ARTERIAL VASCULAR ENGINEERING, INC.

                        1997 EMPLOYEE STOCK PURCHASE PLAN

                 Adopted by the Board of Directors July 8, 1997
             Approved by the Stockholders on ________________, 1997


1.   PURPOSE.

     (a) The purpose of this 1997 Employee  Stock  Purchase Plan (the "Plan") is
to provide a means by which employees of Arterial  Vascular  Engineering Inc., a
Delaware  corporation  (the  "Company"),  and  its  Affiliates,  as  defined  in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.

     (b) The word  "Affiliate" as used in the Plan means any parent  corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f),  respectively,  of the Internal Revenue Code of 1986, as amended
(the  "Code").  

     (c) The Company,  by means of the Plan, seeks to retain the services of its
employees,  to secure and retain the services of new  employees,  and to provide
incentives  for such  persons to exert  maximum  efforts  for the success of the
Company.  

     (d) The Company  intends  that the rights to purchase  stock of the Company
granted under the Plan be  considered  options  issued under an "employee  stock
purchase  plan" as that term is  defined  in  Section  423(b)  of the  Code.  

2.   ADMINISTRATION.

     (a) The Plan shall be  administered by the Board of Directors (the "Board")
of the  Company  unless  and  until  the  Board  delegates  administration  to a
Committee,  as  provided  in  subparagraph  2(c).  Whether  or not the Board has
delegated administration,  the Board shall have the final power to determine all
questions of policy and expediency that may arise in the  administration  of the
Plan.

     (b) The Board shall have the power,  subject to, and within the limitations
of, the express  provisions of the Plan:

         (i) To determine  when and how rights to purchase  stock of the Company
shall be granted and the  provisions of each offering of such rights (which need
not be identical).

         (ii) To  designate  from time to time which  Affiliates  of the Company
shall be eligible to participate in the Plan.

         (iii) To construe and interpret  the Plan and rights  granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this

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power,  may correct any defect,  omission  or  inconsistency  in the Plan,  in a
manner and to the extent it shall deem  necessary  or expedient to make the Plan
fully effective.

         (iv) To amend the Plan as provided in paragraph 13.

         (v) Generally,  to exercise such powers and to perform such acts as the
Board deems  necessary or expedient to promote the best interests of the Company
and its  Affiliates  and to carry out the intent  that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.

     (c) The  Board  may  delegate  administration  of the  Plan to a  Committee
composed  of not fewer than two (2) members of the Board (the  "Committee").  If
administration  is  delegated  to a  Committee,  the  Committee  shall have,  in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject,  however, to such resolutions,  not inconsistent with the
provisions  of the Plan,  as may be adopted from time to time by the Board.  The
Board  may  abolish  the  Committee  at any time and  revest  in the  Board  the
administration of the Plan.

3.   SHARES SUBJECT TO THE PLAN.

     (a) Subject to the provisions of paragraph 12 relating to adjustments  upon
changes in stock,  the stock that may be sold  pursuant to rights  granted under
the Plan shall not exceed in the  aggregate  One Million Five  Hundred  Thousand
(1,500,000)  shares of the Company's common stock (the "Common  Stock").  If any
right granted under the Plan shall for any reason terminate  without having been
exercised (other than rolled-over  rights), the Common Stock not purchased under
such right shall again become available for the Plan.

     (b) The stock  subject  to the Plan may be  unissued  shares or  reacquired
shares, bought on the market or otherwise.

4.   GRANT OF RIGHTS; OFFERING.

     (a) The Board or the  Committee  may from time to time grant or provide for
the grant of rights to purchase  Common  Stock of the Company  under the Plan to
eligible  employees (an "Offering") on a date or dates (the "Offering  Date(s)")
selected by the Board or the Committee.  Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate,  which shall comply with the  requirements of Section  423(b)(5) of
the Code that all  employees  granted  rights to  purchase  stock under the Plan
shall  have the same  rights  and  privileges.  The terms and  conditions  of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate  Offerings need not be identical,  but each
Offering shall include (through  incorporation of the provisions of this Plan by
reference  in the document  comprising  the  Offering or  otherwise)  the period
during  which the  Offering  shall be  effective,  which period shall not exceed
twenty-seven  (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.

