10-K

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
                            ------------------------
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
 
                 FOR THE FISCAL YEAR ENDED: DECEMBER 27, 1996.
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
 
           FOR THE TRANSITION PERIOD FROM            TO             .
                        COMMISSION FILE NUMBER: 0-26268
 
                                  MINIMED INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------
 
                                           
                   DELAWARE                                     95-4408171
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
           12744 SAN FERNANDO ROAD
              SYLMAR, CALIFORNIA                                  91342
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                      (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 19, 1997 was $151,207,190. The number of shares
outstanding of the registrant's Common Stock as of March 19, 1997 was
11,641,236.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
    Portions of the following document are incorporated herein by reference:
 Part III -- The Registrant's Proxy Statement for its 1997 Annual Meeting (the
                                 "1997 Proxy").
                   Exhibit Index List is located at page 47.
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                                  MINIMED INC.
 
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 27, 1996
 


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PART I
Item 1.  Business..................................................................      3
Item 2.  Properties................................................................     22
Item 3.  Legal Proceedings.........................................................     22
Item 4.  Submission of Matters to a Vote of Security Holders.......................     23
PART II
Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.....     25
Item 6.  Selected Consolidated Financial Data......................................     26
Item 7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations................................................     27
Item 8.  Financial Statements and Supplementary Data...............................     32
Item 9.  Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure......................................     47
PART III
Item 10.  Director and Executive Officers of the Registrant........................     47
Item 11.  Executive Compensation...................................................     47
Item 12.  Security Ownership of Certain Beneficial Owners and Management...........     47
Item 13.  Certain Relationships and Related Transactions...........................     47
PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..........     47

 
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                                     PART I
ITEM 1. BUSINESS
 
INTRODUCTION
 
     MiniMed(R) Inc. ("MiniMed" or the "Company") designs, develops,
manufactures and markets advanced microinfusion systems for delivery of a
variety of drugs, with a primary focus on the intensive management of diabetes.
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 75% 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 lower glucose variability,
reducing the serious consequences of diabetes and improving patients' quality of
life. The Company has also developed an implantable insulin pump and is
developing continuous subcutaneous 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 30% from $11.8 million in 1990 to $57.1 million in 1996. The
Company believes its primary market is Type I (insulin-dependent,
juvenile-onset) diabetes patients. The American Diabetes Association (the "ADA")
has estimated that there are 800,000 Type I patients in the U.S. and the Company
believes that less than 5% of such patients use insulin pumps.
 
     The Company's programmable external insulin pumps are thin 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 microinfusions 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 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 Company's
programmable implantable pump is similar in function to its 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 recent
studies presented in France found that intensive insulin therapy with an
implantable pump (a majority of which were made by the Company) has significant
advantages over alternative intensive management therapies for Type I patients,
including providing reduced 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 II (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 (the "EU"), and the special
insulin used in the implantable pump is subject to a separate regulatory
approval process in the EU. The manufacturer of this insulin, Hoechst AG, a
German company ("Hoechst"), has applied for such approval. In the U.S., the
Company and Hoechst will file a single application to the Food and Drug
Administration (the "FDA"). Such application will contain both a New Drug
Approval ("NDA") element for the special insulin and a Premarket Approval
("PMA") element for the pump. The Company has completed preparation of the PMA
portion of the application for the implantable pump and is working with Hoechst
in the preparation of the NDA element of the application for the special
insulin.
 
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     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 sitespecific 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. The Company is in
discussions with a number of biopharmaceutical companies regarding collaboration
on developing the Company's infusion systems for use with drugs other than
insulin and is negotiating an agreement with respect to one new drug for the
treatment of HIV infection.
 
     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 1/2 days, after which the patient would replace it with
another sensor in a different location. The Company has conducted a series of
studies of its glucose sensor, involving 48 patients, and intends to initiate a
multi-center clinical trial later this year. These systems are being developed
to provide minimally invasive, continuous measurements and alarms that warn the
patient when glucose levels become too high or too low. 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 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
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.
 
MARKET OVERVIEW
 
     The Company believes that its most significant near term growth opportunity
is to expand its diabetes business and that other opportunities involving
application of its technology to the delivery of other drugs will become
increasingly important in the future.
 
     Diabetes. Diabetes is a chronic, life-threatening disease, for which there
is no known cure. In patients with diabetes, the body does not produce or
respond adequately to insulin, a hormone produced by the pancreas that is
critical to the metabolism of glucose. In the normal digestive process,
carbohydrates in food are broken down into glucose, which is circulated in the
bloodstream to the cells of the body, where it is converted into energy.
 
     The concentration of glucose in the bloodstream must be controlled within a
relatively narrow range to maintain normal health. Insulin, which is secreted by
the islet cells in the pancreas, is the primary regulatory mechanism by which
the body metabolizes glucose. A normal pancreas produces the correct amount of
insulin required to maintain a person's glucose at proper levels. In patients
with diabetes, however, insulin-producing cells are destroyed or exist in
reduced numbers and/or the body's cells do not effectively metabolize glucose,
thereby eliminating or reducing the body's ability to control glucose levels.
 
     Diabetes is typically classified into two primary types. Type I is the more
severe form of the disease and is characterized by a complete lack of insulin
secretion by the pancreas, a critical and vital mechanism for controlling
glucose levels. As a result, in order to maintain body chemistry balance and
sustain life, Type I patients require lifelong, daily insulin therapy. In Type
II diabetes (the more prevalent form of the disease), the pancreas produces some
insulin but may not produce sufficient quantities to control glucose levels
and/or cell metabolism of glucose may be impaired, resulting in each case in
high glucose concentrations. There is a spectrum of the severity in Type II
diabetes, ranging from those patients whose disease is mild and even
undiagnosed, to those who can usually manage their disease by diet and exercise,
to those who use various oral medications and to the most serious segment that
requires use of insulin.
 
     According to the ADA, diabetes afflicts approximately 16 million people
(approximately 6% of the total population) in the U.S., 800,000 of whom are
estimated by the ADA to suffer from Type I diabetes. Although
 
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patients with Type I diabetes represent the primary market for the Company's
insulin pumps, there is a small but growing use of insulin pumps for Type II
diabetes. Based on industry sources, the Company estimates that there are
3,500,000 Type II patients using insulin.
 
     People with diabetes experience distress at both high and low levels of
glucose ("hyperglycemia" and "hypoglycemia," respectively), with significant
short- and long-term negative impacts on wellness and mortality. High glucose
levels occurring acutely inhibit the immune system and result in fatigue, slow
healing and lower resistance to infection and, in severe cases, can lead to coma
and death. High glucose levels occurring chronically can result in major,
long-term complications such as retinopathy (eye disease), nephropathy (kidney
disease), neuropathy (nerve disease), male impotence and cardiovascular
complications (heart and blood vessel disease) such as heart attacks and
strokes. Low glucose levels can also lead to complications, including fainting,
weakness and, in severe cases, unconsciousness, permanent loss of cognitive
power and death. Diabetes is a leading cause of blindness in adults 25 - 74
years old (in the U.S. 12,000 - 24,000 new cases annually), renal failure (more
than 13,000 cases in 1990), and amputations (approximately 54,000 cases
annually), according to the ADA. Based upon data from the ADA, diabetes is the
sixth leading direct cause of death by disease in the U.S., accounting for
approximately 160,000 deaths in 1992, not including deaths indirectly caused by
diabetes, such as diabetes-related cardiovascular disease.
 
     The costs to the health care system associated with the treatment of
diabetes and its complications are significant. According to a study prepared by
Lewin-VHI, Inc., a market research firm, the total health care costs in the U.S.
of treating people with all types of diabetes was estimated to be more than $105
billion in 1992 ($1 out of every $7 spent on health care), almost four times the
cost of treating a like number of non-diabetics. This included over $60 billion
for the cost of hospitalization.
 
     Therapy for Diabetes. To avoid the acute effects of diabetes and to reduce
the associated complications, patients with Type I diabetes (and many Type II
patients) must use insulin daily to control glucose levels. A person's glucose
level will vary depending upon food intake, insulin availability, exercise,
stress and illness. Until 1993 there had been an ongoing controversy as to
whether glucose control alone is sufficient and how closely it must be
controlled in order to avoid the complications of the disease. The DCCT Study
settled this controversy, establishing that close glucose control is essential
and sufficient to avoid long-term complications. To achieve good control a
patient needs a continuous infusion of insulin to provide his or her background
metabolic needs, as well as periodic bolus infusions for meals. Pumps can be
programmed to meet these needs because they use only fast-acting insulin
delivered in hundreds of microinfusions throughout the day in a profile that
provides both basal levels and also bolus infusions. Conventional insulin
therapy involves one or two self-administered, daily injections of long-acting
(timed-release) insulin plus diet control and exercise. Intensive injection
therapy requires multiple daily injections (at least three or four per day) of
mixtures of long-acting (timed-release) and fast-acting (regular) insulins, as
well as diet control and exercise. Because of the limited number of injections
and the uneven absorption of timed-release insulins, the Company believes that
neither conventional nor multiple injection therapy controls glucose levels as
well as pump therapy in many patients. The Company's products have been shown in
clinical trials to provide reduced glycemic variability and significantly fewer
severe hypoglycemic events.
 
     To ascertain the actual amount of insulin needed, a patient must have
knowledge of his or her glucose level, which should be measured at least several
times per day. Currently, this is accomplished by pricking a finger with a
needle, drawing a drop of blood, placing it on a disposable strip, inserting the
strip into a small meter about the size of a beeper and waiting 12 seconds to
two minutes for a number to appear on the display. The patient must then assess
his or her carbohydrate intake and, using the measurement of glucose
concentration, determine the appropriate amount of insulin required. If
necessary, the patient then administers that amount of insulin using a syringe,
a pen injector or an infusion pump.
 
     The Company believes that the discomfort, complexity and time associated
with this entire process discourages patient compliance. In addition, the
current glucose monitoring procedure provides measurements at only a few points
in time. With each such determination the patient does not know if his or her
glucose level is rising, falling or remaining stable, which can lead to
erroneous conclusions as to the amount of insulin needed. In spite of these
limitations, the present worldwide market for these glucose meters and strips
and
 
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related disposables has been estimated to be approximately $2.5 billion. The
glucose monitoring technology being developed by the Company is intended to
compete with these glucose meters and strips, especially for insulin-using
patients, who comprise a majority of the total worldwide glucose meter and strip
market. No assurance can be given, however, that the Company's glucose
monitoring systems will prove to be sufficiently accurate and efficacious, or
that the Company will be able to commercially market these products.
 
     DCCT Study. In 1984, the NIH initiated the $165 million DCCT Study
involving 1,441 Type I diabetics who participated over the entire term of the
study, which was approximately ten years. The study protocol was designed to
determine whether close control of blood glucose levels, approaching "normal"
levels, could prevent the onset and the progression of certain severe, long-term
complications of Type I diabetes. Individuals with diabetes with mild or no
significant complications were randomly divided between the "conventionally" and
"intensively" managed groups. The conventionally managed group took one or two
injections daily of a variety of types of mixed insulins and were required to
measure their blood glucose levels once or twice per day. The
intensively-managed patients were given the choice of multiple daily injections
(three or more injections per day) or use of an insulin pump, and were required
to take at least four glucose measurements daily. The insulin pumps provided by
the NIH were MiniMed's earlier Model 504-S, although a small number of patients
who had already been using other pumps were permitted to continue using their
existing pumps. Among the intensively-managed patients, external pumps were
utilized in 34% of the patient-years overall, and at the end of the study 42% of
the intensively-managed patients were using pumps.
 
     In September 1993, The New England Journal of Medicine published the
results of this landmark study, which concluded that serious consequences of
diabetes were reduced significantly for the intensively treated patient group as
a whole. Progression of the three primary conditions that were evaluated,
retinopathy, nephropathy and neuropathy, was reduced in the intensive group
relative to the conventional group by 76%, 50% and 60%, respectively. However,
in the DCCT Study, the incidence of hypoglycemic events for the composite
intensively managed group was three times higher than for the conventionally
managed group. In spite of that finding, the NIH concluded that Type I patients
should be treated intensively because the risk of hypoglycemic events was
greatly outweighed by the reduction in long-term complications. In fact, the
results of the study were so compelling that the study was terminated a year
earlier than planned.
 
     Recent Clinical Studies. Although the protocol for the DCCT Study was not
intended to compare the benefits of pump therapy with multiple daily injections,
more recent studies have focused on such a comparison and have concluded that
pump therapy has significant advantages.
 
          -  External pump vs. multiple daily injections. In April 1996 Diabetes
     Care published the results of a prospective, cross-over study by Bruce
     Bode, M.D., et al. involving 55 patients who managed their glucose levels
     intensively, using multiple daily injections for at least 12 months before
     switching to the Company's external pump for a minimum of 12 months. The
     study found that the patients achieved reduced glycemic variability and a
     four- to six-fold reduction in severe hypoglycemic events with the pump.
     Reducing the number of hypoglycemic events is critically important because
     such events can result in fainting, weakness and, in severe cases,
     unconsciousness, permanent loss of cognitive power and death.
 
          -  Implantable pump vs. alternative intensive management therapy in
     Type I patients. The EVADIAC study group in France presented two recent
     studies which included a comparison of pump therapy using implantable pumps
     (a majority of which were manufactured by the Company) to multiple daily
     injections and external pumps. The studies, involving more than 240
     patients, found that implantable pumps had significant advantages over
     alternative intensive management therapies for Type I patients and a
     significant reduction in severe hypoglycemic events.
 
          -  Implantable pump vs. multiple daily injections in Type II
     patients. In October 1996 JAMA published the results of a prospective,
     randomized study performed for the U.S. Department of Veterans Affairs
     which compared pump therapy using the Company's implantable pump to
     multiple daily injections in a total of 105 Type II patients. The study
     found that Type II patients with implantable pumps achieved reduced
     glycemic variability and reduced risk of hypoglycemic events without weight
     gain, as compared to those patients using multiple daily injections, and
     enhanced quality of life.
 
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THE MINIMED SOLUTION
 
     Insulin Pump Technology. The Company's products for diabetes, both those
already available commercially and others under development, reduce the serious
complications of diabetes by enabling patients to more easily, accurately and
intensively manage their glucose levels. The Company's insulin pumps have
substantial advantages over conventional or intensive injection therapy, because
they:
 
          -  Result in Fewer Severe Hypoglycemic Events. The recent study
     published in Diabetes Care showed that use of the Company's external pumps
     reduced severe hypoglycemic events four- to six-fold when compared to
     multiple daily injections. Moreover, three other studies have shown that
     the Company's implantable pump also significantly reduced such hypoglycemic
     events.
 
          -  Enable Rapid Insulin Absorption and Availability. The use of
     fast-acting insulin allows insulin to be more quickly absorbed into the
     blood. Timed-release insulins take considerable time before initiating
     metabolism of glucose, which means that a patient using injection therapy
     must administer an injection well before the insulin is actually needed.
     Changing plans can cause problems. For example, a bolus injection (a single
     sizable dose) of timed-release insulin should be taken 45 minutes to an
     hour or more before a meal, and, if the carbohydrate intake or the timing
     changes, glucose control is impaired. In pump therapy, which uses only
     fast-acting insulin, only a few minutes of lead time are required between
     the infusion of a bolus and the meal. This time period is even shorter with
     the new faster-acting insulin analog which has recently become available.
 
          -  Improve Consistency of Insulin Absorption. Fast-acting insulin
     delivered by a pump in tiny microinfusions also has low variability in
     absorption. By contrast, both conventional therapy and multiple daily
     injections require the use of timed-release insulins, which vary in
     absorption within the same patient by as much as 25% or more from one day
     to the next. Fast-acting insulin has substantially less variability in
     absorption, with variability levels as low as 3% in most patients. In
     addition, injection therapy requires the patient to administer multiple
     injections of insulin in different locations in the body which may have
     different absorption characteristics. Pumps, in contrast, deliver the
     insulin through an infusion set that is connected for two to three days to
     a single site (usually in a patient's abdomen) thereby providing more
     consistent absorption.
 
          -  Provide Continuous Insulin Supply. The Company's pumps deliver a
     continuous infusion of insulin to provide for a patient's background
     metabolic needs. Injection therapy, in contrast, requires the repeated
     administration of boluses, which form a subcutaneous depot or collection of
     insulin and can result in tissue scarring at the injection site. In pump
     therapy, fast-acting insulin is delivered in hundreds of microinfusions
     throughout the day, thereby reducing the creation of such depots and
     further improving the predictability of insulin absorption.
 
          -  Enhance Control Through Programmable Delivery. Because the
     Company's pumps are programmable, they enable the delivery of insulin to be
     more closely matched to a patient's needs as they vary throughout the day.
     This capability is especially advantageous during sleep. In particular,
     many patients have been shown to suffer from a rise in early morning
     glucose levels (known as the "Dawn Phenomenon"). The Company's pumps can be
     programmed by the patient to address this condition as well as the many
     other predictable fluctuations in glucose levels.
 
          -  Improve Patient Quality of Life. In addition to advantages related
     to glucose control, the Company believes its pumps provide patients with a
     more flexible lifestyle, an important advantage that makes pumps a
     particularly attractive alternative to injection therapy. To obtain good
     glucose control, patients using multiple daily injections must plan their
     schedules in advance, particularly with respect to meals and exercise,
     because the timed-release character of long-acting insulin requires the
     prediction and timing of insulin needs. Because of the flexibility of
     infusion pumps to deliver both a continuous background profile of
     fast-acting insulin and larger episodic boluses when needed before meals,
     patients are not restricted to the fixed schedule of eating and exercise
     that is required for both conventional and intensive injection therapy.
     They are less likely to have glucose level fluctuations as the insulin
     demands
 
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     of an active life are met. In addition to these lifestyle benefits, many
     people using the pump report that they feel much better with pump therapy.
 
     Glucose Sensor Technology. The Company is developing a series of continuous
glucose monitoring systems which utilize a small, thin, pliable sensor to be
inserted into subcutaneous (under the skin) tissue, usually in the abdomen or
upper arm. The sensing element produces an electrical signal proportional to
glucose in the interstitial fluid (fluid in the subcutaneous tissue). The sensor
is connected either by cable to a small recording/display unit for some
products, or to a telemetry device which transmits the signal to a
recording/display unit for other products.
 
     The Company believes that its glucose monitoring systems will, if
successful, offer significant advantages over current methods of monitoring
glucose levels because the Company's systems would:
 
          -  Improve Ability of Patients to Normalize Glucose Levels. The
     Company's glucose monitoring systems have been shown in limited human
     trials to continuously and accurately measure glucose levels as compared to
     standard laboratory reference equipment. Such information not only presents
     quantitative measurements but will allow patients to determine whether
     glucose levels are rising, falling or remaining stable, which will enable
     the patient to better manage his or her glucose level.
 
          -  Warn Against Dangerously High or Low Blood Glucose Levels. Studies
     indicate that patients experience wide swings of glucose levels during a
     24-hour period which are not easily detected even by testing with four to
     six finger pricks per day. With the Company's continuous glucose monitoring
     systems, when a sensor measurement indicates a glucose level above or below
     an acceptable range, an alarm will activate, in the form of an audible
     signal or a vibration, as well as a flashing marker on the display,
     providing a glucose level warning and enabling the patient to take
     corrective action. The Company's sensing systems will also operate during
     periods of sleep and will sound an alarm to wake the patient if his or her
     glucose level gets too high or too low. Significant variations of glucose
     levels during sleep can be especially serious, particularly for children.
     Such extreme variations of glucose levels can lead to coma, require costly
     hospitalization, leave permanent damage and even result in death.
 
          -  Improve Patient Compliance. The Company's subcutaneous glucose
     sensor is inserted through the skin every 3 1/2 days, thereby avoiding
     multiple daily finger pricks. Because it is small, thin and pliable, the
     microsensor causes little, if any, patient discomfort. By avoiding the
     discomfort, complexity and time associated with repeatedly pricking a
     finger to draw blood and waiting for a meter reading of the sample, the
     Company's glucose monitoring system is expected to remove many of the
     obstacles which are believed to deter patient compliance, particularly in
     the case of intensive management of diabetes. A patient using the Company's
     glucose monitoring system would need only two sensor insertions (and
     possibly two calibrations) per week as compared to at least 28 finger
     pricks per week for recommended monitoring with strip meters in an
     intensive management regimen.
 
          -  Enable Health Care Professionals to Establish Improved Treatment
     Protocols. The challenge of establishing a suitable treatment program for
     patients beginning intensive management is great. In some medical
     practices, patients are hospitalized for several days so that frequent
     glucose measurements can be made to enable the generation of a suitable
     treatment protocol for a given patient. Even this procedure has limited
     efficacy because the patient's behavior in the hospital is different from
     his or her normal lifestyle. Continuous sensing and recording outside a
     hospital will permit better treatment protocols to be generated at lower
     cost and without the need for hospitalization or close surveillance.
 
     No assurance can be given that development of the Company's sensor products
will be successful or that they will be approved for commercial distribution.
 
OTHER MEDICAL CONDITIONS
 
     The Company has gained considerable expertise from its experience with
infusion of insulin, which it believes 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 problems for these drugs arise because they contain fragile, large
molecules, cannot be ingested orally, have
 
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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, including a new drug under development for the
treatment of HIV infection. Many of these drugs have large potential markets.
For example, approximately 1,000,000 people in the United States are infected
with HIV, according to an article published in JAMA in 1996.
 
     The Company is developing a series of pumps to address these delivery
requirements. 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 very preliminary stage, and no assurance can be given that the
anticipated collaborative efforts with biopharmaceutical companies will occur,
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.
 
PRODUCTS
 
  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 technically advanced external pump
product, the Model 507, was introduced in June 1996 and has been well received
by the market. It 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 507 represents 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 (36 in the Model 507), 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 507 is
easier to use and represents an improvement over the earlier Model 506. It
stores a record of the timing and size of the last 12 bolus doses administered
plus daily totals for the past seven days of 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 ("square wave"), which is especially useful with very fast-acting
insulin analogs and is especially important for high fat content foods. The
Model 507 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
for the vision impaired.
 
     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 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's external pumps have 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 do not have the motivation and ability
 
                                        9
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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.
 
     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 tube 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) and the Polyfin QR (which
are similar to the earlier Sof-set and Polyfin infusion sets), both 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. 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.
 
     The Company estimates that the average increase in direct cost of using
external insulin pumps (including amortizing the suggested retail price of the
pump over the Company's estimate of a five-year useful life plus the cost of the
related disposables) over multiple daily injection therapy is approximately
$1,600 per year. The amount of any offsetting savings, either short- or
long-term, has not been established, although the Company believes that the
longterm savings are substantial.
 
     Implantable Insulin Pump. The Company's implantable insulin pump, the MIP
2001, 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 cardiac pacemakers. The pump stores
approximately a three-month supply of a special insulin manufactured by Hoechst
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 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.
 
     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. By December 1996, over 1,230 patient years had been
completed under the efficacy portion of the FDA protocol, involving multiple
centers in the U.S. and France. 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, 1996 to
approximately 900.
 
     The Company continues its development efforts to improve the implantable
pump and to correct certain complications which arose during the clinical
trials. 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 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 has developed a new test system and predictive algorithm that enables
quantitative projection of the performance of a given insulin formulation in the
implantable pump. A second test system was installed by the Company at Hoechst.
These systems will be used as a quality control diagnostic tool in the testing
of insulin lots.
 
                                       10
   11
 
     The Company received certification under applicable International Standards
Organization ("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, and Hoechst
has applied for this approval. No assurance can be given that such approval will
be received. Full 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.
 
     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 with Hoechst under a procedure
established by the FDA for approval of a combined application for the Company's
pump and the Hoechst insulin. The Company has completed preparation of the PMA
element of the application for the implantable pump and is working with Hoechst
in the preparation of the NDA element of the application for the special
insulin. No assurance can be given that these applications will be approved by
the FDA. If approved, the labeling would limit this insulin for use only in
combination with the Company's implantable pump. If Hoechst were to cease its
efforts to obtain FDA approval or cease to manufacture the insulin, the
Company's implantable pump program would be materially and adversely affected.
 
