710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

July 21, 2006

Dear Shareholder:

      Please join us for our Annual Meeting of Shareholders on Thursday, August 24, 2006, at 10:30 a.m. (Central Daylight Time) at Medtronic’s World Headquarters, 710 Medtronic Parkway, Minneapolis (Fridley), Minnesota.

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

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

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

      We look forward to seeing you at the Annual Meeting.

Sincerely,

Arthur D. Collins, Jr.

Chairman of the Board and Chief Executive Officer

 

 

 

 

 

Alleviating Pain, Restoring Health, Extending Life

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

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

are being distributed on or about July 21, 2006.

TABLE OF CONTENTS

710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

PROXY STATEMENT

Annual Meeting of Shareholders

August 24, 2006

      We are providing these proxy materials in connection with the solicitation by the Board of Directors of Medtronic, Inc. (“Medtronic”) of proxies to be voted at Medtronic’s Annual Meeting of Shareholders to be held on August 24, 2006, and at any adjournment of the meeting.

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

What am I voting on?

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

Who is entitled to vote?

      Shareholders as of the close of business on June 26, 2006 (the “Record Date”) may vote at the Annual Meeting. You have one vote for each share of common stock you held on the Record Date, including shares:

What constitutes a quorum?

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

How many votes are required to approve each proposal?

      The four candidates for election who receive a plurality vote in the affirmative will be elected. Each of the other proposals requires the affirmative vote of a majority of the shares present at the Annual Meeting and entitled to vote, provided there is a quorum.

How are votes counted?

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

What is a broker non-vote?

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

How does the Board recommend that I vote?

      Medtronic’s Board recommends that you vote your shares:

How do I vote my shares without attending the meeting?

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

      Internet and telephone voting facilities will close at 11:59 p.m., Eastern Daylight Time, on August 23, 2006.

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

      If you are a shareholder of record and prefer to vote your shares at the meeting, bring the enclosed proxy card or proof of identification. You may vote shares held in street name only if you

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

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

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

May I change my vote?

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

Can I receive future proxy materials electronically?

      Yes. If you are a shareholder of record or hold shares through a Medtronic stock plan, you may elect to receive future proxy statements and annual reports online as described in the next paragraph. If you elect this feature, you will receive an email message notifying you when the materials are available, along with a web address for viewing the materials. If you received this proxy statement electronically, you do not need to do anything to continue receiving proxy materials electronically in the future.

      Whether you hold shares registered directly in your name, through a Medtronic stock plan, or through a broker or bank, you can enroll for future delivery of proxy statements and annual reports by following these easy steps:

      Generally, brokers and banks offering this choice require that shareholders vote through the internet in order to enroll. Street name shareholders whose broker or bank is not included in this website are encouraged to contact their broker or bank and ask about the availability of electronic delivery. As with all internet usage, the user must pay all access fees and telephone charges. You may view this year’s proxy materials at www.medtronic.com/annualmeeting.

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

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

PROPOSAL 1 — ELECTION OF DIRECTORS

Directors and Nominees

      The Board of Directors is divided into three classes of approximately equal size. The members of each class are elected to serve a three-year term with the term of office for each class ending in consecutive years. Richard H. Anderson, Michael R. Bonsignore, Robert C. Pozen and Gordon M. Sprenger are the Class II directors whose terms expire at this Annual Meeting and who have been nominated for re-election to the Board to serve until the 2009 Annual Meeting or until their successors are elected and qualified. All of the nominees are currently directors and, with the exception of Mr. Pozen, were previously elected to the Board of Directors by the shareholders. Mr. Pozen was appointed to the Board by the Board of Directors in October 2004.

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

      A plurality of votes cast is required for the election of directors. However, under the Medtronic Principles of Corporate Governance, any nominee for director in an uncontested election (i.e., an election where the only nominees are those recommended by the Board of Directors) who receives a greater number of votes “withheld” from his or her election than votes “for” such election (a “Majority Withheld Vote”) will, within five business days of the certification of the shareholder vote by the inspector of elections, tender a written offer to resign from the Board of Directors.

      The Corporate Governance Committee will promptly consider the resignation offer and recommend to the Board of Directors whether to accept it. The committee will consider all factors its members deem relevant in considering whether to recommend acceptance or rejection of the resignation offer, including, without limitation:

      If a director’s resignation is accepted, the Corporate Governance Committee will recommend to the Board of Directors whether to fill the vacancy on the Board of Directors created by the resignation. Any director who tenders his or her offer to resign pursuant to this policy shall not participate in the Corporate Governance Committee or Board of Director deliberations regarding whether to accept the offer of resignation.