     (b) If an  employee  has more  than one right  outstanding  under the Plan,
unless  he or  she  otherwise  indicates  in  agreements  or  notices  delivered
hereunder:  (1) each  agreement  or notice

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<PAGE>

delivered by that  employee  will be deemed to apply to all of his or her rights
under  the  Plan,   and  (2)  a  right  with  a  lower  exercise  price  (or  an
earlier-granted  right, if two rights have identical  exercise prices),  will be
exercised to the fullest  possible  extent before a right with a higher exercise
price (or a later-granted  right, if two rights have identical  exercise prices)
will be exercised.

5.   ELIGIBILITY.

     (a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any  Affiliate  of the  Company.  Except as provided in  subparagraph  5(b),  an
employee  of the  Company or any  Affiliate  shall not be eligible to be granted
rights under the Plan,  unless,  on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous  period preceding
such grant as the Board or the Committee may require,  but in no event shall the
required  period of  continuous  employment  be equal to or greater than two (2)
years. In addition,  unless  otherwise  determined by the Board or the Committee
and set  forth in the  terms of the  applicable  Offering,  no  employee  of the
Company or any Affiliate  shall be eligible to be granted rights under the Plan,
unless,  on the Offering Date,  such  employee's  customary  employment with the
Company  or such  Affiliate  is for at least  twenty  (20) hours per week and at
least five (5) months per calendar year.

     (b) The Board or the Committee may provide that each person who, during the
course of an  Offering,  first  becomes an  eligible  employee of the Company or
designated  Affiliate  will, on a date or dates  specified in the Offering which
coincides  with the day on which such  person  becomes an  eligible  employee or
occurs  thereafter,  receive a right  under that  Offering,  which  right  shall
thereafter  be deemed to be a part of that  Offering.  Such right shall have the
same  characteristics as any rights originally  granted under that Offering,  as
described herein, except that: 

         (i) the date on which  such  right is  granted  shall be the  "Offering
Date" of such right for all purposes,  including  determination  of the exercise
price of such right;

         (ii) the period of the Offering  with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and 

         (iii) the Board or the  Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.

     (c) No  employee  shall be eligible  for the grant of any rights  under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph  5(c),  the  rules of  Section  424(d) of the Code  shall  apply in
determining the stock  ownership of any employee,  and stock which such employee
may purchase under all outstanding  rights and options shall be treated as stock
owned by such employee.

     (d) An eligible  employee may be granted rights under the Plan only if such
rights,  together with any other rights granted under  "employee  stock purchase
plans" of the Company and any Affiliates,  as specified by Section  423(b)(8) of
the Code, do not permit such employee's  rights to

                                       3.

<PAGE>

purchase stock of the Company or any Affiliate to accrue at a rate which exceeds
twenty-five  thousand  dollars  ($25,000)  of fair  market  value of such  stock
(determined at the time such rights are granted) for each calendar year in which
such rights are  outstanding  at any time. 

     (e) Officers of the Company and any designated  Affiliate shall be eligible
to participate in Offerings under the Plan,  provided,  however,  that the Board
may provide in an Offering  that certain  employees  who are highly  compensated
employees  within the meaning of Section  423(b)(4)(D)  of the Code shall not be
eligible to participate. 

6.   RIGHTS; PURCHASE PRICE.

     (a) On each Offering Date, each eligible employee,  pursuant to an Offering
made under the Plan,  shall be granted the right to purchase up to the number of
shares of Common Stock of the Company  purchasable with a percentage  designated
by the  Board  or the  Committee  not  exceeding  twenty  percent  (20%) of such
employee's  Earnings  (as  defined  by the Board for each  Offering)  during the
period which begins on the Offering Date (or such later date as the Board or the
Committee  determines for a particular  Offering) and ends on the date stated in
the  Offering,  which date shall be no later than the end of the  Offering.  The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase  Date(s)") on which rights  granted  under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.

