<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
                            ------------------------
 
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                   FOR THE FISCAL YEAR ENDED: JANUARY 1, 1999
 
                        COMMISSION FILE NUMBER: 0-26268
 
                                  MINIMED INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                    <C>
                      DELAWARE                                              95-4408171
           (STATE OF OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)
</TABLE>
 
               12744 SAN FERNANDO ROAD, SYLMAR, CALIFORNIA 91342
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)        (ZIP CODE)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 362-5958
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                              TITLE OF EACH CLASS
 
                          COMMON STOCK, $.01 PAR VALUE
                        PREFERRED STOCK PURCHASE RIGHTS
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K or any amendment to
this Form 10-K.  [ ]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 15, 1999 was $841,228,448. The number of shares
outstanding of the registrant's Common Stock as of March 15, 1999 was
14,093,478.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
     Portions of the following document are incorporated herein by reference:
Part III -- The Registrant's Proxy Statement for its 1999 Annual Meeting (the
"1999 Proxy").
 
                      Exhibit Index is located at page 54
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                                     PART I
 
     This Annual Report on Form 10-K contains statements that are
forward-looking, including statements relating to anticipated operating results,
growth, financial resources, the development of new markets, the development,
regulatory approval, manufacture, distribution, and commercial acceptance of new
products and new applications for MiniMed's existing product lines. Investors
are cautioned that, although MiniMed believes that its expectations are based on
reasonable assumptions, forward-looking statements involve risks and
uncertainties which may affect MiniMed's business and prospects, including
changes in economic and market conditions, acceptance of MiniMed's products by
the health care and reimbursement communities, health care legislation and
regulation, new developments in diabetes therapy, administrative and regulatory
approval and related considerations, competitive developments, the effective
integration of the Company's recent acquisitions, maintenance of strategic
alliances and other factors discussed under the caption "Risk Factors" in the
Company's Registration Statement No. 333-23013 filed with the Securities and
Exchange Commission and declared effective on March 27, 1997.
 
ITEM 1. BUSINESS
 
     MiniMed Inc. (the "Company" or "MiniMed") designs, develops, manufactures
and markets advanced microinfusion systems for the intensive management of
diabetes and is developing other applications for its pump technology.
Substantially all of the Company's revenues have been derived from the sale of
external insulin pumps and related disposables, which are designed to deliver
small quantities of insulin in a controlled, programmable profile. The Company
believes that it is the leading provider of these systems in the world with a
present market share in the U.S. of approximately 80% for new pump sales. The
Diabetes Control and Complications Trial (the "DCCT Study"), a landmark, 10-year
study conducted under the auspices of the National Institutes of Health (the
"NIH"), established that close control of glucose levels can prevent or delay
the onset of the long-term consequences of diabetes. Other clinical studies have
demonstrated that the use of insulin pumps offers many advantages over injection
therapy, such as enabling patients to achieve less glucose variability, reducing
the serious consequences of diabetes and improving the patients' quality of
life. The Company also has exclusive worldwide marketing rights to an
implantable insulin pump and has developed continuous glucose monitoring systems
intended to enable further improvement in glycemic control and avoidance of
hypoglycemic (low glucose level) and hyperglycemic (high glucose level) events.
The Company's net sales of external pumps and related disposables have grown at
a compounded annual rate of approximately 34% from $11.8 million in 1990 to
$121.8 million in 1998. The Company believes its primary market is for Type 1
(insulin-dependent, juvenile-onset) diabetes patients. The American Diabetes
Association (the "ADA") has estimated that there are approximately
800,000 - 1,000,000 Type 1 patients in the U.S., and the Company believes that
approximately 7% of such patients use insulin pumps.
 
     Beyond intensive management of diabetes, the Company is seeking to take
advantage of its drug delivery expertise by exploring applications of its pumps
with drugs other than insulin. The Company believes that its pump technology is
well suited for the delivery of a number of drugs that are difficult to
administer, including drugs that: (i) are made up of fragile, large molecules,
(ii) cannot be ingested orally, (iii) have short half-lives in vivo, (iv)
require site-specific delivery, (v) have very narrow effective ranges of
concentration, (vi) require a profiled delivery pattern or (vii) would otherwise
require large amounts of drugs that are either expensive or toxic in the high
doses required to achieve therapeutic value. Many genetically engineered and
manufactured proteins and peptides have these characteristics. In 1997, the
Company entered into a Cooperation and Strategic Alliance Agreement with
Trimeris, Inc. ("Trimeris") with respect to its new drug for the treatment of
HIV infection, and also an agreement with United Therapeutics Corporation
("UTC") (formerly LRX Pharmaceuticals, Inc.), to collaborate in the design,
development and implementation of therapies for the treatment of pulmonary
hypertension. The Company continues to have discussions with a number of other
biotechnology companies regarding additional collaboration on developing
infusion systems for use with drugs other than insulin. For a discussion of
MiniMed's operating business segments see notes to consolidated financial
statements.
 
                                        1
<PAGE>   3
 
DIABETES THERAPY
 
     The Company's primary business currently is directed to the intensive
management of diabetes. Toward this end, the Company manufactures and markets
programmable pumps and related supplies for delivery of insulin in
patient-controlled profiles. The Company's programmable external insulin pumps
are small and lightweight (about the size of a pager) and are designed to be
worn under the patient's clothing, on a belt, in a pocket or elsewhere in order
not to interfere with normal daily activities. The pumps are designed to utilize
the Company's proprietary disposables, consisting of an infusion set and a
medication reservoir, which provide the Company with a continuing source of
revenue following pump sales. The Company's external infusion pumps deliver
insulin subcutaneously in hundreds of microdoses throughout the day, more
closely simulating delivery by a normal pancreas as compared to the two to four
large (bolus) doses per day with injection therapy. A prospective, cross-over
study published in April 1996 in Diabetes Care has shown that intensive
management of diabetes by insulin pump therapy using the Company's external pump
reduces the risk of severe hypoglycemic events four-to six-fold as compared to
intensive management of diabetes by multiple daily injections.
 
     In addition to its external pumps, the Company has developed an implantable
pump which to date has been utilized only for insulin delivery. The programmable
implantable pump is similar in function to the external pump but is implanted
under the skin of the abdomen, releasing insulin directly into the peritoneal
cavity. Peritoneal delivery even more closely simulates normal pancreatic
function than subcutaneous delivery via an external pump. Two studies presented
in France in 1994 found that intensive insulin therapy with an implantable pump
(a majority of which were made by the Company prior to the transaction with
"MRG" discussed below) has significant advantages over alternative intensive
management therapies for Type 1 patients, including lower glycemic variability
and a significant reduction in hypoglycemic events. A separate study published
in the Journal of the American Medical Association ("JAMA") in October 1996
found that in Type 2 (adult onset) patients, intensive insulin therapy utilizing
the Company's implantable pump, as compared to those patients using multiple
daily injections, also provided reduced glycemic variability, reduced risk of
hypoglycemic events without weight gain and enhanced quality of life. The
Company's implantable pump has been approved for commercial sale in the European
Union ("EU"), and the special insulin used in the implantable pump, which has
not been approved for commercial distribution in the EU or the U.S., is subject
to a separate regulatory approval process in the EU. In August 1998, the Company
transferred its implantable pump technology to Medical Research Group, LLC
("MRG"), a medical research and development company, to further the development
of this technology. This arrangement integrates the development of the
implantable pump and MRG's long-term glucose sensor under a single management
team, and is considered one of several methods by which the Company can achieve
its strategic goal of developing or marketing an "artificial" pancreas. The
Company retains the marketing and distribution right to the implantable pump for
diabetes and certain other applications, and has obtained an option to acquire
the marketing rights to the long-term glucose sensor under development by MRG.
MRG was founded by Alfred E. Mann, the principal stockholder of the Company. Mr.
Mann is the Chairman, a director and a principal stockholder of MRG.
 
     The Company is also developing a series of continuous glucose monitoring
systems, all of which utilize a sensor that can be inserted into subcutaneous
tissue for continuous monitoring of glucose levels. Each sensor is expected to
last approximately 3 days, after which the patient would replace it with another
sensor in a different location. The system measures glucose levels every ten
seconds and records averages over 5 minute intervals. These systems are being
developed to provide minimally invasive, continuous measurements with alarms
that warn the patient when glucose levels become too low or too high. The
Company believes these systems would provide substantial benefits over widely
used glucose meters and strips that provide only intermittent measurements and
can cause considerable discomfort and inconvenience as a result of the need
several times a day to prick a finger to draw blood and then use a strip and a
meter to determine glucose levels. Because of the expected advantages of the
Company's minimally-invasive continuous glucose monitoring systems over glucose
strips and meters, the Company believes that its systems, if successfully
developed, would enable better disease management and significantly improve
patient compliance. On February 26, 1999, an Advisory Panel of the U.S. Food and
Drug Administration ("FDA") issued a conditional recommendation
 
                                        2
<PAGE>   4
 
for agency approval of MiniMed's premarket approval application ("PMA") for a
system designed to provide continuous glucose monitoring for people with
diabetes. The Panel unanimously recommended that the FDA approve the PMA,
subject to the satisfaction of certain pre-market, post-market and labeling
conditions. The PMA relates to a physician monitor product to be used as a tool
in treating patients with diabetes, much like a cardiac Holter-style monitor.
The Company intends to introduce subsequent versions of this product including a
hypoglycemia and hyperglycemia alarm, designed to alert patients when glucose
levels drop below or rise above limits established by the administering
physician, and eventually, a consumer device that would provide the patient with
continuous glucose readings and enable the Company to compete in the $3 billion
worldwide market for glucose strips and meters.
 
     On January 2, 1998, the Company completed its acquisition of Home Medical
Supply, Inc. and its affiliated companies ("HMS"), a privately held group of
companies that is headquartered in Florida. HMS operates a medical products and
supplies distribution business in approximately 30 states, which includes
pharmacy operations in selected states. The acquisition of HMS was effected to
allow the Company to more efficiently distribute its external insulin pumps and
disposables as well as facilitate the Company's ability to distribute other
diabetes supplies, including products currently under development. The Company
has restructured HMS' pharmacy businesses to distribute prescription drugs for
the treatment of diabetes in all fifty states and therapy systems utilizing
difficult-to-deliver drugs that the Company is developing with its strategic
partners. The acquisition of HMS was accounted for utilizing the
pooling-of-interests method of accounting. Accordingly, operating results for
the Company have been restated to include the operations of HMS for prior
periods.
 
     On October 31, 1998, the Company acquired substantially all of the net
assets of Diabetes Support Systems, Inc. ("DSS"), a private company
headquartered in South Florida. DSS operates a diabetes products and supplies
distribution business. DSS' businesses include distribution of a broad range of
diabetes treatment products, including the Company's insulin infusion pumps and
related disposables. The acquisition also is in furtherance of the Company's
strategy of improving its channels of distribution for its existing diabetes
products, diabetes products currently under development and other diabetes
supplies.
 
     Throughout 1998, the Company has expended considerable resources in
integrating both HMS and DSS into its operations. To date, most of the former
HMS and DSS operations have been combined into a single facility in Hollywood,
Florida. At this facility activities include sales, reimbursement and
administrative operations related to the sales of diabetes supplies and all
pharmacy operations. Businesses integrated into the Company's operations from
HMS and DSS also include two retail pharmacies: one in Atlanta, Georgia and one
in Dania, Florida. Various activities formerly carried on by HMS or DSS that did
not compliment the Company's overall strategy were de-emphasized. The Company
anticipates that some integration activities will continue into 1999.
 
OTHER MEDICAL CONDITIONS
 
     The Company has gained considerable expertise from its experience with
infusion of insulin and it believes that this expertise can be applied to meet
the complex delivery requirements of many other drugs. Many genetically
engineered and manufactured proteins and peptides have delivery problems
comparable to insulin. Delivery for these drugs is difficult because they
contain fragile, large molecules, cannot be ingested orally, have short half
lives in vivo, require site specific delivery, have very narrow effective ranges
of concentration, require a profiled delivery pattern or would otherwise require
large amounts of drugs that are either expensive or toxic in the high doses
required to achieve therapeutic value. The Company is exploring opportunities
for applications of delivery systems for other drugs with several
biopharmaceutical companies and has entered into agreements with two such
companies in 1997.
 
     In April of 1997, the Company announced its alliance with Trimeris relating
to a new antiviral compound for the treatment of HIV/AIDS. Approximately
1,000,000 people in the United States are infected with HIV, according to an
article published in JAMA in 1996. Trimeris' proprietary compound, called T-20
or "pentafuside", is designed to inhibit the spread of HIV by blocking the virus
before it is able to effectively penetrate and infect a healthy host cell. This
process differs from currently approved HIV/AIDS therapies,
 
                                        3
<PAGE>   5
 
which target viral replication only after the host cell is already infected.
Extensive laboratory studies have demonstrated T-20's antiviral effectiveness,
and a pilot study in humans has shown the drug to be safe, effective and well
tolerated. Recent clinical trials revealed that T-20 could be delivered either
by multiple injection or by pump therapy, similar to the current diabetes
therapy model.
 
     In September of 1997, MiniMed entered into an agreement with UTC, another
biopharmaceutical company, to collaborate in the design, development and
implementation of therapies for the treatment of pulmonary hypertension.
Pulmonary hypertension is a disease that constricts the blood vessels serving
the lungs, slowing oxygen absorption and ultimately causing heart failure. There
is no known cure, and current treatments are limited to heart/lung transplants
or the central intravenous administration of an unstable compound with a plasma
half-life of approximately two minutes. Current drug therapy is exceedingly
expensive, deters compliance and requires placement of a central I.V. catheter
near or in the heart. In addition, the drug formulation must be mixed daily and
be delivered from a bulky, refrigerated unit worn on the patient's back, a
process which is cumbersome and prone to cause complications.
 
     By contrast, the UTC compound appears to be similarly effective at reducing
pulmonary arterial pressure but can be delivered using a MiniMed subcutaneous
infusion pump. By combining the Company's microinfusion technology with the
patented compound of UTC, MiniMed intends to pursue the development of a therapy
system for the treatment of pulmonary hypertension. The Company and UTC have
launched pivotal international trials to test UTC's UT-15 compound at eighteen
sites within the U.S. and in ten countries abroad. Results from early clinical
trials have shown a reduction in pulmonary arterial pressure, and the Company
believes that this therapy will improve patients' health and quality of life.
Although only a relatively small number of people suffer from this disease, the
Company believes that the UTC collaboration may provide the Company with a
discrete patient population for which a new therapy delivery model can be
developed. Under the terms of the alliance, the parties anticipate that the
Company will be the principal distributor for both the delivery system and the
drug.
 
     The Company is developing a series of pumps to address delivery
requirements for its alternative applications. While the Company believes that
such new applications for its pumps represent a significant opportunity for the
future, its efforts in the area are at a preliminary stage, and no assurance can
be given that the anticipated collaborative efforts with biopharmaceutical
companies will be commercially implemented, that the development of such new
applications for the Company's pumps will be successful or that such
applications will be approved by the FDA or other regulatory authorities. In
addition, many of the new applications may involve new drugs which themselves
must be approved by the FDA in addition to the approval required for the use of
the Company's infusion systems to deliver the drugs.
 
BUSINESS STRATEGY
 
     The Company's primary goal is to design, develop, manufacture and market
advanced medical devices for the treatment of diabetes and other chronic medical
conditions. The Company's focus has been, and for the foreseeable future will
continue to be, on diabetes. The Company plans, however, to diversify its drug
delivery programs to treat other medical conditions, which the Company believes
also offer significant future market opportunities. To achieve these objectives,
the Company is pursuing the following business strategy:
 
     Expand the Market for Insulin Pumps. The NIH and the ADA have established
intensive therapy as the standard of care for most Type 1 patients, in part as a
result of the DCCT Study. The Company believes that, once continuous glucose
monitoring shows the relatively poor glucose level achieved with either
conventional therapy or multiple daily injections, there will be a further
increase in the rate of adoption of insulin pump therapy. Clinical results have
shown that continuous insulin therapy utilizing insulin pumps is the most
effective way to provide intensive management, and as a result the Company
believes that it has a significant opportunity to expand the market for its
insulin pumps. Since verification of the benefits of intensive therapy is a
relatively recent development and since many patients are treated by primary
care physicians who do not have the facilities and support personnel to pursue
intensive management, the majority of Type 1 patients and most insulin-using
Type 2 patients are still being treated with conventional therapy. The Company
estimates that in the U.S. only approximately 7% of Type 1 patients are using
pump therapy. The
 
                                        4
<PAGE>   6
 
Company is therefore focusing its marketing efforts on educating physicians,
patients and third-party payors as to the need for intensive therapy and the
benefits of external pumps over injection therapy (either conventional or
multiple daily injections). The Company also intends to expand the market for
its external pumps by enhancing its selling efforts internationally and entering
additional geographic areas. The Company has adopted as a strategy the initial
introduction of certain of its new products and applications in selected foreign
countries because of potentially less extensive and less time-consuming
governmental regulatory procedures.
 
     Diversification into Distribution of Additional Products for the Treatment
of Diabetes. With its acquisition of HMS and DSS, the Company has established a
presence in the market for additional diabetes products and supplies such as
strips and meters. The Company believes that the distribution of additional
diabetes products and supplies will compliment its existing distribution network
for insulin pumps and supplies. The Company also believes that it will provide a
means to efficiently distribute MiniMed's continuous glucose monitoring systems,
once regulatory approval is received.
 
     Diversification Into Treatment of Other Medical Conditions. The Company
believes that there are substantial opportunities to use its infusion pump
technology with medications other than insulin. While the Company's previous
strategy has focused on diabetes, it believes that its organization has matured
sufficiently and that it can now consider pursuing other delivery applications.
In this connection, Cooperation and Strategic Alliance Agreements were entered
into with Trimeris and UTC in 1997 and discussions are ongoing with a number of
other biotechnology companies.
 
     Diversification into Disease Management. The Company plans to diversify
into comprehensive disease management products for the treatment of chronic,
life threatening conditions such as diabetes. The acquisition of the
distribution and pharmacy capabilities of HMS and DSS, combined with the
Company's existing and proprietary expertise in therapy delivery systems,
provides MiniMed with a platform infrastructure to develop the facilities,
pharmaceutical expertise and delivery systems to dispense medications, equipment
and supplies to patients nationwide. Such a specialized health care delivery
system could position the Company to offer added value to managed care
organizations by offering payors an infrastructure that can efficiently and
effectively serve large volumes of patients.
 
     Continue Product Innovation. The Company is currently developing
enhancements to its most advanced external insulin pump and related disposables,
working with MRG on improvements to the implantable insulin pump and developing
other external pumps for diabetes and alternative applications. The Company is
also involved in the development of continuous glucose monitoring systems,
including a monitor to be used by health care professionals to collect data over
two to three days to evaluate glucose control by patients.
 
     On February 26, 1999, an FDA Advisory Panel issued a conditional
recommendation for agency approval of MiniMed's PMA for a system designed to
provide continuous glucose monitoring for people with diabetes. The Panel
unanimously recommended that the FDA approve the PMA, subject to the
satisfaction of certain pre-market, post-market and labeling conditions.
MiniMed's PMA relates to a professional monitor system to be used as a tool in
treating patients with diabetes, much like a cardiac Holter-style monitor. The
Company intends to introduce subsequent versions of this product including a
hypoglycemia and hyperglycemia alarm, designed to alert patients when glucose
levels drop below or rise above limits established by the administering
physician, and eventually, a consumer device that would provide the patient with
continuous glucose readings and enable the Company to compete in the $3 billion
worldwide market for glucose strips and meters. A long-term goal of the Company
is to market a "closed loop" system, or artificial pancreas, which utilizes a
sensor to control a pump for the automatic infusion of insulin. No assurance can
be given, however, that any of these products can be successfully developed or
commercialized or that the various components of any of such systems can be made
to work together or that regulatory approval for commercial distribution will be
obtained or that they will be accepted in the marketplace.
 
     Seek and Expand Strategic Alliances. The Company intends to continue
efforts to expand the market for its products through strategic alliances with
key partners. In the diabetes care marketplace, the Company will continue to
collaborate and expand its relationships with insulin and glucose meter
manufacturers and hospital service providers. In 1996 the Company entered into a
co-promotion agreement with Roche Diagnostics ("Roche"), the largest supplier of
glucose meters and test strips in the world. Pursuant to this alliance, each
                                        5
<PAGE>   7
 
company participates in cooperative activities relating to professional
education and marketing programs. In March 1997 the two companies entered into a
co-development and co-promotion agreement under which they are collaborating on
the development of a glucose management system for use primarily in hospitals.
 
PRODUCTS
 
     The following table summarizes certain information with respect to the
principal products designed, developed or manufactured by the Company and
certain products under development.
 
<TABLE>
<CAPTION>
                                                                                          DATE
         PRODUCT                   DESCRIPTION                      STATUS             INTRODUCED
         -------                   -----------           ----------------------------  ----------
<S>                        <C>                           <C>                           <C>
EXTERNAL PUMPS
507C insulin pump          Similar to 507, with          Commercially available(1)        1998
                           additional features
507 insulin pump           Fourth generation model       Commercially available(1)        1996
506 insulin pump           Third generation model        Commercially available(1)        1992
505 insulin pump           Reduced feature version of    Commercially available in        1996
                           the earlier 506               certain foreign countries,
                                                         principally in the EU
Data collection system     Communications cradle to      In test marketing
                           download patient information
                           from the 507, 507C and other
                           products under development
Glucose management system  Hospital based system to      Under development(3)
                           control glucose levels
DISPOSABLES AND
  ACCESSORIES
Sof-set(R) Ultimate QR     Insulin-compatible tubing     Commercially available(1)(4)     1998
                           set with soft cannula
                           (instead of a needle) and
                           quick release feature
Sillouhette(TM) infusion   Insulin-compatible            Commercially available(1)(4)     1997
  set                      soft-angled tubing set with
                           angled soft cannula (instead
                           of a needle and disconnect
                           feature)
Sof-set(R) QR infusion     Insulin-compatible tubing     Commercially available(1)(4)     1995
  set                      set with soft cannula
                           (instead of a needle) and
                           quick release feature
Sof-set(R) infusion set    Similar to Sof-set QR,        Commercially available(1)(4)  1987 1997
  Polyfin QR infusion set  without quick release         Commercially available(1)(4)
                           feature Insulin-compatible
                           tubing set with needle and
                           quick release feature
Polyfin infusion set       Similar to Polyfin QR,        Commercially available(1)(4)     1985
                           without quick release
                           feature
Medication reservoir       Syringe-like reservoir used   Commercially available(1)        1983
                           with external insulin pump
Sof-serter                 Automatic Sof-set cannula     Commercially available(1)        1997
                           inserter
IMPLANTABLE PUMPS
MIP 2001                   Implanted under the skin of   CE Mark received in EU;
                           the abdomen; used for         application in preparation
                           insulin therapy               in U.S.(5)(6)(10)
GLUCOSE MONITORING SYSTEMS
Physician diagnostic       To be used by health care     Regulatory submission
  device                   professionals to monitor      pending, FDA Panel
                           patients continuously for     recommended approval(8)
                           2-3 days
</TABLE>
 
                                        6
<PAGE>   8
 
<TABLE>
<CAPTION>
                                                                                          DATE
         PRODUCT                   DESCRIPTION                      STATUS             INTRODUCED
         -------                   -----------           ----------------------------  ----------
<S>                        <C>                           <C>                           <C>
Patient glucose            To be used by the patient to  Under development(9)
  monitoring system        continuously monitor blood
                           glucose levels (includes a
                           hypoglycemia/hyperglycemia
                           alarm)
</TABLE>
 
---------------
(1) Cleared for commercial distribution in the U.S. under Section 510(k)
    approval and in several foreign countries, principally the EU.
 