  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 developing a variation of its Model 507
insulin pump, known as the Model 507C, which will have the capability of storing
in its electronic memory up to three months of information tracking the insulin
use of the patient. A second product being developed, the data collection
system, will permit health care professionals to download to a personal computer
this information from the 507 or 507C, 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 has operating prototypes of these
products and is in the process of testing them and enhancing their design. The
Company expects to seek clearance by the FDA through the 510(k) process for both
these products in the summer of 1997.
 
     The Company is developing a glucose management system in collaboration with
Boehringer Mannheim for use primarily in hospitals. The system is designed to
enable health care professionals to better control the glucose levels of their
patients. This device is expected to be submitted for FDA approval through the
510(k) process.
 
     Disposables and Accessories. The Company has developed a number of
enhancements to its Sof-set infusion set which it intends to submit to the FDA
for clearance under the 510(k) process, with introduction expected later this
year. These enhancements include modifications which are designed to provide
greater patient comfort. 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. The Company is also working on
a new generation of disposables known as Sof-set II.
 
     Implantable Pumps. The Company is developing an implantable Constant Flow
Pump, which is not programmable. The pump is designed to be built with a pre-set
flow rate specified by the physician, and is designed to be appropriate for a
number of drugs other than insulin. Approval of this pump by the FDA is expected
to require a PMA, and the Company expects to begin clinical trials under an IDE
in late 1997 or early 1998.
 
     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. Although the Company's development efforts are
at an 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. All of these
 
                                       11
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products 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 1/2 days, after which the patient would replace it with another
sensor in a different location. A series of products using this technology is
planned. The first two products involve the Company's glucose sensor connected
by wire to a recording/display device and others are currently planned with
telemetry, permitting wireless communication. One of the first two products will
provide programmable alarms for high and low glucose levels to warn the patient
when glucose levels become too high or too low. This early device will record
but will not display actual glucose readings. The second product will involve
the same hardware but 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 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. A
third product 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.
 
     The Company's sensors have been evaluated in humans in limited trials
involving 48 patients. The Company will seek approval for a formal multicenter
human trial of the sensors under an Investigational Device Exemption from the
FDA in order to gather clinical data to support submission to the FDA for 510(k)
clearance. The trial is expected to involve four geographically dispersed
medical centers and approximately 40 to 60 patients. 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 glucose monitoring sensors 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
glucose measuring systems.
 
  FUTURE PRODUCTS
 
     A long-term goal of the Company is to develop a system in which a version
of its 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 constant intervention
and programming by the patient or physician.
 
     In order for such a system to be feasible, the Company would need to
develop or acquire the technology for a long-term sensor, as well as develop
appropriate technology for the sensor to control the implantable pump so that
they function as a closed-loop system. To that end, the Company is considering
acquiring an option, exercisable prior to the end of 1998 (which option may be
extended under certain circumstances to the end of 1999), to the marketing
rights to long-term sensor technology under development by Medical Research
Group LLC ("MRG"), an entity in which the Company's Chairman and CEO owns a
significant interest. The Company is also considering acquiring from MRG certain
technology under development relating to extending the useful life of the
Company's implantable pump to eight to ten years.
 
     A complete closed-loop system, as described above, would require an IDE 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.
 
                                       12
   13
 
RESEARCH AND DEVELOPMENT
 
     The Company's research and development activities are performed primarily
by its research and development organization, which consisted of 66 persons as
of February 28, 1997. The Company obtains its product ideas from its staff and
Medical Advisory Board, as well as patients and health care professionals, whose
opinions on products are actively solicited through surveys, field visits,
medical symposia, focus groups and personal relationships. See "-- Medical
Advisory Board." All research and development costs are expensed as incurred,
and for 1994, 1995, and 1996, research and development expenses were $5,372,000,
$7,095,000 and, $7,900,000.
 
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. In 1995 more than
90% of the Company's revenues from the sale of its external pumps was reimbursed
by thirdparty payors (subject to applicable deductible 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 1997 to conduct 80 one-day
and 12 two-day symposia in the U.S. and eight one-day symposia in Europe.
Boehringer Mannheim and Eli Lilly & Co. have begun to co-sponsor and contribute
to the funding of these educational programs.
 
     The Company also seeks to develop patient interest in and demand for
diabetes products by providing patients with access to its existing substantial
service and support network, including: (i) the services of an 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 20 people at February 28,
1997 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
Boehringer Mannheim each send targeted advertising to patients describing the
other's products, including in the case of materials sent by Boehringer
Mannheim, descriptions of the Company's patient service and support network. The
Company has recently expanded its insurance support activities to better address
the growing managed care segment of health care payors in the U.S. The Company
has arrangements with over 50 third-party payors providing for reimbursement for
the Company's external pumps, including contracts with U.S. Healthcare, Inc. and
various Blue Cross/Blue Shield affiliates.
 
     The Company markets its diabetes products and serves customers through a
combination of a direct sales organization and distributors. In addition to
senior sales and marketing management and an extensive in-house support staff,
as of February 28, 1997, the direct sales organization in the U.S. consisted of
four regional directors, 52 field staff personnel and four field insurance
coordinators. 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 (many of whom are registered nurses)
who 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
 
                                       13
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Company also utilizes independent distributors in the U.S. to augment its direct
sales force and increase the number of physicians served. Internationally,
independent distributors are used to provide sales coverage in geographic areas
not served by the Company's direct sales force. Also, 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. In 1996 42%
of revenues were attributable to sales by the Company's direct sales force.
 
     Internationally, the Company has its own sales organizations for France,
Germany, the Netherlands, Belgium and Luxembourg, consisting of 19 people at
February 28, 1997, including administrative staff. The Company 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 increased from 7.4% of total revenues in 1992 to
14.2% in 1996. 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.
 
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. See "-- Government Regulation." In 1995 the Company was approved
under 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.
 
     In 1996 the Company instituted Demand Flow Technology manufacturing
procedures. This version of "Just in Time" manufacturing is intended to
significantly reduce total manufacturing cycle times, thereby reducing
inventories. Also, the manufacturing line can then be more responsive to
customers orders, quality is improved and manufacturing costs and paperwork are
reduced.
 
     The Company relies on single sources for certain critical components,
including hybrid circuits, integrated circuits, pumping elements, special
batteries, special insulin formulations, and various disposable products and
components as well as a sole source subcontract arrangement for sterilization
services. Arrangements for additional or replacement suppliers for certain of
these components could not be accomplished quickly. The loss of any of these
vendors as a supplier could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
COMPETITION
 
     At present the Company considers its primary competition in the diabetes
market to be injection therapy. The Company competes against injection therapy
primarily by educating doctors, nurses, patients and 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 AG, a Swiss company ("Disetronic"), which introduced a
competitive external pump product in the U.S. approximately six years ago. The
Company estimates that Disetronic currently has approximately 25% 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,
 
                                       14
   15
 
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.
 
     In the sale of its disposable products, the Company competes with Maersk
Medical A/S, a Danish company ("Maersk"), which has introduced a disposable
system that is compatible with the Company's pumps and is intended to compete
with the Company's Sof-set QR. Other companies may be considering the
manufacture and sale of disposables intended for use with the Company's pumps.
If any such products are successful, they will divert sales of the Company's
disposables, which could have an adverse effect on the Company business,
financial condition and results of operations.
 
     A number of companies, including Strato-Infusaid, Inc. (a subsidiary of
Pfizer Inc.), Medtronic, Inc., Therex Corp. (a subsidiary of Arrow
International, Inc.) and Siemens-Elema (a subsidiary of Siemens AG), have, or
have attempted to, develop and market implantable microinfusion pumps. Infusaid,
Therex and Tricumed Medizintechnik GmbH, a small German company (whose marketing
and manufacturing rights for the Anschutz Pump were recently acquired by
Medtronic Inc.), manufacture non-programmable pumps, which are adequate for
delivery of certain drugs other than insulin and which are less expensive than
programmable insulin pumps. Siemens discontinued its efforts to develop an
implantable insulin pump in 1994. More recently, Strato-Infusaid has
discontinued its insulin program, leaving MiniMed as the only company known to
it to be actively pursuing the application. Infusaid, Medtronic and Therex have
each obtained FDA approval for use of their implantable pumps with certain drugs
other than insulin. Certain of these potentially competitive companies have
substantially greater financial, technical, manufacturing, marketing and other
resources than the Company.
 
     Numerous companies, some of which have substantially greater financial,
technical, manufacturing, marketing and other resources than the Company, are
attempting to develop non-invasive glucose measurement systems. Many of these
noninvasive efforts are being directed to near-infrared spectroscopic
measurements 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 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.
There are also other approaches being pursued for glucose level determination.
Several are attempting 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 therefore have a material
adverse effect on the Company's glucose sensor program.
 
     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 currently holds numerous issued U.S.
 
                                       15
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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 holds fully paid, non-exclusive, worldwide licenses to several patents
relating to infusion pumps and a license to numerous other patents relating to
implantable pumps.
 
     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 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, QR, Sof-set QR, Polyfin,
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 GMP regulations. These
regulations impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities. Hoechst,
the manufacturer of the special insulin to be used in the Company's implantable
pump, is also subject to regulation and inspection by the FDA, as well as
European regulatory agencies.
 
     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 GMPs) 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, although in
such instances these trials are generally relatively small and of short
duration. It generally takes
 
                                       16
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from four to 12 months from submission to obtain 510(k) premarket clearance, but
may take longer, and there can be no assurance that the Company will obtain
510(k) premarket clearance within this time frame, if at all, 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.
 
     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.
 
     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 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 Company's
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 and the Company and Hoechst intend to submit a single
application to obtain FDA approval of the combination product. This is the first
time that Hoechst has sought FDA approval to market insulin in the U.S. Although
the Company and Hoechst will file a single application, it 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 by Hoechst 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.
 
                                       17
   18
 
     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.
 
     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
analysis. 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. 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 and Hoechst
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 Hoechst, 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 has 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 GMP, and subsequent GMP inspections will continue after the FDA approval. A
GMP inspection was last completed in February 1995, with only one minor
citation, which has 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.
 
                                       18
   19
 
     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 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.
 
     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 its
implantable pump throughout the EU, but full 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 and made available. See
"-- Products -- Current Products -- Implantable Insulin Pump." 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 GMP inspections in the U.S., inspections by
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.
 
     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 507 and 506 external pumps have all been cleared by the FDA
pursuant to the Section 510(k) premarket notification process and a 510(k)
notification has been submitted with respect to Model 505. 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. The Company believes short term subcutaneous
glucose monitor may be cleared through the 510(k) process after a limited
clinical trial, but there is no assurance that the FDA will not later require
the more stringent PMA application process for such devices.
 
     There can be no assurance that the necessary approvals for the use of new
generations of the Company's external pumps and disposables, the Company's
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
 
                                       19
   20
 
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.
 
THIRD-PARTY REIMBURSEMENT
 
     In the U.S., the Company's products are generally purchased directly by
patients, physician groups, hospitals, and/or dealers. In many cases the
Company, on behalf of the patients, bills third-party 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 Company
believes that the primary value of Medicare coverage for diabetes today is that
it facilitates reimbursement by many other third party payors because they
follow Medicare guidelines. Although, the Clinton Administration's plan to
address the crisis in the Medicare Trust Fund recently announced is directed
toward reducing costs further, it also contains provisions directed specifically
towards expanded coverage for certain chronic diseases, including diabetes.
There is no certainty that these proposals expanding coverage for diabetes will
be enacted or, if so, whether the Company's products would benefit.
 
     The Company maintains an insurance assistance department consisting of 20
people at February 28, 1997 to simplify and expedite claims processing and to
assist patients in obtaining third-party reimbursement. Based upon sales made by
the Company's direct sales force (which represent 42% of the total revenues), in
1995 the Company believes that more than 90% of the revenues from Company's
external pump sales represented reimbursement by third-party payors (subject to
applicable deductible 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.
 
     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.
 
                                       20
   21
 
PRODUCT LIABILITY AND WARRANTIES
 
     The Company's products 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
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 $25,000 per occurrence. There can be no assurance that this
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 February 28, 1997, the Company employed 373 full-time persons, plus
34 temporary employees, including 66 in research and development, 145 in
manufacturing, production engineering and quality assurance, 74 in
administration and 122 in sales and marketing. 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.
 
MEDICAL ADVISORY BOARD
 
     A Medical Advisory Board, consisting of five individuals with recognized
expertise in fields relating to diabetes care and treatment, has been organized
to advise the Company concerning long-term product planning, research,
development and marketing of its diabetes treatment products. Members of the
Medical Advisory Board consult and meet formally and informally with the
Company. Certain members of the Medical Advisory Board are employed by academic
institutions and may have commitments to or consulting or advisory agreements
with other entities that may limit their availability to the Company. Members of
the Medical Advisory Board may also serve as consultants to other medical
product companies. The members of the Medical Advisory Board have agreed,
however, to maintain the confidentiality of all proprietary information
disclosed to them by the Company. In addition, any ideas, inventions,
developments, improvements and works of authorship developed by the members of
the Medical Advisory Board relating to insulin pumps or glucose sensors are the
property of the Company. Currently, the following persons comprise the Company's
Medical Advisory Board:
 
     Jay S. Skyler, M.D. (Chairman), is a Professor of Medicine, Pediatrics and
Psychology at the University of Miami in Miami, Florida, past President of the
American Diabetes Association, and current Vice-President of the International
Diabetes Federation. Dr. Skyler is the Chairman for the NIH-sponsored
Multi-center Diabetes Prevention Trial. Dr. Skyler is the author of numerous
research and review articles, many of which focus on the complications of
diabetes and the risk reduction of such with intensive diabetes management.
 
     Irl B. Hirsch, M.D., is Associate Professor of Medicine at the University
of Washington School of Medicine in Seattle, Washington and the Medical Director
of the Diabetes Care Center at the University of Washington in Seattle,
Washington. Dr. Hirsch has been an Associate Editor for Clinical Diabetes (a
medical journal specializing in diabetes) since 1992 and is a reviewer for
several scientific and medical journals. From 1993, he has been a consultant to
the Diabetes Control Project in the state of Washington. He is the author of
numerous articles covering topics such as use of insulin pump therapy to treat
hypoglycemia, insulin treatment during surgery and an update on insulin therapy
for family practitioners. Dr. Hirsch recently published a book with the ADA for
individuals with diabetes entitled, How To Get Great Diabetes Care: What You and
Your Doctor Can Do to Improve Your Medical Care--And Your Life. Dr. Hirsch has
diabetes and uses the Company's Model 507 insulin pump.
 
                                       21
   22
 
     Francine Ratner Kaufman, M.D. is an Associate Professor of Pediatrics at
the University of Southern California School of Medicine. Dr. Kaufman was past
President of the Board of Directors of the Los Angeles Chapter of the ADA
(1988-1990, 1993-1994) and is President of the Board of Directors of the
California affiliate of the ADA. She is a member of the national ADA Board of
Directors, where she is on the Professional Practice Committee and a member of
the Clinical Initiatives Committee of the Endocrine Society. For the past five
years, she has been an associate editor for Clinical Diabetes.
 
     Christopher D. Saudek, M.D., is Professor of Medicine at The Johns Hopkins
University School of Medicine and a leader in the field of implantable pump
therapy. Dr. Saudek began working on implantable insulin pump therapy with a
predecessor of the Company in the early 1980's, implanted the first MiniMed pump
in 1987 and was the principal investigator in the Company's clinical trials of
its MIP 2001. Dr. Saudek received the Clinician of the Year Award from the ADA
in 1991.
 
     Robert J. Tanenberg, M.D., FACP, is Clinical Associate Professor of
Medicine at Georgetown University School of Medicine, Washington, D.C. and
senior attending physician at Washington Hospital Center in Washington, D.C. Dr.
Tanenberg is on the Medical Advisory Board for the Washington, DC Chapter of the
Juvenile Diabetes Foundation. He is an investigator in the Company's implantable
pump trials. Dr. Tannenberg was formerly the Chairman of the ADA's Council on
Health Care Delivery and Public Health.
 
ITEM 2. PROPERTIES
 
     The Company owns its current primary facilities with an aggregate of
approximately 175,000 square feet in Sylmar, California. The Company currently
occupies approximately 150,000 square feet of such facilities. The Company
intends to use up to $2 million of the proceeds of a public offering of common
stock contemplated by a recent Prospectus to upgrade the structure of its
principal buildings in order to comply with recently adopted local building code
requirements for earthquake protection. Approximately 23,400 square feet of the
remaining space is leased to Alfred E. Mann, the Company's Chairman and Chief
Executive Officer. The Company believes that its facilities are adequate to meet
its foreseeable requirements for its existing products through at least the end
of 1998, without any requirement to expand into additional space.
 
ITEM 3. LEGAL PROCEEDINGS
 
     In September 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 $600 million and punitive damages of $300 million. 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.
Discovery has commenced in the litigation, but the matter has not yet been set
for trial.
 
     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 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.
 
                                       22
   23
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     There were no matters submitted to a vote of the security holders of the
Company, either through solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 27, 1996.
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The Company's Executive Officers are generally elected annually by the
Board of Directors for a one year term and serve at the pleasure of the Board.
As of March 21, 1997, the Company's executive officers are:
 


       NAME           AGE                    POSITIONS WITH THE COMPANY
- ------------------    ---     --------------------------------------------------------
                        
Alfred E. Mann        71      Chairman of the Board and Chief Executive Officer
Terrance H. Gregg     48      President and Chief Operating Officer
Eric S. Kentor        37      Senior Vice President, General Counsel and Secretary
Kevin R. Sayer        39      Senior Vice President, Finance and Chief Financial
                              Officer
Clifford W. Hague     41      Vice President, Marketing and Business Development
William Arthur        45      Vice President, Sales
John H. Livingston    50      Vice President, Research, Development and Engineering
Noory Shaolian        55      Vice President, Instrument Manufacturing and Service

 
     Alfred E. Mann has served as Chairman of the Board and Chief Executive
Officer of the Company since its incorporation and was President until 1994 and
from October 1995 until October 1996. Until March 1994, Mr. Mann served as the
Chairman of the Board of the General Partner of MMTL, a predecessor of the
Company, which was also engaged in the design, manufacture and marketing of
hospital intravenous pumps and electrostimulation devices primarily for
restoration of hearing for the deaf. Mr. Mann has also served as Chairman of
Advanced Bionics since 1994 and as CEO from 1994 to February 1996. Advanced
Bionics is the successor to the electrostimulation business segment of MMTL.
From 1985 to September 1992, Mr. Mann was also President and CEO of
Siemens-Pacesetter, Inc., a manufacturer and distributor of cardiac pacemakers.
Mr. Mann founded and from 1972 until 1985 was Chairman of the Board and CEO of
Pacesetter Systems, Inc., a California corporation and predecessor of
Siemens-Pacesetter, Inc. Prior to 1972, he was President of Spectrolab, an
electro-optical and aerospace systems company, and Heliotek, a semiconductor and
electro-optical components manufacturer, which companies Mr. Mann founded in
1956 and 1960, respectively, and which were sold to Textron Inc. in 1960. Mr.
Mann is currently Chairman of the Board of Trustees of the Alfred E. Mann
Foundation, a medical research foundation. Mr. Mann holds a B.A. and an M.S.
degree in physics from the University of California, Los Angeles.
 
     Terrance H. Gregg was promoted to Executive Vice President, Operations in
February 1996 and to President and Chief Operating Officer in October 1996. Mr.
Gregg joined the Company as Vice President of Regulatory Affairs and Clinical
Research in September 1994. Prior to employment with the Company, Mr. Gregg
spent the preceding nine years as Vice President of Governmental Affairs for
Ioptex Research, the ophthalmic surgical products subsidiary of Smith & Nephew,
plc. Prior to joining Ioptex Research, Mr. Gregg was responsible for Regulatory
Affairs, Clinical Research and Quality Assurance for divisions of Allergan, Inc.
Mr. Gregg earned a B.S. degree in zoology from Colorado State University in
1971.
 
     Eric S. Kentor was promoted to Senior Vice President in February 1996. Mr.
Kentor joined the Company in May 1995 as Vice President, General Counsel and
Secretary. Prior to joining the Company, Mr. Kentor was Vice President, Legal
Services, of Health Net, California's second largest health maintenance
organization, where he held various positions beginning in March 1994. From
March 1994 until May 1995, Mr. Kentor also served as Executive Counsel of Health
Net's parent corporation, Health Systems International, Inc. Previously, from
1987 until 1994, Mr. Kentor practiced with the law firm of McDermott, Will &
Emery, where he was elected partner in 1992. Mr. Kentor received a J.D. degree
from the UCLA School of Law in 1986.
 
     Kevin R. Sayer was promoted to Senior Vice President, Finance, in February
1996. Mr. Sayer joined the Company in May 1994 as Vice President, Finance and
Chief Financial Officer. Prior to joining the Company,
 
                                       23
   24
 
Mr. Sayer spent the previous 11 years with Ernst & Young, where he specialized
in providing auditing, accounting and consulting services to high growth
companies, primarily in the health care and high technology industry segments.
Mr. Sayer received a B.S. in accounting from Brigham Young University in 1981
and received a Masters degree in accounting/information systems from Brigham
Young University in 1983.
 
     William Arthur has served as Vice President, Sales, since March 1995.
Previously Mr. Arthur served from July 1993 to February 1995 as the Company's
Vice President, Sales and Marketing. He joined the Company in July 1993 after
serving as President and CEO of Med-Fusion Inc., a subsidiary of Medex, Inc. and
a manufacturer of ambulatory infusion pumps. Mr. Arthur founded Med-Fusion Inc.
in 1984 and remained as its Chief Executive Officer after its acquisition by
Medex in 1988. Prior to his employment with Med-Fusion, Mr. Arthur served as
Director of Marketing for infusion systems for Pacesetter Systems, Inc.
Previously Mr. Arthur served as Vice President of Sales and Marketing for
Auto-Syringe, a subsidiary of Baxter International, an earlier competitor of a
predecessor of the Company. Mr. Arthur received a B.S. degree in microbiology
from Pennsylvania State University in 1973.
 
     Clifford W. Hague has served as Vice President, Marketing and Business
Development, since March 1995. From February 1993 until March 1995, Mr. Hague
was Vice President, Marketing and Clinical Research, of VIA Medical Corporation,
an early-stage company developing a series of sensor systems primarily for
hospital use. Previously, from October 1991 to January 1993, Mr. Hague served as
Vice President, Marketing of Siemens Infusion Systems ("SIS") and before that,
Director of Marketing of MiniMed Technologies, a predecessor of both SIS and the
Company. Before joining MiniMed Technologies in January 1986, Mr. Hague was a
product manager at Parker-Hannifin, Biomedical Division. Mr. Hague received an
M.B.A. degree from the University of California, Irvine in 1983, and a B.S.
degree in zoology from the University of California, Davis, in 1980.
 
     John H. Livingston has been Vice President, Research, Development and
Engineering of the Company and its predecessors since May 1985. Mr. Livingston
served as Director, Research, Development and Engineering at IMED Corporation
from November 1983 until May 1985. From January 1978 until November 1983, Mr.
Livingston worked at Cordis Corporation, where for the final two years he was
Manager, Instrument and Software Design, for the Implantables Product
Engineering Division, responsible for the design and development of electronic
hardware and software for implantable medical electronic systems. Mr. Livingston
received his B.S. degree in electrical engineering from Yale University and both
an M.S. degree in electrical engineering and a J.M. degree from Stanford
University in 1975.
 
     Noory Shaolian has been Vice President in charge of Instrument
Manufacturing and Service since joining the Company in June 1992. From 1991 to
June 1992, Mr. Shaolian pursued private real estate investments. Previously,
from 1983 to 1991 he was Vice President of Manufacturing and Service at
Mitsubishi Electronics, a manufacturer of personal and lap-top computers. Mr.
Shaolian is a Certified Quality Engineer. His education includes a B.S. degree
in mechanical engineering from California Polytechnic University, San Luis
Obispo, and an M.S. degree in business administration from California State
University at Los Angeles.
 
