10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006 OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.

Commission File Number 0-8672

___________________________

ST. JUDE MEDICAL, INC.

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction
of incorporation or organization) 41-1276891
(I.R.S. Employer
Identification No.)

One Lillehei Plaza, St. Paul, Minnesota 55117

(Address of principal executive offices, including zip code)

(651) 483-2000

(Registrant’s telephone number, including area code)

_________________

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer x    Accelerated filer o    Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

The number of shares of common stock, par value $.10 per share, outstanding on October 31, 2006 was 353,469,239.

TABLE OF CONTENTS

ITEM DESCRIPTION PAGE

PART I  – FINANCIAL INFORMATION
1.	Financial Statements	1
	Condensed Consolidated Statements of Earnings	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
	Note 1 – Basis of Presentation	4
	Note 2 – New Accounting Pronouncement	4
	Note 3 – Stock-Based Compensation	4
	Note 4 – Acquisitions and Minority Investment	8
	Note 5 – Goodwill and Other Intangible Assets	9
	Note 6 – Inventories	9
	Note 7 – Commitments and Contingencies	9
	Note 8 – Purchased In-Process Research and Development (IPR&D) Charges and Special Charges (Credits)	15
	Note 9 – Debt	16
	Note 10 – Shareholders’ Equity	17
	Note 11 – Net Earnings Per Share	17
	Note 12 – Comprehensive Income	18
	Note 13 – Other (Expense) Income	18
	Note 14 – Segment and Geographic Information	18
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Overview	21
	New Accounting Pronouncement	22
	Critical Accounting Policies and Estimates	22
	Minority Investment	23
	Segment Performance	23
	Results of Operations	26
	Liquidity	29
	Share Repurchase Program	30
	Debt and Credit Facilities	31
	Commitments and Contingencies	31
	Cautionary Statements	31
3.	Quantitative and Qualitative Disclosures About Market Risk	32
4.	Controls and Procedures	32
PART II – OTHER INFORMATION
1.	Legal Proceedings	33
1A.	Risk Factors	33
6.	Exhibits	33
	Signature	34
	Index to Exhibits	35

PART I	FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net sales	$	821,278		$	737,780		$	2,438,616		$	2,125,344
Cost of sales
Cost of sales before special charges		225,179			200,735			660,590			589,636
Special charges		15,108			—			15,108			—
Gross profit		580,991			537,045			1,762,918			1,535,708
Selling, general and administrative expense		290,424			243,551			875,654			700,184
Research and development expense		108,674			97,493			322,772			264,285
Purchased in-process research and development charges		—			—			—			26,100
Special charges (credits)		19,719			(11,500	)		19,719			(11,500	)
Operating profit		162,174			207,501			544,773			556,639
Other (expense) income - net		(9,159	)		3,917			(15,082	)		7,038
Earnings before income taxes		153,015			211,418			529,691			563,677
Income tax expense		37,475			43,631			136,050			175,058
Net earnings	$	115,540		$	167,787		$	393,641		$	388,619
Net earnings per share:
Basic	$	0.33		$	0.46		$	1.09		$	1.07
Diluted	$	0.32		$	0.44		$	1.05		$	1.03
Weighted average shares outstanding:
Basic		352,774			364,913			361,219			362,545
Diluted		365,171			380,957			375,110			377,817

See notes to condensed consolidated financial statements.

1

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30, 2006 (Unaudited)			December 31, 2005
ASSETS
Current Assets
Cash and cash equivalents	$	70,289		$	534,568
Accounts receivable, less allowance for doubtful accounts of $26,107 at September 30, 2006 and $33,319 at December 31, 2005		868,327			793,929
Inventories		438,401			378,456
Deferred income taxes – net		107,757			100,272
Other		150,924			133,916
Total current assets		1,635,698			1,941,141
Property, plant and equipment – at cost		1,093,493			930,594
Less accumulated depreciation		(521,290	)		(492,178	)
Net property, plant and equipment		572,203			438,416
Other Assets
Goodwill		1,639,023			1,634,973
Other intangible assets, net		560,308			572,246
Other		267,832			258,064
Total other assets		2,467,163			2,465,283
TOTAL ASSETS	$	4,675,064		$	4,844,840
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	660,000		$	876,000
Accounts payable		167,337			169,296
Income taxes payable		68,179			108,910
Accrued expenses
Employee compensation and related benefits		192,932			204,089
Other		178,582			176,087
Total current liabilities		1,267,030			1,534,382
Long-Term Debt		358,197			176,970
Deferred Income Taxes – net		178,817			157,443
Other Liabilities		109,469			93,000
Total liabilities		1,913,513			1,961,795
Commitments and Contingencies (Note 7)		—			—
Shareholders’ Equity
Preferred stock		—			—
Common stock (353,346,784 and 367,904,418 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively)		35,335			36,790
Additional paid-in capital		69,103			514,360
Unearned compensation		—			(5,641	)
Retained earnings		2,632,482			2,345,311
Accumulated other comprehensive income (loss):
Cumulative translation adjustment		5,881			(29,231	)
Unrealized gain on available-for-sale securities		18,750			21,456
Total shareholders’ equity		2,761,551			2,883,045
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,675,064		$	4,844,840

See notes to condensed consolidated financial statements.

2

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,	2006			2005
OPERATING ACTIVITIES
Net earnings	$	393,641		$	388,619
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		67,076			54,400
Amortization		53,436			37,421
Stock-based compensation		53,237			—
Purchased in-process research and development charges		—			26,100
Special charges (credits)		34,827			(11,500	)
Deferred income taxes		15,439			11,875
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(51,699	)		(125,870	)
Inventories		(64,437	)		(16,442	)
Other current assets		(19,118	)		(5,565	)
Accounts payable and accrued expenses		(37,271	)		39,248
Income taxes payable		(35,291	)		76,094
Net cash provided by operating activities		409,840			474,380
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(198,523	)		(107,429	)
Business acquisition payments, net of cash acquired		(21,622	)		(377,260	)
Other - net		(18,111	)		(5,620	)
Net cash used in investing activities		(238,256	)		(490,309	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		66,793			96,913
Excess tax benefits from stock-based compensation		26,473			—
Common stock repurchased		(700,000	)		—
Borrowings under debt facilities		2,875,500			2,577,015
Payments under debt facilities		(2,910,921	)		(2,610,950	)
Net cash (used in) provided by financing activities		(642,155	)		62,978
Effect of currency exchange rate changes on cash and cash equivalents		6,292			(22,638	)
Net (decrease) increase in cash and equivalents		(464,279	)		24,411
Cash and cash equivalents at beginning of period		534,568			688,040
Cash and cash equivalents at end of period	$	70,289		$	712,451

See notes to condensed consolidated financial statements.

3

ST. JUDE MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of St. Jude Medical, Inc. (St. Jude Medical or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (2005 Annual Report on Form 10-K).

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENT

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48) which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN No. 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company effective January 1, 2007. The Company is currently evaluating the impact of this standard on its financial statements.

NOTE 3 – STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the provisions of, and accounts for stock-based compensation in accordance with, SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which replaced SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25). Under the fair value recognition provisions of SFAS No. 123(R), the Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is the vesting period. The Company elected the modified-prospective method of adopting SFAS No. 123(R), under which prior periods are not retroactively revised. For the Company, the valuation provisions of SFAS No. 123(R) apply to awards granted after the January 1, 2006 effective date. Stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date is being recognized over the remaining service period using the compensation cost estimated for the SFAS No. 123 pro forma disclosures. The adoption of SFAS No. 123(R) had a material impact on the Company’s consolidated results of operations and statement of cash flows.

Stock Options and Stock Appreciation Rights

Stock option awards are generally granted to officers and key employees at exercise prices equal to the fair market value of the Company’s common stock on the grant date. The majority of the Company’s stock option awards are non-qualified stock options with an eight-year life and a four-year ratable vesting term. The Company currently grants stock options under the 1997 Stock Option Plan, the 2000 Stock Plan (as amended), the 2002 Stock Plan (as amended) and the 2006 Stock Plan. At September 30, 2006, approximately 7.4 million shares were available for stock option grants under these plans.

On May 10, 2006, the Company’s shareholders approved the 2006 Stock Plan, authorizing the issuance of an aggregate of 5.0 million shares of the Company’s common stock through grants of stock options and stock appreciation rights (SARs). Similar to stock options, SARs reward holders if the fair market value of the Company’s common stock rises above the price on the SAR grant date. Upon exercise of the SAR, the holder receives cash or stock equivalent to the excess of the fair market value of the Company’s common stock on the exercise date over the grant price of the SAR. The Company did not have any SARs outstanding as of September 30, 2006.

4

Restricted Stock

Restricted stock awards are granted to officers and key employees. Restricted stock awards are independent of stock option awards and are subject to forfeiture if employment terminates prior to the release of the restrictions. The Company grants restricted stock which generally vests ratably over a four-year period. Directors can elect to receive half or all of their annual retainer in the form of a restricted stock grant with six-month vesting terms. During the vesting period, ownership of the shares cannot be transferred. Restricted stock is considered issued and outstanding at the grant date and has the same dividend and voting rights as other common stock. The Company grants restricted stock under the 2000 Stock Plan. At September 30, 2006, 108,439 shares were available for restricted stock grants under this plan.

Employee Stock Purchase Savings Plan

The Company’s 2000 Employee Stock Purchase Savings Plan (ESPP) allows participating employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a 12-month offering period. Employees can purchase shares at 85% of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The maximum number of shares that employees can purchase is established at the beginning of the offering period, which is on or around August 1 of each year. At September 30, 2006, approximately 0.8 million shares of additional common stock were available for purchase under the ESPP.

Valuation Assumptions

The Company uses the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options and ESPP share options. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions of other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of the Company’s stock price in future periods and expected dividends. The fair value of restricted stock awards is based on the Company’s closing stock price on the date of grant.

The following table provides the weighted average fair value of stock options granted to employees and the related assumptions used in the Black-Scholes model:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Fair value of options granted	$	11.47		$	14.31		$	11.64		$	12.32
Assumptions used:
Expected life (years)		4.7			4.8			4.3			4.8
Risk-free interest rate		4.8	%		4.1	%		5.0	%		3.9	%
Volatility		27.8	%		27.5	%		27.9	%		27.5	%
Dividend yield		0	%		0	%		0	%		0	%

The following table provides the weighted average assumptions used in the Black-Scholes model to estimate the fair value of ESPP share options at the beginning of the respective 12-month offering periods:

	August 1, 2006		August 1, 2005
Expected life (years)	1.0		1.0
Risk-free interest rate	5.1	%	3.8	%
Volatility	29.9	%	30.0	%
Dividend yield	0	%	0	%

Expected life: The Company analyzes historical employee exercise and termination data to estimate the expected life assumption. The Company believes that historical data currently represents the best estimate of the expected life of a new employee stock option. For determining the fair value of stock options under SFAS No. 123(R), the Company uses different expected lives for the general employee population and officers and directors. In preparing to adopt SFAS No. 123(R), the Company examined its historical pattern of stock option exercises to determine if there was a discernable pattern as to how different classes of employees exercised their stock options. The Company’s analysis showed that officers and directors held their stock options for a longer period of time before exercising compared to the rest of the employee population. Prior to adopting SFAS No. 123(R), the Company used the entire employee population for estimating the expected life assumptions. The expected life for ESPP share options is the offering period of 12 months.

5

Risk-free interest rate: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.

Volatility: The Company estimates the expected volatility of its common stock by using the implied volatility in market traded options in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, which expressed the views of the SEC staff regarding the application of SFAS No. 123(R). The Company’s decision to use implied volatility was based on the availability of actively traded options for the Company’s common stock and the Company’s assessment that implied volatility is more representative of future stock price trends than the historical volatility of the Company’s common stock. Prior to adopting SFAS No. 123(R), the Company used historical volatility to determine the expected volatility.

Dividend yield: The Company does not anticipate paying any cash dividends in the foreseeable future and therefore a dividend yield of zero is assumed.

Stock-Based Compensation Expense

Prior to adopting SFAS No. 123(R) on January 1, 2006, the Company used a graded attribution method, as described in FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, to recognize its pro forma stock-based compensation expense. Unrecognized stock-based compensation expense for awards granted prior to the adoption of SFAS No. 123(R) will continue to be recognized under the graded attribution method. Stock-based compensation expense for awards granted after the adoption of SFAS No. 123(R) will be recognized under a straight-line attribution method.

SFAS No. 123(R) requires compensation cost for share-based awards to be recognized over the requisite service period, which, for the Company, is the award’s vesting term. The Company’s awards are not eligible to vest early in the event of retirement, however, the majority of the Company’s awards vest early in the event of death, disability or change in control.

The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting option forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will only be for those awards that vest.

The following tables present the statement of earnings classification of pre-tax stock-based compensation expense recognized during the three and nine months ended September 30, 2006 (in thousands):

		Three Months Ended September 30, 2006		Nine Months Ended September 30, 2006
Cost of sales	$	1,595	$	4,328
Selling, general and administrative expense		4,314		13,142
Research and development expense		11,807		35,767
	$	17,716	$	53,237

In connection with the acquisition of Advanced Neuromodulation Systems, Inc. (ANS) in November 2005, the Company granted replacement unvested stock options and replacement unvested restricted stock to ANS employees who had unvested stock options and unvested restricted stock outstanding at the date of acquisition. ANS employees are required to render future service in order to vest in the replacement stock options and restricted stock. The Company issued 790,737 replacement St. Jude Medical stock options having a weighted average exercise price of $24.00, which vest over one to four year periods. The fair values of the replacement stock options were determined on the replacement grant date using the Black-Scholes model. The weighted average fair value of the replacement stock options was $27.79. Additionally, the Company issued 209,364 shares of replacement St. Jude Medical restricted stock at a weighted average grant price of $48.17, which vest over a four year period. Included in the $17.7 million and $53.2 million of total pre-tax stock-based compensation expense recognized for the three and nine months ended September 30, 2006, respectively, is $2.2 million and $7.4 million of expense relating to these ANS replacement awards, respectively.

At September 30, 2006, there was $68.5 million of total unrecognized stock-based compensation expense, adjusted for estimated forfeitures which is expected to be recognized over a weighted average period of 1.1 years and will be adjusted for any future changes in estimated forfeitures. Included in total unrecognized stock-based compensation expense is approximately $3.0 million related to replacement stock options and $5.8 million related to replacement restricted stock that the Company issued in connection with the acquisition of ANS, which is expected to be recognized over weighted average periods of 0.9 years and 1.6 years, respectively.

6

Prior to January 1, 2006, the Company accounted for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25 and related interpretations. The following table illustrates the effect on net earnings and net earnings per share for the three and nine months ended September 30, 2005 if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock-based employee compensation (in thousands, except per share amounts):

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net earnings, as reported	$	167,787		$	388,619
Less:  Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects		(10,528	)		(32,303	)
Pro forma net earnings	$	157,259		$	356,316
Net earnings per share:
Basic - as reported	$	0.46		$	1.07
Basic - pro forma	$	0.43		$	0.98
Diluted - as reported	$	0.44		$	1.03
Diluted - pro forma	$	0.41		$	0.95

Statement of Cash Flows Change in Classification

Prior to the adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized stock-based compensation expense were reported as operating cash flows. Under SFAS No. 123(R), such excess tax benefits are reported as financing cash flows. Although total cash flows under SFAS No. 123(R) remain unchanged from what would have been reported under prior accounting standards, net operating cash flows are reduced and net financing cash flows are increased due to the adoption of SFAS No. 123(R). For the nine months ended September 30, 2006, there were excess tax benefits of $26.5 million, which are classified as financing cash flows. For the nine months ended September 30, 2005, there were excess tax benefits of $62.2 million, which are classified as operating cash flows as part of the change in income taxes payable.

General Stock Option and Restricted Stock Information

The following table summarizes stock option activity during the nine months ended September 30, 2006:

	Options Outstanding		Weighted Average Exercise Price
Balance at December 31, 2005	45,887,344		$	23.34
Granted	404,450			37.43
Canceled	(898,653	)		37.05
Exercised	(3,514,563	)		14.56
Balance at September 30, 2006	41,878,578		$	23.92

The following tables summarize information concerning stock options outstanding and exercisable at September 30, 2006:

Options Outstanding						Options Exercisable
Ranges of Exercise Prices		Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Number Outstanding	Weighted Average Exercise Price
$	5.02 - $  9.30	6,858,973	$	7.69	1.3	6,858,973	$	7.69
$	9.31 - $17.36	11,424,077		15.19	3.4	9,822,722		14.89
$	17.38 - $30.89	8,148,474		19.62	3.9	7,611,065		19.24
$	30.95 - $41.47	7,620,332		32.31	5.4	3,417,880		31.87
$	41.78 - $51.91	7,826,722		47.16	6.8	1,052,381		42.97
		41,878,578	$	23.92	4.2	28,763,021	$	17.37

The total intrinsic value of options exercised during the nine months ended September 30, 2006 was $94.1 million. At September 30, 2006, the total intrinsic value of options outstanding and options exercisable was $573.4 million and $524.7 million, respectively. The total intrinsic value at September 30, 2006 is based on the Company’s closing stock price on the last trading day of the quarter for in-the-money options.

7

The following table summarizes restricted stock activity during the nine months ended September 30, 2006:

	Unvested Shares Outstanding		Weighted Average Grant Price
Balance at December 31, 2005	221,556		$	47.79
Granted	13,581			34.04
Vested	(3,000	)		37.53
Canceled	(8,546	)		46.09
Balance at September 30, 2006	223,591		$	47.15

NOTE 4 – ACQUISITIONS AND MINORITY INVESTMENT

Acquisitions

The results of operations of businesses acquired are included in the Company’s consolidated results of operations from the dates of acquisition. Refer to Note 2 to the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for additional information regarding the Company’s acquisitions. Other than the acquisition of ANS, pro forma results of operations have not been presented for these acquisitions since the effects of these business acquisitions were not material to the Company either individually or in the aggregate.

Advanced Neuromodulation Systems, Inc.:   On November 29, 2005, the Company completed its acquisition of ANS. ANS designs, develops, manufactures and markets implantable neuromodulation devices used primarily to manage chronic severe pain. The ANS acquisition expanded the Company’s implantable microelectronics technology programs and provided the Company an immediate presence in the neuromodulation segment of the medical device industry.

The aggregate ANS purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price allocation is preliminary as a result of uncertainty surrounding the estimation of probable and future legal costs relating to legal proceedings outstanding on the acquisition date (see Note 7). Upon finalization, there could be a change in the current liabilities and goodwill. See Note 2 of the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for the preliminary ANS purchase price allocation.

The following unaudited pro forma information presents the consolidated results of operations of the Company and ANS as if the acquisition of ANS had occurred as of the beginning of the periods presented (in thousands, except per share amounts):

	(Unaudited)
	Three Months Ended September 30, 2005		Nine Months Ended September 30, 2005
Revenue	$	777,117	$	2,235,710
Net earnings		165,553		434,867
Net earnings per share:
Basic	$	0.45	$	1.20
Diluted	$	0.43	$	1.15

Pro forma adjustments relate to amortization of identified intangible assets, interest expense resulting from acquisition financing and certain other adjustments together with related income tax effects. Pro forma net earnings for the nine months ended September 30, 2005 include an $85.2 million pre-tax gain on the sale of ANS’s investment in common stock of Cyberonics, Inc., which was recorded by ANS in its historical results of operations for the nine months ended September 30, 2005. The above unaudited pro forma consolidated results of operations are for comparative purposes only and are not necessarily indicative of results that would have occurred had the acquisition occurred as of the beginning of the period presented, nor are they necessarily indicative of future results.

Other Acquisitions: During the nine months ended September 30, 2006, the Company also acquired various businesses involved in the distribution of the Company’s products for aggregate cash consideration of $21.6 million.

8

Minority Investment

The Company made an initial $12.5 million investment in ProRhythm, Inc. (ProRhythm) in January 2005, which approximated a 9% ownership interest. In January 2006, the Company made a second $12.5 million investment in ProRhythm, increasing its total ownership interest to approximately 18%. ProRhythm is a privately-held company that is focused on the development of a high intensity focused ultrasound catheter-based ablation system for the treatment of atrial fibrillation. In connection with making the initial equity investment, the Company also entered into a purchase agreement under which the Company has the exclusive right, but not the obligation, through the later of three months after the date ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire the remaining capital stock of ProRhythm for $125.0 million in cash, with additional cash consideration payable to the non-St. Jude Medical shareholders after the consummation of the acquisition if ProRhythm achieves certain performance-related milestones. The ProRhythm investment is being accounted for under the cost method of accounting.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for each of the Company’s reportable segments (see Note 14) for the nine months ended September 30, 2006 are as follows (in thousands):

	CRM/CS/NEURO		CD/AF		Total
Balance at December 31, 2005	$	1,184,412	$	450,561	$	1,634,973
Foreign currency translation		3,850		200		4,050
Balance at September 30, 2006	$	1,188,262	$	450,761	$	1,639,023

The following table provides the gross carrying amount of other intangible assets and related accumulated amortization (in thousands):

	September 30, 2006				December 31, 2005
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Amortized intangible assets:
Purchased technology and patents	$	473,012	$	62,776	$	474,994	$	41,402
Customer lists and relationships		126,702		31,342		98,282		23,009
Distribution agreements		42,467		14,772		42,164		11,486
Trademarks and tradenames		23,300		1,294		23,300		129
Licenses and other		7,441		2,430		7,184		1,765
	$	672,922	$	112,614	$	645,924	$	77,791
Indefinite-lived intangible assets:
Trademarks	$	—			$	4,113

NOTE 6 – INVENTORIES

The Company’s inventories consisted of the following (in thousands):

	September 30, 2006		December 31, 2005
Finished goods	$	307,015	$	262,640
Work in process		38,557		34,531
Raw materials		92,829		81,285
	$	438,401	$	378,456

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Silzone® Litigation and Insurance Receivables:  In July 1997, the Company began marketing mechanical heart valves which incorporated Silzone® coating. The Company later began marketing heart valve repair products incorporating Silzone® coating. Silzone® coating was intended to reduce the risk of endocarditis, a bacterial infection affecting heart tissue, which is associated with replacement heart valve surgery. In January 2000, the Company initiated a voluntary field action for products incorporating Silzone® coating after receiving information from a clinical study that patients with a Silzone®-coated heart valve had a small, but statistically significant, increased incidence of explant due to paravalvular leak compared to patients in that clinical study with heart valves that did not incorporate Silzone® coating.

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Subsequent to the Company’s voluntary field action, the Company has been sued in various jurisdictions by some patients who received a product with Silzone® coating and, as of October 24, 2006, such cases are pending in the United States, Canada, United Kingdom, Ireland and France. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to Silzone®-coated products. Others, who have not had their Silzone®-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims.

In 2001, the U.S. Judicial Panel on Multi-District Litigation (MDL) ruled that certain lawsuits filed in U.S. federal district court involving products with Silzone® coating should be part of MDL proceedings under the supervision of U.S. District Court Judge John Tunheim in Minnesota (the District Court). As a result, actions in federal court involving products with Silzone® coating have been and will likely continue to be transferred to Judge Tunheim for coordinated or consolidated pretrial proceedings.

The District Court ruled against the Company on the issue of preemption and found that the plaintiffs’ causes of action were not preempted by the U.S. Food and Drug Act. The Company sought to appeal this ruling, but the appellate court determined that it would not review the ruling at that point in the proceedings.

Certain plaintiffs requested the District Court to allow some cases to proceed as class actions. The first complaint seeking class-action status was served upon the Company on April 27, 2000 and all eight original class-action complaints were consolidated into one case by the District Court on October 22, 2001. One proposed class in the consolidated complaint seeks injunctive relief in the form of medical monitoring. A second class in the consolidated complaint seeks an unspecified amount of monetary damages. In response to the requests of the claimants in these cases, the District Court issued several rulings concerning class action certification. The Company requested the Eighth Circuit Court of Appeals (the Eighth Circuit) to review the District Court’s class certification orders.

On October 12, 2005, the Eighth Circuit issued a decision reversing the District Court’s class certification rulings. More specifically, the Eighth Circuit ruled that the District Court erred in certifying a consumer protection class seeking damages based on Minnesota’s consumer protection statutes, and required the District Court in further proceedings to conduct a thorough conflicts-of-law analysis as to each plaintiff class member before applying Minnesota law. In addition, in its October 12, 2005 opinion, the Eighth Circuit also ruled that the District Court’s certification of a medical monitoring class was an abuse of discretion and thus reversed the District Court’s certification of a medical monitoring class involving the products with Silzone® coating.

After briefing and oral argument by the parties, the District Court issued its further ruling on class certification issues on October 13, 2006. The District Court granted plaintiffs’ renewed motion to certify a nationwide consumer protection class under Minnesota’s consumer protection statutes and the Private Attorney General Act. The Company plans to seek appellate review of the District Court’s October 13, 2006 decision.

In addition to the purported class action before the District Court, as of October 24, 2006, there were 16individual Silzone® cases initiated in various federal courts which were pending before the District Court. Plaintiffs in those cases are requesting damages ranging from $10 thousand to $120.5 million and, in some cases, seeking an unspecified amount. The first individual complaint that was transferred to the MDL court was served upon the Company on November 28, 2000, and the most recent individual complaint that was transferred to the MDL court was served upon the Company on February 10, 2006. These cases, which are consolidated before the District Court, are proceeding in accordance with the scheduling orders the District Court has rendered. Actions involving products with Silzone® coating in various state courts in the United States may or may not be coordinated with the matters presently before the District Court.

There are 25 individual state court suits concerning Silzone®-coated products pending as of October 24, 2006, involving 33 patients. These cases are venued in Florida, Minnesota, Missouri, Nevada, Pennsylvania and Texas. There is also a case in Texas which has been dismissed but remains on appeal. The first individual state court complaint was served upon the Company on March 1, 2000, and the most recent individual state court complaint was served upon the Company on August 6, 2006. The complaints in these state court cases request damages ranging from $10 thousand to $100 thousand and, in some cases, seek an unspecified amount. These state court cases are proceeding in accordance with the orders issued by the judges in those matters.

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In addition, a lawsuit seeking a class action for all persons residing in the European Economic Union member jurisdictions who have had a heart valve replacement and/or repair procedure using a product with Silzone® coating was filed in Minnesota state court and served upon the Company on February 11, 2004, by two European citizens who now live in Canada. The complaint seeks damages in an unspecified amount for the class, and in excess of $50 thousand for each plaintiff. The complaint also seeks injunctive relief in the form of medical monitoring. The Company is opposing the plaintiffs’ pursuit of this case on jurisdictional, procedural and substantive grounds.

There are also four class-action cases and one individual case pending against the Company in Canada. In one such case in Ontario, the court certified that a class action may proceed involving Silzone® patients. The Company’s request for leave to appeal the rulings on certification was rejected, and the trial of the initial phase of this matter is now scheduled for September 2007. A second case seeking class action in Ontario has been stayed pending resolution of the other Ontario action, and a case seeking class action in British Columbia is also proceeding but is in its early stages. A court in the Province of Quebec has certified a class action, and that matter is proceeding in accordance with the orders in that court. Additionally, on December 22, 2005, the Company was served with a lawsuit by the Quebec Provincial health insurer. The lawsuit asserts a subrogation right to recover the cost of insured services furnished or to be furnished to class members in the class action pending in Quebec. The complaints in these cases each request damages ranging from 1.5 million to 2.0 billion Canadian dollars (the equivalent to $1.4 million to $1.8 billion at September 30, 2006).