      The Board will act on the Corporate Governance Committee’s recommendation within 90 days following the certification of the shareholder vote, which may include, without limitation:

NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS ENDING IN 2009 (CLASS II):

THE BOARD RECOMMENDS A VOTE FOR THE CLASS II NOMINEES.

      Although Dr. Gotto was elected as a director to serve until 2007, Medtronic’s Principles of Corporate Governance provide that a director shall retire from the Board at the Annual Meeting next following his or her attaining the age of 70. Dr. Gotto is expected to retire from the Board and committees of the Board on which he serves at the 2006 Annual Meeting.

Director Independence

      Under the New York Stock Exchange Corporate Governance Rules, to be considered independent, a director must be determined to have no material relationship with Medtronic other than as a director. The listing standards include criteria for assessing the independence of directors, including guidelines relating to directors’ (and their immediate family members’) employment or affiliation with Medtronic and its independent registered public accounting firm. The Board of Directors has

      The Board noted certain commercial and charitable relationships with companies that are affiliated with certain of its directors. The Board considered Mr. Anderson’s position as Executive Vice President of UnitedHealth Group Incorporated and Chief Executive Officer of its Ingenix subsidiary, positions that he has held since November 2004. During each of the past three fiscal years, Medtronic has purchased third-party administrative insurance services from UnitedHealth Group Incorporated or its subsidiaries (collectively “UHG”). The Board also considered Ms. Jackson’s relationships with International Business Machines Corporation, Federal Express, M.I.T. and Rennselaer Polytechnic Institute. During each of the past three fiscal years, Medtronic has purchased goods and services from each of those institutions. Ms. Jackson is also on the board of directors of the New York Stock Exchange to which Medtronic has made payments (principally in the form of listing fees) in each of the past three fiscal years. In addition, Ms. O’Leary is on the board of directors of US Airways Group from which Medtronic has purchased services during each of the past three fiscal years. Mr. Rosso is on the board of directors of ADC Telecommunications, Inc., and during each of the past two fiscal years Medtronic has purchased services from ADC Telecommunications, Inc. Mr. Schuler is Chairman of the Board of Stericycle, Inc., and during each of the past three fiscal years Medtronic has purchased services from Stericycle, Inc. The Board determined that these relationships are not material to the directors. None of the relationships impair the independence of our directors because our business relationships with each of the companies are maintained on an arm’s length basis and because the goods and/or services provided to Medtronic are purchased at market rates. Neither the directors nor the institutions with which they are affiliated are given special treatment in these relationships. In addition, under the New York Stock Exchange Corporate Governance Rules for evaluating director independence, the Board determined that none of the consideration received by any of the above institutions from Medtronic was at a level that would compromise the applicable director’s independence.

      The Board also noted Dr. Brody’s association with The Johns Hopkins University, Dr. Gotto’s association with Weill Medical College and Ms. O’Leary’s association with the Stanford Medical Center and Stanford Hospitals and Clinics. Medtronic has research and/or business relationships with each of these institutions. In addition, Medtronic and/or The Medtronic Foundation periodically makes donations and/or grants to these institutions. Finally, Medtronic has an agreement with The John Hopkins University regarding lean sigma training under which we share gross profits. Again, the Board determined that these relationships are not material to the directors. None of the relationships impair the independence of our directors because our business relationships with each of the companies are maintained on an arm’s length basis and any goods and/or services purchased are at market rates. Neither the directors nor the institutions with which they are affiliated are given special treatment in these relationships. In addition, under the New York Stock Exchange Corporate Governance Rules for evaluating director independence, the Board determined that none of the consideration or other grants received by any of the above institutions from Medtronic or The Medtronic Foundation was at a level that would compromise the applicable director’s independence.

      Medtronic also has a minority investment in, and a development and license agreement with, a company that has granted Medtronic a sublicense to certain intellectual property of The John Hopkins University. In addition, one of the founders of the company is a professor at The John Hopkins University. The Board determined that this relationship is not a material relationship to Dr. Brody. There are no revenues expected to be generated relating to the development and license agreement in fiscal 2007 or fiscal 2008, and Medtronic does not expect to pay any royalties to John Hopkins University under the sublicense in fiscal 2007 or fiscal 2008. John Hopkins University is not a shareholder of the company in which Medtronic has invested, and Dr. Brody did not participate in negotiations or approvals regarding the investment or agreement.

