710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

July 21, 2005

Dear Shareholder:

      Please join us for our Annual Meeting of Shareholders on Thursday, August 25, 2005, at 10:30 a.m. (Central Daylight Time) at Medtronic’s World Headquarters, 710 Medtronic Parkway, Minneapolis (Fridley), Minnesota.

      The enclosed Notice of Annual Meeting of Shareholders and Proxy Statement describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

      We invite you to join us beginning at 9:30 a.m. to view Medtronic’s interactive product displays. Product specialists will be available to answer your questions before and after the Annual Meeting.

      Your vote is important. Whether you own a few shares or many, it is important that your shares are represented. If you cannot attend the Annual Meeting in person, you may vote your shares by internet, telephone or by completing and signing the proxy card and promptly returning it in the envelope provided.

      We look forward to seeing you at the Annual Meeting.

Sincerely,

Arthur D. Collins, Jr.

Chairman of the Board and Chief Executive Officer

 

 

 

 

 

Alleviating Pain, Restoring Health, Extending Life

      If you are a shareholder of record, hold shares through a Medtronic stock benefit plan, or through a broker or bank, you may vote your shares through the internet, by telephone or by mail. You may also revoke your proxy at any time before the Annual Meeting. Please help us save administrative and postage costs by voting through the internet or by telephone. Each method is available 24 hours a day until 11:59 p.m., Eastern Daylight Time, on August 24, 2005 and will ensure that your vote is confirmed and counted. To vote:

BY INTERNET

BY TELEPHONE

BY MAIL

YOUR VOTE IS IMPORTANT.     THANK YOU FOR VOTING.

•	Click on Investor Relations under About Medtronic
•	Click on Electronic Delivery of Proxy Materials in the Shareholder Services Section
•	Follow the prompts to submit your electronic consent

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

This Notice of Annual Meeting, Proxy Statement and accompanying proxy card

are being distributed on or about July 21, 2005.

TABLE OF CONTENTS

710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

PROXY STATEMENT

Annual Meeting of Shareholders

August 25, 2005

      We are providing these proxy materials in connection with the solicitation by the Board of Directors of Medtronic, Inc. (“Medtronic”) of proxies to be voted at Medtronic’s Annual Meeting of Shareholders to be held on August 25, 2005, and at any adjournment of the meeting.

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

What am I voting on?

      There are four proposals scheduled to be voted on at the meeting:

Who is entitled to vote?

      Shareholders as of the close of business on July 1, 2005 (the “Record Date”) may vote at the Annual Meeting. You have one vote for each share of common stock you held on the Record Date, including shares:

What constitutes a quorum?

      A majority of the outstanding shares entitled to vote, present or represented by proxy, constitutes a quorum for the Annual Meeting. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Shares represented by “broker non-votes” (see

How many votes are required to approve each proposal?

      The four candidates for election who receive a plurality vote in the affirmative will be elected. Each of the other proposals requires the affirmative vote of a majority of the shares present at the Annual Meeting and entitled to vote, provided that such majority must be greater than 25% of our outstanding shares.

How are votes counted?

      You may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for the Board of Directors. You may vote “FOR,” “AGAINST” or “ABSTAIN” on the other proposals. If you withhold authority to vote for the election of one of the directors, it has the same effect as a vote against that director. If you abstain from voting on any of the other proposals, it has the same effect as a vote against the proposal. If you just sign and submit your proxy card without voting instructions, your shares will be voted “FOR” each director nominee and “FOR” or “AGAINST” the other proposals as recommended by the Board.

What is a broker non-vote?

      If you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote (a broker non-vote). Shares held by brokers who do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their customers are not counted or deemed to be present or represented for the purpose of determining whether shareholders have approved that matter, but they are counted as present for the purpose of determining a quorum at the Annual Meeting.

How does the Board recommend that I vote?

      Medtronic’s Board recommends that you vote your shares:

How do I vote my shares without attending the meeting?

      If you are a shareholder of record or hold shares through a Medtronic stock plan, you may vote by granting a proxy. For shares held in street name, you may vote by submitting voting instructions to your broker or nominee. In any circumstance, you may vote:

How do I vote my shares in person at the meeting?

      If you are a shareholder of record and prefer to vote your shares at the meeting, you should bring the enclosed proxy card or proof of identification. You may vote shares held in street name at the meeting only if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

      Even if you plan to attend the meeting, we encourage you to vote in advance by internet, telephone or proxy card so that your vote will be counted even if you later decide not to attend the meeting.

What does it mean if I receive more than one proxy card?

      It generally means you hold shares registered in more than one account. To ensure that all your shares are voted, sign and return each proxy card or, if you vote by internet or telephone, vote once for each proxy card you receive.

May I change my vote?

      Yes. Whether you have voted by mail, internet or telephone, you may change your vote and revoke your proxy at any time by:

Can I receive future proxy materials electronically?

      Yes. If you are a shareholder of record or hold shares through a Medtronic stock plan, you may receive future proxy statements and annual reports online. If you elect this feature, you will receive an email message notifying you when the materials are available, along with a web address for viewing the materials. If you hold shares in a brokerage account, you may also have the opportunity to receive proxy materials electronically. See the inside front cover of this proxy statement for easy instructions on how to sign up for electronic delivery.

      If you received these materials electronically, you do not need to do anything to continue receiving materials electronically in the future.

What are the costs and benefits of electronic delivery of Annual Meeting materials?

      There is no cost to you for electronic delivery. You may incur the usual expenses associated with internet access, such as telephone charges or charges from your internet service provider. Electronic delivery ensures quicker delivery, allows you to print the materials at your computer and makes it convenient to vote your shares online. Electronic delivery also saves Medtronic significant printing, postage and processing costs.

PROPOSAL 1 — ELECTION OF DIRECTORS

Directors and Nominees

      The Board of Directors is divided into three classes of approximately equal size. The members of each class are elected to serve a three-year term with the term of office for each class ending in consecutive years. Shirley A. Jackson, Ph.D., Denise M. O’Leary, Jean-Pierre Rosso and Jack W.

      All of the nominees have consented to being named as a nominee in this Proxy Statement and have indicated a willingness to serve if elected. However, if any nominee becomes unable to serve before the election, the shares represented by proxies may be voted for a substitute designated by the Board, unless a contrary instruction is indicated on the proxy.

NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS ENDING IN 2008 (CLASS I):

THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.

DIRECTORS CONTINUING IN OFFICE UNTIL 2007 (CLASS III):

GOVERNANCE OF MEDTRONIC

Our Corporate Governance Principles

      In fiscal 1996, the Board of Directors adopted Principles of Corporate Governance (the “Governance Principles”). In fiscal 2004, following Securities and Exchange Commission (“SEC”) approval of final New York Stock Exchange Corporate Governance Rules, the Board updated the Governance Principles, approved new charters for the Audit, Compensation and Corporate Governance Committees, approved a revised Code of Conduct applicable to Medtronic’s officers and employees and adopted a Code of Business Conduct and Ethics for members of the Board. The Governance Principles describe Medtronic’s corporate governance practices and policies, and provide a framework for the governance of Medtronic. Among other things, the Governance Principles provide that:

      Our Governance Principles, the charters of our Audit, Compensation, Corporate Governance and Technology and Quality Committees and our codes of conduct are published on our website at www.medtronic.com under the Corporate Governance caption. These materials are available in print to any shareholder upon request. From time to time the Board reviews and updates these documents as it deems necessary and appropriate.

Committees of the Board and Meetings

      The Board has four standing committees with the principal functions described below.

Audit Committee

      The Corporate Governance Committee considers candidates for Board membership, including those suggested by shareholders, applying the same criteria to all candidates. Any shareholder who wishes to recommend a prospective nominee for the Board for consideration by the Corporate Governance Committee must notify the Corporate Secretary in writing at Medtronic’s offices at 710 Medtronic Parkway, Minneapolis, MN 55432 no later than March 23, 2006. Any such recommendations should provide whatever supporting material the shareholder considers appropriate, but should at a minimum include such background and biographical material as will enable the Committee to make an initial determination as to whether the nominee satisfies the criteria for directors set out in the Governance Principles.

      If the Corporate Governance Committee identifies a need to replace a current member of the Board, to fill a vacancy in the Board, or to expand the size of the Board, the Committee considers candidates from a variety of sources. The process followed by the Committee to identify and evaluate candidates includes (a) meetings to evaluate biographical information and background material relating to candidates and (b) interviews of selected candidates by members of the Committee. Recommendations by the Committee of candidates for inclusion in the Board slate of director nominees are based upon the criteria set forth in the Governance Principles. These criteria include business experience and skills, independence, distinction in their activities, judgment, integrity, the ability to commit sufficient time and attention to Board activities and the absence of potential conflicts with Medtronic’s interests. The Committee also considers any other relevant factors that it may from time to time deem appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluation of all prospective nominees.

      After completing interviews and the evaluation process, the Committee makes a recommendation to the full Board as to persons who should be nominated by the Board. The Board determines the nominees after considering the recommendations and report of the Committee and making such other evaluation as it deems appropriate.