(2) Requires 510(k) clearance process.
 
(3) Requires 510(k) clearance process with supporting clinical data.
 
(4) Labeled to be replaced every two or three days.
 
(5) Approved for commercial distribution in the EU (March 1995); approval for
    special insulin pending in EU.
 
(6) Requires combined PMA/NDA product application with respect to the
    implantable pump and the special insulin.
 
(7) Requires PMA approval.
 
(8) PMA submission pending with the FDA.
 
(9) Requires PMA supplement.
 
(10) MiniMed retains worldwide marketing rights for diabetes and certain other
     applications.
 
  Current Products
 
     External Insulin Pumps. The Company's external pumps are designed to
provide the patient with an easy, comfortable and flexible means of insulin
infusion in order to maintain glucose levels. They are generally worn by the
patient attached to a belt, placed in a pocket, strapped to a leg or worn on a
cord around the neck. The Company's most recent version of its external pumps,
the Model 507C, was introduced in June 1998. The Model 507C weighs approximately
3 1/2 ounces and is about the size of a pager. The pump can accurately deliver
throughout the day a controlled, programmable profile of insulin in several
hundred microinfusions of one microliter each. The insulin delivery profile can
thus be adjusted to meet individual needs. The insulin is delivered from the
pump through special insulin-compatible tubing either to a needle or soft
cannula (a tiny tube which penetrates the skin), usually into the subcutaneous
tissue of the abdomen.
 
     The Model 507C represents an upgrade to the fourth generation of the
Company's external pumps, the first of which was introduced in 1983. The
Company's pumps have many safety features, including numerous alarms (50 in the
Model 507C), maximum limitations on the rate and amount of basal and bolus
deliveries, and automatic shut-off mechanisms to prevent excessive delivery of
insulin. The Model 507C stores a record of the timing and size of the last 450
bolus doses administered plus daily totals for the past 90 days' insulin
delivery. It provides the ability to set a temporary basal rate for particular
activities such as exercise, and it can be programmed to turn itself off if the
user does not enter a command for a specified period of time. It offers an
extended bolus delivery over time ("dual wave" and "square wave" boluses), which
can be especially useful with very fast-acting insulin analogs and for high fat
content foods. The Model 507C also incorporates a backlight that makes it easier
for a patient to program his or her pump in low light conditions, and an audible
bolus indicator.
 
     In September 1996, the Company introduced its Model 505 external insulin
pump. This pump is a reduced feature version of the earlier Model 506. It has
full bolus programming capability but only a single basal rate. It is intended
primarily for those markets where more sophisticated technology has not yet been
introduced.
 
     Insulin pumps and associated disposables are prescribed by physicians to
achieve better control of glucose levels. When a pump is prescribed, a nurse
typically assists in teaching the patient how to use the pump and
 
                                        7
<PAGE>   9
 
the related skills, such as calculating the appropriate amount of insulin for
boluses. A patient typically returns to the physician's office for periodic
check-ups and often contacts the Company's Clinical Services Department for
information. While the Company believes that its external pumps significantly
improve the quality of life of their users and have also become increasingly
easy to use, physicians do not prescribe external pumps for certain patients
using intensive therapy because the pumps are a relatively sophisticated means
of delivering insulin and some patients may not have the motivation and ability
to understand and correctly use them. Also some patients, particularly in their
teenage and early adult years, may object to pumps because they do not like the
idea of having a device attached to their bodies. Some of these objections are
being countered by the Company's educational programs and by publicity about
such MiniMed pump users as Nicole Johnson, Miss America 1999.
 
     Disposables. The Company's external pumps are used with disposable elements
consisting of a tubing set and a special syringe-type reservoir, which stores
the insulin in the pump. The most popular tubing sets with soft cannulas have
been marketed under the trade name Sof-set. The Company has introduced more
advanced versions, called the Sof-set QR (for Quick Release), the Sof-set
Ultimate QR (incorporating several enhancements over the Sof-set QR which are
designed to provide greater patient comfort) and the Polyfin QR, all of which
incorporate a quick release connector so that patients can more conveniently and
discreetly disconnect the pump for showering, bathing, swimming, exercise or
intimacy. To facilitate the insertion of the cannula through the skin, the
Company has developed a device known as the Sof-serter, which allows the patient
to automatically insert the cannula. In 1997, the Company introduced a new model
of infusion set, under the name Silhouette, which is a soft cannula, angled
infusion set that also incorporates a disconnect feature. These disposables
provide the Company with a continuing source of revenue from pump customers.
Most of these products are labeled to be replaced every 48-72 hours.
 
     Implantable Insulin Pump. The implantable insulin pump, the MIP 2001,
developed by the Company and for which it maintains exclusive worldwide
marketing rights for diabetes is similar in function to the external insulin
pump but is implanted under the skin of the abdomen in a relatively minor
surgical procedure. Like the external pump, the implantable pump releases a
basal flow of insulin, with larger bolus doses delivered before meals. The
amount of insulin released can be programmed by the patient with a hand-held
communicator to meet individual needs. The communicator uses radio waves to
control the pump, similar to the way radio waves are used to control spacecraft.
The pump is designed to store approximately a three-month supply of a special,
concentrated insulin and is refilled in the doctor's office from a special
syringe by inserting a needle through the skin and into the pump, which then
automatically draws the insulin into its negative pressure reservoir. The
negative pressure reservoir is a significant safety feature which virtually
precludes the possibility of a spill of the stored medication from a reservoir
leak or during refilling.
 
     On September 1, 1998, the Company sold assets and transferred technology
related to its implantable pump program to Medical Research Group, LLC ("MRG")
and entered into a series of related transactions. MRG was founded by Alfred E.
Mann, founder, Chairman, CEO and largest stockholder of MiniMed. Mr. Mann
continues to hold a substantial equity interest in MRG.
 
     MiniMed sold assets, consisting primarily of inventories and equipment to
MRG in exchange for a note receivable of approximately $3.6 million. No gain or
loss has been recognized on the sale of these assets. The note receivable is due
and payable in full on December 31, 2003, and accrued interest is payable on
December 31 of each year prior to maturity. The note bears interest at a rate of
7.0% annually. The note is secured by the assets sold to MRG and guaranteed by
Mr. Mann. The Company has also leased facilities and improvements to MRG at
which MRG will carry out its activities. The obligations of MRG under such lease
are guaranteed by Mr. Mann. Certain employees of the Company involved in the
manufacturing operations and research and development activities related to the
implantable pump product line have become employees of MRG. The Company retained
exclusive distribution rights to the implantable pump product line for specific
medical conditions, including diabetes. MiniMed is required to purchase
implantable pump units from MRG at negotiated prices, and is obligated to
purchase minimum quantities in 1999, 2000 and 2001 and must purchase minimum
quantities in future periods in order to preserve its exclusivity.
 
                                        8
<PAGE>   10
 
     The Company is responsible for pursuing regulatory approval of the
implantable pump for the treatment of diabetes and has provided MRG with a
working capital line of credit of $3.0 million, which will bear interest at 7.0%
annually. Any amounts borrowed under the line of credit are due on or before
December 31, 2001 and will be secured by a pledge of MiniMed common stock owned
by Mr. Mann. To date, MRG has not borrowed any funds under this line of credit.
Future minimum purchase commitments for implantable pump units based upon
current prices are:
 
<TABLE>
<S>                                       <C>
1999....................................  $ 4,575,000
2000....................................    7,604,000
2001....................................    8,935,000
                                          -----------
     Total..............................  $21,114,000
                                          ===========
</TABLE>
 
     MRG has also granted MiniMed an option to acquire exclusive world-wide
distribution rights to MRG's long-term glucose sensor, currently under
development, for $30.0 million. The option is exercisable upon MRG's achievement
of certain development milestones. MRG is attempting to integrate its long-term
glucose sensor technology with the implantable pump. MRG has also agreed to
pursue the development of certain improvements to the electronic design of the
implantable pump.
 
     Clinical trials of the Company's MIP 2001 implantable pump began in the
U.S. and France in 1990. Approximately 260 patients participated in the formal
trial, and approximately 350 additional patients received implantable pumps
outside of the trial. Additionally, many pumps have been implanted in Europe
(mostly in France) outside of the clinical trial, bringing the total number of
units implanted (including replacements) through December 31, 1998 to
approximately 1,426.
 
     During the early phase of the trials there was a tendency in approximately
10-15% of patients for blockage or clogging of the intra-peritoneal catheter or
for deposits to collect on a pump valve, resulting in a decreased rate of
infusion. These problems began to escalate in late 1993, resulting in the
Company's decision in June 1994 to discontinue implants in new patients except
for compassionate use. The escalation of the problem was traced to changes in
the insulin when the supplier transferred manufacturing from a pilot facility to
a production facility. The Company was able to develop a special rinsing
procedure to restore full function in most patients and a "side-port catheter"
to simplify this rinsing procedure. As a result, a limited number of implants
were resumed in France, pending final regulatory approval of the insulin.
Regulatory approval in the U.S. and the EU has been delayed by these problems
with the insulin and by the amount of time required to test both pilot and full
production lots of the improved insulin.
 
     The Company has verified in laboratory tests that improved formulations of
the insulin supplied by the manufacturer are comparable or superior to the
earlier formulations that had performed acceptably in the Company's pumps. The
Company also developed a test system and predictive algorithm that enables
quantitative projection of the performance of a given insulin formulation in the
implantable pump.
 
     The Company received certification under applicable ISO quality standards
and received the CE Mark in March 1995 for the MIP 2001 implantable pump,
permitting commercial sale throughout the EU. However, separate approval from
the EU is required for the insulin. Such approval has not yet been received and
no assurance can be given that such approval will be received. Commercial
distribution of the Company's implantable pump in the EU will be limited until
the special insulin required for use in the pump is approved.
 
     Other than for cases of compassionate use, the Company decided not to
resume new patient implants in the U.S. until FDA approval is received because
of the high costs of the clinical trial monitoring. The Company is continuing to
pursue approval for commercial sale of the implantable pump in the U.S. and is
working under a procedure established by the FDA for approval of a combined
application for the Company's pump and the special insulin. The Company is
completing preparation of the PMA element of the application for the implantable
pump and the NDA part of the application for the special insulin. No assurance
can be given that problems with the MIP 2001 implantable pump and/or the insulin
will be successfully resolved or that these applications will be approved by the
FDA. If approved, the labeling would limit the insulin and the implantable pump
for use only in combination.
 
                                        9
<PAGE>   11
 
     As a result of the transaction with MRG, the Company is now dependent upon
the development efforts of MRG, although the Company is still extensively
involved in obtaining governmental approvals for the implantable pump. The
Company will also be dependent on the ability of MRG to manufacture the
implantable pump.
 
  Products Under Development
 
     The Company believes that its success in the future will depend on
continuing to enhance its existing products and developing new products for the
treatment of diabetes and other medical conditions.
 
     External Pumps. The Company is working on next generation pumps which it
feels will contain significant improvements over the 507C. Such new pumps are
being designed to provide both diabetics and their health care professionals a
more valuable tool to help improve glycemic control and to provide the user with
even more flexibility, dependability and ease of use. The Company plans to
integrate future generations of its external insulin pumps with its continuous
glucose monitoring systems.
 
     In support of the 507C, and future generation external insulin pumps, the
Company is also developing a data collection system which will permit health
care professionals to download to a personal computer this information from the
507 or 507C (and future generations of external pumps), process the information
using special software and print out the results in summary or graphical form.
This information will enable the professional to assess the glucose control of
the patient over the three month period and, where indicated, to adjust the
insulin delivery protocol for the patient. The Company is in the process of
testing this product.
 
     The Company is developing a glucose management system in collaboration with
Roche for use primarily in hospitals. The system is designed to enable health
care professionals to better control the glucose levels of their patients. The
device is expected to be submitted for FDA approval through the 510(k) process.
The regulatory approval process for this product has been delayed due to issues
raised by the FDA relating to the intravenous delivery of insulin. The Company
and Roche are in discussions with the FDA and certain insulin manufacturers
regarding this issue. No assurance can be given that the Company and Roche will
be able to overcome this issue.
 
     Disposables and Accessories. The Company is continuously working to improve
its disposables and accessories.
 
     Glucose Monitoring Systems. The Company is developing glucose monitoring
systems which are designed to provide continuous measurement of glucose levels
without the need to draw blood. All of these systems will utilize a small, thin,
pliable microsensor, the "subcutaneous sensor," which is to be inserted into
subcutaneous tissue, generally in the abdomen or upper arm, to detect glucose
levels. Each sensor is expected to last approximately 3 days, after which the
patient would replace it with another sensor in a different location. The sensor
monitors glucose levels every 10 seconds and records averages over five minute
intervals, providing patients and physicians with an accurate continuous glucose
profile.
 
     A series of products using this technology is planned. The first product
involves the Company's glucose sensor connected by wire to a recording/display
device, while future products are currently planned with telemetry, permitting
wireless communication. The first continuous glucose management system product
is to be used by health care professionals to evaluate glycemic control, much
like a cardiologist uses a Holter monitor to monitor cardiac electrical
function. This early device will record but will not display actual glucose
readings. This product will record glucose levels and trends for two to three
days after which the data can be downloaded by the professional into a personal
computer for evaluation. In using this system the patient will be asked to use
various prompts to input times of meals, amounts of carbohydrate, exercise
times, and other events affecting glucose metabolism. On February 26, 1999, an
FDA Advisory Panel issued a conditional recommendation for agency approval of
MiniMed's PMA for this system. The Panel unanimously recommended that the FDA
approve the PMA, subject to the satisfaction of certain pre-market, post-market
and labeling conditions.
 
     The Company intends to introduce subsequent versions of its monitor
product, including a programmable hypoglycemia and hyperglycemia alarm, designed
to alert patients when glucose levels drop below or rise
                                       10
<PAGE>   12
 
above limits established by the administering physician. After obtaining
additional clinical experience with these initial products, the Company
anticipates filing for FDA clearance for a product that will be used by patients
to continuously monitor glucose levels. The Company expects to miniaturize the
display unit for this device so that it can be worn like a wristwatch or carried
in a pocket. Although the Company's development and regulatory efforts are at a
relatively advanced stage, no assurance can be given that the development of
these products will be successful or that they will be approved for commercial
distribution.
 
     The development and production engineering of these products and various
accessories including the introducer, the transmitter and the receiver/display
devices are not yet complete. If clearance from the FDA is received, the Company
also plans to conduct a field trial before general release. The Company believes
that there will be a substantial market for its continuous glucose monitoring
systems even if the cost of the sensors exceeds the cost of the glucose strips
that they would replace. However, to maximize penetration of the glucose meter
and strip market, the Company believes that it may be necessary for the price of
the Company's sensors over their useful life to be reasonably comparable to the
cost of presently available strips. No assurance can be given that this
objective will be achieved, particularly if glucose meter companies try to
compete with the Company by drastically reducing prices. Also, because of the
size of its potential market, many other companies are attempting to develop
non-invasive and/or continuous glucose measuring systems.
 
  Future Products
 
     A long-term goal of the Company is to market a system in which a version of
an implantable pump would be coupled with a long-term glucose sensor in a
"closed-loop" system in what would essentially constitute an artificial
pancreas. The goal is to create a device that would automatically maintain
glucose levels within a normal range via feedback from the sensor to the pump to
continuously adjust the rate of insulin infusion without the need for frequent
intervention and programming by the patient or physician.
 
     In order for such a system to be feasible, the implantable pump would have
to operate in conjunction with a long-term sensor, as well as a device to
control the implantable pump so that they function as a closed-loop system. In
August 1998, the Company transferred its implantable pump technology to MRG, a
medical research development company that is developing such a sensor. This
arrangement integrates the implantable pump and its continuing development and
MRG's long-term glucose sensor. The Company retains the marketing and
distribution rights to the implantable pump for diabetes and certain other
applications, and has obtained an option to acquire the marketing rights to the
long-term glucose sensor under development by MRG. The Company considers this
arrangement to be one of several methods by which the Company can achieve its
vision of developing an "artificial pancreas" in which insulin pumps interact
with glucose sensors.
 
     A complete closed-loop system, as described above, would require an IDE (as
defined below) and a PMA, the timing of which are as yet undetermined. No
assurance can be given that further development of the combined system of
implantable pump and long-term sensor will be successful or that it will prove
to be safe and effective and be approved for commercial distribution.
 
RESEARCH AND DEVELOPMENT
 
     The Company's research and development activities are performed primarily
by its research and development organization, which consisted of 94 persons as
of March 11, 1999. The Company obtains its product ideas from its staff,
patients, health care professionals and the Company's Medical Advisory Board,
all of whose opinions on products are actively solicited through surveys, field
visits, medical symposia, focus groups and personal relationships. All research
and development costs are expensed as incurred, and for 1996, 1997, and 1998,
research and development expenses were $7,900,000, $9,447,000 and $16,531,000
respectively.
 
     During the first quarter of 1998, the Company signed a research and
development contract with American Medical Instruments, Inc., a member of The
Marmon Group of companies, ("AMI"). Under terms of the agreement, and subject to
the achievement of quarterly performance milestones, the Company will receive up
to $12.0 million in funding, payable in installments of $1.5 million, for two
research and development projects designed primarily by the Company. The Company
anticipates completion of its
                                       11
<PAGE>   13
 
obligations pursuant to the agreement by the end of fiscal 1999. The Company
will have the right to sell these products on a worldwide basis, with the
exception of Japan, subject to payment of royalties to American Medical
Instruments, Inc. The Company also has the right to purchase the technologies
developed at prices ranging from an aggregate of $13.5 million to $19.0 million
during certain periods through April 30, 2002. During 1998, the Company recorded
$6.0 million from this research and development contract as a reduction of
operating expenses, since costs related to completion of the contractual
obligations will be included in research and development expense.
 
     From time to time, the Company attempts to obtain U.S. governmental grants
to strengthen its research and development efforts on technically difficult
projects. In this way, the Company hopes to bring new and novel products to the
market with less financial risk. In 1998, the Company was awarded a three year,
$2 million grant under the Advanced Technology Program ("ATP") by the National
Institute of Standards and Technology. Using this award (and $1.5 million in
matching research and development expenses), the Company plans to develop and
test components for a simple, accurate, minimally invasive system for measuring
glucose levels. The new chemistries, materials, and devices developed under this
research award may also serve as a platform for the development of other sensing
applications. A portion of the award will be used for materials synthesis and
testing, which will be performed by Lawrence Livermore National Laboratory
(Livermore, California). MiniMed was one of several award recipients selected
among 167 proposals submitted in the ATP 1998 General Competition. In addition,
the Company was awarded two multi-year NIH grants that will augment and
strengthen the research being conducted under the ATP award. The Company will
own all new technology resulting from these activities. Based upon these
successes in obtaining awards, MiniMed is currently considering applying for
additional grants in conjunction with the Company's research, development and
engineering activities.
 
MARKETING AND SALES
 
     Orders for the Company's external insulin pumps in the U.S. are typically
placed by the patient upon the advice and recommendation of his or her
physician, who provides a prescription. The Company's primary marketing efforts
are focused on endocrinologists, diabetologists and other health care
professionals who treat diabetes, and on third-party payors. The Company
believes that more than 90% of the Company's revenues from the sale of its
external pumps and related disposables are reimbursed by third-party payors
(subject to applicable deductible and copayment amounts). The Company has begun
to broaden its marketing efforts to include those primary care physicians who
treat relatively large numbers of diabetics in managed care organizations. The
Company sponsors educational symposia in intensive diabetes management for
physicians, other health care professionals and third-party payors, teaching the
benefits of, and providing training in, pump therapy. The Company has trained
over 5,000 health care professionals in the use of its insulin pumps for
intensive management of patients and intends during 1999 to conduct 60 one-day
and nine two-day symposia in the U.S. and 25 one-day symposia internationally.
Roche and Eli Lilly & Co. contribute to the funding of these educational
programs. The Company also conducts numerous presentations to case managers for
managed care organizations.
 
     The Company has also entered into an agreement with the reigning Miss
America, Nicole Johnson, and the Miss America Organization ("MAO") to further
promote early diagnosis and aggressive treatment of diabetes. Miss Johnson was
diagnosed with Type 1 diabetes at the age of sixteen and has been using a
MiniMed external insulin pump to treat her diabetes since July 1997. The
Company, Miss Johnson and the MAO have developed a program to educate physicians
(particularly primary care physicians) and the public at large regarding
diabetes diagnosis and treatment. As part of this program, the Company will
sponsor Miss Johnson's personal appearances at several diabetes related events
and Ms. Johnson will be a pivotal part of a print advertisement campaign
initiated by the Company and directed toward advancing Miss Johnson's platform
of increasing diabetes awareness, including awareness of pump therapy. Miss
Johnson is also involved in similar promotional arrangements with other
companies with diabetes businesses, such as Eli Lilly & Company, that do not
compete directly with the Company.
 
     The Company also seeks to develop patient interest in and demand for its
diabetes products by providing patients with access to its existing substantial
service and support network, including: (i) the services of an
                                       12
<PAGE>   14
 
experienced Clinical Services Department available by telephone, toll-free,
24-hours per day, seven days per week, to answer patient questions and provide
guidance, advice and trouble-shooting regarding daily pump use; (ii) free
short-term, replacement pumps sent within 48 hours or less to promote continuous
therapy; (iii) an insurance assistance department consisting of 50 people as of
March 11, 1999 to answer questions, simplify and expedite claims processing and
assist patients in obtaining third-party reimbursement; (iv) participation in a
patient advocacy program in collaboration with the American Association of
Clinical Endocrinologists; (v) an extensive Internet web site (www.minimed.com);
(vi) advertisements in targeted media; and (vii) free videotapes and other
educational material. Under their co-promotion agreement, the Company and Roche
each send targeted advertising to patients describing the other's products,
including in the case of materials sent by Roche, descriptions of the Company's
patient service and support network.
 
     The Company continued to increase its presence in the managed care
marketplace in 1998. Field insurance managers are responsible for relationships
with, and the solicitation and negotiation of, contracts from third-party
payors. In 1998, the Company more than doubled the number of arrangements it has
entered into with third party payors, bringing to more than 150 the number of
contracts with managed care entities and other third party payors providing for
reimbursement for the Company's external pumps and disposables and other
diabetes supplies. The Company has also recently expanded its insurance support
activities to better address the growing managed care segment of health care
payors in the U.S.
 
     The Company markets its diabetes products and serves customers through a
combination of a direct sales organization and distributors. With the purchase
of HMS and DSS, the Company significantly increased the size of its sales force.
In addition to senior sales and marketing management and an extensive in-house
support staff, as of March 11, 1999, the direct sales organization in the U.S.
consisted of four regional directors and 103 field staff personnel, including a
Director of Managed Care and eight field insurance managers. These
representatives are extensively trained and specialize in diabetes therapy and
the use of the Company's products. The Company compensates its sales
representatives in the U.S. with a base salary, a sales commission and an annual
bonus based on meeting performance objectives. In the U.S., the Company also
contracts with nurse educators who are certified pump trainers to assist in
educating potential patients about use of the Company's external pumps.
 