     (b) In connection  with each Offering made under the Plan, the Board or the
Committee  may specify a maximum  number of shares that may be  purchased by any
employee as well as a maximum  aggregate  number of shares that may be purchased
by all eligible employees pursuant to such Offering.  In addition, in connection
with each Offering that contains more than one Purchase  Date,  the Board or the
Committee  may  specify  a  maximum  aggregate  number  of  shares  which may be
purchased  by all  eligible  employees  on any  given  Purchase  Date  under the
Offering.  If the aggregate  purchase of shares upon exercise of rights  granted
under the Offering would exceed any such maximum aggregate number,  the Board or
the Committee  shall make a pro rata  allocation  of the shares  available in as
nearly a  uniform  manner  as shall be  practicable  and as it shall  deem to be
equitable.

     (c) The purchase price of stock  acquired  pursuant to rights granted under
the Plan shall be not less than the lesser of:

         (i) an amount  equal to  eighty-five  percent  (85%) of the fair market
value of the stock on the Offering Date; or

         (ii) an amount equal to  eighty-five  percent  (85%) of the fair market
value of the stock on the Purchase Date.

7.   PARTICIPATION; WITHDRAWAL; TERMINATION.

     (a) An eligible  employee may become a participant  in the Plan pursuant to
an Offering by delivering a  participation  agreement to the Company  within the
time specified in the Offering, in such form as the Company provides.  Each such
agreement shall  authorize  payroll  deductions of up to the maximum  percentage
specified by the Board or the Committee of such employee's  Earnings (as defined

                                       4.

<PAGE>

by the Board for each Offering) during the Offering. The payroll deductions made
for each participant  shall be credited to an account for such participant under
the Plan and  shall  be  deposited  with the  general  funds of the  Company.  A
participant may reduce (including to zero) or increase such payroll  deductions,
and an eligible employee may begin such payroll deductions,  after the beginning
of any Offering  only as provided for in the Offering.  A  participant  may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.

     (b) At any time during an Offering,  a participant may terminate his or her
payroll  deductions  under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the  Committee in the  Offering.  Upon such  withdrawal
from the  Offering  by a  participant,  the  Company  shall  distribute  to such
participant all of his or her  accumulated  payroll  deductions  (reduced to the
extent,  if any,  such  deductions  have  been  used to  acquire  stock  for the
participant)  under  the  Offering,  without  interest,  and such  participant's
interest in that Offering shall be  automatically  terminated.  A  participant's
withdrawal  from  an  Offering  will  have no  effect  upon  such  participant's
eligibility  to  participate  in any  other  Offerings  under  the Plan but such
participant will be required to deliver a new  participation  agreement in order
to  participate  in  subsequent  Offerings  under the Plan.  

     (c) Rights granted  pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating  employee's  employment with the
Company and any  designated  Affiliate,  for any reason,  and the Company  shall
distribute to such  terminated  employee all of his or her  accumulated  payroll
deductions  (reduced to the extent,  if any, such  deductions  have been used to
acquire  stock  for  the  terminated  employee),  under  the  Offering,  without
interest.  

     (d)  Rights  granted  under  the  Plan  shall  not  be  transferable  by  a
participant  otherwise than by will or the laws of descent and distribution,  or
by a beneficiary  designation as provided in paragraph 14 and,  otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.

                                       5.