In the United Kingdom, one case involving one plaintiff is pending as of October 24, 2006. The Particulars of Claim in this case were served on July 13, 2004. The plaintiff in this case requests damages of approximately 0.2 million British pounds (the equivalent to approximately $0.4 million at September 30, 2006).

In Ireland, one case involving one plaintiff was withdrawn in the third quarter of 2006. The complaint in this case had been originally served on December 30, 2004, and had sought an unspecified amount in damages.

In France, one case involving one plaintiff is pending as of October 24, 2006. It was initiated by way of an Injunctive Summons to Appear that was served on November 8, 2004, and requests damages in excess of 3 million Euros (the equivalent to $3.8 million at September 30, 2006).

The Company is not aware of any unasserted claims related to Silzone®-coated products. Company management believes that the final resolution of the Silzone® cases will take several years.

The Company has recorded an accrual for probable legal costs that it will incur to defend the various cases involving Silzone®-coated products, and the Company has recorded a receivable from its product liability insurance carriers for amounts expected to be recovered. The Company has not accrued for any amounts associated with settlements or judgments because management cannot reasonably estimate such amounts. Any Silzone® litigation settlement or judgment reserve established by the Company is not based on the amount of the claims because, based on the Company’s experience in these types of cases, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed by the plaintiffs and is often significantly less than the amount claimed. Furthermore, management expects that no significant claims will ultimately be allowed to proceed as class actions in the United States and, therefore, that all settlements and judgments will be covered under the Company’s product liability insurance, subject to the insurance companies’ performance under the policies, which is discussed below. As such, management expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by the Company’s product liability insurance policies or existing reserves will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period.

A summary of the activity relating to the Silzone® litigation reserve is as follows (in thousands):

	Legal and Monitoring costs
Balance at December 31, 2004	$	26,435
Accrued cost		9,800
Cash payments		(1,328	)
Balance at December 31, 2005		34,907
Cash payments		(1,203	)
Balance at September 30, 2006	$	33,704

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The Company records insurance receivables for amounts related to probable future legal costs associated with the Silzone® litigation that are expected to be reimbursable by the Company’s insurance carriers. In 2005, the Company determined that the Silzone® reserves should be increased by $9.8 million as a result of an increase in management’s estimate of the probable future legal costs that would be incurred. The Company also increased the receivable from the Company’s insurance carriers as the Company expects such costs to be reimbursable by the Company’s insurance carriers. At September 30, 2006 and December 31, 2005, the Company’s receivables from insurance carriers were $23.6 million and $24.1 million, respectively.

The Company’s remaining product liability insurance (approximately $125.5 million at October 24, 2006) for Silzone® claims consists of a number of layers, each of which is covered by one or more insurance companies. Part of the Company’s final layer of insurance ($20 million of the final $50 million layer) is covered by Lumberman’s Mutual Casualty Insurance, a unit of the Kemper Insurance Companies (collectively referred to as Kemper). Prior to being no longer rated by A.M. Best, Kemper’s financial strength rating was downgraded to a “D” (poor). Kemper is currently in “run off,” which means that it is not issuing new policies and is, therefore, not generating any new revenue that could be used to cover claims made under previously-issued policies. In the event Kemper is unable to pay claims directed to it, the Company believes the other insurance carriers in the final layer of insurance will take the position that the Company will be directly liable for any claims and costs that Kemper is unable to pay. It is possible that Silzone® costs and expenses will reach the limit of the final Kemper layer of insurance coverage, and it is possible that Kemper will be unable to meet its full obligations to the Company. If this were to happen, the Company could incur expense of up to approximately $20 million. The Company has not accrued for any such losses as potential losses are possible, but not estimable, at this time.

Symmetry™ Bypass System Aortic Connector Litigation:  The Company has been sued in various jurisdictions by claimants who allege that the Company’s Symmetry™ device caused bodily injury or might cause bodily injury. The Company’s Symmetry™ device was cleared through a 510(K) submission to the U.S. Food and Drug Administration (FDA), and therefore, the Company is unable to rely on a defense under the doctrine of federal preemption that such suits are prohibited. Given the Company’s self-insured retention levels under its product liability insurance policies, the Company expects that it will be solely responsible for these lawsuits, including any costs of defense, settlements and judgments.

Although four cases asserted against the Company involving the Symmetry™ device sought class-action status, no class actions were certified in those cases, and all four cases have now been dismissed. In one of those matters seeking class action status, the case was dismissed by the court, and the plaintiff appealed the dismissal. In another, a Magistrate Judge recommended that the case not proceed as a class action. In the third case, the trial judge denied class certification in a July 26, 2005 decision that was not appealed. No motion requesting the court to certify a class action was ever pursued in the fourth case. Therefore, as of October 24, 2006, no class actions have been certified in cases involving the Symmetry™ device, and all four cases where class actions were initially sought have now been resolved, including the case where the plaintiff appealed the court’s dismissal of the case.

Since August 2003, when the first lawsuit involving the Symmetry™ device was filed against the Company, through October 24, 2006, the Company has resolved the claims involving over 94% of the plaintiffs that have initiated lawsuits against the Company involving the Symmetry™ device. As of October 24, 2006, all but four of the lawsuits which allege that the Symmetry™ device caused bodily injury or might cause bodily injury have been resolved. Three of the four unresolved lawsuits were initiated in the second quarter of 2006. Three of the four unresolved cases involving the Symmetry™ device are pending in state court in Minnesota and one is pending in federal court in South Carolina. The first of the unresolved cases involving the Symmetry™ device was commenced against the Company on June 17, 2004, and the most recently initiated unresolved case was commenced against the Company on June 12, 2006. Each of the complaints in these unresolved cases request damages in excess of $50 thousand. In addition to this litigation, some persons have made claims against the Company involving the Symmetry™ device without filing a lawsuit, although, as with the lawsuits, the vast majority of the claims that the Company has been made aware of as of October 24, 2006 have been resolved.

Potential losses arising from future settlements or judgments of unresolved cases and claims are possible, but not estimable, at this time. Moreover, the Company currently expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by any remaining reserve will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period.

Guidant 1996 Patent Litigation:  In November 1996, Guidant, a subsidiary of Boston Scientific Corporation, sued the Company in federal district court for the Southern District of Indiana alleging that the Company did not have a license to certain patents controlled by Guidant covering tachycardia implantable cardioverter defibrillator system (ICD) products and alleging that the Company was infringing those patents. The Company’s contention was that it had obtained a license from Guidant to the patents at issue when it acquired certain assets of Telectronics in November 1996. In July 2000, an arbitrator rejected the Company’s position, and in May 2001, a federal district court judge also ruled that the Guidant patent license with Telectronics had not transferred to the Company.

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Guidant’s suit originally alleged infringement of four patents by the Company. Guidant later dismissed its claim on one patent and a court ruled that a second patent was invalid. This determination of invalidity was appealed by Guidant, and the Court of Appeals upheld the lower court’s invalidity determination. In a jury trial involving the two remaining patents (the ‘288 and ‘472 patents), the jury found that these patents were valid and that the Company did not infringe the ‘288 patent. The jury also found that the Company did infringe the ‘472 patent, though such infringement was not willful. The jury awarded damages of $140.0 million to Guidant. In post-trial rulings, however, the judge overseeing the jury trial ruled that the ‘472 patent was invalid and also was not infringed by the Company, thereby eliminating the $140.0 million verdict against the Company. The trial court also made other rulings as part of the post-trial order, including a ruling that the ‘288 patent was invalid on several grounds.

In August 2002, Guidant commenced an appeal of certain of the trial judge’s post-trial decisions pertaining to the ‘288 patent. Guidant did not appeal the trial court’s finding of invalidity and non-infringement of the ‘472 patent. As part of its appeal, Guidant requested that the monetary damages awarded by the jury pertaining to the ‘472 patent ($140.0 million) be transferred to the ‘288 patent infringement claim.

On August 31, 2004, a three judge panel of the Court of Appeals for the Federal Circuit (CAFC) issued a ruling on Guidant’s appeal of the trial court decision concerning the ‘288 patent. The CAFC reversed the decision of the trial court judge that the ‘288 patent was invalid. The court also ruled that the trial judge’s claim construction of the ‘288 patent was incorrect and, therefore, the jury’s verdict of non-infringement was set aside. Guidant’s request to transfer the $140.0 million to the ‘288 patent was rejected. The court also ruled on other issues that were raised by the parties. The Company’s request for re-hearing of the matter by the panel and the entire CAFC court was rejected.

The case was returned to the district court in Indiana in November 2004, but since that time, further appellate activity has occurred. In this regard, the U.S. Supreme Court rejected the Company’s request that it review certain aspects of the CAFC decision. In addition, further appellate review has occurred after Guidant brought motion in the district court seeking to have a new judge assigned to handle the case in lieu of the judge that oversaw the prior trial. On a motion reconsideration, the judge reversed his initial decision in response to Guidant’s motion and agreed to have the case reassigned to a new judge but also certified the issue to the CAFC. On July 20, 2005, the CAFC ruled that the original judge should continue with the case. A hearing on claims construction issues and various motions for summary judgment brought by both parties was held on December 20, 2005, and the district court issued rulings on claims construction and in response to some of the motions for summary judgment on March 1, 2006. In response to the district court ruling, on March 21, 2006, Guidant filed a special request with the CAFC to appeal certain of the March 1, 2006 rulings, or to clarify the August 31, 2005 CAFC decision. The Company filed responses to these filings on April 7, 2006, and, on June 2, 2006, the CAFC rejected Guidant’s special request for an appeal. On July 30, 2006, the parties agreed to jointly approach the court to request a new schedule for the case, and in September 2006, the Court issued a new schedule for the case which kept the previously announced April 30, 2007 trial date.

The ‘288 patent expired in December 2003. Accordingly, the final outcome of the lawsuit involving the ‘288 patent cannot result in an injunction precluding the Company from selling ICD products in the future. Sales of the Company’s ICD products which Guidant asserts infringed the ‘288 patent were approximately 18% and 16% of the Company’s consolidated net sales during the fiscal years ended December 31, 2003 and 2002, respectively.

On July 30, 2006, in exchange for the Company agreeing not to pursue the recovery of attorneys’ fees or assert certain claims and defenses, Guidant agreed that it would not seek to recover lost profits in the case, that the maximum royalty rate that it would seek for any patents found to be infringed by the Company would not exceed 3% of net sales, and that it would not seek prejudgment interest. These agreements have the effect of limiting the Company’s financial exposure. However, any potential losses arising from any legal settlements or judgments could be material to the Company’s consolidated earnings, financial position and cash flows. The Company has not accrued any amounts for legal settlements or judgments related to the Guidant 1996 patent litigation. Although the Company believes that the assertions and claims in these matters are without merit, potential losses arising from any legal settlements or judgments are possible, but not estimable, at this time.

Guidant 2004 Patent Litigation:  In February 2004, Guidant sued the Company in federal district court in Delaware alleging that the Company’s Epic® HF ICD, Atlas®+ HF ICD and Frontier™ devices infringe U.S Patent No. RE 38,119E (the ‘119 patent). A competitor of the Company, Medtronic, Inc., which has a license to the ‘119 patent, is contending in a separate lawsuit with Guidant in the same court that the ‘119 patent is invalid. In July 2005, the court ruled against Medtronic’s claim of invalidity, and Medtronic appealed that decision. In October 2006, the CAFC upheld the district court’s ruling against Medtronic’s claim of invalidity. By agreement with Guidant, Medtronic had presented limited arguments of invalidity in its case and did not address infringement. On January 6, 2006, the Court ruled against the Company in response to a motion for summary judgment it had filed in June 2005. The Company expects to assert invalidity arguments that were not made by Medtronic and also defend against Guidant’s claims of infringement. Pursuant to a recent order of the Court, this matter is presently set for trial in August 2007, and it is otherwise proceeding in accordance with deadlines established by the Court.

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On July 30, 2006, in exchange for the Company agreeing not to pursue the recovery of attorneys’ fees or assert certain defenses, Guidant agreed that it would not seek to recover lost profits in the case, that the maximum royalty rate that it would seek for any patents found to be infringed by the Company would not exceed 3% of net sales, that it would not seek prejudgment interest, and that it would not pursue an injunction against the Company until all appeals have been exhausted and any judgment of infringement is final and no longer can be appealed. These agreements have the effect of limiting the Company’s financial and operational exposure. However, any potential losses arising from any legal settlements or judgments could be material to the Company’s consolidated earnings, financial position and cash flows. The Company has not accrued any amounts for legal settlements or judgments related to the outstanding Guidant 2004 patent litigation. Although the Company believes that the assertions and claims in the outstanding Guidant 2004 patent litigation are without merit, potential losses arising from any legal settlements or judgments are possible, but not estimable, at this time.

Guidant also sued the Company in February 2004 alleging that the Company’s QuickSite® 1056K pacing lead infringes U.S. Patent No. 5,755,766 (the ‘766 patent). This second suit was initiated in federal district court in Minnesota. Guidant later amended its complaint to allege that the QuickSite® 1056K and the QuickSite® 1056T pacing leads infringe U.S. Patent No. 6,901,288, as well as the ‘766 patent. The parties settled this suit on July 30, 2006 and agreed to a patent cross-license involving the parties’ cardiac rhythm management patent portfolio.

Advanced Bionics Patent Litigation:  On July 30, 2006, the Company settled the litigation between its recently acquired subsidiary, ANS, and Advanced Bionics, a subsidiary of Boston Scientific Corporation. That litigation had involved patent infringement claims by both parties. In connection with the settlement, the parties agreed to a cross-license of certain patents related to neuromodulation.

Securities Class Action Litigation:  In April and May 2006, five shareholders, each purporting to act on behalf of a class of purchasers during the period January 25 through April 4, 2006 (the Class Period), separately sued the Company and certain officers in federal district court in Minnesota alleging that the Company made materially false and misleading statements during the Class Period relating to financial performance, projected earnings guidance and projected sales of ICDs. The complaints, which all seek unspecified damages and other relief, as well as attorneys’ fees, have all been consolidated. In an August 24, 2006 ruling, lead plaintiffs were appointed by the district court. The plaintiffs filed their amended complaint on October 24, 2006. The Company intends to vigorously defend against the claims asserted in these actions. The Company’s directors and officers liability insurance provide $75 million of insurance coverage for the Company, the officers and the directors, after a $15 million self-insured retention level has been reached.

Additionally, the Company’s recently acquired subsidiary, ANS, has outstanding securities class action legal proceedings. In late May 2005, the U.S. District Court for the Eastern District of Texas, Sherman Division, granted an order consolidating three previously filed cases which sought class action status for claims asserted against ANS and certain of the individuals who were serving as ANS’s officers and directors at that time (the ANS Class Action Litigation), on behalf of purchasers of ANS securities between April 24, 2003 and February 16, 2005. On October 6, 2006, the parties entered into a settlement agreement that would resolve the ANS Class Action Litigation. That settlement is subject to the district court’s review and final approval. On October 18, 2006, the district court issued a preliminary order providing notice to the class, addressing certain procedural matters and setting a final Settlement Fairness Hearing for January 19, 2007. ANS’s directors and officers liability insurance policy provides coverage of up to $10 million. As of June 30, 2006, ANS had met its deductible under this policy, and from that point, it is expected that the insurance policy will cover costs of defense, settlements and judgments up to $10 million. Accordingly, once the district court grants final approval of the settlement, the insurance policy is expected to cover the amount of the settlement agreed to by the parties.

Other Litigation and Governmental Investigation Matters:  The Company has been named in the report of the Independent Inquiry Committee into the United Nations (U.N.) Oil-For-Food Programme as having made payments to the Iraqi government in connection with certain product sales made by the Company to Iraq under the U.N. Oil-For-Food Programme in 2001, 2002 and 2003. The Company is investigating the allegations. In February 2006, the Company received a subpoena from the SEC requesting the Company to produce documents concerning transactions under the U.N. Oil-for-Food Programme. The Company is cooperating with the SEC’s request.

In late January 2005, ANS received a subpoena from the Office of the Inspector General, Department of Health and Human Services (OIG) requesting documents related to certain of its sales and marketing, reimbursement, Medicare and Medicaid billings, and other business practices of ANS. The Company is cooperating with the OIG’s request for documents.

In October 2005, the Company received a subpoena for documents relating to business practices in its cardiac rhythm management business from the U.S. Attorney’s Office in Boston as part of an industry-wide investigation. The Company is cooperating with the investigation.

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The Company is also involved in various other product liability lawsuits, claims and proceedings that arise in the ordinary course of business.

Product Warranties: The Company offers a warranty on various products, the most significant of which relates to its bradycardia pacemaker systems (pacemakers) and ICDs. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the Company’s product warranty liability during the three and nine months ended September 30, 2006 and 2005 were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Balance at beginning of period	$	15,893		$	12,826		$	19,897		$	13,235
Warranty expense recognized		(1,286	)		8,216			(1,235	)		8,469
Warranty credits issued		(786	)		(131	)		(4,841	)		(793	)
Balance at end of period	$	13,821		$	20,911		$	13,821		$	20,911

Other Commitments: The Company has certain contingent commitments to acquire various businesses involved in the distribution of the Company’s products and other contingent acquisition consideration payments. While it is not certain if and/or when these payments will be made, as of September 30, 2006, the Company estimates it could be required to pay approximately $292 million in future periods to satisfy such commitments. Refer to Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2005 Annual Report on Form 10-K for additional information.

NOTE 8 – PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D) CHARGES AND SPECIAL CHARGES (CREDITS)

IPR&D Charges

Refer to Note 7 to the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for additional information regarding IPR&D acquired as part of the Company’s recent acquisitions. There has been no material changes in the completion status of IPR&D projects acquired and the estimated total cost to complete each project, as estimated on the acquisition dates, from that previously disclosed in our 2005 Annual Report on Form 10-K.

Velocimed, LLC (Velocimed): In April 2005, the Company acquired Velocimed to further enhance the Company’s portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device that had not yet reached technological feasibility in the United States and other geographies and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. In 2005, the Company incurred $3.4 million in costs related to these projects. The Company has incurred $2.8 million in the first nine months of 2006 and expects to incur up to an additional $2 million through 2007 to bring this acquired technology to commercial viability.

Endocardial Solutions, Inc. (ESI): In January 2005, the Company acquired ESI to further enhance the Company’s portfolio of products used to treat heart rhythm disorders. At the date of acquisition, $12.4 million of the purchase price was expensed as IPR&D related to system upgrades that had not yet reached technological feasibility and had no future alternative use. These major system upgrades are part of the EnSite® system which is used for the navigation and localization of diagnostic and therapeutic catheters used in atrial fibrillation ablation and other electrophysiology (EP) catheterization procedures. During 2005, the Company incurred $0.7 million in costs related to these projects and in the third quarter of 2005, the Company achieved commercial viability and launched EnSite® system version 5.1 and the EnSite® Verismo™ segmentation tool.

Special Charges (Credits)

Restructuring Activities: During the third quarter of 2006, Company management performed a review of the organizational structure of the Company’s Cardiac Surgery and Cardiology divisions and its international selling organization. In August 2006, Company management approved restructuring plans to streamline its operations within its Cardiac Surgery and Cardiology divisions and combine them into one new Cardiovascular division, effective January 1, 2007, and also to implement changes in its international selling organization to enhance the efficiency and effectiveness of sales and customer service operations in certain international geographies. This strategic reorganization and operational restructuring will allow the Company to enhance operating efficiencies and increase investment in product development.

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As a result of these restructuring plans, the Company recorded pre-tax special charges totaling $34.8 million in the third quarter of 2006 consisting of employee termination costs ($14.7 million), inventory write-downs ($8.7 million), asset write-downs ($7.3 million) and other exit costs ($4.1 million). Of the total $34.8 million special charge, $15.1 million was recorded in cost of sales and $19.7 million was recorded in operating expenses. In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the restructuring special charges have not been recorded in the individual reportable segments.

Employee termination costs relate to severance and benefits costs for approximately 140 individuals. The charges for employee termination costs were recorded after management determined that such postemployment severance and benefits were probable and estimable, in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. Inventory write-downs represent the net carrying value of inventory relating to product lines discontinued in connection with the reorganization. Asset write-downs represent the net book value of assets that will no longer be utilized as a result of the reorganization and restructuring, including $4.2 million of trademarks acquired in connection with the Company’s 2003 acquisition of Getz Bros. Co. Ltd. as well as other assets relating to product lines discontinued in connection with the reorganization. Other exit costs primarily represent contract termination costs.

A summary of the activity relating to the restructuring accrual (classified as other current liabilities) for the nine months ended September 30, 2006 is as follows (in thousands):

	Employee Termination costs			Asset write-downs				Inventory write-downs		Other		Total
Balance at December 31, 2005	$	—		$	—		$	—		$	—	$	—
Third quarter 2006 special charges		14,710			8,694			7,361			4,062		34,827
Non-cash charges used		—			(8,694	)		(7,361	)		—		(16,055	)
Cash payments		(1,282	)		—			—			—		(1,282	)
Balance at September 30, 2006	$	13,428		$	—		$	—		$	4,062	$	17,490

Symmetry™ Bypass System Aortic Connector Litigation: During the third quarter of 2005, over 90% of the cases and claims asserted involving the Symmetry™ device were resolved. As a result, the Company reversed $14.8 million of the pre-tax $21.0 million special charge that was recorded in the third quarter of 2004 to accrue for legal fees in connection with claims involving the Symmetry™ device. Additionally, the Company recorded a pre-tax charge of $3.3 million in the third quarter of 2005 to accrue for settlement costs negotiated in these related cases. These adjustments resulted in a net pre-tax benefit of $11.5 million that the Company recorded in the third quarter of 2005 related to Symmetry™ device product liability litigation. See Note 7 for further details on the outstanding litigation against the Company relating to the Symmetry™ device.

NOTE 9 – DEBT

The Company’s long-term debt consisted of the following (in thousands):

	September 30, 2006		December 31, 2005
2.80% Convertible Senior Debentures	$	660,000	$	660,000
1.02% Yen-denominated notes		177,584		176,937
Commercial paper borrowings		180,600		216,000
Other		13		33
Total long-term debt	$	1,018,197	$	1,052,970
Less: current portion of long-term debt		660,000		876,000
Long-term debt	$	358,197	$	176,970

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The 2.80% Convertible Senior Debentures have been classified as current portion of long-term debt as the Company may be required to redeem these obligations on December 15, 2006. The Company’s commercial paper borrowings are classified as long-term debt at September 30, 2006. The Company normally classifies all of its commercial paper borrowings as long-term debt as the Company has the ability to repay any short-term maturity with available cash from its existing long-term, committed credit facilities. Because the Company repaid all of its outstanding commercial paper borrowings in January 2006, the Company classified the December 31, 2005 balance as current portion of long-term debt.

NOTE 10 – SHAREHOLDERS’ EQUITY

Capital Stock

The Company’s authorized capital consists of 25 million shares of $1.00 per share par value preferred stock and 500 million shares of $0.10 per share par value common stock. The Company has designated 1.1 million of the authorized preferred shares as a Series B Junior Preferred Stock for its shareholder rights plan. The rights related to this plan expire in July 2007. There were no shares of preferred stock issued or outstanding at September 30, 2006 or December 31, 2005.

Share Repurchase Program

On April 18, 2006, the Company’s Board of Directors authorized a new share repurchase program of up to $700 million of the Company’s outstanding common stock. The $700 million share repurchase program replaced an earlier share repurchase program, under which the Company was authorized to repurchase up to $300 million of its outstanding common stock. No stock had been repurchased under the earlier program. On April 21, 2006, the Company began making share repurchases through transactions in the open market in accordance with applicable securities laws. On May 26, 2006, the Company had repurchased the maximum amount authorized by the Board of Directors under the repurchase program. Approximately 18.6 million shares were repurchased for a total of $700 million, which was financed through cash from operations and proceeds from the issuance of commercial paper. The $700 million share repurchase was recorded as a $593.5 million aggregate reduction of common stock and additional paid-in capital and a $106.5 million reduction in retained earnings.

NOTE 11 – NET EARNINGS PER SHARE

The table below sets forth the computation of basic and diluted net earnings per share (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Numerator:
Net earnings	$	115,540	$	167,787	$	393,641	$	388,619
Denominator:
Basic weighted average shares outstanding		352,774		364,913		361,219		362,545
Effect of dilutive securities:
Employee stock options		12,342		16,026		13,792		15,255
Restricted shares		55		18		99		17
Diluted weighted average shares outstanding		365,171		380,957		375,110		377,817
Basic net earnings per share	$	0.33	$	0.46	$	1.09	$	1.07
Diluted net earnings per share	$	0.32	$	0.44	$	1.05	$	1.03

Diluted-weighted average shares outstanding have not been adjusted for certain stock options and restricted stock where the effect of those securities would not have been dilutive. Approximately 9.5 million and 24,000 shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the three months ended September 30, 2006 and 2005, respectively, because they were anti-dilutive. Approximately 7.9 million and 4.1 million shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the nine months ended September 30, 2006 and 2005, respectively, because they were anti-dilutive.

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NOTE 12 – COMPREHENSIVE INCOME

The amounts in other comprehensive income (loss) are presented below, net of the related income tax impact:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2006			2005			2006			2005
Net earnings	$	115,540		$	167,787		$	393,641		$	388,619
Other comprensive income (loss):
Cumulative translation adjustment – net		5,645			2,492			35,112			(65,087	)
Available-for-sale securities, unrealized (loss) gain – net		(848	)		(8,440	)		(2,706	)		1,316
Total comprehensive income	$	120,337		$	161,839		$	426,047		$	324,848

NOTE 13 – OTHER (EXPENSE) INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2006			2005			2006			2005
Interest income	$	1,066		$	4,965		$	8,771		$	13,241
Interest expense		(9,796	)		(672	)		(25,650	)		(5,384	)
Other		(429	)		(376	)		1,797			(819	)
Total other (expense) income	$	(9,159	)	$	3,917		$	(15,082	)	$	7,038

NOTE 14 – SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiac surgery, cardiology and atrial fibrillation therapy areas and implantable neuromodulation devices. The Company’s five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). The Company formed the NEURO operating segment in November 2005 in connection with the acquisition of ANS. Each operating segment focuses on developing and manufacturing products for its respective therapy area. The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – EP catheters, advanced cardiac mapping systems and ablation systems.

The Company has aggregated the five operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/CS/NEURO and CD/AF. Net sales of the Company’s reportable segments include end-customer revenue from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by the Company’s selling and corporate functions, including all stock-based compensation expense, are not included in the reportable segments’ operating profit. Because of this, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments. Additionally, certain assets are managed by the Company’s selling and corporate functions, principally including end-customer receivables, inventory, corporate cash and cash equivalents and deferred income taxes. For management reporting purposes, the Company does not compile capital expenditures by reportable segment and, therefore, this information has not been presented as it is impracticable to do so.

As discussed in Note 8, the Company is combining the Cardiac Surgery and Cardiology divisions into a new Cardiovascular division which will incorporate all activities currently managed by the Cardiac Surgery division and by the Cardiology division. A transitional period was provided to combine the existing divisions into the new division. Internal management reporting for the new reportable segments will commence January 1, 2007. Segment information will be reclassified effective January 1, 2007 to reflect the new Cardiovascular division. In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the related special charges have not been recorded in the individual reportable segments.