     The Company believes that its strategy of maintaining its own direct sales
force dedicated to diabetes is an important factor in market development and an
important competitive advantage. Nevertheless, the Company also utilizes
independent distributors in the U.S. to augment its direct sales force and
increase the number of physicians served. Some third-party payors in the U.S.
require that certain classes of purchases be made through specified
distributors, and certain distributors in the U.S. and internationally maintain
substantial infrastructure to support physician and patient needs.
Internationally, independent distributors are used to provide sales coverage in
geographic areas not served by the Company's direct sales force. In 1998, the
Company increased the relative percentage of sales processed directly through
the Company. As a result of its continued investment in its internal
reimbursement capabilities, its acquisition of HMS and DSS and the activities of
its field insurance managers, the Company anticipates that the percentage of its
sales made through its direct sales force will continue to increase.
 
     Internationally, the Company has its own sales organizations consisting of
47 people as of March 11, 1999, including administrative staff, for France,
Germany, the Netherlands, Belgium, and, with the acquisition of Dartec A.B.
("Dartec") in 1997, Scandinavia and the Baltic region. The Company also has a
distribution manager in the United Kingdom and utilizes independent distributors
in other countries. The Company believes that the international market provides
a significant opportunity for growth and is seeking to expand its international
sales. International sales of diabetes products increased over 66% to
$10,926,000 in 1998. Also, the Company expects that some of its new products and
new applications will be introduced in foreign countries prior to their
introduction in the U.S. because the regulatory approval process in other
countries has generally been less time consuming and less expensive than in the
U.S.
 
     With its acquisition and integration of HMS and DSS, the Company has
established a presence in the market for additional diabetes products and
supplies such as strips and meters. The Company believes that the distribution
of additional diabetes products and supplies will compliment its existing
distribution network for
 
                                       13
<PAGE>   15
 
insulin pumps and supplies. Such activities will also provide the Company with a
means to efficiently distribute its continuous glucose monitoring systems.
 
MANUFACTURING
 
     The Company purchases from outside vendors most of the components, certain
subassemblies and various services used in the manufacture of its products. The
purchased items are generally produced to the Company's specifications and in
many instances to the Company's designs. The Company then assembles the
components into finished products. Certain disposable products have been
purchased from OEM suppliers.
 
     The Company's Quality Assurance Department provides guidance to vendors and
performs inspections and product tests at various steps in the manufacturing
cycle to ensure compliance with the Company's stringent specifications. The
manufacturing facilities are subject to periodic inspection by regulatory
authorities. In 1995 the Company was approved under International Standards
Organization ("ISO") 9002 relating to quality standards, and in 1996 it was
approved under ISO 9001 relating to design control standards. Such approvals
enable the Company to quickly introduce certain products into the EU based on
annual certification of the Company's quality system.
 
     The Company relies on single sources for certain critical components,
including hybrid circuits, integrated circuits, special batteries, special
insulin formulations, and various disposable products and components as well as
a sole source subcontract arrangement for sterilization services. The Company
has endeavored to establish secondary source suppliers in certain circumstances
when appropriate, and creates safety stocks to address changes in market demand.
Arrangements for additional or replacement suppliers for certain of these
components could not be accomplished quickly. The loss of any of these critical
sole source vendors could have a material adverse effect on the Company's
business, financial condition and results of operations. In 1998 the Company
established and validated a state-of-the-art semi-automated sensor manufacturing
department to address initial market requirements. The department was inspected
by the FDA in October 1998 as part of the PMA review process.
 
COMPETITION
 
     At present the Company considers its primary competition in the diabetes
market for its infusion systems to be injection therapy. The Company competes
against injection therapy primarily by educating doctors, nurses, patients,
managed care organizations and other third-party payors about the need for
intensive management of glucose levels and the advantages of pump therapy over
multiple daily injections.
 
     In the sale of its external pumps, the Company competes with Disetronic
Medical Systems, Inc. ("Disetronic"), which introduced a competitive external
pump product in the U.S. approximately seven years ago. The Company estimates
that Disetronic currently has approximately 20% of the U.S. market for external
pumps for new patients. Internationally, in addition to Disetronic, the Company
competes in the insulin pump market against several smaller suppliers which
generally offer less sophisticated products. The Company competes with other
pump makers primarily on the basis of product design, quality and utility,
physician and patient education and support services and price. There can be no
assurance that past, current and potential makers of competitive pumps, some of
which may have substantially greater financial, technical, marketing and other
resources than the Company, will not become more significant factors in the
future. The Company believes that it may be faced with additional competition in
the near future.
 
     Numerous companies, some of which have substantially greater financial,
technical, manufacturing, marketing and other resources than the Company, are
attempting to develop a variety of products for glucose measurement. Some of
these products are directed toward non-invasive measurement systems, generally
using near-infrared spectroscopic light directed through tissue, such as by
analysis of light reflectance from an arm or transmission through a finger
inserted into a well, through an ear lobe or through other tissue. The technical
obstacles to such technologies are substantial, and to date no such instrument
has been approved for commercial distribution by the FDA. However, if such
efforts are successful and provided universal calibration is possible (so far
all reports indicate that even with extensive, individual calibration, results
are not adequate), then applications that can be adequately served by
intermittent measurements, such as measurements in
                                       14
<PAGE>   16
 
doctors' offices, might be served with such instruments. There are also several
efforts directed to reducing the discomfort associated with the finger pricks
required with current glucose meter systems by reducing the depth of penetration
of the needle, using a laser and/or using other methods to breach the outer
derma layers so as to extract interstitial fluid rather than blood. Still other
approaches are being pursued for glucose level determination including attempts
to draw out interstitial fluid by electrical or chemical means and then
measuring the glucose. There are also at least three other efforts being
directed toward subcutaneous measurement with electrochemical sensors. It is
possible that some patients might prefer such systems to the Company's
continuous glucose monitors for routine monitoring. The successful development
and acceptance of non-invasive or minimally invasive glucose measurement systems
or systems without pain could have a material adverse effect on the Company's
glucose sensor program.
 
     The distribution of diabetes supplies and prescription drugs are highly
competitive businesses. The Company believes that its principal competition in
these areas comes from national mail order pharmacies, local and national retail
and hospital pharmacies, cost containment and managed care companies and other
distributors of diabetes supplies. Many of these companies have substantially
greater resources than the Company. Moreover, the health care industry
generally, and the provider segment in particular, has experienced, and is
expected to continue to experience, consolidation. This trend could produce
additional competitors having larger and substantially greater resources than
the Company. Competitive pressure could cause the Company to lose or fail to
gain market share or experience significant price erosion. The Company competes
in this segment on the basis of customer service, convenience, product
availability and price. In the field of diabetes supplies, Polymedica
Industries, Inc., Chronimed Inc., Coram Healthcare Corp. and Transworld Home
Healthcare, Inc. are publicly-held companies that compete with the Company. The
Company expects that it will have direct competition in it's pharmacy operations
from other national mail service companies such as Merck/Medco Managed Care,
L.L.C., Express Scripts Inc., PCS Health Systems, Inc. and Diversified
Pharmaceutical Services, Inc. as it seeks to redirect focus on mail service
provisions of prescription drugs. The Company will, however, continue to
concentrate on the distribution of pharmaceuticals that are proprietary to
MiniMed.
 
     A number of companies and medical researchers are pursuing new delivery
devices, delivery technologies, procedures, drugs and bioengineered therapeutics
for the treatment and prevention of diabetes, such as for example, pancreas
transplantation and insulin-producing islet and beta cell preparations and
devices. If successful, these technologies and/or medical procedures could have
a material adverse effect on the Company's business, financial condition and
results of operations and could possibly render the Company's products obsolete.
 
PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
 
     The Company files patent applications to protect technology, inventions and
improvements that it considers important to the development of its business. The
Company prosecutes and manages its patent portfolio utilizing its in-house
patent counsel and technical advisors. The Company currently holds issued U.S.
patents and foreign patents and has pending many U.S. and foreign patent
applications that cover various aspects of its technology. In addition, the
Company has exclusive licenses under a number of patents.
 
     Litigation may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. Although
the Company knows of no infringement of patents held by others, it is always
possible that a third-party may assert infringement. The Company believes that
it owns or has the right to use all technology incorporated into its products,
but an adverse determination in any litigation or interference proceeding to
which the Company may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties.
 
     Although patent and intellectual property disputes in the medical device
area have often been settled through licensing or similar arrangements,
associated costs may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling certain of its
 
                                       15
<PAGE>   17
 
products or its planned products, which would have a material adverse effect on
the Company's business, diversification opportunities, financial condition and
results of operations.
 
     The Company owns the trademarks MiniMed, Sof-set, Sof-set QR, Sof-set
Ultimate QR, Polyfin, Silhouette, "Making a Difference in Diabetes" and certain
other trademarks. The Company also relies on certain trade secrets and
proprietary know-how that it seeks to protect, in part, through confidentiality
agreements with its employees and consultants. There can be no assurances that
any unprotected information will not also be developed by others.
 
GOVERNMENT REGULATION
 
     Clinical testing, manufacture and sale of the Company's products are
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state and foreign agencies. In the U.S., the Company is
required to register as a medical device manufacturer with the FDA and state
agencies such as the Food and Drug Branch of the California Department of Health
Services ("DHS"). The Company is subject to inspection on a routine basis by
both the FDA and the DHS for compliance with the FDA's Quality Systems
Regulation ("QSR"). These regulations impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities.
 
     Under the Federal Food, Drug and Cosmetic Act (the "Act"), as amended,
medical devices are classified into one of three classes (i.e., Class I, II, or
III) on the basis of the controls necessary to reasonably ensure their safety
and effectiveness. Safety and effectiveness can reasonably be assured for Class
I devices through general controls (e.g., labeling, premarket notification and
adherence to QSRs) and for Class II devices through the use of general and
special controls (e.g., performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those which
must receive PMA by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed Class I
or Class II devices).
 
     Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a PMA. A 510(k) clearance will be granted if the submitted data
establishes that the proposed device is "substantially equivalent" to a legally
marketed Class I or Class II medical device, or to a pre-amendment Class III
medical device for which the FDA has not called for PMAs. Generally an
application for 510(k) clearance only requires submission of a file, including
design, manufacturing, test and marketing information, including labeling.
However, in some cases the FDA requires clinical trials under an IDE (as defined
below), even for products to be cleared under the 510(k) process, There can be
no assurance that the Company will obtain 510(k) premarket clearance for any of
the devices for which it may file a 510(k) notice. The FDA may determine that
the proposed device is not substantially equivalent, or that additional data are
needed before a substantial equivalence determination can be made. A "not
substantially equivalent" determination, or a request for additional data, could
delay the market introduction of new products that fall into this category and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     External pumps have generally qualified for clearance under Section 510(k),
although certain features of advanced pumps may require clinical validation. The
Company's Models 507C, 507, 506, and 505 external pumps have all been cleared by
the FDA pursuant to the Section 510(k) premarket notification process.
Modifications or enhancements to the Company's products that are cleared through
the 510(k) process that could significantly affect safety or effectiveness will
require new submissions. The Company has made certain changes to its cleared
devices which the Company believes do not require the submission of new 510(k)
notifications. However, there can be no assurance that the FDA will agree with
the Company's determinations and not require the Company to submit new 510(k)
notifications for any of these modifications.
 
     A PMA must be filed if the proposed device is not substantially equivalent
to a legally marketed device or if it is a pre-amendment Class III device for
which the FDA has called for PMAs. In addition, a "new drug" may not be marketed
without an approved NDA establishing the safety and effectiveness of the drug
for its intended uses. The NDA process is typically costly, lengthy and
uncertain.
                                       16
<PAGE>   18
 
     In order to obtain a PMA, a device that poses a significant risk to
patients must undergo clinical evaluation under an Investigational Device
Exemption ("IDE") that is granted by the FDA to permit testing of the device in
a limited number of humans in clinical trials conducted at a restricted group of
clinical sites. Similarly, a new drug, such as the insulin used for the
implantable pump, must be evaluated in an Investigational New Drug ("IND")
trial. In addition to obtaining from the FDA an IDE approval or IND
authorization to conduct a clinical trial, the sponsor of the investigational
research must also obtain approval for the clinical research from an
institutional review board or committee established for this purpose by each
medical center where the trials will be conducted. Clinical trials leading to a
PMA or an NDA are intensive and costly activities that usually extend over two
or more years. As the clinical trial progresses under an IDE or IND, the FDA may
at certain milestones allow expansion of the scope of the trial to allow
additional patients or additional clinical sites or both.
 
     In late 1991, the FDA adopted new procedures for the combined review of
products that involve both devices and drugs, which permit clinical
investigation and approval to be coordinated by a lead center of the FDA. The
implantable pump and the associated insulin comprise a combined device/drug
system that will be regulated under these procedures. Following the adoption of
these procedures, the Company, which had already submitted a PMA application for
the Company's MIP 2001 implantable insulin pump, withdrew its initial
application for a PMA. The Company anticipates that a single application will be
filed which will contain both an NDA element for the insulin and a PMA element
for the pump. The FDA's Center for Drug Evaluation and Research will be the lead
center and will review the NDA portion of the application, while the Center for
Devices and Radiological Health will be responsible for reviewing the PMA
portion. The Company anticipates that, if the FDA grants approval, such approval
would include issuance of an approved NDA for the insulin and an approved PMA
for the pump. There can be no assurance, however, that the application will ever
be approved. Under the Act, even after approval, each batch of insulin produced
for the combination product would require FDA's certification that the batch
meets requisite strength, quality and purity standards.
 
     Clinical trial results are presented to the FDA in a PMA or NDA
application. In addition to the results of clinical investigations, the
applicant must submit other information relevant to the safety and efficacy of
the device and/or the drug, including the results of non-clinical tests, a full
description of the device and/or drug and their components, a full description
of the methods, facilities and controls used for manufacturing, and proposed
labeling. Such submissions are extremely detailed and complex, often involving
tens of thousands of pages. The FDA staff then reviews the submitted application
and determines whether or not to accept the application for filing. There is no
assurance that either the safety or efficacy data in these submissions will be
deemed sufficiently complete and adequate by the FDA, and if they are not, a
final determination by the FDA could be delayed while additional trials are
performed or the project could be abandoned. Such trials would add significant
new costs to such a program, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     If accepted for filing, the applications are further reviewed first by the
FDA staff and, if appropriate, subsequently by an FDA scientific advisory panel
comprised of physicians and others with expertise in the relevant field. A
public meeting is held before the advisory panel in which the PMA or NDA
application is reviewed and discussed. The scientific advisory panel then issues
a recommendation of approval or denial to the FDA or recommends approval with
conditions. Although the FDA is not bound by the opinion of the advisory panel,
the FDA tends to give considerable weight to panel recommendations. If the FDA's
evaluations of the application are favorable, the FDA will subsequently publish
an order approving the PMA application or NDA application. Interested parties
can file comments on the order and seek further FDA review.
 
     After consultations with the FDA, the Company performed a clinical trial
and submitted a 510(k) application for its first generation continuous glucose
management system product in December 1997. In July of 1998, following several
consultations with representatives of the FDA, the Company was informed that its
application relating to its first generation continuous glucose monitoring
system product had been converted to an application under the PMA regulatory
pathway from a 510(k) notification application. In February 1999,
 
                                       17
<PAGE>   19
 
an FDA advisory Panel unanimously recommended approval, subject to satisfaction
of certain conditions, of such application. The FDA is continuing to process
this application.
 
     Although by statute the FDA is granted 180 days in which to review a PMA or
NDA and either approve or disapprove it, in practice the FDA has often taken
much longer. Generally, during the review, the FDA will request additional data
and the applicant will agree to extend the review time. The FDA will make an
initial assessment as to whether the PMA or NDA is sufficiently complete for
review and may require the development and submission of additional data or
analyses. The PMA and NDA processing in the past has typically lasted more than
a year from the time of filing, and in some cases several years, but the FDA is
being pressured to meet its statutory timelines. Many such reviews are now being
completed within six months, but others are not, and there is no assurance when
or if an application will be approved.
 
     New PMA applications or PMA supplements are required for certain
modifications to a device that is approved through the PMA process. Supplements
to a PMA application often require submission of the same type of information as
for a PMA application except that the supplement is limited to information
needed to support any changes from the product covered by the original PMA
application and may not require the submission of clinical data or the convening
of an advisory committee and corresponding review. Assuming the FDA adopts the
Advisory Panel recommendation and approves MiniMed's PMA application for its
first generation glucose monitoring product, subsequent generations of the
system would require PMA supplements. In addition, certain changes, including
changes to the labeling, manufacturing, dosage, or route of administration of an
approved new drug, require the approval of a supplement to the NDA application
prior to initiating such changes. Submission of significant NDA supplements
often require data similar to that submitted with the original NDA application.
Likewise, with respect to the implantable pump and insulin combination product,
certain changes to the product (e.g., design, labeling, manufacturing, dosage,
route of administration) would require FDA's approval of a supplement to the
original application. At the present time, FDA has indicated that there will be
only one holder of the approved application for the pump and insulin combination
product. The holder will be the entity entitled to file such supplements. The
Company is seeking an arrangement with the FDA whereby the Company would be the
approved application holder, but there can be no assurance that such an
arrangement will be achieved. If the Company does not hold the approved
application, then its ability to obtain FDA approval of modifications to the
device would require appropriate contractual arrangements with the provider of
the special insulin, or possibly would require obtaining a new PMA, which could
have a material adverse effect on the Company.
 
     The PMA and NDA processes can each be expensive, uncertain and lengthy, and
a number of devices and drugs for which PMA or NDA approval have been sought
have never been approved for marketing. There can be no assurance that the
Company will be able to obtain necessary regulatory approvals or clearances on a
timely basis or at all for any of its products under development, and delays in
receipt of or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     Approvals restrict devices and drugs to specifically labeled uses, and the
combination pump/insulin product would be similarly restricted. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
 
     The FDA also conducts inspections to determine whether the Company conforms
with QSR, and subsequent QSR inspections will continue after the FDA approval. A
QSR inspection (such inspection was carried out under the FDA's Good
Manufacturing Practices guidelines that were subsequently replaced by QSR) was
last completed in May of 1997, with only minor citations, which have all been
corrected. A further such inspection may be conducted relative to any PMA
application submitted by the Company for other products or pursuant to the FDA's
practice of performing periodic inspections.
 
     Failure to comply with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, failure of the
government to grant premarket clearance or premarket approval of devices or
drugs, delays or suspensions or withdrawals of approvals, seizures or recalls of
products, operating
 
                                       18
<PAGE>   20
 
restrictions and criminal prosecutions. Changes in existing requirements or
adoption of new requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The FDA can withdraw an NDA or PMA approval if new evidence or new
information shows the drug or device is no longer safe or effective, or if the
FDA discovers that the NDA or PMA contains any untrue statement of material
fact. Other reasons justifying withdrawal of an NDA or PMA by the FDA include,
but are not limited to, failure to maintain required records or to file records
and reports, new questions regarding manufacturing, and whether labeling is
false or misleading.
 
     There can be no assurance that the necessary approvals for the use of new
generations of the Company's external pumps and disposables, the implantable
insulin pump or its glucose monitoring systems will be granted by the FDA or
other authorities on a timely basis or at all, and delays in receipt of or
failure to receive such approvals, or the loss of previously received approvals,
could result in significant delays, substantial costs or even the cessation of
operations relating to a product or group of products, and any of these could
have a material adverse effect on the business, financial condition and results
of operations of the Company.
 
     Exports of products subject to 510(k) notification requirements, but not
yet cleared to market, are permitted without FDA export approval, provided that
certain requirements are met. Unapproved products subject to PMA requirements
must receive prior FDA export approval unless they are approved for use by any
member country of the EU and certain other countries, including Australia,
Canada, Israel, Japan, New Zealand, Switzerland and South Africa, in which case
they can be exported to any country without prior FDA approval. International
sales are subject to foreign government regulation, the requirements of which
vary substantially from country to country. The time required to obtain approval
by a foreign country may be longer or shorter than that required for FDA
approval, and the requirements may differ. Within the next several years, a
company must obtain the CE Mark prior to sale within the EU of certain medical
devices, including implantable products. During this process, the sponsor must
demonstrate compliance with ISO manufacturing and quality requirements. The
Company received approval for use of its implantable insulin pump in France in
June 1993. In March 1995, the Company obtained the CE Mark to market the
implantable pump throughout the EU, but commercial distribution of the
implantable pump in the EU will be limited until the special insulin required
for use in the pump is approved and made available. In March 1995, the Company
received certification under applicable ISO 9002 quality standards and in July,
1996 received certification under ISO 9001 design control standards. As is the
case with QSR inspections in the U.S., inspections by various foreign bodies
will continue in the EU on a periodic basis after receipt of the CE Mark.
 
     The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Additionally, the Company must comply with
various FDA, and in some cases Federal Trade Commission, requirements for
design, safety, advertising, labeling, record keeping and reporting of adverse
experiences with the use of a product. There can be no assurance that the
Company will not be required to incur significant costs to comply with such laws
and regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
 
     With its acquisition of the pharmacy businesses of HMS, the Company is now
subject to various federal and state regulatory requirements relating the
distribution of prescription pharmaceuticals. For example, the US Drug
Enforcement Administration ("DEA") regulates controlled drug substances, such as
narcotics, under the Controlled Substances Act and the Controlled Substances
Import and Export Act. Manufacturers, distributors and dispensers of controlled
substances must be registered and inspected by the DEA, and are subject to
reporting and record keeping requirements. There can be no assurance that the
Company will not be required to incur significant costs to comply with such laws
and regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
 
THIRD-PARTY REIMBURSEMENT
 
     In the U.S., the Company's products are generally purchased directly by
patients, physicians, physician groups, hospitals, and/or dealers. In many cases
the Company, on behalf of the patients, bills third-party
                                       19
<PAGE>   21
 
payors, including private insurance companies, health maintenance organizations,
preferred provider organizations, other managed care providers, and, to a
limited extent, Medicaid. Under the Medicaid program, states generally reimburse
for approved procedures on a reasonable cost or fee schedule basis. Currently,
certain states reimburse for the Company's products under the Medicaid program.
Although the Company does not currently derive revenues from the Medicare
program for any of its products, it is in the process of seeking coverage for
its external pump. The Budget Reconciliation Act of 1997 passed by Congress and
signed into law by President Clinton provides $2.1 billion in federal funding
over the next five years for diabetes education and training, as well as funds
for diabetes products. There is no certainty that the Budget Reconciliation Act
of 1997, or any other legislation expanding coverage for diabetes which is
currently, or will in the future, be considered, will benefit the Company's
products.
 
     The Company maintains an insurance assistance department consisting of 50
people as of March 11, 1999 to simplify and expedite claims processing and to
assist patients in obtaining third-party reimbursement. The Company believes
that more than 90% of the revenues from Company's external pump and related
disposable sales are reimbursed by third-party payors (subject to applicable
deductible and copayment amounts).
 