      Alternatively, shareholders intending to appear at the annual meeting of shareholders to nominate a candidate for election by the shareholders at the meeting (in cases where the Board does not intend to nominate the candidate or where the Committee was not requested to consider his or her candidacy) must comply with the procedures in Medtronic’s articles of incorporation, which are described under “Other Information — Shareholder Proposals and Director Nominations” below.

      Beginning in 2004, the Board convened a Special Committee, comprised of Richard H. Anderson, Jean-Pierre Rosso and Jack W. Schuler, to conduct an independent evaluation of certain allegations made in a civil qui tam complaint under the federal False Claims Act against a subsidiary of the Company. For more information about the complaint, please see the “Legal Proceedings”

      The following table summarizes the current membership of the Board and each of its committees, as well as the number of times each committee met during fiscal 2005.

     Each director attended 75% or more of the total meetings of the Board and Board committees on which the director served.

Director Compensation

      Non-employee director compensation consists of an annual retainer, an annual cash stipend for committee chairs and special committee members, an annual stock option grant and an annual grant of deferred stock units. In addition, all new non-employee directors receive an initial stock option grant.

      The annual retainer for all non-employee directors for the 2005-2006 plan year (September 1, 2005 through August 31, 2006) is $70,000. The Chairs of the Corporate Governance, Audit, Compensation and Technology and Quality Committees receive a cash stipend of $10,000. Members of the Special Committee receive an additional annual fee of $10,000, paid quarterly ($2,500 per quarter), so long as the committee is convened. The annual retainer and annual cash stipend are reduced by 25% if a non-employee director does not attend at least 75% of the total meetings of the Board and Board committees on which such director served during the relevant plan year. Prior to the 2005-2006 plan year, each director had the choice of taking 100% of the annual retainer and annual cash stipend in cash or in stock options. If a director elected a stock option, the number of shares subject to the option was equal to four times the amount of the annual retainer and annual cash stipend exchanged, divided by the fair market value of a share of Medtronic common stock on the last day of the plan year (which was also the exercise price of the option). These options expired on the tenth anniversary of the date of grant.

      Each non-employee director also receives on the first day of each plan year an annual stock option grant for a number of shares of Medtronic common stock equal to the amount of the annual retainer ($70,000) divided by the fair market value of a share of Medtronic common stock on the date of grant (which will also be the exercise price of the option). These options expire at the earlier of the tenth anniversary of the date of grant or five years after the holder ceases to be a Medtronic director.

      On the date he or she first becomes a director, each new non-employee director also receives a one-time initial stock option grant for a number of shares of Medtronic common stock equal to two times the amount of the annual retainer divided by the fair market value of a share of Medtronic common stock on the date of grant (which will also be the exercise price of such option). These options expire at the earlier of the tenth anniversary of the date of grant or five years after the holder ceases to be a Medtronic director.

      The non-employee director stock options described above vest and are exercisable in full on the date of grant, except that a director initially appointed by the Board will not be entitled to exercise any stock option until the director has been elected to the Board by Medtronic’s shareholders. To more closely align their interests with those of shareholders generally, directors are encouraged to own stock of the Company in an amount equal to five times the annual Board retainer fees. In addition, each director must retain for a period of three years 75% of the net after-tax profit shares realized from option exercises or share issuances resulting from grants made on or after April 26, 2003. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances, net gain shares are those remaining after payment of income taxes. Shares retained may be sold after three years. In the case of retirement or termination, the shares may be sold after the shorter of the remaining retention period or one year following retirement/termination.

      Directors may defer all or a portion of their compensation through participation in Medtronic’s Capital Accumulation Plan, a nonqualified deferred compensation plan designed to allow participants to make contributions of their compensation before taxes are withheld and to earn tax-deferred interest on those contributions. The interest rate for each calendar year is equal to the 10-year rolling average interest rate for 10-Year U.S. Treasury Notes as of June 30 of the preceding calendar year. At June 30, 2004, that interest rate was 5.57%.

      As part of its overall program to promote charitable giving, the Medtronic Foundation matches gifts by Medtronic employees and directors to qualified educational institutions up to $7,000 per fiscal year. In addition, for any individual who became a director prior to July 1, 1998 and who has served as a director for five or more years, the director may recommend charitable institutions to which Medtronic will make a total contribution of $1 million at the time of the director’s death.

Certain Relationships and Related Transactions

      During fiscal 2005, Tino Schuler, a son of director Jack W. Schuler, was employed by Medtronic as a director of marketing in the Medtronic Xomed business. Mr. Tino Schuler worked for Xomed beginning in August 1993, and Xomed was acquired by Medtronic in 1999. Mr. Tino Schuler was paid an aggregate salary and bonus of $143,200 for his services during fiscal 2005. Director Gordon M. Sprenger’s son, Michael G. Sprenger, also worked as a director of marketing for Medtronic during fiscal 2005, receiving an aggregate salary and bonus of $182,823. Mr. Michael Sprenger has been a Medtronic employee since May 1989, prior to his father’s election to Medtronic’s Board in September 1991. Both Mr. Tino Schuler and Mr. Michael Sprenger received in fiscal 2005, in addition to their salaries and bonuses, the standard benefits provided to other Company employees. Neither Mr. Tino Schuler nor Mr. Michael Sprenger is an executive officer of Medtronic.

Our Codes of Conduct

      All of our employees, including our Chief Executive Officer and other senior executives, are required to comply with our long-standing Code of Conduct to help ensure that our business is conducted in accordance with the highest standards of moral and ethical behavior. Our Code of Conduct covers all areas of professional conduct, including customer relationships, conflicts of interest, insider trading, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to our business. Employees are required to bring any violations and suspected violations of the Code to the attention of Medtronic, through management or Company legal counsel or by using Medtronic’s confidential compliance line. Our Code of Conduct includes certain specific policies (collectively, the “Code of Ethics for Senior Financial Officers”) applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller and to other senior financial officers designated from time to time by our Chief Executive Officer, in respect of internal controls, the public disclosures of Medtronic, violations of the securities or other laws, rules or regulations and conflicts of interest. In 2004, the Board of Directors adopted a Code of Business Conduct and Ethics for members of the Board in respect of director responsibilities, conflicts of interest, strict adherence to applicable laws and regulations, and promotion of ethical behavior.

      Our codes of conduct are published on our website, at www.medtronic.com, under the Corporate Governance caption. We intend to disclose future amendments to, or waivers for directors and executive officers of, our codes of conduct on our website promptly following the date of such amendment or waiver.

Lead Director; Executive Sessions

      The Chair of our Corporate Governance Committee, Mr. Schuler, is our designated “Lead Director” and presides as the chair at meetings or executive sessions of the independent directors. Six regular meetings of our Board are held each year and at each Board meeting our independent directors meet in executive session with no Company management present. The membership of each of our four standing Board committees — Audit Committee, Compensation Committee, Corporate Governance Committee and Technology and Quality Committee — consists solely of independent directors, as defined in the New York Stock Exchange Corporate Governance Rules, and as required by those rules, the Audit Committee and Corporate Governance Committee meet periodically in executive session with no Company management present.

Complaint Procedure; Communications with Directors

      The Sarbanes-Oxley Act of 2002 requires companies to maintain procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We currently have such procedures in place. Our 24-hour, toll-free confidential compliance line is available for the submission of concerns regarding

Audit Committee Financial Experts

      All of our current Audit Committee members — Messrs. Rosso (Chair), Bonsignore, Pozen and Schuler and Ms. O’Leary — are audit committee financial experts, as that term is defined in SEC rules implementing requirements of the Sarbanes-Oxley Act of 2002.

Audit Committee Pre-Approval Policies

      Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services provided by a company’s independent auditor. Our Audit Committee has adopted detailed pre-approval policies and procedures pursuant to which audit, and audit-related, tax, and other permissible non-audit services, are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, we will obtain the pre-approval of the Audit Committee before engaging the independent auditor. The policies require the Audit Committee to be informed of each service, and the policies do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Director Independence

      Under the New York Stock Exchange Corporate Governance Rules, to be considered independent, a director must be determined to have no material relationship with Medtronic other than as a director. The listing standards include criteria for assessing the independence of directors, including guidelines relating to directors’ (and their immediate family members’) employment or affiliation with Medtronic or its independent auditor. The listing standards also prohibit Audit Committee members from any direct or indirect financial relationships with Medtronic above certain thresholds, and restrict commercial relationships of all directors with Medtronic. The Audit Committee also satisfies the independence standards of SEC Rule 10A-3. The Board of Directors has determined that each of our non-management directors is independent under the New York Stock Exchange Corporate Governance Rules.

      In making its independence determinations, the Board noted that each of Mr. Schuler and Mr. Sprenger has a son who is employed by Medtronic. Mr. Schuler’s son was employed by a company acquired by Medtronic, and continued his employment with Medtronic following the acquisition. Mr. Sprenger’s son was a Medtronic employee prior to Mr. Sprenger’s election to the Board. The Board determined that these relationships are not material to the directors. Each of these employment relationships is maintained on an arm’s length basis; neither family member is an executive officer of Medtronic or a member of the household of the related director; and neither director has any material interest in the employment relationship.