      The Board noted that three putative class action suits had been filed on behalf of third party payers asserting that Medtronic should pay certain costs related to Medtronic’s voluntary field action involving certain of its Marquis and Maximo ICDs and InSync and Marquis CRT-D devices, and that such suits purport to include UHG in the plaintiff class. UHG’s Ingenix subsidiary has corresponded with the plaintiffs’ counsel in these actions regarding, among other things, UHG’s intention to opt out of the putative class action cases. On July 10, 2006, Medtronic and UHG entered into a tolling agreement pursuant to which UHG has agreed not to commence legal action against Medtronic for any claim relating to any medical device manufactured by Medtronic until 30 days following final disposition (by judicial resolution or settlement) of any individual patient litigation matter or matters against Medtronic, for which UHG may have a right of subrogation. Either party may terminate the tolling period upon 145 days written notice. Mr. Anderson has informed Medtronic that there is an informational barrier between him and UHG with respect to these potential claims. Also, Mr. Anderson will not receive from Medtronic any information relating to the potential claims that is not publicly available. As a result, the Board determined that the potential claims of UHG do not create a material relationship between Mr. Anderson and Medtronic at this time.

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

Certain Relationships and Related Transactions

      During fiscal 2006, Tino Schuler, a son of director Jack W. Schuler, was employed by Medtronic as a director of marketing in the Medtronic Xomed business. Mr. Tino Schuler worked for Xomed beginning in August 1993, and Xomed was acquired by Medtronic in 1999. Mr. Tino Schuler was paid an aggregate salary and bonus of $165,131 for his services during fiscal 2006. Director Gordon M. Sprenger’s son, Michael G. Sprenger, also worked as a director of marketing for Medtronic during fiscal 2006, receiving an aggregate salary and bonus of $186,121. Mr. Michael Sprenger has been a Medtronic employee since May 1989, prior to his father’s initial election to Medtronic’s Board in September 1991. Both Mr. Tino Schuler and Mr. Michael Sprenger received in fiscal 2006, in addition to their salaries and bonuses, the standard benefits provided to other Medtronic employees. Neither Mr. Tino Schuler nor Mr. Michael Sprenger is an executive officer of Medtronic.

GOVERNANCE OF MEDTRONIC

Our Corporate Governance Principles

      The Board of Directors first adopted Principles of Corporate Governance (the “Governance Principles”) in fiscal 1996 and has revised these Governance Principals from time to time, including to comply with New York Stock Exchange Corporate Governance Rules. The Governance Principles

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

Lead Director; Executive Sessions

      The Chair of our Corporate Governance Committee, Mr. Schuler, is our designated “Lead Director” and presides as the chair at meetings or executive sessions of the independent directors. Six regular meetings of our Board are held each year and at each Board meeting our independent directors meet in executive session with no company management present.

Committees of the Board and Meetings

      The membership of each of our four standing Board committees — Audit Committee, Compensation Committee, Corporate Governance Committee and Technology and Quality Committee — consists solely of independent directors, as defined in the New York Stock Exchange Corporate Governance Rules, and, as required by those rules, the Audit Committee and Corporate Governance Committee meet periodically in executive session with no company management present. Each director attended 75% or more of the total meetings of the Board and Board committees on which the director served. The following table summarizes the current membership of the Board and each of its standing committees, as well as the number of times each standing committee met during fiscal 2006.

     Effective August 24, 2006, Mr. Rosso will serve as Lead Director and chair of each of the Corporate Governance Committee and the Nominating Subcommittee, and Mr. Bonsignore will serve as chair of the Audit Committee. Mr. Anderson will remain chair of the Compensation Committee, and Dr. Brody will remain chair of the Technology and Quality Committee.

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

Audit Committee

      In accordance with NYSE requirements and SEC Rule 10A-3, all members of the Audit Committee meet the additional independence standards applicable to audit committee members. In addition, all of our current Audit Committee members are audit committee financial experts, as that term is defined in SEC rules.

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

Compensation Committee

      The Corporate Governance Committee considers candidates for Board membership, including those suggested by shareholders, applying the same criteria to all candidates. Any shareholder who wishes to recommend a prospective nominee for the Board for consideration by the committee must notify the Corporate Secretary in writing at Medtronic’s offices at 710 Medtronic Parkway, Minneapolis, MN 55432 no later than March 21, 2007. Any such recommendations should provide whatever supporting material the shareholder considers appropriate, but should at a minimum include such background and biographical material as will enable the committee to make an initial determination as to whether the nominee satisfies the criteria for directors set out in the Governance Principles.

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

      After completing interviews and the evaluation process, the Corporate Governance Committee makes a recommendation to the full Board as to persons who should be nominated by the Board.

