1996 Nonemployee Director Stock Plan

GUIDANT CORPORATION


1996 NONEMPLOYEE DIRECTORS STOCK PLAN, AS AMENDED


ARTICLE I


PURPOSE


1.1 This Guidant Corporation 1996 Nonemployee Directors Stock Plan is intended to advance the interests of Guidant Corporation and its shareholders by attracting, retaining and motivating the performance of nonemployee directors of Guidant Corporation and to encourage and enable such directors to acquire and retain a proprietary interest in Guidant Corporation by ownership of its stock.


ARTICLE II


DEFINITIONS


2.1 "Board" means the Board of Directors of the Company.


2.2 "Code" means the Internal Revenue Code of 1986, as amended.


2.3 "Common Stock" means the Company's common stock.


2.4 "Company" means Guidant Corporation.


2.5 "Date of Grant" means the date on which an option is granted in accordance with Section 3.3 or Section 5.1 hereof or a Restricted Stock Award is granted in accordance with Section 6.1 hereof.


2.6 "Disability" means a permanent and total disability within the meaning of Section 22(e)(3) of the Code.


2.7 "Exchange Act" means the Securities Exchange Act of 1934, as amended.


2.8 "Fair Market Value" means the average of the highest and lowest sale prices of a share of Common Stock on the New York Stock Exchange (NYSE) on the date as of which fair market value is to be determined or, in the absence of any reported sales of Common Stock on such date, on the first preceding date on which any such sale shall have been reported. If Common Stock is not listed on the NYSE on the date as of which fair market value is to be determined, the Board shall determine in good faith the fair market value in whatever manner it considers appropriate.


2.9 "Grant" means the Options and Restricted Stock Awards granted to a Grantee under the Plan.


2.10 "Grantee" means a person to whom an Option or a Restricted Stock Award has been granted under the Plan.


2.11 "Nonemployee Director" means any member of the Board who is not an employee of the Company.


2.12 "Option" means a stock option granted under the Plan.


2.13 "Option Price" means the price at which each share of Common Stock subject to an Option may be purchased, determined in accordance with Section 3.3 or Section 5.2 hereof.


2.14 "Plan" means this Guidant Corporation 1996 Nonemployee Directors Stock Plan, as amended.


2.15 "Restricted Stock Award" means an award of Common Stock granted under the Plan and subject to the restrictions set forth herein.


2.16 "Restricted Stock Notice" means a notification by the Company to a Grantee pursuant to which Common Stock will be issued or transferred to a Grantee under the Plan.


2.17 "Rule 16b-3" means Rule 16b-3 under the Securities Exchange Act of 1934, as amended.


2.18 "Stock Option Notice" means a notification by the Company to a Grantee pursuant to which a Grantee may purchase Common Stock under the Plan.


ARTICLE III


ADMINISTRATION; GRANTS


3.1 Board Authority. Subject to the express provisions of the Plan, the Board shall have discretionary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the details and provisions of each Stock Option Notice and Restricted Stock Notice, and to make all the determinations necessary or advisable in the administration of the Plan. All such actions and determinations by the Board shall be conclusively binding for all purposes and upon all persons. The Board shall not be liable for any action or determination made in good faith with respect to the Plan, any Option or Restricted Stock Award or any Stock Option Notice or Restricted Stock Notice entered into hereunder.


3.2 Annual Retainer Grants. Commencing with the 2003 annual meeting of the Company's shareholders and on the date of each annual meeting thereafter, each Nonemployee Director who is a member of the Board immediately following each such


2 annual meeting shall receive, as determined by the Board, a grant of (i) an Option to purchase shares of Common Stock in accordance with the provisions of Article V hereof and (ii) a Restricted Stock Award in accordance with the provisions of Article VI hereof.


3.3 Discretionary Option Grants. The Board may make discretionary Grants of Options to any Nonemployee Director in accordance with the provisions of this Section 3.3. The Board shall select the persons who will receive Options under this Section 3.3 from among the Nonemployee Directors and determine the number of shares subject to any particular Option. The Option Price of each share of Common Stock subject to an Option under this Section 3.3 shall be 100 percent of the Fair Market Value of a share of Common Stock on the Date of Grant. The Board shall determine the exercise period of each Option granted under this Section 3.3, which shall not exceed ten years from the Date of Grant. Such exercise period shall be set forth in the related Stock Option Notice which shall be prepared and delivered as provided in the last sentence of Section 5.1 hereof. A Grantee may exercise an Option granted under this Section 3.3 in the manner and in accordance with the provisions set forth in Section 5.5 hereof.


ARTICLE IV


SHARES OF STOCK SUBJECT TO PLAN


4.1 Number of Shares. Subject to adjustment pursuant to the provisions of this Article IV, the maximum number of shares of Common Stock which may be issued and sold hereunder shall be 250,000(1) shares. Shares of Common Stock issued and sold under the Plan may be either authorized but unissued shares or shares held in the Company's treasury. Shares of Common Stock covered by an Option that shall have been exercised shall not again be available for grant. If an Option shall terminate for any reason without being wholly exercised, the number of shares to which such Option termination relates shall again be available for grant hereunder. Shares of Common Stock covered by a Restricted Stock Award for which the restrictions have lapsed shall not again be available for grant. If a Restricted Stock Award shall terminate for any reason prior to the time its restrictions shall have lapsed, the number of shares to which such Restricted Stock Award relates shall again be available for grant hereunder.


4.2 Antidilution. If any subdivision or combination of shares of Common Stock or any stock dividend, reorganization, recapitalization, or consolidation or merger with the Company as the surviving corporation occurs, or if additional shares or new or different shares or other securities of the Company or any other issuer are distributed with respect to the shares of Common Stock through a spin-off, exchange offer, or other extraordinary distribution, the Board shall make such adjustments as it determines appropriate in the number of shares of Common Stock that may be issued or transferred in the future under Articles III, V and VI. The Board shall also adjust as it determines appropriate the number of shares and Option Price in outstanding Grants made before the event.


- -------- (1) This is the original number of shares authorized for the Plan in 1996. It does not reflect subsequent stock splits.


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ARTICLE V ...