                                       24
   25
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER 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 fiscal quarters indicated the intra-day high and low sales prices per share
of the Company's common stock on the Nasdaq National Market.
 


                                                                      HIGH       LOW
                                                                     ------     ------
                                                                          
        1996
        Fourth Quarter Ended December 27, 1996...................... $32.75     $23.50
        Third Quarter Ended September 27, 1996......................  29.75      18.25
        Second Quarter Ended June 28, 1996..........................  33.75      16.25
        First Quarter Ended March 29, 1996..........................  18.25      12.25
 
        1995
        Fourth Quarter Ended December 29, 1995...................... $13.38     $ 7.75
        Third Quarter Ended September 29, 1995 (from July 25,
          1995).....................................................  13.50       8.75

 
RECORD HOLDERS
 
     As of March 19, 1997, the number of record holders of the Company's Common
Stock was 275.
 
DIVIDENDS
 
     The Company has never paid a cash dividend on its Common Stock. The Company
currently anticipates that, for the foreseeable future, any earnings will be
retained for use in its business and, accordingly, does not currently anticipate
the payment of any cash dividends. The payment of dividends by the Company, if
any, will be at the discretion of the Company's Board of Directors, and will
depend upon the Company's earnings, financial position, capital requirements and
such other factors as the Company's Board of Directors deems relevant.
 
                                       25
   26
 
ITEM 6. SELECTED CONSOLIDATED 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 December 27, 1996, December 29, 1995
and December 31, 1994, 1993 and 1992, and for each of the five fiscal years in
the period ended December 27, 1996 have been derived from the Company's audited
financial statements, which have been audited by Deloitte & Touche LLP, the
Company's independent auditors. Other information has been derived from other
audited financial statements.
 


                                       
                                            DATA OF
                                          PREDECESSOR
                                          ENTITIES(1)
                                          -----------                          YEAR ENDED      YEAR ENDED
                                              YEARS ENDED DECEMBER 31,        DECEMBER 29,    DECEMBER 27,
                                          ---------------------------------   -------------   -------------
                                             1992        1993       1994          1995            1996
                                          -----------   -------   ---------   -------------   -------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                               
STATEMENT OF OPERATIONS DATA:
Net sales...............................    $24,079     $31,731   $  36,274    $    45,107     $    59,080
Cost of sales...........................     13,618      14,947      16,131         16,531          20,440
                                            -------     -------     -------        -------         -------
Gross profit............................     10,461      16,784      20,143         28,576          38,640
Operating expenses:
  Selling, general and administrative...     10,108      14,088      15,366         19,863          25,468
  Research and development..............      3,891       3,998       5,372          7,095           7,900
                                            -------     -------     -------        -------         -------
     Total..............................     13,999      18,086      20,738         26,958          33,368
                                            -------     -------     -------        -------         -------
Operating income (loss).................     (3,538)     (1,302)       (595)         1,618           5,272
Interest expense........................       (172)       (410)       (533)          (352)             --
Other income, including interest
  income................................         29         154         228            965           1,062
                                            -------     -------     -------        -------         -------
Income (loss) before income taxes ......     (3,681)     (1,558)       (900)         2,231           6,334
Provision for income taxes..............         --          --          --            422           1,662
                                            =======     =======     =======        =======         =======
Net income (loss).......................    $(3,681)    $(1,558)  $    (900)   $     1,809     $     4,672
                                            =======     =======     =======        =======         =======
Net income (loss) per share(2)..........                          $   (0.10)   $      0.17     $      0.38
                                                                    =======        =======         =======
Weighted average number of common and
  common equivalent shares used in
  computing net income (loss) per
  share(2)..............................                          9,085,000     10,587,000      12,238,000(3)
                                                                    =======        =======         =======
BALANCE SHEET DATA:
Working capital...........................    $ 8,879     $ 9,026   $14,317     $ 32,695       $ 37,209
Total assets..............................     16,998      19,068    24,510       52,529         59,503
Notes payable, net of current portion.....         --       7,286     7,000           --             --
Redeemable, convertible preferred stock...         --          --     8,513           --             --
Retained earnings (accumulated deficit)...         --      (1,558)   (2,962)      (1,664)         3,008
Total stockholders' equity................         --       4,005     2,022       42,362         49,626
Net assets................................      5,563          --        --           --             --

 
- ---------------
(1) The financial data presented for all periods subsequent to the Company's
    incorporation in 1993 reflect the operations of the medication infusion
    business of the Company as an independent entity. The financial data for
    1992 reflect the operations of that business as a business unit within two
    limited partnerships as if the Company were a separate entity.
 
(2) Pursuant to applicable rules, and because of the significant change in the
    Company's capital structure related to the conversion of preferred stock as
    a result of the Company's initial public offering of common
 
                                       26
   27
 
    stock in 1995, per share information and weighted average shares outstanding
    are presented only for the three years in the period ended December 27,
    1996.
 
(3) Includes 1,456,146 shares of Common Stock issuable upon exercise of
    outstanding stock options with a weighted average exercise price of $7.81
    per share.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
GENERAL
 
     The Company has focused its efforts on three product lines: external pumps
and related disposables, implantable insulin pumps and continuous glucose
monitoring systems. There have been no sales of glucose monitoring systems to
date. Sales activity of the implantable insulin pump, primarily in Europe, where
the product is approved for commercial distribution, is in an early stage.
 
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.
 


                                                                                       ANNUAL %
                                                                                  INCREASE (DECREASE)
                                                    PERCENTAGE OF NET SALES      ---------------------
                                                   -------------------------       1995         1996
                                                   1994      1995      1996      VS. 1994     VS. 1995
                                                   -----     -----     -----     --------     --------
                                                                               
Net sales........................................  100.0%    100.0%    100.0%      24.4%         31.0%
Cost of sales....................................   44.5      36.6      34.6        2.5          23.6
                                                   -----     -----     -----       ----         -----
Gross profit.....................................   55.5      63.4      65.4       41.9          35.2
Operating expenses:
  Selling, general and administrative............   42.4      44.0      43.1       29.3          28.2
  Research and development.......................   14.8      15.7      13.4       32.1          11.3
                                                   -----     -----     -----       ----         -----
          Total operating expenses...............   57.2      59.7      56.5       29.9          23.8
                                                   -----     -----     -----       ----         -----
Operating income (loss)..........................   (1.7)%     3.7%      8.9%        --         225.8%
                                                   =====     =====     =====       ====         =====

 
                                       27
   28
 
NET SALES
 
     The following table sets forth domestic and international net sales, gross
profits and research and development expenditures related to the Company's three
primary product lines for the three years in the period ended December 27, 1996.
 


                                            DOLLARS IN THOUSANDS                % OF NET SALES
                                       -------------------------------     -------------------------
                                        1994        1995        1996       1994      1995      1996
                                       -------     -------     -------     -----     -----     -----
                                                                             
NET SALES
External pumps and related
  disposables
  Domestic...........................  $29,980     $37,299     $50,688      82.6%     82.7%     85.8%
  International......................    4,798       5,493       6,396      13.3      12.2      10.8
                                       -------     -------     -------     -----     -----     -----
          Subtotal...................  $34,778     $42,792     $57,084      95.9      94.9      96.6
Implantable pumps
  Domestic...........................      233         151          --       0.6%      0.3%       --
  International......................      960       2,164       1,996       2.7       4.8       3.4
          Subtotal...................    1,193       2,315       1,996       3.3       5.1       3.4
                                       -------     -------     -------     -----     -----     -----
Other net sales......................      303          --          --       0.8        --        --
                                       -------     -------     -------     -----     -----     -----
          Total......................  $36,274     $45,107     $59,080     100.0%    100.0%    100.0%
                                       =======     =======     =======     =====     =====     =====
GROSS PROFITS
External pumps and related
  disposables........................  $21,269     $28,017     $39,044      58.6%     62.1%     66.1%
Implantable pumps....................   (1,429)        559        (404)     (3.9)      1.3      (0.7)
Other................................      303          --          --       0.8        --        --
                                       -------     -------     -------     -----     -----     -----
          Total......................  $20,143     $28,576     $38,640      55.5%     63.4%     65.4%
                                       =======     =======     =======     =====     =====     =====
RESEARCH AND DEVELOPMENT EXPENSES
External pumps and related
  disposables........................  $ 1,355     $ 2,445     $ 3,381       3.7%      5.4%      5.8%
Implantable pumps....................    2,568       2,928       2,683       7.1       6.5       4.5
Glucose monitoring systems...........    1,449       1,722       1,836       4.0       3.8       3.1
                                       -------     -------     -------     -----     -----     -----
          Total......................  $ 5,372     $ 7,095     $ 7,900      14.8%     15.7%     13.4%
                                       =======     =======     =======     =====     =====     =====

 
FISCAL YEARS ENDED DECEMBER 27, 1996 AND DECEMBER 29, 1995
 
     Net Sales. Net sales increased 31.0% in 1996 over 1995 to $59,080,000 from
$45,107,000. This increase is principally the result of an increase of 33.4%, or
$14,292,000, in the sales volume of external pumps and related disposables.
Domestic sales of these products grew 35.9%, or $13,389,000, from 1995 to 1996,
while international sales increased 16.4%, or $903,000. The domestic sales
increase was primarily the result of increased sales volume of external pumps
and related disposables, with external pump sales growing at a rate in excess of
disposable product sales. Additionally, net sales increased due to a customer
shift to more expensive disposable products (principally the Sof-set QR) offered
by the Company since June 1995, with enhanced features and commensurately higher
sales prices. With the introduction of the Company's new Model 507 insulin pump
in June 1996, the domestic average sales prices on external pumps increased,
while the related disposable products experienced relative price stability.
 
     International sales of external pumps and related disposables for 1996 and
1995 include the sale of external pumps to Novo Nordisk A/S, which previously
manufactured an external insulin pump and related disposables that were sold in
Europe. Under an agreement with the Company entered into in late 1993, the
external insulin pumps that Novo Nordisk previously manufactured and sold were
replaced with the Company's external insulin pumps. Sales of external pumps to
Novo Nordisk represented 15.5% of international sales of external pumps and
related disposables in 1996, while such sales represented 23.1% of international
sales of these products in 1995. The decline in sales to Novo Nordisk in 1996
reflects the completion of the contractually determined delivery schedule with
Novo Nordisk during the quarter ended June 28, 1996.
 
                                       28
   29
 
     Sales of implantable pumps decreased by $319,000, or 13.8%, in 1996 over
1995. Due to problems encountered with the special insulin formulation
manufactured by Hoechst and used in the implantable pump, such sales were
limited during 1996. Although the Company received certification under the
applicable directives issued by the EU and received the CE Mark in March 1995
for the implantable pump (permitting commercial sale throughout the EU),
separate approval from the EU is required for commercial sale of the insulin.
Hoechst, the manufacturer of that insulin, has applied for such approval. Such
approval has not yet been received and no assurance can be given that such
approval will be received. Future sales of the Company's implantable insulin
pumps may be adversely affected by the lack of availability of the special
insulin utilized in the implantable pump, as well as any delay or denial of
regulatory approval for the insulin, seasonality, and overall market acceptance
of this product line.
 
     The Company and Hoechst are continuing their testing of the special insulin
for use in the implantable pump. No assurance can be given as to the potential
for success of these efforts. If such efforts are not successful, the business,
results of operations or financial condition of the Company could be materially
adversely affected. In order for the implantable pump to be authorized for sale
in the U.S., the Company must work with Hoechst under a procedure established by
the FDA for approval of a combined application for the Company's pump and the
Hoechst insulin. The Company has completed preparation of the PMA element of the
application for the implantable pump and is assisting Hoechst in the preparation
of the NDA element of the application for this special insulin. Delay or failure
to obtain FDA approval could have a material adverse effect on the Company's
business, results of operations or financial condition. See
"BUSINESS -- Products -- Current Products -- Implantable Insulin Pump" and
"BUSINESS -- Government Regulation."
 
     Cost of Sales and Operating Expenses. Cost of sales increased 23.6% in 1996
over 1995 to $20,440,000 from $16,531,000. As a percentage of net sales, cost of
sales decreased to 34.6% in 1996 from 36.6% in 1995. Increased sales volume
enabled the Company to spread its fixed manufacturing costs over a larger sales
base and thereby achieve certain economies of scale. The Company has continued
to implement manufacturing efficiency programs that reduced per unit labor,
overhead and materials costs. Additionally, the Company achieved lower product
costs for certain disposable products by bringing the manufacturing processes
in-house during 1996. Cost of sales in 1996 included manufacturing start-up
expenses related to the Company's June 1996 release of its latest generation
external insulin pump, the Model 507. Gross margins on the external pumps and
related disposables increased to 66.1% of sales in 1996, compared to 62.1% in
1995. The Company's gross profits have been adversely impacted by the
implantable pump product line during 1996 due to continued unpredictable sales,
which have inhibited the Company's ability to realize manufacturing efficiencies
on this product line. The Company expects this trend to continue for the
foreseeable future.
 
     Selling, general and administrative expenses increased 28.2% in 1996 over
1995 to $25,468,000 from $19,863,000. As a percentage of net sales, these
expenses decreased to 43.1% in 1996 from 44.0% in 1995. Selling, general and
administrative expenses increased primarily due to higher external pump and
related disposable sales volume, the introduction of the Model 507 external
insulin pump, increased efforts to educate patients, professionals and payors in
the intensive management of diabetes, and increased spending in international
sales and marketing operations. Increased international expenses related
primarily to bringing in-house to the Company's French subsidiary certain
administrative functions that had been previously performed by a third party and
the organizational and continuing start-up costs of the Company's German
subsidiary, which was formed in December 1995.
 
     Research and development expenses increased 11.3% in 1996 over 1995 to
$7,900,000 from $7,095,000. As a percentage of sales, research and development
expenses decreased to 13.4% in 1996 from 15.7% in 1995. The increase in expenses
is primarily the result of greater resources directed to the design and
introduction of the Company's Model 507 external insulin pump and increased
development of the continuous glucose monitoring systems. Expenses related to
the implantable insulin pump product line decreased in 1996, as the Company
awaited approval of the special insulin required for this product. The Company
anticipates that future research and development expenditures will include
amounts for the further development of the Company's existing technologies for
use in other medical conditions.
 
                                       29
   30
 
     Other. Other income for 1996 and 1995 consists primarily of interest income
generated from the Company's cash, cash equivalents, and short-term investment
balances. The Company incurred interest expense in 1995 and 1994. No interest
expense was incurred, however, during 1996 as all debt had been retired in
connection with the Company's July 1995 initial public offering.
 
     The Company's effective tax rate for 1996 has been computed giving
consideration to the pretax earnings and losses 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. During 1995, the Company utilized all of its net operating loss
carryforwards. The Company anticipates that future income tax rates for
financial statement purposes will be lower than statutory state and federal
income tax rates, as future income tax payments will be offset by the
recognition of deferred income tax assets related to differences between
financial reporting and income tax reporting requirements. 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 YEARS ENDED DECEMBER 29, 1995 AND DECEMBER 31, 1994
 
     Net Sales. Net sales increased 24.4% in 1995 over 1994 to $45,107,000 from
$36,274,000. The 1995 growth in net sales of external pumps and related
disposables amounted to $8,014,000, or 23.0%, over such sales in 1994 due to
growth in both the domestic and international markets. Domestic sales of these
products grew 24.4%, or $7,319,000, from 1994 to 1995, while international net
sales increased 14.5%, or $695,000.
 
     The domestic net sales increase for 1995 resulted from increased sales
volume of external pumps and related disposables, with disposable sales growing
at a rate in excess of external pump sales. The effect of the increased sales
volume achieved in 1995 was somewhat offset by lower average sales prices
obtained on the sale of pumps. However, the related disposable products
experienced a price increase during 1995. Domestic sales of external insulin
pumps to previous pump users continued to decrease as a percentage of total
domestic sales. As a result of this trend, the overall installed base of pump
users increased at a faster rate than in prior periods. The 1995 international
net sales increase was primarily the result of increased sales volume of pumps
and related disposables to foreign distributors. The increase in international
sales volume was partially offset by a scheduled decrease in sales under the
Company's contract with Novo Nordisk. Sales of external insulin pumps to Novo
Nordisk represented 23.1% of international sales of external pumps and related
disposables in 1995, while such sales represented 47.1% of international sales
of these products in 1994.
 
     Sales of implantable pumps increased by $1,122,000, or 94.0%, in 1995 over
1994. Due to problems encountered with the special insulin formulation
manufactured by Hoechst and used in the implantable pump, such sales were
limited to replacements for existing patients during the last half of 1994 and
the first half of 1995. New patient implants for Europe slowly recommenced in
the second half of 1995 when the Company received certification under the
applicable directives issued by the EU and received the CE Mark in March 1995
for the implantable pump.
 
     Cost of Sales and Operating Expenses. Cost of sales increased 2.5% in 1995
over 1994 to $16,531,000 from $16,131,000. As a percentage of net sales, cost of
sales in 1995 decreased to 36.6% from 44.5% in 1994. Increased sales volume
enabled the Company to spread its fixed manufacturing costs over a larger sales
base. Gross margins on the primary product line increased to 62.1% of sales in
1995, compared to 58.6% for this product line in 1994. Gross margins on the
implantable pump product line were positive for 1995 due to the increased sales,
compared to negative gross margins on the implantable pump in 1994.
 
     Selling, general and administrative expenses increased 29.3% in 1995 over
1994 to $19,863,000 from $15,366,000. As a percentage of net sales, these
expenses increased to 44.0% in 1995 from 42.4% in 1994. Higher sales volume in
1995 was the most significant factor in the increase in selling expenses,
primarily attributable to increased commissions and other variable costs related
to the field sales force. Additional increases in selling expenses relate to the
Company's increased focus upon training and education of patients, health care
professionals and third party payors. General and administrative expenses also
increased in 1995 over 1994. These increased costs related primarily to the
development of the Company's accounting, finance,
 
                                       30
   31
 
MIS, legal and human resources departments to support the Company's growth and
the requirements as a public reporting company.
 
     Research and development expenses increased 32.1% in 1995 over 1994 to
$7,095,000 from $5,372,000. As a percentage of sales, research and development
expenses increased to 15.7% in 1995 from 14.8% in 1994. The 1995 increase is
primarily the result of greater resources directed to all of the Company's
product lines. The Company increased research and development expenses related
to the external pump and disposables to further the development of its next
generation external insulin pump and several new disposable products. Increased
research and development expenses were also incurred for the implantable pump
and the continuous glucose monitoring systems.
 
     Other. Interest expense in 1994 and 1995 related to a $7,000,000 note
payable retired in 1995 with proceeds from the Company's initial public
offering. Other income in 1994 and 1995 related primarily to interest income
generated from the Company's cash, cash equivalents, and short-term investments
balances, with the 1995 increase related to increased funds available as a
result of the initial public offering.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During the years ended 1996 and 1995, the Company used cash in operations
of $336,000 and $1,001,000, respectively. While the Company was profitable in
both years, the Company's operating activities used cash, as receivables and
inventories increased significantly. The receivables increase relates to several
factors, including the extension of more favorable credit terms for some key
distributors, increased sales to be reimbursed to the Company by third-party
payors (which typically have longer collection cycles) and the overall sales
volume increase. Because the Company experienced some product shortages during
1995, primarily related to its disposable products, the Company increased
inventories in 1995 and 1996 to better serve its customers. The Company believes
that maintaining increased inventories of these products and other key
components will enable the Company to better meet customer demands. Expenditures
on inventories have also increased in 1996 as a result of the Company's
purchases of significant quantities of component parts for the implantable
insulin pump under a supply agreement entered into in 1996.
 
     Capital expenditures were $1,713,000, $8,700,000 and $4,007,000 for 1994,
1995, and 1996 respectively. The Company's 1995 capital expenditures consisted
primarily of the purchase and improvement of its operating facilities. The
Company's 1996 capital expenditures included continued building improvements,
manufacturing expansion, the acquisition of additional research and development
engineering equipment and information systems requirements. The Company
anticipates that future capital expenditures will increase because of required
repairs and upgrades to its principal facility in compliance with recently
enacted building code provisions applicable to earthquake protection. Capital
expenditures will also increase due to the purchase of manufacturing and other
equipment associated with expanding the Company's product lines and bringing
more manufacturing in-house, as well as the purchase of additional information
systems equipment.
 
     The Company completed its initial public offering of Common Stock in 1995
which generated net proceeds of $29.5 million. There were no significant equity
transactions during 1996. On January 21, 1997, the Company entered into an
unsecured line of credit agreement which enables the Company to borrow up to
$10.0 million through January 31, 1999. The line of credit, if used, bears
interest at an adjustable rate based upon certain commercial paper rates. The
rate on such line of credit was 7.52% as of February 28, 1997. The Company is
required to maintain certain cash, net worth and debt conditions under the
provisions of the credit agreement. The Company is currently in compliance with
all of these conditions.
 
     Management expects that the current level of cash and cash equivalents will
be sufficient to meet its cash needs for working capital and capital
expenditures for at least one year. 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, 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.
 
                                       31
   32
 
     The Company also is involved in certain litigation, the financial impact of
which is uncertain. See "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" and "LEGAL
PROCEEDINGS."
 
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.
 


                                                                       THREE MONTHS ENDED
                                     ---------------------------------------------------------------------------------------
                                     MAR. 31,   JUNE 30,   SEPT. 29,   DEC. 29,   MAR. 29,   JUNE 28,   SEPT. 27,   DEC. 27,
                                       1995       1995       1995        1995       1996       1996       1996        1996
                                     --------   --------   ---------   --------   --------   --------   ---------   --------
                                                                                            
Net sales..........................   $8,301    $ 10,989    $ 11,007   $ 14,810   $ 12,209   $ 13,343    $ 14,709   $ 18,819
Cost of sales......................    3,183       3,902       3,963      5,483      4,312      4,571       5,220      6,337
Gross profit.......................    5,118       7,087       7,044      9,327      7,897      8,772       9,489     12,482
Operating expenses:
  Selling, general and
    administrative.................    4,257       4,934       4,842      5,830      5,324      5,818       6,156      8,170
  Research and development.........    1,369       2,005       1,700      2,021      1,822      1,953       1,896      2,229
                                      ------     -------     -------    -------    -------    -------     -------    -------
Total operating expenses...........    5,626       6,939       6,542      7,851      7,146      7,771       8,052     10,399
Operating income (loss)............   $ (508)   $    148    $    502   $  1,476   $    751   $  1,001    $  1,437   $  2,083
                                      ======     =======     =======    =======    =======    =======     =======    =======

 
     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 of a given year being less than sales and
earnings for the fourth quarter of the preceding year. These fluctuations have
and will continue to result from numerous factors, including (i) practices of
insurance companies and other third-party payors with respect to reimbursement
for the Company's products, which tends to result in increased sales of the
Company's external infusion pumps later in the calendar year, after patients'
deductibles are satisfied, (ii) market acceptance of the Company's products,
(iii) timing of regulatory approvals, (iv) new product introductions, (v)
competition, (vi) the Company's ability to manufacture its products efficiently
and (vii) timing of research and development expenditures.
 
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:
 
                          Independent Auditors' Report
 
                         Consolidated Balance Sheets --
                    December 29, 1995 and December 27, 1996
 
                    Consolidated Statements of Operations --
     Years ended December 31, 1994, December 29, 1995 and December 27, 1996
 
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity
                                       --
     Years ended December 31, 1994, December 29, 1995 and December 27, 1996
 
                    Consolidated Statements of Cash Flows --
     Years ended December 31, 1994, December 29, 1995 and December 27, 1996
 
                   Notes to Consolidated Financial Statements
 
                                       32
   33
 
                          INDEPENDENT AUDITOR'S REPORT
 
To the Shareholders and Board of Directors of MiniMed Inc.:
 
     We have audited the accompanying balance sheets of MiniMed Inc. (the
"Company") as of December 29, 1995 and December 27, 1996, and the related
statements of operations, Convertible Preferred Stock and Stockholders' Equity,
and of cash flows for each of the three years in the period ended December 27,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 29, 1995 and
December 27, 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 27, 1996 in conformity with
generally accepted accounting principles.
 