Annual Meeting of the Shareholders

      It is has been the longstanding practice of the Company for all directors to attend the Annual Meeting of Shareholders. All directors attended the last Annual Meeting.

SHARE OWNERSHIP INFORMATION

      5% Owners. As reported in filings with the SEC, no shareholder beneficially owned more than 5% of Medtronic’s common stock as of July 1, 2005.

      Management Shareholdings. The following table shows the number of shares of Medtronic common stock beneficially owned as of July 1, 2005 by Medtronic’s directors, executive officers identified in the Summary Compensation Table below, and all directors and executive officers as a group.

      Section 16(a) Beneficial Ownership Reporting Compliance. Based upon a review of reports and written representations furnished to it, Medtronic believes that during fiscal 2005 all filings with the SEC by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of Medtronic’s common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), except for Messrs Pozen and Scott Ward, Medtronic’s Senior Vice President and President, Vascular. Due to an oversight by Mr. Pozen’s advisor, Mr. Pozen did not file timely reports for his initial holdings on October 24, 2004 and for a purchase of shares on November 24, 2004. Due to an oversight by Mr. Ward’s advisor, the Form 4 filed by Mr. Ward on December 30, 2004 understated the amount of shares that were gifted. The reports were promptly filed or amended upon discovery of the oversights.

REPORT OF THE COMPENSATION COMMITTEE ON

FISCAL 2005 EXECUTIVE COMPENSATION

Overview

      The Compensation Committee of the Board of Directors (the “Committee”) is comprised solely of directors who are not current or former employees of Medtronic, and each is independent as defined by the New York Stock Exchange Corporate Governance Rules. The Committee is responsible for establishing the compensation policies and evaluating the compensation programs for Medtronic’s executive officers and other key employees. The Committee engages independent compensation consultants to assist them in this process by providing competitive compensation data and best practice advice. In addition to the regularly scheduled meetings, the Chairman of the Committee, management and the independent compensation consultants hold pre-meeting preparation telephone conferences. In carrying out its duties, the Committee makes all reasonable attempts to comply with the $1 million deduction limitation for executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, unless the Committee determines that such compliance in given circumstances would not be in the best interests of Medtronic and its shareholders.

Compensation Philosophy

      The compensation program for executive officers is designed to:

      The principal elements of the program consist of base salary, annual incentives and long-term incentives in the form of stock options, performance shares and restricted stock. The Company also provides other benefits to executives in the form of nonqualified savings and retirement plans, a change in control severance policy described elsewhere in this proxy statement, a physical examination and a business allowance in lieu of perquisites such as an automobile, financial and tax planning, and country club memberships. The CEO travels on private aircraft, but only for business purposes, and he also travels on commercial aircraft. Medtronic’s philosophy is to position the aggregate of these elements of compensation at a level that is commensurate with Medtronic’s size and performance relative to other leading medical equipment and pharmaceutical companies, as well as a larger group of general industry companies. The Committee annually reviews the reasonableness of total compensation levels and mix using public information from comparable company proxy statements and survey information from credible general industry surveys.

      Base Salary. The Committee annually reviews and approves the base salaries of executive officers, taking into consideration individual performance, retention, the level of responsibility, the scope and complexity of the position and competitive practice. The CEO received a 5.1% increase to base salary effective at the beginning of fiscal 2005.

      Annual Incentive Awards. Executive officers are eligible for annual incentives under the shareholder approved Medtronic, Inc. Executive Incentive Plan. This is a formula-based plan with awards based on corporate, geographic and business unit performance. The Committee, with input from management, sets specific performance goals at the beginning of each year and communicates them to the Company’s executives. For fiscal 2005, corporate operating performance was assessed against performance measure goals of diluted earnings per share, revenue growth and after-tax return on net assets, with these measures given weights of 50%, 30% and 20%,

      Stock Options. The Committee uses annual grants of stock options to deliver competitive compensation that recognizes key employees for their contributions to the Company and aligns executives with shareholders in focusing on long-term growth and stock performance. Stock options are granted annually based on pre-established grant guidelines calibrated to competitive standards and approved by the Committee under a shareholder approved plan with exercise prices not less than the fair market value of the Company’s common stock on the date of grant. These options provide no value to the executive unless the Company’s stock price increases after the grants are made. Stock options granted to executive officers during the most recent fiscal year have a 10-year exercise term and vest ratably on the first four anniversaries of the date of grant, subject to accelerated vesting in the event of certain terminations of employment, including retirement, or a defined change-in-control of the Company. Individual awards vary based on the individual’s responsibilities and performance, ability to impact financial performance and future potential. In fiscal 2005, the CEO received a stock option grant for 260,000 shares with terms and conditions consistent with those described above for other optionees.

      Restricted Stock/ Restricted Stock Units. The Committee grants restricted stock and restricted stock units on a limited basis to executive officers, taking into consideration retention and competitive practice. The CEO received a restricted stock unit grant of $2 million in fiscal 2005. The award will cliff vest after five years but will not be distributed until at least one year after the CEO’s retirement.

      Performance Shares. The Committee grants performance shares to senior executives under the Performance Share program. Grants are made annually based on pre-established grant guidelines calibrated to competitive standards and approved by the Committee for overlapping three-year performance periods. Grant targets range from 40% to 100% of base salary. In fiscal 2005, the CEO received a Performance Share grant (for the 2005-2007 cycle) with a target payout equal to 100% of his base salary. Once a threshold level of performance is attained, final awards can range from 20% to 180% of the target amounts. Payouts are based on performance goals of diluted earnings per share, revenue growth and after-tax return on net assets, with these measures given weights of 50%, 30% and 20%, respectively. These performance measures are the same for all program participants. The value of the award is based on the average price of Medtronic’s common stock for the last 20 trading days of the performance cycle, up to a maximum of three times the price at the date of grant. Half of the award is paid in Medtronic common stock, with the other half paid in cash or Medtronic common stock at the discretion of the Committee.

      For the 2003-2005 cycle, Medtronic’s cumulative diluted earnings per share performance and average after-tax return on net assets performance were above target and average revenue growth was below target. Consequently, the payout for this cycle for all executive officers, including the CEO, was 110% of the target award. This award was paid 50% in Medtronic common stock and 50% in cash.

      Stock Option Exchange Program. To encourage stock ownership by executives, Medtronic offers a program that allows certain executives to elect to receive stock options in exchange for some or all of the cash compensation under the Medtronic, Inc. Executive Incentive Plan and the cash or stock compensation under the Performance Share program. Currently under the program, participants receive an option to acquire $4 of stock at market value for every $1 of compensation

      Adjustments for Acquisitions and Charges. In determining award payments with respect to Medtronic’s short-term and long-term incentive programs, the Committee has adopted a long-standing practice of excluding from the calculation of performance results certain acquisitions and in-process research and development, special and other charges. Consistent with this practice, the performance results for the performance period ended in fiscal 2005 excluded all one-time litigation and special tax charges made during such performance period.

      Stock Retention Requirements. The Committee has approved the implementation of stock retention requirements. The CEO must retain, for a period of three years, 75% of the net after-tax profit shares realized from option exercises or share issuances resulting from grants made on or after April 26, 2003. Other executive officers must retain, for a period of three years, 50% of the net after-tax profit shares realized from option exercises or share issuances resulting from grants made on or after April 26, 2003. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances, net gain shares are those shares remaining after payment of income taxes. Shares retained may be sold after three years. In the case of retirement or termination, the shares may be sold after the shorter of the remaining retention period or one year following retirement/termination. As of July 1, 2005, all executive officers were in compliance with the stock retention requirements.

Conclusion

      Consistent with its compensation philosophy, the Committee believes the executive officer compensation program provides incentives to attain strong financial performance and is strongly aligned with shareholder interests. The Committee believes that Medtronic’s compensation program directs the efforts of Medtronic’s executive officers toward the continued achievement of growth and profitability for the benefit of Medtronic’s shareholders.

SHAREHOLDER RETURN PERFORMANCE GRAPH

      The graph and table below compare the cumulative total shareholder return on Medtronic’s common stock with the cumulative total shareholder return on the Standard & Poor’s 500 Composite Index and the Standard & Poor’s 500 Health Care Equipment Index for the five-year period beginning April 30, 2000. The graph and table assume that $100 was invested on that date in Medtronic’s common stock, the S&P 500 Index and the S&P 500 Health Care Equipment Index and that all dividends were reinvested.

Comparison of Five-Year Cumulative Total Return Among Medtronic,

S&P 500 Index and S&P 500 Health Care Equipment Index

EXECUTIVE COMPENSATION

      The following table sets forth the cash and non-cash compensation for each of the last three fiscal years ended April 29, 2005, April 30, 2004 and April 25, 2003 awarded to or earned by the Chief Executive Officer and each of the other four most highly compensated executive officers of Medtronic.

Summary Compensation Table

Option/SAR Grants In Last Fiscal Year

      The following table sets forth for each of the named executives the stock options granted by Medtronic in fiscal 2005 and the potential value of these stock options determined pursuant to SEC requirements. No stock appreciation rights were granted to the named executives in fiscal 2005.