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The following table presents net sales and operating profit by reportable segment (in thousands):

	CRM/CS/NEURO			CD/AF			Other			Total
Three Months ended September 30, 2006:
Net sales	$	630,606		$	190,672		$	—		$	821,278
Operating profit		381,003			77,915			(296,744	)		162,174
Three Months ended September 30, 2005:
Net sales	$	570,095		$	167,685		$	—		$	737,780
Operating profit		364,233	(a)		69,122			(225,854	)		207,501
Nine Months ended September 30, 2006:
Net sales	$	1,867,816		$	570,800		$	—		$	2,438,616
Operating profit		1,125,749			237,378			(818,354	)		544,773
Nine Months ended September 30, 2005:
Net sales	$	1,616,043		$	509,301		$	—		$	2,125,344
Operating profit		1,013,792	(a)		193,367	(b)		(650,520	)		556,639

(a)	Included in CRM/CS/NEURO operating profit for the three and nine months ended September 30, 2005 is a special credit of $11.5 million relating to a reversal of a portion of the Symmetry™ device product liability litigation special charge recorded in 2004, net of settlement costs (see Note 8).
(b)	Included in CD/AF operating profit for the nine months ended September 30, 2005 are IPR&D charges of $13.7 million and $12.4 million related to the acquisitions of Velocimed and ESI, respectively (see Note 8).

The following table presents the Company’s total assets by reportable segment (in thousands):

	September 30, 2006		December 31, 2005
CRM/CS/NEURO	$	1,979,396	$	1,936,915
CD/AF		699,306		679,973
Other		1,996,362		2,227,952
	$	4,675,064	$	4,844,840

Geographic Information

The following tables present certain geographical financial information (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales (a)	2006		2005		2006		2005
United States	$	480,460	$	445,501	$	1,428,611	$	1,236,146
International
Europe		191,908		160,935		586,706		505,291
Japan		74,174		70,818		213,939		210,585
Other (b)		74,736		60,526		209,360		173,322
		340,818		292,279		1,010,005		889,198
	$	821,278	$	737,780	$	2,438,616	$	2,125,344

(a)	Net sales are attributed to geographies based on location of the customer.
(b)	No one geographic market is greater than 5% of consolidated net sales.

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Long-Lived Assets	September 30, 2006		December 31, 2005
United States	$	2,715,249	$	2,596,513
International
Europe		118,615		100,068
Japan		115,495		125,962
Other		90,007		81,156
		324,117		307,186
	$	3,039,366	$	2,903,699

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our business is focused on the development, manufacturing and distribution of cardiovascular medical devices for the global cardiac rhythm management, cardiac surgery, cardiology and atrial fibrillation therapy areas and implantable neuromodulation devices. We sell our products in more than 100 countries around the world. Our largest geographic markets are the United States, Europe and Japan. Our five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). Each operating segment focuses on developing and manufacturing products for its respective therapy area. Our principal products in each operating segment are as follows: CRM – tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – electrophysiology (EP) catheters, advanced cardiac mapping systems and ablation systems. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

In August 2006, we announced that we are combining the Cardiac Surgery and Cardiology divisions into a new Cardiovascular division, effective January 1, 2007. This combination is expected to enhance operating efficiencies and thereby enable us to increase investment in product development. The Cardiovascular division will incorporate all activities currently managed by the Cardiac Surgery division and by the Cardiology division. A transitional period was provided to combine the existing divisions into the new division. Internal management reporting for the new reportable segments will commence January 1, 2007. We also have implemented changes in our international selling organization to enhance the efficiency and effectiveness of sales and customer service operations in certain international geographies. The strategic reorganization and operational restructuring will allow us to enhance operating efficiencies and increase our investment in product development.

Net sales in the third quarter and first nine months of 2006 were $821.3 million and $2,438.6 million, respectively, an increase of approximately 11% and 15% over the third quarter and first nine months of 2005, respectively, led by growth in sales of atrial fibrillation products as well as neuromodulation product sales from the acquisition of Advanced Neuromodulation Systems, Inc. (ANS). AF net sales increased approximately 29% to $81.2 million in the third quarter of 2006 and approximately 29% to $235.1 million in the first nine months of 2006. The acquisition of ANS in the fourth quarter of 2005 contributed $43.3 million and $128.8 million to our sales growth in the third quarter and first nine months of 2006, respectively. Foreign currency translation comparisons positively impacted third quarter 2006 sales by $6.6 million and negatively impacted sales for the first nine months of 2006 by $21.1 million. Refer to the Segment Performance section below for a more detailed discussion of the sales results for the respective segments.

The global ICD market grew at an estimated compounded annual growth rate of approximately 28% from 2001 to 2005. We believe the rate of growth declined significantly in the second half of 2005 and first nine months of 2006 due to a number of factors, including adverse publicity relating to product recalls of a competitor during 2005 and 2006. We forecast that the overall ICD market will remain depressed in the near term but eventually will rebound. This is because data indicates the potential patient populations remain significantly underpenetrated. We also expect that we can continue to increase our ICD market share. In order to help accomplish this objective, we plan to continue to expand our United States selling organization and to continue to introduce new CRM products.

Net earnings and diluted net earnings per share for the third quarter of 2006 were $115.5 million and $0.32 per diluted share, which includes an after-tax $22.0 million special charge, or $0.06 per diluted share, related to restructuring activities in the Company’s Cardiac Surgery and Cardiology divisions and international selling organization. Net earnings for the third quarter of 2006 also include after-tax stock-based compensation expense of $12.3 million, or $0.03 per diluted share, resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), on January 1, 2006. Net earnings and diluted net earnings per share for the third quarter of 2005 were $167.8 million and $0.44 per diluted share, which benefited from an after-tax $7.1 million special credit, or $0.02 per diluted share, relating to a reversal of a portion of the Symmetry™ Bypass System Aortic Connector (Symmetry™ device) product liability litigation accrual, net of settlement costs, as well as a $13.7 million reversal, or $0.04 per diluted share, of previously recorded income tax expense due to the finalization of certain tax examinations. Net earnings and diluted net earnings per share for the first nine months of 2006 were $393.6 million and $1.05 per diluted share. Net earnings for the first nine months of 2006 include the aforementioned after-tax $22.0 million special charge, or $0.06 per diluted share, related to restructuring activities as well as after-tax stock-based compensation expense of $37.1 million, or $0.10 per diluted share. Net earnings and diluted net earnings per share for the first nine months of 2005 were $388.6 million and $1.03 per diluted share. Purchased in-process research and development (IPR&D) charges from the acquisitions of the businesses of Velocimed, LLC (Velocimed) and Endocardial Solutions, Inc. (ESI) reduced 2005 year-to-date net earnings by an aggregate of $26.1 million, or $0.07 per diluted share. Income tax expense of $27.0 million resulting from the repatriation of $500 million under the American Jobs Creation Act of 2004 reduced 2005 year-to-date diluted net earnings per share by $0.07. The aforementioned Symmetry™ device after-tax special credit of $7.1 million and $13.7 million reversal of previously recorded income tax expense benefited 2005 year-to-date diluted net earnings per share by $0.02 and $0.04, respectively.

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We generated $409.8 million of operating cash flows for the first nine months of 2006, which was a decrease compared to the first nine months of 2005, but primarily resulted from a change in classification of excess tax benefits from the exercise of stock options resulting from our adoption of SFAS No. 123(R) on January 1, 2006. In the second quarter of 2006, we repurchased $700 million, or approximately 18.6 million shares, of our outstanding common stock, which was primarily financed through the issuance of commercial paper. We are focused on repaying our outstanding debt. Refer to the Debt and Credit Facilities section below for a more detailed discussion of our outstanding debt. We ended the quarter with $70.3 million of cash and cash equivalents and $1,018.2 million of total debt. We have short-term credit ratings of A2 from Standard & Poor’s and P2 from Moody’s.

NEW ACCOUNTING PRONOUNCEMENT

Information regarding new accounting pronouncement is included in Note 2 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have adopted various accounting policies in preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements included in our 2005 Annual Report on Form 10-K.

Preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to adopt various accounting policies and to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable allowance for doubtful accounts; estimated useful lives of diagnostic equipment; valuation of IPR&D, other intangible assets and goodwill; income taxes; and legal reserves and insurance receivables. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. Other than the inclusion of stock-based compensation as a significant accounting policy (see Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q) and critical accounting estimate effective with our adoption of SFAS No. 123(R) on January 1, 2006, there have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2005 Annual Report on Form 10-K.

Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, SFAS No. 123(R). Under the fair value recognition provisions of SFAS No. 123(R), we measure stock-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the vesting period. We elected the modified-prospective method of adopting SFAS No. 123(R), under which prior periods are not retroactively revised. For the Company, the valuation provisions of SFAS No. 123(R) apply to awards granted after the January 1, 2006 effective date. Estimated stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date will be recognized over the remaining service period using the compensation cost estimated for the SFAS No. 123, Accounting for Stock-Based Compensation pro forma disclosures.

The adoption of SFAS No. 123(R) had a material impact on our consolidated results of operations and operating cash flows. However, we believe that stock-based compensation aligns the interests of managers and non-employee directors with the interests of shareholders. As a result, we do not currently expect to significantly change our various stock-based compensation programs. See Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information regarding our stock-based compensation programs.

We use the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options and employee stock purchase plan shares. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions of other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of our stock price in future periods and expected dividends.

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We analyze historical employee exercise and termination data to estimate the expected life assumption. We believe that historical data currently represents the best estimate of the expected life of a new employee option. We also stratify our employee population based upon distinctive exercise behavior patterns. The risk-free interest rate we use is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options. We estimate the expected volatility of our common stock by using the implied volatility in market traded options. Our decision to use implied volatility was based on the availability of actively traded options for our common stock and our assessment that implied volatility is more representative of future stock price trends than the historical volatility of our common stock. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate pre-vesting option forfeitures at the time of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the expense in future periods may differ significantly from what we have recorded in the current period and could materially affect our net earnings and net earnings per share of a future period.

The Black-Scholes model was developed for use in estimating the fair value of market traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares. There is a risk that our estimates of the fair values of our stock-based awards on the grant dates as determined using the Black-Scholes model may bear little resemblance to the actual values realized upon the exercise or forfeiture of those stock-based awards in the future. Some employee stock options may expire without value, or only realize minimal intrinsic value, as compared to the fair values originally estimated on the grant date and recognized in our financial statements. Alternatively, some employee stock options may realize significantly more value than the fair values originally estimated on the grant date and recognized in our financial statements.

The guidance in SFAS No. 123(R) is relatively new. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models, and there is a possibility that we may adopt a different valuation model in the future. This may result in a lack of consistency in future periods and materially affect the fair value estimate of stock-based awards. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

MINORITY INVESTMENT

We made an initial $12.5 million investment in ProRhythm, Inc. (ProRhythm) in January 2005, which approximated a 9% ownership interest. In January 2006, we made a second $12.5 million investment in ProRhythm, increasing our total ownership interest to approximately 18%. ProRhythm is a privately-held company that is focused on the development of a high intensity focused ultrasound catheter-based ablation system for the treatment of atrial fibrillation. In connection with making the initial equity investment, we also entered into a purchase agreement, under which we have the exclusive right, but not the obligation, through the later of three months after the date ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire the remaining capital stock of ProRhythm for $125.0 million in cash, with additional cash consideration payable to the non-St. Jude Medical shareholders after the consummation of the acquisition if ProRhythm achieves certain performance-related milestones. The ProRhythm investment is being accounted for under the cost method of accounting.

SEGMENT PERFORMANCE

Our five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). We formed our NEURO operating segment in November 2005 in connection with the acquisition of ANS. Each operating segment focuses on developing and manufacturing products for its respective therapy area. The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – EP catheters, advanced cardiac mapping systems and ablation systems.

We aggregate our five operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/CS/NEURO and CD/AF. Net sales of our reportable segments include end-customer revenue from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by our selling and corporate functions, including all stock-based compensation expense, are not included in our reportable segments’ operating profit. Because of this, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments.

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We are combining the Cardiac Surgery and Cardiology divisions into a new Cardiovascular division which will incorporate all activities currently managed by the Cardiac Surgery division and by the Cardiology division. A transitional period was provided to combine the existing divisions into the new division. Internal management reporting for the new reportable segments will commence January 1, 2007. Segment information will be reclassified effective January 1, 2007 to reflect the new Cardiovascular division. In order to enhance segment comparability and reflect management’s focus on our ongoing operations, the related special charges have not been recorded in the individual reportable segments.

The following table presents net sales and operating profit by reportable segment (in thousands):

	CRM/CS/NEURO			CD/AF			Other			Total
Three Months ended September 30, 2006:
Net sales	$	630,606		$	190,672		$	—		$	821,278
Operating profit		381,003			77,915			(296,744	)		162,174
Three Months ended September 30, 2005:
Net sales	$	570,095		$	167,685		$	—		$	737,780
Operating profit		364,233	(a)		69,122			(225,854	)		207,501
Nine Months ended September 30, 2006:
Net sales	$	1,867,816		$	570,800		$	—		$	2,438,616
Operating profit		1,125,749			237,378			(818,354	)		544,773
Nine Months ended September 30, 2005:
Net sales	$	1,616,043		$	509,301		$	—		$	2,125,344
Operating profit		1,013,792	(a)		193,367	(b)		(650,520	)		556,639

(a)	Included in CRM/CS/NEURO operating profit for the three and nine months ended September 30, 2005 is a special credit of $11.5 million relating to a reversal of a portion of the Symmetry™ device product liability litigation special charge recorded in 2004, net of settlement costs.
(b)	Included in CD/AF operating profit for the nine months ended September 30, 2005 are IPR&D charges of $13.7 million and $12.4 million related to the acquisitions of Velocimed and ESI, respectively.

The following discussion of the changes in our net sales is provided by class of similar products within our five operating segments, which is the primary focus of our sales activities. This analysis sufficiently describes the changes in our sales results for our two reportable segments.

Cardiac Rhythm Management

	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
(dollars in thousands)	2006		2005			2006		2005
ICD systems	$	270,477	$	277,249	-2.4%	$	810,945	$	727,212	11.5	%
Pacemaker systems		248,288		230,505	7.7%		710,153		684,549	3.7	%
	$	518,765	$	507,754	2.2%	$	1,521,098	$	1,411,761	7.7	%

Cardiac Rhythm Management net sales increased 2% in the third quarter of 2006 over the third quarter of 2005 and increased 8% in the first nine months of 2006 over the same period one year ago. Foreign currency translation had a $5.0 million favorable impact on CRM net sales in the third quarter of 2006 when compared to the third quarter of 2005. Foreign currency translation unfavorably impacted CRM net sales for the first nine months of 2006 by $8.8 million when compared to the first nine months of 2005. Net sales of ICD systems decreased 2% in the third quarter of 2006. Slight declines in average selling price, primarily driven by a change in geographic mix in sales, were offset by a $2.5 million favorable impact from foreign currency translation and slight growth in unit sales. Net sales of ICD systems increased 12% in the first nine months of 2006, due to a 16% increase in ICD unit sales that was partially offset by $2.4 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price. Net sales of pacemaker systems increased 8% during the third quarter of 2006 due to an 11% increase in pacemaker unit sales and $2.5 million of favorable impact from foreign currency translation which were partially offset by a slight decline in average selling price. Net sales of pacemaker systems increased 4% during the first nine months of 2006 due to a 9% increase in pacemaker unit sales that was partially offset by $6.5 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price.

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Cardiac Surgery

	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
(dollars in thousands)	2006		2005			2006		2005
Heart valves	$	63,793	$	57,830	10.3%	$	204,043	$	189,799	7.5	%
Other cardiac surgery products		4,700		4,511	4.2%		13,868		14,483	-4.2	%
	$	68,493	$	62,341	9.9%	$	217,911	$	204,282	6.7	%

Cardiac Surgery net sales increased 10% in the third quarter 2006 over the third quarter of 2005 and increased 7% in the first nine months of 2006 over the same period one year ago. CS net sales for both the third quarter and first nine months of 2006 were favorably impacted by growth in unit volume driven by increased sales of tissue heart valves. Foreign currency translation had a negligible impact on CS net sales in the third quarter of 2006 when compared to the third quarter of 2005. However, foreign currency translation did have a $3.7 million unfavorable impact on CS net sales in the first nine months of 2006 as compared with the same period in 2005. Heart valve net sales increased 10% during the third quarter of 2006, due primarily to an increase in unit volume of 19% which was partially offset by a decline in average selling price. Foreign currency translation had a favorable impact of $0.6 million. For the first nine months of 2006, heart valve net sales increased approximately 8%, due primarily to an increase in unit volume of approximately 15%. Foreign currency translation had an unfavorable impact of $2.6 million while average selling price slightly declined. For both the third quarter and first nine months of 2006, sales growth in tissue heart valves continues to be partially offset by declines in mechanical heart valves net sales. Net sales of other cardiac surgery products remained relatively flat during the third quarter and first nine months of 2006, respectively, when compared to the same periods in 2005.

Neuromodulation

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2006		2005		2006		2005
Neuromodulation products	$	43,348	$	—	$	128,807	$	—

St. Jude Medical did not have neuromodulation product sales prior to our acquisition of ANS in November 2005. Third quarter 2006 net sales of $43.4 million represent a 10% increase over ANS’s third quarter 2005 sales of $39.3 million as a stand-alone company. Net sales of $128.8 million for the first nine months of 2006 represent a 17% increase over ANS’s net sales of $110.4 million as a stand-alone company for the first nine months of 2005.

Cardiology

	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
(dollars in thousands)	2006		2005			2006		2005
Vascular closure devices	$	83,607	$	79,266	5.5%	$	254,576	$	246,807	3.1	%
Other cardiology products		25,833		25,614	0.9%		81,155		80,735	0.5	%
	$	109,440	$	104,880	4.3%	$	335,731	$	327,542	2.5	%

Cardiology net sales increased over 4% in the third quarter 2006 over the third quarter of 2005 and increased approximately 3% in the first nine months of 2006 over the same period one year ago. CD net sales for both the third quarter and first nine months of 2006 were favorably impacted by growth in unit volume driven by increased sales of vascular closure devices. Foreign currency translation had a negligible impact on CD net sales in the third quarter of 2006 when compared to the third quarter of 2005. However, foreign currency translation did have a $5.6 million unfavorable impact on CD net sales in the first nine months of 2006 as compared with the same period in 2005. Net sales of vascular closure devices increased approximately 6% during the third quarter of 2006 due to a 6% increase in unit sales. Impacts from foreign currency translation and changes in average selling price were negligible. For the first nine months of 2006, net sales of vascular closure devices increased 3%, due primarily to an increase in unit volume of approximately 6%. Foreign currency translation had an unfavorable impact of $2.0 million while average selling price slightly declined. Net sales of other cardiology products were relatively flat during the third quarter and first nine months of 2006, respectively, when compared to the same periods in 2005.

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Atrial Fibrillation

	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
(dollars in thousands)	2006		2005			2006		2005
Atrial fibrillation products	$	81,232	$	62,805	29.3%	$	235,069	$	181,759	29.3%

Atrial Fibrillation net sales increased over 29% during both the third quarter and first nine months of 2006 when compared to the same periods one year ago. The increases in AF net sales are due to sales of products related to recent acquisitions and an increase in unit volume of existing products. Foreign currency translation impact on AF net sales for the third quarter of 2006 was negligible; however, foreign currency translation did have an unfavorable impact of $2.9 million in the first nine months of 2006.

RESULTS OF OPERATIONS

Net Sales

	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
(dollars in thousands)	2006		2005			2006		2005
Net sales	$	821,278	$	737,780	11.3%	$	2,438,616	$	2,125,344	14.7%

Overall, net sales increased over 11% in the third quarter of 2006 over the third quarter of 2005. For the first nine months of 2006, net sales increased approximately 15% over the same period one year ago. Incremental revenue resulting from the acquisition of ANS benefited net sales for the third quarter and first nine months of 2006 by approximately $43.3 million and $128.8 million, respectively. Foreign currency translation was favorable in the third quarter of 2006, with sales growth benefiting from a $6.6 million impact from foreign currency translation, primarily resulting from the strengthening of the Euro and Yen against the U.S. Dollar. Sales growth for the first nine months of 2006, however, was partially offset by a $21.1 million unfavorable impact from foreign currency translation, primarily resulting from the strengthening of the U.S. Dollar against the Euro and Yen. The impact of foreign currency translation on net sales is not indicative of the net earnings impact for the respective periods of 2006 due to partially offsetting foreign currency translation impacts on cost of sales and operating expenses.

Net sales by geographic markets were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales (a)	2006		2005		2006		2005
United States	$	480,460	$	445,501	$	1,428,611	$	1,236,146
International
Europe		191,908		160,935		586,706		505,291
Japan		74,174		70,818		213,939		210,585
Other (b)		74,736		60,526		209,360		173,322
		340,818		292,279		1,010,005		889,198
	$	821,278	$	737,780	$	2,438,616	$	2,125,344

(a)	Net sales are attributed to geographies based on location of the customer.
(b)	No one geographic market is greater than 5% of consolidated net sales.

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Gross Profit

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2006		2005		2006		2005
Gross Profit	$	580,991	$	537,045	$	1,762,918	$	1,535,708
Percentage of net sales		70.7%		72.8%		72.3%		72.3%

Gross profit for the third quarter of 2006 totaled $581.0 million, or 70.7% of net sales, compared to $537.0 million, or 72.8% of net sales, for the third quarter of 2005. Restructuring special charges negatively impacted our gross profit percentage for the third quarter of 2006 by 1.9 percentage points. Stock-based compensation expense also resulted in an unfavorable 0.2 percentage point impact on our gross profit percentage for the third quarter of 2006. Gross profit for the first nine months of 2006 totaled $1,762.9 million, or 72.3% of net sales, compared to $1,535.7 million, or 72.3% of net sales, for the first nine months of 2005. Restructuring special charges negatively impacted our gross profit percentage for the first nine months of 2006 by 0.6 percentage points. Stock-based compensation expense also resulted in an unfavorable 0.2 percentage point impact on our gross profit percentage for the first nine months of 2006. Gross profit percentage for the first nine months of 2006 also reflects increased manufacturing efficiencies partially offset by unfavorable changes in product mix for our higher margin products and a slight decrease in the average selling price for these products.

Selling, General and Administrative (SG&A) Expense

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2006		2005		2006		2005
Selling, general and administrative	$	290,424	$	243,551	$	875,654	$	700,184
Percentage of net sales		35.4%		33.0%		35.9%		32.9%

SG&A expense for the third quarter of 2006 totaled $290.4 million, or 35.4% of net sales, compared to $243.6 million, or 33.0% of net sales, for the third quarter of 2005. Approximately 1.5 percentage points of the third quarter 2006 SG&A expense as a percent of net sales relates to $11.8 million of stock-based compensation expense. The remaining 0.9 percentage point increase in SG&A expense as a percent of net sales primarily relates to higher amortization expense resulting from intangible assets acquired as part of fiscal year 2005 acquisitions and higher costs related to the continued expansion of our selling organization infrastructure. SG&A expense for the first nine months of 2006 totaled $875.7 million, or 35.9% of net sales, compared to $700.2 million, or 32.9% of net sales, for the first nine months of 2005. Approximately 1.5 percentage points of the SG&A expense for the first nine months of 2006 as a percent of net sales relates to $35.8 million of stock-based compensation expense. The remaining 1.5 percentage point increase in SG&A expense as a percent of net sales primarily relates to higher amortization expense resulting from intangible assets acquired as part of fiscal year 2005 acquisitions and higher costs related to the continued expansion of our selling organization infrastructure.

Research and Development (R&D) Expense

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2006		2005		2006		2005
Research and development	$	108,674	$	97,493	$	322,772	$	264,285
Percentage of net sales		13.2%		13.2%		13.2%		12.4%

R&D expense in the third quarter of 2006 totaled $108.7 million, or 13.2% of net sales, compared to $97.5 million, or 13.2% of net sales, for the third quarter of 2005. R&D expense in the first nine months of 2006 totaled $322.8 million, or 13.2% of net sales, compared to $264.3 million, or 12.4% of net sales, for the first nine months of 2005. Stock-based compensation expense accounted for approximately 0.5 percentage points of R&D expense for both the third quarter of 2006 and for the first nine months of 2006 as a percent of net sales.

Purchased In-Process Research and Development Charges

Velocimed, LLC (Velocimed): In April 2005, we acquired Velocimed to further enhance our portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device that had not yet reached technological feasibility in the United States and other geographies and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. In 2005, we incurred $3.4 million in costs related to these projects. We have incurred $2.8 million in the first nine months of 2006 and expect to incur up to an additional $2 million through 2007 to bring this acquired technology to commercial viability.

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Endocardial Solutions, Inc. (ESI): In January 2005, we acquired ESI to further enhance our portfolio of products used to treat heart rhythm disorders. At the date of acquisition, $12.4 million of the purchase price was expensed as IPR&D related to system upgrades that had not yet reached technological feasibility and had no future alternative use. These major system upgrades are part of the EnSite® system which is used for the navigation and localization of diagnostic and therapeutic catheters used in atrial fibrillation ablation and other EP catheterization procedures. During 2005, we incurred an additional $0.7 million in costs related to these projects and in the third quarter of 2005, we achieved commercial viability and launched EnSite® system version 5.1 and the EnSite® Verismo™ segmentation tool.

Special Charges (Credits)

Restructuring Activities: During the third quarter of 2006, management performed a review of the organizational structure of our Cardiac Surgery and Cardiology divisions and our international selling organization. In August 2006, management approved restructuring plans to streamline its operations within its Cardiac Surgery and Cardiology divisions by combining them into one new Cardiovascular division and also to implement changes in our international selling organization by enhancing the efficiency and effectiveness of sales and customer service operations in certain international geographies. This strategic reorganization and operational restructuring will allow us to enhance operating efficiencies and increase our investment in product development.

As a result of these restructuring plans, we recorded pre-tax special charges totaling $34.8 million in the third quarter of 2006 consisting of employee termination costs ($14.7 million), inventory write-downs ($8.7 million), asset write-downs ($7.3 million) and other exit costs ($4.1 million). Of the total $34.8 million special charge, $15.1 million was recorded in cost of sales and $19.7 million was recorded in operating expenses. See Note 8 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further detail on these charges. We expect that total cash expenditures for the restructuring special charge will be approximately $19 million and will be funded by cash from operations.

In connection with these restructuring plans, approximately 140 individuals were identified for employment termination, of which approximately 28 have been terminated as of September 30, 2006. In addition, in connection with these restructuring plans, management made the commitment to discontinue certain product lines and dispose of related assets. We have also decided to discontinue the use of the Getz Bros. Co. Ltd. (Getz Japan) trademarks in Japan, and therefore have written off the $4.2 million intangible asset that we acquired in connection with our 2003 acquisition of Getz Japan.

We do not anticipate any material short-term or long-term net cost savings resulting from these restructuring activities as we intend to use the immediate savings to increase our investment in research and development and in productivity improvement. We also do not anticipate any material short-term or long-term impact on future revenue or gross profit percentage as a result of the product lines that we exited in connection with this reorganization because the associated products did not materially contribute to our revenue or gross profit percentage.

A summary of the activity relating to the restructuring accrual for the nine months ended September 30, 2006 is as follows (in thousands):

	Employee Termination costs			Asset write-downs			Inventory write-downs			Other		Total
Balance at December 31, 2005	$	—		$	—		$	—		$	—	$	—
Third quarter 2006 special charges		14,710			8,694			7,361			4,062		34,827
Non-cash charges used		—			(8,694	)		(7,361	)		—		(16,055	)
Cash payments		(1,282	)		—			—			—		(1,282	)
Balance at September 30, 2006	$	13,428		$	—		$	—		$	4,062	$	17,490

Symmetry™ Bypass System Aortic Connector Litigation: During the third quarter of 2005, over 90% of the cases and claims asserted involving the Symmetry™ device were resolved. As a result, we reversed $14.8 million of the pre-tax $21.0 million special charge that was recorded in the third quarter of 2004 to accrue for legal fees in connection with claims involving the Symmetry™ device. Additionally, we recorded a pre-tax charge of $3.3 million in the third quarter of 2005 to accrue for settlement costs negotiated in these related cases. These adjustments resulted in a net pre-tax special credit of $11.5 million that was recorded in the third quarter of 2005 related to Symmetry™ device product liability litigation.