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

Special Committees

      In 2004, the Board convened a Special Committee, comprised of Richard H. Anderson (Chair), Jean-Pierre Rosso and Jack W. Schuler, to conduct an independent evaluation of certain allegations made in a civil qui tam complaint under the federal False Claims Act against a subsidiary of Medtronic. In November 2005, the Board convened a second Special Committee, comprised of Jack W. Schuler (Chair), Robert C. Pozen and Jean-Pierre Rosso, to oversee Medtronic’s response to a subpoena received from the Office of the United States Attorney for the District of Massachusetts relating to the fraud and abuse and federal Anti-Kickback statutes. For more information about each of these matters, please see the “Legal Proceedings” section in Part I of Medtronic’s Annual Report on Form 10-K for the fiscal year ended April 28, 2006 (“fiscal 2006”).

Annual Meeting of the Shareholders

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

Director Compensation

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

      The annual retainer for all non-employee directors for the 2006-2007 plan year (September 1, 2006 through August 31, 2007) is $70,000. The Chairs of the Corporate Governance, Audit, Compensation and Technology and Quality Committees receive a cash stipend of $10,000. Mem-

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

      On the last day of each plan year, each non-employee director is granted a number of deferred stock units (each representing the right to receive one share of Medtronic common stock) equal to the amount of the annual retainer ($70,000) earned divided by the average closing price of a share of Medtronic common stock for the last 20 trading days during the plan year. Dividends paid on Medtronic common stock are credited to a director’s stock unit account in the form of additional stock units. The balance in a director’s stock unit account will be distributed to the director in the form of shares of Medtronic common stock upon resignation or retirement from the Board in a single distribution or, at the director’s option, in five equal annual distributions.

      On the date he or she first becomes a director, each new non-employee director receives a one-time initial stock option grant for a number of shares of Medtronic common stock equal to two times the amount of the annual retainer ($140,000) divided by the fair market value of a share of Medtronic common stock on the date of grant (which will also be the exercise price of such option). These options expire at the earlier of the tenth anniversary of the date of grant or five years after the holder ceases to be a Medtronic director.

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

      Directors may defer all or a portion of their compensation through participation in Medtronic’s Capital Accumulation Plan, a nonqualified deferred compensation plan designed to allow participants to make contributions of their compensation before taxes are withheld and to earn returns or incur losses on those contributions based upon allocations of their balances to one or more investment alternatives, which are the same investment alternatives that Medtronic offers its employees through its 401(k) supplemental retirement plan.

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

Complaint Procedure; Communications with Directors

      The Sarbanes-Oxley Act of 2002 requires companies to maintain procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We currently have such procedures in place. Our 24-hour, toll-free confidential compliance line is available for the submission of concerns regarding accounting, internal controls or auditing matters. Our independent directors may also be contacted via e-mail at independentdirectors@medtronic.com. Our Lead Director may be contacted via e-mail at leaddirector@medtronic.com. Communications received from shareholders may be forwarded directly to Board members as part of the materials sent before the next regularly scheduled Board meeting, although the Board has authorized management, in its discretion, to forward communications on a more expedited basis if circumstances warrant or to exclude a communication if it is illegal, unduly hostile or threatening or otherwise inappropriate. Advertisements, solicitations for periodical or other subscriptions and other similar communications generally will not be forwarded to the directors.

Our Codes of Conduct

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

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

SHARE OWNERSHIP INFORMATION

      5% Owners. As reported in filings with the SEC, no shareholder beneficially owned more than 5% of Medtronic’s common stock as of June 26, 2006.

      Beneficial Ownership of Management. The following table shows information as of June 26, 2006 concerning beneficial ownership of Medtronic’s directors, executive officers identified in the Summary Compensation Table below, and all directors and executive officers as a group.

      Section 16(a) Beneficial Ownership Reporting Compliance. Based upon a review of reports and written representations furnished to it, Medtronic believes that during fiscal 2006 all filings with the SEC by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of Medtronic’s common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), except as follows: Dr. Jackson failed to timely file a report for a purchase of shares on April 7, 2005 due to an oversight by Dr. Jackson’s advisor. H. James Dallas, Senior Vice President and Chief Information Officer, underreported the number of shares he beneficially owned in his Form 3 filed on March 2, 2006 due to an oversight by Mr. Dallas’ advisor. Robert M. Guezuraga, Senior Vice President and President, Diabetes, failed to timely file a report for a purchase of shares on January 4, 2001 due to an oversight by Mr. Guezuraga’s advisor. Dr. Oern R. Stuge, Senior Vice President and President of Medtronic Cardiac Surgery, failed to

SHAREHOLDER RETURN PERFORMANCE GRAPH

      The graph and table below compare the cumulative total shareholder return on Medtronic’s common stock with the cumulative total shareholder return on the Standard & Poor’s 500 Composite Index and the Standard & Poor’s 500 Health Care Equipment Index for the last five fiscal years. The graph and table assume that $100 was invested at market close on April 27, 2001 in Medtronic’s common stock, the S&P 500 Index and the S&P 500 Health Care Equipment Index and that all dividends were reinvested.