DELOITTE & TOUCHE LLP
 
Woodland Hills, California
January 17, 1997 (February 20, 1997 as to the last paragraph of note 3)
 
                                       33
   34
 
                                  MINIMED INC.
 
                          CONSOLIDATED BALANCE SHEETS
                    DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
                                     ASSETS
 


                                                                       1995            1996
                                                                    -----------     -----------
                                                                              
CURRENT ASSETS:
  Cash and cash equivalents.......................................  $14,762,000     $10,286,000
  Short-term investments..........................................    8,724,000       9,517,000
  Accounts receivable, net of allowance for doubtful accounts of
     $1,327,000 and $2,575,000 in 1995 and 1996, respectively.....   10,562,000      15,617,000
  Receivables due from related entities (Note 3)..................       23,000          90,000
  Inventories:
     Raw materials................................................    2,994,000       3,465,000
     Work-in-process..............................................      929,000       1,117,000
     Finished goods...............................................    1,242,000       2,143,000
                                                                    -----------     -----------
          Total inventories.......................................    5,165,000       6,725,000
  Deferred income taxes (Note 10).................................    1,675,000       3,003,000
  Prepaid expenses and other current assets.......................    1,065,000       1,042,000
                                                                    -----------     -----------
          Total current assets....................................   41,976,000      46,280,000
OTHER ASSETS (Note 5).............................................           --         577,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT -- Net (Note 4)...........   10,553,000      12,646,000
                                                                    -----------     -----------
TOTAL.............................................................  $52,529,000     $59,503,000
                                                                    ===========     ===========
                             LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable................................................  $ 1,895,000     $ 1,642,000
  Current portion of notes payable and line of credit (Note 6)....      600,000              --
  Accrued salaries and related benefits...........................    1,352,000       2,065,000
  Accrued sales commissions.......................................      614,000       1,568,000
  Accrued warranties..............................................    3,243,000       2,873,000
  Income taxes payable (Note 10)..................................      532,000         463,000
  Other accrued expenses..........................................    1,045,000         460,000
                                                                    -----------     -----------
          Total current liabilities...............................    9,281,000       9,071,000
                                                                    -----------     -----------
  Deferred income taxes...........................................      886,000         806,000
COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY (Notes
  1 and 8):
  Common stock, par value $.01; 20,000,000 shares authorized;
     11,405,933 and 11,636,175 shares issued and outstanding in
     1995 and 1996, respectively..................................      114,000         116,000
  Additional capital..............................................   43,912,000      46,502,000
  Retained earnings (Accumulated deficit).........................   (1,664,000)      3,008,000
                                                                    -----------     -----------
          Total stockholders' equity..............................   42,362,000      49,626,000
                                                                    -----------     -----------
TOTAL.............................................................  $52,529,000     $59,503,000
                                                                    ===========     ===========

 
                 See notes to consolidated financial statements
 
                                       34
   35
 
                                  MINIMED INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 


                                                                      YEAR ENDED
                                                      -------------------------------------------
                                                         1994            1995            1996
                                                      -----------     -----------     -----------
                                                                             
NET SALES...........................................  $36,274,000     $45,107,000     $59,080,000
COST OF SALES.......................................   16,131,000      16,531,000      20,440,000
                                                      -----------     -----------     -----------
GROSS PROFIT........................................   20,143,000      28,576,000      38,640,000
                                                      -----------     -----------     -----------
OPERATING EXPENSES:
  Selling, general and administrative...............   15,366,000      19,863,000      25,468,000
  Research and development..........................    5,372,000       7,095,000       7,900,000
                                                      -----------     -----------     -----------
          Total operating expenses..................   20,738,000      26,958,000      33,368,000
                                                      -----------     -----------     -----------
OPERATING INCOME (LOSS).............................     (595,000)      1,618,000       5,272,000
INTEREST EXPENSE....................................     (533,000)       (352,000)             --
OTHER INCOME, Including interest income.............      228,000         965,000       1,062,000
                                                      -----------     -----------     -----------
INCOME (LOSS) BEFORE INCOME TAXES...................     (900,000)      2,231,000       6,334,000
PROVISION FOR INCOME TAXES (Note 10)................           --         422,000       1,662,000
                                                      -----------     -----------     -----------
NET INCOME (LOSS)...................................  $  (900,000)    $ 1,809,000     $ 4,672,000
                                                      ===========     ===========     ===========
NET INCOME (LOSS) PER SHARE (Note 2)................  $     (0.10)    $      0.17     $      0.38
                                                      ===========     ===========     ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
  EQUIVALENT SHARES USED IN COMPUTING NET INCOME
  (LOSS) PER SHARE (Note 2).........................    9,085,000      10,587,000      12,238,000
                                                      ===========     ===========     ===========

 
                 See notes to consolidated financial statements
 
                                       35
   36
 
                                  MINIMED INC.
 
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 


                              REDEEMABLE CONVERTIBLE
                                 PREFERRED STOCK            COMMON STOCK                       RETAINED
                             ------------------------   ---------------------                  EARNINGS
                             NUMBER OF                  NUMBER OF                             (ACCUMULATED
                               SHARES       AMOUNT        SHARES      AMOUNT      CAPITAL      DEFICIT)        TOTAL
                             ----------   -----------   ----------   --------   -----------   -----------   -----------
                                                                                       
BALANCE,
  JANUARY 1, 1994..........                              7,805,478   $ 78,000   $ 5,485,000   $(1,558,000)  $ 4,005,000
Issuance of preferred stock
  for technology
  (Note 3).................     200,000            --
Issuance of preferred stock
  for cash, net of
  expenses.................     911,111   $ 8,009,000
Repurchase of treasury
  shares (Note 8)..........                                (75,703)    (1,000)     (578,000)                   (579,000)
Accretion of preferred
  stock to redemption
  value....................                   212,000                                            (212,000)     (212,000)
Accrual of preferred stock
  dividends................                   292,000                                            (292,000)     (292,000)
Net loss...................                                                                      (900,000)     (900,000)
                             ----------   -----------   ----------   --------   -----------    ----------   -----------
BALANCE,
  DECEMBER 31, 1994........   1,111,111     8,513,000    7,729,775     77,000     4,907,000    (2,962,000)    2,022,000
Accretion of preferred
  stock to redemption
  value....................                   219,000                                            (219,000)     (219,000)
Accrual of preferred stock
  dividends................                   292,000                                            (292,000)     (292,000)
Issuance of common stock in
  initial public offering,
  net of expenses..........                              2,500,000     25,000    29,513,000                  29,538,000
Conversion of redeemable
  convertible preferred....  (1,111,111)   (9,024,000)   1,111,111     11,000     9,013,000                   9,024,000
Exercise of stock
  options..................                                 65,047      1,000       300,000                     301,000
Tax benefit associated with
  stock option exercises...                                                         179,000                     179,000
Net income.................                                                                     1,809,000     1,809,000
                             ----------   -----------   ----------   --------   -----------    ----------   -----------
BALANCE,
  DECEMBER 29, 1995........                             11,405,933    114,000    43,912,000    (1,664,000)   42,362,000
Exercise of stock
  options..................                                203,020      2,000       986,000                     988,000
Tax benefit associated with
  stock option exercises...                                                         994,000                     994,000
Issuance of stock under
  employee stock plan......                                 14,822                  272,000                     272,000
Issuance of stock for
  technology license 
  (Note 7).................                                 10,000                  285,000                     285,000
Stock awards to
  directors................                                  2,400                   53,000                      53,000
Net income.................                                                                     4,672,000     4,672,000
                             ----------   -----------   ----------   --------   -----------    ----------   -----------
BALANCE,
  DECEMBER 27, 1996........          --            --   11,636,175   $116,000   $ 46,502,00   $ 3,008,000   $ 49,626,00
                             ==========   ===========   ==========   ========   ===========    ==========   ===========

 
                 See notes to consolidated financial statements
 
                                       36
   37
 
                                  MINIMED INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 


                                                             1994          1995          1996
                                                          -----------   -----------   -----------
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).....................................  $  (900,000)  $ 1,809,000   $ 4,672,000
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
  Depreciation..........................................      760,000     1,365,000     1,914,000
  Amortization of loan discount.........................      314,000            --            --
  Deferred income taxes.................................           --      (789,000)   (1,408,000)
  Changes in operating assets and liabilities:
     Accounts receivable, net...........................    1,171,000    (2,795,000)   (5,055,000)
     Receivables due from related entities..............      233,000       101,000       (67,000)
     Inventories........................................    2,091,000    (2,916,000)   (1,560,000)
     Prepaid expenses and other current assets..........     (372,000)     (261,000)       23,000
     Other assets.......................................           --            --      (300,000)
     Accounts payable...................................   (1,425,000)      407,000      (253,000)
     Accrued sales commissions..........................     (375,000)       59,000       954,000
     Accrued salaries and related benefits..............      406,000       335,000       713,000
     Accrued warranties.................................      549,000       360,000      (370,000)
     Other accrued expenses.............................     (557,000)      792,000       470,000
     Income taxes payable...............................           --       532,000       (69,000)
                                                          -----------   -----------   -----------
     Net cash provided by (used in) operating
       activities.......................................    1,895,000    (1,001,000)     (336,000)
                                                          -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Short-term investments................................           --    (8,724,000)     (793,000)
  Purchase of land, buildings, property and equipment...   (1,713,000)   (8,700,000)   (4,007,000)
                                                          -----------   -----------   -----------
     Net cash used in investing activities..............   (1,713,000)  (17,424,000)   (4,800,000)
                                                          -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of note payable.............................           --    (7,000,000)     (600,000)
  Proceeds from issuance of preferred stock, net of
     expenses...........................................    8,009,000            --            --
  Proceeds from initial public offering, net of
     expenses...........................................           --    29,538,000            --
  Proceeds from stock option exercises..................           --       301,000       988,000
  Proceeds from issuance of common stock under employee
     stock plan.........................................           --            --       272,000
  Repurchase of treasury shares.........................     (579,000)           --            --
                                                          -----------   -----------   -----------
     Net cash provided by financing activities..........    7,430,000    22,839,000       660,000
                                                          -----------   -----------   -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....    7,612,000     4,414,000    (4,476,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..........    2,736,000    10,348,000    14,762,000
CASH AND CASH EQUIVALENTS, END OF PERIOD................  $10,348,000   $14,762,000   $10,286,000
                                                          ===========   ===========   ===========
SUPPLEMENTAL CASH FLOW INFORMATION --
  Cash paid during the period for:
     Interest...........................................  $   314,000   $   361,000            --
     Income taxes.......................................  $     1,000   $   500,000   $ 1,866,000

 
     SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY -- During 1994 and
1995, the Company recorded $212,000 and $219,000, respectively in accretion of
preferred stock to redemption value and $292,000 in accrued preferred stock
dividends directly to accumulated deficit. The Company has recognized a
reduction in income taxes payable of $179,000 and $994,000 during 1995 and 1996,
respectively related to the exercise of nonqualified stock options. During 1996,
the Company issued 10,000 shares of common stock with a value of $285,000 to a
supplier in exchange for a license. The Company also issued 2,400 shares of
Common Stock with a value of $53,000 to certain Directors in lieu of fees during
1996.
 
                 See notes to consolidated financial statements
 
                                       37
   38
 
                                  MINIMED INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
 1. GENERAL INFORMATION
 
     Operations -- MiniMed Inc. ("MiniMed" or the "Company") designs, 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.
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Principles of Consolidation -- The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiaries MiniMed
S.A. and MiniMed GmbH. All intercompany accounts and transactions have been
eliminated. The financial statements of MiniMed S.A. and MiniMed GmbH have been
translated using the exchange rate at the end of each period as to balance sheet
items and the weighted average exchange rate during each period as to operating
results. Translation and transaction gains and losses are immaterial for all
periods presented.
 
     Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with an original maturity of three months or less to be cash
equivalents.
 
     Short-term Investments -- In May 1993, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
for fiscal years beginning after December 15, 1993. The Company has classified
all of its debt securities as available-for-sale. For securities
available-for-sale, unrealized gains and losses are recorded directly to
stockholders' equity. As of December 29, 1995 and December 27, 1996, fair market
value approximates cost for the investments held. Realized gains and losses are
included in other income in the Company's statement of operations. Realized
gains and losses on short-term investments for 1995 and 1996 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 market. Cost
is determined using the first-in, first-out method.
 
     Land, Building, Property and Equipment and Depreciation -- Land, building,
property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from two to thirty-nine years.
 
     Research and Development -- Research and development costs are expensed as
incurred.
 
     Net Income (Loss) per Common and Common Equivalent Share -- For the year
ended December 27, 1996, net income per common and common equivalent share is
computed based upon the weighted average number of shares of the Company's
outstanding common stock and common stock equivalents, if dilutive. For the year
ended December 29, 1995, net income per common and common equivalent share is
computed based upon the weighted average number of shares of the Company's
outstanding common stock and common stock equivalents, if dilutive, subsequent
to the completion of the Company's initial public offering in July 1995. As
required by rules promulgated by the Securities and Exchange Commission for
1994, shares, options, warrants and convertible preferred shares issued at
prices below the initial public offering price of $13.00 in the twelve months
prior to the initial public offering have been included in the calculation of
weighted average common and common equivalent shares as if outstanding using the
treasury stock method.
 
                                       38
   39
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
     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 and tax loss
carryforwards for which realization is not assured.
 
     Revenues and Concentration of Credit Risk -- During 1994, 1995 and 1996,
the Company derived approximately 84%, 84% and 86%, respectively, of its
revenues from domestic sales. Approximately 60%, 62% and 58%, respectively, of
the Company's 1994, 1995 and 1996 domestic revenues were sales to distributors
of medical products who sell the products directly to patients. The remaining
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 state
agencies. Certain distributor receivables are secured while all other
receivables are unsecured. Foreign revenues in most countries represent sales to
dealers in various countries in Europe. Sales to the European dealers may be
shipped from the United States or through the Company's subsidiaries. Certain
foreign sales are transacted directly by the Company's European subsidiaries
with patients, with reimbursement provided by the appropriate third party payors
in the appropriate country. Levels of payments from third-party payors and
patients vary, depending upon the specific benefits provided under each
patient's coverage. 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 cover the
difference between recorded revenues and 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.
 
     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 accounts for stock
option grants in accordance with 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 inventory reserves and accrued
warranties.
 
     Fiscal Year -- In fiscal 1995, the Company adopted a 4-4-5 accounting cycle
with the fiscal year ending on the Friday closest to December 31. All prior
years presented were based on the "calendar" year ended December 31. The
Company's 1997 fiscal year end will be on January 2, 1997.
 
     Reclassifications -- Certain reclassifications have been made to the 1994
and 1995 financial statements to conform with the 1996 presentation.
 
 3. RELATED PARTY TRANSACTIONS
 
     Services and Facilities Agreements -- During 1995 and 1994, the Company
provided certain support services to and shared certain facilities and equipment
with Advanced Bionics Corporation ("ABC"), a Company owned primarily by the
individual who is currently the Company's largest single stockholder, Chairman
and Chief Executive Officer. Costs charged to ABC were $470,000 and $180,000 for
the years ended December 31, 1994 and December 29, 1995. ABC owed the Company
$105,000 at December 31, 1994, $15,000 at December 29, 1995 and $90,000 at
December 27, 1996. The amount owed by ABC to the
 
                                       39
   40
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
Company at December 27, 1996 relates to equipment sold to ABC without a material
gain or loss recognized. The Company has leased certain operating facilities to
its current Chairman and Chief Executive Officer under a one-year lease
renewable for four additional one year periods. In the event that the Chairman
and Chief Executive Officer gives the Company a notice of non-renewal, he is
obligated to pay the Company approximately $4,000 per month for improvements
made to the facility through the earlier of June 2001 or the date the Company
occupies the space. If the Company gives the Chairman and Chief Executive
Officer a notice of non-renewal, neither he nor the Company has any further
obligation. Rents charged under this agreement were $15,600 and $74,847 for the
years ended December 29, 1995 and December 27, 1996, respectively. Rental income
related to this lease is recorded in other income.
 
     Research and Development Costs and Purchase of Technology -- During the
first six months of 1994, the Company performed research and development
services for an entity owned by its Chairman, Chief Executive Officer, and
largest single stockholder. The Company charged this affiliated entity $303,000
in 1994 for these research and development services. On June 22, 1994, the
Company issued 200,000 shares of its redeemable, convertible preferred stock to
this entity in exchange for certain technologies related to the development of a
subcutaneous glucose sensor. As the Company purchased this technology from
another entity which is considered an affiliate under rules and regulations of
the Securities and Exchange Commission, the accounting basis of the technology
transferred by the affiliate has been used to establish the value of the
technology transferred as well as the preferred stock issued by the Company. The
transferred technology had a $0 basis at the affiliate, as amounts related to
the subcutaneous glucose sensor research had been recorded as research and
development expense. Therefore, the Company assigned a $0 value to the
technology acquired, and to the preferred stock issued, for this technology.
These shares of preferred stock, along with all other outstanding shares of
preferred stock, were converted to Common Stock in conjunction with the
Company's initial public offering.
 
     On February 18, 1997, the Company's board of directors approved a mutual
license and product improvement agreement between Medical Research Group, LLC
("MRG"), an entity controlled by the Company's Chief Executive Officer, and the
Company. The final agreement has not yet been entered into. Under the proposed
terms of this agreement, the Company will grant MRG a license to utilize certain
MiniMed technology in the development of a diabetes treatment and management
system (the "system") and will pay MRG royalties on MiniMed's sale of other
products that may utilize improvements made by MRG to the MiniMed technology.
MRG will grant MiniMed the option to purchase the marketing rights of the system
for $30.0 million at the earlier of December 31, 1998 or 90 days after MRG
achieves a pre-determined regulatory milestone in the development of the system
(subject to extensions of the option period of up to one year under certain
circumstances). In the event that MiniMed does not exercise its option to
purchase these marketing rights, MRG may, at its option, purchase products and
components from MiniMed at pre-determined transfer prices or may manufacture
these products and pay royalties to MiniMed on the use of MiniMed's technology
in the system.
 
                                       40
   41
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
 4. LAND, BUILDING, PROPERTY AND EQUIPMENT -- NET
 
     Land, building, property and equipment, net consists of the following:
 


                                                 DECEMBER 29,     DECEMBER 27,   USEFUL LIVES
                                                     1995             1996         (YEARS)
                                                 ------------     ------------   ------------
                                                                        
        Land, buildings and improvements.......  $  6,028,000     $  7,058,000    39 to 40
        Machinery and equipment................     4,987,000        6,682,000     3 to 5
        Tooling and molds......................     2,299,000        2,979,000       3
        Furniture and fixtures.................     1,131,000        1,733,000       7
                                                  -----------      -----------
                                                   14,445,000       18,452,000
        Less accumulated depreciation..........    (3,892,000)      (5,806,000)
                                                  -----------      -----------
        Total..................................  $ 10,553,000     $ 12,646,000
                                                  ===========      ===========

 
 5. OTHER ASSETS
 
     Other assets consist of the following:
 
                                         
                    Technology license (Note 7)...............  $277,000
                    Inventory components, non-current 
                      (Note 7)................................   300,000
                                                                --------
                                                                $577,000
                                                                ========

                    
 
 6. NOTES PAYABLE AND LINE OF CREDIT
 
     A customer advanced the Company $600,000 as part of a supply contract
without interest, payable on demand. The loan was repaid during 1996. All other
notes payable were retired with proceeds from the Company's initial public
offering in July 1995.
 
     In January 1997, the Company entered into an unsecured line of credit
agreement which expires on January 31, 1999. Under terms of this agreement, the
Company may borrow up to $10.0 million and is required to pay monthly interest
at a rate equal to the 30-day commercial paper rate plus 2.15%. MiniMed is also
required to maintain certain cash, net worth and debt conditions under the
provisions of this agreement. The Company is currently in compliance with all of
these conditions.
 
 7. COMMITMENTS AND CONTINGENCIES
 
     Rental expense under operating leases to non-related parties was $143,000,
$212,000, and $0 for 1994, 1995, and 1996, respectively.
 
     On September 11, 1996, the Company filed a lawsuit against another company
seeking rescission of a product distribution contract. Subsequent to the filing
of this action, the other company has filed a counter-claim seeking compensatory
damages of approximately $600 million and punitive damages of $300 million. 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. Discovery has commenced in the litigation,
but the matter has not yet been set for trial.
 
     On November 1, 1996, the Company entered into a material supply and
technology license agreement with a supplier. The Company also issued 10,000
shares of common stock valued at $28.50 per share, the market value of the stock
on the date of the agreement, to this supplier in exchange for the technology
license. The Company is obligated to purchase component parts valued at
$1,125,000 during fiscal 1997. On September 30, 1997, the Company has the option
to purchase an additional $1,125,000 in components during
 
                                       41
   42
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
fiscal 1998 or discontinue its purchasing activity with this supplier and
utilize its technology license to develop a manufacturing operation to produce
these components internally. The Company may also discontinue the utilization of
these components in all the Company's products at September 30, 1997. In
conjunction with the material supply and technology license agreement described
above, the Company purchased component parts from this supplier during fiscal
1996 which will not be used in the sale of products in fiscal 1997 based upon
planned sales levels derived from historical product demand. Accordingly, the
Company has reclassified $300,000 of these component parts as a long-term asset
included in other assets (Note 5).
 
     During the normal course of business, the Company is subject to litigation
involving various business matters. Management believes that an adverse outcome
of any such known matters would not have a material impact to the Company.
 
 8. REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
 
     Redeemable, Convertible Preferred Stock -- On June 22, 1994, the Company's
Board of Directors authorized the issuance of a series of preferred stock of the
Company, designated Series A Preferred Stock, and each share was convertible
into one share of the Company's common stock at the option of the holder of the
Series A Preferred Stock. The Company issued 1,111,111 shares of Series A
Preferred Stock in 1994. All issued and outstanding shares of Series A Preferred
Stock were automatically converted to common stock concurrent with the Company's
initial public offering in July, 1995. An additional 3,899,999 shares of
preferred stock are authorized and unissued as of December 27, 1996.
Preferences, rights, and qualifications of the unissued but authorized preferred
stock will be determined by the Board of Directors prior to the issuance of any
additional shares of preferred stock.
 
     Treasury Stock -- On June 22, 1994, the Company's Board of Directors
approved the repurchase of 75,703 shares of common stock from its Chairman and
Chief Executive Officer for $700,000, of which $579,000 was recognized by the
Company as treasury stock and $120,000 was recognized as compensation expense.
 
     Warrants -- In connection with the issuance of Series A Preferred Stock,
which was converted to common stock in 1995, the Company issued warrants to
purchase 200,000 shares of the Company's common stock at an exercise price of
$13.00 per share to the holders of the Series A Preferred Stock. These warrants
are exercisable at any time prior to June 22, 1997.
 
