ECONOMIC VALUE ADDED AND MILESTONE BONUS PLAN

 

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                                                                   EXHIBIT 10.22

 

 

 

                               GUIDANT CORPORATION

 

                       AMENDED ECONOMIC VALUE ADDED (EVA)

 

                                  AND MILESTONE

 

                                   BONUS PLAN

 

 

 

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                                    ARTICLE I

 

                        STATEMENT OF PURPOSE AND SUMMARY

 

The purpose of the Plan is to provide a system of bonus compensation for the

employees of Guidant Corporation and subsidiaries that will promote the

maximization of shareholder value over the long term by linking performance

incentives to increases in shareholder value and other objectives. The Plan ties

bonus compensation to changes in the economic value added or achievement of

other milestones, and thereby rewards employees for long-term, sustained

improvement in shareholder value.

 

                                   ARTICLE II

 

                          DEFINITIONS OF CERTAIN TERMS

 

Unless the context requires a different meaning, the following terms shall have

the following meanings:

 

2.1      "Company" means Guidant Corporation and its subsidiaries.

 

2.2      "Committee" means the Compensation Committee, the members of which

         shall be selected by the Board of Directors from among its members.

 

2.3      "Declared Bonus" means the Declared EVA Bonus, as defined in Article

         IV, or Declared Milestone Bonus, as defined in Article V.

 

2.4      "Disability" means the time at which a Participant becomes eligible for

         a payment under a company-sponsored extended disability plan, assuming

         eligibility to participate in that plan.

 

2.5      "Milestone" means any financial or non-financial performance measure

         designated by the Committee to determine the bonus for a Participant

         under the Plan.

 

2.6      "Participant" means any employee of the Company designated by the

         Committee as a participant in the Plan with respect to any Plan Year.

 

2.7      "Plan" means this Guidant Corporation Economic Value Added (EVA) and

         Milestone Bonus Plan.

 

2.8      "Plan Year" means the applicable calendar year.

 

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2.9      "Retirement" means the cessation of employment on or after the earlier

         of (i) attainment of age sixty-five (65), or (ii) the date on which the

         sum of the Participant's age plus Years of Service (as defined in The

         Guidant Employee Savings and Stock Ownership Plan) equals eighty (80)

         or as the Committee may, in its discretion, determine.

 

                                   ARTICLE III

 

                        DEFINITION AND COMPONENTS OF EVA

 

The following terms set forth the calculation of economic value added ("EVA")

and the components of calculating EVA. EVA is calculated on a monthly basis. The

aggregate of the monthly EVA amounts during a Plan Year is used in determining

the bonuses earned by Participants under the Plan, as set forth in Article IV.

 

3.1      "EVA" means the excess Net Income that remains after subtracting the

         Capital Charge.

 

3.2      "Net Income" means the after tax operating earnings of the Company for

         the Plan Year.

 

3.3      "Capital Charge" means the deemed opportunity cost of employing Capital

         for the Company. The Capital Charge is calculated by multiplying

         Capital employed times the Cost of Capital.

 

3.4      "Capital" means certain assets employed in the operations of the

         Company. These assets include receivables and inventories net of

         allowances, intangible assets, and property, plant and equipment net of

         accumulated depreciation.

 

3.5      "Cost of Capital" is the percentage calculated from the weighted

         average Cost of Debt and Cost of Equity; however, the Committee may, in

         its sole discretion, elect to use the Company's target Cost of Capital.

         Cost of Capital for each Plan Year is determined by reference to the

         percentage calculated at the end of October of the prior Plan Year.

 

3.6      "Cost of Debt" is the marginal long-term borrowing rate of the Company

         times (one minus the tax rate).

 

3.7      "Cost of Equity" is the risk-free rate plus (beta times the market risk

         premium).

 

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                                   ARTICLE IV

 

                   DEFINITION AND COMPUTATION OF THE EVA BONUS

 

The Committee may elect to set bonuses for a Plan Year under the Plan based on

the actual "EVA Improvement" for the Plan Year. The result produced is referred

to as the "Bonus Multiple," which is multiplied by the Participant's "Target EVA

Bonus" amount established for the year to produce the actual bonus earned. The

actual bonus amount, referred to as the "Declared EVA Bonus," is paid out in the

manner provided below in Article VI.

 

4.1      Target EVA Bonus. The Target EVA Bonus Awards will be determined

         according to a schedule determined by the Committee that associates job

         responsibilities with a specified dollar amount of Target EVA Bonus. If

         a Participant moves from one Target EVA Bonus to another during a Plan

         Year by virtue of a change in job responsibilities, he or she will

         receive an award that is pro-rated according to time. The Target EVA