Comparison of Five-Year Cumulative Total Return Among Medtronic,

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

REPORT OF THE COMPENSATION COMMITTEE ON

FISCAL 2006 EXECUTIVE COMPENSATION

Overview

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

Compensation Philosophy

      The compensation program for executive officers is designed to:

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

      The committee has the authority under the Compensation Committee Charter to retain outside consultants or advisors to assist the committee. In accordance with this authority, the committee engages Frederic W. Cook & Co. as independent outside compensation consultant to advise the committee on all matters related to Chief Executive Officer and other executive compensation. The independent compensation consultant does not advise Medtronic’s management and only works with management with the express permission of the committee. Representatives of the consultant attended all of the committee meetings in fiscal 2006.

      Base Salary. The committee annually reviews and approves the base salaries of executive officers, taking into consideration individual performance, retention, the level of responsibility, the

      Annual Incentive Awards. Executive officers are eligible for annual incentives under the shareholder approved Medtronic, Inc. Executive Incentive Plan. This is a formula-based plan with awards based on corporate, geographic and business unit performance. In addition, for executive officers other than the Chief Executive Officer, there is a component based on individual performance. The committee, with input from management, sets specific performance goals at the beginning of each year and communicates them to Medtronic’s executives. For fiscal 2006, corporate operating performance was assessed against performance measure goals of diluted earnings per share, revenue growth and after-tax return on net assets, with these measures given weights of 50%, 30% and 20%, respectively. Business unit and geographic financial performance were assessed against performance measure goals of earnings before interest and taxes, revenue growth and controllable asset turnover, and in some cases, measures of quality, with these measures assigned respective weights that vary for each participant. For fiscal 2006, executive officers were eligible for target awards ranging from 40% to 120% of base salary. Final awards can range from 0% to 236% of the target amounts, and a threshold level of performance is required before any payout occurs. For fiscal 2006, the Chief Executive Officer was eligible to receive a target award of 120% of base salary, and the payout was 155% of his base salary.

      Stock Options. The committee uses annual grants of stock options to deliver competitive compensation that recognizes employees for their contributions to the Company and aligns executives with shareholders in focusing on long-term growth and stock performance. Stock options are granted annually based on pre-established grant guidelines calibrated to competitive standards and approved by the committee under a shareholder approved plan with exercise prices not less than the fair market value of the Company’s common stock on the date of grant. These options provide no value to the executive unless the Company’s stock price increases after the grants are made. Stock options granted to executive officers during the most recent fiscal year have a 10-year exercise term and vest ratably on the first four anniversaries of the date of grant, subject to accelerated vesting in the event of retirement or a defined change-in-control of the Company. Individual awards vary based on the individual’s responsibilities and performance, ability to impact financial performance and future potential. In fiscal 2006, the Chief Executive Officer received a stock option grant for 229,116 shares with terms and conditions consistent with those described above for other optionees.

      Restricted Stock/ Restricted Stock Units. The committee grants restricted stock and restricted stock units on a limited basis to executive officers, taking into consideration retention and competitive practice. The Chief Executive Officer received a restricted stock unit grant of $2 million in fiscal 2006. The award will cliff vest after five years or earlier upon death, disability or retirement, but will not be distributed until at least one year after the Chief Executive Officer’s retirement.

      Performance Shares and Performance Cash. The committee grants performance shares and performance cash to senior executives under the Performance Share Plan. Grants are made annually based on pre-established grant guidelines calibrated to competitive standards and approved by the committee for overlapping three-year performance periods. Grant targets range from 25% to 125% of base salary. In fiscal 2006, the Chief Executive Officer received a performance share and performance cash grant (for the 2006-2008 cycle) with a target payout equal to 125% of his base salary. Once a threshold level of performance is attained, final awards can range from 20% to 180% of the target amounts. Payouts are based on performance goals of diluted earnings per share, revenue growth and after-tax return on net assets, with these measures given weights of 50%, 30% and 20%, respectively. These performance measures are the same for all program participants. The value of the stock portion, which is 50% of the award, is based on the average price of Medtronic’s common stock for the last 20 trading days of the performance cycle, up to a maximum of three times the price at the date of grant. The stock portion of the award is paid in Medtronic common stock, with the other half paid in cash.