     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
 
                                       42
   43
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
exercisable and vest in annual increments of up to six years. An additional
524,567 options are available for grant at December 27, 1996. Stock option plan
activity is as follows:
 


                                                                         RANGE OF OPTION
                                                                           PRICES PER
                                                            SHARES            SHARE
                                                           ---------     ---------------
                                                                   
        Outstanding options at January 1, 1994...........    880,850     $ 4.50 - $ 6.00
        Options granted..................................    184,250     $ 6.00 - $ 7.65
        Options canceled.................................    (78,550)
                                                           ---------
        Outstanding options at December 31, 1994.........    986,550
                                                           =========
        Options granted..................................    543,500     $ 7.65 - $12.00
        Options exercised................................    (65,047)    $ 4.50 - $ 7.65
        Options canceled.................................    (38,035)
                                                           ---------
        Outstanding options at December 29, 1995.........  1,426,968
                                                           =========
        Options granted..................................    303,847     $14.75 - $27.00
        Options exercised................................   (203,020)    $ 4.50 - $ 7.65
        Options canceled.................................    (71,649)
                                                           ---------
        Outstanding options at December 27, 1996.........  1,456,146     $ 4.50 - $27.00
                                                           =========

 
     The following table summarizes information about stock options outstanding
at December 27, 1996:
 


                            NUMBER
                          OUTSTANDING       WEIGHTED AVERAGE      WEIGHTED                                 WEIGHTED
      RANGE OF          AT DECEMBER 27,        REMAINING          AVERAGE       SHARES EXERCISABLE AT      AVERAGE
   EXERCISE PRICES           1996           CONTRACTUAL LIFE   EXERCISE PRICE     DECEMBER 27, 1996     EXERCISE PRICE
- ---------------------  -----------------    ----------------   --------------   ---------------------   --------------
                                                                                         
$4.50................        422,546                4              $ 4.50              310,119              $ 4.50
$5.00 - $7.25........        242,050                5                5.86              119.753                5.80
$7.65................        490,800                6                7.65              110,100                7.65
$8.75 - $27.00.......        300,750                7               14.56               23,350               14.36
                                                    -
                           ---------                               ------              -------              ------
                           1,456,146                5              $ 7.81              563,322              $ 5.80
                           =========                =              ======              =======              ======

 
     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
(beginning of six month period); or (2) 85% of the fair market value of the
common stock on the exercise date (end of six month period). Sale of shares
issued under the stock purchase is prohibited for one year from the exercise
date. Transactions related to the employee stock purchase plan are summarized as
follows:
 


                                                                         WEIGHTED AVERAGE
                                                            SHARES        EXERCISE PRICE
                                                           ---------     ----------------
                                                                   
        Shares available.................................  1,000,000
        Exercised........................................     14,822          $18.38
                                                           ---------
        Shares available at December 27, 1996............    985,178
                                                           =========

 
     All stock options under the stock option plan are granted at the fair
market value of the Company's common stock at the grant date. The weighted
average estimated fair value of the stock purchase plan and options granted in
1995 and 1996 was $3,854,544 and $2,089,754, respectively. The Company applies
 
                                       43
   44
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
Accounting Principles Board 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 1994, 1995 or 1996. 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 FASB
Statement No. 123, Accounting for Stock Based Compensation, the Company's net
income and earnings per share for the years ended December 29, 1995 and December
27, 1996 would have been reduced to the pro forma amounts indicated below:
 


                                                                      YEARS ENDED
                                                              ---------------------------
                                                               DECEMBER        DECEMBER
                                                                  29,             27,
                                                                 1995            1996
                                                              -----------     -----------
                                                                        
        Net income:
          As reported.......................................  $ 1,809,000     $ 4,672,000
          Pro forma.........................................    1,157,000       3,812,000
        Net income per common and common equivalent share:
          As reported.......................................  $      0.17     $      0.38
          Pro forma.........................................  $      0.11     $      0.31

 
     The fair value of options granted under the stock option plan during 1995
and 1996 was determined using the Black-Scholes option pricing model utilizing
the following weighted-average assumptions:
 


                                                                      YEARS ENDED
                                                             -----------------------------
                                                             DECEMBER 29,     DECEMBER 27,
                                                                 1995             1996
                                                             ------------     ------------
                                                                        
        Dividend yield.....................................      0%               0%
        Anticipated volatility.............................     325%             66%
        Risk-free interest rate............................    7.40%            6.09%
        Expected lives.....................................   5 years          5 years

 
     Pro forma compensation cost of options granted under the employee stock
purchase plan is measured based upon the discount from market value.
 
 9. EMPLOYEE BENEFIT PLAN
 
     The Company has a defined contribution plan which is available to
substantially all full-time employees of the Company. No contributions were made
during 1994. Subsequent to December 31, 1994, the Company revised the terms of
the Plan. 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 29, 1995 and
December 27, 1996 were $69,000 and $93,000, respectively.
 
10. INCOME TAXES
 
     Pretax income (loss) from continuing operations for the three years in the
period ended December 27, 1996 was subject to income tax in the following
jurisdictions:
 


                                                                    YEAR ENDED
                                                    ------------------------------------------
                                                    DECEMBER 31,   DECEMBER 29,   DECEMBER 27,
                                                        1994           1995           1996
                                                    ------------   ------------   ------------
                                                                         
        Domestic..................................   $ (962,000)    $2,208,000     $6,756,000
        Foreign...................................       62,000         23,000       (422,000)
                                                      ---------     ----------     ----------
        Pretax income (loss)......................   $ (900,000)    $2,231,000     $6,334,000
                                                      =========     ==========     ==========

 
                                       44
   45
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
     Significant components of the provision for income taxes are as follows:
 


                                                                    YEAR ENDED
                                                    ------------------------------------------
                                                    DECEMBER 31,   DECEMBER 29,   DECEMBER 27,
                                                        1994           1995           1996
                                                    ------------   ------------   ------------
                                                                         
        Current:
          Federal.................................   $       --     $  812,000     $1,613,000
          Foreign.................................           --             --         10,000
          State...................................           --        220,000        453,000
                                                     ----------     ----------     ----------
                                                             --     $1,032,000     $2,076,000
        Effect of nonqualified stock option
          exercises upon income taxes currently
          payable:................................           --        179,000        994,000
        Deferred
          Federal.................................           --       (789,000)    (1,100,000)
          Foreign.................................           --             --             --
          State...................................           --             --       (308,000)
                                                     ----------     ----------     ----------
                                                             --       (789,000)    (1,408,000)
                                                     ----------     ----------     ----------
                                                     $       --     $  422,000     $1,662,000
                                                     ==========     ==========     ==========

 
     The following table summarizes the changes in the Company's valuation
allowance against deferred tax assets:
 


                                                                      YEAR ENDED
                                                             -----------------------------
                                                             DECEMBER 29,     DECEMBER 27,
                                                                 1995             1996
                                                             ------------     ------------
                                                                        
        Beginning balance................................     $1,629,000       $1,268,000
        Change...........................................       (361,000)        (653,000)
                                                              ----------       ----------
        Ending balance...................................     $1,268,000       $  615,000
                                                              ==========       ==========

 
     The components of deferred tax assets (liabilities) at December 29, 1995
and December 27, 1996 are as follows:
 


                                               DECEMBER 29, 1995       DECEMBER 27, 1996
                                             ---------------------   ---------------------
                                              FEDERAL      STATE      FEDERAL      STATE
                                             ----------   --------   ----------   --------
                                                                      
        Deferred tax assets:
          Accrued warranties...............  $1,137,000   $302,000   $1,006,000   $267,000
          Accrued vacation.................     152,000     40,000      174,000     48,000
          Allowance for doubtful
             accounts......................     404,000    108,000      834,000    228,000
          Inventory reserve................     614,000    163,000      792,000    225,000
          Other............................      36,000    (13,000)     128,000     21,000
                                             ----------   --------   ----------   --------
                                              2,343,000    600,000    2,934,000    789,000
        Deferred tax liabilities:
          Depreciation.....................    (700,000)  (186,000)    (633,000)  (173,000)
          Deferred state income taxes......                            (105,000)
                                             ----------   --------   ----------   --------
        Net deferred tax assets............   1,643,000    414,000    2,196,000    616,000
        Valuation allowance................    (854,000)  (414,000)    (307,000)  (308,000)
                                             ----------   --------   ----------   --------
        Total..............................  $  789,000   $      0   $1,889,000   $308,000
                                             ==========   ========   ==========   ========

 
                                       45
   46
 
                                  MINIMED INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     YEARS ENDED DECEMBER 31, 1994, DECEMBER 29, 1995 AND DECEMBER 27, 1996
 
     A reconciliation of the Company's provision for income taxes for 1995 and
1996 to the U.S. Federal Statutory rates is as follows:
 


                                                                            YEAR ENDED
                                                                   -----------------------------
                                                                   DECEMBER 29,     DECEMBER 27,
                                                                       1995             1996
                                                                   ------------     ------------
                                                                              
  Provision for income taxes at U.S. Statutory rates.............    $716,000        $2,217,000
  State taxes, net of Federal benefit............................     134,000            94,000
  Non-deductible expenses........................................     107,000           112,000
  Utilization of Federal and State operating loss
    carryforwards................................................    (201,000)
  Foreign loss not usable........................................                       148,000
  Difference between actual rate and Federal Statutory rate......                       (63,000)
  Reduction of valuation allowance...............................    (361,000)         (653,000)
  Other..........................................................      27,000          (193,000)
                                                                     --------        ----------
                                                                     $422,000        $1,662,000
                                                                     ========        ==========

 
11. OPERATIONS BY GEOGRAPHIC AREA
 


                                                                        YEAR ENDED
                                                        ------------------------------------------
                                                        DECEMBER 31,   DECEMBER 29,   DECEMBER 27,
                                                            1994           1995           1996
                                                        ------------   ------------   ------------
                                                                             
  NET SALES
    North American operations.......................... $ 33,283,000   $ 40,675,000   $ 53,569,000
    European operations................................    2,991,000      4,432,000      5,511,000
                                                        ------------   ------------   ------------
    Consolidated....................................... $ 36,274,000   $ 45,107,000   $ 59,080,000
                                                          ==========     ==========     ==========
  OPERATING INCOME (LOSS)
    North American operations.......................... $   (617,000)  $  1,722,000   $  5,526,000
    European operations................................       22,000       (104,000)      (254,000)
                                                        ------------   ------------   ------------
    Consolidated....................................... $   (595,000)  $  1,618,000   $  5,272,000
                                                          ==========     ==========     ==========
  IDENTIFIABLE ASSETS AT END OF PERIOD
    North American operations.......................... $ 22,954,000   $ 50,443,000   $ 56,026,000
    European operations................................    1,556,000      2,086,000      3,477,000
                                                        ------------   ------------   ------------
    Consolidated....................................... $ 24,510,000   $ 52,529,000   $ 59,503,000
                                                          ==========     ==========     ==========

 
                                       46
   47
 
ITEM 9. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                    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 shareholders to be filed not later than 120 days after
December 27, 1996 with the Securities and Exchange Commission (the "1997
Proxy"). Certain information relating to Executive Officers of the Company
appears in Part I of this Form 10-K and is incorporated in Part III by this
reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information with respect to this item is incorporated by reference to the
Company's 1997 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 1997 Proxy.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information with respect to this item is incorporated by reference to the
Company's 1997 Proxy.
 
                                    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 VII -- 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:
 
         2.1     Assignment and Assumption Agreement dated as of May 22, 1992 by
                 and among Alfred E. Mann, Siemens-MiniMed Inc., Siemens
                 Corporation, AEM MiniMed Corp., MiniMed Technologies Limited
                 and Pacesetter Infusion, Inc. (included as Exhibit 2.1 to the
                 Company's Registration Statement on Form S-1 (file no.
                 33-92710) which is incorporated herein by reference).
 
         2.2     Asset Acquisition Agreement dated March 18, 1993 by and between
                 MiniMed Technologies Limited and MiniMed Inc. (included as
                 Exhibit 2.2 to the Company's Registration Statement on Form S-1
                 (file no. 33-92710) which is incorporated herein by reference).
 
                                       47
   48
 
         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     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).
 
         3.5     Certificate of Designation with respect to Series B Preferred
                 Stock (included as Exhibit 3.5 to the Company's Registration
                 Statement on Form S-1 (file no. 33-92710) which is incorporated
                 herein by reference.)
 
         4.1     Specimen certificate of Common Stock (included as Exhibit 4.1
                 to the Company's Registration Statement on Form S-1 (file no.
                 33-92710) which is incorporated herein by reference).
 
        10.1     General Principles of Cooperation dated as of December 17, 1992
                 by and between Novo Nordisk A/S and MiniMed Inc. (included as
                 Exhibit 10.9 to the Company's Registration Statement on Form
                 S-1 (file no. 33-92710) which is incorporated herein by
                 reference).
 
        10.2     Term Sheet dated December 16, 1993 by and between Novo Nordisk
                 A/S and MiniMed Inc. (included as Exhibit 10.10 to the
                 Company's Registration Statement on Form S-1 (file no.
                 33-92710) which is incorporated herein by reference).
 
        10.3     Form of Class A Stock Purchase Warrant Expiring June 21, 1997
                 dated June 22, 1994 by and among MiniMed Inc. and Galen
                 Partners II, L.P., Galen Partners International II, L.P. and
                 Galen Employee Fund (included as Exhibit 10.14 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-8 (file no. 33-95630) 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).
 
        10.7     MiniMed Inc. Second Amended and Restated 1994 Stock Incentive
                 Plan (included as Exhibit 10.16 to the Company's 1996 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
 
                                       48
   49
 
                  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     Supply Agreement dated as of October 1, 1993 by and between
                  MiniMed Inc. and Wilson Greatbatch Ltd. (included as Exhibit
                  10.26 to the Company's Registration Statement on Form S-1
                  (file no. 33-92710) which is incorporated herein by
                  reference).
 
        10.12     Amendment to Supply Agreement and License Agreement dated as
                  of November 1, 1996 by and between MiniMed Inc. and Wilson
                  Greatbatch Ltd.
 
        10.13     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).
 
        10.14     MiniMed Inc. Non-Employee Director Deferred Stock Units Plan
                  (included as Exhibit 10.14 to the Company's 1996 Annual Report
                  on Form 10-K which is incorporated herein by reference).
 
        10.15     MiniMed Inc. Employee Stock Purchase Plan (included as Exhibit
                  10.15 to the Company's 1996 Annual Report on Form 10-K which
                  is incorporated herein by reference).
 
        10.16     WCMA Note and Loan Agreement dated as of January 21, 1997 by
                  and between MiniMed Inc. and Merrill Lynch Business Financial
                  Services Inc.
 
        10.17     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.
 
        11.1      Statement relative to computation of per share earnings of the
                  Company.
 
        21.1      Subsidiaries of the Company.
 
        23.1      Consent of Deloitte & Touche LLP.
 
     (b) 1. Reports on Form 8-K
 
        None were filed during the fourth quarter of 1996.
 
                                       49
   50
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, MiniMed Inc. has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized on March 25,
1997.
 
                                          MINIMED INC.
 
Date: March 25, 1997                      By: /s/ ALFRED E. MANN
                                            ------------------------------------
                                            Alfred E. Mann
                                            Chairman of the Board and Chief
                                            Executive Officer (Principal
                                            Executive Officer)
 
Date: March 25, 1997                      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 Company and in the capacities indicated on March 25, 1997.
 


SIGNATURE                                        TITLE                          DATE
- -----------------------------------------------  ---------------------------    ---------------
                                                                          
/s/ ALFRED E. MANN                               Director, Chairman of the      March 25, 1997
- -----------------------------------------------  Board and Chief Executive
Alfred E. Mann                                   Officer (Principal
                                                 Executive Officer)

/s/ KEVIN R. SAYER                               Senior Vice President,         March 25, 1997
- -----------------------------------------------  Finance and Chief Financial
Kevin R. Sayer                                   Officer (Principal
                                                 Financial and Accounting
                                                 Officer)
 
/s/ DAVID CHERNOF, M.D.                          Director                       March 25, 1997
- -----------------------------------------------
David Chernof, M.D.
 
/s/ WILLIAM R. GRANT                             Director                       March 25, 1997
- -----------------------------------------------
William R. Grant
 
/s/ DAVID MACCALLUM                              Director                       March 25, 1997
- -----------------------------------------------
David MacCallum
 
/s/ THOMAS R. TESTMAN                            Director                       March 25, 1997
- -----------------------------------------------
Thomas R. Testman
 
/s/ JOHN C. VILLFORTH                            Director                       March 25, 1997
- -----------------------------------------------
John C. Villforth

 
                                       50
   51
 
                                  MINIMED INC.
 
               VALUATION AND QUALIFYING ACCOUNTS -- SCHEDULE VII
 


           COLUMN A --             COLUMN B --         COLUMN C -- ADDITIONS         COLUMN D--   COLUMN E--
                                                 ---------------------------------
                                   BALANCE AT          (1)            CHARGED TO        (2)        BALANCE
                                    BEGINNING    CHARGED TO COSTS       OTHER                       AT END
           DESCRIPTION              OF PERIOD      AND EXPENSES        ACCOUNTS      DEDUCTIONS   OF PERIOD
- ---------------------------------  -----------   ----------------   --------------   ----------   ----------
                                                                                   
Allowance for doubtful accounts:
     1994........................    1,149,000       1,168,000                       (961,000)    1,356,000
     1995........................    1,356,000         391,000                       (420,000)    1,327,000
     1996........................    1,327,000       1,750,000                       (502,000)    2,575,000
Accrued warranties:
     1994........................    2,334,000         549,000                                    2,883,000
     1995........................    2,883,000         360,000                                    3,243,000
     1996........................    3,243,000                                       (370,000)    2,873,000

 
- ---------------
 
(1) The allowance for doubtful accounts represents charges to bad debt expense
    for the year.
 
(2) The allowance for doubtful accounts represents reductions of revenues for
    pricing adjustments, return estimates and bad debts. The accrued warranties
    reductions represent present lower warranty rates experienced in 1996.
 
                                       51

EX-10.12

   1
                                                                   EXHIBIT 10.12

                       [WILSON GREATBATCH LTD. LETTERHEAD]
                                November 1, 1996


MiniMed Inc.
12744 San Fernando Road
Sylmar, California 91342

Gentlemen:

           Reference is made to a certain Supply Agreement between you ("MMI")
and MiniMed Technologies Ltd. ("MMT"), and Wilson Greatbatch Ltd. ("WGL), dated
as of October 1, 1993 (the "Supply Agreement") and to a certain License
Agreement between MMI and WGL, dated as of October 1, 1993 (the "License
Agreement"). This letter is intended to set forth in writing certain amendments
to the Supply Agreement and License Agreement, respectively, as set forth below:

          1.        Section 1.5 of the Supply Agreement is hereby amended to
read in its entirety as follows:

                    "1.5 Products. "Products" shall mean any medical device now
          or hereafter manufactured by or for MMI, including, without
          limitation, an Insulin Device."

          2.        Article 2 of the Supply Agreement is hereby amended to read
in its entirety as follows:

                                   "ARTICLE 2
                                Purchase of Pumps

           2.1 Purchase Orders and Term (a) Subject to all of the terms and
           conditions of this Agreement (including this amended Article 2), WGL
           and MMI agree to a three (3) year supply arrangement to be effective
           January 1, 1996 through December 31, 1998 ("Termination Date"). The
           initial Termination Date may be automatically extended by one year
           upon the delivery to WGL by MMI of a purchase order for not less than
           five hundred (500) 05 Pumps not later than September 1, 1996 (which
           order has been received); and for one additional year upon the
           delivery to WGL by MMI of a purchase order for not less than five
           hundred (500) 05 Pumps not later than September 1, 1997. Thereafter,
           any extension of the Termination Date of this Agreement shall only be
           by mutual written agreement. If MMI fails to submit a purchase order
           by September 1 of any year during the Term for at least five hundred
           (500) 05 Pumps for the following year of the Term, there shall be no
           extension of the Term of this Agreement beyond the balance of the
           then-current three-year term. In addition, WGL, at its sole
           discretion, may (x) reject any such Order for less than five hundred
           (500) 05 Pumps and give MMI notice that the supply obligation of WGL
           shall terminate after completing and delivering any Pumps remaining
           under then-accepted Orders, or (y) accept such Order and give MMI
           notice that the supply obligation of WGL shall terminate after
           completing such Order.



   2



MiniMed, Inc.
November 1, 1996
Page 2


     (b) For purposes hereof, the word "Term" shall mean the initial three
     calendar years of 1996, 1997 and 1998, and any additional years resulting
     from an extension of the initial three-year period as provided for in
     Paragraph (a) above, subject to earlier termination as provided in said
     Paragraph (a) and elsewhere in this Agreement.

     (c) MMI has issued and delivered to WGL a written purchase order to
     purchase seven hundred and fifty (750) WGL 05 Pumps for delivery during the
     first year of the Term ("First Order"). The First Order is to be delivered
     in accordance with the delivery schedule set forth therein. MMI has also
     delivered a purchase order to purchase five hundred (500) WGL 05 Pumps for
     delivery during 1997, which order shall be delivered in accordance
     therewith. On or prior to each September 1 hereafter during the Term, MMI
     may deliver a purchase order for additional WGL 05 Pumps. For purposes of
     this Agreement, the term "Orders" shall mean, collectively, the First Order
     and all additional purchase orders submitted by MMI in accordance with the
     Agreement. Any term or condition contained in MMI's form purchase order(s)
     (or any amendment thereto) which is in addition to or conflicts or is
     inconsistent with this Agreement shall be null and void, and this Agreement
     shall be controlling in all respects.

     2.2 Prices. (a) Subject to Paragraphs (b) through (d) of this Section 2.2,
     the purchase price for all WGL 05 Pumps during the Term shall be fifteen
     hundred dollars ($1,500) per pump unless the number of 05 Pumps ordered by
     MMI in any Order is less than seven hundred and fifty (750), in which case
     the price per pump shall be one thousand seven hundred and fifty dollars
     ($1,750).

     (b) If the Term of the Agreement is to extend beyond December 31, 1998,
     then WGL shall have the right to increase the price of all Pumps to be
     delivered after December 31, 1998 by an amount equal to the Base Prices
     multiplied by the percentage increase in the Consumer Price Index for the
     calendar month in which the Adjustment Date occurs over the Base CPI. WGL
     shall have the right to increase the Base Prices once only for each
     contract year; e.g., for Pumps sold in 1998, 1999, etc.

     (c)   For purposes hereof:

           (i)      "CPI Adjustment Date" shall mean June 1, 1998, June 1, 1999,
                    and June 1 of each year thereafter to the extent that the
                    Term shall have been extended.

           (ii)     "Consumer Price Index" shall mean the Revised Consumer Price
                    Index for Urban Wage Earners and Clerical Workers. All Items
                    (base index year 1982-84=100), for Buffalo, New York, as
                    published by the United States Department of Labor, Bureau
                    of Labor Statistics. If the manner



   3



MiniMed, Inc.
November 1, 1996
Page 3


                    in which the Consumer Price Index is determined by the
                    Bureau of Labor Statistics shall be substantially revised,
                    including, without limitation, a change in the base index
                    year, an adjustment shall be made by WGL in such revised
                    index which would produce results equivalent, as nearly as
                    possible, to those which would have been obtained if such
                    Consumer Price Index had not been so revised. If the
                    Consumer Price Index shall become unavailable to the public
                    because publication is discontinued, or otherwise, or if
                    equivalent data is not readily available to enable WGL to
                    make the adjustment referred to in the preceding sentence,
                    then WGL will substitute therefor a comparable index based
                    upon charges in the cost of living or purchasing power of
                    the consumer dollar published by another governmental agency
                    or, if no such index shall be available, then a comparable
                    index published by a major bank or other financial
                    institution or by a university or recognized financial
                    publication.

          (iii)     "Base CPI" shall mean the Consumer Price Index for January,
                    1996.

          (iv)      "Base Prices" shall mean the $1,750 and $1,500 prices set
                    forth in Section 2.2(a) hereof.

     (d)  WGL shall give notice to MMI of any CPI adjustment promptly after the
     CPI Adjustment Date and, in any event, at least 30 days prior to September
     1 of 1998, September 1, 1999 and each September 1 thereafter to the extent
     that the Term shall have been extended, so that MMI can take any such
     adjustment into account in connection with placing its Orders under Section
     2. 1. MMI shall have 30 days after receipt of a CPI notice to object to any
     proposed increase in the Base Prices. If MMI does object to any such
     increase within said period, MMI shall notify WGL in writing ("Objection")
     and, if the parties cannot mutually agree on any proposed increase to Base
     Prices hereunder within 30 days after WGL's receipt of any such objection,
     the parties shall submit their dispute to an independent certified public
     accounting firm whose decision shall be final and binding. Any decision
     that an increase to the Base Price is warranted shall be retroactive to the
     beginning of the contract year as to which the price increase applies.

     2.3  No Modification of Order. (a) No Order shall be modified or cancelled.
     If MMI stops or refuses delivery of any Pumps covered by any Order prior to
     or on the applicable delivery date for the Pumps specified in the Order,
     then WGL shall invoice MMI for such Pumps on such date.




   4



MiniMed, Inc.
November 1, 1996
Page 4


           (b) In the event MMI cancels any one of the Orders by written notice
           delivered to WGL, then WGL shall not be obligated to supply MMI with
           any further Pumps and may cancel this Agreement.

