the six month
period ended June 30, 1996 and are not material to combined net sales or
combined net income.

The Company will adopt, effective as of the date of the planned Offering and
subject to shareholder approval, the DePuy, Inc. 1996 Equity Incentive Plan
("Incentive Plan") for the benefit of selected executive personnel, key
employees, sales representatives and consultants. Under the Incentive Plan,
participants may be awarded stock options, stock appreciation rights,
restricted stock and phantom stock units, performance awards payable in cash
or shares of stock and other stock-based awards. The Incentive Plan will
provide for an automatic grant of options, effective as of the date of the
planned Offering and with an exercise price equal to the Offering price, to
each non-employee director of the Company, subject to certain limitations,
immediately following the Offering.

Effective January 1, 1997 the Company will adopt, subject to shareholder
approval, an employee stock purchase plan for the purpose of providing
employees of the Company an opportunity to participate in equity ownership of
the Company by purchasing stock of the Company at a discount.

The Company will account for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
because the exercise price of the employees' stock options will equal or
exceed the market price of the underlying stock on the date of grant, no
compensation expense will be recognized. In October 1995 the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock-
Based Compensation" (FAS 123) which became effective for fiscal years
beginning after December 15, 1995. The Company will adopt the additional
disclosure requirements of FAS 123 in 1996.

F-19

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued October 29, 1996

14,780,000 Shares
DePuy, Inc.
COMMON STOCK

----------

OF THE 14,780,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,956,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 11,824,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITING." PRIOR TO THE OFFERING, ALL OF THE ISSUED AND OUTSTANDING
SHARES OF THE COMPANY'S COMMON STOCK WERE OWNED BY CORANGE LIMITED
("CORANGE") AND WHOLLY-OWNED SUBSIDIARIES OF CORANGE. CERTAIN OF THE
SHARES BEING OFFERED HEREBY ARE BEING SOLD BY CORANGE THE "SELLING
STOCKHOLDER"). OF THE 2,956,000 SHARES OF COMMON STOCK BEING OFFERED BY
THE INTERNATIONAL UNDERWRITERS, 1,556,000 SHARES ARE BEING SOLD BY THE
COMPANY AND 1,400,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER.
OF THE 11,824,000 SHARES OF COMMON STOCK BEING OFFERED BY THE U.S.
UNDERWRITERS, 6,224,000 SHARES ARE BEING SOLD BY THE COMPANY AND
5,600,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. UPON
COMPLETION OF THE OFFERING, CORANGE AND ITS SUBSIDIARIES WILL
CONTINUE TO OWN APPROXIMATELY 84.8% OF THE COMMON STOCK. SEE
"PRINCIPAL STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ANTICIPATED THAT
THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $16 1/2 AND
$18 1/2 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.

----------

THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "DPU", SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.

----------

SEE "RISK FACTORS" COMMENCING ON PAGE 8 HEREOF, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

----------

PRICE $ A SHARE

----------

UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY (2) STOCKHOLDER
-------- -------------- ----------- -----------

Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $

----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1996, at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.

----------

MORGAN STANLEY & CO.
International
BEAR, STEARNS INTERNATIONAL LIMITED
COWEN & COMPANY
FURMAN SELZ

, 1996

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The other expenses attributable to the Offering are as follows:

SEC registration fee............................................. $ 105,736
NASD filing fee.................................................. $ 30,500
NYSE listing fee................................................. $ 452,100
Blue Sky fees and expenses....................................... $ 25,000
Printing and engraving expenses.................................. $ 291,000
Legal fees and expenses.......................................... $ 575,000
Accounting fees and expenses..................................... $ 500,000
Miscellaneous.................................................... $ 125,000
----------
TOTAL.......................................................... $2,104,336
==========

All of such expenses are to be borne by the Company.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the DGCL authorizes, inter alia, a corporation generally to
indemnify any person ("indemnitee") who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation, in a similar position with another corporation or entity, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. With respect to actions
or suits by or in the right of the corporation, however, an indemnitee who
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation is generally limited to
attorneys' fees and other expenses, and no indemnification shall be made if
such person is adjudged liable to the corporation unless and only to the
extent that a court of competent jurisdiction determines that indemnification
is appropriate. Section 145 further provides that any indemnification shall be
made by the corporation only as authorized in each specific case upon a
determination by the (i) stockholders, (ii) board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (iii) independent counsel if a quorum of disinterested
directors so directs, that indemnification of the indemnitee is proper because
he has met the applicable standard of conduct. Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise.

The Certificate of Incorporation provides that the Company will indemnify,
to the full extent authorized or permitted by law, any person made, or
threatened to be made, a party or witness to any action, suit or proceeding,
whether civil or criminal or otherwise, by reason of the fact that he or she
is or was a director or officer of the Company or by reason of the fact that
such director or officer, at the request of the Company, is or was serving any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, in any capacity.

The Certificate of Incorporation also provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty by such a director as a
director other than for: (i) any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
authorization of illegal dividends, or (iv) any transaction from which such
director derived an improper personal benefit.