Aggregated Option/SAR Exercises In Last Fiscal Year
     And Fiscal Year-End Option/SAR Values

      The following table sets forth for each of the named executive officers, the value realized from stock options exercised during fiscal 2005 and the number and value of exercisable and unexercisable stock options and stock appreciation rights held at April 29, 2005.

Other Long-Term Incentive Awards

      The following table sets forth the number of performance share units granted to each of the named executive officers in fiscal 2005 under Medtronic’s 1994 Stock Award Plan and the performance-based award formula under such Plan.

Long-Term Incentive Plans — Awards In Last Fiscal Year⁽¹⁾

Equity Compensation Plan Information

      The following table provides information about Medtronic’s common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans in effect as of April 29, 2005, including the 1994 Stock Award Plan, the Medtronic Inc., 2003 Long-Term Incentive Plan, the 1995 Employees Stock Purchase Plan and the 1998 Outside Director Stock Compensation Plan.

Pension Plans

      Medtronic has three types of pension plans. Medtronic’s original pension plan is a defined benefit, tax qualified retirement plan covering most U.S. employees. It generally provides an annual benefit equal to a percentage of the average of the highest five consecutive years of compensation (including certain incentive compensation) during an employee’s participation in the plan, offset by a Social Security allowance as published each year by the Internal Revenue Service. The table

      Effective May 1, 2005, Medtronic implemented an additional defined benefit plan and a defined contribution plan, respectively: the Personal Pension Account (“PPA”) and the Personal Investment Account (“PIA”). Under the PPA participants will receive an annual allocation of five percent of the participant’s salary and bonus on which they will receive an annual guaranteed rate of return tied to U.S. Treasury notes. Under the PIA participants also will receive an annual allocation of five percent of the participant’s salary and bonus. Unlike the PPA, the PIA allows participants to determine how to invest their funds. Participants may invest PIA funds in the same investment options available in Medtronic’s 401(k) plan. Upon retirement or termination of employment, participants under either the PPA or PIA will have a number of distribution options including a lump sum payment or an annuity.

      The Internal Revenue Code imposes certain limits on the amount of benefits that may be paid from tax qualified pension plans like Medtronic’s plan’s described above. Medtronic’s non-qualified supplemental benefit plan has been established to restore benefits to executives who may be affected by those limits. The non-qualified supplemental benefit plan provides retirees with supplemental benefits so that, in general, they will receive total benefits equal to the level of benefits that would have been payable under Medtronic’s pension plans if the Internal Revenue Code limits had not been in effect and if the executive had not elected to defer compensation under Medtronic’s deferred compensation programs. The amounts shown in the pension plan table above include the retirement benefits provided under the non-qualified supplemental benefit plan.

Employment and Change in Control Arrangements

      Change in Control Arrangements. Medtronic’s executive officers, including those named in the Summary Compensation Table, have change in control agreements (the “Agreements”) with Medtronic. The Agreements operate only upon the occurrence of a “change in control” as described below. Absent a “change in control,” the Agreements do not require Medtronic to retain the executives or to pay them any specified level of compensation or benefits.

      Each Agreement provides that for three years after a “change in control” there will be no adverse change in the executive’s salary, bonus, opportunity, benefits or location of employment. If during this three-year period the executive’s employment is terminated by Medtronic other than for cause, or if the executive terminates his employment for good reason (as defined in the Agreements, and including compensation reductions, demotions, relocation and excess travel) or voluntarily during the 30-day period following the first anniversary of the “change in control,” the executive is entitled to receive payment of accrued salary and annual and long-term incentives through the date of termination and, except in the event of death or disability, a lump sum severance payment equal to three times (two times in the event of voluntary termination by the executive in the aforementioned 30-day period) the sum of his or her base salary and annual bonus. The executive is also entitled to the continuation of certain insurance and other welfare plan benefits for a period of time not exceeding three (or, in certain cases, two) years. Further, if the executive is required to pay any federal excise tax on the payments associated with the change in control, an additional payment (“gross-up”) is required in an amount such that after the payment of all taxes, income and excise, the executive will be in the same after-tax position as if no such excise tax had been imposed.

      Generally, and subject to certain exceptions, a “change in control” is deemed to have occurred if: (a) a majority of Medtronic’s Board of Directors becomes comprised of persons other than persons for whose election proxies have been solicited by the Board, or who are then serving as directors appointed by the Board to fill vacancies caused by death or resignation (but not removal) of a director or to fill newly created directorships; (b) another party becomes the beneficial owner of at least 30% of Medtronic’s outstanding voting stock; or (c) Medtronic merges or consolidates with another party (other than certain limited types of mergers), or exchanges shares of voting stock of Medtronic for shares of another corporation pursuant to a statutory exchange, sells or otherwise disposes of all or substantially all of Medtronic’s assets, or is liquidated or dissolved.

      In addition, similar events also constitute a “change in control” under certain of Medtronic’s compensation plans. If a “change in control” of Medtronic occurs, awards under Medtronic’s annual incentive plans will accelerate and, subject to certain limitations set forth in the plan, each participant will be entitled to a final award based on certain assumptions as to target performance and salary. Medtronic’s long-term incentive plans and related agreements provide that in the event of a “change in control” of Medtronic, all stock options will become immediately exercisable in full, all restrictions under outstanding restricted stock or units will immediately lapse, and performance share awards will immediately vest and pay out in a pro rata amount based on the portion of the performance period elapsed prior to the “change in control” and, based on certain assumptions as to the anticipated performance, which would have been achieved during the remainder of the performance period.

      If a “change in control” occurs, subject to certain limitations, Medtronic’s contributions to the employee stock ownership plan for that year will equal the greater of Medtronic’s target percentage contribution (currently 2.5% of aggregate covered employee compensation in fiscal 2005) or, if a “change in control” occurs after the first quarter of a plan year, the percentage contribution Medtronic would have made upon completion of the plan year based on performance as most recently projected by Medtronic prior to the “change in control” and disregarding the effects of the “change in control.” On April 30, 2005, Medtronic ceased making contributions to the employee stock ownership plan as all shares reserved for issue thereunder were issued. If a “change in

REPORT OF THE AUDIT COMMITTEE

      The Audit Committee represents and assists the Board of Directors in its oversight of the integrity of Medtronic’s financial reporting. In particular, the Audit Committee reviews the independence, qualifications, and performance of Medtronic’s independent auditors and the performance of its internal auditors. The Audit Committee also has responsibility for Medtronic’s compliance with legal and regulatory requirements. The Audit Committee consists of the five members listed below, each of whom is an independent director, in accordance with SEC and New York Stock Exchange requirements and each of whom, meets additional independence standards applicable to audit committee members. Jean-Pierre Rosso, Michael R. Bonsignore, Denise M. O’Leary, Robert C. Pozen and Jack W. Schuler each qualify as an “audit committee financial expert” within the meaning of that term as defined by the SEC pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.

      Medtronic’s management is responsible for preparing Medtronic’s financial statements and the overall reporting process, including Medtronic’s system of internal controls. The Audit Committee is directly responsible for the compensation, appointment and oversight of Medtronic’s independent registered public accounting firm, PricewaterhouseCoopers LLP that reports directly to the Audit Committee. The independent auditors are responsible for auditing the financial statements and expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles in the United States (“U.S. GAAP”) and auditing management’s assessment of the effectiveness of internal controls over financial reporting. The Audit Committee also meets privately in separate executive sessions periodically with management, internal audit and the independent auditors.

      In this context, the Audit Committee has held discussions with management and the independent auditors. Management represented to the Audit Committee that Medtronic’s consolidated financial statements were prepared in accordance with U.S. GAAP, and the Audit Committee has reviewed and discussed the audited financial statements with management and the independent auditors.

      The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees), as amended and requested any other relevant input from the independent auditors. The independent auditors provided to the Audit Committee the written disclosures and letter required by Independent Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the auditors their independence.

      Based on the considerations above, the Audit Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the audited financial statements in Medtronic’s Annual Report on Form 10-K for fiscal 2005 for filing with the Securities and Exchange Commission. The Audit Committee has selected PricewaterhouseCoopers LLP as Medtronic’s independent registered public accounting firm for fiscal 2006. Audit and any permitted non-audit

AUDIT COMMITTEE:

Audit and Non-Audit Fees

      The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of Medtronic’s annual financial statements for the fiscal years ended April 30, 2004 and April 29, 2005, and fees billed for other services rendered by PricewaterhouseCoopers LLP.

PROPOSAL 2 — RATIFICATION OF SELECTION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

      The Audit Committee has selected PricewaterhouseCoopers LLP, certified public accountants and independent registered public accounting firm, as Medtronic’s independent registered public accounting firm for the fiscal year ending April 28, 2006. As required by the Audit Committee Charter, the Board of Directors is submitting the selection of PricewaterhouseCoopers LLP for shareholders’ ratification at the Annual Meeting. If the shareholders do not so ratify, the Audit Committee will reconsider its selection.

      Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire and are expected to be available to respond to appropriate questions.

      THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS APPOINTMENT.

PROPOSAL 3 — APPROVAL OF THE MEDTRONIC, INC.

2005 EMPLOYEES STOCK PURCHASE PLAN

      Medtronic has provided some form of stock purchase plan for employees since 1970. The last phase of the current stock purchase plan expires at the end of October 2005. The Board of Directors believes that Medtronic’s stock purchase plans have played an important role in retaining employees and giving employees a sense that they have an important stake in Medtronic’s affairs. As a result, the Board of Directors has adopted, subject to shareholder approval, the Medtronic, Inc. 2005 Employees Stock Purchase Plan (the “2005 Plan”), and has reserved 10,000,000 shares of Common Stock for issuance pursuant to the 2005 Plan. Like the Medtronic, Inc. 1995 Employees Stock Purchase Plan (the “1995 Plan”), which expires this year, the 2005 Plan is designed to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

      The description of the 2005 Plan set forth below is a summary only, does not purport to be complete and is qualified in its entirety by reference to the provisions of the 2005 Plan itself, which is attached as Appendix A to this Proxy Statement.

Description of the 2005 Plan

      Administration. The administration of the 2005 Plan is vested in a committee appointed by the Board of Directors and consists of three or more directors who are considered to be non-employee directors within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). On April 14, 2005 the Board appointed the Compensation Committee to administer the 2005 Plan (the “Committee”). Subject to the express provisions of the 2005 Plan, the Committee has authority, in its discretion, to interpret and construe any and all provisions of the 2005 Plan, adopt rules and regulations for administering the 2005 Plan and make all other determinations deemed necessary or advisable for administering the 2005 Plan.

      Eligibility and Participation. All employees of Medtronic and all of its subsidiaries (except for those subsidiaries specifically excluded from participation by the Board of Directors or the Committee) are eligible to participate in the 2005 Plan. No employee will be permitted to purchase more than $25,000 of Medtronic common stock in any calendar year (based upon the fair market value of the stock as determined at the time the option is granted). Currently, 31,000 employees are eligible to participate in the 1995 Plan and Medtronic anticipates that all such employees will be eligible to participate in the 2005 Plan.

      Participation in the 2005 Plan is voluntary. An eligible employee may elect to participate in the 2005 Plan for any purchase period by completing the requisite payroll deduction form and delivering it to his or her employer no later than the date preceding the beginning date of the purchase period specified by Medtronic’s Senior Vice President, Human Resources. An employee may also increase his or her participation for any subsequent purchase period by submitting a new payroll deduction form during the enrollment period prior to that purchase period. An employee who elects to participate in the 2005 Plan for any purchase period will be deemed to have elected to participate in the 2005 Plan for each subsequent consecutive purchase period unless he or she elects to discontinue payroll deductions during a purchase period or exercises his or her right to withdraw all amounts previously withheld. In this event, the employee must submit a change of election form or a new payroll deduction form, as applicable, to participate in the 2005 Plan for any subsequent purchase period.

      Duration and Purchase Periods. Assuming approval by the shareholders, the 2005 Plan will begin on November 1, 2005, and will terminate on October 31, 2015, unless extended by the Board of Directors. The 2005 Plan will be carried out in a series of consecutive purchase periods. The first purchase period will begin on November 1, 2005, and end on March 31, 2006. Thereafter, a purchase period will be a calendar quarter, with the first quarterly purchase period beginning on

      Before the commencement of each purchase period, employees may elect to have from 2% to 10% of their cash compensation withheld each pay period, or such other amounts as the Committee or Medtronic’s Senior Vice President, Human Resources may from time to time establish, up to a maximum of 15% of the employees cash compensation. An employee may not increase his or her elected percentage for a purchase period after the delivery deadline, but an employee may reduce or discontinue entirely his or her elected percentage for the purchase period at any time by filing an amended election form within 10 days prior to the first payroll date as of which such decrease or discontinued deduction is to become effective. At the end of the purchase period, each employee has an option to purchase whole shares of Medtronic common stock using some or all of the funds the employee has had withheld during the purchase period. The purchase price per share will be 85% of the fair market value of Medtronic common stock on the last day of the purchase period. Except in the event of death and except for shares purchased upon retirement or disability, employees are not permitted to sell or otherwise transfer ownership of the shares until the one-year anniversary of the date on which the shares are issued. Further, the Committee may require that employees not transfer such shares for any additional period determined by the Committee to be necessary to ensure that Medtronic or any of its subsidiaries is able to meet the reporting requirements pursuant to Section 423 of the Code. The fair market value of Medtronic’s common stock on July 1, 2005, was $51.87 per share.

      Election Not to Purchase, Withdrawal and Termination of Employment. An employee may, by written notice to his or her employer prior to the termination date of a purchase period, elect, effective as of the termination date of the purchase period, not to purchase any Medtronic common stock or to purchase a specified number of shares of Medtronic common stock less than the maximum number of shares he or she is authorized to purchase. In any such event, the remaining cash amounts credited to the employee’s account will be distributed, without any earned interest, credited to the employee as soon as practicable after the termination date of the purchase period.

      An employee may, preceding the termination date of a purchase period, withdraw all payroll deductions then credited to his or her account by giving written notice to his or her employer. Upon receipt of such notice of withdrawal, all payroll deductions credited to the employee’s account will be paid to him or her, without any earned interest credited and no further payroll deductions will be made for such employee during that purchase period. Partial withdrawals of payroll deductions are not permitted.

      If an employee’s employment is terminated for any reason other than retirement or disability prior to the termination date of any purchase period in which he or she is participating, no option will be granted to such employee and the payroll deductions credited to his or her account will be returned to the employee. If the employee terminates employment prior to the last day of a purchase period in which he or she is participating as a result of retirement or disability, the grant date for his or her option as well as the termination date of such purchase period solely with respect to such employee will be considered for all purposes of the 2005 Plan as being the last day of the purchase period in which such employee’s employment is terminated; provided, however, that during the initial purchase period from November 1, 2005, to March 31, 2006, such date will be considered for all purposes of this 2005 Plan as being the last day of the month in which such employee’s employment is terminated. If termination is due to the death of an employee, the option grant will lapse immediately and payroll deductions will be given to the participant’s beneficiary. If death occurs after exercise of the option but prior to delivery of the Medtronic common stock and cash, if any, such stock and cash will be delivered to the executor or an administrator of the employee’s estate.

      Adjustments, Amendments and Termination. Under the 2005 Plan, if the issued and outstanding shares of Medtronic common stock are changed into or exchanged for a different number or kind of shares or securities of Medtronic or of another issuer, or if additional shares or new or

      In the event of certain corporate transactions (including, without limitation, a dissolution or liquidation, a sale of substantially all of the assets, a merger, consolidation or reorganization, or a statutory share exchange), the Board of Directors may either: (i) amend or adjust the provisions of the 2005 Plan to provide for the acceleration of the current purchase period and the exercise of options under such period; or (ii) continue the 2005 Plan with respect to completion of the then current purchase period and the exercise of options under such period. In the event that the 2005 Plan is continued, employees will have the right to exercise their options as to an equivalent number of shares of stock of the corporation succeeding Medtronic by reason of such corporate transaction, as provided pursuant to Section 424(a) of the Code, or any successor provision.

      The 2005 Plan may be terminated at any time by the Board of Directors provided that (except as set forth above in the event of certain corporate transactions) no termination will take effect with respect to any completed purchase period. Also, the Board of Directors may amend the 2005 Plan as it may deem proper and in the best interests of the Company or as may be necessary to comply with Section 423 of the Code or other applicable laws or regulations, provided that no such amendment shall, without prior approval of the Medtronic shareholders: (i) increase the total number of shares for which options may be granted under the 2005 Plan (except as set forth above in the event of certain corporate transactions); (ii) permit payroll deductions at a rate in excess of 10% of an employee’s compensation, or such other permissible maximum contribution established by the Committee or the Medtronic Senior Vice President, Human Resources; (iii) impair any outstanding option without the employee’s consent (except as described above in the event of certain corporate transaction); (iv) change the employees or class of employees eligible to participate under the 2005 Plan, or (v) materially increase the benefits accruing to employees under the 2005 Plan.

      The Senior Vice President, Human Resources, has the authority to alter the operation of the 2005 Plan as he or she considers necessary to achieve desired tax or other objectives in foreign locations, or to comply with local laws that apply to offerings in such locations. To the extent the alterations may be made in a manner that permits the 2005 Plan to comply with the requirement of Section 423 of the Code, the options subject to the alternations will be considered to be options granted under the 2005 Plan for all purposes. To the extent the alterations would cause the 2005 Plan to fail to comply with Section 423 of the Code, the options subject to such alterations will be considered to be granted under one or more non-statutory stock option plans. In all cases, the terms of such non-statutory stock option plan or plans shall be identical to the terms of the 2005 Plan, except for such alterations, and the total number of shares authorized to be issued under the 2005 Plan shall apply in the aggregate to the 2005 Plan and any such non-statutory stock option plan or plans.