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Other (Expense) Income

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2006			2005			2006			2005
Interest income	$	1,066		$	4,965		$	8,771		$	13,241
Interest expense		(9,796	)		(672	)		(25,650	)		(5,384	)
Other		(429	)		(376	)		1,797			(819	)
Total other (expense) income	$	(9,159	)	$	3,917		$	(15,082	)	$	7,038

The unfavorable changes in other (expense) income during the third quarter of 2006 and the first nine months of 2006 as compared to the same periods in the prior year were due primarily to higher interest expense resulting from the issuance of our 2.8% Convertible Senior Debentures in the fourth quarter of 2005 to fund a portion of the acquisition of ANS as well as higher commercial paper borrowings to finance the majority of the repurchase of $700 million of our common stock in the second quarter of 2006.

Income Taxes

	Three Months Ended September 30,		Nine Months Ended September 30,
(as a percent of pre-tax income)	2006	2005	2006	2005
Effective tax rate	24.5%	20.6%	25.7%	31.1%

Our effective income tax rate was 24.5% and 20.6% for the third quarter of 2006 and third quarter of 2005, respectively. In the third quarter of 2005, we reversed $13.7 million of previously recorded income tax expense due to the finalization of certain tax examinations, which positively impacted the effective tax rate for the third quarter of 2005 by 6.5 percentage points.

Our effective income tax rate was 25.7% and 31.1% for the first nine months of 2006 and 2005, respectively. The $27.0 million income tax expense recorded as a result of the repatriation of $500 million under the American Jobs Creation Act of 2004 negatively impacted the effective tax rate for the first nine months of 2005 by 4.8 percentage points. Non-deductible aggregate IPR&D charges of $26.1 million from the acquisitions of ESI and Velocimed also negatively impacted the effective tax rate for the first nine months of 2005 by 1.4 percentage points. These negative impacts were partially offset by the reversal of $13.7 million of previously recorded income tax expense due to the finalization of certain tax examinations which positively impacted the effective tax rate for the third quarter of 2005 by 2.4 percentage points.

The Federal Research and Development tax credit (R&D tax credit), which provides a tax benefit on certain incremental R&D expenditures, expired on December 31, 2005. Legislation to retroactively reinstate the R&D tax credit is pending in the U.S. Congress, however, it was not enacted and signed into law as of September 30, 2006. Accordingly, no benefit from the R&D tax credit was included in our 2006 effective tax rate. The benefit of the R&D tax credit will be recorded in the period the legislation is enacted and signed into law.

LIQUIDITY

We believe that our existing cash balances, available borrowings under our committed credit facilities and future cash generated from operations will be sufficient to meet our working capital and capital investment needs over the next twelve months and in the foreseeable future thereafter. Should suitable investment opportunities arise, we believe that our earnings, cash flows and balance sheet position will permit us to obtain additional debt financing or equity capital, if necessary. We have short-term credit ratings of A2 from Standard & Poor’s and P2 from Moody’s.

In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Senior Debentures (Convertible Debentures) which permit the holders of the Convertible Debentures to require us to repurchase some or all of the Convertible Debentures for cash on December 15, 2006. It is likely that we will be required to repurchase some or all of the Convertible Debentures on that date; we believe that we will be able to finance such repurchase through cash from operations, proceeds from the issuance of commercial paper or additional debt financing. Refer to the Debt and Credit Facilities section below for further details on the Convertible Debentures.

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Cash Flows from Operating Activities

Cash provided by operating activities was $409.8 million for the first nine months of 2006, a $64.5 million decrease from the same period one year ago. The decrease in operating cash flow during the first nine months of 2006 when compared to the first nine months of 2005 results from changes in operating assets and liabilities as well as a required change in classification of excess tax benefits from the exercise of stock options.

Operating cash flows decreased approximately $207.8 million due to changes in operating assets and liabilities, principally accounts receivable and inventory, which increased $51.7 million and $64.4 million, respectively. We use two primary measures that focus on accounts receivable and inventory – days sales outstanding (DSO) and days inventory on hand (DIOH). These measures are not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. Accounts receivable increased in the first nine months of 2006, and our DSO (calculated as average quarterly daily sales divided by ending net accounts receivable) correspondingly increased to 96 days at September 30, 2006 from 91 days at December 31, 2005. Our DSO normally increases in the third quarter of each fiscal year due to the seasonality of our international business and impact of summer holidays, particularly in Europe. We use DSO as a measure that places emphasis on how quickly we collect our accounts receivable balances from customers. Inventory increased to support new CRM and CD product introductions as well as to support our increased sales volumes. As a result, DIOH (calculated as average year-to-date daily cost of sales divided by ending net inventory) increased to 176 days at September 30, 2006 from 159 days at December 31, 2005. We use DIOH, which can also be expressed as a measure of the estimated number of days of cost of sales on hand, as a measure that places emphasis on how efficiently we are managing our inventory levels.

The required change in classification of excess tax benefits from the exercise of stock options resulted from our adoption of SFAS No. 123(R) on January 1, 2006. For the first nine months of 2005, these excess tax benefits were classified as operating cash flows as part of the change in income taxes payable, however, for the first nine months of 2006, such benefits are now classified as financing cash flows. These excess tax benefits had positively impacted our operating cash flows for the first nine months of 2005 by $62.2 million. See Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional discussion of how adopting SFAS No. 123(R) affected our consolidated results of operations and statement of cash flows.

Cash Flows from Investing Activities

Cash used in investing activities was $238.3 million in the first nine months of 2006 compared to $490.3 million in the same period last year. Because we did not make any significant acquisitions in the first nine months of 2006, cash used in investing activities decreased when compared to the first nine months of 2005, when we acquired ESI for $279.4 million and Velocimed for $70.9 million, less cash acquired. If strategic opportunities arise, we have sufficient short-term liquidity sources to fund internal development opportunities and invest in acquisitions and minority investments. In January 2006, we made an additional $12.5 million investment in ProRhythm. Refer to the Minority Investment section above for more detail on our investment in ProRhythm. Our investing cash flows in the first nine months of 2006 have been focused on increasing our investments in property, plant and equipment, including next-generation diagnostic equipment such as our Merlin™ Patient Care System which is used by physicians and healthcare professionals to program and analyze data from ICDs and pacemakers. As a result, capital expenditures totaled $198.5 million in the first nine months of 2006, an 85% increase over the first nine months of 2005.

Cash Flows from Financing Activities

Cash used in financing activities was $642.2 million in the first nine months of 2006 compared to cash provided by financing activities of $63.0 million in the same period last year. We repurchased $700 million of our common stock in the second quarter of 2006, which was primarily financed through proceeds from the issuance of commercial paper. As discussed previously, excess tax benefits from the exercise of stock options are now classified as financing cash flows, and this amount can fluctuate significantly in future periods as it is dependent upon, among other things, the level of stock option exercises by our employees as well as the fair market value of our common stock on the exercise dates.

SHARE REPURCHASE PROGRAM

On April 18, 2006, our Board of Directors authorized a new share repurchase program of up to $700 million of our outstanding common stock. The $700 million share repurchase program replaced our earlier share repurchase program, under which we were authorized to repurchase up to $300 million of our outstanding common stock. No stock had been repurchased under this earlier program. On April 21, 2006, we began making share repurchases through transactions in the open market in accordance with applicable securities laws. On May 26, 2006, we had repurchased the maximum amount authorized by the Board of Directors under the repurchase program. Approximately 18.6 million shares were repurchased for a total of $700 million, which was financed through cash from operations and proceeds from the issuance of commercial paper.

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DEBT AND CREDIT FACILITIES

Total debt decreased slightly to $1.0 billion at September 30, 2006 from $1.1 billion at December 31, 2005. Although we issued approximately $535 million of commercial paper in the second quarter of 2006 primarily to fund the repurchase of $700 million of our common stock, we have repaid approximately $355 million as of September 30, 2006. Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. At September 30, 2006 we had $180.6 million of commercial paper outstanding which bears interest at a weighted average effective interest rate of 5.4% and has a weighted average original maturity of 15 days.

In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Debentures that mature on December 15, 2035. Interest payments are required on a semi-annual basis. Contingent interest is payable in certain circumstances after December 15, 2006. We have the right to redeem some or all of the Convertible Debentures for cash at any time on or after December 15, 2006. We also may be required to repurchase some or all of the Convertible Debentures for cash upon the occurrence of certain events as well as on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030. The Convertible Debentures are convertible under certain circumstances for cash and shares of our common stock, if any, at a conversion rate of 15.5009 shares (or an initial conversion price of approximately $64.51 per share of common stock). Upon conversion, we would be required to satisfy up to 100% of the principal amount of the Convertible Debentures solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock.

In May 2003, we issued 7-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $177.6 million and $176.9 million at September 30, 2006 and December 31, 2005, respectively. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010.

On September 30, 2006, we had up to $750.0 million of available borrowings under our committed credit facilities in the United States, consisting of a $350 million revolving credit agreement that expires in September 2008 and a $400 million revolving credit agreement that expires in September 2009. Borrowings under these credit facilities bear interest at variable rates tied to the London InterBank Offered Rate and can be used for general corporate purposes or to support our commercial paper program. In June 2006, we renewed a 1.0 billion Yen (equivalent to approximately $8.5 million at September 30, 2006) credit facility that expires in June 2007. Borrowings under the credit facility bear interest at the floating Tokyo InterBank Offered Rate plus 0.50% per annum. This credit facility replaced a 1.0 billion Yen credit facility that expired in June 2006. There were no outstanding borrowings under our credit facilities at September 30, 2006 or December 31, 2005.

Our 1.02% unsecured notes and revolving credit facilities contain various operating and financial covenants. Specifically, we must have a ratio of total debt to total capitalization not exceeding 55%, have a leverage ratio (defined as the ratio of total debt to EBIT (net earnings before interest and income taxes) or total debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of EBIT to interest expense or the ratio of EBITDA to interest expense) not less than 3.0 to 1.0 or 3.5 to 1.0, as applicable. We also have limitations on additional liens or indebtedness and limitations on certain acquisitions, investments and dispositions of assets. However, these agreements do not include provisions for the termination of the agreements or acceleration of repayment due to changes in our debt ratings. We were in compliance with all of our debt covenants at September 30, 2006.

COMMITMENTS AND CONTINGENCIES

A description of our contractual obligations and other commitments is contained in Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations, included in our 2005 Annual Report on Form 10-K. There have been no significant changes in our contractual obligations and other commitments disclosed in our 2005 Annual Report on Form 10-K. We have no off-balance sheet financing arrangements other than that previously disclosed in our 2005 Annual Report on Form 10-K. Our significant legal proceedings are discussed in Note 7 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENTS

In this Quarterly Report on Form 10-Q and in other written or oral statements made from time to time, we have included and may include statements that constitute “forward-looking statements” with respect to the financial condition, results of operations, plans, objectives, new products, future performance and business of St. Jude Medical, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “forecast,” “project,” “believe” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. By identifying these statements for you in this manner, we are alerting you to the possibility that

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actual results may differ, possibly materially, from the results indicated by these forward-looking statements. We undertake no obligation to update any forward-looking statements. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties discussed in Part I, Item 1A, Risk Factors of our 2005 Annual Report on Form 10-K and in Part II, Item 1A, Risk Factors of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as well as the various factors described below. Since it is not possible to foresee all such factors, you should not consider these factors to be a complete list of all risks or uncertainties. We believe the most significant factors that could affect our future operations and results are set forth in the list below.

1.	Any legislative or administrative reform to the U.S. Medicare or Medicaid systems or international reimbursement systems that significantly reduces reimbursement for procedures using our medical devices or denies coverage for such procedures, as well as adverse decisions relating to our products by administrators of such systems in coverage or reimbursement issues.
2.	Acquisition or grant of key patents by or to others that have the effect of excluding us from market segments or require us to pay royalties.
3.	Economic factors, including inflation, changes in interest rates and changes in foreign currency exchange rates.
4.	Product introductions by competitors which have advanced technology, better features or lower pricing.
5.	Price increases by suppliers of key components, some of which are sole-sourced.
6.	A reduction in the number of procedures using our devices caused by cost-containment pressures or preferences for alternate therapies.
7.	Safety, performance or efficacy concerns about our products, many of which are expected to be implanted for many years, leading to recalls and/or advisories with the attendant expenses and declining sales.
8.	Changes in laws, regulations or administrative practices affecting government regulation of our products, such as FDA laws and regulations, that increase the time and/or expense of obtaining approval for products or impose additional burdens on the manufacture and sale of medical devices.
9.	Regulatory actions arising from concern over Bovine Spongiform Encephalopathy, sometimes referred to as “mad cow disease,” that have the effect of limiting the Company’s ability to market products using collagen, such as Angio-Seal™, or that impose added costs on the procurement of collagen.
10.	Difficulties obtaining, or the inability to obtain, appropriate levels of product liability insurance.
11.	The ability of our Silzone® product liability insurers to meet their obligations to us.
12.	A serious earthquake affecting our facilities in Sunnyvale or Sylmar, California, or a hurricane affecting our operations in Puerto Rico.
13.	Healthcare industry consolidation leading to demands for price concessions or the exclusion of some suppliers from significant market segments.
14.	Adverse developments in the investigation of business practices in the cardiac rhythm management industry by the U.S. Attorney’s Office in Boston.
15.	Adverse developments in litigation, including product liability litigation, patent or other intellectual property litigation or shareholder litigation.
16.	Inability to successfully integrate the businesses that we have acquired in recent years, including ANS, and that we plan to acquire.
17.	Adverse developments arising out of the investigation by the Office of the Inspector General, Department of Health and Human Services into certain business practices of ANS.
18.	Failure to successfully complete clinical trials for new indications for our products and failure to successfully develop markets for such new indications.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since December 31, 2005 in our market risk. For further information on market risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our 2005 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

As of September 30, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2006.

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During the fiscal quarter ended September 30, 2006, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed in Note 7 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and are incorporated herein by reference. While it is not possible to predict the outcome for most of the legal proceedings discussed in Note 7, the costs associated with such proceedings could have a material adverse effect on our consolidated earnings, financial position or cash flows of a future period.

Item 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A, Risk Factors in our 2005 Annual Report on Form 10-K and in Part II, Item 1A, Risk Factors in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to materially impact our business, financial condition or results of operations.

Item 6. EXHIBITS

10.1	Form of Severance Agreement between St. Jude Medical, Inc. and certain executive officers is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006.
10.2	Amendment, dated as of July 27, 2006, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez, to Employment Agreement, effective as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006.
10.3	Settlement Agreement, dated as of July 29, 2006, by and between St. Jude Medical, Inc. and its affiliates named therein and Boston Scientific Corporation and its affiliates named therein.
10.4	Form of Non-Qualified Stock Option Agreement for Employees under the St. Jude Medical, Inc. 2006 Stock Plan.
10.5	Amendment No. 1, dated as of August 3, 2006, to the St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan.
* 10.6	CRM License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation.
10.7	SCS License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ST. JUDE MEDICAL, INC.
November 7, 2006	/s/   JOHN C. HEINMILLER
DATE	JOHN C. HEINMILLER Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Form of Severance Agreement between St. Jude Medical, Inc. and certain executive officers is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006.
10.2	Amendment, dated as of July 27, 2006, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez, to Employment Agreement, effective as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006.
10.3	Settlement Agreement, dated as of July 29, 2006, by and between St. Jude Medical, Inc. and its affiliates named therein and Boston Scientific Corporation and its affiliates named therein.
10.4	Form of Non-Qualified Stock Option Agreement for Employees under the St. Jude Medical, Inc. 2006 Stock Plan.
10.5	Amendment No. 1, dated as of August 3, 2006, to the St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan.
* 10.6	CRM License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation.
10.7	SCS License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

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EX-10.3

EXHIBIT 10.3

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is entered into as of this 29th day of July, 2006, by and between Boston Scientific Corporation, a corporation organized and existing under the laws of the State of Delaware (“BSC”), Guidant Corporation, a corporation organized and existing under the laws of the State of Indiana (“Guidant”), Cardiac Pacemakers, Inc., a corporation organized and existing under the laws of the State of Minnesota (“CPI”), Guidant Sales Corporation, a corporation organized and existing under the laws of the State of Indiana (“GSC”), and Advanced Bionics Corporation, a corporation organized and existing under the laws of the State of Delaware (“ABC”), on the one hand (hereinafter collectively referred to as the “BSC Parties”), and St. Jude Medical, Inc., a corporation organized and existing under the laws of the State of Minnesota (“St. Jude”), St. Jude Medical S.C., Inc., a corporation organized and existing under the laws of the State of Minnesota (“SJMSC”), Pacesetter, Inc., a corporation organized and existing under the laws of the State of Delaware (“Pacesetter”), and Advanced Neuromodulation Systems, Inc., a corporation organized and existing under the laws of the State of Texas (“ANS”), on the other hand (hereinafter collectively referred to as the “St. Jude Parties”). The BSC Parties and the St. Jude Parties shall collectively be referred to as the “Parties” in this Agreement.

RECITALS

WHEREAS, there currently are pending between the BSC Parties and the St. Jude Parties the following cases:

1. Cardiac Pacemakers, Inc.et al. v. St. Jude Medical, Inc. et al., Civil Action No. 1-96-cv-1718 DFH/TAB, (S.D. Ind.) (the “Indiana case”);

2. Pacesetter, Inc. et al. v. Cardiac Pacemakers, Inc.et al., Case No. 02-1337 DWF/SRN, (D. Minn.) (the “Minnesota Pacesetter case”);

3. Cardiac Pacemakers, Inc. et al. v. St. Jude Medical, Inc. et al., Civil Action No. 04-1016 JMR/FLN (D. Minn.) (the “Minnesota CPI case”);

4. Guidant Corp. et al. v. St. Jude Medical, Inc. et al., Civil Action No. 04-0067-SLR (D. Del.) (the “Delaware case”);

5. Pacesetter, Inc. et al. v. Intermedics, Inc. et al., Case No. CV 06-3166 GHK(FFMx) (C.D. Cal.) (the “California case”);

6. Advanced Neuromodulation Systems, Inc. v. Advanced Bionics Corp., Civil Action No. 4:04cv131 (E.D. Tex); Advanced Bionics Corp. v. Advanced Neuromodulation Systems, Inc., Civil Action No. 4:04cv131 (E.D. Tex.); and the Advanced Neuromodulation Systems, Inc. v. Advanced Bionics Corp arbitration, Institute for Conflict Prevention and Resolution Case No. G-06-08A (the “ANS/ABC cases”);

all of which are collectively referred to herein as the “Litigation”;

WHEREAS, the BSC Parties and the St. Jude Parties entered into discussions in an effort to resolve the Litigation;

WHEREAS, in connection with the discussions with the BSC Parties (and with their permission), the St. Jude Parties entered into discussions with representatives of MFV (as defined below) in an effort to resolve the Indiana case and the Delaware case, but the St. Jude Parties’ efforts at negotiating a resolution of those cases with the representatives of MFV were unsuccessful;

WHEREAS, the Parties now wish to settle certain cases of the Litigation and to limit the issues remaining in the rest of the Litigation, upon the terms and conditions set forth in this Agreement (and the Exhibits hereto);

NOW, THEREFORE, in consideration of the promises and of the mutual covenants hereinafter set forth, and of the good and valuable consideration flowing from each party to the other, the Parties hereto, intending to be legally bound hereby, covenant and agree as follows:

ARTICLE I

Definitions

Section 1.01. Affiliates. “Affiliates” as used herein shall have the meaning set forth in the CRM License Agreement.

Section 1.02. CRM License Agreement. “CRM License Agreement” as used herein shall mean the license agreement relating to cardiac rhythm management products by and between Boston Scientific Corporation and St. Jude Medical, Inc., dated July 29, 2006, an executed copy of which is attached hereto as Exhibit A.

Section 1.03. SCS License Agreement. “SCS License Agreement” as used herein shall mean the license agreement relating to spinal cord stimulation products by and between Boston Scientific Corporation and St. Jude Medical, Inc., dated July 29, 2006, an executed copy of which is attached hereto as Exhibit B.

Section 1.04. Medtronic Action. The “Medtronic Action” as used herein shall mean the litigation captioned Medtronic, Inc. v. Guidant Corporation, et al., case number 05-1515, currently pending in the U.S. Court of Appeals for the Federal Circuit, and any continuation of that action at the district court or appellate court levels following the issuance of a mandate by the Federal Circuit.

Section 1.05MFV.“MFV” as used herein shall mean Mirowski Family Ventures, LLC, a limited liability company organized under the laws of the State of Maryland. MFV is also a plaintiff adverse to the St. Jude Parties in the Indiana case and the Delaware case.

Section 1.06. SCS Field. “SCS Field” as used herein shall have the meaning set forth in the SCS License Agreement.

Section 1.07. Derivative Product. “Derivative Product” as used herein shall mean any product subsequently approved by applicable regulatory authorities for use in spinal cord stimulation to manage chronic pain of the trunk and limbs that is of substantially equivalent design and functionality as a product that is commercially marketed and sold as of the Effective Date. In the interest of clarity, a future product shall be considered a “Derivative Product” unless it is covered by a patent (other than the Licensed Patents) that does not cover a product commercially

marketed and sold as of the Effective Date. Whether a future product is a “Derivative Product” shall be determined on a patent-by-patent basis; a future product that is not a “Derivative Product” with respect to one patent shall not be exposed to claims of infringement based on any other patent for which the product is a “Derivative Product.”

Section 1.08. Effective Date. “Effective Date” as used herein shall mean July 29, 2006.

ARTICLE II

Dismissal of Certain Cases and Narrowing of Issues In Remaining Cases

Section 2.01.Contemporaneously with the execution of this Agreement, the Parties shall execute and promptly file with the appropriate courts the following documents:

a. A stipulation for dismissal with prejudice of the Minnesota Pacesetter case in the form of Exhibit C;

b. A stipulation for dismissal with prejudice of the Minnesota CPI case in the form of Exhibit D;

c. A stipulation for dismissal with prejudice of the California case in the form of Exhibit E;

d. A stipulation for dismissal with prejudice of the ANS/ABC cases in the form of Exhibits F and G;

The foregoing cases constitute the “Dismissed Litigation.” Those cases not so dismissed pursuant to this Section 2.01 constitute the “Remaining Litigation.”

Section 2.02.The Parties further agree that the issues remaining to be litigated in the Remaining Litigation shall be circumscribed and continue only within the following parameters:

a. The Indiana case.

i. In consideration for the St. Jude Parties’ covenants and agreements in Sections 2.02, 2.03 and 2.04 of this Agreement, the BSC Parties covenant and agree that plaintiffs in the Indiana case shall withdraw and/or not further pursue any damages claim for lost profits, price erosion, an “up front” royalty payment, prejudgment interest, or attorneys’ fees against the St. Jude Parties. In addition, the BSC Parties covenant and agree that plaintiffs in the Indiana case shall only pursue a damages claim based on pulse generators and leads which plaintiffs contend infringe the patent claim asserted in the Indiana case, and will withdraw and/or not pursue any damages claim based on other products, whether through a “convoyed sales” theory or otherwise. Notwithstanding such covenant and agreement, it is understood that the defendants in the Indiana case shall continue to be free to argue that damages are not warranted due to non-infringement, invalidity and/or other defenses, except as set forth in Section 2.02(a)(ii), below. The BSC Parties further covenant and agree that plaintiffs in the Indiana case shall limit any claim for damages to a reasonable royalty theory, with a royalty that shall not exceed

three percent (3%) of the net sales revenue from any sales found to infringe the patent in suit, and that plaintiffs shall not be entitled to receive any payment in connection with the Indiana case, by way of judgment or otherwise, that exceeds three percent (3%) of the net sales revenue from any sales found to infringe the patent in suit.

ii. In consideration for the BSC Parties’ covenants and agreements in Sections 2.02, 2.03 and 2.04 of this Agreement, the St. Jude Parties covenant and agree that they will withdraw and/or not further pursue their fraud claim and any claim for attorneys’ fees. In addition, the St. Jude Parties covenant and agree not to seek to introduce any evidence of Guidant product recalls; provided, however, that the BSC Parties covenant and agree to ensure that plaintiffs will not seek to introduce any evidence of St. Jude product recalls. The St. Jude Parties further covenant and agree that (1) defendants in the Indiana case will not seek discovery on or introduce any evidence in pleadings or court relating to Dr. Bourland’s conduct or plaintiffs’ conduct vis a vis Dr. Bourland in connection with the trial of this matter in June 2001 and related information revealed after that trial; and (2) defendants in the Indiana case will not pursue any claim or defense (e.g., unclean hands, inequitable conduct, unenforceability, estoppel, misuse, and/or fraud) based, in-whole or in-part, on Dr. Bourland’s conduct in connection with the trial of this matter in June 2001 or based, in-whole or in-part, on plaintiffs’ conduct vis a vis Dr. Bourland in connection with the trial of this matter in June 2001 and related information revealed after that trial. Defendants will remain free to pursue any defense (including, but not limited to, inequitable conduct, unenforceability and misuse) to the extent that such defense is not based in whole or in part on Dr. Bourland’s conduct in connection with the trial of this matter in June 2001 or based, in-whole or in-part, on plaintiffs’ conduct vis a vis Dr. Bourland in connection with the trial of this matter in June 2001 and related information revealed after that trial; and plaintiffs will remain free to argue that any such defense is not warranted or is not properly before the Indiana court, whether based on law of the case, waiver, failure of proof, judgment as a matter of law, or other ground.

b. The Delaware case.

i. In consideration for the St. Jude Parties’ covenants and agreements in Sections 2.02, 2.03 and 2.04 of this Agreement, the BSC Parties covenant and agree that plaintiffs in the Delaware case shall withdraw and/or not further pursue any damages claim for lost profits, price erosion, an “up front” royalty payment, enhanced damages (i.e., treble damages and/or attorneys’ fees), or prejudgment interest, against the St. Jude Parties. In addition, the BSC Parties covenant and agree that plaintiffs in the Delaware case shall only pursue a damages claim based on pulse generators and leads which plaintiffs contend infringe the patent claims asserted in the Delaware case, and will withdraw and/or not pursue any damages claim based on other products, whether through a “convoyed sales” theory or otherwise. Notwithstanding such covenant and agreement, it is understood that the defendants in the Delaware case shall continue to be free to argue that damages are not warranted due to

non-infringement, invalidity and/or other defenses, except as set forth in Section 2.02(b)(ii), below. The BSC Parties also covenant and agree that plaintiffs in the Delaware case shall withdraw their request for and/or not further pursue an injunction until all appeals have been exhausted and any judgment of infringement is final and no longer appealable. The BSC Parties further covenant and agree that plaintiffs in the Delaware case shall limit any claim for damages to a reasonable royalty theory, with a royalty that shall not exceed three percent (3%) of the net sales revenue from any sales found to infringe the patent in suit, and that plaintiffs shall not be entitled to receive any payment in connection with the Delaware case, by way of judgment or otherwise, that exceeds three percent (3%) of the net sales revenue from any sales found to infringe the patent in suit.

ii. In consideration for the BSC Parties’ covenants and agreements in Sections 2.02, 2.03 and 2.04 of this Agreement, the St. Jude Parties covenant and agree that they will withdraw and/or not further pursue their fourth (“no error”), sixth (“intervening rights”), and eighth (“claim splitting”) affirmative defenses, and any claim for attorneys’ fees. In addition, the St. Jude Parties covenant and agree not to seek to introduce any evidence of Guidant product recalls; provided, however, that the BSC Parties covenant and agree to ensure that plaintiffs will not seek to introduce any evidence of St. Jude product recalls.

iii. Notwithstanding any contrary outcome of the Delaware case, the Parties agree that defendants in the Delaware case shall not be placed in a position that is worse than that of Medtronic as a result of the final resolution of the Medtronic Action. In particular, should Medtronic obtain a final, non-appealable judgment in the Medtronic Action invalidating one or more patent claims which plaintiffs in the Delaware case have asserted against the defendants in the Delaware case, the Parties agree that defendants in the Delaware case shall owe no damages or payments to the plaintiffs on any such patent claim(s). In addition, the Parties agree that, should Medtronic agree to a settlement with BSC and/or MFV of the Medtronic Action on terms more favorable than the terms plaintiffs have sought from the defendants in the Delaware case, then plaintiffs in the Delaware case shall limit their pursuit of any claim for damages in the Delaware case such that any damages claim is no less favorable for the defendants in the Delaware case than the terms of the settlement in the Medtronic Action are favorable for Medtronic, and any damages or payments owed by the defendants in the Delaware case shall be so limited.