II-1

The Company also has directors' and officers' insurance which covers its
directors and executive officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company was incorporated on July 26, 1996. On July 26, 1996, the Company
issued 100 shares of Common Stock, $.01 par value, to Corange U.S. Holdings,
Inc., its immediate shareholder, for the aggregate sum of $100. On September
30, 1996, the Company Corange U.S. Holdings, Inc. merged with and into the
Company, pursuant to which all shares of the Company's Common stock were
cancelled and each share of Corange U.S. Holdings, Inc. was automatically
converted at a ratio of 1:66,030.814 into shares of Common Stock of the
Company.

On September 5, 1996, the Company granted, effective as of the date of the
Offering, 1,274,250 options to purchase shares of the Company's Common Stock
to certain employees and sales representatives, the executive officers and the
non-employee directors of the Company pursuant to the Company's employee
benefit plans.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.*
5.1 Opinion of Coudert Brothers.
10.1 Employment Agreement, dated May 1, 1996, between Jim Lent and DePuy
Inc.*
10.2 Employment Agreement, dated July 13, 1992, between Michael J. Dormer
and DePuy Inc.*
10.3 Employment Agreement, dated May 1, 1996, between Michael J. Dormer and
DePuy International Limited.*
10.4 Employment Agreement, dated May 1, 1996, between R. Michael McCaffrey
and DePuy Inc.*
10.5 Employment Agreement, dated May 1, 1996, between William E. Tidmore
and DePuy Inc.*
10.6 Employment Agreement, dated May 1, 1996, between Robert E. Morel and
DePuy Inc.*
10.7 Employment Agreement, dated May 1, 1996, between Steve L. Artusi and
DePuy Inc.*
10.8 Employment Agreement, dated May 1, 1996, between Thomas J. Oberhausen
and DePuy Inc.*
10.9 Employment Agreement, dated May 1, 1996, between G. Taylor Seward and
DePuy Inc.*
10.10 DePuy, Inc. 1996 Equity Incentive Plan.
10.11 DePuy, Inc. Employee Stock Option/Purchase Plan.
10.12 Form of Tax Allocation and Indemnity Agreement between the Company,
Boehringer Mannheim Corporation and Corange Limited.
10.13 Form of Registration Rights Agreement between Corange Limited, Corange
International Limited, Corange International Holdings B.V.,
Pharminvest S.A. and the Company.
10.14 Second License Agreement, dated July 24, 1979, by and between
Biomedical Engineering Corp. and DePuy Division of Bio-Dynamics, Inc.
10.15 Amendment to Second License Agreement, dated March 25, 1985, by and
between Biomedical Engineering Trust and DePuy, Division of Boehringer
Mannheim Corporation.
10.16 Purchase Agreement, dated June 1, 1995, by and between Columbia/HCA
Healthcare Corporation and DePuy Inc.
10.17 Letter Agreement, dated July 3, 1995, by and between Columbia/HCA
Healthcare Corporation and DePuy Inc.
10.18 Purchase Agreement, dated August 15, 1995, by and between Columbia/HCA
Healthcare Corporation and DePuy Inc.
10.19 Purchase Agreement, dated June 15, 1995, by and between Columbia/HCA
Healthcare Corporation and DePuy Inc.
10.20 Joint Venture Agreement, dated February 4, 1993, by and among DePuy
Inc., Biedermann Motech GmbH and Lutz Biedermann.

II-2

10.21 Corange Limited Incentive and Performance Plan--Executive
Remuneration.
10.22 DePuy, Inc. and DePuy International Limited Orthopaedic Extra-
Compensation Opportunity.
10.23 Boehringer Mannheim U.S. Holdings, Inc. Supplemental Retirement Plan
(Plan No. 1).
10.24 Boehringer Mannheim U.S. Holdings, Inc. Supplemental Retirement Plan
(Plan No. 2).
10.25 Trust Deed, dated July 1, 1993, between DePuy International Limited
and George Taylor Seward and Others.
10.26 Deed of Appointment and Retirement for the DePuy Executive Retirement
Benefits Scheme, dated January 23, 1996, between DePuy International
Limited and George Taylor Seward and Others.
10.27 DePuy Inc. 1996 Incentive Planning and Special Recognition Program.
10.28 Boehringer Mannheim U.S. Holdings, Inc. Excess Retirement Plan.
11.1 Statement regarding computation of per share earnings.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Coudert Brothers (filed as Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (contained on signature page).*
27.1 Financial Data Schedule.*

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* Previously filed

(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

II-3

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned registrant hereby undertakes that:

(1) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
WARSAW, INDIANA, ON OCTOBER 29, 1996.

Depuy, Inc.