     Third-party payors may also decline to reimburse for procedures, supplies
or services determined to be not "medically necessary" or "reasonable." Certain
payors have initially indicated that they would decline to reimburse for certain
of the Company's products on that basis. The Company attempts to deter and
reverse such practices through education and has expanded its insurance
assistance efforts toward this end. These efforts are usually successful, but
such reimbursement may become less likely in the future as pressure continues to
mount for lower health care costs and particularly near-term costs.
 
     Medicare and many other third-party payors also do not reimburse for
procedures deemed "experimental" or "investigational." There is usually no
precise date when a procedure ceases to be experimental or investigational, but
devices in clinical investigation under an IDE are usually deemed to be
experimental or investigational. The failure to cover early use of a procedure
deters usage, delaying acceptance even longer. Use of implantable pumps is still
considered to be an investigational procedure by many third-party payors in the
U.S., and reimbursement for the small number of pumps sold in the U.S. has
therefore been limited to date.
 
     There is widespread concern that health care market initiatives in the U.S.
may lead third-party payors to decline or further limit reimbursement. The
extent to which third-party payors may determine that use of the Company's
products will save costs or will at least be cost effective is highly uncertain,
and it is possible, especially for diabetes, that they will merely focus on the
lower initial costs associated with injection therapy or will otherwise limit
reimbursement for insulin pumps or other products developed by the Company.
Because of uncertainties regarding the possible health care reform measures that
could be proposed in the future and initiatives to reduce costs by private
payors, the Company cannot predict whether reimbursement for the Company's
products will be affected or, if affected, the extent of any effect. The
unavailability of third-party coverage or the inadequacy of reimbursement for
the Company's products would materially and adversely affect the Company's
business, financial condition and results of operations.
 
PRODUCT LIABILITY AND WARRANTIES
 
     The Company's external pumps are generally warranted for various periods
ranging from two to four years. The special motors contained in the Company's
external pumps are warranted for life. The Company sets aside a reserve based on
monthly return rates to pay for customer service and repair of products.
Additional reserves are set aside during early stages of product introduction.
The Company believes such reserves to be adequate, but in the event of a major
product problem or recall, the reserves may be inadequate to cover all costs,
and such an event could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     The Company's business involves the inherent risk of product liability
claims. The Company maintains product liability insurance with coverage limits
of $15 million per occurrence and an annual aggregate maximum of $15 million,
with a deductible of $50,000 per occurrence. There can be no assurance that this
 
                                       20
<PAGE>   22
 
insurance coverage will continue to be available on terms acceptable to the
Company or that such coverage will be adequate for liabilities actually
incurred.
 
EMPLOYEES
 
     As of March 11, 1999, the Company employed 891 full-time persons including
94 in research and development, 258 in manufacturing, production engineering and
quality assurance, 305 in administration and 234 in sales and marketing. The
Company also utilized 87 temporary workers as of March 11, 1999. The Company
believes that the success of its business depends, in part, on its ability to
attract and retain qualified personnel, particularly qualified scientific,
technical and key management personnel. The Company believes its relationships
with its employees are good.
 
ITEM 2. PROPERTIES
 
     The Company owns its current primary facilities which consist of an
aggregate of approximately 175,000 square feet in Sylmar, California.
Approximately 23,400 square feet of the space is leased to Alfred E. Mann, the
Company's Chairman and Chief Executive Officer and approximately 9,711 square
feet is leased to MRG. In conjunction with its acquisition of HMS, the Company
acquired ownership of a facility in Hollywood, Florida which contains an
aggregate of approximately 32,000 square feet. The Company also leases
approximately 44,000 square feet of administrative office space in two locations
in Northridge and Chatsworth, California.
 
     In March 1999, the Company entered into a ground sublease with North Campus
University Park Development Corporation, an affiliate of California State
University Northridge ("CSUN") relating to approximately 28 acres of land on the
CSUN campus in Northridge, California. The term of the ground sublease is
approximately 40 years, with possible extensions for up to an additional 40
years. The Company contemplates constructing up to 710,000 square feet of
building space in two phases over a three to five year period to address its
future space requirements for its manufacturing, administrative and other
activities. The Company believes that, if successfully consummated, its
expansion on the CSUN campus will address the Company's space requirements for
the foreseeable future. The Company and CSUN representatives are also in
negotiations regarding an option for an additional contiguous 12 acres on the
CSUN campus. See notes to consolidated financial statements.
 
ITEM 3. LEGAL PROCEEDINGS
 
     On September 11, 1996, the Company filed an action against Fimed, Inc.
("Fimed") in Los Angeles County Superior Court seeking declaratory relief and
rescission of a distributorship agreement giving Fimed an exclusive right to
distribute the Company's external pumps using third-party consumer financing.
The Company alleged that Fimed fraudulently induced the Company to enter into
the agreement and failed to disclose material facts. Fimed answered the
Company's complaint generally denying the allegations but also asserted
counterclaims against the Company alleging breach of contract, promissory fraud,
unfair competition, intentional interference with prospective economic
advantage, defamation (libel and slander) and abuse of process and seeking
compensatory damages of $400 million, plus punitive damages. No significant
amount of the Company's products has ever been sold using third-party consumer
financing, and Fimed never made any sales under the agreement. The Company
notified Fimed that the Company was seeking rescission of the agreement less
than six months after it was signed and before Fimed began marketing the
Company's products. The Company believes that it has meritorious defenses to the
counterclaim asserted by Fimed. The Company intends to prosecute its claim
against Fimed and defend against the counterclaim vigorously. Fact discovery in
the litigation has been substantially completed. The Court appointed a retired
Judge to act as an Independent Expert pursuant to California law to evaluate,
assuming liability, the amount of damages, if any, sustained by Fimed. The
hearing on damages was held in February 1999. Trial in this matter was set for
May 1999 however, on March 30, 1999, the Court indicated that such trial will be
continued until July 1999 at the earliest.
 
                                       21
<PAGE>   23
 
     On February 9, 1999, the Company was served with a complaint filed in the
Civil District Court For the Parish of Orleans, State of Louisiana, by Diabetes
Resources, Inc. (d/b/a Insulin Infusion Specialties) ("IIS") alleging various
causes of action against the Company. IIS entered into an Educational Dealer
Agreement (the "Agreement") with MiniMed in July, 1997, relating to the
distribution of certain of the Company's products by IIS. MiniMed declined to
renew the Agreement pursuant to its terms as of December 31, 1998. IIS is
alleging that MiniMed engaged in unfair competition, breached the Agreement,
violated applicable trade secret laws and defamed IIS. IIS did not specify the
amount of damages it is seeking in its complaint. The Company is currently
evaluating its options in responding to these claims. The Company believes that
it has meritorious defenses to the claims asserted by IIS. Discovery in this
litigation is in its preliminary stages.
 
     On October 20, 1998, the Company filed a complaint against Robert Kusher
and Craig Lowy (collectively, the "Defendants"), the former owners of HMS, in
the United States District Court for the Southern District of Florida (Ft.
Lauderdale Division). The complaint alleges that the Defendants engaged in
fraudulent misrepresentation, negligent misrepresentation and breach of contract
relating to the sale of HMS to the Company and certain billing practices carried
on prior to such sale. The Company is seeking several remedies including
declaratory relief as to its rights under the Reorganization Agreement among the
Defendants and the Company dated October 19, 1997, as amended and/or
indemnification for any liability arising out of such billing practices.
 
     The Company is not presently a party to any other material pending legal
proceedings. The Company may be subject from time to time to various other legal
proceedings, including product liability and employment claims, which arise in
the ordinary course of its business. The Company believes that none of such
proceedings, individually or in the aggregate, are likely to have a material
adverse effect on its business or financial condition.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Not Applicable.
 
                                       22
<PAGE>   24
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock commenced trading on the Nasdaq National Market
under the symbol "MNMD" on July 25, 1995. The following table sets forth, for
the periods indicated, the intra-day high and low sales prices per share of
Common Stock on the Nasdaq National Market as adjusted for a two-for-one stock
dividend effected by the Company on April 1, 1999:
 
<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
1998
  Fourth Quarter Ended January 1, 1999......................  $59.00   $25.00
  Third Quarter Ended October 2, 1998.......................   34.44    20.19
  Second Quarter Ended July 3, 1998.........................   29.38    21.38
  First Quarter Ended April 3, 1998.........................   22.50    16.00
1997
  Fourth Quarter Ended January 2, 1998......................  $22.25   $16.63
  Third Quarter Ended September 26, 1997....................   19.57    13.13
  Second Quarter Ended June 27, 1997........................   13.63    11.25
  First Quarter Ended March 28, 1997........................   17.38    12.32
</TABLE>
 
RECORD HOLDERS
 
     The last reported sale price of the Common Stock on the Nasdaq National
Market on March 15, 1999 was $45.938 (as adjusted). As of March 15, 1999, there
were approximately 640 stockholders of record of the Company's Common Stock.
 
DIVIDENDS
 
     The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain all available funds for use in
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination relating to dividend policy will be
made in the discretion of the Board of Directors of the Company and will depend
on a number of factors, including the future earnings, capital requirements,
financial condition and future prospects of the Company and such other factors
as the Board of Directors may deem relevant.
 
SALES OF UNREGISTERED SECURITIES
 
     Effective January 2, 1998, the Company acquired all of the outstanding
shares of capital stock of HMS pursuant to the terms of the Reorganization
Agreement, as amended (the "Reorganization Agreement") among Robert A. Kusher,
Craig Lowy, the Company and MiniMed Distribution Corp., a wholly owned
subsidiary of the Company ("MDC") and dated as of October 19, 1997. Pursuant to
the Reorganization Agreement, MDC received all of the outstanding shares of
capital stock of HMS in exchange for 374,884 shares of common stock of the
Company with a value of approximately $14.2 million. The Company relied upon
Section 4(2) of the Securities Act of 1933, as amended, in the acquisition of
HMS and the related sale of unregistered securities contemplated by the
Reorganization Agreement.
 
     On November 5, 1998, the Company sold 233,334 shares of its Common Stock to
Medtronic, Inc. ("Medtronic") for approximately $14 million and entered into an
agreement to sell an additional 266,666 shares to Medtronic for approximately
$16 million subject to compliance with the Hart Scott Rodino Antitrust
Improvements Act ("HSR"). The HSR waiting period was terminated on or about
December 1 and the sale of the additional 266,666 shares of Common Stock was
consummated immediately thereafter. As part of this transaction, the Company
provided Medtronic with certain demand and piggyback registration rights for the
shares purchased. Upon completion of the transaction, Medtronic owned
approximately 3.5% of the outstanding shares of Common Stock of MiniMed. The
Company relied upon Section 4(2) of the Securities
 
                                       23
<PAGE>   25
 
Act of 1933, as amended, and Regulation D promulgated thereunder, in effecting
this sale of unregistered securities.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following table summarizes certain selected consolidated financial
data, which should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere herein and with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The
selected consolidated financial data as of January 1, 1999, January 2, 1998,
December 27, 1996, December 29, 1995 and December 31, 1994, and for each of the
five fiscal years in the period ended January 1, 1999 have been derived from the
audited financial statements of MiniMed Inc., which have been audited by
Deloitte & Touche LLP, the Company's independent auditors.
 
<TABLE>
<CAPTION>
                                                                    FISCAL YEAR
                                       ----------------------------------------------------------------------
                                           1994           1995           1996          1997          1998
                                                                     YEAR ENDED
                                       ----------------------------------------------------------------------
                                       DECEMBER 31,   DECEMBER 29,   DECEMBER 27,   JANUARY 2,    JANUARY 1,
                                           1994           1995           1996          1998          1999
                                       ------------   ------------   ------------   -----------   -----------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>            <C>            <C>            <C>           <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................  $    43,105    $    56,906    $    76,396    $    99,492   $   138,577
Cost of sales........................       20,847         22,780         32,314         38,704        51,518
                                       -----------    -----------    -----------    -----------   -----------
Gross profit.........................       22,258         34,126         44,082         60,788        87,059
Operating expenses:
  Selling, general and
    administrative...................       17,991         24,379         32,101         41,237        57,059
  Research and development...........        5,372          7,095          7,900          9,447        16,531
  Research and development
    contract.........................           --             --             --             --        (6,000)
  Merger related expenses............           --             --             --          1,000            --
                                       -----------    -----------    -----------    -----------   -----------
         Total operating expenses....       23,363         31,474         40,001         51,684        67,590
                                       ===========    ===========    ===========    ===========   ===========
Operating income (loss)..............       (1,105)         2,652          4,081          9,104        19,469
Interest expense.....................         (564)          (418)          (163)          (237)          (47)
Other income, including interest
  income.............................          228            965          1,062          1,851         1,503
                                       -----------    -----------    -----------    -----------   -----------
Income (loss) before income taxes....       (1,441)         3,199          4,980         10,718        20,925
Provision for income taxes...........           --           (854)        (1,662)        (4,029)       (7,882)
                                       ===========    ===========    ===========    ===========   ===========
Net income (loss)....................  $    (1,441)   $     2,345    $     3,318    $     6,689   $    13,043
Basic income (loss) per share(1).....  $     (0.09)   $      0.12    $      0.14    $      0.26   $      0.49
                                       ===========    ===========    ===========    ===========   ===========
Basic weighted average shares
  outstanding(1).....................   16,286,000     19,336,000     23,882,000     25,810,000    26,880,000
                                       ===========    ===========    ===========    ===========   ===========
Diluted income (loss) per share(1)...  $     (0.09)   $      0.11    $      0.13    $      0.25   $      0.46
                                       ===========    ===========    ===========    ===========   ===========
Diluted weighted averages shares
  outstanding(1).....................   16,286,000     21,436,000     25,134,000     27,112,000    28,332,000
                                       ===========    ===========    ===========    ===========   ===========
</TABLE>
 
                                       24
<PAGE>   26
 
<TABLE>
<CAPTION>
                                               DECEMBER 31,   DECEMBER 29,   DECEMBER 27,   JANUARY 2,   JANUARY 1,
                                                   1994           1995           1996          1998         1999
                                               ------------   ------------   ------------   ----------   ----------
                                                                          (IN THOUSANDS)
<S>                                            <C>            <C>            <C>            <C>          <C>
BALANCE SHEET DATA:
Working capital..............................    $13,428        $32,133        $36,153       $ 63,409     $ 84,771
Total assets.................................     25,422         56,561         64,424        105,819      157,652
Notes payable, net of current portion........      7,000            885          1,528            728        1,059
Redeemable, convertible preferred stock......      8,513             --             --             --           --
Retained earnings (accumulated deficit)......     (3,758)        (1,924)         1,394          8,083       21,126
Total stockholders' equity...................      4,907         42,120         48,131         83,083      133,833
</TABLE>
 
---------------
(1) Adjusted to reflect a 2-for-1 stock split effected April 1, 1999.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion of the financial condition and results of MiniMed
Inc. ("MiniMed" or the "Company") should be read in conjunction with the
consolidated financial statements and the related notes thereto included
elsewhere herein. The discussion in this Annual Report contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed in the forward-looking statements.
See language relating to forward-looking statements preceding Item 1,
"Business."
 
GENERAL
 
     The Company's sales and profits have been generated primarily through the
sale of external pumps and related disposable products used to deliver insulin
in the intensive management of diabetes. Additionally, through its acquisitions
of Home Medical Supply, Inc. and its affiliated companies ("HMS") and Dartec in
fiscal 1997 and Diabetes Support Systems, Inc. ("DSS") in fiscal 1998, the
Company also has broadened its product offerings to its customers to include
other diabetes supplies and pharmacy products generally used in the treatment of
this disease. The Company distributes these products nationally. The HMS
acquisition was accounted for as a pooling of interests, which resulted in the
operating results of the Company for the years prior to the acquisition being
restated to include the results of HMS.
 
     Product development and manufacturing operations have focused on three
product lines: external pumps and related disposables, implantable insulin pumps
and continuous glucose monitoring systems. Future development of the external
pump and disposable product line will focus upon improving the existing
technology for its current use in diabetes treatment and the utilization of this
technology for the treatment of other medical conditions. There have been no
sales of glucose monitoring systems to date; however, on February 26, 1999, the
Company received a unanimous recommendation for approval of the first generation
of that product from an Advisory Panel to the FDA subject to certain conditions.
The Company intends to initiate sales activity for this product line when final
FDA approval is received. The Company's continuous glucose monitoring system has
been characterized as a first of its kind technology, and commercialization will
be subject to successful implementation of manufacturing, sales, marketing and
reimbursement plans. Management anticipates that this will occur by mid-1999.
Sales of the implantable pump have been and will continue to be irregular until
full regulatory approval is obtained.
 
                                       25
<PAGE>   27
 
RESULTS OF OPERATIONS
 
     The following table sets forth for the years indicated the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations and the percentage changes in the dollar amounts of
such items on a comparative basis for the last three fiscal years:
 
<TABLE>
<CAPTION>
                                                                                     ANNUAL
                                                                               INCREASE(DECREASE)
                                                                               -------------------
                                                    PERCENTAGE OF NET SALES     1996        1997
                                                    -----------------------      VS.        VS.
                                                    1996     1997     1998      1997        1998
                                                    -----    -----    -----    -------    --------
<S>                                                 <C>      <C>      <C>      <C>        <C>
Net sales.........................................  100.0%   100.0%   100.0%     30.2%       39.3%
Cost of sales.....................................   42.3%    38.9%    37.2%     19.8%       33.1%
                                                    -----    -----    -----     -----      ------
Gross profit......................................   57.7%    61.1%    62.8%     37.9%       43.2%
Operating expenses:
  Selling, general and administrative.............   42.0%    41.4%    41.2%     28.5%       38.4%
  Research and development........................   10.3%     9.5%    11.9%     19.6%       75.0%
  Research and development contract...............    0.0%     0.0%    (4.3%)     n/a       100.0%
  Merger related expenses.........................    0.0%     1.0%     0.0%      n/a      (100.0%)
                                                    -----    -----    -----     -----      ------
Total operating expenses..........................   52.3%    51.9%    48.8%     29.2%       30.8%
                                                    -----    -----    -----     -----      ------
Operating income..................................    5.4%     9.2%    14.0%    123.1%      113.9%
                                                    =====    =====    =====     =====      ======
</TABLE>
 
     The following table sets forth net sales and gross profits for the
Company's significant business activities for the three years ended January 1,
1999.
 
<TABLE>
<CAPTION>
                                                NET SALES               PERCENTAGE OF NET SALES
                                      ------------------------------    -----------------------
                                       1996       1997        1998      1996     1997     1998
                                      -------    -------    --------    -----    -----    -----
                                              (IN THOUSANDS)
<S>                                   <C>        <C>        <C>         <C>      <C>      <C>
Diabetes products:
  External pumps and related
     disposables:
     Domestic.......................  $53,146    $73,697    $110,830     69.6%    74.1%    80.0%
     International..................    6,396      6,572      10,926      8.4      6.6      7.9
                                      -------    -------    --------    -----    -----    -----
          Subtotal..................   59,542     80,269     121,756     78.0     80.7     87.9
  Implantable insulin pumps.........    1,996      1,578       1,391      2.6      1.6      1.0
  Other diabetes supplies...........    5,520      5,835       6,548      7.2      5.8      4.7
                                      -------    -------    --------    -----    -----    -----
Total diabetes products.............   67,058     87,682     129,695     87.8     88.1     93.6
Pharmaceutical products.............    9,338     11,810       8,882     12.2     11.9      6.4
                                      -------    -------    --------    -----    -----    -----
          Total net sales...........  $76,396    $99,492    $138,577    100.0%   100.0%   100.0%
                                      =======    =======    ========    =====    =====    =====
Gross profits:
Diabetes products:
  External pumps and related
     disposables....................  $41,129    $58,496    $ 85,271     53.8%    58.8%    61.5%
  Implantable insulin pumps.........     (404)    (1,489)     (1,683)    (0.5)    (1.5)    (1.2)
  Other diabetes supplies...........    2,225      2,416       2,316      2.9      2.4      1.7
                                      -------    -------    --------    -----    -----    -----
Total diabetes products.............   42,950     59,423      85,904     56.2     59.7     62.0
Pharmaceutical products.............    1,132      1,365       1,155      1.5      1.4      0.8
                                      -------    -------    --------    -----    -----    -----
          Total gross profits.......  $44,082    $60,788    $ 87,059     57.7%    61.1%    62.8%
                                      =======    =======    ========    =====    =====    =====
</TABLE>
 
FISCAL YEAR 1998 AND FISCAL YEAR 1997
 
     Net Sales. Consolidated net sales increased 39.3% in 1998 over 1997 to
$138,577,000 from $99,492,000. This increase is primarily the result of an
increase of 51.7% or $41,487,000, in sales of external pumps and related
disposable products. Domestic sales of these products grew 50.4%, or
$37,133,000, from $73,697,000 in
 
                                       26
<PAGE>   28
 
1997 to $110,830,000 in 1998, while international sales increased 66.3%, or
$4,354,000 from $6,572,000 in 1997 to $10,926,000 in 1998. The increase in
domestic and international sales of these products was primarily the result of
increased sales volumes, combined with an increase in average prices realized on
domestic external pump sales. The higher domestic external pump price resulted
from an increase in the list price for the latest generation external pump
during 1998, combined with the continued shift of sales by the Company through
its direct sales organization rather than through its independent dealers, who
receive discounts on these products. Sales of disposable products also grew in
1998, consistent with the greater installed base of external insulin pumps.
External pump sales in 1998 grew at a rate in excess of disposable product
sales. Disposable products pricing remained consistent from 1997 to 1998.
 
     Sales of other diabetes supplies increased 12.2%, or $713,000 in 1998 over
1997. This increase resulted from overall market growth, combined with the
addition of sales of these products by Dartec and DSS, each of which was
acquired by the Company in 1998. Average sales prices have decreased for these
products due to reimbursement trends. Pharmaceutical products sales decreased
24.8%, or $2,928,000 in 1998 over 1997. The pharmacy operation historically
distributed products to treat a number of medical conditions, including
diabetes, HIV/AIDS and renal failure. The 1998 sales decrease primarily resulted
from the Company's narrowing and restructuring of the pharmacy operations to
better support MiniMed's current activities and to better position the Company
for future opportunities.
 
     Sales of implantable pumps decreased by 11.9% or $187,000 in 1998 over
1997, primarily due to the lack of required regulatory approvals. Regulatory
approval for the implantable pump and special insulin utilized in the pump is
still pending. Although the Company received certification for the implantable
pump under the applicable directives issued by the European Union (the "EU"),
and received the CE Mark in March 1995 (permitting commercial sale throughout
the EU), separate approval from the EU is required for commercial sale of the
insulin. No assurance can be given as to when such approval will be received, if
at all. The implantable pump and the special insulin remain subject to
regulatory review and approval in the United States. No assurance can be given
as to when such approvals will be received, if at all. Sales of implantable
pumps to date have been generated mainly in connection with clinical trials and
compassionate use of the pumps. Gross margins on implantable pump sales were
negative in 1998 and 1997. While the Company anticipates improved margins in the
short-term as a result of the MRG transaction, long-term margins may be reduced
due to the transfer of the manufacturing operation to MRG.
 