Section 2.03.Further Agreements. The BSC Parties agree that St. Jude and its Affiliates shall be free to seek to negotiate an agreement with MFV resolving the Indiana case and the Delaware case and that the BSC Parties will take no action to interfere with the further efforts of St. Jude and its Affiliates to negotiate with MFV a resolution of such cases. In connection with, and contingent upon, MFV’s settlement of the Indiana case and the Delaware case with St. Jude and its Affiliates, the BSC Parties covenant, consent and agree to: (1) license or sublicense the MFV patent portfolio to the St. Jude and/or its Affiliates (as provided in Section 2.06 of the CRM License Agreement) and/or permit MFV to provide St. Jude and/or its Affiliates with such a license or

sublicense directly on the same or different terms as St. Jude and MFV may agree; and (2) dismiss the Indiana case and the Delaware case for no royalty or other consideration payable to BSC (including, by way of example, no payment of any settlement proceeds to BSC and no reimbursement of the costs of litigation BSC or any of its Affiliates may have incurred). The BSC Parties further covenant and agree that any license or sub-license resulting from a settlement between St. Jude and its Affiliates and MFV may be on different terms than those terms under which BSC and/or its Affiliates are currently licensed by MFV, but, in any event, shall not be on terms less favorable to St. Jude and/or its Affiliates than the terms under which BSC and/or its Affiliates are currently licensed by MFV. The BSC Parties also covenant and agree to execute any further documents or make any additional undertakings that may be necessary to effectuate the provisions of this Section 2.03. The St. Jude Parties covenant and agree that St. Jude and/or its Affiliates will be solely responsible for any payments to MFV in connection with any settlement with MFV resolving the Indiana case and the Delaware case.

Section 2.04.Conduct of the Remaining Litigation. The BSC Parties and the St. Jude Parties further covenant and agree to conduct remaining portions of the Indiana case and the Delaware case as follows:

a.Scheduling of the Indiana Case. The BSC Parties and the St. Jude Parties covenant and agree that plaintiffs and defendants will cooperate in good faith to negotiate and make such adjustments to the pre-trial and trial schedule in the Indiana case as are mutually acceptable such that no party suffers prejudice in meeting any applicable discovery, pretrial or trial deadlines. In order to effectuate the foregoing, the Parties covenant and agree to develop a jointly proposed pre-trial and trial schedule through good faith negotiations and to jointly request that the Court in the Indiana case vacate the existing pre-trial and trial schedule if they cannot agree on a schedule that maintains the existing trial date.

b.Scheduling of the Delaware Case. The BSC Parties and the St. Jude Parties covenant and agree that plaintiffs and defendants will cooperate in good faith to negotiate and make such adjustments to the pre-trial and trial schedule in the Delaware case as are mutually acceptable such that no party suffers prejudice in meeting any applicable discovery, pretrial or trial deadlines. In order to effectuate the foregoing, the Parties covenant and agree to develop a jointly proposed pre-trial and trial schedule through good faith negotiations and to jointly request that the Court in the Delaware case vacate the existing pre-trial and trial schedule.

c.Use of This Agreement in the Remaining Litigation. The BSC Parties and the St. Jude Parties covenant and agree that this Agreement, along with all of the other agreements and stipulations that are to be executed by the Parties as contemplated herein, shall be protected under Federal Rule of Evidence 408 and any other applicable state or federal privileges or immunities from use as evidence with respect to settlements or offers to compromise and that neither plaintiffs nor defendants shall seek to introduce this Agreement or the CRM License Agreement as evidence in either the Indiana case or the Delaware case for any purpose other than as may reasonably be required to enforce and effectuate the provisions of this Agreement.

d.No Admissions. The BSC Parties and the St. Jude Parties covenant and agree that nothing in this Agreement shall be construed as an admission of liability by any party

and that neither plaintiffs nor defendants will seek to use or construe this Agreement in the Indiana case or the Delaware case as an admission of liability by any party.

Section 2.05.Additional Agreements Regarding the Lauro Arbitration. With respect to the arbitration claims asserted by ANS against Bonaventura (Reno) Lauro (International Institute for Conflict Prevention and Resolution Case No. G-06-07A) (the “Lauro Arbitration”), the BSC Parties additionally covenant and agree to deliver to St. Jude within five (5) business days of the Effective Date, a signed, written release and stipulation from Bonaventura (Reno) Lauro in which Mr. Lauro has agreed to a mutual dismissal with prejudice of the arbitration between ANS and Mr. Lauro that is pending before the International Institute for Conflict Prevention and Resolution, Case No. G-06-07A (the “Lauro Arbitration”) and releasing all related claims between Mr. Lauro and the St. Jude Parties.

ARTICLE III

Cross Licenses

Section 3.01.As part of the consideration for entering into this Agreement, the Parties shall execute contemporaneously with the execution of this Agreement the CRM License Agreement and the SCS License Agreement. The Parties further covenant and agree to cause each of their Affiliates that holds any ownership interest in the Licensed Patents (as defined in the CRM License Agreement or SCS License Agreement, as appropriate) to execute and deliver to the other party within thirty (30) days after the Effective Date a Consent and Agreement to be Bound by License, substantially in the form of Exhibit I, hereto, with regard to the CRM License Agreement, and the SCS License Agreement. The Parties agree that their sole remedy for any failure by a party to cause an Affiliate to execute and deliver a required Consent and Agreement to be Bound by License pursuant to this Section 3.01 shall be limited to the provisions of Section 7.06 of this Agreement.

ARTICLE IV

Mutual Releases

Section 4.01.All claims and counterclaims in the Dismissed Litigation shall be dismissed with prejudice, and each party, for itself and its successors and assigns, hereby releases, acquits, and forever discharges the other party and its Affiliates, successors, and assigns, and all their respective officers, directors, employees, agents, and representatives from all such claims and counterclaims. Neither these releases, nor the dismissal of the ANS/ABC Cases, are intended to prejudice or impair the rights created or preserved in the SCS License Agreement, and the Parties specifically agree not to assert otherwise.

Section 4.02. Each party, for itself and its successors and assigns, and its Affiliates and their respective successors and assigns, hereby expressly waives any right that it may have under the laws or statutes of any jurisdiction that limits the extension of a release to certain types of claims, including, but not limited to, California Civil Code § 1542, which provides that: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

ARTICLE V

Termination of Japanese Distribution Agreement

Section 5.01.The Parties hereby agree that the Distribution Agreement by and between Advanced Neuromodulation Systems, Inc. and Boston Scientific Corporation dated June 20, 2002, (the “Japanese Distribution Agreement”) and the respective rights and obligations of St. Jude and its Affiliates and BSC and its Affiliates set forth therein are terminated in all respects except for those provisions that by their terms were contemplated to survive any termination of the Japanese Distribution Agreement (the “Surviving Obligations”). Other than for the Surviving Obligations, each of the parties, for itself, its successors and assigns, hereby covenants not to sue, releases and forever discharges the other parties, their respective successors, assigns, affiliated entities, directors, officers, shareholders, and legal representatives, of and from any claims, demands, actions, cause and causes of action, suits, liabilities, obligations, promises, injuries or damages, of any name, nature or description in law or in equity, whether known or unknown, asserted or unasserted, suspected or unsuspected, or fixed or contingent, which the releasing party now has, or ever had, or which it shall or may have in the future, arising out of or in connection with the Japanese Distribution Agreement.

ARTICLE VI

Covenant Not to Sue on Spinal Cord Stimulation Products

Section 6.01.The St. Jude Parties and their Affiliates hereby covenant not to sue the BSC Parties and/or their Affiliates, their respective successors, assigns, affiliated entities, directors, officers, shareholders, and legal representatives, distributors, resellers, customers, and end users with respect to any alleged infringement of patent or other intellectual property rights owned or held by St. Jude and/or its Affiliates by any products used in spinal cord stimulation to manage chronic pain that are currently commercially marketed and sold as of the Effective Date anywhere in the world, pursuant to FDA, CE mark, or MHLW approval, and all Derivative Products.

Section 6.02.The BSC Parties and their Affiliates hereby covenant not to sue the St. Jude Parties and/or their Affiliates, their respective successors, assigns, affiliated entities, directors, officers, shareholders, and legal representatives, distributors, resellers, customers, and end users with respect to any alleged infringement of patent or other intellectual property rights owned or held by BSC and/or its Affiliates by any products used in spinal cord stimulation to manage chronic pain that are currently commercially marketed and sold as of the Effective Date anywhere in the world, pursuant to FDA, CE mark, or MHLW approval, and all Derivative Products.

ARTICLE VII

Representations and Warranties

Section 7.01.Each of the Parties represents and warrants that it has the power and authority to execute, deliver, enter into and perform this Agreement and that it is legally permitted to grant the rights granted and to make all covenants and perform all obligations required by this Agreement, including all of the exhibits hereto.

Section 7.02. Each of the Parties represents and warrants that to the extent that any third-party consents are required for the performance of any of its obligations under this Agreement, it has obtained all such required consents. Notwithstanding the foregoing, to the extent that a third party consent is required for sublicensing under Section 2.02 of the CRM License Agreement, this Section 7.02 is not intended as a representation and warranty by any party that such consent has been secured.

Section 7.03. The BSC Parties represent and warrant to the St. Jude Parties that all plaintiffs in the Delaware case and the Indiana case shall conduct those cases in accordance with, and subject to, the covenants and agreements set forth in Sections 2.02 and 2.04, above, which are incumbent on the BSC Parties. The Parties agree that the St. Jude Parties’ sole remedy for any breach of this Section 7.03 by the BSC Parties shall be as set forth in the provisions of Section 7.06, except that any breach of this Section 7.03 by the BSC Parties as a result of a failure to conduct those cases in accordance with, and subject to, the covenants and agreements in Section 2.02 shall also operate to relieve the St. Jude Parties from their obligations under Section 2.02, above, to an extent that is commensurate with the failure of the BSC Parties. Absent agreement of the Parties, the extent of relief that shall be afforded the St. Jude Parties from their obligations under Section 2.02, above, shall be determined by the Court in which the failure of the BSC Parties arose.

Section 7.04. The St. Jude Parties represent and warrant to the BSC Parties that defendants in the Delaware case and the Indiana case shall conduct those cases in accordance with, and subject to, the covenants and agreements set forth in Section 2.02, above, which are incumbent on the St. Jude Parties. The Parties agree that any breach by the St. Jude Parties of this Section 7.04 shall not result in termination of the Parties’ other rights and obligations as set forth in the other provisions of this Agreement and that the sole remedy for breach of this Section 7.04 by the St. Jude Parties as a result of a failure to conduct those cases in accordance with, and subject to, the covenants and agreements in Section 2.02 shall be to relieve the BSC Parties from their obligations under Section 2.02, above, to an extent that is commensurate with the failure of the St. Jude Parties. Absent agreement of the Parties, the extent of relief that shall be afforded to the BSC Parties from their obligations under Section 2.02, above, shall be determined by the Court in which the failure of the St. Jude Parties arose.

Section 7.05. The BSC Parties represent and warrant that, with regard to the Indiana case and the Delaware case and subject to the terms of Section 2.02, above, BSC and/or its Affiliates shall fully perform all obligations required of BSC and/or its Affiliates and enforce all rights to which BSC and/or its Affiliates are entitled under its current agreements with MFV, except that BSC and its Affiliates waive any right to any settlement proceeds and/or reimbursement of the costs of litigation pursuant to Section 2.03, above, in the event of an agreement between St. Jude and its Affiliates and MFV resolving the Indiana case and the Delaware case. The BSC Parties further represent and warrant that until final, non-appealable judgments are entered in both the Indiana case and the Delaware case, or both of those cases are otherwise fully resolved and dismissed, neither BSC nor any of its Affiliates will modify, alter or waive any of their obligations or rights under any current agreement with MFV without first providing notice to and receiving written consent from the St. Jude Parties, which consent shall not be unreasonably withheld.

Section 7.06. Each party shall defend, indemnify, and hold harmless the other party and its Affiliates, and all officers, directors, employees, attorneys, agents, successors, and assigns of the other party and its Affiliates (collectively, the “Indemnified Parties”), against any and all legal expenses, costs, settlements, judgments, claims, controversies, demands, rights, disputes,

grievances, causes of action, damages, enhanced damages, injunctions, attorneys’ fees or prejudgment interest imposed on or incurred by any of the Indemnified Parties by reason of any failure, inaccuracy, or breach of any of the representations and warranties of such party pursuant to this Article VII or failure to obtain the consent of an Affiliate pursuant to Section 3.01, above.

ARTICLE VIII

Confidentiality/Publicity Concerning Agreement

Section 8.01.It is intended that, to the extent possible, the terms of this Agreement remain confidential. No party or any Affiliate of a party shall originate any publicity, news release, or other such general public announcement or make any other disclosure to any third party regarding the terms of this Agreement without the express written consent of the other party (without limitation, the foregoing provision is not intended to limit communications deemed reasonably necessary or appropriate by a party or its Affiliate to its employees, shareholders, directors, officers, accountants, auditors and legal counsel). Notwithstanding the foregoing provision, the Parties and their respective Affiliates shall not be prohibited from making any disclosure or release that is required by law, court order, or applicable regulation, or is considered necessary by counsel to fulfill an obligation under securities laws or the rules of the New York Stock Exchange or other applicable stock exchange or to protect any intellectual property right in any territory so long as the disclosing party provides notice to the other party at least five(5) business days prior to such disclosure. However, the Parties agree that, with regard to any required disclosure to the Securities and Exchange Commission regarding this Agreement or the fact that it has been executed that is made on or around the Effective Date, prior notice to the other party shall not be required.

ARTICLE IX

Notices

Section 9.01.Any notice or other communication to be made pursuant to this Agreement shall be sent to the other party at its address listed below or at such other address such party may hereinafter designate to the other party in writing:

If to the BSC Parties:

President and CEO

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

with a copy to: General Counsel

If to the St. Jude Parties:

President and CEO

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

with a copy to: General Counsel

Notice shall be deemed to have been given: (i) at the expiration of two (2) business days from the date of delivery by facsimile transmission, provided a copy is deposited postage prepaid for delivery with the postal service or given for delivery to an express courier service on the same date as the sending of the facsimile, or (ii) ten (10) business days from the date the communication is deposited postage prepaid with the postal service or given to an express courier service, unless actual receipt of the notice at an earlier date is established. Without limitation of the foregoing, a written receipt signed by the addressee or its duly appointed representative situated at the addresses set forth hereinabove shall constitute sufficient evidence of service. Either party may change its address and facsimile information by written notice given in accordance with the provisions of this Section 9.01.

ARTICLE X

Alternative Dispute Resolution

Section 10.01.(a)Except as to any dispute concerning Sections 2.02 and 2.04, any dispute that arises out of or relates to this Agreement, including an alleged breach of this Agreement but excluding any dispute under Section 8.01(a) of the CRM License Agreement or Section 8.01(a) of the SCS License Agreement, between (i) St. Jude or a St. Jude Affiliate and (ii) BSC or a BSC Affiliate which is not resolved by negotiation as provided in subsection (b) of this Section 10.01 shall be resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit H. Disputes relating to Sections 2.02 and 2.04 of this Agreement may be resolved by the Court in the Indiana case or the Delaware case, as appropriate, or by negotiation as provided in subsection (b) of this Section 10.01; however, if the dispute is not resolved by such means, then the dispute shall be resolved by the ADR procedure of Exhibit H.

(b)The Parties recognize that a bonafide dispute may arise from time to time as to certain matters that relate to this Agreement. In all such instances, any party may, by written notice to the other party, have such dispute referred to their respective employees designated below or their successors, for attempted resolution by good faith negotiations within sixty (60) days after such notice is received. Such designated employees are as follows:

For the BSC Parties:

General Counsel

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

For the St. Jude Parties:

General Counsel

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

Any settlement reached by the Parties under this Section 10.01 shall not be binding until reduced to writing and signed by authorized officers of BSC and St. Jude. If the designated employees are unable to resolve such dispute within such sixty-day period, any party may invoke the ADR provisions of this Section 10.01.

ARTICLE XI

General Provisions

Section 11.01.Modification. This Agreement may not be modified, changed, or terminated orally. No change, modification, addition, or amendment shall be valid unless given in a writing expressly indicating an intent to modify the Agreement and duly executed by the Parties.

Section 11.02.Entire Agreement. This Agreement, along with all of the other agreements and stipulations that are to be executed by the Parties as contemplated herein, constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes any and all negotiations, correspondence, understandings and agreements, whether written or oral, between the Parties respecting the subject matter hereof.

Section 11.03.Governing Law. Recognizing that the laws within the United States and international jurisdictions vary in their content and effect with respect to similar subject matter, and that the Parties desire uniformity and predictability in interpretation and enforcement of this Agreement, the Parties have agreed to the following provisions regarding applicable law to govern this Agreement: All matters affecting the interpretation, form, validity, and performance of this Agreement shall be decided under the laws of the State of Minnesota (without regard to principles of conflicts of laws), including its procedural laws; provided, however, that (a) nothing in Minnesota state procedural law shall be deemed to alter or affect the applicability of the Federal Arbitration Act as governing arbitration of disputes as provided in this Agreement, and (b) no Minnesota state arbitration laws or arbitration rules shall be applicable.

Section 11.04.Force Majeure. No party (including any of its Affiliates) shall be liable in damages for, nor shall this Agreement be terminable or cancelable by reason of, any delay or default in any party’s performance hereunder if such default or delay is caused by events beyond such party’s reasonable control including, but not limited to, acts of God, action of any government or agency thereof, war or insurrection, civil commotion, destruction of facilities or materials by earthquake, fire, flood or storm, labor disturbances, epidemic, or failure of public utilities or common carriers. The party (or Affiliates) so affected shall give prompt notice to the other Parties of such cause, and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible. All Parties (or Affiliates) agree to endeavor to resume their performance hereunder if such performance is delayed or interrupted by reason of force majeure.

Section 11.05.Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original.

Section 11.06.Captions. The captions in this Agreement are intended solely as a matter of convenience and are for reference only, and shall be given no effect in the construction or interpretation of this Agreement.

Section 11.07.Severability of Provisions. Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by such holding.

Section 11.08.No Agency. At no time shall any party or its Affiliate hold itself out to be the agent, employee, lessee, sublessee, partner, or joint venture partner of the other party or its Affiliates. No party or its Affiliates shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or its Affiliates or to bind the other party or its Affiliates with regard to any other contract, agreement, or undertaking with a third party.

Section 11.09.Further Assurances. At such time and from time to time on and after the Effective Date upon request by a party, the other party will execute and deliver or will cause to be executed and delivered, all such further acts, acknowledgments, and assurances that may be reasonably required for carrying out the purposes of this Agreement. Such further assurances may include, but not be limited to, an acknowledgment by Affiliates of a party that such Affiliates are bound by the terms and provisions of this Settlement Agreement.

Section 11.10.Construction Against Waiver. No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision, or condition of this Agreement; nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision.

Section 11.11.Protective Orders. The court-entered confidentiality agreements and protective orders shall remain in full force and effect after dismissal of the Dismissed Litigation, and the Parties shall remain bound by their terms. Each party shall sequester protected information and documents produced in the Litigation (including all copies thereof), as well as other materials containing information that the other party has designated as confidential and subject to protective order. Within ninety (90) days of the Effective Date, each party may identify any information and/or document(s) produced in one or more of the Minnesota Pacesetter case, the Minnesota CPI case, or the Indiana case that the party desires to use in the Delaware case as well as any information and/or document(s) produced in one or more of the Minnesota Pacesetter case, the Minnesota CPI case, or the Delaware case that the party desires to use in the Indiana case. Absent an objection for good cause by the non-identifying party, the identifying party shall thereafter be entitled to use the information and/or document(s) as though produced in the Indiana case and/or the Delaware case, as appropriate. Should the non-identifying party have good cause to object to the use of any information and/or document(s) so identified, the non-identifying party shall provide the basis for such objection within ten (10) court days of the identification of the information and/or document(s). If an objection is made, the parties shall promptly meet and confer to attempt a good faith resolution. If a resolution is not reached, the non-identifying party can request that the court in the Indiana case and/or the Delaware case, as appropriate, preclude any use of the objectionable information and/or document(s) by the identifying party.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and duly attested by their corporate officers authorized for this purpose.

BOSTON SCIENTIFIC CORPORATION
By:	/s/   Paul W. Sandman
	Executive Vice President, Secretary and General Counsel

ATTEST:
By:	/s/   Lawrence J. Knopf

ST. JUDE MEDICAL, INC.
By:	/s/   Pamela S. Krop
	Vice President, General Counsel and Secretary

ATTEST:
By:	/s/   James W.A. Ladner

EXHIBIT A

        See Exhibit 10.6 to St. Jude Medical’s Quarterly Report on Form 10-Q for the period ending September 30, 2006.

EXHIBIT B

        See Exhibit 10.7 to St. Jude Medical’s Quarterly Report on Form 10-Q for the period ending September 30, 2006.

EXHIBIT C

Form of Dismissal of Minnesota Pacesetter Case

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

PACESETTER, INC., and ST. JUDE MEDICAL S.C., INC., Plaintiffs,	Case No. 02-CV-1337 DWF/SRN
v.	STIPULATION OF DISMISSAL UNDER FRCP 41(a)(1)(ii) & 41(c)
CARDIAC PACEMAKERS, INC. and GUIDANT SALES CORPORATION, Defendants.

The parties to this action having settled their dispute, it is stipulated and agreed by and among the parties to this action, represented by their attorneys, as follows:

1.The Second Amended Complaint is hereby dismissed with prejudice to the plaintiffs.

2.Any and all pending motions or requests for relief by any of the parties are hereby withdrawn.

3. Each party is to bear its own costs and attorneys’ fees.

So agreed and stipulated.

_________________________________
Michael A. Lindsay
DORSEY & WHITNEY LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402
(612) 340-2600

Jeffrey M. Olson
SIDLEY & AUSTIN LLP
555 West Fifth Street
Los Angeles, CA 90013
(213) 896-6000

Denis R. Salmon
H. Mark Lyon
GIBSON, DUNN & CRUTCHER LLP
1881 Page Mill Road
Palo Alto, CA 94304
(650) 849-5300

_________________________________
Kenneth A. Liebman
Felicia J. Boyd
David J.F. Gross
Julie Knox Chosy
FAEGRE & BENSON LLP
90 South Seventh St., Suite 2200
Minneapolis, MN 55402-3901
(612) 766-7000

So ordered:

_________________________________
U.S. District Judge

_________________________________
Date

Exhibit D

Form of Dismissal of Minnesota CPI Case

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

CARDIAC PACEMAKERS, INC. and GUIDANT SALES CORPORATION, Plaintiffs,	Case No. 04-CV-1016 JMR/FLN
v.	STIPULATION OF DISMISSAL UNDER FRCP 41(a)(1)(ii) & 41(c)
ST. JUDE MEDICAL, INC., ST. JUDE MEDICAL, S.C., INC., and PACESETTER, INC., Defendants.

The parties to this action having settled their dispute, it is stipulated and agreed by and among the parties to this action, represented by their attorneys, as follows:

4.The Second Amended Complaint is hereby dismissed with prejudice to the plaintiffs.

5.The counterclaims of the First Amended Answer to the Second Amended Complaint are hereby dismissed with prejudice to the defendants.

6.Any and all pending motions or requests for relief by any of the parties are hereby withdrawn.

7. Each party is to bear its own costs and attorneys’ fees.

So agreed and stipulated.

_________________________________
Kenneth A. Liebman
Felicia J. Boyd
David J.F. Gross
Julie Knox Chosy
FAEGRE & BENSON LLP
90 South Seventh St., Suite 2200
Minneapolis, MN 55402-3901
(612) 766-7000

_________________________________
Morgan Chu
Scott D. Baskin
Gary N. Frischling
IRELL & MANELLA LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4276
(310) 277-1010

Denis R. Salmon
H. Mark Lyon
GIBSON, DUNN & CRUTCHER LLP
1881 Page Mill Road
Palo Alto, CA 94304
(650) 849-5300

Michael T. Nilan
HALLELAND LEWIS NILAN & JOHNSON, P.A.
Pillsbury Center South, Suite 600
220 South Sixth Street
Minneapolis, MN 55402-4501
(612) 338-1838

So ordered:

_________________________________
U.S. District Judge

_________________________________
Date

EXHIBIT E

Form of Dismissal of California Case

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

PACESETTER, INC., ST. JUDE MEDICAL, INC., and
ST. JUDE MEDICAL S.C., INC., Plaintiffs, v. INTERMEDICS, INC., CARDIAC PACEMAKERS, INC., GUIDANT SALES CORPORATION, and
DOES I through L, inclusive, Defendants. CASE NO.: CV 06-3166 GHK (FFMx) STIPULATION OF DISMISSAL

The parties to this action having settled their dispute, it is stipulated and agreed by and among the parties to this action, represented by their attorneys, as follows:

8. The Complaint is hereby dismissed with prejudice to the plaintiffs.

9. Each party is to bear its own costs and attorneys’ fees.

So agreed and stipulated.

_________________________________
Morgan Chu
Scott D. Baskin

Gary N. Frischling
IRELL & MANELLA LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4276
(310) 277-1010

_________________________________
Kenneth A. Liebman
Felicia J. Boyd

David J.F. Gross
Julie Knox Chosy
FAEGRE & BENSON LLP
90 South Seventh St., Suite 2200
Minneapolis, MN 55402-3901
(612) 766-7000

Mark A. Flagel
Bruce D. Kuyper
Shanaira Udwadia
LATHAM & WATKINS LLP
633 West Fifth Street
Los Angeles, CA 90071-2007
(213) 485-1234

So ordered:

_________________________________
U.S. District Judge

_________________________________
Date

EXHIBIT F

Form of Dismissal of ANS/ABC Texas Case

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION

ADVANCED NEUROMODULATION SYSTEMS, INC., Plaintiff/Counter-Defendant,	Case No. 04-CV-00131 (Schell)
v.	STIPULATION OF DISMISSAL UNDER FRCP 41(a)(1)(ii) & 41(c)
ADVANCED BIONICS CORPORATION, Defendant/Counter-Plaintiff.

The parties to this action having settled their dispute, it is stipulated and agreed by and among the parties to this action, represented by their attorneys, as follows:

10.The First Amended Complaint is hereby dismissed with prejudice to the plaintiff/counter-defendant.

11.The counterclaims contained in the Second Amended Answer and Counterclaims are hereby dismissed with prejudice to the defendant/counter-plaintiff.