New Plan Benefits

      Participation in the 2005 Plan is voluntary and is dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deduction. Accordingly, future purchases under the 2005 Plan are not determinable. The table below sets forth certain information regarding potential benefits in fiscal 2006 under the 2005 Plan. For purposes of this table, it is

Federal Income Tax Consequences

      The 2005 Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under a plan which so qualifies, an eligible employee recognizes no taxable income upon either the grant or the exercise of the option. The employee does not recognize taxable income until there is a sale or other disposition of the shares acquired under the plan or in the event the participant should die while still owning the purchased shares.

      Under the 2005 Plan, the grant date and the exercise date for a purchase period are deemed to be the same date, that is, the last day of a purchase period. Employees who hold their shares for at least two years from this date or who die while holding their shares will have ordinary income in the year they sell or otherwise dispose of their shares equal to the 15% discount on the price paid for the shares, or if less, the excess of the fair market value of the shares at the time of disposition or death over the price paid for the shares. Any additional gain or loss is treated as long-term capital gain or loss. If the holding periods have been satisfied when the employee sells the shares or if the employee dies while holding the shares, Medtronic is not entitled to any deduction in connection with the shares.

      If an employee sells the shares before the two-year holding period is satisfied, the sale is treated as a “disqualifying disposition.” The consequences of a disqualifying disposition are that the employee has ordinary income in the year of the disposition equal to the 15% discount on the price paid for the shares, regardless of the value of the shares at that time. Any additional gain or loss on the sale is treated as short or long-term capital gain or loss, depending on how long the employee has held the shares after the date he or she purchased them. (If the shares are held for a year or longer, the gain or loss will be long-term.) Medtronic will be entitled to a deduction equal to the amount that the employee includes into ordinary income, that is, the 15% discount, subject to Medtronic’s requirement to report the income. Medtronic is entitled to this deduction for its taxable year within which the employee’s taxable year ends during which the disqualifying disposition occurred.

Adoption of Proposal No. 3

      Medtronic believes that its best interests will be served by the approval of Proposal No. 3. The 2005 Plan will enable Medtronic to be in a position to continue to retain employees by granting such employees the opportunity to purchase Medtronic common stock.

      THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF MEDTRONIC’S 2005 EMPLOYEES STOCK PURCHASE PLAN.

PROPOSAL 4 — APPROVAL OF THE MEDTRONIC, INC.

1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN

(AS AMENDED AND RESTATED)

      Medtronic believes that equity compensation for non-employee directors plays an important role in recruiting and retaining the services of non-employee directors of outstanding ability for the benefit of Medtronic and its shareholders and has provided additional incentive for these directors to continue to work in the best interest of Medtronic and its shareholders through ownership of Medtronic common stock. In 1998, the Board of Directors adopted the Medtronic, Inc. 1998 Outside Director Stock Compensation Plan (the “1998 Plan”) and reserved 3,000,000 shares for issuance, of which 2,316,593 shares are available for issuance as of July 1, 2005. Shareholder approval of the 1998 Plan was not required at the time of its original adoption. On April 14, 2005, the Board of Directors amended and restated, subject to shareholder approval, the 1998 Plan primarily to permit the grant of stock appreciation rights (the “Restated Plan”). As a result of a change to the New York Stock Exchange rules requiring that plans providing for the grant of equity to directors be submitted to a company’s shareholders for approval, the Board of Directors is submitting the Restated Plan to the shareholders for approval.

      The description of the Restated Plan set forth below is a summary only, does not purport to be complete and is qualified in its entirety by reference to the provisions of the Restated Plan attached as Appendix B to this Proxy Statement.

Description of the Restated Plan

      Administration. The administration of the Restated Plan is vested in a committee appointed by the Board of Directors and consisting of two or more directors who are considered to be non-employee directors within the meaning of Rule 16b-3 of the Exchange Act. On April 14, 2005, the Board appointed the Compensation Committee (the “Committee”) to administer the Restated Plan. The Committee has authority to interpret the Restated Plan and any award or agreement made under the Restated Plan, to establish, amend, waive and rescind any rules and regulations relating to the administration of the Restated Plan, to determine the terms and provisions of any agreements entered into under the Restated Plan, and to make all other determinations deemed necessary or advisable for administering the Restated Plan.

      Eligibility and Participation. All active members of the Board of Directors who are not employees of Medtronic or any of its affiliates are automatically eligible to participate in the Restated Plan and will receive awards under the Restated Plan.

      Initial Award. Each non-employee director will be automatically granted, on the date they first become a director, an “Initial Award.” The Initial Award will be in the form of a stock option or a stock appreciation right, as determined by the Committee. The Initial Award will be in units which represent either a stock option or stock appreciation right with respect to one share of Medtronic common stock (a “Share”). The number of units awarded will be determined using the following formula:

2 x Annual Retainer in effect immediately following the non-employee director’s election

Fair Market Value of a Share on the date of grant

      The “Annual Retainer” is a fixed annual fee paid to a non-employee director as compensation for his or her services and is currently $70,000. No increase in the Annual Retainer after a person becomes a non-employee director will increase the number of units subject to the Initial Award. The “Fair Market Value” of a Share is the closing sale price of a Share on the New York Stock Exchange on the date specified.

      Annual Award. Each non-employee director will be granted, on the first day of each plan year, an “Annual Award.” The Annual Award will also be in the form of a stock option or a stock appreciation right as determined by the Committee, and each Annual Award will be in units which represent either a stock option or stock appreciation right with respect to a Share. The number of units awarded will be determined using the following formula:

Annual Retainer in effect as of the first day of the plan year

Fair Market Value of a Share on the first day of the plan year

      If a non-employee director’s Annual Retainer increases during a plan year, but after the Annual Award is granted, such director shall be granted a supplemental Annual Award on the date that an increase in the Annual Retainer is approved. The supplemental Annual Award will be determined using the following formula:

Amount of the increase in the Annual Retainer

Fair Market Value of a Share on the date the supplemental award is granted

      If a non-employee director joins the Board of Directors in the middle of the plan year, then such director shall be granted an Annual Award that will be determined using a prorated amount of the Annual Retainer and the Fair Market Value of a Share on the day such director begins his or her term.

      Terms of Stock Options and Stock Appreciation Rights. All stock options and stock appreciation rights granted under the Restated Plan will be granted pursuant to the terms and conditions of an agreement. A stock option will entitle its holder to purchase a Share at a later date (the exercise date) for the Fair Market Value of such Share as of the date the stock option was granted. A non-employee director may purchase Shares using cash, Shares that he or she has held for at least six months that will be treated as having a Fair Market Value equal to the purchase price of the Shares being purchased pursuant to the stock option, or a combination thereof. In addition, to the extent permitted by law, a non-employee director may simultaneously exercise a stock option to purchase Shares, sell those Shares and use the proceeds from that sale to purchase additional Shares. A stock appreciation right will entitle the non-employee director to receive an amount of Shares that is equal to the increase in value of units from the date the stock appreciation right was granted to the date the stock appreciation right is exercised.

      All stock options and stock appreciation rights shall be vested and exercisable in full on the date of grant unless the agreement provides otherwise; provided, however, a non-employee director may not exercise a stock option or stock appreciation right until such director has been elected to the Board by the shareholders of Medtronic. Unless the agreement provides otherwise, a stock option or stock appreciation right shall become immediately exercisable upon a “change in control,” as defined in the Restated Plan, or upon the non-employee director’s death, disability, resignation or retirement. Stock options and stock appreciation rights shall expire no later than the tenth anniversary of the stock option’s grant or the fifth anniversary of the date the non-employee director ceases to be a director of the Company, whichever is earlier. However, a stock option or stock appreciation right granted to a non-employee director that is appointed by the Board shall expire should the director fail to be subsequently elected by the shareholders.

      Deferred Stock Units. On the last day of each plan year, each non-employee director will be credited with a certain number of deferred stock units. A deferred stock unit is the right to receive a Share at a later date. At the election of the non-employee director, these Shares will be delivered to such director in a lump sum payment or in five equal installments beginning as soon as practicable after the date the non-employee director ceases to be a member of the Board or upon a change in

Annual Retainer in effect as of the last day of the plan year x Pro-Ration Factor

Average Fair Market Value of a Share on each of the last 20 trading days during such plan year.

      The “Pro-Ration Factor” is based on a non-employee director’s attendance at meetings. If a non-employee director attends at least 75% of the meetings that occur while he or she is a director, the Pro-Ration Factor will be 100%. If a non-employee director attends less than 75% of the meetings that occur while he or she is a director, his or her Pro-Ration Factor will be 75%. If a non-employee director retires from the Board prior to the last day of the plan year, he or she will be granted deferred stock units in an amount calculated using the above formula but substituting the Annual Retainer in effect as of his or her retirement date. A non-employee director shall also be credited with additional deferred stock units that reflect any cash dividends that would have been paid had the deferred stock units allocated to the non-employee director been Shares.

      Discretionary Credits. In addition to the Initial Award, the Annual Award and the deferred stock units, the Board or the Committee may, in its discretion, and at any time, cause additional stock options and stock appreciation rights to be granted and deferred stock units to be credited to a non-employee director’s account.