                     MMI's purchase obligations are subject to WGL having
           sufficient batteries compatible with the 05 Pumps. WGL represents and
           warrants that it has available, and will retain solely for
           availability to MMI in accordance with this Agreement, aminimum of at
           least 3,000 batteries which are compatible with the 05 Pumps.

           2.4 Quality. All Pumps covered by this Agreement will be manufactured
           under ISO 9001 system. WGL is certified to the standard British
           Standards Institute (BSI) certificate number FM 26911.

           2.5 Terms. Shipping terms are FOB Clarence, New York, U.S.A. Payment
           terms are Net 30 days after shipment.

           2.6 Continuing Supply. WGL and MiniMed shall in good faith discuss a
           continuing arrangement pursuant to which WGL would supply some Pumps
           for MMI as a second source of supply. If mutually agreed, the terms,
           conditions, price and time period for any such arrangement will be
           set forth in a written amendment to this Agreement or other written
           document, signed by both parties."

           3.  Article 7 of the Supply Agreement (as heretofore amended) is
hereby further amended as follows:

               (i)  The "Closing Date" as defined in Section 7.1 thereof is
                    changed from October 15, 1995 to October 15, 1998; and

               (ii) The term "Technology Election Date" as defined in Section
                    7.2(a) thereof is changed from September 1, 1995 to
                    September 1, 1998.

If the initial Termination Date of this Agreement is extended by one year
pursuant to Section 2.1(a) (as amended), and each time it is so extended, then
the Closing Date and the Technology Election Date referred to above shall each
also be extended by the same period of time.

           In addition, MMI agrees to deliver, to WGL, simultaneously with the
execution of this letter agreement, the securities of MMI that comprise the
License Fee (10,000 shares of common stock, $.01 par value, of MMI). In
connection with such delivery, WGL hereby restates and reaffirms to MMI the
representatives, warranties, acknowledgements and agreements appearing at
Exhibit C to the License Agreement.

           4.        Section 8.3 of the Supply Agreement is amended as follows:



   5



MiniMed, Inc.
November 1, 1996
Page 5


                     (i)       Paragraph (a) is deleted.

                     (ii)      Paragraph (b) is amended to change the
                               introductory text of said paragraph to read in
                               its entirety as follows:

                               "MMI shall not be released from its obligations
                               to pay for 05 Pumps covered by any Order placed
                               under this Agreement in the event of a
                               termination of this Agreement by WGL under
                               Section 8.2(b) or under Section 8.2(a) if the
                               termination under Section 8.2(a) is based on any
                               of the following events:... "

Clauses (i) through (iii) that follow the foregoing text shall not be changed.

           5.        The License Agreement is hereby amended as follows:

                     (i)       Section 1.1 of the License Agreement is amended
                               to read in its entirety as follows:

                               "1.1 Affiliate. "Affiliate" of any entity shall
                               mean any other entity that directly, or
                               indirectly through one or more intermediaries,
                               controls, or is controlled by, or is under common
                               control with, the first entity. Control shall
                               mean owning more than thirty-four percent (34%)
                               of the total voting power of the entity.

                     (ii)      Section 1.2 of the License Agreement is hereby
                               amended to add a proviso at the end of said
                               Section 1.2, after the word MMI, as follows:

                               "; provided, however, that MMI shall not have any
                               right or license to use, and the term "Know-How"
                               shall not include, any information or know-how of
                               WGL relating to Pumps which is developed by WGL
                               after September 30, 1996, whether alone or
                               jointly with any third party, unless such
                               information or know-how (A) is directly used by
                               WGL in manufacturing or producing Pumps which are
                               purchased by MMI under the Supply Agreement or
                               (B) is developed by WGL alone or jointly with MMI
                               pursuant to a written order by MMI to develop
                               improvements to the Pumps, which order shall have
                               been acknowledged and accepted in writing by
                               WGL."

                     (iii)     Section 1.5 of the License Agreement is amended
                               to provide that "Pumps" shall include any 07
                               model Pump of WGL as well as 05 and 08 Pumps.



   6
MiniMed, Inc.
November 1, 1996
Page 6


                     (iv)      Section 2.4(a) of the License Agreement is
                               amended to read in its entirety as follows:

                               "2.4 ADDITIONAL OBLIGATIONS AND CONSULTING
                               AGREEMENT. (a) With respect to the Know How, WGL
                               agrees to furnish MMI promptly after the
                               execution of this Agreement, at WGL expense,
                               copies of all documentation in written or
                               tangible form which compromises Know-How
                               hereunder that presently exists and was developed
                               in the normal course of WGL's engineering and
                               production. WGL further agrees to furnish to MMI
                               promptly after the date of Closing (as defined in
                               Section 6.2 hereof) any additional Know-How which
                               is directly related to the manufacture of the
                               Pumps theretofore purchased by MMI from WGL and
                               which may exist as of such time (but subject to
                               Section 1.2 as amended). In addition during the
                               nine-month period beginning upon MMI's written
                               notice thereof, which shall be given at least 60
                               days prior to the commencement of the Consulting
                               Period but not later than 60 days prior to the
                               Termination Date (as defined in the Supply
                               Agreement), as extended (the "Consulting
                               Period"), to the extent requested by MMI, WGL
                               agrees to consult with and provide to MMI up to
                               90 eight-hour man days of support and training as
                               to the Know How and the production of the Pumps,
                               by WGL personnel having knowledge of the Know
                               How. The first 30 eight-hour man days of such
                               services during the Consulting Period shall be at
                               no charge to MMI, and for the next 60 eight-hour
                               man days MMI shall be charged $500 per man day
                               except such charge shall be $1,000 per each man
                               day of WGL's program manager. In addition, MMI
                               shall promptly reimburse WGL for any travel and
                               living expense incurred by WGL personnel in
                               providing such services. The parties agree that
                               WGL shall not be required to maintain its current
                               Pump work force for purposes of this Section 2.4,
                               and shall only be required to make available WGL
                               personnel during the Consulting Period who are
                               knowledgeable and experienced with the Know How
                               and production of the Pumps. If the Initial
                               Termination Date of this Agreement is extended by
                               one year pursuant to Section 2. 1 (a) (as
                               amended), and each time it is so extended, then
                               the latest starting date for the Consulting
                               Period shall also be extended by one year and
                               shall run for a comparable 10-month period of
                               time."

                     (v)       Section 3.1 of the License Agreement is hereby
                               amended to provide that the Securities
                               constituting the License Fee (in the form of
                               10,000 shares of the common stock of MiniMed,
                               Inc.) are being issued and delivered to WGL
                               simultaneously with the execution of this letter
                               agreement. In connection with such delivery, WGL
                               hereby restates and reaffirms to



   7



MiniMed, Inc.
November 1, 1996
Page 7


                     MMI the representatives, warranties, acknowledgements and
                     agreements appearing at Exhibit C to the License Agreement.

           (vi)      The "Royalty Date" as defined in Section 3.l(a) thereof is
                     changed from December 31, 1999 to December 31, 2002.

           (vii)     The date referred to in the first sentence of Section 5.1
                     thereof is changed from December 31, 1999 to December 31,
                     2002;

                     The month referred to in Section 5.5(b)(iii) thereof shall
                     continue to be July 1996; however, the "CPI Adjustment
                     Date" as defined in Section 5.5(b)(i) thereof is changed to
                     mean "July 1, 1997 and July 1 of each year thereafter
                     through July 1, 2002"; and

                     The date referred to in the first sentence of Section 5.6
                     thereof is changed from December 31, 1999 to December 31,
                     2002;

                     PROVIDED, HOWEVER, that the date December 31, 2002,
                     referred to in Sections 5.1, 5.5(b)(iii) and 5.6 of the
                     Agreement (as hereby amended), shall be extended each and
                     every time that the initial Termination Date of the Supply
                     Agreement between WGL and MMI shall be extended and by the
                     same period of time.

           (viii)    Section 5.2 is hereby amended to substitute for the term
                     "08 Pump" (in both places where it appears) the phrase "07
                     Pump or 08 Pump, as the case may be."

           (ix)      Sections 6.1 and 6.2 are hereby amended to read in their
                     entirety as follows:

                     "6.1      MMI PURCHASE OF EQUIPMENT. MMI agrees to purchase
                               subject to its inspection thereof at the time of
                               Closing (as hereinafter defined), and WGL agrees
                               to sell, certain equipment and tooling used by
                               WGL in the manufacture of 05 Pumps. At least 10
                               days prior to Closing, WGL shall deliver to MMI a
                               proposed list of the tooling and equipment to be
                               sold to MMI, which list shall be mutually agreed
                               upon prior to Closing (the "Equipment"). It is
                               agreed that there shall be included in the
                               Equipment which may be purchased at MMI's
                               election: (A) one of the laser welders currently
                               used by WGL in its pump motor assembly operation;
                               and (B) fixtures and associated custom tooling
                               that is used in the assembly of the 05 Pumps and
                               that is unique to such Pump. The



   8



MiniMed, Inc.
November 1, 1996
Page 8


                               purchase price for the Equipment shall be
                               determined in accordance with Section 6.4 (the
                               "Purchase Price").

                               If WGL manufactures any 07 Pumps or 08 Pumps for
                               MMI pursuant to the Supply Agreement, WGL will
                               discuss with MMI the possible purchase by MMI of
                               tooling and equipment used in connection with
                               such manufacture; provided, however, that WGL
                               shall not be obligated to sell any such tooling
                               or equipment unless WGL and MMI enter into a
                               further written agreement setting forth the
                               specific assets to be sold and the terms and
                               conditions of sale.


                     6.2       Closing. The consummation of the purchase and
                               sale of the Equipment ("Closing") shall take
                               place at WGL's offices in Clarence, New York at a
                               time and on a date to be mutually agreed upon;
                               provided, however, that (i) such date shall be
                               the date on which WGL delivers the Equipment to
                               MMI (subject to the WHERE IS condition of Section
                               6.3); and (ii) subject to clause (i) above, such
                               date shall be no later than 30 days following the
                               last date on which Pumps are manufactured by WGL
                               for MMI. MMI may pay the Purchase Price in cash
                               or by delivery of securities of MMI the number of
                               which shall be in the same proportion to the
                               number of Securities (as defined in and as to be
                               delivered by MMI pursuant to Section 3.1 of this
                               License Agreement) as the Purchase Price bears to
                               $100,000."

              5.     The parties agree that MMT shall no longer be a party to
the Supply Agreement or the License Agreement, and MMI shall be fully liable for
all obligations of MMT, and shall have all rights of MMT, under both the Supply
Agreement and the License Agreement.

              6.     Except as specifically provided in this Agreement, the
Supply Agreement and License Agreement shall remain unchanged and in full force
and effect.



   9


MiniMed, Inc.
November 1, 1996
Page 9


           Please confirm you understanding and agreement to the foregoing by
countersigning this letter agreement and returning one copy to the undersigned.


Agreed to and Confirmed                          Agreed to and Confirmed
as of the date of this letter.                   as of the date of this letter.

MINIMED INC.                                     WILSON GREATBATCH LTD.


By     TERENCE H. GREGG                       By      EDWARD F. VOBORIL
  -----------------------------------           --------------------------------
   Terrence H. Gregg, President/COO             Edward F. Voboril, President/CE0

EX-10.16

   1
                                                                   EXHIBIT 10.16

                              [MERRILL LYNCH LOGO]

                        WCMA (R) NOTE AND LOAN AGREEMENT

WCMA NOTE AND LOAN AGREEMENT ("Loan Agreement") dated as of January 6, 1997,
between MINIMED INC. , a corporation organized and existing under the laws of
the State of Delaware having its principal office at 12744 San Fernando Road,
Sylmar, CA 91342 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 33 West Monroe Street, Chicago, IL 60603
("MLBFS").

In accordance with that certain WORKING CAPITAL MANAGEMENT (R) ACCOUNT AGREEMENT
NO. 21C-07H08 ("WCMA Agreement") between Customer and MLBFS affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

1. DEFINITIONS

(a) Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

(i) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.

(ii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations.

(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(iv) "Commitment Expiration Date" shall mean January 31, 1997.

(v) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (A) no Event of Default, or event which with
the giving of notice, passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing or would result from the making
of any WCMA Loan hereunder by MLBFS; (B) there shall not have occurred and be
continuing any material adverse change in the business or financial condition of
Customer; (C) all representations and warranties of Customer herein or in any
Additional Agreements shall then be true and correct in all material respects;
(D) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; and (E) any
additional conditions specified in the "WCMA Line of Credit Approval" letter
executed by MLBFS with respect to the transactions contemplated hereby shall
have been met to the reasonable satisfaction of MLBFS.



   2

(vi) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.15% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.

(vii) "Line Fee" shall mean a fee of $25,000.00 ($12,500/year) payable to MLBFS
in connection with the WCMA Line of Credit for the period from the Activation
Date to the Maturity Date.

(viii) "Maturity Date" shall mean January 31, 1999, or such later date as may be
consented to in writing by MLBFS.

(ix) "Maximum WCMA Line of Credit" shall mean $10,000,000.00.

(x) "Obligations" shall mean all present and future liabilities, indebtedness
and obligations of Customer under this Loan Agreement, including, without
limitation, interest accruing after the filing of any petition in bankruptcy.

(xi) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 21C-07H08.

(xii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.

(b) Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.

2. WCMA PROMISSORY NOTE

FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the Line Fee and any late charges. Except as
otherwise expressly set forth herein, Customer hereby waives presentment, demand
for payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.

3. WCMA LOANS

(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof.

(b) WCMA Loans. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as

                                      -2-
   3

Customer may from time to time request in accordance with the terms hereof, up
to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid on
a revolving basis. Customer may request WCMA Loans by use of WCMA Checks, FTS,
Visa (R) charges, wire transfers, or such other means of access to the WCMA Line
of Credit as may be permitted by MLBFS from time to time; it being understood
that so long as the WCMA Line of Credit shall be in effect, any charge or debit
to the WCMA Account which but for the WCMA Line of Credit would under the terms
of the WCMA Agreement result in an overdraft, shall be deemed a request by
Customer for a WCMA Loan.

(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded: or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customers subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and is continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any Event
of Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.

(d) Force Majeure. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.

(e) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (ii) refunded to the payer thereof, or (iii) any combination of
the foregoing. Except as otherwise provided herein, accrued and unpaid interest
on the WCMA Loan Balance shall be payable monthly on the last Business Day of
each calendar month, commencing with the last Business Day of the calendar month
in which the Activation Date shall occur. Customer hereby irrevocably authorizes
and directs MLPF&S to pay MLBFS such accrued interest from any available free
credit balances in the WCMA Account, and if such available free credit balances
are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance under the WCMA Directed Reserve program) in an
amount up to the balance of such accrued interest, and pay to MLBFS the
available proceeds on account thereof. If available free credit balances in the
WCMA Account and available proceeds of the Money Accounts are insufficient to
pay the entire balance of accrued interest, and Customer otherwise fails to make
such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an
amount equal to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount of any such
WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a
WCMA Loan to Customer under these circumstances, Customer hereby authorizes and
directs MLPF&S to make all such interest payments to MLBFS from any Minimum
Money Accounts Balance. If there is no Minimum Money Accounts Balance, or it is
insufficient to pay all



                                      -3-

   4



such interest, MLBFS will invoice Customer for payment of the balance of the
accrued interest, and Customer shall pay such interest as directed by MLBFS
within 5 Business Days of receipt of such invoice.

(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customers WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.

(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.

(h) LINE FEE; EXTENSIONS. (i) In consideration of the extension of the WCMA Line
of Credit by MLBFS to Customer during the period from the Activation Date to and
including the last day of December in the year immediately following the year in
which the Activation Date shall occur, Customer has paid or shall pay the
initial Line Fee to MLBFS. If such fee has not heretofore been paid by Customer,
Customer hereby authorizes MLBFS, at its option, to either cause said fee to be
paid with a WCMA Loan which is added to the WCMA Loan Balance, or invoice
Customer for said fee (in which event Customer shall pay said fee within 5
Business Days after receipt of such invoice). No delay in the Activation Date,
howsoever caused, shall entitle Customer to any rebate or reduction in the Line
Fee or extension of the Maturity Date. Customer shall pay an additional Line Fee
for each 12-month period thereafter to the Maturity Date, and in connection
therewith hereby authorizes MLBFS, at its option, to either cause each such
additional Line Fee to be paid with a WCMA Loan which is added to the WCMA Loan
Balance, or invoice Customer for such Line Fee, as aforesaid, on or at any time
after the first Business Day of the first month of such 12-month period.

(ii) In the event MLBFS and Customer, in their respective sole discretion, agree
to renew the WCMA Line of Credit beyond the current Maturity Date, Customer
agrees to pay a renewal Line Fee or Line Fees (if the Maturity Date is extended
for more than one 24-month period), in the amount per 24-month period or other
applicable period then set forth in the writing signed by MLBFS which extends
the Maturity Date; it being understood that any request by Customer for a WCMA
Loan or failure of Customer to pay any WCMA Loan Balance outstanding on the
immediately prior Maturity Date, after the receipt by Customer of a writing
signed by MLBFS extending the Maturity Date, shall be deemed a consent by
Customer to both the renewal Line Fees and the new Maturity Date. If no renewal
Line Fees are set forth in the writing signed by MLBFS extending the Maturity
Date, the renewal Line Fee for each 24-month period shall be deemed to be the
same as the immediately preceding periodic Line Fee. Each such renewal Line Fee
may, at the option of MLBFS, either be paid with a WCMA Loan which is added to
the WCMA Loan Balance or invoiced to Customer, as aforesaid, on or at any time
after the first Business Day of the first month of the 24-month period for which
such fee is due.

(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may

                                      -4-

   5



have with respect to such information should be directed to MLBFS; and any
questions with respect to any other matter in such statements or about or
affecting the WCMA Program should be directed to MLPF&S.

(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for general business purposes in the
ordinary course of its business, or, with the prior written consent of MLBFS,
for other lawful business purposes of Customer not prohibited hereby. CUSTOMER
AGREES THAT UNDER NO CIRCUMSTANCES WILL FUNDS BORROWED FROM MLBFS THROUGH THE
WCMA LINE OF CREDIT BE USED: (i) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF
ANY PERSON WHATSOEVER, OR (ii) TO DIRECTLY OR INDIRECTLY PURCHASE, CARRY OR
TRADE IN SECURITIES, OR REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN
SECURITIES, WHETHER IN OR IN CONNECTION WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT
OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF CUSTOMER AT ANY OTHER BROKER OR DEALER
IN SECURITIES.

4. REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.

(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.

(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement and the Additional Agreements to which it is a party.

(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which it is a party are the legal, valid and binding obligations of Customer,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally or by general principles of equity.

(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.

(f) LITIGATION. Except as disclosed in Customer's Quarterly Report on Form 10-Q
for the quarter ending September 27, 1996, no litigation, arbitration,
administrative or governmental proceedings are pending or, to the knowledge of
Customer, threatened against Customer, which would, if adversely determined,
materially and adversely affect the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.

(g) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially


                                      -5-

   6



and adversely affect either the liens and security interests of MLBFS hereunder
or under any of the Additional Agreements, the financial condition of Customer,
or the continued operations of Customer).

Each of the foregoing representations and warranties: (i) has been relied upon
as an inducement to MLBFS to provide the WCMA Line of Credit, and (ii) is
continuing and shall be deemed remade by Customer concurrently with each request
for a WCMA Loan.

5. FINANCIAL AND OTHER INFORMATION

Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:

(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.

(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.

(c) AGING OF ACCOUNTS. Within 45 days after the close of each fiscal quarter of
Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of
its Accounts and any Chattel Paper, certified by its chief financial officer.

(d) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer.

6. OTHER COVENANTS

Customer further agrees during the term of this Loan Agreement that:

(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.

(b) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or the
continued operations of Customer.

(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, or the financial condition or the continued
operations of Customer.

(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Event of Default, or event which with the giving of
notice, passage of time, or both, would constitute an Event of Default; (ii) any
materially adverse change in the business, financial condition or operations of
Customer; and (iii) any information which indicates that any financial
statements of Customer fail in any material respect to present fairly the
financial condition and results of operations purported to be presented


                                      -6-

   7



in such statements. Each notification by Customer pursuant hereto shall specify
the event or information causing such notification, and, to the extent
applicable, shall specify the steps being taken to rectify or remedy such event
or information.

(e) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer will preserve its existence and
good standing in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business substantially the same as
its business as of the date of application by Customer for credit from MLBFS,
and (iii) Customer will not cause or permit any material change in its
controlling ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal place of
business.

(f) Tangible Net Worth. The "tangible net worth" of Customer, consisting of
Customers net worth as shown on Customer's regular financial statements prepared
in a manner consistent with the terms hereof, but excluding an amount equal to:
(i) any assets which are ordinarily classified as "intangible" in accordance
with generally accepted accounting principles, and (ii) any amounts now or
hereafter directly or indirectly owing to Customer by officers, shareholders or
affiliates of Customer, shall at all times exceed $35,000,000.00.

(g) Debt to Worth. The ratio of Customer's total debt to Customers tangible net
worth, determined as aforesaid, shall not at any time exceed 0.6 to 1.

(h) Minimum Cash Flow. The "Annualized Net Cash Flow" of Customer as of the end
of each of its fiscal quarters shall not be less than $2,000,000.00. As used
herein, "Annualized Net Cash Flow" shall mean, as of the end of any fiscal
quarter of Customer, the excess of (i) the sum of Customer's net after-tax
income and depreciation for the immediately preceding four fiscal quarters of
Customer, over (ii) the sum of the then current portion of long term debt and
all dividends and other distributions to shareholders in the immediately
preceding four fiscal quarters; all as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof.

(i) Negative Pledge. Except upon the prior written consent of MLBFS, Customer
shall not directly or indirectly mortgage, encumber, pledge or grant a lien or
security interest in any of its assets or property, now owned or hereafter
acquired other than: (i) liens for current taxes not delinquent or being
contested in good faith by appropriate proceedings, (ii) other non-consensual
liens arising in the ordinary course of business for sums not due, (iii)
purchase money liens upon and leases of equipment, and (iv) liens in favor of
MLBFS.

7. EVENTS OF DEFAULT

The occurrence of any of the following events shall constitute an "Event of
Default' under this Loan Agreement:

(a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or shall fail to pay when due any other
Obligations, and any such failure shall continue for more than 5 Business Days
after written notice thereof shall have been given by MLBFS to Customer.

(b) Failure to Perform. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement or any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default shall continue
unremedied for 10 Business Days after written notice thereof shall have been
given by MLBFS to Customer,


                                      -7-

   8



(c) Breach of Warranty. Any representation or warranty made by Customer
contained in this Loan Agreement or any of the Additional Agreements shall at
any time prove to have been incorrect in any material respect when made.

(d) Default Under Other Agreement. A default or Event of Default by Customer or
any other party providing collateral for the Obligations shall occur under the
terms of any other agreement, instrument or document with or intended for the
benefit of MLBFS, MLPF&S or any of their affiliates involving in the case of
indebtedness owned to a party other than MLBFS, indebtedness of $500,000.00 or
more, and any required notice shall have been given and required passage of time
shall have elapsed.

(e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer, or any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within 60 days after filing, or
Customer shall make an assignment for the benefit of creditors, or Customer
shall become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts as they become due.

(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.

(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $500,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.

8. REMEDIES

(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:

(i) Termination. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer; and upon any such termination MLBFS
shall be relieved of all such obligations.

(ii) Acceleration. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived.

(b) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.

9. MISCELLANEOUS

(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.


                                      -8-

   9



(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLBF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
Notwithstanding the foregoing, MLBFS will use reasonable precautions to maintain
on a confidential basis the contents of any accounts receivable agings or other
information expressly in writing designated by Customer as being "confidential"
and safeguard such information against unauthorized publication or disclosure to
third parties other than to MLBFS employees, agents, auditors and consultants
who have a need to know in connection with this Loan Agreement and/or in the
ordinary course of MLBFS' business. Nothing herein shall be deemed to preclude
MLBFS from disclosing any such information: (i) to those parties to whom MLBFS
is, in the opinion of its counsel, required to disclose such information by any
law, judicial order or rule, or by any order, rule, regulation or request of any
governmental, regulatory or self-regulatory body, or (ii) to anyone if and to
the extent that such information becomes lawfully available from any other
source.