12.Any and all pending motions or requests for relief by any of the parties are hereby withdrawn.

13.Each party is to bear its own costs and attorneys’ fees.

So agreed and stipulated.

_________________________________
Bryant C. Boren, Jr.
Timothy S. Durst
Christopher W. Kennerly
BAKER BOTTS L.L.P.
2001 Ross Avenue
Dallas, Texas 75201-2980
(214) 953-6500

Clyde B. Siebman
Lawrence A. Phillips
SIEBMAN, BURG, REYNOLDS & PHILLIPS
Federal Courthouse Square
300 N. Travis
Sherman, TX 75090
(903) 870-0070

_________________________________
Frank Finn
THOMPSON & KNIGHT LLP
1700 Pacific Avenue
Suite 3300
Dallas, TX 75201
(214) 969-1700

Matthew Wolf
Jennifer Sklenar
Marc Cohn
John Nilsson
HOWREY SIMON ARNOLD & WHITE
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 383-7067

So ordered:

_________________________________
U.S. District Judge

_________________________________
Date

EXHIBIT G

Form of Dismissal of ANS/ABC Arbitration

SETTLEMENT AGREEMENT

INTERNATIONAL INSTITUTE FOR

CONFLICT PREVENTION AND RESOLUTION

ADVANCED NEUROMODULATION SYSTEMS, INC., Claimant, v. ADVANCED BIONICS CORPORATION, Respondent, ADVANCED NEUROMODULATION SYSTEMS, INC., Claimant, v. BONAVENTURA RENO LAURO, Respondent, § § § § § § § § § § § § § § § § § § § § § Richard D. Rochford, Arbitrator
File Nos. G-06-07A and G-06-08A

STIPULATION OF DISMISSAL

The parties to this action having settled their dispute, it is stipulated and agreed by and among the parties to this action, represented by their attorneys, as follows:

1.             Advanced Neuromodulation Systems, Inc.’s (ANS) Notice of Arbitration against Advanced Bionics Corporation (“Bionics”) is hereby dismissed with prejudice to ANS.

2.             ANS’s Notice of Arbitration against Bonaventura Reno Lauro (“Lauro”) is hereby dismissed with prejudice to ANS.

3.             Any defenses or counterclaims arising out of the facts or circumstances underlying this action that could have been made by Bionics or Lauro are hereby dismissed with prejudice to Bionics and Lauro.

4.             Relief sought in all pending motions by any of the parties is denied.

5.             Each party is to bear its own costs and attorneys’ fees.

IT IS SO ORDERED.

SIGNED this _____________ day of July, 2006.

RICHARD D. ROCHFORD

ARBITRATOR

Stipulation of Dismissal
DAL01:916517.1 Page - 1

Agreed and stipulated:

_____________________________ Bryant C. Boren, Jr. State Bar No. 02664100 bryant.c.boren@bakerbotts.com Timothy S. Durst State Bar No. 00786924 tim.durst@bakerbotts.com Christopher W. Kennerly State Bar No. 00795077 chris.kennerly@bakerbotts.com BAKER BOTTS L.L.P. 2001 Ross Avenue Dallas, Texas 75201-2980 (214) 953-6500 (Telephone) (214) 953-6503 (Facsimile) ATTORNEYS FOR ADVANCED NEUROMODULATION SYSTEMS, INC. _____________________________ Matthew M. Wolf Marc A. Cohn HOWREY, SIMON, ARNOLD & WHITE, LLP 1299 Pennsylvania Avenue, N. W. Washington, DC 20004 (202) 783-0800 (Telephone) (202) 383-6610 (Facsimile) ATTORNEYS FOR ADVANCED BIONICS CORPORATION _____________________________ Marc D. Katz Texas Bar No. 00791002 Scott S. Rowekamp Texas Bar No. 24027823 JENKENS & GILCHRIST A Professional Corporation 1455 Ross Avenue, Suite 3700 Dallas, Texas 75202-2711 (214) 855-4500 (Telephone) (214) 855-4300 (Facsimile) ATTORNEYS FOR BONAVENTURA RENO LAURO

Stipulation of Dismissal
DAL01:916517.1 Page - 2

EXHIBIT H

ADR Procedure Pursuant to Section 10.01

1.Upon the expiration of the 60-day period for good faith negotiations pursuant to Section 10.01(b), any party may initiate arbitration with the American Arbitration Association (“AAA”) by filing a Notice of Arbitration pursuant to the then-existing AAA rules for commercial arbitration. Should any provision of the applicable AAA rules conflict in any way with any provision of this Agreement, this Agreement shall govern.

2. Within twenty (20) days after filing the Notice of Arbitration, the parties shall appoint a single, neutral arbitrator. The arbitrator shall have substantial experience in commercial licensing, preferably in the medical devices industry. If the parties are unable to agree on the arbitrator within the time specified above, AAA will select a so-qualified arbitrator within three (3) business days thereafter.

3.The parties shall be entitled to discovery as ordered by the arbitrator; however, it is the intention of the parties that any such discovery be limited in scope in order to reduce the cost and burden to the parties. The arbitrator shall take this intention into account when ordering discovery so that any discovery so ordered is narrowly-tailored to lead to relevant information while minimizing the burden and cost of such discovery on the parties.

4.The arbitrator will be empowered to award specific performance of the Agreement, as well as compensatory damages, costs, and attorneys’ fees to the prevailing party, as the arbitrator deems appropriate. No punitive damages of any kind shall be awarded.

5. The arbitration shall be conducted in such a way that the arbitrator issues a decision and award no later than six (6) months after commencement of the arbitration.

EXHIBIT I

Form Language for Consent and Agreement to Be Bound (Section 3.01)

BSC Affiliates:

For Consent and Agreement to Be Bound to the CRM License Agreement:

Reference is hereby made to the CRM License Agreement dated as of July 29, 2006, by and between Boston Scientific Corporation and St. Jude Medical, Inc. (the “License Agreement”). The undersigned Affiliate of Boston Scientific Corporation hereby consents to, and agrees to be bound by, all of the terms and conditions of the License Agreement to which Boston Scientific Corporation is bound.

For Consent and Agreement to Be Bound to the SCS License Agreement:

Reference is hereby made to the SCS License Agreement dated as of July 29, 2006, by and between Boston Scientific Corporation and St. Jude Medical, Inc. (the “License Agreement”). The undersigned Affiliate of Boston Scientific Corporation hereby consents to, and agrees to be bound by, all of the terms and conditions of the License Agreement to which Boston Scientific Corporation is bound.

St. Jude Affiliates:

For Consent and Agreement to Be Bound to the CRM License Agreement:

Reference is hereby made to the CRM License Agreement dated as of July 29, 2006, by and between Boston Scientific Corporation and St. Jude Medical, Inc. (the “License Agreement”). The undersigned Affiliate of St. Jude Medical, Inc. hereby consents to, and agrees to be bound by, all of the terms and conditions of the License Agreement to which St. Jude Medical, Inc. is bound.

For Consent and Agreement to Be Bound to the SCS License Agreement:

Reference is hereby made to the SCS License Agreement dated as of July 29, 2006, by and between Boston Scientific Corporation and St. Jude Medical, Inc. (the “License Agreement”). The undersigned Affiliate of St. Jude Medical, Inc. hereby consents to, and agrees to be bound by, all of the terms and conditions of the License Agreement to which St. Jude Medical, Inc. is bound.

EX-10.4

EXHIBIT 10.4

NOTICE OF NON-QUALIFIED STOCK OPTION GRANT

TO EMPLOYEE

(2006 STOCK PLAN)

This certifies that ___________________________ has an option to purchase ___________________ shares of common stock, par value $.10 per share, of St. Jude Medical, Inc., a Minnesota corporation.

Social Security Number: ____________________

Address: ______________________

Grant Date: _____________________

Purchase Price Per Share: $_______

Expiration Date: ____________________

Exercisable Date: [insert vesting schedule, e.g., 25% exercisable on each of first four anniversaries of grant date]

This stock option is governed by, and subject in all respects to, the terms and conditions of the Non-Qualified Stock Option Agreement for Employees, a copy of which is attached to and made a part of this document, and the St. Jude Medical, Inc. 2006 Stock Plan, a copy of which is available upon request. This Notice of Non-Qualified Stock Option Grant to Employee has been duly executed, by manual or facsimile signature, on behalf of St. Jude Medical, Inc.

ST. JUDE MEDICAL, INC.

By:   

Name:

Title:

ST. JUDE MEDICAL, INC. 2006 STOCK PLAN

NON-QUALIFIED STOCK OPTION AGREEMENTFOR EMPLOYEES

This Non-Qualified Stock Option Agreement for Employees (this “Agreement”) is between St. Jude Medical, Inc., a Minnesota corporation (the “Company”), and you, the person named in the attached Notice of Non-Qualified Stock Option Grant to Employee (the “Notice”). This Agreement is effective as of the date of grant set forth in the attached Notice (the “Grant Date”).

The Company desires to provide you with an opportunity to purchase shares of the Company’s common stock, $.10 par value (the “Common Stock”), as provided in this Agreement in order to carry out the purpose of the St. Jude Medical, Inc. 2006 Stock Plan (the “Plan”).

Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and you hereby agree as follows:

1. Grant of Option.

The Company hereby grants to you, effective as of the Grant Date, the right and option (the “Option”) to purchase all or any part of the aggregate number of shares of Common Stock set forth in the attached Notice, on the terms and conditions contained in this Agreement and in accordance with the terms of the Plan. The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2. Exercise Price.

The per share purchase price of the shares subject to the Option shall be the purchase price per share set forth in the attached Notice.

3. Term of Option and Exercisability.

The term of the Option shall be for a period of eight years from the Grant Date, terminating at the close of business on the expiration date set forth in the attached Notice (the “Expiration Date”), or such shorter period as is prescribed in the attached Notice or in Section 5 of this Agreement. The Option shall become exercisable, or vest, on the date or dates and in the amount or amounts set forth in the attached Notice, subject to the provisions of Sections 4 and 5 of this Agreement. To the extent the Option is exercisable, you may exercise it in whole or in part, at any time, or from time to time, prior to the termination of the Option.

4. Change of Control.

Notwithstanding the vesting provisions contained in Section 3 above, but subject to the other terms and conditions contained in this Agreement, from and after a Change of Control (as defined below) the Option shall become immediately exercisable in full. As used herein, “Change of Control” shall mean any of the following events:

(i)            the acquisition by any person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company or any of its Subsidiaries, or any employee benefit plan of the Company and/or one or more of its Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either the then outstanding shares of Common Stock or the combined voting power of the Company’s then outstanding voting securities in a transaction or series of transactions not approved in advance by a vote of at least three-quarters of the Continuing Directors (as defined below); or

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(ii)           individuals who, as of the Grant Date, constitute the Board of Directors of the Company (generally the “Directors” and as of the Grant Date the “Continuing Directors”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the Grant Date whose nomination for election was approved in advance by a vote of at least three-quarters of the Continuing Directors (other than a nomination of an individual whose initial assumption of office is in connection with an actual or threatened solicitation with respect to the election or removal of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be deemed to be a Continuing Director; or

(iii)          the approval by the shareholders of the Company of a reorganization, merger, consolidation, liquidation or dissolution of the Company or of the sale (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company other than a reorganization, merger, consolidation, liquidation, dissolution or sale approved in advance by a vote of at least three-quarters of the Continuing Directors; or

(iv)          the first purchase under any tender offer or exchange offer (other than an offer by the Company or any of its Subsidiaries) pursuant to which shares of Common Stock are purchased; or

(v)           at least a majority of the Continuing Directors determines in their sole   discretion that there has been a change in control of the Company.

5. Effect of Termination of Employment.

(a)           If your employment is terminated by reason of your death, the Option may be exercised at any time within 12 months after the date of your death, to the extent that the Option was exercisable by you on the date of death, by your personal representatives or administrators or by any person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution, subject to the condition that the Option shall not be exercisable after the Expiration Date of the Option.

(b)           If your employment is terminated by reason of Disability, you may exercise the Option at any time within 12 months after such termination of employment, to the extent that the Option was exercisable by you on the date of such termination, subject to the condition that the Option shall not be exercisable after the Expiration Date of the Option.

(c)           If your employment is terminated by reason of Retirement, you may exercise the Option at any time within 36 months after such termination of employment, to the extent that the Option was exercisable by you on the date of such termination, subject to the condition that the Option shall not be exercisable after the Expiration Date of the Option.

(d)           If your employment is terminated for Cause, the Option shall terminate immediately upon termination of employment and shall not be exercisable thereafter.

(e)           If your employment is terminated for any reason other than your death, Disability, Retirement or for Cause, you may exercise the Option at any time within 90 days after the date of such termination of employment, to the extent that the Option was exercisable by you on the date of such termination, subject to the condition that the Option shall not be exercisable after the Expiration Date of the Option. However, if concurrently with the termination of your employment you become a consultant to the Company pursuant to a written consulting agreement, then you may continue to exercise the Option at any time until 90 days after the date of termination of such consulting agreement, to the extent the Option was exercisable by you on the date of your termination of employment, subject to the condition that the Option will not be exercisable after the Expiration Date of the Option.

6. Method of Exercising Option.

(a)           Subject to the terms and conditions of this Agreement, you may exercise the Option by following the procedures established by the Company from time to time. In addition, you may exercise the Option by written

2

notice to the Company, as provided in Section 9(i) of this Agreement, that states (i) your election to exercise the Option, (ii) the Grant Date of the Option, (iii) the purchase price of the shares, (iv) the number of shares as to which the Option is being exercised, (v) the manner of payment of the exercise price and (vi) the manner of payment for any income tax withholding amount. The notice shall be signed by you or the person(s) exercising the Option. The notice shall be accompanied by payment in full of the exercise price for all shares designated in the notice. To the extent that the Option is exercised after your death, the notice of exercise shall also be accompanied by appropriate proof of the right of such person(s) to exercise the Option.

(b)           Payment of the exercise price shall be made to the Company through one or a combination of the following methods:

(i)            cash, in United States currency (including check, draft, money order or wire transfer made payable to the Company); or

(ii)           delivery (either actual delivery or by attestation) of shares of Common Stock acquired by you more than six months prior to the date of exercise having a Fair Market Value on the date of exercise equal to the Option exercise price. You shall represent and warrant in writing that you are the owner of the shares so delivered, free and clear of all liens, encumbrances, security interests and restrictions, and you shall duly endorse in blank all certificates delivered to the Company.

7. Income Tax Withholding.

(a)           You acknowledge that you will consult with your personal tax adviser regarding the income tax consequences of exercising the Option or any other matters related to this Agreement and that any federal, state, local or foreign payroll, withholding, income or other taxes are your sole and absolute responsibility. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes are withheld or collected from you.

(b)           In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, you may elect to satisfy any applicable tax withholding obligations arising from the exercise of the Option by (i) delivering cash (including check, draft, money order or wire transfer made payable to the order of the Company), (ii) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon exercise of the Option having a Fair Market Value equal to the amount of such taxes or (iii) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Company will not deliver any fractional share of Common Stock but will pay, in lieu thereof, the Fair Market Value of such fractional share. Your election must be made on or before the date that the amount of tax to be withheld is determined.

8. Adjustments.

If the Committee administering the Plan determines that any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, other change in corporate structure affecting the Common Stock, spin-off, split-up or other distribution of assets to shareholders, or other similar corporate transaction or event affects the shares of Common Stock such that an adjustment is determined by the Committee administering the Plan to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee administering the Plan shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of the shares covered by the Option and the exercise price of the Option.

9. General Provisions.

(a)           Interpretations. This Agreement is subject in all respects to the terms of the Plan. A copy of the Plan is available upon your request. Terms used herein which are defined in the Plan shall have the respective meanings given to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.

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(b)           No Rights as a Shareholder. Neither you nor your legal representatives shall have any of the rights and privileges of a shareholder of the Company with respect to the shares of Common Stock subject to the Option unless and until certificates for such shares have been issued upon exercise of the Option.

(c)           No Right to Employment. Nothing in this Agreement or the Plan shall be construed as giving you the right to be retained as an employee of the Company. In addition, the Company may at any time dismiss you from employment, free from any liability or any claim under this Agreement, unless otherwise expressly provided in this Agreement.

(d)           Option Not Transferable. The Option may not be transferred, pledged, alienated, attached or otherwise encumbered, and any purported transfer, pledge, alienation, attachment or encumbrance of the Option will be void and unenforceable against the Company, except that the Option may be transferred (i) by will or by the laws of descent and distribution or (ii) if approved in advance by the Committee administering the Plan, in its discretion and subject to such additional terms and conditions as it determines, by gift, without consideration, under a written instrument that is approved in advance by the Committee administering the Plan, to a member of your family, as defined in Section 267 of the Code, or to a trust or similar entity whose sole beneficiaries are you and/or members of your family (such family member or other entity, a “Permitted Transferee”), provided that such transfer and the exercise of the Option by such Permitted Transferee do not violate any federal or state securities laws. During your lifetime the Option will be exercisable only by you or such Permitted Transferee.

(e)           Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.

(f)            Securities Matters. The Company shall not be required to deliver any shares of Common Stock until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.

(g)           Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.

(h)           Governing Law. The internal law, and not the law of conflicts, of the State of Minnesota will govern all questions concerning the validity, construction and effect of this Agreement.

(i)            Notices. You should send all written notices regarding this Agreement or the Plan to the Company at the following address:

St. Jude Medical, Inc.

Stock Option Administrator

One Lillehei Plaza

St. Paul, MN 55117

(j)            Notice of Non-Qualified Stock Option Grant to Employee. This Agreement is attached to and made part of a Notice of Non-Qualified Stock Option Grant to Employee and shall have no force or effect unless such Notice is duly executed and delivered by the Company to you.

* * * * * * * *

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EX-10.5

EXHIBIT 10.5

ST. JUDE MEDICAL, INC.

Amendment #1

to

2000 Employee Stock Purchase Savings Plan

Article II, Section I of the Plan is hereby amended to read in its entirety as follows:

I.   “Base Pay” means regular straight time earnings annualized as of the date of commencement of a phase, excluding payments, if any, for overtime, incentive compensation, commissions, incentive payments, premiums, bonuses (including MICP bonuses) and any other special remuneration; provided, however, that for a Participant for whom Sales-related Compensation accounted for 35% or more of total compensation (regular straight time earnings plus Sales-related Compensation) of the Participant during the Lookback Period, “Base Pay” shall mean 65% of the sum of regular straight time earnings annualized as of the date of commencement of a phase, excluding payments, if any, for overtime, incentive compensation, commissions, incentive payments, premiums, bonuses (including MICP bonuses) and any other special remuneration, plus Sales-related Compensation.

Article II of the Plan is hereby amended to add the following Sections L and M:

L.   “Lookback Period” means the twelve-month period ending on the June 30 immediately preceding the commencement of the applicable phase.

M.   “Sales-related Compensation” means commissions and sales bonuses (not MICP bonuses) earned by a Participant during the Lookback Period plus, if the Participant commences employment with the Company after commencement of the Lookback Period, guaranteed cash compensation earned by the Participant for the first twelve months of the Participant’s employment by the Company, to the extent such guaranteed cash compensation exceeds commissions and sales bonuses earned by the Participant during the Lookback Period.

AMENDMENT ADOPTED BY THE ST. JUDE MEDICAL, INC. BOARD OF DIRECTORS ON AUGUST 3, 2006

EX-10.6

EXHIBIT 10.6

CRM LICENSE AGREEMENT

This CRM License Agreement (the “Agreement”), which is agreed to be effective as hereinafter provided, is by and between St. Jude Medical, Inc., a Minnesota corporation having its principal place of business at One Lillehei Plaza, St. Paul, Minnesota, 55117 (“St. Jude”), and Boston Scientific Corporation, a Delaware corporation having its principal place of business at One Boston Scientific Place, Natick Massachusetts, 01760-1537 (“BSC”).

RECITALS

A.BSC and/or certain of its Affiliates, on the one hand, and St. Jude and/or certain of its Affiliates, on the other hand, are adverse parties in the following currently pending litigation matters, which are being terminated pursuant to a Settlement Agreement by and between BSC and certain of its Affiliates, on the one hand, and St. Jude and certain of its Affiliates, on the other hand, dated July 29, 2006 (the “Settlement Agreement”):

1) Pacesetter, Inc. v. Cardiac Pacemakers, Inc., et al., Case No. 02-1337 DWF/SRN (D. Minn.) (the “Minnesota Pacesetter Case”);

2) Cardiac Pacemakers, Inc., et al., v. St. Jude Medical, Inc., et al., Civil Action No. 04-1016 JMR/FLN (D. Minn.) (the “Minnesota CPI Case”); and

5) Pacesetter, Inc. et al. v. Intermedics, Inc.et al., Case No. CV 06-3166 GHK(FFMx) (C.D. Cal.) (the “California case”).

B.St. Jude and BSC and/or certain of their respective Affiliates are engaged in, inter alia, the design, development, manufacture, and sale of CRM Products.

C.St. Jude and BSC and/or certain of their respective Affiliates own or hold certain Licensed Patents and rights under Sublicensable Patents relating to CRM Products.

D.Pursuant to the Settlement Agreement, St. Jude and BSC have agreed to terminate the Minnesota Pacesetter Case, the Minnesota CPI Case, and the California case and have agreed to enter into a cross licensing of certain rights under the Licensed Patents and Sublicensable Patents.

Now therefore, in consideration of the covenants and agreements set forth herein and for valuable consideration receipt of which is hereby acknowledged, St. Jude and BSC mutually agree as follows:

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

ARTICLE I

Definitions of Certain Terms

For the purposes of this Agreement, the following capitalized terms shall have the meaning specified below. In addition, whenever used in the Agreement, “include,” “includes,” and “including” shall be deemed to be followed by “without limitation,” whether or not it is followed by such words.

Section 1.01. Affiliate. “Affiliate” means any person or entity that controls or is controlled by or is under common control with St. Jude or BSC on the Effective Date or at any time thereafter. For purposes of this Section 1.01, ownership, directly or indirectly, of more than fifty percent (50%) of the capital stock or other comparable ownership interest of the corporation or entity carrying the right to vote for or appoint directors or their equivalent (if not a corporation) shall constitute control thereof. “Affiliate” of a third party means a person or entity that controls, is controlled by, or under common control with, such third party. Without in any way limiting the foregoing, “Affiliates” of St. Jude include Pacesetter, Inc., St. Jude Medical AB, and St. Jude Medical S.C., Inc. and “Affiliates” of BSC include Guidant Corporation, Cardiac Pacemakers, Inc., Guidant Sales Corporation, and Intermedics, Inc.

Section 1.02. CRM Products. “CRM Products” means devices for monitoring or electrically stimulating or shocking the heart which are suitable for chronic implantation, in whole or in part, by or with human patients. The term “CRM Products” includes, without limitation: cardiac pacemakers, antitachycardia pacemakers, cardiac resynchronization therapy systems, cardioverters, and defibrillators, including combinations thereof; loop recording systems, implantable cardiac monitoring systems, implantable hemodynamic monitoring systems, pulse generators and other waveform generators for such devices; cardiac lead implant catheters and associated tools; leads, electrodes, sensors, capacitors, batteries, power sources, and all other components for such devices; mechanisms for coupling such generators in a stimulating, shocking, sensing, or monitoring relationship to the heart; and data dispensing, processing, and gathering systems for such devices, including programmers, pacing system analyzers, defibrillation system analyzers, testers, encoders, decoders, transtelephonic and other remote monitoring systems and services for use with implantable devices, transmitters, receivers, and computer software-controlled systems, and including the software. The term “CRM Products” excludes, by way of example and not limitation, nerve stimulators (unless used for cardiac therapy), bone growth stimulators, drug release pumps, cardiac pumps, artificial hearts, prosthetic heart valves, catheter ablation devices, imaging systems, catheter location systems, apparatus for revascularization or correction of other physical defects in heart tissue, arrhythmia mapping devices (except as part of an implantable cardiac therapy or monitoring device), angioplasty devices and EKG monitors (other than cardiac stimulation device programmers or other telemetry devices for use with implantable pulse generators or cardiac monitors) which are standalone, non-ambulatory and not intended for transtelephonic or other remote monitoring.

Section 1.03. Licensed Patents.

(a)“Licensed Patents” means any and all patents relating to CRM Products (including the manufacture or use thereof), which are (i) owned (whether by development, acquisition, or otherwise) by St. Jude or its Affiliates as of the Effective Date or BSC or its Affiliates as of the Effective Date and have a priority date on or before the Effective Date or (ii) licensed to St. Jude or its Affiliates or BSC or its Affiliates as of the Effective Date under licenses or other agreements,

and which permit St. Jude or its Affiliates or BSC or its Affiliates to grant licenses or sublicenses, in each case without any right in a non-Affiliated third party to receive royalties or any other continuing payments to maintain the license or other agreement in effect, which are within the scope of the following class: all patents issued in any country from patent applications filed as of the Effective Date including all patents maturing from continuation, continuation-in-part, divisional, and reissue applications, or reexaminations of such patents and patent applications, and further including all patents which are counterparts of such patents or patent applications which are described in this Section 1.03, regardless of whether such patent matures from a convention or non-convention patent application, and any other substitution, renewal, extension, addition, utility model, or other patent, non-U.S. or U.S., which claims priority based on such a patent application.

(b)Notwithstanding the foregoing, the term “Licensed Patents” specifically excludes the ** Patents and the ** Patents.

(c)Notwithstanding the foregoing, the term “Licensed Patents” specifically excludes Sublicensable Patents.

(d)Notwithstanding the foregoing, the term “Licensed Patents” specifically excludes the patents listed on Exhibit A which are or will be subject to licensing restrictions being negotiated with a third party.

Section 1.04. Sublicensable Patents.

(a)“Sublicensable Patents” shall mean patents and patent applications, both U.S. and non-U.S., which relate to CRM Products and which are the subject of licenses or assignments or other agreements with non-Affiliated third parties in force as of the Effective Date and which licenses or assignments or other agreements (a) convey rights to St. Jude or its Affiliates or BSC or its Affiliates as licensee or assignee or grantee, including the right to grant sublicenses or licenses, and further (b) (i) require the payment of royalties or any other continuing payments either for use of the patents or patent applications or to maintain the license or assignment or other agreement in effect or (ii) have other licensing restrictions such as field of use restrictions.

(b)Without limiting the foregoing, the term “Sublicensable Patents” specifically includes, but is not limited to, all present patents and patent applications listed on Exhibit B of this Agreement. The parties believe that Exhibit B is a complete listing of their respective U.S. patents and patent applications within the foregoing definition of Sublicensable Patents which are in existence as of the Effective Date, and any errors, overinclusions or omissions from Exhibit B will be deemed to be inadvertent and not a material breach. Present foreign patents and applications, including foreign counterparts of U.S. patents and patent applications listed on Exhibit B, have intentionally not been included in Exhibit B but are deemed to be Sublicensable Patents if they are covered by the foregoing definition in this Section 1.04.

(c)Notwithstanding the foregoing, the term “Sublicensable Patents” excludes the Mirowski-Owned Patents.

Section 1.05. Mirowski-Owned Patents. “Mirowski-Owned Patents” shall mean all patent rights that are the subject of the Amended and Restated Exclusive License Agreement dated January 28, 2004, by and between Guidant Corporation and Mirowski Family Ventures, LLC (“MFV”), a limited liability company organized under the laws of the State of Maryland (the “MFV Exclusive License”).

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Section 1.06. ** Patents. “** Patents” shall mean those patents and patent applications, and all patents and patent applications claiming priority therefrom, ** as set forth in Exhibit C.