<PAGE>

8.   EXERCISE.  

     (a) On each Purchase Date specified therefor in the relevant Offering, each
participant's  accumulated  payroll  deductions  and other  additional  payments
specifically  provided for in the Offering  (without any increase for  interest)
will be applied to the purchase of whole  shares of stock of the Company,  up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable  Offering,  at the  purchase  price  specified  in the  Offering.  No
fractional  shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated  payroll  deductions  remaining in each
participant's account after the purchase of shares which is less than the amount
required  to  purchase  one  share  of stock on the  final  Purchase  Date of an
Offering  shall be held in each such  participant's  account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next  Offering,  as provided  in  subparagraph  7(b),  or is no longer
eligible to be granted  rights  under the Plan,  as provided in  paragraph 5, in
which case such amount shall be distributed to the participant  after such final
Purchase Date,  without  interest.  The amount,  if any, of accumulated  payroll
deductions  remaining in any participant's  account after the purchase of shares
which is equal to the amount  required to purchase  whole shares of stock on the
final  Purchase  Date  of an  Offering  shall  be  distributed  in  full  to the
participant after such Purchase Date, without interest.

     (b) No rights  granted under the Plan may be exercised to any extent unless
the shares to be issued  upon such  exercise  under the Plan  (including  rights
granted thereunder) are covered by an effective  registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material  compliance with all applicable state,  foreign and other securities
and other laws  applicable  to the Plan.  If on a Purchase  Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase  Date shall be delayed  until the Plan is subject to such an  effective
registration statement and such compliance,  except that the Purchase Date shall
not be delayed  more than twelve (12) months and the  Purchase  Date shall in no
event be more than  twenty-seven  (27) months from the Offering  Date. If on the
Purchase  Date of any  Offering  hereunder,  as  delayed to the  maximum  extent
permissible,  the  Plan is not  registered  and in such  compliance,  no  rights
granted  under  the Plan or any  Offering  shall be  exercised  and all  payroll
deductions  accumulated during the Offering (reduced to the extent, if any, such
deductions  have  been  used to  acquire  stock)  shall  be  distributed  to the
participants, without interest.

9.   COVENANTS OF THE COMPANY.

     (a) During  the terms of the rights  granted  under the Plan,  the  Company
shall  keep  available  at all times the number of shares of stock  required  to
satisfy such rights.

     (b) The Company shall seek to obtain from each federal,  state,  foreign or
other  regulatory  commission or agency having  jurisdiction  over the Plan such
authority as may be required to issue and sell shares of stock upon  exercise of
the rights granted under the Plan. If, after reasonable efforts,  the Company is
unable to obtain from any such  regulatory  commission  or agency the  authority
which counsel for the Company deems  necessary for the lawful  issuance and sale
of stock under the Plan,  the Company  shall be relieved  from any liability for
failure to issue and sell stock upon  exercise of such  rights  unless and until
such authority is obtained.

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<PAGE>

10.  USE OF PROCEEDS FROM STOCK.

     Proceeds from the sale of stock  pursuant to rights  granted under the Plan
shall constitute general funds of the Company.

11.  RIGHTS AS A STOCKHOLDER.

     A  participant  shall not be deemed to be the  holder of, or to have any of
the rights of a holder  with  respect to, any shares  subject to rights  granted
under the Plan unless and until the  participant's  stockholdings  acquired upon
exercise of rights hereunder are recorded in the books of the Company.

12.  ADJUSTMENTS UPON CHANGES IN STOCK.

     (a) If any change is made in the stock  subject to the Plan,  or subject to
any   rights   granted   under   the  Plan   (through   merger,   consolidation,
reorganization,  recapitalization,  stock  dividend,  dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares,  change in corporate  structure or other  transaction  not involving the
receipt of consideration by the Company),  the Plan and outstanding  rights will
be appropriately  adjusted in the class(es) and maximum number of shares subject
to the Plan and the  class(es) and number of shares and price per share of stock
subject to outstanding  rights.  Such adjustments  shall be made by the Board or
the  Committee,   the  determination  of  which  shall  be  final,  binding  and
conclusive.  (The conversion of any convertible  securities of the Company shall
not be treated as a "transaction  not involving the receipt of  consideration by
the Company.")