      Adjustments for Acquisitions and Special Charges. In determining award payments with respect to Medtronic’s short-term and long-term incentive programs, the committee has adopted a long-standing practice of excluding from the calculation of performance results certain acquisitions and in-process research and development, special and other charges. Consistent with this practice, the performance results for the performance period ended in fiscal 2006 excluded all in-process research and development, a charitable contribution to The Medtronic Foundation and the positive impact of certain tax benefits during such performance period.

      Stock Retention Requirements. The committee has approved the implementation of stock retention requirements. The Chief Executive Officer must retain, for a period of three years, 75% of the net after-tax profit shares realized from option exercises and 75% of the net gain shares relating to share issuances resulting from grants made on or after April 26, 2003. Other executive officers must retain, for a period of three years, 50% of the net after-tax profit shares realized from option exercises or 50% of the net gain shares relating to share issuances resulting from grants made on or after April 26, 2003. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances, net gain shares are those shares remaining after payment of income taxes. Shares retained may be sold after three years. In the case of retirement or termination, the shares may be sold after the shorter of the remaining retention period or one year following retirement/termination. As of July 1, 2006, all executive officers were in compliance with the stock retention requirements.

Conclusion

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

EXECUTIVE COMPENSATION

      The following table sets forth the cash and non-cash compensation for each of the last three fiscal years ended April 28, 2006, April 29, 2005 and April 30, 2004 awarded to or earned by the Chief Executive Officer and each of the other four most highly compensated executive officers of Medtronic.

Summary Compensation Table

Option/SAR Grants In Last Fiscal Year

      The following table sets forth for each of the named executive officers the stock options granted by Medtronic in fiscal 2006 and the potential value of these stock options determined pursuant to SEC requirements. No stock appreciation rights were granted to the named executives in fiscal 2006.

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

      The following table sets forth for each of the named executive officers, the value realized from stock options exercised during fiscal 2006 and the number and value of exercisable and unexercisable stock options and stock appreciation rights held at April 28, 2006.

Other Long-Term Incentive Awards

      In fiscal 2006, Medtronic provided that the awards granted with respect to the three-year performance cycle ending fiscal 2008 under Medtronic’s 2003 Long-Term Incentive Plan will consist of a portion of Medtronic common stock and a portion of cash. Payout of the awards is based on achieving specified financial objectives during the three-year performance cycle.

      The following table sets forth the stock portion of the awards to each of the named executive officers and the potential payouts under the plan.

Long-Term Incentive Plans — Awards In Last Fiscal Year

Portion of Award Payable in Medtronic Common Stock⁽¹⁾

      The next table sets forth the cash portion of the awards to each of the named executive officers and the potential payouts under the plan.

Long-Term Incentive Plans — Awards In Last Fiscal Year

Portion of Award Payable in Cash⁽¹⁾

Equity Compensation Plan Information

      The following table provides information about Medtronic’s common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans in

Pension Plans

      Medtronic has three types of pension plans. Medtronic’s original pension plan is a defined benefit, tax qualified retirement plan covering most U.S. employees who began employment with Medtronic prior to May 1, 2005. It generally provides an annual benefit equal to a percentage of the average of the highest five consecutive years of compensation (including certain incentive compensation) during an employee’s participation in the plan, offset by a Social Security allowance as published each year by the Internal Revenue Service. The table below illustrates the annual benefits payable to participants who retire at age 65 with the indicated years of service with Medtronic and with the indicated five-year highest average annual compensation. The benefits have been calculated on a 50% joint and survivor annuity basis. The compensation considered in determining the

      Medtronic implemented two new alternative plans for employees hired on or after May 1, 2005, a defined benefit plan, the Personal Pension Account (“PPA”), and a defined contribution plan, the Personal Investment Account (“PIA”). Employees hired prior to that date were given an option as to whether or not they wanted to participate in one of the two new alternatives or to continue in the traditional defined benefit plan, which includes retiree medical. Both the PPA and the PIA are tax qualified retirement plans, and at the time of their hiring, eligible U.S. employees can elect to participate in either the PPA or the PIA. Under the PPA, participants will receive an annual allocation of five percent of the participant’s salary and bonus on which they will receive an annual guaranteed rate of return tied to U.S. Treasury bonds. Under the PIA, participants will receive an annual allocation of five percent of the participant’s salary and bonus. Unlike the PPA, the PIA allows participants to determine how to invest their funds. Participants may invest PIA funds in the same investment options available in Medtronic’s 401(k) plan. Both the PPA and the PIA vest 100% after five years-of-service. Upon retirement or termination of employment, participants under either the PPA or PIA will have a number of distribution options including a lump sum payment or an annuity.