*
By: _________________________________
JAMES A. LENT
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

* Chairman and Chief
- ------------------------------------- Executive Officer October 29,
JAMES A. LENT 1996

* Senior Vice
- ------------------------------------- President and Chief October 29,
THOMAS J. OBERHAUSEN Financial and 1996
Accounting Officer

* Director
- ------------------------------------- October 29,
RICHARD C. BOLESKY 1996

Director , 1996
- -------------------------------------
RICHARD A. GILLELAND

* Director
- ------------------------------------- October 29,
GERALD C. HANES 1996

* Director
- ------------------------------------- October 29,
M.L. LOWENKRON 1996

SIGNATURE TITLE DATE

* Director
- ------------------------------------- October 29,
ROBERT VOLZ, M.D. 1996

* Director
- ------------------------------------- October 29,
ANTHONY WILLIAMS 1996

Steven L. Artusi
*By _________________________________

SCHEDULE II
DEPUY, INC.

VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

DESCRIPTION ADDITIONS
----------- ----------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER BAD DEBTS END OF
OF PERIOD EXPENSES ACCOUNTS(A) WRITTEN OFF PERIOD
---------- ---------- ----------- ----------- ----------

Allowance for doubtful
accounts:
For the year ended
December 31, 1995...... $5,677 $1,863 $ 9 $921 $6,628
For the year ended
December 31, 1994...... 4,004 1,927 9 263 5,677
For the year ended
December 31, 1993...... 3,651 400 34 81 4,004

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(a) Recovery of amounts previously written off.

EXHIBIT INDEX

EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----

1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.*
5.1 Opinion of Coudert Brothers.
Employment Agreement, dated May 1, 1996, between Jim Lent and
10.1 DePuy Inc.*
Employment Agreement, dated July 13, 1992, between Michael J.
10.2 Dormer and DePuy Inc.*
10.3 Employment Agreement, dated May 1, 1996, between Michael J.
Dormer and DePuy International Limited.*
Employment Agreement, dated May 1, 1996, between R. Michael
10.4 McCaffrey and DePuy Inc.*
Employment Agreement, dated May 1, 1996, between William E.
10.5 Tidmore and DePuy Inc.*
Employment Agreement, dated May 1, 1996, between Robert E.
10.6 Morel and DePuy Inc.*
Employment Agreement, dated May 1, 1996, between Steve L.
10.7 Artusi and DePuy Inc.*
Employment Agreement, dated May 1, 1996, between Thomas J.
10.8 Oberhausen and DePuy Inc.*
Employment Agreement, dated May 1, 1996, between G. Taylor
10.9 Seward and DePuy Inc.*
10.10 DePuy, Inc. 1996 Equity Incentive Plan.
10.11 DePuy, Inc. Employee Stock Option/Purchase Plan.
10.12 Form of Tax Allocation and Indemnity Agreement between the
Company, Boehringer Mannheim Corporation and Corange Limited.
10.13 Form of Registration Rights Agreement between Corange Limited,
Corange International Limited, Corange International Holdings
B.V., Pharminvest S.A., and the Company.
10.14 Second License Agreement, dated July 24, 1979, by and between
Biomedical Engineering Corp. and DePuy Division of Bio-
Dynamics, Inc.
10.15 Amendment to Second License Agreement, dated March 25, 1985, by
and between Biomedical Engineering Trust and DePuy, Division of
Boehringer Mannheim Corporation.
10.16 Purchase Agreement, dated June 1, 1995, by and between
Columbia/HCA Healthcare Corporation and DePuy Inc.
10.17 Letter Agreement, dated July 3, 1995, by and between
Columbia/HCA Healthcare Corporation and DePuy Inc.
10.18 Purchase Agreement, dated August 15, 1995, by and between
Columbia/HCA Healthcare Corporation and DePuy Inc.
10.19 Purchase Agreement, dated June 15, 1995, by and between
Columbia/HCA Healthcare Corporation and DePuy Inc.
10.20 Joint Venture Agreement, dated February 4, 1993, by and among
DePuy Inc., Biedermann Motech GmbH and Lutz Biedermann.
10.21 Corange Limited Incentive and Performance Plan--Executive
Remuneration.
10.22 DePuy, Inc. and DePuy International Limited Orthopaedic Extra-
Compensation Opportunity.
10.23 Boehringer Mannheim U.S. Holdings, Inc. Supplemental Retirement
Plan (Plan No. 1).
10.24 Boehringer Mannheim U.S. Holdings, Inc. Supplemental Retirement
Plan (Plan No. 2).
10.25 Trust Deed, dated July 1, 1993, between DePuy International
Limited and George Taylor Seward and Others.
10.26 Deed of Appointment and Retirement for the DePuy Executive
Retirement Benefits Scheme, dated January 23, 1996, between
DePuy International Limited and George Taylor Seward and
Others.
10.27 DePuy Inc. 1996 Incentive Planning and Special Recognition
Program.
10.28 Boehringer Mannheim U.S. Holdings, Inc. Excess Retirement Plan.
11.1 Statement regarding computation of per share earnings.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Coudert Brothers (filed as Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (contained on signature page).*
27.1 Financial Data Schedule.*

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* Previously filed