     (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation  in which the Company is not the surviving  corporation;
(3) a reverse merger in which the Company is the surviving  corporation  but the
shares of the  Company's  Common Stock  outstanding  immediately  preceding  the
merger are converted by virtue of the merger into other property, whether in the
form of  securities,  cash or otherwise;  or (4) the  acquisition by any person,
entity or group within the meaning of Section  13(d) or 14(d) of the  Securities
Exchange  Act of  1934,  as  amended  (the  "Exchange  Act")  or any  comparable
successor  provisions  (excluding  any employee  benefit plan, or related trust,
sponsored or  maintained  by the Company or any Affiliate of the Company) of the
beneficial  ownership  (within the meaning of Rule 13d-3  promulgated  under the
Exchange  Act,  or  comparable  successor  rule) of  securities  of the  Company
representing  at least fifty percent (50%) of the combined voting power entitled
to vote in the election of  directors,  then,  as determined by the Board in its
sole   discretion  (i)  any  surviving  or  acquiring   corporation  may  assume
outstanding  rights or substitute  similar rights for those under the Plan, (ii)
such  rights may  continue  in full  force and  effect,  or (iii)  participants'
accumulated  payroll deductions may be used to purchase Common Stock immediately
prior to the transaction  described above and the participants' rights under the
ongoing Offering terminated.

                                       7.

<PAGE>

13.  AMENDMENT OF THE PLAN.

     (a) The  Board at any  time,  and from  time to time,  may  amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the  Company  within  twelve  (12)  months  before or after the  adoption of the
amendment, where the amendment will:

         (i) Increase the number of shares reserved for rights under the Plan;

         (ii) Modify the provisions as to eligibility for  participation  in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to obtain  employee stock purchase plan treatment  under Section 423 of
the Code); or

(iii) Modify the Plan in any other way if such modification requires stockholder
approval in order for the Plan to obtain  employee stock purchase plan treatment
under Section 423 of the Code.

It is  expressly  contemplated  that the Board may amend the Plan in any respect
the Board deems  necessary or advisable to provide  eligible  employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or  to bring  the  Plan  and/or  rights  granted  under  it into  compliance
therewith.

     (b) Rights and obligations under any rights granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan,  except with
the  consent  of the  person  to whom such  rights  were  granted,  or except as
necessary  to comply  with any laws or  governmental  regulations,  or except as
necessary to ensure that the Plan and/or  rights  granted  under the Plan comply
with the requirements of Section 423 of the Code.

14.  DESIGNATION OF BENEFICIARY.

     (a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash,  if any, from the  participant's  account under the
Plan  in the  event  of such  participant's  death  subsequent  to the end of an
Offering but prior to delivery to the  participant  of such shares and cash.  In
addition,  a participant may file a written  designation of a beneficiary who is
to receive any cash from the  participant's  account under the Plan in the event
of such participant's death during an Offering.

     (b) Such  designation of beneficiary  may be changed by the  participant at
any time by written  notice.  In the event of the death of a participant  and in
the absence of a beneficiary  validly designated under the Plan who is living at
the time of such  participant's  death,  the Company  shall  deliver such shares
and/or cash 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  Company),  the  Company,  in its sole  discretion,  may deliver such shares
and/or cash 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  Company,
then to such other person as the Company may designate.

                                       8.

<PAGE>

15.  TERMINATION OR SUSPENSION OF THE PLAN.

     (a) The Board in its  discretion,  may suspend or terminate the Plan at any
time.  No rights may be granted  under the Plan while the Plan is  suspended  or
after it is terminated.

     (b) Rights and  obligations  under any rights  granted while the Plan is in
effect  shall not be altered or impaired by  suspension  or  termination  of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or  governmental  regulation,  or except as  necessary  to ensure  that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.

16.  EFFECTIVE DATE OF PLAN.

     The Plan shall become  effective on August 1, 1997 (the "Effective  Date"),
but no rights  granted  under the Plan shall be  exercised  unless and until the
Plan has been  approved by the  stockholders  of the Company  within twelve (12)
months  before  or  after  the  date the  Plan is  adopted  by the  Board or the
Committee, which date may be prior to the Effective Date.


                                       9.