      In addition, all employees eligible for the PPA and the PIA are offered access to retiree medical coverage at group rates. If the employee leaves before meeting eligibility for retirement, he or she forfeits the retiree medical coverage. Employees who participate in the PPA receive a $1,500 credit in his or her retiree medical account for each year of credited service, which earns interest at a rate of return tied to U.S. Treasury bonds while actively employed. When the employee retires, he or she can use the account to pay for documented retiree medical plan premiums or Medicare premiums.

      The Internal Revenue Code imposes certain limits on the amount of benefits that may be paid from tax qualified pension plans like Medtronic’s plans described above. Medtronic’s non-qualified supplemental benefit plan has been established to restore benefits to executives who may be affected by those limits. The non-qualified supplemental benefit plan provides retirees with supplemental benefits so that, in general, they will receive total benefits equal to the level of benefits that would have been payable under Medtronic’s pension plans if the Internal Revenue Code limits had

Employment and Change in Control Arrangements

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

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

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

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

      If a “change in control” occurs during a plan year, subject to certain limitations, Medtronic’s matching contribution to the 401(k) supplemental retirement plan shall equal the greater of Medtronic’s target percentage matching contribution (currently 75% of the first 6% of a participant’s contribution in fiscal 2006), or if the “change in control” occurs after the first quarter of a plan year,

REPORT OF THE AUDIT COMMITTEE

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

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

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

      PricewaterhouseCoopers has advised the Audit Committee that, in its opinion, the consolidated balance sheets and the related consolidated statements of earnings, shareholders’ equity and cash flows that accompany Medtronic’s 2006 Annual Report present fairly, in all material respects, the financial position of Medtronic and its subsidiaries at April 28, 2006 and April 29, 2005, and the results of Medtronic’s operations and cash flows for each of the three fiscal years in the period ended April 28, 2006 in conformity with U.S. GAAP.

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

      Based on the considerations above, the Audit Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the audited financial statements in Medtronic’s Annual Report on Form 10-K for fiscal 2006 for filing with the Securities and Exchange Commission. The Audit Committee has selected PricewaterhouseCoopers as Medtronic’s indepen-

AUDIT COMMITTEE:

Audit and Non-Audit Fees

      The following table presents fees for professional audit services rendered by PricewaterhouseCoopers for the audit of Medtronic’s annual financial statements for the fiscal years ended April 29, 2005 and April 28, 2006, and fees billed for other services rendered by PricewaterhouseCoopers.

PROPOSAL 2 — RATIFICATION OF SELECTION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

      The Audit Committee has selected PricewaterhouseCoopers LLP, certified public accountants and independent registered public accounting firm, as Medtronic’s independent registered public accounting firm for the fiscal year ending April 27, 2007. As required by the Audit Committee Charter, the Board of Directors is submitting the selection of PricewaterhouseCoopers LLP for shareholders’ ratification at the Annual Meeting. If the shareholders do not so ratify, the Audit Committee will reconsider its selection.

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

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

PROPOSAL 3 — SHAREHOLDER PROPOSAL ENTITLED “DIRECTOR

ELECTION MAJORITY VOTE STANDARD PROPOSAL”

      Medtronic has received a shareholder proposal from The United Brotherhood of Carpenters Pension Fund (“United Brotherhood of Carpenters”), 101 Constitution Avenue, N.W., Washington, D.C. 20001. The United Brotherhood of Carpenters has requested that Medtronic include the following proposal and supporting statement in its proxy statement for the 2006 Annual Meeting of Shareholders, and, if properly presented, this proposal will be voted on at the Annual Meeting. The United Brotherhood of Carpenters beneficially owns approximately 19,700 shares of Medtronic common stock. The shareholder proposal is quoted verbatim in italics below.

      Management of Medtronic does not support the adoption of the resolution proposed below and asks shareholders to consider management’s response, which follows the shareholder proposal.

SHAREHOLDER PROPOSAL

Director Election Majority Vote Standard Proposal

Resolved: That the shareholders of Medtronic, Inc. (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s articles of incorporation to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.