(c) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.

(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and fees payable
or determined to be payable in connection with the execution, delivery and/or
recording of this Loan Agreement or any of the Additional Agreements; and (iii)
all reasonable fees and out-of-pocket expenses (including, but not limited to,
reasonable fees and expenses of outside counsel) incurred by MLBFS in connection
with the enforcement of this Loan Agreement or any of the Additional Agreements
or the protection of MLBFS' rights hereunder or thereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Customer under
this paragraph shall survive the expiration or termination of this Loan
Agreement and the discharge of the other Obligations.

(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 days written notice is sent
to Customer (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon
demand, with interest at the Interest Rate during the period from and including
the date funds are so expended by MLBFS to the date of repayment, and all such
amounts shall be additional Obligations. The payment or performance by MLBFS of
any of Customer's obligations hereunder shall not relieve Customer of said
obligations or of the consequences of having failed to pay or perform the same,
and shall not waive or be deemed a cure of any Event of Default.

(f) Late Charge. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within 10 days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.


                                      -9-

   10



(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any the Additional Agreements.

(h) Binding Effect. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.

(i) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.

(j) Governing Law. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.

(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.

(1) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.

(m) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.

(n) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. Without limiting the foregoing, Customer
acknowledges that: (i) no promise or commitment has been made to it by MLBFS,
MLPF&S or any of their respective employees, agents or representatives to extend
the availability of the WCMA Line of Credit or the due date of the WCMA Loan
Balance beyond the current Maturity Date, or to increase the Maximum WCMA Line
of Credit, or otherwise extend any other credit to Customer or any other party;
(ii) no purported extension of the Maturity Date, increase in the Maximum WCMA
Line of Credit or other extension or agreement to extend credit shall be valid
or binding unless expressly set forth in a written instrument signed by MLBFS;
and (iii) except as otherwise expressly provided herein, this Loan Agreement
supersedes and replaces any and all proposals, letters of intent and approval
and commitment letters from MLBFS to Customer, none of which shall be considered
an Additional Agreement. No amendment or modification of this Agreement or any
of the Additional Agreements to which Customer is a party shall be effective
unless in a writing signed by both MLBFS and Customer.

(o) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN


                                      -10-

   11



THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO
CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

MINIMED INC.


By: /s/ [SIG]
   --------------------------------------------------------------------
           Signature (1)                   Signature (2)

    /s/ [SIG]
- -----------------------------------------------------------------------
           Printed Name                    Printed Name

   Chief Financial Officer
- -----------------------------------------------------------------------
           Title                           Title


Accepted at Chicago, Illinois: 
MERRILL LYNCH BUSINESS FINANCIAL 
SERVICES INC.


By:
   -------------------------------------------------




                                      -11-

   12



                              [MERRILL LYNCH LOGO]

                            CERTIFICATE OF SECRETARY
                             (WCMA Line Of Credit)

THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly appointed and
acting Secretary (or Assistant Secretary) of MINIMED INC. , a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the 19th day of December,
1996 by the Board of Directors of said corporation acting in accordance with the
laws of the state of incorporation and the charter and by-laws of said
corporation:

       "RESOLVED, that it is advisable and in the best interests of this
       Corporation that in connection with Working Capital Management Account
       No. 21C-07H08 that this Corporation is subscribing from Merrill Lynch,
       Pierce, Fenner & Smith Incorporated it obtain from MERRILL LYNCH BUSINESS
       FINANCIAL SERVICES INC. ("MLBFS") a commercial line of credit referred to
       by MLBFS as a "WCMA Line of Credit"; and

       "FURTHER RESOLVED, that the President, any Vice President, Treasurer,
       Secretary or other officer of this Corporation, or any one or more of
       them, be and each of them hereby is authorized and empowered for and on
       behalf of this Corporation to: (a) execute and deliver to MLBFS: (i) a
       WCMA Note and Loan Agreement and all other agreements, instruments and
       documents required by MLBFS in connection with said Line of Credit, and
       (ii) any present or future extensions of and amendments to any of the
       foregoing; all in such form as such officer shall approve, as
       conclusively evidenced by his signature thereon; (b) grant to MLBFS such
       liens and security interests on any of the assets of this Corporation as
       collateral therefor and/or the other obligations of this Corporation to
       MLBFS as may be required by MLBFS; and (c) do and perform all such acts
       and things deemed by any such officer to be necessary or advisable to
       carry out and perform the undertakings and agreements of this Corporation
       in connection therewith; and all prior acts of said officers in these
       premises are hereby ratified and confirmed; and

       "FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
       resolutions until it receives written notice of any change or revocation,
       which change or revocation shall not in any event affect the obligations
       of this Corporation with respect to any transaction committed to by MLBFS
       or having its inception prior to the receipt of such notice by MLBFS."

THE UNDERSIGNED FURTHER CERTIFIES that the foregoing resolutions have not been
rescinded, modified or repealed in any manner and are in full force and effect
as of the date of this Certificate, and that the following individuals are now
the elected and acting officers of said corporation:

       President:  /s/ [SIG]
                  ------------------------------

       Vice President:  /s/ [SIG]
                       ------------------------------  

       Secretary:  /s/ [SIG]
                  ------------------------------

IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this 21st day of January, 1997.


(Corporate Seal)                 /s/ [SIG]
                        -------------------------------
                                    Secretary

                                  ERIC KENTOR
                        -------------------------------
                                  Printed Name


   13
                                                
                                                   THIS SPACE FOR USE OF FILING OFFICER
                                                       

FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5 years
from date of filing.

- ---------------------------------------------------------------------------------------------------------------------
A. NAME & TEL. OF CONTACT AT FILER (optional)                           B. FILING OFFICE ACCT. # (optional)


- ---------------------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)

        CSC NETWORKS/PHL&FS
        1013 Centre Rd.
        Wilmington, DE 18905-1297



- ---------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable):  [ ]  LESSOR/LESSEE [ ]   [ ] CONSIGNOR/CONSIGNEE       [ ] NON-UCC FILING 

 
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
   
     1a. ENTITY'S NAME
    
         Minimed Inc.
OR  -----------------------------------------------------------------------------------------------------------------
     1b. INDIVIDUAL'S LAST NAME                              FIRST NAME              MIDDLE NAME           SUFFIX

    -----------------------------------------------------------------------------------------------------------------
    1c.  MAILING ADDRESS                                     CITY                    STATE   COUNTRY   POSTAGE CODE

         12744 San Fernando Road                             Sylmar                  CA                  91342
    -----------------------------------------------------------------------------------------------------------------
    1d. SS OR TAX I.D.#    OPTIONAL    1a. TYPE OF ENTITY    1f. ENTITY'S STATE      1g. ENTITIES ORGANIZATIONAL
                        ADD'NL INFO RE                       OR COUNTRY OF               I.D. # IF ANY
                         ENTITY DEBTOR                       ORGANIZATION                                   [ ] None
    -----------------------------------------------------------------------------------------------------------------

2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - Insert only one debtor name (2a or 2b)

     2a. ENTITY'S NAME
    
                     
OR  -----------------------------------------------------------------------------------------------------------------
     2b. INDIVIDUAL'S LAST NAME                              FIRST NAME              MIDDLE NAME           SUFFIX

    -----------------------------------------------------------------------------------------------------------------
    2c.  MAILING ADDRESS                                     CITY                    STATE    COUNTRY   POSTAGE CODE

                                                                                                             
    -----------------------------------------------------------------------------------------------------------------
    2d. SS OR TAX I.D.#    OPTIONAL    1a. TYPE OF ENTITY    2f. ENTITY'S STATE      2g. ENTITIES ORGANIZATIONAL
                        ADD'NL INFO RE                       OR COUNTRY OF              I.D. # IF ANY
                         ENTITY DEBTOR                       ORGANIZATION                                   [ ] None
    -----------------------------------------------------------------------------------------------------------------

3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party 
   name (3a or 3b)

     3a. ENTITY'S NAME
    
         Merrill Lynch Business Financial Services Inc.
OR  -----------------------------------------------------------------------------------------------------------------
     3b. INDIVIDUAL'S LAST NAME                              FIRST NAME              MIDDLE NAME           SUFFIX

    -----------------------------------------------------------------------------------------------------------------
    3c.  MAILING ADDRESS                                     CITY                    STATE  COUNTRY   POSTAGE CODE

         33 W. Monroe, 22nd Floor                            Chicago                   IL              60603
    -----------------------------------------------------------------------------------------------------------------

4. THIS FINANCING STATEMENT covers the following types or items of property:

Debtor has agreed that, except upon the prior written consent of Secured Party,
Debtor will not directly or indirectly mortgage, encumber or grant a security
interest in any of its property, now owned or hereafter acquired except (i)
liens for current taxes not delinquent or being contested in good faith by
appropriate proceedings, (ii) other non-consensual liens arising in the
ordinary course of business for sums not due, (iii) purchase money liens upon
and leases of equipment, and (iv) liens in favor of MLBFS. THIS FILING IS GIVEN
AS NOTICE OF SAID NEGATIVE PLEDGE AGREEMENT, AND IS NOT INTENDED TO CREATE OR
PERFECT A SECURITY INTEREST.


                                   CSC#/M000023/96-000787/1/1 CA:California SOS


- -----------------------------------------------------------------------------------------------------------------------------
CHECK [ ]  This FINANCING STATEMENT is signed by the Secured Party instead of   7. if filed in Florida (check one)
           the Debtor to perfect a security interest (a) in collateral already     
           subject to a security interest in another jurisdiction when it was    [ ] Documentary     [ ]   Documentary stamp
           brought into this state, or when the debtor's location was changed        stamp tax paid        tax not applicable
           to this state, or (b) in accordance with other statutory provisions
           (additional date may be required)
(If applicable)
- ------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S)                                           8. [ ] This FINANCING STATEMENT is to be filed (for record)
   Minimed Inc.                                                           (or recorded) in the REAL ESTATE RECORDS
                                                                          Attach Addendum                      (if applicable) 
              /s/ [ILLEGIBLE]  1/21/92
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Business Financial Services Inc.                     9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
                                                                   (ADDITIONAL FEE)
                                                                   (optional)      [ ] All Debtors  [ ] Debtor 1  [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------

(1) FILING OFFICER COPY  

                              - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)

EX-10.17

   1
                                                                   EXHIBIT 10.17

        STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
                  AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
                                   [LOGO]

1.      BASIC PROVISIONS ("BASIC PROVISIONS").

        1.1     PARTIES: This Lease ("LEASE"), dated for reference purposes
only, ________________________________, 19 ______, is made by and between
MiniMed Inc., a Delaware Corporation ("LESSOR") and Alfred E. Mann ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").

        1.2(a)  PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 12744 San Fernando Road, located in the
City of Sylmar, County of Los Angeles, State of California, with zip code 91342,
as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): NAMF Building 3. In addition to Lessee's
rights to use and occupy the Premises as hereinafter specified, Lessee shall
have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)

        1.2(b)  PARKING: 20 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and 3 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)

        1.3     TERM: 2 years and 5 months ("ORIGINAL TERM") commencing as of
August 1, 1995 ("COMMENCEMENT DATE") and ending December 31, 1997 ("EXPIRATION
DATE"). (Also see Paragraph 3.)

        1.4     EARLY POSSESSION: _________________________ ("EARLY POSSESSION
DATE"). (Also see Paragraphs 3.2 and 3.3.)

        1.5     BASE RENT: $3,120.00 per month ("BASE RENT"), payable on the
1st day of each month commencing August 1, 1995 (Also see Paragraph 4.)
[ ]     If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum ________, attached hereto.

        1.6(a)  BASE RENT PAID UPON EXECUTION: $12,480 as Base Rent for the
period August 1, 1995 to November 30, 1995.

        1.6(b)  LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Seven percent
(7%) ("LESSEE'S SHARE") as determined by [x] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum _____.

        1.7     SECURITY DEPOSIT: $ - 0 - ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)

        1.8     PERMITTED USE: Operation of a medical research foundation and
related activities. ("PERMITTED USE") (Also see Paragraph 6.)

        1.12    ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs __________ through __________, and Exhibits __________
through __________, all of which constitute a part of this Lease.

2.      PREMISES, PARKING AND COMMON AREAS.

        2.1     LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.

        2.2     CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition on
the Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.

        2.3     COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).

        2.4     ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that he
has satisfied himself with respect to the condition of the Premises (including
but not limited to the electrical and fire sprinkler systems, security,
environmental aspects, seismic and earthquake requirements, and compliance with
the Americans with Disabilities Act and applicable zoning, municipal, county,
state and federal laws, ordinances and regulations and any covenants or
restrictions of record (collectively, "APPLICABLE LAWS") and the present and
future suitability of the Premises for Lessee's intended use; (b) that Lessee
has made such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease.

        2.5     LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor
in this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.


                                                        INITIALS: _____________

                          MULTI-TENANT - MODIFIED NET             _____________

(C)American Industrial Real Estate Association 1993
   2

         2.6     VEHICLE PARKING.  Lessee shall be entitled to use the number
of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking.  Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED
SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)

                 (a)      Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.

                 (b)      If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.

                 (c)      Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.

         2.7     COMMON AREAS - DEFINITION.  The term "COMMON AREAS" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.

         2.8     COMMON AREAS - LESSEE'S RIGHTS.  Lessor hereby grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms of
any rules and regulations or restrictions governing the use of the Industrial
Center.  Under no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily
or permanently, in the Common Areas.  Any such storage shall be permitted only
by the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time.  In the event that any unauthorized storage
shall occur then Lessor shall have the right, without notice, in addition to
such other rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.

         2.9     COMMON AREAS - RULES AND REGULATIONS.  Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40.  Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform.  Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.

         2.10    COMMON AREAS - CHANGES.  Lessor shall have the right, in
Lessor's sole discretion, from time to time:

                 (a)      To make changes to the Common Areas, including,
without limitation, changes in the location, size, shape and number of
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, landscaped areas, walkways and
utility raceways;

                 (b)      To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;

                 (c)      To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;

                 (d)      To add additional buildings and improvements to the
Common Areas;

                 (e)      To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or
any portion thereof; and

                 (f)      To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3.       TERM.

         3.1     TERM.  The Commencement Date, Expiration Date and Original 
Term of this Lease are as specified in Paragraph 1.3.

         3.2     EARLY POSSESSION.  If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation to
pay Base Rent shall be abated for the period of such early occupancy.  All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period.  Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.

         3.3     DELAY IN POSSESSION.  If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee.  If possession of the Premises
is not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.  Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.

4.       RENT.

         4.1     BASE RENT.  Lessee shall pay Base Rent and other rent or
charges, as the same may be adjusted from time to time, to Lessor in lawful
money of the United States, without offset or deduction, on or before the day
on which it is due under the terms of this Lease.  Base Rent and all other rent
and charges for any period during the term hereof which is for less than one
full month shall be prorated based upon the actual number of days of the month
involved.  Payment of Base Rent and other charges shall be made to Lessor at
its address stated herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.

         4.2     COMMON AREA OPERATING EXPENSES.  Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:

                 (a)      "COMMON AREA OPERATING EXPENSES" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited
to, the following:

                          (i)     The operation, repair and maintenance, in
neat, clean, good order and condition, of the following:

                                  (aa)     The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.

                                  (bb)     Exterior signs and any tenant
directories.

                                  (cc)     Fire detection and sprinkler
systems.

                          (ii)    The cost of water, gas, electricity and
telephone to service the Common Areas.

                          (iii)   Trash disposal, property management and
security services and the costs of any environmental inspections.

                          (iv)    Reserves set aside for maintenance and repair
of Common Areas.

                          (v)     Real Property Taxes (as defined in Paragraph
10.2) to be paid by Lessor for the Building and the Common Areas under
Paragraph 10 hereof.

                          (vi)    The cost of the premiums for the insurance
policies maintained by Lessor under Paragraph 8 hereof.

                          (vii)   Any deductible portion of an insured loss
concerning the Building or the Common Areas.

                          (viii)  Any other services to be provided by Lessor
that are stated elsewhere in this Lease to be a Common Area Operating Expense.

                 (b)      Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that are
not specifically attributable to the Building or to any other building or to
the operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.

                 (c)      The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in this
Lease to provide the same or some of them.

                 (d)      Lessee's Share of Common Area Operating Expenses
shall be payable by Lessee within ten (10) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor.  At Lessor's
option, however, an amount may be estimated by Lessor from time to time of
Lessee's Share of annual Common Area Operating Expenses and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each 12-month
period of the Lease term, on the same day as the Base Rent is due hereunder.
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Common Area Operating Expenses incurred during the preceding year.
If Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement, Lessee shall be credited
the amount of such over-





                                                                        
MULTI-TENANT-MODIFIED NET                                      Initials:____
(C) American Industrial Real Estate                                     ____ 
Association 1993                 
                                      -2-
   3
payment against Lessee's Share of Common Area Operating Expenses next becoming
due.  If Lessee's payments under this Paragraph 4.2(d) during said preceding
year were less than Lessee's Share as indicated on said statement, Lessee shall
pay to Lessor the amount of the deficiency within ten (1O) days after delivery
by Lessor to Lessee of said statement.

5.       SECURITY DEPOSIT.  Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.  If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease.  Any time the Base
Rent increases during the term of this Lease, Lessee shall, upon written
request from Lessor, deposit additional monies with Lessor as an addition to
the Security Deposit so that the total amount of the Security Deposit shall at
all times bear the same proportion to the then current Base Rent as the initial
Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts.  Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises,
return to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest herein), that portion of the Security Deposit not used or
applied by Lessor.  Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.

6.      USE

         6.1     PERMITTED USE.

                 (a)      Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose.  Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage to
the Premises or neighboring premises or properties.

                 (b)      Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long as
the same will not impair the structural integrity of the improvements on the
Premises or in the Building or the mechanical or electrical systems therein,
does not conflict with uses by other lessees, is not significantly more
burdensome to the Premises or the Building and the improvements thereon, and is
otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days after such
request give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.

         6.2     HAZARDOUS SUBSTANCES.

                 (a)      REPORTABLE USES REQUIRE CONSENT.  The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health,
safety or welfare, the environment, or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory.  Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof.  Lessee shall not engage in any activity in or
about the Premises which constitutes a Reportable Use (as hereinafter defined)
of Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE USE" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of
a Hazardous Substance with respect to which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties.  Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required to
be used by Lessee in the normal course of the Permitted Use, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor.  In addition, Lessor may (but without any obligation
to do so) condition its consent to any Reportable Use of any Hazardous
Substance by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or
injury and/or liability therefor, including but not limited to the installation
(and, at Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.

                 (b)      DUTY TO INFORM LESSOR.  If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning
the presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including but not limited to all such documents as may be involved in
any Reportable Use involving the Premises.  Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).

                 (c)      INDEMNIFICATION.  Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control.  Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease.  No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.

         6.3     LESSEE'S COMPLIANCE WITH REQUIREMENTS.  Lessee shall, at
Lessee's sole cost and expense, fully, diligently and in a timely manner,
comply with all "APPLICABLE REQUIREMENTS," which term is used in this Lease to
mean all laws, rules, regulations, ordinances, directives, covenants, easements
and restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil
and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect.  Lessee shall, within five (5) days after receipt of Lessor's
written request, provide Lessor with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.

         6.4     INSPECTION; COMPLIANCE WITH LAW.  Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises.  The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default
or Breach of this Lease by Lessee or a violation of Applicable Requirements or
a contamination, caused or materially contributed to by Lessee, is found to
exist or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination.  In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.

7.       MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
         ALTERATIONS.

         7.1     LESSEE'S OBLIGATIONS.

                 (a)      Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair (whether or
not such portion of the Premises requiring repair, or the means of repairing
the same, are reasonably or readily accessible to Lessee, and whether or not
the need for such repairs occurs as a result of Lessee's use, any prior use,
the elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired
pressure vessels, fire hose connections if within the Premises, fixtures,
interior walls, interior surfaces of exterior walls, ceilings, floors, windows,
doors, plate glass, and skylights, but excluding any items which are the
responsibility of Lessor pursuant to Paragraph 7.2 below.  Lessee, in keeping
the Premises in good order, condition and repair, shall exercise and perform
good maintenance practices.  Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.

                 (b)      Lessee shall, at Lessee's sole cost and expense,
procure and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises.  However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.

                 (c)      If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.

         7.2     LESSOR'S OBLIGATIONS.  Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject
to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving
the Common Areas and all part thereof, as well as providing the services for
which there is a Common Area Operating Expense pursuant to Paragraph 4.2.
Lessor shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises.  Lessee expressly waives the
benefit of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Building, Industrial Center or Common
Areas in good order, condition and repair.

        7.3     UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.

                (a)     DEFINITIONS; CONSENT REQUIRED.  The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises.  The term "TRADE
FIXTURES" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises.  The term "ALTERATIONS" shall
mean any modification of the improvements on the Premises which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures.  "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a).  Lessee shall not make nor cause
to be made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent.  Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof)without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.

                (b)     CONSENT.  Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans.  All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner.  Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor.  Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration or
Utility Installation.

                (c)     LIEN PROTECTION.  Lessee shall pay when due all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may by rendered thereon before the
enforcement thereof against the Lessor or the Premises.  If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim.  In addition, Lessor may require Lessee to pay Lessor's attorneys' fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.

        7.4  OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.

                (a)     OWNERSHIP.  Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in the Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises.  Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations.  Unless otherwise
instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.

                (b)     REMOVAL.  Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor.  Lessor may
require the removal at any time of all or any part of any Alterations or
Utility Installations made without the required consent of Lessor.

                (c)     SURRENDER/RESTORATION.  Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted.  Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease.  Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and
Utility Installations  The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice.  Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.

8.      INSURANCE; INDEMNITY.

        8.1     PAYMENT OF PREMIUMS.  The cost of the premiums for the
insurance policies maintained by Lessor under this Paragraph 8 shall be a
Common Area Operating Expense pursuant to Paragraph 4.2 hereof.  Premiums for
policy periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement Date or
Expiration Date.

        8.2     LIABILITY INSURANCE.

                (a)     CARRIED BY LESSEE.  Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto.  Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion" endorsement
for damage caused by heat, smoke or fumes from a hostile fire.  The policy
shall not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "INSURED CONTRACT" for the performance of Lessee's indemnity obligations
under this Lease.  The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder.  All insurance to be carried by Lessee
shall be primary to and not contributory with any similar insurance carried by
Lessor, whose insurance shall be considered excess insurance only.

                (b)     CARRIED BY LESSOR.  Lessor shall also maintain liability
insurance described in paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee.  Lessee shall not be
named as an additional insured therein.

        8.3     PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE

                (a)     BUILDING AND IMPROVEMENTS.  Lessor shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss
or damage to the Premises.  Such insurance shall be for full replacement cost,
as the same shall exist from time to time, or the amount required by any
Lender(s), but in no event more than the commercially reasonable and available
insurable value thereof if, by reason of the unique nature or age of the
improvements involved, such latter amount is less than full replacement cost.
Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's
personal property shall be insured by Lessee pursuant to Paragraph 8.4.  If the
coverage is available and commercially appropriate, Lessor's policy or policies
shall insure against all risks of direct physical loss or damage (except the
perils of flood and/or earthquake unless required by a Lender), including
coverage for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance.  Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.

                (b)     RENTAL VALUE.  Lessor shall also obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and any Lender(s), insuring the loss of the full
rental and other changes payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases).  Said insurance may
provide that in the event the Lease is terminated by reason of an insured loss,
the period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss.  Said
insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period.  Common Area Operating Expenses shall include any deductible amount in
the event of such loss.

                (c)     ADJACENT PREMISES.  Lessee shall pay for any increase
in the premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.

                (d)     LESSEE'S IMPROVEMENTS.  Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee-Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.