     Cost of Sales and Operating Expenses. Cost of sales increased 33.1% in 1998
over 1997 to $51,518,000 from $38,704,000. As a percentage of net sales, cost of
sales decreased to 37.2% in 1998 from 38.9% in 1997. This improvement in gross
profit margin is directly attributable to the external pump and related
disposable product line. External pump gross profits increased due to an
increase in realized sales prices, continued improvement in product reliability
and economies of scale related to increased volumes. The improvement in external
pump gross profits was partially offset by a decrease in margins on disposable
products. This decrease in margins on disposable products was attributable to
the Company's addition of a new disposable product line which was developed and
is being manufactured for MiniMed by an outside vendor. MiniMed realizes a
higher per unit cost on this product line than on its historical disposable
products. As a result of these factors, gross margins on the external pumps and
related disposable products increased to 61.5% of sales in 1998, compared to
58.8% in 1997.
 
     Gross profits on other diabetes supplies decreased 4.1% to $2,316,000 in
1998, compared to $2,416,000 in 1997. This decrease in gross profit margin for
other diabetes supplies was primarily due to the lower domestic average sales
prices described above. Gross margins, as a percentage of sales, have decreased
for pharmaceutical products during 1998 compared to 1997 as a result of the
restructuring of the pharmacy operations and discontinuation of certain
pharmaceutical product lines which were more profitable but were not consistent
with MiniMed's long-term plans.
 
     The Company's gross profits were adversely impacted by the implantable pump
product line during 1998 due to continued limited sales prior to such product's
full commercial release. Such limited sales have inhibited the Company's ability
to realize manufacturing efficiencies on this product line and have caused
unfavorable manufacturing variances. On September 1, 1998, the Company sold
certain assets and transferred
 
                                       27
<PAGE>   29
 
certain technology and operating activities related to its implantable pump
business to MRG. MRG was founded by Alfred E. Mann, the Company's founder,
Chairman, CEO and largest stockholder. Mr. Mann is also the Chairman, a director
and a significant shareholder in MRG. MRG assumed all manufacturing and
development activities related to the implantable pump. MiniMed retained
worldwide marketing rights to the implantable pump for the treatment of diabetes
and certain other diseases.
 
     Selling, general and administrative expenses increased 38.4% in 1998 over
1997 to $57,059,000 from $41,237,000. As a percentage of net sales, these
expenses decreased slightly to 41.2% in 1998 from 41.4% in 1997. Selling and
marketing expenses increased primarily due to increased sales volumes, which led
to increased sales commissions and other variable field sales costs.
Additionally, the Company expanded its direct sales organization during 1998
through the realignment of sales territories and the hiring of new sales
representatives. The Company also increased international selling and marketing
expenditures to expand its overall international presence, particularly in
Germany. General and administrative expenses increased as the Company has
continued to build its infrastructure to manage increasing domestic and
international sales activity, strengthen the Company's collection function and
expand information systems capabilities.
 
     Research and development expenses increased 75.0% in 1998 over 1997 to
$16,531,000 from $9,447,000. As a percentage of sales, research and development
expenses increased to 11.9% during 1998 from 9.5% during 1997. The 1998 increase
in research and development costs resulted from greater resources directed
towards the development of continuous glucose monitoring systems, start-up
manufacturing operations of the continuous glucose monitoring systems,
development of future generation external insulin pumps and related disposable
products, data communication capabilities for external pumps and continuous
glucose monitoring systems and the Company's joint development project with
Roche Diagnostics. Research and development expenses will continue to increase
during 1999. While the increase will be smaller as a result of the sale of
assets related to the implantable pump program to MRG described above (see notes
to consolidated financial statements). Future increases in research and
development spending are expected for various continuous glucose monitoring
system products and future generation external pumps and related disposable
products for the treatment of diabetes, as well as the treatment of other
medical conditions.
 
     During the fourth quarter of 1997, the Company filed an application with
the FDA for 510(k) clearance for the first generation continuous glucose
monitoring system product for ambulatory use. This application was converted to
an application for pre-market approval ("PMA"), which required additional
documentation to be submitted by the Company to the FDA prior to approval. On
February 26, 1999, the FDA conducted an Advisory Panel review of this product.
The Panel voted unanimously to approve such first generation continuous glucose
monitoring system product subject to certain conditions including the completion
of additional clinical trials and the revision of certain documentation. Some of
these conditions may be post-marketing requirements. Future research and
development costs on continuous glucose monitoring systems relate to the
continued refinement of the system prior to full regulatory approval, continued
investment in a continuous glucose monitoring systems manufacturing operation
and development of the next generation of continuous glucose monitoring system
products. As stated above, the Company anticipates that research and development
expenditures for future periods will increase as its technological innovations
approach commercialization.
 
     During the 1998 first quarter, the Company signed a research and
development contract with American Medical Instruments, Inc. ("AMI"), a member
of The Marmon Group of Companies. Under the terms of the agreement, and subject
to the achievement of quarterly performance milestones, the Company was to
receive up to $12.0 million in funding, payable in quarterly installments of
$1.5 million, for two research and development projects designed primarily by
the Company. The Company anticipates successful completion of its research and
development obligations under the agreement by the end of 1999. Subject to
payment of royalties to AMI, the Company will have the right to sell products
utilizing the technology developed pursuant to the agreement on a worldwide
basis, with the exception of Japan. The Company also has the right to purchase
the technologies developed at prices ranging from an aggregate of $13.5 million
to $19.0 million during certain periods through April 30, 2002. During 1998, the
Company recorded $6.0 million from this research and development contract as a
reduction of operating expenses. Costs related to completion of the obligations
under this agreement are included in research and development expense.
 
                                       28
<PAGE>   30
 
     The Company from time to time invests in new and developing technologies
that may provide improvements to the Company's core technology or that may
provide additional applications for the Company's existing technologies and
products. These investments may be in the form of equity investments, loans,
research and development agreements, and strategic alliances or cooperation
agreements. No assurance can be given as to when such investments will provide
useful new technologies or applications, if at all. Such investments may result
in losses that could adversely affect the Company's future earnings and results
of operations.
 
     Other. Other income for 1998 and 1997 consisted primarily of interest
income generated from the Company's cash, cash equivalents, and short-term
investment balances. Interest expense in 1997 and 1998 relates primarily to debt
incurred by HMS to fund operations and to finance its operating facility.
Substantially all of the HMS debt was retired during 1998. In future periods,
the Company expects to incur interest expense related to the notes payable that
were issued in connection with the purchase of DSS (see discussion below in
Liquidity and Capital Resources).
 
     The Company's effective tax rate for 1998 and 1997 has been computed giving
consideration to the pretax results applicable to the Company's foreign and
domestic tax jurisdictions and a continual decrease in the Company's valuation
allowance against net deferred tax assets due to improved operating results. The
Company has not incurred any material foreign income tax expense to date.
Inflation has not significantly impacted the Company's results of operations for
the past three years.
 
FISCAL YEAR 1997 AND FISCAL YEAR 1996
 
     Net Sales. Consolidated net sales increased 30.2% in 1997 over 1996 to
$99,492,000 from $76,396,000. This increase is principally the result of an
increase of 34.8% or $20,727,000, in the sales volume of external pumps and
related disposable products. The domestic and international sales increase of
these products resulted primarily from greater sales volumes, combined with an
increase in average prices realized on domestic external pump sales. The higher
domestic external pump price reflected the larger share of sales by the Company
through its direct organization rather than through its independent dealers, who
receive discounts on these products. Consistent with 1996 results, 1997 external
pump sales grew at a rate in excess of disposable product sales. The increase in
disposable product sales reflects the larger installed base of insulin pumps as
well as an increased market share resulting from the introduction of new
disposable products. Disposable products pricing remained consistent from 1996
to 1997.
 
     Sales of other diabetes supplies increased 5.7%, or $315,000 in 1997 over
1996. This increase is a reflection of overall market growth and the greater
emphasis on diabetes in the current health care environment. Pharmacy product
sales increased 26.5%, or $2,472,000 in 1997 over 1996. The pharmacy sales
increase reflects higher sales volume, as the Company's reimbursement rates on
pharmaceutical products began to decrease during 1996, with the decrease
continuing through 1997. The decrease relates primarily to products for
dialysis, a line of business that the Company discontinued during 1998 in
connection with the restructuring of the pharmacy operations.
 
     Sales of implantable pumps decreased by $418,000 in 1997 over 1996.
 
     Cost of Sales and Operating Expenses. Cost of sales increased 19.8% in 1997
over 1996 to $38,704,000 from $32,314,000. As a percentage of net sales, cost of
sales decreased to 38.9% in 1997 from 42.3% in 1996. The improvement in gross
profits is directly attributable to the external pump and related disposable
product line. External pump gross profits increased due to higher realized sales
prices, continued improvement in product reliability and economies of scale
related to increased volumes. Margins on disposable products also improved due
to economies of scale and other manufacturing efficiencies. Gross margins as a
percentage of sales on the sale of other diabetes supplies, as well as
pharmaceutical products, were consistent in 1997 and 1996. The Company's overall
gross profits continued to be adversely impacted by the implantable pump product
line due to continued unpredictable sales, which have inhibited the Company's
ability to realize manufacturing efficiencies.
 
     Selling, general and administrative expenses increased 28.5% in 1997 over
1996 to $41,237,000 from $32,101,000. As a percentage of net sales, these
expenses decreased slightly to 41.4% in 1997 from 42.0% in 1996. Selling and
marketing expenses increased primarily due to increased sales volumes, which led
to higher
 
                                       29
<PAGE>   31
 
sales commissions and other variable field sales costs. The Company also
expended significant amounts in enhancing administrative support for the field
sales organization and in its educational and marketing programs for patients,
physicians and third party payors. The Company also increased international
selling and marketing expenditures, primarily in the continued development of
its German subsidiary and in expanding its overall international presence.
General and administrative expenses increased as the Company has continued to
build its infrastructure to serve the greater revenues and customer base.
 
     Research and development expenses increased 19.6% in 1997 over 1996 to
$9,447,000 from $7,900,000. As a percentage of sales, research and development
expenses decreased to 9.5% in 1997 from 10.3% in 1996. The increase in expenses
is primarily the result of greater resources directed to the Company's
subcutaneous continuous glucose monitoring systems, with the Company completing
and filing a 510(k) application for pre-market approval for the first of these
products in December 1997. The Company also increased its research and
development expenditures on the development of its external pump and related
disposable product technologies for use in the delivery of compounds to treat
other medical conditions. Expenses related to the implantable insulin pump
product line decreased in 1997 due to the continued irregular sales activity of
the product line.
 
     Included in the Company's 1997 operating expenses is $1.0 million in costs
related directly to the acquisition of HMS. These expenses include due
diligence, professional and consulting expenses related directly to the
transaction. Approximately $242,000 of these costs had been paid prior to
year-end, with the remaining amounts included in the Company's accounts payable
and accrued expense balances.
 
     Other. Other income for 1997 and 1996 consists primarily of interest income
generated from the Company's cash, cash equivalents, and short-term investment
balances. Interest expense in 1996 and 1997 relates only to debt incurred by HMS
to fund operations and to finance its operating facility. The Company retired
$2.8 million of this debt in 1998.
 
     The Company's effective tax rate for 1997 and 1996 has been computed giving
consideration to the pretax results applicable to the Company's foreign and
domestic tax jurisdictions and a continual decrease in the Company's valuation
allowance against net deferred tax assets due to improved operating results. The
Company has not incurred any material foreign income tax expense to date.
Inflation has not significantly impacted the Company's results of operations for
the past three years.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     For 1998 the Company used cash in operations of $2,921,000 compared to cash
generated from operations of $2,311,000 in 1997 and cash used in operations of
$1,384,000 in 1996. The reduction in operating cash flow in 1998 compared to
1997 was caused by several factors. The Company used cash to retire
approximately $6,333,000 in current liabilities related to the HMS and DSS
acquisitions. These liabilities included $1,772,000 in trade payables of the
pharmacy operations, $1,893,000 in trade payables and accrued liabilities
related to DSS operations, $1,910,000 in other accrued liabilities and all of
the accrued but unpaid amounts related to the $1.0 million in merger related
expenses recorded in fiscal 1997. If the Company had not retired these
liabilities, cash flow from operating activities would have been $3,412,000
rather than the $2,921,000 reported as cash used in operations. The Company
experienced a significant increase in accounts receivable caused primarily by
the Company's continuing shift to selling direct to patients through its
in-house sales organization rather than through independent distributors. This
sales shift has led to a significant increase in accounts receivable balances
due from third party payors, which are generally realized over a longer payment
cycle. The Company also experienced an increase in inventory balances during
1998 in support of higher levels of business activity.
 
     Capital expenditures were $4,171,000, $6,072,000 and $18,570,000 for 1996,
1997 and 1998, respectively. The Company's 1996 and 1997 capital expenditures
included continued building improvements, manufacturing expansion, the
acquisition of additional research and development engineering equipment and
information systems upgrades. The Company's 1998 capital expenditures related
primarily to building manufacturing capacity for the continuous glucose
monitoring systems, as well as other building improvements, manufacturing
expansion, research and development engineering equipment and information
systems upgrades to support growth. The Company
 
                                       30
<PAGE>   32
 
anticipates that future capital expenditures will continue to increase in
support of the Company's new product activities and to build the infrastructure
necessary to accommodate the Company's anticipated growth. The Company retired
$2.8 million in bank debt related to HMS operations and used $2.7 million of
cash during the first quarter of 1998 to complete its acquisition of Dartec, a
Scandinavian distributor. The Company has announced plans to construct a $65.0
million corporate headquarters, research and development and manufacturing
facility on the campus of California State University, Northridge. The Company
is currently negotiating final details with respect to a financing transaction
pursuant to which the Company expects to obtain synthetic lease financing for
this facility and, in a related transaction, obtain a revolving line of credit
to borrow up to $15 million. In connection with these financing transactions,
the Company expects to pledge substantially all of its assets as collateral
security and be subject to various affirmative and negative covenants regarding
the conduct of its business. These arrangements could adversely affect the
Company's ability to obtain additional capital or acquire additional capital
resources. The synthetic lease will have a term of five years with two one-year
renewal options. The underlying ground lease has a term of 40 years with renewal
options for up to an additional 40 years. Under these arrangements, the Company
will be committed to annual payments ranging from $4.5 million to $5.0 million
commencing sometime during the second half of 2000. Additionally, the Company is
committed to payments of $550,000 during 1999 and to annual payments in future
periods of approximately $450,000, plus periodic cost of living adjustments, per
the terms of the ground lease for the Northridge property. These lease payments
will be recorded as rent expense in future periods.
 
     On October 31, 1998, the Company acquired DSS, a distributor of the
Company's products and other diabetes supplies located in South Florida. The
Company acquired substantially all of the net assets of DSS with payment of $4.9
million consisting of $3.1 million in cash and $1.8 million in notes payable,
$800,000 due in 1999 and $1,000,000 in 2000. In connection with this
acquisition, the Company also assumed certain liabilities and retired
approximately $2.0 million in short-term and long-term debt of DSS during the
1998 fourth quarter.
 
     On November 5, 1998, the Company and Medtronic Inc. ("Medtronic") entered
into an agreement enabling Medtronic to purchase $30.0 million of MiniMed common
stock at $30.00 per share, the approximate market value of the stock at that
time. Medtronic purchased 1,000,000 shares of unregistered common shares during
the 1998 fourth quarter. Other financing activities during 1998 included an
unsecured line of credit which enabled the Company to borrow up to $10.0
million. This line of credit has expired, and the Company intends to replace
this with a new credit facility, described above.
 
     In the process of integrating certain HMS operations, the Company
discovered certain business practices relating to charges billed to the State of
Florida which were implemented by prior ownership and that may potentially
result in liability. These billing activities were related to business
activities of an affiliated pharmacy. The Company has received no notice of any
action which is pending or threatened against it in connection with the billing
activities. The Company has corrected the practices, notified the State of
Florida of its findings and has initiated legal action against the prior owners
to seek indemnification for any related liability that may be incurred by the
Company. The amount of liability to the Company, if any, cannot be determined at
this time, although the Company believes that indemnification for such liability
would be available from the prior owners. The Company also is involved in
certain other litigation, the financial impact of which is uncertain (see notes
to consolidated financial statements.)
 
     Under terms of its research and development contract with AMI, the Company
received $6.0 million during 1998. The Company is scheduled to receive another
$6.0 million during 1999, subject to achievement of defined milestones. The
Company has the right to purchase the technologies developed at prices ranging
from an aggregate of $13.5 million to $19.0 million during certain periods
through April 30, 2002, or may alternatively elect to pay royalties on sales of
products utilizing the technology developed pursuant to the contract. The
Company has also entered into an agreement by which, among other transactions,
the Company has acquired an option to purchase the exclusive worldwide marketing
rights to a long-term glucose sensor being developed by MRG for $30.0 million
following MRG's successful human clinical investigations, and is required to
purchase minimum quantities of certain products from MRG (see notes to
consolidated financial statements). The Company does not anticipate exercising
this option prior to 2000. In the event that the Company pursues either of these
opportunities, additional capital resources may be required.
                                       31
<PAGE>   33
 
     Management believes that the Company's current level of cash and cash
equivalents will be sufficient to meet its needs for working capital and capital
expenditures for the next twelve to twenty-four months. However, the
requirements for additional capital and working capital are subject to change
and will depend upon numerous factors, including the level of capital
expenditures (especially relating to the new corporate headquarters), research
and development activities and results, competitive and technological
developments, health care reimbursement trends, and the availability for
acquisition by the Company of complementary additional distribution channels,
products, and technologies. During future periods, the Company may require
significant amounts of cash to pursue opportunities and promote continued growth
and expansion.
 
QUARTERLY RESULTS
 
     The following table sets forth certain selected consolidated financial
information of the Company for its eight most recent quarters. In the opinion of
management, this unaudited financial information has been prepared on the same
basis as the audited financial information, and includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present this
information fairly when read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto contained elsewhere in this report.
 
<TABLE>
<CAPTION>
                                                                        1997
                                                      ----------------------------------------
                                                        Q1         Q2         Q3         Q4
                                                      -------    -------    -------    -------
                                                                   (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>
Net sales...........................................  $19,161    $22,922    $25,038    $32,371
Cost of sales.......................................    7,656      9,425      9,547     12,076
                                                      -------    -------    -------    -------
Gross profits.......................................  $11,505    $13,497    $15,491    $20,295
                                                      =======    =======    =======    =======
Net income..........................................  $ 1,031    $ 1,527    $ 1,879    $ 2,252
                                                      =======    =======    =======    =======
Basic earnings per share............................  $  0.04    $  0.06    $  0.07    $  0.09
                                                      =======    =======    =======    =======
Diluted earnings per share..........................  $  0.04    $  0.06    $  0.07    $  0.08
                                                      =======    =======    =======    =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        1998
                                                      ----------------------------------------
                                                        Q1         Q2         Q3         Q4
                                                      -------    -------    -------    -------
                                                                   (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>
Net sales...........................................  $26,366    $31,715    $34,897    $45,599
Cost of sales.......................................    9,784     13,656     13,071     15,007
                                                      -------    -------    -------    -------
Gross profits.......................................  $16,582    $18,059    $21,826    $30,592
                                                      =======    =======    =======    =======
Net income..........................................  $ 2,304    $ 2,747    $ 3,217    $ 4,775
                                                      =======    =======    =======    =======
Basic earnings per share............................  $  0.09    $  0.10    $  0.12    $  0.18
                                                      =======    =======    =======    =======
Diluted earnings per share..........................  $  0.09    $  0.10    $  0.11    $  0.16
                                                      =======    =======    =======    =======
</TABLE>
 
     The Company's results of operations have historically fluctuated on a
quarterly basis. These seasonal trends have resulted in sales and earnings for
each of the first three quarters being significantly lower than sales in the
fourth quarter. Fluctuations of earnings from quarter to quarter have and will
continue to result from numerous factors, including (1) response to practices of
insurance companies and other third-party payors with respect to reimbursement
for the Company's products, which tend to result in increased sales of the
Company's external infusion pumps later in the calendar year, after patients'
deductibles are satisfied, (2) market acceptance of the Company's products, (3)
timing of regulatory approvals, (4) new product introductions, (5) competition,
(6) the Company's ability to manufacture its products efficiently, (7) timing of
research and development expenditures and (8) the structure of the Company's
sales compensation program.
 
YEAR 2000 COMPLIANCE
 
     The Year 2000 problem ("Y2K") refers to the potential of all electronic
devices containing microprocessors to improperly calculate dates in and beyond
the year 2000. In the second quarter of 1998, the Company formed a Year 2000
Oversight Committee (the "Committee") to evaluate the Company's position
regarding
 
                                       32
<PAGE>   34
 
Y2K. The Committee consists of members representing all of the major operating
and administrative departments within the Company including information
technology, facilities, manufacturing, research and development, regulatory,
quality assurance, materials, finance and accounting and legal.
 
     The Committee established an Action Plan Program (the "Plan") to facilitate
the Company's Y2K compliance and minimize the potential effects of Y2K on the
Company's operations. The components of the plan include the following steps:
(1) assess Y2K compliance of the Company's products; (2) inventory Company
equipment and software (including non-information systems equipment and
software) and prioritize according to critical business functions; (3) implement
Y2K compliance testing and remediation according to priorities developed; (4)
assess vendor and health care payor compliance; (5) develop and implement
policies to maintain Y2K compliance going forward; and (6) establish contingency
plans. A timetable for the completion of each of these action steps contained in
the Plan has been developed by the Committee. The Committee meets regularly to
assess the Company's efforts to comply with the Plan and to address any
outstanding Y2K issues. The Committee is also responsible for coordinating all
communications and responding to all inquiries relating to Y2K.
 
     The Company has completed its evaluation of all of its current product
offerings. The evaluation has shown that Y2K will not pose operating problems
for the products. In the first quarter of 1999 the Company completed the process
of creating a master inventory of all equipment and software vulnerable to Y2K
and is identifying the equipment and software attendant to critical business
processes. Once this process is complete, the Company will be in a position to
implement remediation programs to address potential problems that are
identified. The Company currently believes that it will be able to modify,
replace, or mitigate its affected systems in time to avoid any material impact
on its operations.
 
     The Company has initiated formal communication with its vendors to assess
their compliance with Y2K. Questionnaires have been developed and are being
distributed to vendors with on-site evaluations to be conducted at the most
critical vendors. The Company suspects that its greatest Y2K risk will be vendor
compliance. The Company relies on its vendors to supply it with critical
components necessary for the manufacture of its products. A program to assess
the Y2K compliance of insurance companies, management service organizations, and
other third party payors is also being implemented. Once both the internal and
external reviews described above are completed, the Company will be able to
design a contingency plan to address its areas of greatest exposure.
 
     The Company's most reasonably likely worst case scenario in the event of a
failure to correct a material Y2K problem could be an interruption in, or
failure of, certain normal business activities. Such failures or interruptions
could materially impact the Company's results of operations, liquidity and
financial position. Due to the general uncertainty inherent in the Y2K problem,
resulting primarily from the uncertainty of the Y2K readiness of the Company's
vendors, suppliers and third party payors, the Company is unable to determine at
this time whether the consequences of Y2K failures will have a material adverse
impact on the Company. The Plan, implemented by the Committee, is expected to
significantly reduce both the Company's level of uncertainty about the Y2K
problem and the possibility of significant interruptions to normal operations.
 