Section 1.07. ** Patents. “** Patents” shall mean those patents and patent applications, and all patents and patent applications claiming priority therefrom, ** as set forth in Exhibit D. The ** Patents shall include the sublicensable patents and patent applications of ** listed in Exhibit D.

Section 1.08. Effective Date. “Effective Date” shall mean July 29, 2006.

ARTICLE II

Cross License; Covenant Not to Sue

Section 2.01. License. Subject to the terms, conditions, and limitations set forth herein:

(a)St. Jude grants (and will cause its Affiliates to grant) to BSC and its Affiliates a non-exclusive, irrevocable, perpetual, fully paid-up worldwide license or sublicense, as the case may be, without the right to sublicense, under all Licensed Patents of St. Jude (and its Affiliates) to make, have made, use, sell, have sold, offer to sell, distribute, have distributed, and otherwise dispose of CRM Products, including supplying or causing to be supplied components thereof for use therein, and further including importing CRM Products, including components thereof for use therein, into any jurisdiction where Licensed Patents of St. Jude (or its Affiliates) are effective.

(b)BSC grants (and will cause its Affiliates to grant) to St. Jude and its Affiliates, a non-exclusive, irrevocable, perpetual, fully paid-up, worldwide license or sublicense, as the case may be, without the right to sublicense, under all Licensed Patents of BSC (and its Affiliates) to make, have made, use, sell, have sold, offer to sell, distribute, have distributed, and otherwise dispose of CRM Products, including supplying or causing to be supplied components thereof for use therein, and further including importing CRM Products, including components thereof for use therein, into any jurisdiction where Licensed Patents of BSC (or its Affiliates) are effective.

(c)If any party has CRM Products made for it under the above license grant, such CRM Products must bear its or one of its Affiliates’ trade names or trademarks; however, such CRM Products may bear third-party trade names or trademarks for materials or components used in such CRM Products.

(d)The licenses granted in this Section 2.01 shall be irrevocable except for the specific right to terminate described in Section 9.02, below.

Section 2.02. Option to Obtain Sublicense on Sublicensable Patents. It is the intent of each party to afford the other party and its Affiliates the opportunity to obtain sublicenses under the Sublicensable Patents. Accordingly:

(a)St. Jude grants (and will cause its Affiliates to grant) to BSC and its Affiliates the right and option until sixty (60) days following the termination of this Agreement to obtain sublicenses under one or more of the Sublicensable Patents. Upon written request by BSC to St. Jude, St. Jude will inform BSC of the provisions of the agreement or license with a third party conveying rights in a particular Sublicensable Patent to St. Jude or its Affiliates, and shall make available to BSC and its Affiliates a non-exclusive, non-transferable license affording them the most favorable terms and conditions permissible to sublicensees under such agreement or license with such third party (but in no event under terms more favorable than those of St. Jude or its Affiliates).

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

(b)BSC grants (and will cause its Affiliates to grant) to St. Jude and its Affiliates the right and option until sixty (60) days following the termination of this Agreement to obtain sublicenses under one or more of the Sublicensable Patents. Upon written request by St. Jude to BSC, BSC will inform St. Jude of the provisions of the agreement or license with a third party conveying rights in a particular Sublicensable Patent to BSC or its Affiliates, and shall make available to St. Jude and its Affiliates a non-exclusive, non-transferable license affording them the most favorable terms and conditions permissible to sublicensees under such agreement or license with such third party (but in no event under terms more favorable than those of BSC or its Affiliates).

(c)It is the intention of the parties under this Section 2.02 that a party acquiring a sublicense under Sublicensable Patents be required to make only current payments based on current usage and that no previously paid “front end” payments be recovered by the sublicensor under such sublicensing arrangement. Notwithstanding any contrary foregoing provisions, if the party elects to obtain a sublicense thereunder and the license or assignment granted to the sublicensor requires ongoing minimum payments to maintain the license or assignment, payments by the sublicensor for the right to grant a sublicense or option to sublicense, or if the sublicensor is required to pay to the original licensor or assignor amounts based on the sublicensor’s or its sublicensee’s current usage, then the sublicensor may require under the sublicensing arrangement that its sublicensee pay the amounts required for the grant of the sublicense or option to sublicense as well as a pro rata portion of such minimum payments under the original license or such usage payments due from the sublicensor, with each party’s respective pro rata amount based upon the volume of their respective sales of products covered by the original license agreement. The obligation to pay a pro rata share of minimum royalty does not apply to a minimum royalty required to maintain an exclusive license under a Sublicensable Patent unless otherwise agreed.

(d) This Section 2.02 shall not apply to the ** Patents.

Section 2.03. Royalty Payments to Third Parties. Any royalty payments required to be made to the owner of a patent sublicensed in the future in accordance with this Agreement shall be made, if permissible under the applicable license agreement and if acceptable to the sublicensor, directly by the sublicensee to such owner in accordance with the terms of the applicable license agreement. Unless otherwise required by the applicable license agreement, questions regarding the applicability, validity, or enforceability of any patent sublicensed in accordance with this Agreement shall be resolved by the owner of the sublicensed patent and the sublicensee. The sublicensor of such patent shall have the right in its discretion to participate in any such discussions or negotiations between the owner of the sublicensed patent and the sublicensee. In any event, the sublicensee shall keep the sublicensor fully informed of all discussions and negotiations between such sublicensee and the owner of the sublicensed patent. Any dispute arising between the sublicensor and sublicensee of any such patent shall be resolved by alternative dispute resolution as provided in Article 8 of this Agreement.

Section 2.04. Rights under Section 2.02 Subject to Continued Payment of Royalties. In the event that either party fails in any material respect to pay to the other party (or to the licensor of a Sublicensable Patent, as the case may be) royalties required under this Agreement, and such failure is not cured within sixty (60) days of written notice to the defaulting party of such failure, then all license rights of the defaulting party under Section 2.02 of this Agreement, with respect only to the particular patent or patents in dispute, shall terminate. Such a termination shall in no way affect or impair the rights of the other party under such Section 2.02.

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Section 2.05. Regarding OEM Activities. The licenses granted or to be granted under this Article II shall not be used in such a way as to manufacture CRM Products on an original equipment manufacturer (“OEM”) basis for any person or entity other than St. Jude and its Affiliates or BSC and its Affiliates. The licenses granted or to be granted under this Article II shall apply to and for the benefit of CRM Products manufactured by a party to this Agreement for a third party who is licensed under the appropriate patents of the other party to this Agreement where, and to the extent that, the third party’s license permits such third party to “have made” such CRM Products for such third party. Nothing in this Agreement shall preclude the use of the licenses granted or to be granted under this Article II by a party or its Affiliate for the purpose of having CRM Products manufactured by a third party on an OEM basis for such party or its Affiliate; provided, however, that such CRM Products must bear the trademark or trade name of such party or its Affiliate. Notwithstanding the foregoing, such CRM Products may bear third-party trade names or trademarks for materials or components used in such CRM Products.

Section 2.06. Option To Sublicense Mirowski-Owned Patents. BSC grants (and will cause its Affiliates to grant) to St. Jude and its Affiliates an irrevocable, perpetual right and option to obtain a sublicense under the Mirowski-Owned Patents. Upon written notice by St. Jude to BSC of St. Jude’s election to exercise the option granted in this Section 2.06, St. Jude and its Affiliates shall have a non-exclusive, non-transferable (except as permitted by Section 9.02, below) worldwide license under the Mirowski-Owned Patents effective as of the date such written notice is deemed to have been given under Article 6 of this Agreement. Any sublicense granted as a result of this Section 2.06 shall afford St. Jude the most favorable terms and conditions permissible to sublicensees under the MFV Exclusive License (but shall in no event require BSC or its Affiliates to make any payments on behalf of St. Jude or its Affiliates).

Section 2.07. ** and ** Patents. It is the intent of each party to afford the other party and its Affiliates the rights provided below regarding the ** Patents and the ** Patents. Accordingly:

(a)BSC grants (and will cause its Affiliates to grant) to St. Jude and its Affiliates the right and option for a period of thirty (30) months from the Effective Date to obtain a non-exclusive, worldwide, non-transferable, royalty-bearing license under the ** Patents. Should St. Jude opt to acquire such license, St. Jude shall pay to BSC on no less than a quarterly basis a royalty of ** percent (**%) of the net revenue received for the sale of each St. Jude product that utilizes the ** Patents. St. Jude’s royalty obligation under this Section 2.07(a) shall commence as of the date of the first sale of a St. Jude product that utilizes the ** Patents and shall continue for a period of five (5) years thereafter, at which point St. Jude’s license under the ** Patents will convert to a non-exclusive, non-transferable, irrevocable, perpetual, fully-paid up, worldwide license.

(b)If, and only if, St. Jude exercises its option for a license under the ** Patents pursuant to Section 2.07 (a), above, St. Jude shall grant (and will cause its Affiliates to grant) to BSC and its Affiliates the right and option until the expiration of thirty (30) months from the Effective Date or ninety (90) days from the date St. Jude exercises its option under Section 2.07, whichever is later in time, to obtain a non-exclusive, worldwide, non-transferable, royalty-bearing license under the ** Patents. Such sublicense to the ** Patents shall, if requested by BSC, include a sublicense to the patents and patent applications of ** listed in Exhibit D, and shall be subject to the terms of the license agreement between ** and **. Should BSC opt to acquire such license, BSC shall pay to St. Jude on no less than a quarterly basis a royalty of ** percent (**%) of the net revenue received for the sale of each BSC product that utilizes the ** Patents. BSC’s royalty

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

obligation under this Section 2.07(b) shall commence as of the date of the first sale of a BSC product that utilizes the ** Patents and shall continue for a period of five (5) years thereafter, at which point BSC’s license under the ** Patents will convert to a non-exclusive, non-transferable, irrevocable, perpetual, fully-paid up, worldwide license.

(c)Should St. Jude not exercise its option for a license under the ** Patents pursuant to Section 2.07(a), above, St. Jude agrees that it will enter into good faith negotiations with BSC for the grant of a license to BSC and its Affiliates under the ** patents should BSC desire such a license.

Section 2.08. Certain Conditions, Limitations and Understandings. The licenses and sublicenses granted under this Agreement are expressly made subject to the following conditions, limitations and understandings:

(a)The licenses are personal to the parties hereto, and are nonassignable and nontransferable, except as set forth in Section 9.02 below.

(b)The parties and their Affiliates shall have the right, in their sole and absolute discretion, to control the maintenance, abandonment, extension, and licensing of their own patents including the Licensed Patents and Sublicensable Patents; provided however, that no such license or other transfer of interest shall in any manner abridge the rights of the other party granted under this Agreement.

(c)The owner or exclusive licensee of a Licensed Patent or Sublicensable Patent shall have the right to enforce, or not to enforce, its Licensed Patents or Sublicensable Patents in its sole and absolute discretion against all persons and organizations other than a party or Affiliate of a party hereto.

(d)The licenses granted herein shall not extend to any technical know-how or design information, manufacturing, marketing, and/or processing information or know-how, designs, drawings, mask works, specifications, software source code, algorithms, clinical data, or other documents directly or indirectly pertinent to the use of the Licensed Patents or Sublicensable Patents, or to the use of any trademarks or trade names, service marks, or software copyrights or other copyrights (including copyright registrations) of any party, and the parties acknowledge that there is no obligation upon any party or its Affiliates to provide such information, know-how, designs, drawings, mask works, specifications, software source code, algorithms, clinical data, or other documents.

(e)Except as otherwise expressly provided in this Agreement, all licenses are granted for the life of the covered patents.

(f)Licenses and sublicenses under Sublicensable Patents will only be granted to the extent the grantor has the right to grant such licenses and sublicenses.

(g)All licenses and sublicenses required to be granted by Affiliates under this Agreement shall be subject to the terms and conditions set forth in this Agreement, except as may be otherwise provided in Section 2.02 relating to Option to Obtain Sublicense on Sublicensable Patents.

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

(h) Any assignment or other transfer by a party or its Affiliate of that entity’s interest in (i) a Licensed Patent or (ii) a Sublicensable Patent in which the other party and its Affiliates has exercised the option to obtain a sublicense as provided in Section 2.02 above shall be made subject to the rights of the other party and its Affiliates under this Agreement.

(i) Any license extended to an Affiliate shall continue only so long as “Affiliate” status is maintained, or as permitted pursuant to the other party’s consent.

Section 2.09. Covenant Not to Sue.

(a)St. Jude and its Affiliates hereby covenant not to sue BSC and its Affiliates, their respective successors, assigns, affiliated entities, directors, officers, shareholders, and legal representatives, distributors, resellers, customers, and end users for the alleged infringement of patent or other intellectual property rights that are acquired or licensed by St. Jude and/or its Affiliates after the Effective Date with respect to any CRM Products that are commercially marketed or sold anywhere in the world as of the Effective Date.

(b)BSC and its Affiliates hereby covenant not to sue St. Jude and its Affiliates, their respective successors, assigns, affiliated entities, directors, officers, shareholders, and legal representatives, distributors, resellers, customers, and end users for the alleged infringement of patent or other intellectual property rights that are acquired or licensed by BSC and/or its Affiliates after the Effective Date with respect to any CRM Products that are commercially marketed or sold anywhere in the world as of the Effective Date.

(c)This Section 2.09 shall not apply to the Mirowski-Owned Patents, the ** Patents, the ** Patents, or the patents listed on Exhibit A.

ARTICLE III

Representations, Warranties and Limitations

Section 3.01. Certain Representations and Warranties.

(a)Each party represents and warrants to the other party as follows and acknowledges that each of the following representations and warranties has been relied upon by the other party and is material to the other party’s decision to enter into the Agreement: each party hereto has the requisite power and authority, corporate and otherwise, to execute and perform the Agreement, to grant the licenses, sublicenses, and option to obtain licenses and sublicenses provided for herein, and, except as provided in this Section 3.01, to cause such party’s Affiliates to execute and perform the Agreement and to grant the licenses, sublicenses, and option to obtain licenses and sublicenses provided for herein.

(b)To the extent that a party shall lack the requisite authority to cause an Affiliate of such party to execute or perform this Agreement or to grant the licenses or option to obtain sublicenses as provided in this Agreement, then such party shall defend, indemnify, and hold harmless the other party and its Affiliates, and all officers, directors, employees, attorneys, agents, successors, and assigns of the other party and its Affiliates, against any and all legal expenses, costs, and judgments arising from claims, controversies, demands, rights, disputes, grievances, or causes of action that would have been avoided had such party caused such Affiliate to execute or perform the Agreement or to grant the licenses or option to obtain sublicenses as provided in this Agreement.

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

(c)          BSC (and its Affiliates) represents and warrants that Eli Lilly and Company does not hold any rights in the Licensed Patents, the Sublicensable Patents or the Mirowski-Owned Patents, and has no claims or causes of action against St. Jude and its Affiliates arising therefrom. BSC shall defend, indemnify, and hold harmless St. Jude and its Affiliates, and all officers, directors, employees, attorneys, agents, successors, and assigns of St. Jude and its Affiliates, against any and all legal expenses, costs, and judgments arising from any claims, controversies, demands, rights, disputes, grievances, or causes of action that Eli Lilly and Company asserts relating to the Licensed Patents, the Sublicensable Patents or the Mirowski-Owned Patents.

(d)Neither party hereto is a party to any license, agreement or other instrument which would prohibit the granting of the licenses or option to obtain sublicenses granted herein.

Section 3.02. Disclaimers. Nothing contained in this Agreement shall be construed as:

(a)A warranty or representation by any party hereto as to the validity, scope, or enforceability of any Licensed Patents or Sublicensable Patents; or

(b)A warranty or representation by any party hereto that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents of third parties; or

(c)An obligation to bring or prosecute actions or suits against third parties for patent infringement, or as an agreement by the parties to assist each other in any manner in the defense of any claim of infringement brought by a third party; or

(d)An obligation to file or prosecute any patent application, to secure the grant of any patent or any reissue or extension thereof, or to pay any maintenance fee or annuity or tax or take any other steps to maintain any patent; or

(e)A representation, warranty, or extension of warranties of any kind, expressed or implied, or an assumption of responsibility by any party with respect to the use, sale, or other disposition by the other party or its agents, representatives, distributors, or users of products incorporating or made by use of inventions licensed under this Agreement.

Section 3.03. Limitations. Each party shall be responsible for its design, manufacture, instructions for use, quality control, and all safety-related activities relating to its own products, whether or not manufactured under license from the other party’s Licensed Patents or Sublicensable Patents, and shall not be responsible for the products of the other party, the other party’s Affiliates, or any other party or person.

ARTICLE IV

Termination of Agreement

Section 4.01. Termination of Agreement. This Agreement shall be effective as of the Effective Date and shall continue in force and effect until the expiration of the last to expire of the patents licensed and sublicensed pursuant to the provisions of this Agreement.

ARTICLE V

Confidentiality/Publicity Concerning Agreement

Section 5.01. Confidentiality/Publicity Concerning Agreement. It is intended that, to the extent possible, the terms of this Agreement remain confidential. No party or any Affiliate of a party shall originate any publicity, news release, or other such general public announcement or make any other disclosure to any third party regarding the terms of this Agreement without the express written consent of the other party (without limitation, the foregoing provision is not intended to limit communications deemed reasonably necessary or appropriate by a party or its Affiliate to its employees, shareholders, directors, officers, accountants, auditors and legal counsel). Notwithstanding the foregoing provision, the parties and their respective Affiliates shall not be prohibited from making any disclosure or release that is required by law, court order, or applicable regulation, or is considered necessary by counsel to fulfill an obligation under securities laws or the rules of the New York Stock Exchange or other applicable stock exchange or to protect any intellectual property right in any territory so long as the disclosing party provides notice to the other party at least five (5) business days prior to such disclosure. However, the parties agree that, with regard to any required disclosure to the Securities and Exchange Commission regarding this Agreement or the fact that it has been executed that is made on or around the Effective Date, prior notice to the other party shall not be required.

ARTICLE VI

Notice

Section 6.01. Notice. Any notice or other communication to be made pursuant to this Agreement shall be sent to the other party at its address listed below or at such other address such party may hereinafter designate to the other party in writing:

If to BSC:

President and CEO

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

with a copy to:

General Counsel

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

If to St. Jude:

President and CEO

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

with a copy to:

General Counsel

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

Notice shall be deemed to have been given (i) at the expiration of two (2) business days from the date of delivery by a facsimile transmission, provided a copy is deposited postage prepaid for delivery with the postal service or given for delivery to an express courier service on the same date as the sending of the facsimile, or (ii) ten (10) business days from the date the communication is deposited postage prepaid with the postal service or given to an express courier service, unless actual receipt of the notice at an earlier date is established. Without limitation of the foregoing, a written receipt signed by the addressee or its duly appointed representative situated at the addresses set forth hereinabove shall constitute sufficient evidence of service. Either party may change its address and facsimile information by written notice given in accordance with the provisions of this Section.

ARTICLE VII

Loss of Patents

Section 7.01. Loss of Patents. The loss of any patent(s) or patent application(s) embraced by the term “Licensed Patents” or “Sublicensable Patents” by any party hereto, through abandonment, failure to renew, declaration of invalidity, or otherwise, shall not be cause to terminate this Agreement or the licenses granted hereunder with respect to all other Licensed Patents or Sublicensable Patents and such loss, or any declaration of noninfringement, invalidity, or unenforceability, shall not be deemed a failure of consideration.

ARTICLE VIII

Alternative Dispute Resolution

Section 8.01. Alternative Dispute Resolution.

(a)Any dispute concerning whether any party’s actions are licensed under Article II of this Agreement, that is not resolved by negotiation as provided in subsection (c) of this Section 8.01 shall be resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit E.

(b)Any dispute that arises out of or relates to this Agreement, including an alleged breach of this Agreement but excluding any dispute within the scope of subsection (a) of this Section 8.01, between (i) St. Jude or a St. Jude Affiliate and (ii) BSC or a BSC Affiliate that is not resolved by negotiation as provided in subsection (c) of this Section 8.01 shall be resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit F.

(c)The parties recognize that a bonafide dispute may arise from time to time as to certain matters that relate to this Agreement. In all such instances, any party may, by written notice to the other party, have such dispute referred to their respective employees designated below or

their successors, for attempted resolution by good faith negotiations within sixty (60) days after such notice is received. Such designated employees are as follows:

For BSC:

General Counsel

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

For St. Jude:

General Counsel

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

Any settlement reached by the parties under this Section 8.01 (c) shall not be binding until reduced to writing and signed by authorized officers of BSC and St. Jude. If the designated employees are unable to resolve such dispute within such sixty-day period, any party may invoke the other ADR provisions of this Section 8.01.

ARTICLE IX

General Provisions

Section 9.01. Modification. The Agreement may not be modified, changed, or terminated orally. No change, modification, addition, or amendment shall be valid unless given in a writing expressly indicating an intent to modify the Agreement and duly executed by the parties.

Section 9.02. Assignment and Transfer. The licenses and other rights granted in this Agreement shall be nonassignable and nontransferable except in connection with the sale of a party’s CRM Products business (whether by the sale of all or substantially all of a party’s assets or its subsidiaries’ assets related to CRM Products, sale of stock of one or more subsidiary companies, merger, or otherwise). Except as permitted herein, a purported transfer of the license or other rights granted herein shall be null and void and shall give the other party hereto the right to terminate the licenses granted to the transferring party without terminating the licenses granted by the transferring party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of St. Jude, BSC, and their respective Affiliates and successors.

Section 9.03. Assurances. BSC shall in all events remain fully responsible for, and shall assure its own and its Affiliates’ performance of, all of their respective obligations under this Agreement, and St. Jude shall in all events remain fully responsible for, and shall assure its own and its Affiliates’ performance of, all of their respective obligations under this Agreement.

Section 9.04. Entire Agreement.

Other than for the agreements listed in Exhibit G, hereto, which shall still remain in full force and effect in accordance with their terms and conditions, this Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all

negotiations, correspondence, understandings and agreements, whether written or oral, between the parties respecting the subject matter hereof. Except for those license agreements listed in Exhibit G, any license agreement covering any Licensed Patents in existence between the parties prior to the Effective Date shall be deemed terminated as of the Effective Date and superseded by this Agreement.

Section 9.05. Governing Law. Recognizing that the laws within the United States and international jurisdictions vary in their content and effect with respect to similar subject matter, and that the parties desire uniformity and predictability in interpretation and enforcement of this Agreement, the parties have agreed to the following provisions regarding applicable law to govern this Agreement: All matters affecting the interpretation, form, validity, and performance of this Agreement shall be decided under the laws of the State of Minnesota (without regard to principles of conflicts of laws), including its procedural laws; provided, however, that (a) nothing in Minnesota state procedural law shall be deemed to alter or affect the applicability of the Federal Arbitration Act as governing arbitration of disputes as provided in this Agreement, and (b) no Minnesota state arbitration laws or arbitration rules shall be applicable.

Section 9.06. Force Majeure. No party (including any of its Affiliates) shall be liable in damages for, nor shall this Agreement be terminable or cancelable by reason of, any delay or default in any party’s performance hereunder if such default or delay is caused by events beyond such party’s reasonable control including, but not limited to, acts of God, action of any government or agency thereof, war or insurrection, civil commotion, destruction of facilities or materials by earthquake, fire, flood or storm, labor disturbances, epidemic, or failure of public utilities or common carriers. The party (or Affiliates) so affected shall give prompt notice to the other parties of such cause, and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible. All parties (or Affiliates) agree to endeavor to resume their performance hereunder if such performance is delayed or interrupted by reason of force majeure.

Section 9.07. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original.

Section 9.08. Captions. The captions in this Agreement are intended solely as a matter of convenience and are for reference only, and shall be given no effect in the construction or interpretation of this Agreement.

Section 9.09. Severability of Provisions. Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by such holding.

Section 9.10. No Agency. At no time shall any party or its Affiliate hold itself out to be the agent, employee, lessee, sublessee, partner, or joint venture partner of the other party or its Affiliates. Nothing in this Agreement shall be construed to create any relationship between the parties other than that of licensor/licensee (or sublicensor/sublicensee) as provided in this Agreement. No party or its Affiliates shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or its Affiliates or to bind the other party or its Affiliates with regard to any other contract, agreement, or undertaking with a third party.

Section 9.11. Further Assurances. At such time and from time to time on and after the Effective Date upon request by a party, the other party will execute and deliver or will cause to be

executed and delivered, all such further acts, acknowledgments, and assurances that may be reasonably required for carrying out the purposes of this Agreement. Such further assurances may include, but not be limited to, an acknowledgment by Affiliates of a party that such Affiliates are bound by the terms and provisions of this Agreement or an acknowledgment that a particular patent is a Licensed Patent or a Sublicensable Patent.

Section 9.12. Construction Against Waiver. No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision, or condition of this Agreement; nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate and duly attested by their corporate officers duly authorized for this purpose.

BOSTON SCIENTIFIC CORPORATION
By:	/s/   Paul W. Sandman
	Executive Vice President, Secretary and General Counsel

ATTEST:
By:	/s/   Lawrence J. Knopf

ST. JUDE MEDICAL, INC.
By:	/s/   Pamela S. Krop
	Vice President, General Counsel and Secretary

ATTEST:
By:	/s/   James W.A. Ladner

Exhibit A

Exclusions from “Licensed Patents” Pursuant to Section 1.03(d)

U.S. Patents:

**

U.S. Patent Applications:

**

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Exhibit B

Sublicensable Patents

BSC Sublicensable Patents:

St. Jude Sublicensable Patents:

**

U.S. Patents:

**

U.S. Patent Applications:

**

**

U.S. Patents:

**

U.S. Patent Applications:

**

**

U.S. Patent No. **

**

U.S. Patent Applications:

**

**

U.S. Patent No. **

**

U.S. Patents:

**

**

U.S. Patents:

**

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

**

U.S. Patents:

**

**

U.S. Patents:

**

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Exhibit C

** Patents

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Exhibit D

** Patents

U.S. Patent Applications:

**

**

U.S. Patents:

**

U.S. Patent Applications:

**

**The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

Exhibit E

ADR Procedure Pursuant to Section 8.01(a)

1.Upon the expiration of the 60-day period for good faith negotiations pursuant to Section 8.01(c), any party may initiate arbitration with the American Arbitration Association (“AAA”) by filing a Notice of Arbitration pursuant to the then-existing AAA rules for commercial arbitration. Should any provision of the applicable AAA rules conflict in any way with any provision of this Agreement, this Agreement shall govern.

2. Within twenty (20) days after filing the Notice of Arbtiration, the parties shall appoint a single, neutral arbitrator. The arbitrator shall have substantial experience in patent infringement litigation and in determining whether a product embodies patent claims. If the parties are unable to agree on the arbitrator within the time specified above, AAA will select a so-qualified arbitrator within three (3) business days thereafter.

3. The parties shall not be entitled to any discovery.

4.Fifty (50) days after filing the Notice of Arbitration, each party will submit to the arbitrator an opening brief, not to exceed 40 pages in length, setting forth its position on the merits of the dispute. The text must be spaced at least 24 points vertically and the font must be at least 12 points. Claim charts regarding infringement, non-infringement, or invalidity, attached to the brief as exhibits for the convenience of the arbitrator, will not count towards the page limit.

5.Eighty (80) days after filing the Notice of Arbitration, each party will submit to the arbitrator a reply brief, not to exceed 40 pages in length, setting forth its responses to the other party’s opening brief. The reply brief may not raise any issues not already raised in the parties’ opening briefs and must conform to the same spacing/font requirements as the opening briefs.

6.No more than one-hundred twenty (120) days after filing the Notive of Arbitration, the arbitrator shall provide a written, reasoned decision to the parties.