        8.4     LESSEE'S PROPERTY INSURANCE.  Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a).  Such insurance shall be full replacement cost coverage with a
deductible not to exceed $1,000 per occurrence.  The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property
and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations.  Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.

        8.5     INSURANCE POLICIES.  Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a Lender,
as set forth in the most current issue of "Best's Insurance Guide."  Lessee
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in

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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven
(7) days after the earlier of the Early Possession Date or the Commencement
Date, certified copies of, or certificates evidencing the existence and amounts
of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall
be cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor.  Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.

         8.6     WAIVER OF SUBROGATION.  Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.  Lessor and Lessee agree to have their
respective insurance companies issuing property damage insurance waive any
right to subrogation that such companies may have against Lessor or Lessee, as
the case may be, so long as the Insurance is not invalidated thereby.

         8.7     INDEMNITY.  Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease.  The foregoing shall include, but not be limited
to, the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment.  In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense.  Lessor need not have first paid any such claim in order to be so
indemnified.

         8.8     EXEMPTION OF LESSOR FROM LIABILITY.  Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center.  Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no
circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.

9.       DAMAGE OR DESTRUCTION.

         9.1     DEFINITIONS.

                 (a)      "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in Paragraph
9.1(d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.

                 (b)      "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction.  In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at
the option of Lessor, be deemed to be Premises Total Destruction.

                 (c)      "INSURED LOSS" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.

                 (d)      "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.

                 (e)      "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on,
or under the Premises.

         9.2     PREMISES PARTIAL DAMAGE - INSURED LOSS.  If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect.  In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor.  If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect.  If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect.  If Lessor does not receive such funds or assurance within
such ten (10) day period, and if Lessor does not so elect to restore and
repair, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction.  Premises
Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3
rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available
for the repairs if made by either Party.

         9.3     PARTIAL DAMAGE - UNINSURED LOSS.  If Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice.  In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the repair of such damage totally at Lessee's
expense and without reimbursement from Lessor.  Lessee shall provide Lessor
with the required funds or satisfactory assurance thereof within thirty (30)
days following such commitment from Lessee.  In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.

         9.4     TOTAL DESTRUCTION.  Notwithstanding any other provision
hereof, if Premises Total Destruction occurs (including any destruction
required by any authorized public authority), this Lease shall terminate sixty
(60) days following the date of such Premises Total Destruction, whether or not
the damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee.  In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 9.7.

         9.5     DAMAGE NEAR END OF TERM.  If at any time during the last six
(6) months of the term of this Lease there is damage for which the cost to
repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage.  Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b) providing
Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is
ten (10) days after Lessee's receipt of Lessor's written notice purporting to
terminate this Lease, or (ii) the day prior to the date upon which such option
expires.  If Lessee duly exercises such option during such period and provides
Lessor with funds (or adequate assurance thereof) to cover any shortage in
insurance proceeds, Lessor shall, at Lessor's expense repair such damage as
soon as reasonably possible and this Lease shall continue in full force and
effect.  If Lessee fails to exercise such option and provide such funds or
assurance during such period, then this Lease shall terminate as of the date
set forth in the first sentence of this Paragraph 9.5.

         9.6     ABATEMENT OF RENT; LESSEE'S REMEDIES.

                 (a)      In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b).
Except for abatement of Base Rent, Common Area Operating Expenses and other 
charges, if any, as aforesaid, all other obligations of Lessee hereunder 
shall be performed by Lessee, and Lessee shall have no claim against Lessor 
for any damage suffered by reason of any such damage, destruction, repair, 
remediation or restoration.

                 (b)      If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's
election to terminate this Lease on a date not less than sixty (60) days
following the giving of such notice.  If Lessee gives such notice to Lessor and
such Lenders and such repair or restoration is not commenced within thirty (30)
days after receipt of such notice, this Lease shall terminate as of the date
specified in said notice.  If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after the receipt of such
notice, this Lease shall continue in full force and effect "COMMENCE" as used in
this Paragraph 9.6 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.

         9.7     HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject



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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice.  In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written  notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater.  Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee.  In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available.  If Lessee does not give such notice and provide the required funds
or assurance thereof within the time and period specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.

        9.8     TERMINATION - ADVANCE PAYMENTS.  Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.

        9.9     WAIVER OF STATUTES.  Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it is
inconsistent herewith.

10.     REAL PROPERTY TAXES.

        10.1    PAYMENT OF TAXES.  Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.

        10.2    REAL PROPERTY TAX DEFINITION.  As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises.  The term "REAL PROPERTY TAXES" shall also include any
tax, fee, levy, assessment or charge, or any increase therein, imposed by
reason of events occurring, or changes in Applicable Law taking effect, during
the term of this Lease, including but not limited to a change in the ownership
of the Industrial Center or in the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.   In calculating Real Property Taxes for any
calendar year, the Real Property Taxes for any real estate tax year shall be
included in the calculation of Real Property Taxes for such calendar year based
upon the number of days which such calendar year and tax year have in common.

        10.3    ADDITIONAL IMPROVEMENTS.  Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment of
such other lessees.  Notwithstanding Paragraph 10.1 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.

        10.4    JOINT ASSESSMENT.  If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.  Lessor's reasonable determination
thereof, in good faith, shall be conclusive.

        10.5    LESSEE'S PROPERTY TAXES.  Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Lessor.  If any of Lessee's said property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.

11.     UTILITIES.  Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
gas and cleaning of the Premises, together with any taxes thereon.  If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to
be determined by Lessor of all such charges jointly metered or billed with
other premises in the Building, in the manner and within the time periods set
forth in Paragraph 4.2(d).

12.     ASSIGNMENT AND SUBLETTING.

        12.1    LESSOR'S CONSENT REQUIRED.

                (a)     Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.

                (b)     A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent.  The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.

                (c)     The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of full execution and delivery of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater, shall
be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent.  "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any Guarantors) established
under generally accepted accounting principles consistently applied.

                (d)     An assignment or subletting of Lessee's interest in
this Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period.  If Lessor elects
to treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("LESSOR'S NOTICE"), increase the monthly Base
Rent for the Premises to the greater of the then fair market rental value of
the Premises, as reasonably determined by Lessor, or one hundred ten percent
(110%) of the Base Rent then in effect.  Pending determination of the new fair
market rental value, if disputed by Lessee, Lessee shall pay the amount set
forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof.  Further, in the event of such
Breach and rental adjustment, (i) the purchase price of any option to purchase
the Premises held  by Lessee shall be subject to similar adjustment to the then
fair market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or obsolescence,
and considering the Premises at its highest and best use and in good condition)
or one hundred ten percent (110%) of the price previously in effect, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease
shall be adjusted to require that the base index be determined with reference
to the index applicable to the time of such adjustment, and (iii) any fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased in the same ratio as the new rental bears to the Base Rent in effect
immediately prior to the adjustment specified in Lessor's Notice.

                (e)     Lessee's remedy for any breach of this Paragraph 12.1
by Lessor shall be limited to compensatory damages and/or injunctive relief.

        12.2    TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                (a)     Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.

                (b)     Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment.  Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.

                (c)     The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee.  However, Lessor may consent to subsequent sublettings
and assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the sublease
and without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or sublease.

                (d)     In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.

                (e)     Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request
for consent.  Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.

                (f)     Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.


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                 (g)      The occurrence of a transaction described in
Paragraph 12.2(c) shall give Lessor the right (but not the obligation) to
require that the Security Deposit be increased by an amount equal to six (6)
times the then monthly Base Rent, and Lessor may make the actual receipt by
Lessor of the Security Deposit increase a condition to Lessor's consent to such
transaction.

                 (h)      Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.

         12.3    ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.  The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

                 (a)      Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease.  Lessor shall not, by
reason of the foregoing provision or any other assignment of such sublease to
Lessor, nor by reason of the collection of the rents from a sublessee, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee under such Sublease.  Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease.  Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether such
Breach exists and notwithstanding any notice from or claim from Lessee to the
contrary.  Lessee shall have no right or claim against such sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.

                 (b)      In the event of a Breach by Lessee in the performance
of its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option lo the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to such sublessor or for any other
prior defaults or breaches of such sublessor under such sublease.

                 (c)      Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.

                 (d)      No sublessee under a sublease approved by Lessor
shall further assign or sublet all or any part of the Premises without Lessor's
prior written consent.

                 (e)      Lessor shall deliver a copy of any notice of Default
or Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.

13.      DEFAULT; BREACH; REMEDIES.

         13.1    DEFAULT; BREACH.  Lessor and Lessee agree that if an attorney
is consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default.  A "DEFAULT" by
Lessee is defined as a failure by Lessee to observe, comply with or perform any
of the terms, covenants, conditions or rules applicable to Lessee under this
Lease.  A "BREACH" by Lessee is defined as the occurrence of any one or more of
the following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3:

                 (a)      The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.

                 (b)      Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to be
made by Lessee hereunder as and when due, the failure by Lessee to provide
Lessor with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure continues for
a period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.

                 (c)      Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1 (b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12. 1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37,
(vii) the execution of any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.

                 (d)      A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
40 hereof that are to be observed, complied with or performed by Lessee, other
than those described in Subparagraphs 13.1 (a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice thereof
by or on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.

                 (e)      The occurrence of any of the following events: (i)
the making by Lessee of any general arrangement or assignment for the benefit
of creditors; (iii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a petition
filed against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, such provision shall be of no force or effect,
and shall not affect the validity of the remaining provisions.

                 (f)      The discovery by Lessor that any financial statement
of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.

                 (g)      If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.

         13.2    REMEDIES.  If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals.  The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check.  In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:

                 (a)      Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease and the term hereof
shall terminate and Lessee shall immediately surrender possession of the
Premises to Lessor.  In such event Lessor shall be entitled to recover from
Lessee: (i) the worth at the time of the award of the unpaid rent which had
been earned at the time of termination; (ii) the worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
the Lessee proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount necessary
to compensate Lessor for all the detriment proximately caused by the Lessee's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but not limited
to the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of any leasing commission paid by Lessor in
connection with this Lease applicable to the unexpired term of this Lease.  The
worth at the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of award
plus one percent (1%).  Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph 13.2. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any part
thereof in a separate suit for such rent and/or damages.  If a notice and grace
period required under Subparagraph 13.1 (b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by Subparagraph 13.1 (b), (c) or (d).  In such case, the
applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.

                 (b)      Continue the Lease and Lessee's right to possession
in effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations.  Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
are reasonable.  Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of the Lessee's right to
possession.

                 (c)      Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.

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                 (d)      The expiration or termination of this Lease and/or
the termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.

         13.3    INDUCEMENT RECAPTURE IN EVENT OF BREACH.  Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises, or
for the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended.  Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of
this Paragraph 13.3 unless specifically so stated in writing by Lessor at the
time of such acceptance.

         13.4    LATE CHARGES.  Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain.  Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises.  Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount.  The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee.  Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.  In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.

         13.5    BREACH BY LESSOR.  Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor.  For purposes of this Paragraph
13.5, a reasonable time shall in no event be less than thirty (30) days after
receipt by Lessor, and by any Lender(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then Lessor
shall not be in breach of this Lease if performance is commenced within such
thirty (30) day period and thereafter diligently pursued to completion.

14.      CONDEMNATION.  If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs.  If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession.  If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable
floor area of the Premises taken bears to the total rentable floor area of the
Premises.  No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises.  Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures.  In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above Lessee's Share of the legal and other expenses incurred by
Lessor in the condemnation matter, repair any damage to the Premises caused by
such condemnation authority.  Lessee shall be responsible for the payment of
any amount in excess of such net severance damages required to complete such
repair,

16.      TENANCY AND FINANCIAL STATEMENTS.

         16.1    TENANCY STATEMENT.  Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.

         16.2    FINANCIAL STATEMENT.  If Lessor desires to finance, refinance,
or sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

17.      LESSOR'S LIABILITY.  The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises.  In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment.  Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor.  Subject
to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.

18.      SEVERABILITY.  The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

19.      INTEREST ON PAST-DUE OBLIGATIONS.  Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the date
due at the prime rate charged by the largest state chartered bank in the state
in which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.

20.      TIME OF ESSENCE.  Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.

21.      RENT DEFINED.  All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.

22.      NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER.  This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective.

23.      NOTICES.

         23.1    NOTICE REQUIREMENTS.  All notices required or permitted by
this Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23.  The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes.  Either Party may
by written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.

         23.2    DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon.  If sent by regular mail, the notice shall be deemed given forty-eight
(48) hours after the same is addressed as required herein and mailed with
postage prepaid.  Notices delivered by United States Express Mail or overnight
courier that guarantees next day




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delivery shall be deemed given twenty-four (24) hours after delivery of the
same to the United States Postal Service or courier.  If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone or facsimile confirmation of receipt
of the transmission thereof, provided a copy is also delivered via delivery or
mail.  If notice is received on a Saturday or a Sunday or a legal holiday, it
shall be deemed received on the next business day.

24.      WAIVERS.  No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof.  Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent.  Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof.  Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor
at or before the time of deposit of such payment.

25.      RECORDING.  Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes.  The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.

26.      NO RIGHT TO HOLDOVER.  Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.  In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination.  Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.

27.      CUMULATIVE REMEDIES.  No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.

28.      COVENANTS AND CONDITIONS.  All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.

29.      BINDING EFFECT; CHOICE OF LAW.  This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located.  Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

30.      SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

         30.1    SUBORDINATION.  This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises are
a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.

         30.2    ATTORNMENT.  Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one month's rent.

         30.3    NON-DISTURBANCE.  With respect to Security Devices entered
into by Lessor after the execution of this lease, Lessee's subordination of
this Lease shall be subject to receiving assurance (a "non-disturbance
agreement") from the Lender that Lessee's possession and this Lease, including
any options to extend the term hereof, will not be disturbed so long as Lessee
is not in Breach hereof and attorns to the record owner of the Premises.

         30.4    SELF-EXECUTING.  The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.

31.      ATTORNEYS' FEES.  If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon, shall be entitled to reasonable attorneys' fees.  Such fees may
be awarded in the same suit or recovered in a separate suit, whether or not
such action or proceeding is pursued to decision or judgment.  The term
"Prevailing Party" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense.  The attorneys' fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred.  Lessor shall be entitled to
attorneys' fees, costs and expenses incurred in preparation and service of
notices of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach.  Broker(s) shall be intended third party beneficiaries of
this Paragraph 31.

32.      LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS.  Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary.  Lessor may at any time
place on or about the Premises or Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs.  All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.

33.      AUCTIONS.  Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent.  Notwithstanding anything
to the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.

34.      SIGNS.  Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor.  The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations).  Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.

35.      TERMINATION; MERGER.  Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies.  Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.

36.      CONSENTS.

         (a)     Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed.  Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee for
any Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor.  In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request.  Any unused portion of said deposit shall be
refunded to Lessee without interest.  Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.

         (b)     All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable.  The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are
then reasonable with reference to the particular matter for which consent is
being given.


38.      QUIET POSSESSION.  Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.




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40.     RULES AND REGULATIONS.  Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations")
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.

41.     SECURITY MEASURES.  Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same.  Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.

42.     RESERVATIONS.  Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement
rights, dedication, map or restrictions.

43.     PERFORMANCE UNDER PROTEST.  If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum.  If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.

44.     AUTHORITY.  If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf.  If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.

45.     CONFLICT.  Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.

46.     OFFER.  Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease.  This Lease is not intended to be binding until
executed and delivered by all Parties hereto.

47.     AMENDMENTS.  This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification.  The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.  As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.

48.     MULTIPLE PARTIES.  Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.



                                                               Initials: _______
MULTI-TENANT-MODIFIED NET                                                _______
(C)American Industrial Real Estate Association 1993

                                      -10-
   11
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.

                 IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
                 YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
                 CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE
                 POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR
                 HAZARDOUS SUBSTANCES.  NO REPRESENTATION OR RECOMMENDATION IS
                 MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
                 THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR
                 EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
                 CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
                 RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
                 THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
                 LEASE.  IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN
                 CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
                 LOCATED SHOULD BE CONSULTED.

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.


Executed at:    Sylmar, California      Executed at:    Sylmar, California
             -----------------------                 -----------------------
on:                                     on:
    --------------------------------        --------------------------------


By LESSOR:                              By LESSEE:

             MiniMed Inc.                           Alfred E. Mann
- ------------------------------------    ------------------------------------

- ------------------------------------    ------------------------------------
By:     /s/ KEVIN R. SAYER              By:     /s/ ALFRED E. MANN
    --------------------------------        --------------------------------
Name Printed:  Kevin R. Sayer           Name printed:  Alfred E. Mann
              ----------------------                  ----------------------
Title:  Vice President, Finance         Title:
      ------------------------------           -----------------------------
By:                                     By:                            
    --------------------------------        --------------------------------
Name Printed:                           Name printed:                        
              ----------------------                  ----------------------
Title:                                  Title:
      ------------------------------           -----------------------------
Address:                                Address:
         ---------------------------             ---------------------------

- ------------------------------------    ------------------------------------
Telephone: (818) 362-5958               Telephone: (818) 789-9555
           -------------------------               -------------------------
Facsimile: (818) 367-1485               Facsimile: (818) 788-7141
           -------------------------               -------------------------


BROKER:                                 BROKER:

Executed at:                            Executed at:
             -----------------------                 -----------------------
on:                                     on:
    --------------------------------        --------------------------------

By:                                     By:                            
    --------------------------------        --------------------------------
Name Printed:                           Name printed:                        
              ----------------------                  ----------------------
Title:                                  Title:
      ------------------------------           -----------------------------
Address:                                Address:
         ---------------------------             ---------------------------

- ------------------------------------    ------------------------------------
Telephone: (   )                        Telephone: (   ) 
           -------------------------               -------------------------
Facsimile: (   )                        Facsimile: (   ) 
           -------------------------               -------------------------


NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 S. Figueroa
St., M-1, Los Angeles, CA 90071. (213) 687-8777.


MULTI-TENANT-MODIFIED NET                                      Initials:____
(C) American Industrial Real Estate                                     ____
Association 1993                      


(C) 1993 by American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.


                                      -11-
   12
RIDER    12. 1 (f)

         12. 1 (f).       Lessee may sublet this Lease to the Alfred E. Mann 
Foundation, provided that the such sublease is on a rent free basis to the 
sublessee





   13




                    [SCHEMATIC DRAWING OF MINIMED BUILDING 3]





   14
                                   AMENDMENT

This Amendment is effective as of July 1, 1996, by and between MiniMed Inc., a
Delaware corporation ("Lessor") and Alfred E. Mann ("Lessee").

A.       Lessor and Lessee entered into that certain Standard
Industrial/Commercial Multi-Tenant Lease commencing as of August 1, 1995 (the
"Lease"). (Capitalized terms used but not defined herein have the meanings set
forth in the Lease.)

B.       The parties desire to amend the Lease to provide for additional space,
improvements, certain modified terms and related items.

IN CONSIDERATION OF THE ABOVE RECITALS, AND FOR OTHER GOOD AND VALUABLE
CONSIDERATION, THE RECEIPT AND SUFFICIENCY WHICH ARE HEREBY ACKNOWLEDGED, THE
PARTIES AGREE AS FOLLOWS:

1.       The Premises which are the subject of this Lease, is that area
commonly referred to as NAMF Building 4, together with that certain clean room
consisting of approximately 820 square feet in NAMF Building 3, all as
described in Exhibit A hereto, and the Lease is hereby amended to reflect the
modified definition of the Premises.

2.       The term of the Lease hereby is extended to and for a period of sixty
(60) months from the effective date of this Amendment, and the Lease shall
expire on June 30, 2001, subject to earlier termination as provided for herein.

3.       Section 1.5 hereby is amended to provide that the "Base Rent" shall,
effective July 1, 1996 and continuing until the Expiration Date, equal $12,474
per month, which amount shall be payable on the first day of each month
commencing July 1, 1996.

4.       Section 1.6(b) hereby is amended to provide that Lessee's Share of
operating expense shall be 13.8%.

5.       Section 1.8 is hereby amended to provide that permitted uses shall
consist of the operation of facilities related to the research, design,
development, manufacturing and distribution of medical products and supplies,
and activities related or incidental thereto.

6.       Section 12.1(f) is hereby amended and replaced in its entirety as
follows:

         "Lessee may sublet this Lease (i) to the Alfred E. Mann Foundation,
         provided that such sublease is on a rent free basis or (ii) to Medical
         Research Group LLC, on such terms as Lessee and such subtenant may
         determine. Notwithstanding the foregoing, as a condition to Lessor

                                                    Lease Amendment, Page 1 of 2





   15
         agreeing to such right to sublet, such subtenants shall acknowledge and
         agree to be bound by the terms of the Lease."

7.       Notwithstanding anything to the contrary contained herein (including,
         without limitation, Section 2 of this Amendment) either party may
         terminate this Lease, effective at the end of any calendar year during
         the term hereof, by providing written notice to the other at least
         ninety (90) days prior to the end of any calendar year hereunder.  In
         the event Lessee shall effect such termination, Lessee shall
         nonetheless continue to be responsible and liable for monthly payments
         to Lessor equal to the unamortized portion of tenant improvements made
         to the Premises, in an amount equal to $4,050 per month, until such
         time as Lessor actually occupies the Premises and utilizes such
         improvements.

8.       Except as otherwise expressly provided for herein, the Lease shall
remain in full force and effect and shall remain unchanged hereby.

IN WITNESS WHEREOF, the undersigned have executed this Amendment, which shall
be effective as of July 1, 1996.

MiniMed Inc.



By: /s/ KEVIN R. SAYER                               By: /s/ ALFRED E. MANN     
   ---------------------                                 ---------------------
         Kevin R. Sayer                                      Alfred E. Mann
         Senior Vice President, Finance and
         Chief Financial Officer


The undersigned agree to be bound by all of the terms, covenants, conditions
and limitations of the Lease, as amended.

Alfred E. Mann Foundation                           Medical Research Group, LLC

By: /s/ JOE SCHULMAN                                By: /s/ RONALD R. LEBEL    
   ----------------------                               ----------------------
        Vice President                                      President




                                                    Lease Amendment, Page 2 of 2

EX-11.1

   1
 
                                                                    EXHIBIT 11.1
 
                                  MINIMED INC.
 
            STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
 


                                                         YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                        DECEMBER 31,     DECEMBER 29,     DECEMBER 27,
                                                        ------------     ------------     ------------
                                                            1994             1995             1996
                                                        ------------     ------------     ------------
                                                                                 
Weighted average common shares outstanding............    7,768,000        9,293,000       11,566,000
Common equivalent shares from stock options and
  warrants............................................      206,000          646,000          672,000
Redeemable convertible preferred stock................    1,111,000          648,000
                                                          ---------       ----------       ----------
Shares used in per share calculation..................    9,085,000       10,587,000       12,238,000
                                                          =========       ==========       ==========
Net income (loss).....................................   $ (900,000)      $1,809,000       $4,672,000
                                                          =========       ==========       ==========
Net income (loss) per share...........................        $(.10)            $.17             $.38
                                                          =========       ==========       ==========

EX-21.1

   1
                                                                    EXHIBIT 21.1


                          Subsidiaries of the Company


MiniMed SA, a French company

MiniMed GmbH, a German company

MiniMed International, Inc., a Barbados company

MiniMed Distribution Corp., a Delaware company

EX-23.1

   1
                                                                   EXHIBIT 23.1


              INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE

We consent to the use in the Registration Statement No. 333-23013 of MiniMed
Inc.  on Form S-3 of our report dated January 17, 1997 (February 20, 1997 as to
the last paragraph of note 3) appearing in the Prospectus, which is a part of
that Registration Statement, to the reference to us under the headings
"Selected Consolidated Financial Data" and "Experts" in such Prospectus, and
the incorporation by reference of our report dated January 17, 1997 (February
20, 1997 as to the last paragraph of note 3) appearing in this annual report on
Form 10-K of MiniMed Inc. for the year ended December 27, 1996.

Our audits of the financial statements referred to in our aforementioned report
also included the financial statements schedule of MiniMed Inc., listed in Item
14.  This financial statement schedule is the responsibility of the Company's
management.  Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material aspects the information set forth therein.


/s/ Deloitte & Touche LLP

Los Angeles, California
March 21, 1997