     Management currently believes that the cost of Y2K assessment and
remediation will not be material. The Company estimates that the implementation
of the Plan and remediation activities related to the Company's internal systems
and equipment will cost approximately $1,000,000. Management currently believes
that the Company has adequate working capital to fund these activities.
 
     Readers are cautioned that forward looking statements contained in this
Year 2000 Compliance section should be read in conjunction with the Company's
cautionary language relating to forward-looking statements preceding Item 1
"Business."
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
 
     Not Applicable.
 
                                       33
<PAGE>   35
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEX TO FINANCIAL STATEMENTS
 
     The following independent auditors' report and the consolidated financial
statements of MiniMed Inc. and its subsidiaries are included in Item 8:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   35
Consolidated Balance Sheets -- January 2, 1998 and January
  1, 1999...................................................   36
Consolidated Statements of Income -- Years Ended December
  27, 1996, January 2, 1998 and January 1, 1999.............   37
Consolidated Statements of and Stockholders' Equity and
  Comprehensive Income -- Years ended December 27, 1996,
  January 2, 1998 and January 1, 1999.......................   38
Consolidated Statements of Cash Flows -- Years ended
  December 27, 1996, January 2, 1998 and January 1, 1999....   39
Notes to Consolidated Financial Statements..................   41
Schedule II -- Valuation and Qualifying Accounts............   57
</TABLE>
 
                                       34
<PAGE>   36
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Stockholders and Board of Directors of MiniMed Inc.:
 
     We have audited the accompanying consolidated balance sheets of MiniMed
Inc. and its subsidiaries (the "Company") as of January 2, 1998 and January 1,
1999 and the related consolidated statements of income, stockholders' equity and
comprehensive income, and of consolidated cash flows for each of the three years
in the period ended January 1, 1999. Our audits also included the consolidated
financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 2,
1998 and January 1, 1999, and the results of its operations and its cash flows
for each of the three years in the period ended January 1, 1999 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
 
/s/  DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
 
Los Angeles, California
March 5, 1999 (except for Note 15 as to which the date is April 1, 1999)
 
                                       35
<PAGE>   37
 
                                  MINIMED INC.
 
                          CONSOLIDATED BALANCE SHEETS
                      JANUARY 2, 1998 AND JANUARY 1, 1999
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  1997            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
CURRENT ASSETS:
Cash and cash equivalents...................................  $ 22,282,000    $ 27,303,000
Short-term investments invinvestments.......................    18,713,000      13,476,000
Accounts receivable, net of allowance for doubtful accounts
  of $6,250,000 and $8,844,000 at January 2, 1998 and
  January 1, 1999, respectively.............................    24,661,000      38,788,000
Inventories:
  Raw materials.............................................     5,152,000       7,064,000
  Work-in-process...........................................     1,819,000       3,040,000
  Finished goods............................................     3,701,000       6,756,000
                                                              ------------    ------------
          Total inventories.................................    10,672,000      16,860,000
Deferred income taxes.......................................     5,803,000       6,404,000
Prepaid expenses and other current assets...................     1,279,000       3,835,000
                                                              ------------    ------------
          Total current assets..............................    83,410,000     106,666,000
NOTE RECEIVABLE FROM AFFILIATE..............................            --       3,600,000
LONG-TERM INVESTMENTS.......................................     4,118,000       4,826,000
OTHER ASSETS................................................     1,348,000      11,522,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT -- Net..............    16,943,000      31,038,000
                                                              ------------    ------------
          TOTAL ASSETS......................................  $105,819,000    $157,652,000
                                                              ============    ============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and line of credit.........     2,453,000       1,101,000
Accounts payable............................................     4,371,000       5,447,000
Accrued salaries and related benefits.......................     3,719,000       5,231,000
Accrued sales commissions...................................     1,943,000       2,260,000
Accrued warranties..........................................     2,458,000       2,828,000
Income taxes payable........................................       276,000       1,155,000
Other accrued expenses......................................     4,781,000       3,873,000
                                                              ------------    ------------
          Total current liabilities.........................    20,001,000      21,895,000
                                                              ------------    ------------
Deferred Tax Liabilities....................................     2,007,000         865,000
Notes payable...............................................       728,000       1,059,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.005; 40,000,000 shares authorized;
  26,520,480 and 28,095,274 shares issued and outstanding as
  of January 2, 1998 and January 1, 1999, respectively......       135,000         143,000
  Additional capital........................................    73,806,000     111,826,000
  Accumulated other comprehensive income....................     1,059,000         738,000
  Retained Earnings.........................................     8,083,000      21,126,000
                                                              ------------    ------------
          Total stockholders' equity........................    83,083,000     133,833,000
                                                              ------------    ------------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........  $105,819,000    $157,652,000
                                                              ============    ============
</TABLE>
 
                 See notes to consolidated financial statements
                                       36
<PAGE>   38
 
                                  MINIMED INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
<TABLE>
<CAPTION>
                                                                    FISCAL YEAR,
                                                     ------------------------------------------
                                                        1996           1997            1998
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
NET SALES..........................................  $76,396,000    $99,492,000    $138,577,000
COST OF SALES......................................   32,314,000     38,704,000      51,518,000
                                                     -----------    -----------    ------------
GROSS PROFIT.......................................   44,082,000     60,788,000      87,059,000
                                                     -----------    -----------    ------------
OPERATING EXPENSES:
  Selling, general and administrative..............   32,101,000     41,237,000      57,059,000
  Research and development.........................    7,900,000      9,447,000      16,531,000
  Research and development contract................           --             --      (6,000,000)
  Merger related expenses..........................           --      1,000,000              --
                                                     -----------    -----------    ------------
          Total operating expenses.................   40,001,000     51,684,000      67,590,000
                                                     -----------    -----------    ------------
OPERATING INCOME...................................    4,081,000      9,104,000      19,469,000
INTEREST EXPENSE...................................     (163,000)      (237,000)        (47,000)
OTHER INCOME, Including interest income............    1,062,000      1,851,000       1,503,000
                                                     -----------    -----------    ------------
INCOME BEFORE INCOME TAXES.........................    4,980,000     10,718,000      20,925,000
PROVISION FOR INCOME TAXES.........................    1,662,000      4,029,000       7,882,000
                                                     -----------    -----------    ------------
NET INCOME.........................................  $ 3,318,000    $ 6,689,000    $ 13,043,000
                                                     ===========    ===========    ============
Basic earnings per share...........................  $      0.14    $      0.26    $       0.49
                                                     ===========    ===========    ============
Basic weighted average shares outstanding..........   23,882,000     25,810,000      26,880,000
                                                     ===========    ===========    ============
Diluted earnings per share.........................  $      0.13    $      0.25    $       0.46
                                                     ===========    ===========    ============
Diluted weighted average shares outstanding........   25,134,000     27,112,000      28,332,000
                                                     ===========    ===========    ============
</TABLE>
 
                See notes to consolidated financial statements.
                                       37
<PAGE>   39
 
                                  MINIMED INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
<TABLE>
<CAPTION>
                                   COMMON STOCK                                        ACCUMULATED      RETAINED
                               ---------------------    ADDITIONAL                        OTHER         EARNINGS
                               NUMBER OF                 PAID-IN      COMPREHENSIVE   COMPREHENSIVE   (ACCUMULATED
                                 SHARES      AMOUNT      CAPITAL         INCOME          INCOME         DEFICIT)        TOTAL
                               ----------   --------   ------------   -------------   -------------   ------------   ------------
<S>                            <C>          <C>        <C>            <C>             <C>             <C>            <C>
BALANCE, DECEMBER 30, 1995...  23,561,634   $120,000   $ 43,924,000                                   $(1,924,000)   $ 42,120,000
Exercise of stock options....     406,040      2,000        986,000                                                       988,000
Tax benefit associated with
  stock option exercises.....                               994,000                                                       994,000
Issuance of stock under
  employee stock plan........      29,644                   272,000                                                       272,000
Issuance of stock for
  technology license.........      20,000                   285,000                                                       285,000
Stock awards to directors....       4,800      1,000        153,000                                                       154,000
Net income...................                                            3,318,000                      3,318,000       3,318,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, DECEMBER 27, 1996...  24,022,118    123,000     46,614,000                                     1,394,000      48,131,000
Issuance of common stock in
  public offering (net of
  expenses)..................   1,850,000      9,000     22,155,000                                                    22,164,000
Issuance of common stock for
  exercise of warrants.......     400,000      2,000      2,598,000                                                     2,600,000
Exercise of stock options....     192,034      1,000        516,000                                                       517,000
Tax benefit associated with
  stock option exercises.....                             1,276,000                                                     1,276,000
Issuance of stock under
  employee stock plan........      49,812                   547,000                                                       547,000
Stock awards to directors....       6,516                   100,000                                                       100,000
Comprehensive income
  Net income.................                                          $ 6,689,000                      6,689,000       6,689,000
  Other comprehensive income:
    Unrealized holding gain
      on security, net of
      $747,000 in deferred
      income taxes...........                                            1,371,000                                      1,371,000
    Foreign currency
      translation
      adjustments............                                             (312,000)                                      (312,000)
                                                                       -----------
  Other comprehensive
    income...................                                            1,059,000     $1,059,000
                                                                       -----------
Comprehensive income.........                                          $ 7,748,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, JANUARY 2, 1998.....  26,520,480    135,000     73,806,000                     1,059,000       8,083,000      83,083,000
Issuance of common stock in
  private offering (net of
  expenses)..................   1,000,000      5,000     29,985,000                                                    29,990,000
Exercise of stock options....     514,014      3,000      1,823,000                                                     1,826,000
Tax benefit associated with
  stock option exercises.....                             4,972,000                                                     4,972,000
Issuance of stock under
  employee stock plan........      57,716                 1,164,000                                                     1,164,000
Stock awards to directors....       3,064                    76,000                                                        76,000
Comprehensive income
  Net income.................                                          $13,043,000                     13,043,000      13,043,000
  Other comprehensive income:
    Unrealized holding loss
      on security, net of
      $106,000 in deferred
      income taxes...........                                             (326,000)                                      (326,000)
    Foreign currency
      translation
      adjustments............                                                5,000                                          5,000
                                                                       -----------
  Other comprehensive
    income...................                                             (321,000)      (321,000)
                                                                       -----------
Comprehensive income.........                                          $12,722,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, JANUARY 1, 1999.....  28,095,274   $143,000   $111,826,000                    $  738,000     $21,126,000    $133,833,000
                               ==========   ========   ============                    ==========     ===========    ============
</TABLE>
 
                See notes to consolidated financial statements.
                                       38
<PAGE>   40
 
                                  MINIMED INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
<TABLE>
<CAPTION>
                                                                 1996           1997           1998
                                                              -----------   ------------   ------------
<S>                                                           <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $ 3,318,000   $  6,689,000   $ 13,043,000
Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
  Depreciation..............................................    2,025,000      2,971,000      4,134,000
  Directors' fees paid in common stock......................       53,000        100,000         76,000
  Deferred income taxes.....................................   (1,316,000)    (2,354,000)    (1,629,000)
  Tax benefit from exercise of non-qualified stock
    options.................................................      994,000      1,276,000      4,972,000
  Changes in operating assets and liabilities:
    Accounts receivable, net................................   (6,329,000)    (6,966,000)   (14,439,000)
    Inventories.............................................   (1,868,000)    (2,989,000)    (8,908,000)
    Prepaid expenses and other current assets...............      408,000         73,000     (2,464,000)
    Other assets............................................     (367,000)      (771,000)       940,000
    Accrued sales commissions...............................      954,000        375,000        317,000
    Accrued salaries and related benefits...................      755,000      1,484,000      1,512,000
    Accounts payable........................................      370,000        833,000       (459,000)
    Accrued warranties......................................     (370,000)      (415,000)       370,000
    Income taxes payable....................................     (192,000)      (377,000)       880,000
    Other accrued expenses..................................      181,000      2,382,000     (1,266,000)
                                                              -----------   ------------   ------------
    Net cash provided by (used in) operating activities.....   (1,384,000)     2,311,000     (2,921,000)
                                                              -----------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES --
  Short-term investments....................................     (793,000)    (9,196,000)     5,237,000
  Acquisition of marketable securities......................           --     (2,000,000)            --
  Acquisition of Dartec A.B.................................           --             --     (2,670,000)
  Acquisition of Diabetes Support Systems, Inc..............           --             --     (3,052,000)
  Long-term investments.....................................           --             --     (1,140,000)
  Purchase of land, buildings, property and equipment.......   (4,171,000)    (6,072,000)   (18,570,000)
                                                              -----------   ------------   ------------
  Net cash used in investing activities.....................   (4,964,000)   (17,268,000)   (20,195,000)
                                                              -----------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES --
  Issuance of notes payable.................................      727,000      1,068,000             --
  Repayment of notes payable................................     (600,000)            --     (2,820,000)
  Repayment of notes payable in connection with DSS
    acquisition.............................................           --             --     (2,028,000)
  Capital contributions.....................................      101,000             --             --
  Proceeds from public offering, net of expenses............           --     22,164,000             --
  Proceeds from private offering, net of expenses...........           --             --     29,990,000
  Proceeds from exercises of warrants.......................           --      2,600,000             --
  Proceeds from stock option exercises......................      988,000        517,000      1,826,000
  Proceeds from issuance of common stock under employee
    stock plan..............................................      272,000        547,000      1,164,000
                                                              -----------   ------------   ------------
  Net cash provided by financing activities.................    1,488,000     26,896,000     28,132,000
                                                              -----------   ------------   ------------
Effect of cumulative foreign currency translation adjustment
  on cash and equivalents...................................           --        (62,000)         5,000
                                                              -----------   ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........   (4,860,000)    11,877,000      5,021,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
  PERIOD....................................................   15,265,000     10,405,000     22,282,000
                                                              -----------   ------------   ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................  $10,405,000   $ 22,282,000   $ 27,303,000
                                                              ===========   ============   ============
SUPPLEMENTAL CASH FLOW INFORMATION --
  Cash paid during the period for:
    Interest................................................  $   163,000   $    237,000   $     62,000
    Income taxes............................................  $ 2,120,000   $  6,110,000   $  3,854,000
</TABLE>
 
                                       39
<PAGE>   41
 
                                  MINIMED INC.
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
     SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITY -- During 1996 the Company issued 20,000 shares of common stock to a
supplier in exchange for a technology license. The Company also issued 4,800,
6,516 and 3,064 shares of common stock to certain Directors in lieu of fees
during 1996, 1997 and 1998, respectively. The Company recorded an unrealized
holding gain of $1,371,000 during 1997 and an unrealized holding loss of
$326,000 during 1998, net of estimated income taxes on marketable securities
classified as long-term investments available for sale. During 1997, the Company
issued 749,768 shares of common stock to effect an acquisition of a distributor
accounted for as a pooling of interests. During 1998, the Company accepted a
$3.6 million note receivable from a related party in conjunction with the sale
of $3.0 million of net implantable pump inventory components and $600,000 of net
implantable pump fixed assets.
 
     On October 31, 1998, the Company acquired substantially all of the assets
and certain of the liabilities of DSS. In connection with this acquisition, the
Company paid cash as follows:
 
<TABLE>
<S>                                                           <C>
Assets acquired:
  Property and equipment....................................  $   188,000
  Accounts receivable.......................................    1,438,000
  Goodwill..................................................    8,500,000
  Inventories...............................................      304,000
  Other assets..............................................       93,000
Liabilities assumed:
  Accounts payable and accrued expenses.....................   (3,643,000)
  Notes payable.............................................   (2,028,000)
Long-term debt issued to seller.............................   (1,800,000)
                                                              -----------
Cash paid in acquisition....................................  $ 3,052,000
                                                              ===========
</TABLE>
 
                                       40
<PAGE>   42
 
                                  MINIMED INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
     The fiscal years referenced herein are as follows:
 
<TABLE>
<CAPTION>
               FISCAL YEAR                    YEAR ENDED
               -----------                 -----------------
<S>                                        <C>
1998.....................................    January 1, 1999
1997.....................................    January 2, 1998
1996.....................................  December 27, 1996
</TABLE>
 
 1. GENERAL INFORMATION
 
     Operations -- MiniMed Inc. ("MiniMed" or the "Company") develops,
manufactures and markets medical devices for drug delivery and monitoring
patients with diabetes and other medical conditions. The drug delivery systems
include external and implantable microinfusion drug pumps and related disposable
products which provide long-term delivery of medication for treatment of chronic
disorders. The Company is developing glucose sensor systems which will, if
successful, provide diabetic patients with continuous monitoring of glucose
levels and may ultimately be linked to the microinfusion pumps to create an
artificial pancreas. Other development efforts focus on developing non-diabetes
uses of the Company's technologies. The Company generally markets its products
through either a direct sales force or independent distributors in the United
States and a combination of direct sales representatives and independent
distributors in international markets. The main markets for products are the
United States and Western Europe. Through its acquisitions of Home Medical
Supply, Inc. and its affiliated companies ("HMS") and Dartec AB ("Dartec") in
fiscal 1997 and Diabetes Support Systems, Inc. ("DSS") in fiscal 1998, the
Company also acts as a distributor of additional diabetes supplies and operates
a pharmacy.
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Stock Split -- On March 15, 1999, the Company announced a 2-for-1 stock
split, in the form of a stock dividend, to result in the issuance of one
additional share of common stock for every share of common stock outstanding.
The stock split was effective April 1, 1999 for holders of record at the close
of business on that date and will be distributed on April 16, 1999. In
accordance with Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings per Share," the Company has recorded the effects of this stock split
on share and per share amounts at the end of 1998 and all prior periods have
been restated.
 
     Principles of Consolidation -- The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiaries, MiniMed
Distribution Corp., MiniMed S.A., MiniMed GMBH, and Dartec AB, and its indirect
subsidiaries. All intercompany accounts and transactions have been eliminated.
The financial statements of MiniMed S.A., MiniMed GMBH and Dartec AB have been
translated using the exchange rate at the end of each period for balance sheet
items and the weighted average exchange rate during each period for operating
results. Adjustments arising from the translation of assets located outside the
United States are recorded as a component of comprehensive income.
 
     Reclassifications -- Certain reclassifications have been made to various
balances in the 1996 and 1997 financial statements to conform with current year
presentation.
 
     Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with an original maturity of three months or less to be cash
equivalents.
 
     Investments -- The Company classifies all of its marketable investments as
available-for-sale, with unrealized holding gains and losses recorded directly
to comprehensive income. Cost approximates fair value for all short-term
investments. Long-term investments represent a $2,000,000 investment in the
common stock of Trimeris, Inc. The fair value of this investment was $4,118,000
and $3,686,000 at January 2, 1998 and January 1, 1999, respectively. The Company
recorded an unrealized holding gain of $1,371,000 during 1997 and an unrealized
holding loss of $326,000 during 1998 on this investment, net of $747,000 and
$106,000,
 
                                       41
<PAGE>   43
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
respectively in estimated income taxes which were recorded as a deferred income
tax liability. Included in long-term investments at January 1, 1999 was a
$1,140,000 investment in 7.0% of the common stock of Pharmaceutical Discovery
Corporation ("PDC") which is recorded using the cost method. Realized gains and
losses and declines in value judged to be other-than-temporary are included in
investment income, which is included in other income in the Company's statement
of operations. Realized gains and losses on short-term investments for 1997 and
1998 were not material. The Company's investment policy is to invest idle and
excess funds in high grade, short-term, fixed income securities. The primary
objective of investment activities is to protect capital value.
 
     Inventories -- Inventories are stated at the lower of cost or net
realizable value. Cost is determined using the first-in, first-out method.
 
     Land, Buildings, Property and Equipment and Depreciation -- Land,
buildings, property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets.
 
     Research and Development -- Research and development costs are expensed as
incurred.
 
     Research and Development Contract -- On March 31, 1998, the Company signed
a research and development contract with American Medical Instruments, Inc.
("AMI"), a member of The Marmon Group of Companies. Under terms of this
agreement, the Company can receive up to $12.0 million in funding related to two
research projects. The Company anticipates completion of these projects during
fiscal 1999 and has recorded $6.0 million related to this contract during fiscal
1998. These revenues have been recorded as a reduction of operating expenses.
Costs related to the completion of the contractual obligations are included in
research and development expense.
 
     Under terms of this contract, the Company may sell products developed under
the agreement on a world-wide basis, except for Japan, subject to the payment of
royalties to AMI. The Company may purchase the technology related to these
projects from AMI at prices ranging from $13.5 million to $19.0 million through
April 30, 2002. The Company has applied the principles of FASB Statement No. 68
"Accounting for Research and Development Contracts" to account for this
transaction.
 
     Income Taxes -- Income taxes are provided for taxes currently payable or
refundable, and deferred income taxes arising from future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The effects of income taxes are measured based on enacted tax laws and
rates. An allowance is provided for net deferred tax assets for which
realization is not likely.
 
     Revenues and Concentration of Credit Risk -- The Company recognizes revenue
from product sales when the goods are shipped to its customers. During 1996,
1997 and 1998, the Company derived approximately 92.8%, 93.4% and 92.4%,
respectively, of its revenues from domestic sales. A significant portion of
domestic revenues represent products sold by the Company directly to patients.
The Company bills these patients directly or processes billing to their health
care payors, which include indemnity insurers, HMOs, PPOs and various
governmental agencies. Levels of payments from third-party payors and patients
vary, depending upon the specific benefits provided under each patient's
coverage. On an overall basis, the Company's accounts receivable balances are
subject to credit risk similar to other entities dependent upon third-party
health care payors for reimbursement.
 
     Foreign revenues outside of France, Germany, Austria, Belgium, the
Netherlands and Sweden represent sales to independent dealers. Sales to the
European dealers may be shipped from the United States or through the Company's
European subsidiaries. Certain foreign sales are transacted directly with
patients by the Company's European
                                       42
<PAGE>   44
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

subsidiaries, with reimbursement provided by the appropriate third party. No
single customer represents more than 10% of the Company's sales for any period
presented.
 
     The Company has recorded an allowance for doubtful accounts to account for
the difference between recorded revenues and anticipated collections from
distributors, patients and third-party payors. The allowance and provision for
bad debts are adjusted periodically based upon the Company's evaluation of
historical collection experience, industry reimbursement trends and other
relevant factors. The Company determines the allowance amount based upon an
analysis of the collectibility of specific accounts and the aging of the
accounts receivable.
 
     Stock Based Compensation -- The Company has granted stock options for a
fixed number of shares to employees with an exercise price equal to the fair
market value of the shares at the date of grant. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which disclosures are presented in Note 11. The Company accounts
for stock option grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants.
 
     Pervasiveness of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the allowance for
uncollectible accounts, provisions for obsolete inventory and accrued warranty
obligations.
 
 3. BUSINESS COMBINATION
 
     On January 2, 1998, the Company acquired Dartec, a distributor of diabetes
products, including the Company's products, located in Sweden. The Company
purchased substantially all of the net assets of Dartec for $2.7 million. In
connection with this purchase, the Company recorded $2.7 million of goodwill to
other long-term assets. This goodwill will be amortized over a period of 15
years on a straight-line basis.
 
     On October 31, 1998, the Company acquired DSS, a distributor of diabetes
products, including the Company's products, located in South Florida. The
Company purchased substantially all of the net assets of DSS, and certain
liabilities, for $3.1 million in cash and notes payable totaling $1.8 million.
The notes payable bear interest at 6.0% and are due and payable $800,000 on
October 31, 1999 and $1.0 million on October 31, 2000. In connection with the
purchase of DSS, the Company recorded $8.5 million of goodwill to other long-
term assets. This goodwill will be amortized over a period of 25 years on a
straight-line basis.
 