      Adjustments, Amendments, Termination and Fundamental Change. The Board of Directors has the right to amend, modify, terminate or suspend the Restated Plan. In addition, the Committee may make appropriate adjustments to the Shares available and subject to awards and in the number of deferred stock units to give effect to adjustments made in the number or type of Shares as a result of a fundamental change, as defined in the Restated Plan, recapitalization, reclassification, stock dividend, stock split, stock combination or other relevant change. In the event of a merger, consolidation or statutory share exchange where no protection for outstanding awards is provided, or in the event of a dissolution or liquidation, the Board of Directors will notify the holders of awards under the Restated Plan that such awards will be cancelled at the time of the corporate change in exchange for payment of cash to each holder. Upon distribution of such notice, all awards will become immediately vested and exercisable in full. If award holders do not choose to exercise their rights, holders of stock options shall be paid an amount, if any, equal to the amount by which the Fair Market Value per Share exceeds the exercise price of the stock option, and holders of stock appreciation rights shall be paid an amount, if any, equal to the appreciation of the Shares since the date the stock appreciation right was granted. In no event, however, will payment of an amount with respect to a deferred stock unit be accelerated upon any of the events listed above unless the event constitutes a change in control within the meaning of Section 409A of the Code. For these cash payments only, “fair market value” means the cash plus the fair market value of the non-cash consideration to be received per Share upon the occurrence of the corporate change, as determined in good faith by the Board of Directors.

      Removal. In the event a non-employee director is removed from Board for cause, all of such director’s awards shall immediately expire and be forfeited and, unless the Board or Committee specifically determines otherwise, the balance of the director’s deferred stock units shall be distributed to such director in a single lump sum delivery of Shares after the expiration of six months from the date of such removal. In addition, if a non-employee director is removed and has exercised an award receiving shares within six months prior to his or her removal, and such director enters into competition with the company or an affiliate, discloses material proprietary information, violates business ethics policies of the company or an affiliate, or takes any other action that the Board of Directors determines warrants the following action, the Board of Directors or the Committee may require such director, within a specified timeframe, to return or forfeit all or a portion of such Shares in return for the exercise price paid, or may require the director to pay the company the value of such Shares on the date of exercise less the exercise price.

      The benefits to be provided under the Restated Plan for fiscal 2006 are not yet determinable. The following table sets forth certain information regarding potential benefits in fiscal 2006 under the Restated Plan. For purposes of this table it is assumed that benefits to be provided under the Restated Plan in fiscal 2006 will be identical to those that were provided in fiscal 2005 under the 1998 Plan to Medtronic’s directors who are not executive officers. Medtronic’s Chief Executive Officer, other Named Executive Officers, executive officers and employees are not eligible to participate in the Restated Plan.

Federal Income Tax Consequences

      Stock Options. Under present U.S. federal income tax law, the grant of a stock option will create no tax consequences for the non-employee director or Medtronic. Upon exercising a stock option, the director must recognize ordinary income in an amount equal to the difference between the exercise price and the Fair Market Value of a Share on the exercise date, and Medtronic will be entitled to a deduction for the same amount.

      Stock Appreciation Rights. Under present U.S. federal income tax law, the grant of a stock appreciation right will create no tax consequences for the non-employee director or Medtronic. Upon exercising a stock appreciation right, the director must recognize ordinary income in an amount equal to the Fair Market Value of the Shares received, and Medtronic will be entitled to a deduction for the same amount.

      Deferred Stock Units. Under present U.S. federal income tax law, the grant of a deferred stock unit will create no tax consequences for the non-employee director or Medtronic. Upon the non-employee director’s receipt of Shares, the director must recognize ordinary income in an amount equal to the Fair Market Value of the Shares received, and Medtronic will be entitled to a deduction for the same amount.

Adoption of Proposal No. 4

      Medtronic believes that its best interests will be served by the approval of Proposal No. 4. The Restated Plan will enable Medtronic to be in a position to continue to facilitate recruiting and retaining non-employee directors of outstanding ability by granting the awards contemplated by the Restated Plan to non-employee directors.

      THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MEDTRONIC, INC. 1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN (AS AMENDED AND RESTATED)

OTHER INFORMATION

Expenses of Solicitation

      Medtronic will bear the costs of soliciting proxies, including the reimbursement to record holders of their expenses in forwarding proxy materials to beneficial owners. Directors, officers and regular employees of Medtronic, without extra compensation, may solicit proxies personally or by mail, telephone, fax, telex, telegraph or special letter.

      We have engaged The Proxy Advisory Group of Strategic Stock Surveillance, LLC, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements that are not expected to exceed $15,000 in the aggregate.

      In order for a shareholder proposal to be considered for inclusion in Medtronic’s proxy statement for the 2006 Annual Meeting, the written proposal must be received by the Corporate Secretary at Medtronic’s offices no later than March 23, 2006. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials.

      Medtronic’s articles of incorporation provide that a shareholder may present a proposal or nominee for director from the floor that is not included in the proxy statement if proper written notice is received by the Corporate Secretary at Medtronic’s offices not less than 50 nor more than 90 days prior to the Annual Meeting date. If less than 60 days notice of the meeting date is given, the submission will be considered timely if it is received by the 10th day after notice of the meeting is given. Any such proposal or nomination must provide the information required by Medtronic’s articles of incorporation and comply with any applicable laws and regulations. If the shareholder does not also comply with the requirements of Rule 14a-4(c)(2) under the Exchange Act, Medtronic may exercise discretionary voting authority under proxies it solicits to vote in accordance with its best judgment on any such shareholder proposal or nomination.

      All submissions to, or requests from, the Corporate Secretary should be made to Medtronic’s principal offices at 710 Medtronic Parkway, Minneapolis, Minnesota 55432.

Delivery of Documents to Shareholders Sharing an Address

      The SEC has adopted amendments to its rules regarding delivery of proxy statements and annual reports to shareholders sharing the same address. We may satisfy these delivery rules by delivering a single proxy statement and annual report to an address shared by two or more of our shareholders. This delivery method, referred to as “householding”, can result in significant cost savings for us. In order to take advantage of this opportunity, we have delivered only one proxy statement and annual report to multiple shareholders who share an address unless Medtronic has received contrary instructions from one or more of the shareholders. Medtronic will deliver promptly, upon written or oral request, a separate copy of the proxy statement and annual report to a shareholder at a shared address to which a single copy of the documents was delivered. Shareholders who wish to receive a separate copy of the proxy statement and annual report, now or in the future, should submit their request by contacting ADP, either by calling toll-free (800) 542-1061, or by writing to ADP, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Shareholders sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future should submit their request by contacting us in the same manner. If you are the beneficial owner, but not the record holder, of Medtronic’s shares and wish to receive only one copy of the Proxy Statement and Annual Report in the future, you will need to contact your broker, bank or other nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future.

Other

      Medtronic’s 2005 Annual Report, including financial statements, is being sent to shareholders of record as of July 1, 2005, together with this Proxy Statement.

      MEDTRONIC WILL FURNISH TO SHAREHOLDERS WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 29, 2005, AS FILED WITH THE SEC, UPON RECEIPT OF WRITTEN REQUEST ADDRESSED TO: INVESTOR RELATIONS DEPARTMENT, MEDTRONIC, INC., 710 MEDTRONIC PARKWAY, MINNEAPOLIS, MINNESOTA 55432.

Appendix A

MEDTRONIC, INC

2005 EMPLOYEES STOCK PURCHASE PLAN

Effective November 1, 2005

1. Purpose Of Plan. Medtronic, Inc. (hereinafter referred to as the “Company”) proposes to grant to Employees of the Company and of certain of its Subsidiaries the opportunity to purchase common stock of the Company. Such common stock shall be purchased pursuant to this Plan, which is the MEDTRONIC, INC. 2005 EMPLOYEES STOCK PURCHASE PLAN (hereinafter referred to as the “Plan”). The Company intends that the Plan qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended, and shall be construed in a manner consistent with the requirements of Section 423, or any successor provision, and the regulations thereunder. The Plan is intended to encourage stock ownership by all Employees of the Company, and to be an incentive to them to remain in its employ, improve operations, increase profits and contribute more significantly to the Company’s success.

3. Administration. The Committee shall administer the Plan. Subject to the express provisions of the Plan, the Committee shall have full authority, in its discretion, to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee’s determination on the foregoing matters shall be conclusive. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted or stock issued under the Plan.

The Board of Directors shall fill all vacancies on the Committee and may remove any member of the Committee at any time, with or without cause. All determinations of the Committee shall be made by a majority vote of its members. Any decision which is made in writing and signed by a majority of the members of the Committee shall be effective as fully as though made by a majority vote at a meeting duly called and held.

4. Duration And Purchase Periods Of The Plan. The Plan will commence as of November 1, 2005, and will terminate ten (10) years thereafter, unless extended by the Board of Directors. Notwithstanding the foregoing, this Plan shall be considered of no force or effect and any options granted hereunder shall be considered null and void unless the holders of a majority of all of the issued and outstanding shares of the common stock of the Company approve the Plan within the twelve (12) consecutive month period immediately preceding or following the date of adoption of the Plan by the Board of Directors.