Supporting Statement: Our Company is incorporated in Minnesota. Among other issues, Minnesota corporate law addresses the issue of the level of voting support necessary for a specific action, such as the election of corporate directors. Minnesota law provides that unless a company’s articles of incorporation provide otherwise, a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director. (Minnesota Statutes 2005, 302A.215, Voting for directors; cumulative voting, Subdivision 1. Required vote)

Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Company’s director election vote standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.

We believe that a majority vote standard in director elections would give shareholders a meaningful role in the director election process. Under the Company’s current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld” from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.

The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal. So far this year, the boards of over a dozen companies, including Intel, Dell, Texas Instruments, Freeport McMoRan, Gannett, Harford Financial, Northern Trust, and Supervalu, have put a majority vote standard in Company by-laws or have agreed to do so in 2007.

Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.

Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be

      We urge your support for this important director election form.

MANAGEMENT STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL

      This proposal requests that the Board of Directors initiate the appropriate process to amend Medtronic’s articles of incorporation to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders. Medtronic currently uses a plurality voting standard, the default under Minnesota law. The plurality voting standard provides that the nominees who receive the most affirmative votes are elected to serve on Medtronic’s Board of Directors. Most large public companies use a plurality voting standard.

      After careful consideration, management recommends a vote against this proposal because Medtronic has already implemented a policy whereby, in an uncontested election of directors, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election will tender a written offer to resign from the Board of Directors. Medtronic also believes that the proposal was not submitted out of any particular concern that the proponent may have with the composition or governance structure of the Board of Directors, but instead as part of a broad-based campaign by the proponent and others to advance debate over existing voting standards.

      Medtronic has no objection to the concept included in the proposal, but the Board of Directors believes that its existing governance policy fulfills its responsibility to shareholders and responsiveness to shareholder votes, while still allowing the Board of Directors appropriate discretion in considering whether a particular director’s resignation would be in the best interests of Medtronic and its shareholders. Medtronic believes that this policy addresses the proponent’s concerns.

      The Board of Directors believes that Medtronic already has a strong corporate governance process designed to identify and propose director nominees who will serve the best interests of Medtronic and all shareholders. Director nominees are evaluated and recommended for election by the Corporate Governance Committee, which is comprised solely of independent directors. In recommending nominees, the committee considers a variety of factors. Medtronic has also published in this proxy statement information on how shareholders can communicate their views on potential nominees or other matters with the Board of Directors. In light of the foregoing, our Board of Directors believes that our recently adopted policy provides the appropriate mechanism for electing an effective Board of Directors committed to delivering long-term shareholder value.

      Under Medtronic’s policy a nominee and incumbent director who receives a majority of withheld votes would offer to resign and could be removed from the Board of Directors. By contrast, the majority voting standard requested by the proposal only addresses the voting requirement for being elected to the Board. It does not remove incumbent directors who have not received a majority vote because under Minnesota law, an incumbent director who is not re-elected “holds over” and continues to serve with the same voting rights and powers until his or her successor is elected and qualified. Therefore, even if the proposal were adopted, it would not force a director who failed to receive a majority vote to leave the Board of Directors until the next annual meeting.

      Finally, shareholders of many public companies have rejected similar shareholder proposals when those companies had previously adopted a policy similar to Medtronic’s resignation policy. Examples include American Express, Eli Lily, International Business Machines Corporation, Johnson and Johnson, Morgan Stanley and others.

      FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST APPROVAL OF THE SHAREHOLDER PROPOSAL.

OTHER INFORMATION

Expenses of Solicitation

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

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

Shareholder Proposals and Director Nominations

      In order for a shareholder proposal to be considered for inclusion in Medtronic’s proxy statement for the 2007 Annual Meeting, the written proposal must be received by the Corporate Secretary at Medtronic’s offices no later than March 21, 2007. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials.

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

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

Delivery of Documents to Shareholders Sharing an Address

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

      Medtronic’s 2006 Annual Report, including financial statements, is being sent to shareholders of record as of June 26, 2006, together with this Proxy Statement.

      MEDTRONIC WILL FURNISH TO SHAREHOLDERS WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 28, 2006 UPON RECEIPT OF WRITTEN REQUEST ADDRESSED TO: INVESTOR RELATIONS DEPARTMENT, MEDTRONIC, INC., 710 MEDTRONIC PARKWAY, MINNEAPOLIS, MINNESOTA 55432.

      The Board of Directors knows of no other matter to be presented at the Annual Meeting. If any other business properly comes before the Annual Meeting or any adjournment thereof, the proxies will vote on that business in accordance with their best judgment.

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