     Dartec and DSS are included in the accompanying financial statements
subsequent to acquisition. Had the acquisitions occurred at the beginning of
fiscal 1997, pro forma combined (unaudited) operating results would have been as
follows:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED         YEAR ENDED
                                                          JANUARY 2, 1998    JANUARY 1, 1999
                                                          ---------------    ---------------
<S>                                                       <C>                <C>
Net Sales...............................................   $108,422,000       $148,579,000
Net Income..............................................   $  5,815,000       $ 12,420,000
Basic Earnings Per Share................................   $       0.23       $       0.46
Basic weighted average shares outstanding...............     25,810,000         26,880,000
Diluted Earnings Per Share..............................   $       0.21       $       0.44
Diluted weighted average shares outstanding.............     27,112,000         28,332,000
</TABLE>
 
                                       43
<PAGE>   45
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     SFAS 107, "Disclosure of Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments for which it is
practical to estimate that value. For cash and cash equivalents the carrying
amount reported in the balance sheet represents fair market value. For accounts
payable and all notes payable, the carrying amount on the balance sheet also
approximates fair value. The fair value of the $3.6 million note receivable from
an affiliate cannot be determined due to the related party nature of the note.
 
 5. NOTES PAYABLE AND LINE OF CREDIT
 
     Notes payable and line of credit consisted of the following at January 2,
1998 and January 1, 1999:
 
<TABLE>
<CAPTION>
                                           AVERAGE INTEREST RATE   JANUARY 2, 1998   JANUARY 1, 1999
                                           ---------------------   ---------------   ---------------
<S>                                        <C>                     <C>               <C>
CURRENT
Bank borrowings..........................           9.75%            $2,125,000        $  278,000
Current portion of long-term debt........          9.125%               328,000            23,000
Note payable.............................            6.0%                    --           800,000
                                                                     ----------        ----------
Total Short-Term Debt....................                            $2,453,000        $1,101,000
                                                                     ----------        ----------
LONG-TERM
Various notes -- due in 2000.............          7.563%            $  728,000        $1,059,000
</TABLE>
 
     Short-term borrowings consisted primarily of borrowings from U.S. banks.
 
 6. RELATED PARTY TRANSACTIONS
 
     Facilities Agreements -- During 1998, the Company leased certain warehouse
facilities from Advanced Bionics Corporation ("ABC"), a Company owned primarily
by the individual who is currently MiniMed's largest single stockholder,
Chairman and Chief Executive Officer. Rental expense related to this lease with
ABC was $37,000 during 1998. The Company has leased certain operating facilities
to its Chairman and Chief Executive Officer under a five-year lease commitment.
Rents charged under this agreement were $75,000, $144,000, and $144,000 for the
years ended December 27, 1996, January 2, 1998, and January 1, 1999,
respectively. Rental income related to this lease is recorded in other income.
 
     Sale of Implantable Insulin Pump Assets -- On September 1, 1998, the
Company sold assets and transferred technology related to its implantable pump
program to Medical Research Group, LLC ("MRG") and entered into a series of
related transactions. MRG was founded by Alfred E. Mann, founder, Chairman, CEO
and largest stockholder of MiniMed. Mr. Mann continues to hold a substantial
equity interest in MRG.
 
     MiniMed sold assets, consisting primarily of inventories and equipment to
MRG in exchange for a note receivable of approximately $3.6 million. No gain or
loss has been recognized on the sale of these assets. The note receivable is due
and payable in full on December 31, 2003, and accrued interest is payable on
December 31 of each year prior to maturity. The note bears interest at a rate of
7.0% annually. The note is secured by the assets sold to MRG and guaranteed by
Mr. Mann. The Company has also leased facilities and improvements to MRG at
which MRG will carry out its activities. The obligations of MRG under such lease
are guaranteed by Mr. Mann. Certain employees of the Company involved in the
manufacturing operations and research and development activities related to the
implantable pump product line have become employees of MRG. The Company retained
exclusive distribution rights to the implantable pump product line for specific
medical conditions, including diabetes. MiniMed is required to purchase
implantable pump units from MRG at negotiated prices, and is obligated to
purchase minimum quantities in 1999, 2000 and 2001 and must purchase minimum
quantities in future periods in order to preserve its exclusivity.
 
                                       44
<PAGE>   46
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
 6. RELATED PARTY TRANSACTIONS (CONTINUED)
     The Company is responsible for pursuing regulatory approval of the
implantable pump for the treatment of diabetes and has provided MRG with a
working capital line of credit of $3.0 million, which will bear interest at 7.0%
annually. Any amounts borrowed under the line of credit are due on or before
December 31, 2001 and will be secured by a pledge of MiniMed common stock owned
by Mr. Mann. To date, MRG has not borrowed any funds under this line of credit.
Future minimum purchase commitments for implantable pump units based upon
current prices are:
 
<TABLE>
<S>                                               <C>
1999............................................  $ 4,575,000
2000............................................    7,604,000
2001............................................    8,935,000
                                                  -----------
Total...........................................  $21,114,000
                                                  ===========
</TABLE>
 
     MRG has also granted MiniMed an option to acquire exclusive worldwide
distribution rights to MRG's long-term glucose sensor, currently under
development, for $30.0 million. The option is exercisable upon MRG's achievement
of certain development milestones. MRG is attempting to integrate its long-term
glucose sensor technology with the implantable pump. MRG also agreed to pursue
the development of certain improvements to the electronic design of the
implantable pump.
 
 7. LONG-TERM INVESTMENTS AND OTHER ASSETS
 
     Other assets consist of the following:
 
<TABLE>
<CAPTION>
                                                    JANUARY 2, 1998   JANUARY 1, 1999
                                                    ---------------   ---------------
<S>                                                 <C>               <C>
Technology license................................    $  197,000        $   145,000
Inventory components, non-current.................       999,000                 --
Goodwill in connection with Dartec acquisition....            --          2,670,000
Goodwill in connection with DSS acquisition.......            --          8,444,000
Other.............................................       152,000            263,000
                                                      ----------        -----------
                                                      $1,348,000        $11,522,000
                                                      ==========        ===========
</TABLE>
 
     Long-term investments consist of the following:
 
<TABLE>
<S>                                                 <C>               <C>
Investment in Trimeris common stock -- at fair
  value...........................................    $4,118,000        $ 3,686,000
Investment in PDC common stock -- at cost.........            --          1,140,000
                                                      ----------        -----------
                                                      $4,118,000        $ 4,826,000
                                                      ==========        ===========
</TABLE>
 
                                       45
<PAGE>   47
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
 8. LAND, BUILDINGS, PROPERTY AND EQUIPMENT -- NET
 
     Land, buildings, property and equipment, net consists of the following:
 
<TABLE>
<CAPTION>
                                                                                 ESTIMATED
                                                     JANUARY 2,    JANUARY 1,    USE LIVES
                                                        1998          1999        (YEARS)
                                                     -----------   -----------   ---------
<S>                                                  <C>           <C>           <C>
Land, buildings and improvements...................  $10,625,000   $13,244,000   20 to 40
Machinery and equipment............................    8,533,000    19,321,000    3 to 5
Tooling and molds..................................    2,493,000     2,352,000      3
Furniture and fixtures.............................    1,948,000     5,301,000      7
                                                     -----------   -----------
                                                      23,599,000    40,218,000
Less accumulated depreciation......................   (6,656,000)   (9,180,000)
                                                     -----------   -----------
Total..............................................  $16,943,000   $31,038,000
                                                     ===========   ===========
</TABLE>
 
 9. EARNINGS PER SHARE
 
     Earnings per share ("EPS") are calculated in the following table. The
reconciliation between the numerator and denominator for basic and diluted EPS
is as follows:
 
<TABLE>
<CAPTION>
                                              INCOME         SHARES       PER-SHARE
                                            (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                            -----------   -------------   ---------
<S>                                         <C>           <C>             <C>
DECEMBER 27, 1996
Basic EPS
Net Income Applicable to Common Stock.....  $ 3,318,000    23,882,000       $.14
                                            ===========    ==========       ====
Effect of Dilutive Securities
  Warrants................................                    112,000
  Stock Options...........................                  1,140,000
                                            -----------    ----------       ----
Diluted EPS
Net Income Applicable to Common Stock.....  $ 3,318,000    25,134,000       $.13
                                            -----------    ----------       ----
JANUARY 2, 1998:
Basic EPS
Net Income Applicable to Common Stock.....  $ 6,689,000    25,810,000       $.26
                                            ===========    ==========       ====
Effect of Dilutive Securities
  Warrants................................                     60,000
  Stock Options...........................                  1,242,000
                                            -----------    ----------       ----
Diluted EPS
Net Income Applicable to Common Stock.....  $ 6,689,000    27,112,000       $.25
                                            ===========    ==========       ====
JANUARY 1, 1999:
Basic EPS
Net Income Applicable to Common Stock.....  $13,043,000    26,880,000       $.49
                                            ===========    ==========       ====
Effect of Dilutive Securities
  Warrants................................
  Stock Options...........................                  1,452,000
                                            -----------    ----------       ----
Diluted EPS
Net Income Applicable to Common Stock.....  $13,043,000    28,332,000       $.46
                                            -----------    ----------       ----
</TABLE>
 
                                       46
<PAGE>   48
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
10. COMMITMENTS AND CONTINGENCIES
 
     On September 11, 1996, the Company filed an action against Fimed, Inc.
("Fimed") seeking rescission of a product distribution contract. Subsequent to
the filing of this action, Fimed filed a counterclaim seeking compensatory
damages of approximately $400 million plus punitive damages. The Company
believes that it has meritorious defenses to the counterclaims asserted by
Fimed. The Court appointed a retired Judge to act as an Independent Expert
pursuant to California law to evaluate, assuming liability, the amount of
damages, if any, sustained by Fimed. The hearing on this matter was held in
February 1999. Fact discovery pertaining to the litigation has been largely
completed. Trial in this matter was set to commence May 1999; however, on March
30, 1999, the Court indicated that the trial will be continued until July 1999
at the earliest. The Company has been pursuing its claims and is defending
against Fimed's claims vigorously.
 
     During 1998, the Company integrated the operations of Home Medical Supply,
Inc. and its affiliated companies ("HMS"), which the Company acquired in fiscal
1997. In connection with these activities, the Company discovered certain
business practices relating to charges billed to the State of Florida for health
care services provided through an affiliated pharmacy. These practices were
implemented by HMS' prior owners and may potentially result in liability to the
Company. The Company has received no notice of any action which is pending or
threatened against it in connection therewith. The Company has corrected such
practices, notified the State of Florida authorities of its findings, initiated
legal action against the prior owners to seek indemnification for any such
liability and is pursuing other legal remedies. The amount of liability to the
Company, if any, cannot be determined at this time, although the Company
believes that indemnification for such liability would be available from HMS'
prior owners.
 
     During the normal course of business, the Company may be subject to
litigation involving various business matters. Management believes that an
adverse outcome of any such known matters would not have a material adverse
impact on the Company.
 
11. STOCKHOLDERS' EQUITY
 
     Stock Options and Purchase Plan -- The Company has granted stock options
under its incentive stock plan ("stock option plan"), which provides that
options may have a term of up to 10 years and become exercisable and vest in
annual increments of up to six years. Options to purchase an additional
1,873,200 shares are available for grant at January 1, 1999. Stock option plan
activity is as follows:
 
<TABLE>
<CAPTION>
                                                                 WEIGHTED AVERAGE
                                                      SHARES     PRICE PER SHARE
                                                     ---------   ----------------
<S>                                                  <C>         <C>
Outstanding options at December 30, 1995...........  2,853,936        $ 3.12
Options granted....................................    607,694        $ 8.35
Options exercised..................................   (406,040)       $ 2.46
Options canceled...................................   (143,298)       $ 4.48
                                                     ---------
Outstanding options at December 27, 1996...........  2,912,292        $ 3.19
Options granted....................................    621,000        $16.61
Options exercised..................................   (192,034)       $ 2.69
Options canceled...................................   (191,598)       $ 3.51
                                                     ---------
Outstanding options at January 2, 1998.............  3,149,660        $ 6.51
Options granted....................................    872,000        $20.18
Options exercised..................................   (514,014)       $ 3.84
Options canceled...................................   (147,028)       $13.71
                                                     ---------
Outstanding options at January 1, 1999.............  3,360,618        $ 9.99
                                                     =========
</TABLE>
 
                                       47
<PAGE>   49
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
11. STOCKHOLDERS' EQUITY (CONTINUED)
     The following table summarizes information about stock options outstanding
at January 1, 1999:
 
<TABLE>
<CAPTION>
                                                                             SHARES
    RANGE OF           NUMBER            WEIGHTED           WEIGHTED       EXERCISABLE       WEIGHTED
    EXERCISE       OUTSTANDING AT    AVERAGE REMAINING      AVERAGE       AT JANUARY 1,      AVERAGE
     PRICES        JANUARY 1, 1999   CONTRACTUAL LIFE    EXERCISE PRICE       1999        EXERCISE PRICE
----------------   ---------------   -----------------   --------------   -------------   --------------
<S>                <C>               <C>                 <C>              <C>             <C>
$ 2.25 -  3.63..        705,754            2.24              $ 2.56           669,894         $ 2.52
$ 3.83 -  3.83..        787,800            4.11                3.83           469,200           3.83
$ 4.38 - 14.32..        548,864            5.23                7.68           240,432           7.39
$14.63 - 18.88..        674,000            6.64               16.49           118,200          15.22
$19.38 - 29.38..        644,200            7.11               20.85            99,600          20.38
                      ---------            ----              ------         ---------         ------
                      3,360,618            4.98              $ 9.99         1,597,326         $ 5.69
                      =========            ====              ======         =========         ======
</TABLE>
 
     During 1996, the Company's stockholders approved an employee stock purchase
plan ("stock purchase plan"). Substantially all of the Company's employees are
eligible to participate in the stock purchase plan through regular payroll
deductions. Options under the stock purchase plan are granted for an
indeterminable number of shares on semi-annual offering dates and are
automatically exercised six months from the offering date, subject to employee
withdrawal from the stock purchase plan. Options are exercised at the lesser of:
(1) 85% of the fair market value of the common stock on the offering date; or
(2) 85% of the fair market value of the common stock on the exercise date. Sale
of shares issued under the stock purchase plan is prohibited for one year from
the exercise date. Transactions related to the employee stock purchase plan are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                 WEIGHTED AVERAGE
                                                      SHARES      EXERCISE PRICE
                                                     ---------   ----------------
<S>                                                  <C>         <C>
Shares available...................................  1,000,000
Exercised..........................................     29,644        $ 9.19
                                                     ---------        ------
Shares available at December 27, 1996..............    970,356
Exercised..........................................     49,812        $10.99
                                                     ---------        ------
Shares available at January 2, 1998................    920,544
Exercised..........................................     57,716        $20.17
                                                     ---------        ------
Shares available at January 1, 1999................    862,828
                                                     ---------        ------
</TABLE>
 
     All stock options are granted at the fair market value of the Company's
common stock at the grant date. The weighted average estimated fair value of
options granted in 1996, 1997 and 1998 was $2,089,754, $6,268,628 and
$9,417,535, respectively. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plan and stock purchase plan.
Accordingly, no compensation cost for the Company's stock option plan and stock
purchase plan has been recognized in 1996, 1997 or 1998. Had compensation cost
for the Company's stock option plan and stock purchase plan been determined
based on the fair value at the grant dates for awards under those plans
consistent with SFAS 123, "Accounting for Stock Based Compensation," the
Company's net income and earnings per share for the years ended December 27,
 
                                       48
<PAGE>   50
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
11. STOCKHOLDERS' EQUITY (CONTINUED)
1996, January 2, 1998 and January 1, 1999 would have been reduced to the pro
forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                       -----------------------------------------
                                                       DECEMBER 27,    JANUARY 2,    JANUARY 1,
                                                           1996           1998          1999
                                                       ------------    ----------    -----------
<S>                                                    <C>             <C>           <C>
Net income to common stockholders:
  As reported........................................   $3,318,000     $6,689,000    $13,043,000
  Pro forma..........................................   $2,458,000     $5,142,000    $ 8,835,000
Net income per common and common equivalent share:
  As reported -- basic...............................   $     0.14     $     0.26    $      0.49
  Pro forma..........................................         0.11           0.20           0.33
  As reported -- diluted.............................         0.13           0.25           0.46
  Pro forma..........................................         0.10           0.19           0.31
</TABLE>
 
     The fair value of options granted under the stock option plan during 1996,
1997 and 1998 was determined using the Black Scholes option pricing model
utilizing the following weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                       -----------------------------------------
                                                        DECEMBER 27,    JANUARY 2,   JANUARY 1,
                                                          1996            1998         1999
                                                       ------------    ----------   ------------
<S>                                                    <C>             <C>           <C>
Dividend yield.......................................      0%              0%            0%
Volatility...........................................      66%             48%           51%
Risk-free interest rate..............................     6.09%           5.68%         5.45%
Expected lives.......................................    5 years         7 years       7 years
</TABLE>
 
     Pro forma compensation cost of options granted under the employee stock
purchase plan is measured based upon the discount from market value.
 
     Stockholders' Rights Plan -- In May 1995, the Company's Board of Directors
approved a plan to protect stockholders' rights in the event of a proposed
takeover of the Company. Under the plan, the Board of Directors declared a
dividend distribution of a Series B Preferred Stock purchase right (a "Right")
on each share of the Company's common stock (a "Common Share") outstanding on
July 24, 1995, and each Common Share issued thereafter. Upon becoming
exercisable, each Right will entitle its holder to purchase 1/1000(th) of a
share of Series B Preferred Stock at an exercise price of $65.00. The Rights are
not exercisable or transferable apart from the Common Shares unless certain
events occur, including a public announcement that a person has acquired or
announced a tender or exchange offer to acquire 15% or more of the outstanding
Common Shares. Unless the Rights are redeemed, in the event that an Acquiring
Person acquires 15% or more of the outstanding Common Shares (other than
pursuant to a tender offer deemed fair by the Company's Board of Directors),
each Right not held by the Acquiring Person will entitle the holder to purchase
for the exercise price that number of Common Shares (or other shares or assets)
having market value equal to two times the exercise price of the Right. In the
event that (i) the Company is acquired in a merger or business combination in
which the Company is not the surviving corporation or in which the Common Shares
are exchanged for stock or assets of another entity, or (ii) 50% or more of the
Company's consolidated assets or earning power is sold, each Right not held by
an Acquiring Person will entitle the holder to purchase for the exercise price
that number of shares of common stock of the acquiring company having a market
value equal to two times the exercise price. The Rights are redeemable, in whole
but not in part, at the Company's option,
 
                                       49
<PAGE>   51
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
11. STOCKHOLDERS' EQUITY (CONTINUED)
at $0.01 per Right at any time prior to becoming exercisable and in certain
other circumstances. The Rights expire in 2005 unless they have been earlier
redeemed or exchanged.
 
12. EMPLOYEE BENEFIT PLAN
 
     The Company has a defined contribution plan which is available to
substantially all full-time employees of the Company. During 1995 and future
periods, the Company is obligated to contribute a certain percentage of all
employee contributions with limits specified by the Plan. Contributions to the
Plan in the years ended December 27, 1996, January 2, 1998 and January 1, 1999
were $99,000, $307,000 and $387,000, respectively.
 
13. INCOME TAXES
 
     Pretax income from continuing operations for the three years in the period
ended January 1, 1999 was subject to income tax in the following jurisdictions:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                              ------------------------------------------
                                              DECEMBER 27,    JANUARY 2,     JANUARY 1,
                                                  1996           1998           1999
                                              ------------    -----------    -----------
<S>                                           <C>             <C>            <C>
Domestic....................................   $5,402,000     $11,474,000    $21,270,000
Foreign.....................................     (422,000)       (756,000)      (345,000)
                                               ----------     -----------    -----------
Pretax income (loss)........................   $4,980,000     $10,718,000    $20,925,000
                                               ==========     ===========    ===========
</TABLE>
 
     Significant components of the provision for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                              ------------------------------------------
                                              DECEMBER 27,    JANUARY 2,     JANUARY 1,
                                                  1996           1998           1999
                                              ------------    -----------    -----------
<S>                                           <C>             <C>            <C>
Current:
  Federal...................................  $ 1,521,000     $ 4,577,000    $ 4,142,000
  Foreign...................................       10,000          20,000         30,000
  State.....................................      453,000         510,000        367,000
                                              -----------     -----------    -----------
                                                1,984,000       5,107,000      4,539,000
Effect of nonqualified stock option
  exercises upon income taxes currently
  payable...................................      994,000       1,276,000      4,972,000
Deferred:
  Federal...................................   (1,008,000)     (1,970,000)    (1,545,000)
  Foreign...................................           --              --             --
  State.....................................     (308,000)       (384,000)       (84,000)
                                              -----------     -----------    -----------
                                               (1,316,000)     (2,354,000)    (1,629,000)
                                              -----------     -----------    -----------
                                              $ 1,662,000     $ 4,029,000    $ 7,882,000
                                              ===========     ===========    ===========
</TABLE>
 
                                       50
<PAGE>   52
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
13. INCOME TAXES (CONTINUED)
     The components of deferred tax assets (liabilities) at January 2, 1998 and
January 1, 1999 are as follows:
 
<TABLE>
<CAPTION>
                                               JANUARY 2, 1998          JANUARY 1, 1999
                                            ----------------------   ---------------------
                                             FEDERAL       STATE      FEDERAL      STATE
                                            ----------   ---------   ----------   --------
<S>                                         <C>          <C>         <C>          <C>
Deferred tax assets:
  Accrued warranties......................  $  836,000   $ 138,000   $  990,000   $159,000
  NOL carryforwards.......................     385,000      63,000      502,000     21,000
  Accrued vacation........................     230,000      38,000      350,000     57,000
  Allowance for doubtful accounts.........   2,125,000     351,000    3,095,000    498,000
  Other accrued liabilities...............     641,000     104,000           --         --
  Reserve for obsolete inventory..........     625,000     103,000      524,000     86,000
  Other...................................     113,000      51,000      409,000         --
  Current deferred state income taxes.....          --          --     (287,000)        --
                                            ----------   ---------   ----------   --------
                                             4,955,000     848,000    5,583,000    821,000
Deferred Tax Liabilities:
  Depreciation............................    (659,000)   (109,000)    (232,000)   (39,000)
  Unrealized gain on securities...........    (687,000)    (68,000)    (546,000)   (95,000)
  Deferred state income taxes.............    (214,000)                  47,000         --
                                            ----------   ---------   ----------   --------
Net deferred tax assets...................   3,395,000     671,000    4,852,000    687,000
Valuation allowance.......................    (229,000)    (41,000)          --         --
                                            ----------   ---------   ----------   --------
          Total...........................  $3,166,000   $ 630,000   $4,852,000   $687,000
                                            ==========   =========   ==========   ========
</TABLE>
 
     A reconciliation of the Company's provision for income taxes for 1996, 1997
and 1998 to the U.S. Federal Statutory rates is as follows:
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                            --------------------------------------
                                                            DECEMBER 27,   JANUARY 2,   JANUARY 1,
                                                                1996          1998         1999
                                                            ------------   ----------   ----------
<S>                                                         <C>            <C>          <C>
Provision for income taxes at U.S. statutory rates........   $2,217,000    $3,751,000   $7,324,000
State taxes, net of Federal benefit.......................       94,000       209,000      655,000
Non-deductible expenses...................................      112,000       136,000       99,000
Foreign loss not usable...................................      148,000       257,000      121,000
Reduction of valuation allowance..........................     (653,000)     (645,000)    (270,000)
Other.....................................................     (256,000)      321,000      (47,000)
                                                             ----------    ----------   ----------
                                                             $1,662,000    $4,029,000   $7,882,000
                                                             ==========    ==========   ==========
</TABLE>
 
14. OPERATING SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA
 
     In June, 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires public companies to report
certain information about operating segments in complete sets of financial
statements and in condensed financial statements of interim periods issued to
stockholders. SFAS 131 was adopted by the Company for the year ending on January
1, 1999.
 