The Plan shall be carried out in a series of consecutive Purchase Periods. The first Purchase Period shall commence November 1, 2005, and shall terminate March 31, 2006. Thereafter, Purchase Period shall be calendar quarters, with the first such quarterly Purchase Period commencing April 1,

5. Eligibility. Each Employee who is employed by a Participating Employer immediately preceding the commencement date of a Purchase Period shall be eligible to participate in the Plan for such Purchase Period, provided that he or she has satisfied the enrollment requirements described in Paragraph 6.

6. Participation. Participation in the Plan is voluntary. An eligible Employee may elect to participate in the Plan for any Purchase Period by completing the Plan payroll deduction form provided by his or her Participating Employer and delivering it to the Participating Employer or its designated representative not later than the date preceding the commencement date of the Purchase Period specified by the Senior Vice President, Human Resources of the Company.

An Employee who elects to participate in the Plan for any Purchase Period shall be deemed to have elected to participate in the Plan for each subsequent consecutive Purchase Period unless such Participant elects to discontinue payroll deductions during a Purchase Period or exercises his or her right to withdraw all amounts previously withheld as provided in Paragraph 9(b). In this event, the Participant must submit a change of election form or a new payroll deduction form, as the case may be, to participate in the Plan for any subsequent Purchase Period. The Participant may also increase his or her participation for any subsequent Purchase Period by submitting a new payroll deduction form during the enrollment period prior to that Purchase Period.

      Payroll deductions for a Participant shall commence on the first payday coinciding with or immediately following the commencement date of the Purchase Period and shall terminate on the last payday immediately prior to or coinciding with the termination date of that Purchase Period, unless sooner terminated by the Participant as provided in Paragraph 7(b) or 9(a) hereof. The authorized deductions shall be made over the pay periods of such Purchase Period by deducting from the Participant’s Salary for each such pay period that percentage as specified by the Participant as of the commencement date of the Purchase Period. Except for a Participant’s rights to reduce or discontinue deductions pursuant to Paragraphs 7(b) and 9 hereof, the same percentage deduction shall be applied against the Participant’s Salary for each pay period during such Purchase Period, whether or not the Participant’s Salary level increases or decreases after the commencement date of such Purchase Period.

      The extent to which a Participant may actually exercise his or her option shall be based upon the amount actually withheld for such Participant as of the termination date of the phase.

(a) Grant Of Option.

(iv) Limitations On Purchase. Anything herein to the contrary notwithstanding:

Any attempt by the Participant to sell or transfer such shares in violation of this Paragraph 8(d) shall be considered null and void and of no force or effect. During such restricted transfer period, each certificate and account evidencing such shares of common stock shall bear an appropriate legend or stop transfer order, respectively, referring to the terms, restrictions and conditions applicable to the transfer of such shares.

11. Accounting And Use Of Funds. Payroll deductions for each Participant shall be credited to an account established under the Plan. A Participant may not make any separate cash payments into such account. Such account shall be solely for bookkeeping purposes and no separate fund or trust shall be established hereunder. All funds from payroll deductions received or held by the Participating Employers under the Plan may be used, without limitation, for any corporate purpose by the Participating Employers who shall not be obligated to segregate such funds. Such accounts shall not bear interest.

12. Adjustment Provision. Subject to any required action by the shareholders of the Company, in the event that the issued and outstanding shares of common stock of the Company are changed into or exchanged for a different number or kind of shares or securities of the Company or of

In the event of a Corporate Transaction, the Board of Directors may either: (i) amend or adjust the provisions of this Plan to provide for the acceleration of the current Purchase Period and the exercise of options thereunder; or (ii) continue the Plan with respect to completion of the then current Purchase Period and the exercise of options thereunder. In the event of such continuance, Participants shall have the right to exercise their options as to an equivalent number of shares of stock of the corporation succeeding the Company by reason of such sale, merger, consolidation, liquidation or other event, as provided pursuant to Section 424(a) of the Internal Revenue Code, or any successor provision. The grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company or Board of Directors to make adjustments, reclassifications, reorganizations or changes in the Company’s capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.

13. Non-Transferability Of Options. Options granted under any Purchase Period of the Plan shall not be transferable and shall be exercisable only by the optionee.

Neither payroll deductions credited to a Participant’s account, nor any rights with regard to the exercise of an option or the receipt of common stock under any Purchase Period of the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant. Any such attempted assignment, transfer, pledge or other disposition shall be null and void and without effect, except that a Participating Employer may, at its option, treat such act as an election to withdraw funds in accordance with Paragraph 9(b).

14. Designation Of Beneficiary. A Participant may file a written designation of a beneficiary who is to receive any cash or stock payable pursuant to Paragraph 9(e) hereof. The beneficiary designation may be changed by the Participant at any time by written notice to the Participating Employer.

Upon the death of a Participant and receipt by the Participating Employer of proof deemed adequate by it of the identity and existence at the Participant’s death of a beneficiary validly designated under the Plan, the Participating Employer shall deliver such cash or stock to such beneficiary. In the event there is no validly designated beneficiary under the Plan who is living at the time of the Participant’s death, the Participating Employer shall deliver the cash or stock to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed to the knowledge of the Participating Employer, it may, in its discretion, deliver such cash or stock to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Participating Employer, then to such other person as the Participating Employer may designate. The Participating Employer will not be responsible for or be required to give effect to the disposition of any cash or stock in accordance with any will or other testamentary disposition made by such Participant or in accordance with the provisions of any law concerning intestacy, or otherwise. No designated beneficiary shall, prior to the death of a Participant by whom he has been designated, acquire any interest in any stock or in any option or in the cash credited to the Participant under any Purchase Period of the Plan.

15. Amendment and Termination. The Plan may be terminated at any time by the Board of Directors provided that, except as permitted pursuant to Paragraph 12, no such termination will take effect with respect to any completed Purchase Period. Also, the Board may, from time to time, amend the Plan as it may deem proper and in the best interests of the Company or as may be necessary to comply with Section 423 of the Internal Revenue Code or other applicable laws or

16. Notices. All notices or other communications in connection with the Plan or any Purchase Period thereof shall be in the form specified by the Committee and shall be deemed to have been duly given when sent to the Participant at his or her last known address, or the Participant’s designated personal representative or beneficiary, or to the Participating Employer or its designated representative, as the case may be.

17. Alteration of Plan Terms to Comply with Foreign Law; Establishment of Non-Statutory Plans. The Senior Vice President, Human Resources of the Company shall have the authority to alter the operation of the Plan to the extent necessary to achieve desired tax or other objectives in particular locations outside the United States of America or to comply with local laws applicable to offerings in such foreign jurisdictions, including, without limitation: (i) authorizing alternative payment methods in the case of foreign jurisdictions where payroll deductions are not allowed; and (ii) imposing lower limitations on the shares available for option grants during any Purchase Period in the case of foreign jurisdictions where lower limitations are required. To the extent that such alterations may be made in a manner that does not result in the Plan’s failure to comply with Code Section 423, the options subject to such alterations shall for all purposes be considered to be options granted under the Plan. To the extent that such alterations would result in the Plan’s failure to comply with Code Section 423, the options subject to such alterations shall be considered to be options granted under one or more non-statutory stock option plans. To the extent that the employing entity in a foreign jurisdiction does not constitute a Subsidiary, options granted to such employees shall be considered to be options granted under one or more non-statutory option plans. In all such cases, the terms of such non-statutory stock option plan or plans shall have the same terms as the Plan except for such alterations. In all cases, the total number of shares authorized to be issued under the Plan shall apply in the aggregate to the Plan and any such non-statutory stock option plans.

Appendix B

MEDTRONIC, INC.

1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN

(as amended and restated)

1. Purpose. The purpose of this Plan is to facilitate recruiting and retaining non-employee directors of outstanding ability.

2. Definitions. The capitalized terms used in this Plan have the meanings set forth below.

Notwithstanding the foregoing provisions of this definition, a Change in Control shall not be deemed to occur with respect to the Participant if the acquisition of the 30% or greater interest referred to in clause (a) is by a group, acting in concert, that includes the Participant or if at least 40% of the then outstanding common stock or combined voting power of the then outstanding voting securities (or voting equity interests) of the Surviving Corporation or, if applicable, the Parent Corporation shall be beneficially owned, directly or indirectly, immediately after a Business Combination by a group, acting in concert, that includes the Participant.

Except when otherwise indicated by the context, reference to the masculine gender shall include, when used, the feminine gender and any term used in the singular shall also include the plural.

10. Governing Law. To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant to this Plan shall be governed by the laws of Minnesota and construed accordingly.

11. Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

12. Effect of Prior Plan. From and after the Effective Date of this Plan, no further awards shall be made to Non-Employee Directors under the Company’s 1994 Stock Award Plan the “Prior Plan”). Thereafter, all grants and awards made under the Prior Plan prior to such Effective Date shall continue in accordance with the terms of the Prior Plan.