Exhibit F

ADR Procedure Pursuant to Section 8.01(b)

1.Upon the expiration of the 60-day period for good faith negotiations pursuant to Section 8.01(c), any party may initiate arbitration with the American Arbitration Association (“AAA”) by filing a Notice of Arbitration pursuant to the then-existing AAA rules for commercial arbitration. Should any provision of the applicable AAA rules conflict in any way with any provision of this Agreement, this Agreement shall govern.

2. Within twenty (20) days after filing the Notice of Arbtiration, the parties shall appoint a single, neutral arbitrator. The arbitrator shall have substantial experience in commercial licensing, preferably in the medical devices industry. If the parties are unable to agree on the arbitrator within the time specified above, AAA will select a so-qualified arbitrator within three (3) business days thereafter.

3.The parties shall be entitled to discovery as ordered by the arbitrator; however, it is the intention of the parties that any such discovery be limited in scope in order to reduce the cost and burden to the parties. The arbitrator shall take this intention into account when ordering discovery so that any discovery so ordered is narrowly-tailored to lead to relevant information while minimizing the burden and cost of such discovery on the parties.

4.The arbitrator will be empowered to award specific performance of the Agreement, as well as compensatory damages, costs, and attorneys’ fees to the prevailing party, as the arbitrator deems appropriate. No punitive damages of any kind shall be awarded.

5. The arbitration shall be conducted in such a way that the arbitrator issues a decision and award no later than six (6) months after commencement of the arbitration.

Exhibit G

Additional Agreements Still in Effect

“Agreement” between Pacesetter, Inc. and Intermedics, Inc. effective October 22, 1996

“License Agreement” between Pacesetter, Inc. and Sulzer Intermedics, Inc. having an Effective Date of December 3, 1996

EX-10.7

EXHIBIT 10.7

SCS LICENSE AGREEMENT

This SCS License Agreement (the “Agreement”), which is agreed to be effective as hereinafter provided, is by and between St. Jude Medical, Inc., a Minnesota corporation having its principal place of business at One Lillehei Plaza, St. Paul, Minnesota, 55117 (“St. Jude”), and Boston Scientific Corporation, a Delaware corporation having its principal place of business at One Boston Scientific Place, Natick Massachusetts, 01760-1537 (“BSC”).

RECITALS

A.Advanced Bionics Corporation (“ABS”), a wholly-owned subsidiary of BSC and Advanced Neuromodulation Systems, Inc. (“ANS”), a wholly-owned subsidiary of St. Jude, are adverse parties in the following currently pending litigation matters (collectively referred to as the “SCS Cases”):

1)   Advanced Neuromodulation Systems, Inc. v. Advanced Bionics Corporation, Civil Action No. 4:04cv131 (E.D. Tex);

2)   Advanced Bionics Corporation v. Advanced Neuromodulation System, Inc., Civil Action No. 4:04cv131 (E.D. Tex.); and

3)   the arbitration proceeding before the International Institute for Conflict Prevention and Resolution, Case No. G-06-08A.

B.St. Jude and BSC and certain of their respective Affiliates are engaged in, inter alia, the design, development, manufacture, and sale of devices for spinal cord stimulation.

C.St. Jude and BSC and certain of their respective Affiliates own or hold certain rights in the Patents-In-Suit.

D.Pursuant to a Settlement Agreement dated July 29, 2006, St. Jude and BSC have agreed to terminate the SCS Cases in return for, inter alia, the granting of certain rights by and between St. Jude and BSC concerning the Patents-In-Suit (the “Settlement Agreement”).

Now therefore, in consideration of the covenants and agreements set forth herein and the Settlement Agreement, pursuant to which a number of additional cases between St. Jude and BSC are either resolved or limited in scope, and for valuable consideration receipt of which is hereby acknowledged, St. Jude and BSC mutually agree as follows:

ARTICLE I

Definitions of Certain Terms

For the purposes of this Agreement, the following terms shall have the meaning specified below. Whenever used in the Agreement, “include,” “includes,” and “including” shall be deemed to be followed by “without limitation,” whether or not it is followed by such words.

Section 1.01. Affiliate. “Affiliate” means any person or entity that controls or is controlled by or is under common control with St. Jude or BSC on the Effective Date or at any time thereafter. For purposes of this Section 1.01, ownership, directly or indirectly, of more than fifty percent (50%) of the capital stock or other comparable ownership interest of the corporation or entity carrying the right to vote for or appoint directors or their equivalent (if not a corporation) shall constitute control thereof. “Affiliate” of a third party means a person or entity that controls, is controlled by, or under common control with, such third party.

Section 1.02. Patents-In-Suit. “Patents-In-Suit” means U.S. Patent Nos. 6,516,227; 6,381,496; 6,216,045; 6,154,678; and 4,793,353.

Section 1.03. BSC Licensed Patents.

(a)“BSC Licensed Patents” means U.S. Patent Nos. 6,516,227 and 6,381,496, including all divisionals, continuations, continuations-in-part, reissues, reexaminations and foreign counterparts, except as set forth in Section 1.03(c), below.

(b)Without limiting the foregoing, the term “BSC Licensed Patents” specifically includes, but is not limited to, all present patents and patent applications listed on Exhibit A of this Agreement. BSC believes that Exhibit A is a complete listing of its U.S. patents and patent applications within the foregoing definition of BSC Licensed Patents which are in existence as of the Effective Date, and any errors, overinclusions, or omissions from Exhibit A will be deemed to be inadvertent and not a material breach. Present foreign patents and patent applications, including foreign counterparts of U.S. patents and patent applications listed on Exhibit A, have intentionally not been included in Exhibit A but are deemed to be BSC Licensed Patents if they are covered by the foregoing definition in this Section 1.03.

(c)Notwithstanding the foregoing, the term “BSC Licensed Patents” specifically excludes the following:

(1) Claims 3-15 and 20-53 of U.S. Patent No. 6,516,227;

(2) Claims 2, 6 and 10 of U.S. Patent No. 6,895,280; and

(3)any patent claim with priority based on U.S. Patent Nos. 6,516,227 or 6,895,280 that claims multiple independent current sources for generating independently-controlled stimulus currents on multiple electrodes, thereby having the equivalent function to the device as claimed in any of the claims excluded pursuant to sub-sections (1) and (2), above.

Section 1.04. St. Jude Licensed Patents.

(a)“St. Jude Licensed Patents” means U.S. Patent Nos. 6,154,678 and 4,793,353, including all divisionals, continuations, continuations-in-part, reissues, reexaminations and foreign counterparts.

(b)“St. Jude Licensed Patents” also means U.S. Patent No. 6,216,045, including all divisionals, continuations, continuations-in-part, reissues, reexaminations, and foreign counterparts, for use in the SCS Field and excludes any use outside of the SCS Field.

(c)Without limiting the foregoing, the term “St. Jude Licensed Patents” specifically includes, but is not limited to, all present patents and patent applications listed on Exhibit A of this Agreement. St. Jude believes that Exhibit A is a complete listing of its U.S. patents and patent applications within the foregoing definition of St. Jude Licensed Patents which are in existence as of the Effective Date, and any errors, overinclusions, or omissions from Exhibit A will be deemed to be inadvertent and not a material breach. Present foreign patents and patent applications, including foreign counterparts of U.S. patents and patent applications listed on Exhibit A, have intentionally not been included in Exhibit A but are deemed to be St. Jude Licensed Patents if they are covered by the foregoing definition in this Section 1.04.

Section 1.05. SCS Field. “SCS Field” shall mean spinal cord stimulation to treat or manage chronic pain of the trunk and limbs.

Section 1.06. Effective Date. “Effective Date” shall mean July 29, 2006.

ARTICLE II

Cross License

Section 2.01. License. Subject to the terms, conditions, and limitations set forth herein:

(a)St. Jude grants (and will cause its Affiliates to grant) to BSC and its Affiliates a non-exclusive, irrevocable, perpetual, fully paid-up (except for royalties due to a third party, if any) worldwide license or sublicense, as the case may be, without the right to sublicense, under the St. Jude Licensed Patents to make, have made, use, sell, have sold, offer for sale, distribute, have distributed, and otherwise dispose of products, including supplying or causing to be supplied components thereof for use therein, and further including importing products, or components thereof for use therein, into any jurisdiction where St. Jude Licensed Patents are effective and which are manufactured in accordance with a method of any St. Jude Licensed Patent.

(b)BSC grants (and will cause its Affiliates to grant) to St. Jude and its Affiliates a non-exclusive, irrevocable, perpetual, fully paid-up (except for royalties due to a third party, if any) worldwide license or sublicense, as the case may be, without the right to sublicense, under the BSC Licensed Patents to make, have made, use, sell, have sold, offer for sale, distribute, have distributed, and otherwise dispose of products, including supplying or causing to be supplied components thereof for use therein, and further including importing products, or components thereof for use therein, into any jurisdiction where BSC Licensed Patents are effective and which are manufactured in accordance with a method of any BSC Licensed Patent.

(c)If any party has products made for it under the above license grant, such products must bear its or one of its Affiliates’ trade names or trademarks; however, such products may bear third-party trade names or trademarks for materials or components used in such products.

(d)The licenses granted in this Section 2.01 shall be irrevocable except for the specific exceptions described in the change of control situations contemplated by provisions of Section 9.02 below.

Section 2.02. Regarding OEM Activities. The licenses granted or to be granted under this Article II shall not be used in such a way as to manufacture products on an original equipment manufacturer (“OEM”) basis for any person or entity other than St. Jude and its Affiliates or BSC

and its Affiliates. The licenses granted or to be granted under this Article II shall apply to and for the benefit of products manufactured by a party to this Agreement for a third party who is licensed under the appropriate patents of the other party to this Agreement where, and to the extent that, the third party’s license permits such third party to “have made” such products for such third party. Nothing in this Agreement shall preclude the use of the licenses granted or to be granted under this Article II by a party or its Affiliate for the purpose of having products manufactured by a third party on an OEM basis for such party or its Affiliate; provided, however, that such products must bear the trademark or trade name of such party or its Affiliate. Notwithstanding the foregoing, such products may bear third-party trade names or trademarks for materials or components used in such products.

Section 2.03. Certain Conditions, Limitations and Understandings. The licenses and sublicenses granted under this Agreement are expressly made subject to the following conditions, limitations and understandings:

(a)The licenses are personal to the parties hereto, and are nonassignable and nontransferable, except as set forth in Section 9.02 below.

(b)The parties and their Affiliates shall have the right, in their sole and absolute discretion, to control the maintenance, abandonment, extension, and licensing of their own patents including the BSC Licensed Patents and St. Jude Licensed Patents; provided however, that no such license or other transfer of interest shall in any manner abridge the rights of the other party granted under this Agreement.

(c)The owner of a BSC Licensed Patent or St. Jude Licensed Patent shall have the right to enforce, or not to enforce, such patents in its sole and absolute discretion against all persons and organizations other than a party or Affiliate of a party hereto.

(d)The licenses granted herein shall not extend to any technical know-how or design information, manufacturing, marketing, and/or processing information or know-how, designs, drawings, mask works, specifications, software source code, algorithms, clinical data, or other documents directly or indirectly pertinent to the use of the BSC Licensed Patents or St. Jude Licensed Patents, or to the use of any trademarks or trade names, service marks, or software copyrights or other copyrights (including copyright registrations) of any party, and the parties acknowledge that there is no obligation upon any party or its Affiliates to provide such information, know-how, designs, drawings, mask works, specifications, software source code, algorithms, clinical data, or other documents.

(e)Except as otherwise expressly provided in this Agreement, all licenses are granted for the life of the covered patents.

(f)All licenses and sublicenses required to be granted by Affiliates under this Agreement shall be subject to the terms and conditions set forth in this Agreement.

(g)Any assignment or other transfer by a party or its Affiliate of that entity’s interest in (i) a BSC Licensed Patent or (ii) a St. Jude Licensed Patent shall be made subject to the rights of the other party and its Affiliates under this Agreement.

(h) Any license extended to an Affiliate shall continue only so long as “Affiliate” status is maintained, or as permitted pursuant to the other party’s consent.

ARTICLE III

Representations, Warranties and Limitations

Section 3.01. Certain Representations and Warranties.

(a)Each party represents and warrants to the other party as follows and acknowledges that each of the following representations and warranties has been relied upon by the other party and is material to the other party’s decision to enter into the Agreement: each party hereto has the requisite power and authority, corporate and otherwise, to execute and perform the Agreement, to grant the licenses and sublicenses provided for herein, and, except as provided in this Section 3.01, to cause such party’s Affiliates to execute and perform the Agreement and to grant the licenses and sublicenses provided for herein.

(b)To the extent that a party shall lack the requisite authority to cause an Affiliate of such party to execute or perform this Agreement or to grant the licenses or sublicenses as provided in this Agreement, then such party shall defend, indemnify, and hold harmless the other party and its Affiliates, and all officers, directors, employees, attorneys, agents, successors, and assigns of the other party and its Affiliates, against any and all legal expenses, costs, and judgments arising from claims, controversies, demands, rights, disputes, grievances, or causes of action that would have been avoided had such party caused such Affiliate to execute or perform the Agreement or to grant the licenses or sublicenses as provided in this Agreement.

(c)Neither party hereto is a party to any license, agreement or other instrument which would prohibit or restrict the granting of the licenses or sublicenses herein.

Section 3.02. Disclaimers. Nothing contained in this Agreement shall be construed as:

(a)A warranty or representation by any party hereto as to the validity, scope, or enforceability of any BSC Licensed Patents or St. Jude Licensed Patents; or

(b)A warranty or representation by any party hereto that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents of third parties; or

(c)An obligation to bring or prosecute actions or suits against third parties for patent infringement, or as an agreement by the parties to assist each other in any manner in the defense of any claim of infringement brought by a third party; or

(d)An obligation to file or prosecute any patent application, to secure the grant of any patent or any reissue or extension thereof, or to pay any maintenance fee or annuity or tax or take any other steps to maintain any patent; or

(e)A representation, warranty, or extension of warranties of any kind, expressed or implied, or an assumption of responsibility by any party with respect to the use, sale, or other disposition by the other party or its agents, representatives, distributors, or users of products incorporating or made by use of inventions licensed under this Agreement.

Section 3.03. Limitations. Each party shall be responsible for its design, manufacture, instructions for use, quality control, and all safety-related activities relating to its own products, whether or not manufactured under license from the BSC Licensed Patents or the St. Jude Licensed Patents, and shall not be responsible for the products of the other party, the other party’s Affiliates, or any other party or person.

ARTICLE IV

Term

Section 4.01. Term. This Agreement shall be effective as of the Effective Date and shall continue in force and effect until the expiration of the last to expire of the patents licensed and sublicensed pursuant to the provisions of this Agreement.

ARTICLE V

Confidentiality/Publicity Concerning Agreement

Section 5.01. Confidentiality/Publicity Concerning Agreement. It is intended that, to the extent possible, the terms of this Agreement remain confidential. No party or any Affiliate of a party shall originate any publicity, news release, or other such general public announcement or make any other disclosure to any third party regarding the terms of this Agreement without the express written consent of the other party (without limitation, the foregoing provision is not intended to limit communications deemed reasonably necessary or appropriate by a party or its Affiliate to its employees, shareholders, directors, officers, accountants, auditors and legal counsel). Notwithstanding the foregoing provision, the parties and their respective Affiliates shall not be prohibited from making any disclosure or release that is required by law, court order, or applicable regulation, or is considered necessary by counsel to fulfill an obligation under securities laws or the rules of the New York Stock Exchange or other applicable stock exchange or to protect any intellectual property right in any territory so long as the disclosing party provides notice to the other party at least five (5) business days prior to such disclosure. However, the Parties agree that, with regard to any required disclosure to the Securities and Exchange Commission regarding this Agreement or the fact that it has been executed that is made on or around the Effective Date, prior notice to the other party shall not be required.

ARTICLE VI

Notice

Section 6.01. Notice. Any notice or other communication to be made pursuant to this Agreement shall be sent to the other party at its address listed below or at such other address such party may hereinafter designate to the other party in writing:

If to BSC:

President and CEO

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

with a copy to:

General Counsel

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

If to St. Jude:

President and CEO

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

with a copy to:

General Counsel

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

Notice shall be deemed to have been given (i) at the expiration of two (2) business days from the date of delivery of a facsimile transmission, provided that a copy is deposited postage prepaid for delivery with the postal service or given for delivery to an express courier service on the same date as the sending of the facsimile, or (ii) ten (10) business days from the date the communication is deposited postage prepaid with the postal service or given to an express courier service, unless actual receipt of the notice at an earlier date is established. Without limitation of the foregoing, a written receipt signed by the addressee or its duly appointed representative situated at the addresses set forth hereinabove shall constitute sufficient evidence of service. Either party may change its address and facsimile information by written notice given in accordance with the provisions of this Section.

ARTICLE VII

Loss of Patents

Section 7.01. Loss of Patents. The loss of any patent(s) or patent application(s) embraced by the term “BSC Licensed Patents” or “St. Jude Licensed Patents” by any party hereto, through abandonment, failure to renew, declaration of invalidity, or otherwise, shall not be cause to terminate this Agreement or the licenses granted hereunder with respect to all other BSC Licensed Patents or St. Jude Licensed Patents and such loss, or any declaration of noninfringement, invalidity, or unenforceability, shall not be deemed a failure of consideration.

ARTICLE VIII

Alternative Dispute Resolution

Section 8.01. Alternative Dispute Resolution.

(a)Any dispute concerning whether any party’s actions are licensed under Article II of this Agreement, that is not resolved by negotiation as provided in subsection (c) of this Section 8.01 shall be resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit B.

(b)Any dispute that arises out of or relates to this Agreement, including an alleged breach of this Agreement but excluding any dispute within the scope of subsection (a) of this Section 8.01, between (i) St. Jude or a St. Jude Affiliate and (ii) BSC or a BSC Affiliate that is not resolved by negotiation as provided in subsection (c) of this Section 8.01 shall be resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit C.

(c)The parties recognize that a bonafide dispute may arise from time to time as to certain matters that relate to this Agreement. In all such instances, any party may, by written notice to the other party, have such dispute referred to their respective employees designated below or their successors, for attempted resolution by good faith negotiations within sixty (60) days after such notice is received. Such designated employees are as follows:

For BSC:

General Counsel

Boston Scientific Corporation

One Boston Scientific Place

Natick, MA 01760-1537

Facsimile No.: (508) 650-8956

For St. Jude:

General Counsel

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, MN 55117

Facsimile No.: (651) 481-7690

Any settlement reached by the parties under this Section 8.01 shall not be binding until reduced to writing and signed by authorized officers of St. Jude and BSC. If the designated employees are unable to resolve such dispute within such sixty-day period, any party may invoke the ADR provisions of this Section 8.01.

ARTICLE IX

General Provisions

Section 9.01. Modification. The Agreement may not be modified, changed, or terminated orally. No change, modification, addition, or amendment shall be valid unless given in writing expressly indicating an intent to modify the Agreement and duly executed by the parties.

Section 9.02. Assignment and Transfer. The licenses and other rights granted in this Agreement shall be nonassignable and nontransferable except in connection with the sale of a party’s spinal cord stimulation products business (whether by the sale of all or substantially all of a party’s assets or its subsidiaries’ assets related to spinal cord stimulation products, sale of stock of one or more subsidiary companies, merger, or otherwise). Except as permitted herein, a purported transfer of the license or other rights granted herein shall be null and void and shall give the other party hereto the right to terminate the license granted to the transferring party without terminating the licensed granted by the transferring party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of St. Jude, BSC, and their respective Affiliates and successors.

Section 9.03. Assurances. BSC shall in all events remain fully responsible for, and shall assure its own and its Affiliates’ performance of, all of their respective obligations under this Agreement, and St. Jude shall in all events remain fully responsible for, and shall assure its own and its Affiliates’ performance of, all of their respective obligations under this Agreement.

Section 9.04. Entire Agreement.

Other than for the agreements listed in Exhibit D, hereto, which shall still remain in full force and effect in accordance with their terms and conditions, this Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all negotiations, correspondence, understandings and agreements, whether written or oral, between the parties respecting the subject matter hereof. Except for the license agreements listed in Exhibit D, any license agreement covering any BSC Licensed Patents or St. Jude Licensed Patents in existence between the parties prior to the Effective Date shall be deemed terminated as of the Effective Date and superseded by this Agreement.

Section 9.05. Governing Law. Recognizing that the laws within the United States and international jurisdictions vary in their content and effect with respect to similar subject matter, and that the parties desire uniformity and predictability in interpretation and enforcement of this Agreement, the parties have agreed to the following provisions regarding applicable law to govern this Agreement: All matters affecting the interpretation, form, validity, and performance of this Agreement shall be decided under the laws of the State of Minnesota (without regard to principles of conflicts of laws), including its procedural laws; provided, however, that (a) nothing in Minnesota state procedural law shall be deemed to alter or affect the applicability of the Federal Arbitration Act as governing arbitration of disputes as provided in this Agreement, and (b) no Minnesota state arbitration laws or arbitration rules shall be applicable.

Section 9.06. Force Majeure. No party (including any of its Affiliates) shall be liable in damages for, nor shall this Agreement be terminable or cancelable by reason of, any delay or default in any party’s performance hereunder if such default or delay is caused by events beyond such party’s reasonable control including, but not limited to, acts of God, action of any government or agency thereof, war or insurrection, civil commotion, destruction of facilities or materials by earthquake, fire, flood or storm, labor disturbances, epidemic, or failure of public utilities or common carriers. The party (or Affiliates) so affected shall give prompt notice to the other parties

of such cause, and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible. All parties (or Affiliates) agree to endeavor to resume their performance hereunder if such performance is delayed or interrupted by reason of force majeure.

Section 9.07. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original.

Section 9.08. Captions. The captions in this Agreement are intended solely as a matter of convenience and are for reference only, and shall be given no effect in the construction or interpretation of this Agreement.

Section 9.09. Severability of Provisions. Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by such holding.

Section 9.10. No Agency. At no time shall any party or its Affiliate hold itself out to be the agent, employee, lessee, sublessee, partner, or joint venture partner of the other party or its Affiliates. Nothing in this Agreement shall be construed to create any relationship between the parties other than that of licensor/licensee (or sublicensor/sublicensee) as provided in this Agreement. No party or its Affiliates shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or its Affiliates or to bind the other party or its Affiliates with regard to any other contract, agreement, or undertaking with a third party.

Section 9.11. Further Assurances. At such time and from time to time on and after the Effective Date upon request by a party, the other party will execute and deliver or will cause to be executed and delivered, all such further acts, acknowledgments, and assurances that may be reasonably required for carrying out the purposes of this Agreement. Such further assurances may include, but not be limited to, an acknowledgment by Affiliates of a party that such Affiliates are bound by the terms and provisions of this Agreement or an acknowledgment that a particular patent is a BSC Licensed Patent or a St. Jude Licensed Patent.

Section 9.12. Construction Against Waiver. No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision, or condition of this Agreement; nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate and duly attested by their corporate officers duly authorized for this purpose.

BOSTON SCIENTIFIC CORPORATION
By:	/s/   Paul W. Sandman
	Executive Vice President, Secretary and General Counsel

ATTEST:
By:	/s/   Lawrence J. Knopf

ST. JUDE MEDICAL, INC.
By:	/s/   Pamela S. Krop
	Vice President, General Counsel and Secretary

ATTEST:
By:	/s/   James W.A. Ladner

Exhibit A

Licensed Patents

BSC Licensed Patents:

1. U.S. Patent No. 6,381,496

2. U.S. Patent No. 6,516,227

3. U.S. Patent No. 6,895,280

4. U.S. Patent Application Publication No. 20050107841

5. U.S. Patent Application Publication No. 20030114899

St. Jude Licensed Patents:

1. U.S. Patent No. 4,793,353

2. U.S. Patent No. 6,154,678

3. U.S. Patent No. 6,216,045

4. U.S. Patent No. 6,981,314

5. U.S. Patent No. 7,047,627

6. U.S. Application Publication No. 20050138791

7. U.S. Application Publication No. 20050138792

8. U.S. Application Publication No. 20050192655 

Exhibit B

ADR Procedure Pursuant to Section 8.01(a)

1.Upon the expiration of the 60-day period for good faith negotiations pursuant to Section 8.01(c), any party may initiate arbitration with the American Arbitration Association (“AAA”) by filing a Notice of Arbitration pursuant to the then-existing AAA rules for commercial arbitration. Should any provision of the applicable AAA rules conflict in any way with any provision of this Agreement, this Agreement shall govern.

2. Within twenty (20) days after filing the Notice of Arbtiration, the parties shall appoint a single, neutral arbitrator. The arbitrator shall have substantial experience in patent infringement litigation and in determining whether a product embodies patent claims. If the parties are unable to agree on the arbitrator within the time specified above, AAA will select a so-qualified arbitrator within three (3) business days thereafter.

3. The parties shall not be entitled to any discovery.

4.Fifty (50) days after filing the Notice of Arbitration, each party will submit to the arbitrator an opening brief, not to exceed 40 pages in length, setting forth its position on the merits of the dispute. The text must be spaced at least 24 points vertically and the font must be at least 12 points. Claim charts regarding infringement, non-infringement, or invalidity, attached to the brief as exhibits for the convenience of the arbitrator, will not count towards the page limit.

5.Eighty (80) days after filing the Notice of Arbitration, each party will submit to the arbitrator a reply brief, not to exceed 40 pages in length, setting forth its responses to the other party’s opening brief. The reply brief may not raise any issues not already raised in the parties’ opening briefs and must conform to the same spacing/font requirements as the opening briefs.

6.No more than one-hundred twenty (120) days after filing the Notive of Arbitration, the arbitrator shall provide a written, reasoned decision to the parties.

Exhibit C

ADR Procedure Pursuant to Section 8.01(b)

1.Upon the expiration of the 60-day period for good faith negotiations pursuant to Section 8.01(c), any party may initiate arbitration with the American Arbitration Association (“AAA”) by filing a Notice of Arbitration pursuant to the then-existing AAA rules for commercial arbitration. Should any provision of the applicable AAA rules conflict in any way with any provision of this Agreement, this Agreement shall govern.

2. Within twenty (20) days after filing the Notice of Arbtiration, the parties shall appoint a single, neutral arbitrator. The arbitrator shall have substantial experience in commercial licensing, preferably in the medical devices industry. If the parties are unable to agree on the arbitrator within the time specified above, AAA will select a so-qualified arbitrator within three (3) business days thereafter.

3.The parties shall be entitled to discovery as ordered by the arbitrator; however, it is the intention of the parties that any such discovery be limited in scope in order to reduce the cost and burden to the parties. The arbitrator shall take this intention into account when ordering discovery so that any discovery so ordered is narrowly-tailored to lead to relevant information while minimizing the burden and cost of such discovery on the parties.

4.The arbitrator will be empowered to award specific performance of the Agreement, as well as compensatory damages, costs, and attorneys’ fees to the prevailing party, as the arbitrator deems appropriate. No punitive damages of any kind shall be awarded.

5. The arbitration shall be conducted in such a way that the arbitrator issues a decision and award no later than six (6) months after commencement of the arbitration.

Exhibit D

Additional Agreements Still in Effect

None.

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Starks, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of St. Jude Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 7, 2006

/s/   DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, John C. Heinmiller, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of St. Jude Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 7, 2006

/s/   JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of St. Jude Medical, Inc. (the Company) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission (the Report), I, Daniel J. Starks, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/   DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer
November ­­7, 2006

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of St. Jude Medical, Inc. (the Company) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission (the Report), I, John C. Heinmiller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/   JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and
Chief Financial Officer
November 7, 2006