     The Company has organized its operating segments around differences in
products offered. The Company conducts business in two operating segments;
diabetes products and pharmaceutical products. The diabetes products operating
segment generates revenues from the following three separate product lines;
external pumps and related disposable products, implantable pumps, and other
diabetes supplies. These product lines
 
                                       51
<PAGE>   53
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
14. OPERATING SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA (CONTINUED)
are aggregated into the diabetes products operating segment as the nature of the
products and production processes, the type of customers, the distribution
channels and the nature of the regulatory environment are similar. The
pharmaceutical products operating segment derives its revenues from the
distribution of prescription drugs to treat a number of medical conditions,
including diabetes, HIV/AIDS and renal failure.
 
     In the following tables, net sales by operating segment and geographic area
include both sales to customers, as reported in the Consolidated Statements of
Income at sales prices which approximate market.
 
<TABLE>
<CAPTION>
                OPERATING SEGMENTS                     1996            1997            1998
                ------------------                  -----------    ------------    ------------
<S>                                                 <C>            <C>             <C>
Net sales
  Pharmaceutical products.........................  $ 9,338,000    $ 11,810,000    $  8,882,000
  Diabetes products...............................   67,058,000      87,682,000     129,695,000
                                                    -----------    ------------    ------------
          Total...................................   76,396,000      99,492,000     138,577,000
Operating profit (loss)
  Pharmaceutical products.........................   (1,846,000)     (2,145,000)     (1,378,000)
  Diabetes products...............................    5,927,000      11,249,000      20,847,000
                                                    -----------    ------------    ------------
          Total operating profit..................    4,081,000       9,104,000      19,469,000
                                                    -----------    ------------    ------------
Interest expense..................................     (163,000)       (237,000)        (47,000)
Other income......................................    1,062,000       1,851,000       1,503,000
                                                    -----------    ------------    ------------
Income before income taxes........................  $ 4,980,000    $ 10,718,000    $ 20,925,000
                                                    ===========    ============    ============
Identifiable assets
  Pharmaceutical products.........................  $ 2,596,000    $  3,890,000    $  4,458,000
  Diabetes products...............................   61,828,000     101,929,000     153,194,000
                                                    -----------    ------------    ------------
          Total...................................  $64,424,000    $105,819,000    $157,652,000
                                                    ===========    ============    ============
</TABLE>
 
     Capital expenditures and depreciation expense related to the Company's
pharmaceutical products operations are not material compared to its diabetes
products operations for the three years presented.
 
<TABLE>
<CAPTION>
                 GEOGRAPHIC AREAS                      1996            1997            1998
                 ----------------                   -----------    ------------    ------------
<S>                                                 <C>            <C>             <C>
NET SALES
  North America...................................  $70,885,000    $ 92,946,000    $127,981,000
  Europe..........................................    5,511,000       6,546,000      10,596,000
                                                    -----------    ------------    ------------
  Consolidated....................................  $76,396,000    $ 99,492,000    $138,577,000
                                                    ===========    ============    ============
OPERATING INCOME (LOSS)
  North America...................................  $ 4,335,000    $  9,773,000    $ 20,099,000
  Europe..........................................     (254,000)       (669,000)       (630,000)
                                                    -----------    ------------    ------------
  Consolidated....................................  $ 4,081,000    $  9,104,000    $ 19,469,000
                                                    ===========    ============    ============
IDENTIFIABLE ASSETS AT END OF PERIOD
  North America...................................  $60,947,000    $100,981,000    $149,768,000
  Europe..........................................    3,477,000       4,838,000       7,884,000
                                                    -----------    ------------    ------------
  Consolidated....................................  $64,424,000    $105,819,000    $157,652,000
                                                    ===========    ============    ============
</TABLE>
 
                                       52
<PAGE>   54
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED DECEMBER 27, 1996, JANUARY 2, 1998 AND JANUARY 1, 1999
 
15. SUBSEQUENT EVENTS
 
     On March 15, 1999, the Company announced a 2-for-1 stock split, in the form
of a stock dividend, to result in the issuance of one additional share of common
stock for every share of common stock outstanding. The stock split was effective
April 1, 1999 for holders of record at the close of business on that date and
will be distributed on April 16, 1999. In accordance with SFAS 128, "Earnings
per Share," the Company has recorded the effects of this stock split on share
and per share amounts at the end of 1998 and all prior periods have been
restated.
 
     The Company is currently negotiating final details with respect to a
financing transaction pursuant to which it expects to enter into several
agreements in conjunction with its plans to construct a $65.0 million corporate
headquarters, research and development and manufacturing facility on the campus
of California State University, Northridge. The Company expects the transaction
to be structured as a synthetic lease financing for this facility and, in a
related transaction, to obtain a revolving line of credit to borrow up to $15
million. In connection with these financing transactions, the Company expects to
pledge substantially all of its assets as collateral security, and to be subject
to various affirmative and negative covenants regarding the conduct of its
business. These arrangements could adversely affect the Company's ability to
obtain additional capital or acquire additional capital resources. The synthetic
lease will have a term of five years, with two one-year renewal options. The
underlying ground lease has a term of 40 years with renewal options for up to an
additional 40 years. Under these arrangements, the Company will be committed to
annual payments ranging from $4.5 million to $5.0 million commencing sometime
during the second half of 2000. Additionally, the Company is committed to
payments of $550,000 during 1999 and to annual payments in future periods of
approximately $450,000, plus periodic cost of living adjustments, per the terms
of the ground lease for the Northridge property. These lease payments will be
recorded as rent expense in future periods.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE
 
     Not Applicable
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information with respect to Directors and Executive Officers of the Company
is incorporated by reference to the Company's definitive Proxy Statement for its
annual meeting of stockholders to be filed not later than 120 days after January
1, 1999 with the Securities and Exchange Commission (the "1999 Proxy").
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information with respect to this item is incorporated by reference to the
Company's 1999 Proxy.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information with respect to this item is incorporated by reference to the
Company's 1999 Proxy.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
     Information with respect to this item is incorporated by reference to the
Company's 1999 Proxy.
 
                                       53
<PAGE>   55
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) 1. FINANCIAL STATEMENTS
 
     See index to financial statements under Item 8, on page 34 for a list of
all financial statements filed as part of this report.
 
    2. FINANCIAL STATEMENT SCHEDULES
 
     The following financial statement schedules are filed as a part of this
Annual Report on Form 10-K:
 
          Schedule II -- Valuation and Qualifying Accounts
 
     All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
 
    3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
 
     The following exhibits are filed as part of this Annual Report on Form 10-K
or are incorporated herein by reference:
 
<TABLE>
    <S>    <C>
     2.1   Reorganization Agreement among Robert A. Kusher, Craig Lowy,
           MiniMed Inc. and MiniMed Distribution Corp. dated as of
           October 19, 1997 (included as Exhibit 2.1 to the Company's
           Current Report on Form 8-K filed October 20, 1997, which is
           incorporated herein by reference).
     2.2   Amendment to Reorganization Agreement among Robert A.
           Kusher, Craig Lowy, MiniMed Inc. and MiniMed Distribution
           Corp. dated as of January 2, 1998 (included as Exhibit 2.1
           to the Company's Current Report on Form 8-K filed January
           16, 1998, which is incorporated herein by reference).
     2.3   Asset Purchase Agreement dated as of October 8, 1998, by and
           among Diabetes Support Systems, Inc., MiniMed Distribution
           Corp. and MiniMed Inc.
     3.1   Form of Restated Certificate of Incorporation of MiniMed
           Inc. (included as Exhibit 3.1 to the Company's Registration
           Statement on Form S-1 (file no. 33-92710) which is
           incorporated herein by reference).
     3.2   Bylaws of MiniMed Inc. (included as Exhibit 3.2 to the
           Company's Registration Statement on Form S-1 (file no.
           33-92710) which is incorporated herein by reference).
     3.3   Amendment to Bylaws of MiniMed Inc. (included as Exhibit 3.3
           to the Company's 1996 Annual Report on Form 10-K which is
           incorporated herein by reference).
     3.4   Amendment to Bylaws of MiniMed Inc. (included as Exhibit
           3(ii).1 to the Company's Quarterly Report on Form 10-Q which
           is incorporated herein by reference).
     3.5   Form of Stockholder Rights Agreement (included as Exhibit
           3.4 to the Company's Registration Statement on Form S-1
           (file no. 33-92710) which is incorporated herein by
           reference).
    10.4   MiniMed Technologies Limited Amended and Restated 1992
           Option Plan (included as Exhibit 10.17 to the Company's
           Registration Statement on Form S-1 (file no. 33-92710) which
           is incorporated herein by reference).
    10.5   MiniMed Inc. 1992 Stock Incentive Plan -- Form of Option
           (included as Exhibit 4.4 to the Company's Registration
           Statement on Form S-1 (file no. 33-92710) which is
           incorporated herein by reference).
    10.6   MiniMed Inc. Option Agreement -- Assumption of MiniMed
           Technologies Limited Options (included as Exhibit 10.18 to
           the Company's Registration Statement on Form S-1 (file no.
           33-92710) which is incorporated herein by reference).
</TABLE>
 
                                       54
<PAGE>   56
<TABLE>
    <S>    <C>
    10.7   MiniMed Inc. Seconded Amended and Restated 1994 Stock
           Incentive Plan (included as Exhibit 10.16 to the Company's
           1995 Annual Report on Form 10-K which is incorporated herein
           by reference).
    10.8   MiniMed Inc. 1994 Stock Incentive Plan -- Form of Option
           (included as Exhibit 10.20 to the Company's Registration
           Statement on Form S-1 (file no. 33-92710) which is
           incorporated herein by reference).
    10.9   License Agreement dated February 13, 1980, as amended
           December 10, 1990, by and between Applied Physics Laboratory
           of the Johns Hopkins University, Pacesetter Infusion, Ltd.
           And MiniMed Technologies Limited (included as Exhibit 10.24
           to the Company's Registration Statement on Form S-1 (file
           no. 33-92710) which is incorporated herein by reference).
           (Certain redacted information in this Agreement has received
           confidential treatment).
    10.10  License Agreement dated as of October 1, 1993 by and between
           MiniMed Inc. and Wilson Greatbatch Ltd. (included as Exhibit
           10.25 to the Company's Registration Statement on Form S-1
           (file no. 33-92710) which is incorporated herein by
           reference).
    10.11  Form of Indemnity Agreement between MiniMed Inc. and each of
           its officers and directors (included as Exhibit 10.27 to the
           Company's Registration Statement on Form S-1 (file no.
           33-92710) which is incorporated herein by reference).
    10.12  MiniMed Inc. Non-Employee Director Deferred Stock Units Plan
           (included as Exhibit 10.14 to the Company's 1995 Annual
           Report on Form 10-K which is incorporated herein by
           reference).
    10.13  MiniMed Inc. Employee Stock Purchase Plan (included as
           Exhibit 10.15 to the Company's 1995 Annual Report on Form
           10-K which is incorporated herein by reference).
    10.14  WCMA Note and Loan Agreement dated as of January 21, 1997 by
           and between MiniMed Inc. and Merrill Lynch Business
           Financial Services Inc. (included as Exhibit 10.16 to the
           Company's 1996 Annual Report on Form 10-K which is
           incorporated herein by reference).
    10.15  Lease dated as of August 1, 1995, as amended by Amendment
           thereto dated as of July 1, 1996, by and between MiniMed
           Inc. and Alfred E. Mann (included as Exhibit 10.17 to the
           Company's 1996 Annual Report on Form 10-K which is
           incorporated herein by reference).
    10.16  Agreement Regarding Implantable Pump Business dated
           September 1, 1998, by and between Medical Research Group,
           LLC, a California limited liability company and MiniMed
           Inc., a Delaware corporation (included as Exhibit 10.1 to
           the Company's Quarterly Report on Form 10-Q which is
           incorporated by reference herein).
    10.17  Implantable Pump License and Distribution Agreement dated
           September 1, 1998, by and between Medical Research Group,
           LLC, a California limited liability company and MiniMed
           Inc., a Delaware corporation (included as Exhibit 10.2 to
           the Company's Quarterly Report on Form 10-Q which is
           incorporated by reference herein).
    10.18  Glucose Sensor Option Agreement dated September 1, 1998, by
           and between Medical Research Group, LLC, a California
           limited liability company and MiniMed Inc., a Delaware
           corporation (included as Exhibit 10.3 to the Company's
           Quarterly Report on Form 10-Q which is incorporated by
           reference herein).
    10.19  Guarantee of Alfred E. Mann dated September 1, 1998
           (included as Exhibit 10.4 to the Company's Quarterly Report
           on Form 10-Q which is incorporated by reference herein).
    21.1   Subsidiaries of the Company.
    23.1   Consent of Deloitte & Touche LLP.
    27.1   Financial Data Schedule.
</TABLE>
 
(b) 1. REPORTS ON FORM 8-K
 
     None.
 
                                       55
<PAGE>   57
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Action of 1934, as amended, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          MINIMED INC.
 
Date: April 1, 1999                       By: /s/ ALFRED E. MANN
 
                                            ------------------------------------
                                            Alfred E. Mann
                                            Chairman of the Board and Chief
                                            Executive Officer (Principal
                                              Executive Officer)
 
Date: April 1, 1999                       By: /s/ KEVIN R. SAYER
 
                                            ------------------------------------
                                            Kevin R. Sayer
                                            Senior Vice President, Finance and
                                            Chief Financial Officer
                                            (Principal Financial and Accounting
                                              Officer)
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                    DATE
                      ---------                                      -----                    ----
<S>                                                    <C>                                <C>
/s/ ALFRED E. MANN                                     Director, Chairman of the Board    April 1, 1999
-----------------------------------------------------  and Chief Executive Officer
Alfred E. Mann                                         (Principal Executive Officer)
 
/s/ TERRANCE H. GREGG                                  Director, President, and Chief     April 1, 1999
-----------------------------------------------------  Operating Officer
Terrance H. Gregg
 
/s/ KEVIN R. SAYER                                     Senior Vice President, Finance     April 1, 1999
-----------------------------------------------------  and Chief Financial Officer
Kevin R. Sayer                                         (Principal Financial and
                                                       Accounting Officer)
 
/s/ DAVID CHERNOF                                      Director                           April 1, 1999
-----------------------------------------------------
David Chernof, M.D.
 
/s/ CAROLYNE KAHLE DAVIS                               Director                           April 1, 1999
-----------------------------------------------------
Carolyne Kahle Davis
 
/s/ WILLIAM R. GRANT                                   Director                           April 1, 1999
-----------------------------------------------------
William R. Grant
 
/s/ DAVID H. MACCALLUM                                 Director                           April 1, 1999
-----------------------------------------------------
David H. MacCallum
 
/s/ THOMAS R. TESTMAN                                  Director                           April 1, 1999
-----------------------------------------------------
Thomas R. Testman
 
/s/ JOHN C. VILLFORTH                                  Director                           April 1, 1999
-----------------------------------------------------
John C. Villforth
</TABLE>
 
                                       56
<PAGE>   58
 
                                  MINIMED INC.
 
                VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II
 
<TABLE>
<CAPTION>
              COLUMN A                  COLUMN B     COLUMN C -- ADDITIONS      COLUMN D     COLUMN E
-------------------------------------  ----------   ------------------------   ----------   ----------
                                       BALANCE AT   CHARGED TO    CHARGED TO                BALANCE AT
                                       BEGINNING     COSTS AND      OTHER                     END OF
             DESCRIPTION               OF PERIOD    EXPENSES(1)    ACCOUNTS    DEDUCTIONS     PERIOD
             -----------               ----------   -----------   ----------   ----------   ----------
<S>                                    <C>          <C>           <C>          <C>          <C>
Allowance for doubtful accounts:
  1996...............................  3,151,000     2,744,000                   (502,000)  5,393,000
  1997...............................  5,393,000     1,218,000                   (361,000)  6,250,000
  1998...............................  6,250,000     4,505,000                 (1,911,000)  8,844,000
Accrued warranties:
  1996...............................  3,243,000                                 (370,000)  2,873,000
  1997...............................  2,873,000     1,573,000                 (1,988,000)  2,458,000
  1998...............................  2,458,000     1,537,000                 (1,167,000)  2,828,000
</TABLE>
 
---------------
(1) The allowance for doubtful accounts represents charges to bad debt expense
    for the year.
<PAGE>   59

                                  EXHIBIT INDEX

<TABLE>
<S>     <C>

2.1     Reorganization Agreement among Robert A. Kusher, Craig Lowy, MiniMed
        Inc. and MiniMed Distribution Corp. dated as of October 19, 1997
        (included as Exhibit 2.1 to the Company's Current Report on Form 8-K
        filed October 20, 1997, which is incorporated herein by reference).

2.2     Amendment to Reorganization Agreement among Robert A. Kusher, Craig
        Lowy, MiniMed Inc. and MiniMed Distribution Corp. dated as of January 2,
        1998 (included as Exhibit 2.1 to the Company's Current Report on Form
        8-K filed January 16, 1998, which is incorporated herein by reference).

2.3     Asset Purchase Agreement dated as of October 9, 1998, by and among
        Diabetes Support Systems, Inc., MiniMed Distribution Corp. and MiniMed
        Inc.

3.1     Form of Restated Certificate of Incorporation of MiniMed Inc. (included
        as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (file
        no. 33-92710) which is incorporated herein by reference).

3.2     Bylaws of MiniMed Inc. (included as Exhibit 3.2 to the Company's
        Registration Statement on Form S-1 (file no. 33-92710) which is
        incorporated herein by reference).

3.3     Amendment to Bylaws of MiniMed Inc. (included as Exhibit 3.3 to the
        Company's 1996 Annual Report on Form 10-K which is incorporated herein
        by reference).

3.4     Amendment to Bylaws of MiniMed Inc. (included as Exhibit 3 (ii).1 to the
        Company's Quarterly Report on Form 10-Q which is incorporated herein by
        reference).

3.5     Form of Stockholder Rights Agreement (included as Exhibit 3.4 to the
        Company's Registration Statement on Form S-1 (file no. 33-92710) which
        is incorporated herein by reference).

10.4    MiniMed Technologies Limited Amended and Restated 1992 Option Plan
        (included as Exhibit 10.17 to the Company's Registration Statement on
        Form S-1 (file no. 33-92710) which is incorporated herein by reference).

10.5    MiniMed Inc. 1992 Stock Incentive Plan -- Form of Option (included as
        Exhibit 4.4 to the Company's Registration Statement on Form S-1 (file
        no. 33-92710) which is incorporated herein by reference).

10.6    MiniMed Inc. Option Agreement -- Assumption of MiniMed Technologies
        Limited Options (included as Exhibit 10.18 to the Company's Registration
        Statement on Form S-1 (file no. 33-92710) which is incorporated herein
        by reference).
</TABLE>


<PAGE>   60

<TABLE>
<S>     <C>

10.7    MiniMed Inc. Seconded Amended and Restated 1994 Stock Incentive Plan
        (included as Exhibit 10.16 to the Company's 1995 Annual Report on Form
        10-K which is incorporated herein by reference).

10.8    MiniMed Inc. 1994 Stock Incentive Plan -- Form of Option (included as
        Exhibit 10.20 to the Company's Registration Statement on Form S-1 (file
        no. 33-92710) which is incorporated herein by reference).

10.9    License Agreement dated February 13, 1980, as amended December 10, 1990,
        by and between Applied Physics Laboratory of the Johns Hopkins
        University, Pacesetter Infusion, Ltd. And MiniMed Technologies Limited
        (included as Exhibit 10.24 to the Company's Registration Statement on
        Form S-1 (file no. 33-92710) which is incorporated herein by reference).
        (Certain redacted information in this Agreement has received
        confidential treatment).

10.10   License Agreement dated as of October 1, 1993 by and between MiniMed Inc.
        and Wilson Greatbatch Ltd. (included as Exhibit 10.25 to the Company's
        Registration Statement on Form S-1 (file no. 33-92710) which is
        incorporated herein by reference).

10.11   Form of Indemnity Agreement between MiniMed Inc. and each of its
        officers and directors (included as Exhibit 10.27 to the Company's
        Registration Statement on Form S-1 (file no. 33-92710) which is
        incorporated herein by reference).

10.12   MiniMed Inc. Non-Employee Director Deferred Stock Units Plan (included
        as Exhibit 10.14 to the Company's 1995 Annual Report on Form 10-K which
        is incorporated herein by reference).

10.13   MiniMed Inc. Employee Stock Purchase Plan (included as Exhibit 10.15 to
        the Company's 1995 Annual Report on Form 10-K which is incorporated
        herein by reference).

10.14   WCMA Note and Loan Agreement dated as of January 21, 1997 by and between
        MiniMed Inc. and Merrill Lynch Business Financial Services Inc.
        (included as Exhibit 10.16 to the Company's 1996 Annual Report on Form
        10-K which is incorporated herein by reference)

10.15   Lease dated as of August 1, 1995, as amended by Amendment thereto dated
        as of July 1, 1996, by and between MiniMed Inc. and Alfred E. Mann
        (included as Exhibit 10.17 to the Company's 1996 Annual Report on Form
        10-K which is incorporated herein by reference).

10.16   Agreement Regarding Implantable Pump Business dated September 1, 1998,
        by and between Medical Research Group, LLC, a California limited
        liability company and MiniMed Inc., a Delaware corporation (included as
        Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q which is
        incorporated by reference herein).
</TABLE>


<PAGE>   61


<TABLE>
<S>     <C>

10.17   Implantable Pump License and Distribution Agreement dated September 1,
        1998, by and between Medical Research Group, LLC, a California limited
        liability company and MiniMed Inc., a Delaware corporation (included as
        Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q which is
        incorporated by reference herein).

10.18   Glucose Sensor Option Agreement dated September 1, 1998, by and between
        Medical Research Group, LLC, a California limited liability company and
        MiniMed Inc., a Delaware corporation (included as Exhibit 10.3 to the
        Company's Quarterly Report on Form 10-Q which is incorporated by
        reference herein).

10.19   Guarantee of Alfred E. Mann dated September 1, 1998 (included as Exhibit
        10.4 to the Company's Quarterly Report on Form 10-Q which is
        incorporated by reference herein).

21.1    Subsidiaries of the Company.

23.1    Consent of Deloitte & Touche LLP

27.1    Financial Data Schedule

</TABLE>