SC 14D9

 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
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                                 SCHEDULE 14D-9
 
                     SOLICITATION/RECOMMENDATION STATEMENT
                      PURSUANT TO SECTION 14(D)(4) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
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                                NELLCOR PURITAN
                              BENNETT INCORPORATED
                           (NAME OF SUBJECT COMPANY)
 
                                NELLCOR PURITAN
                              BENNETT INCORPORATED
                      (NAME OF PERSON(S) FILING STATEMENT)
 
                    COMMON STOCK, PAR VALUE $.00L PER SHARE
                         (TITLE OF CLASS OF SECURITIES)
 
                                  640275 10 3
                     (CUSIP NUMBER OF CLASS OF SECURITIES)
 
                             C. RAYMOND LARKIN, JR.
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              4280 HACIENDA DRIVE
                          PLEASANTON, CALIFORNIA 94588
                                 (510) 463-4000
      (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
    NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT).
 
                                With a Copy to:
 
                          ROBERT M. MATTSON, JR., ESQ.
                            MORRISON & FOERSTER LLP
                     19900 MACARTHUR BOULEVARD, 12TH FLOOR
                            IRVINE, CALIFORNIA 92612
                                 (714) 251-7500
 
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ITEM 1. SECURITY AND SUBJECT COMPANY
 
  The name of the subject company is Nellcor Puritan Bennett Incorporated, a
Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 4280 Hacienda Drive, Pleasanton,
California 94588. The title of the class of equity securities to which this
statement relates is the common stock, par value $.001 per share, of the
Company (the "Common Stock"), including the associated rights to purchase
Series A Junior Participating Preferred Stock (the "Rights" and, together with
such shares of Common Stock, except where the context otherwise requires, the
"Shares") issued pursuant to the Rights Agreement (the "Amended Rights
Agreement"), dated as of June 11, 1991, as first amended as of September 1,
1992, amended and restated as of March 8, 1996 and amended on July 23, 1997,
between the Company and Rights Agent (as defined in Item 8(a) below).
 
ITEM 2. TENDER OFFER OF THE PURCHASER.
 
  This statement relates to a tender offer by NPB Acquisition Corp., a
Delaware corporation (the "Merger Sub"), and a direct wholly-owned subsidiary
of Mallinckrodt Inc., a New York corporation ("Purchaser"), disclosed in a
Tender Offer Statement on Schedule 14D-1, dated July 29, 1997 (the "Schedule
14D-1"), to purchase all outstanding Shares, at a price of $28.50 per Share,
in cash, net to the seller, subject to the terms and conditions set forth in
the Offer to Purchase, dated July 29, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with the Offer to Purchase as
it may be amended, constitute the "Offer").
 
  The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 23, 1997 (the "Merger Agreement"), among the Purchaser, Merger Sub
and the Company. The Merger Agreement provides, among other things, that as
soon as practicable after the satisfaction or waiver of the conditions set
forth in the Merger Agreement, Merger Sub will be merged with and into the
Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation"). A copy of the Merger Agreement is
filed as Exhibit 1 hereto, and incorporated herein by reference.
 
  As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser and Merger Sub are at 7733 Forsyth Boulevard, St. Louis, Missouri
63105-1820.
 
ITEM 3. IDENTITY AND BACKGROUND.
 
  (a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
 
  (b) Except as set forth in this Item 3(b) and the Information Statement
attached hereto as Schedule II and incorporated herein, to the knowledge of
the Company, as of the date hereof, there are no material contracts,
agreements, arrangements and understandings or any actual or potential
conflicts of interest between the Company or its affiliates and: (i) its
executive officers, directors or affiliates; or (ii) the Purchaser, its
executive officers, directors or affiliates.
 
 The Merger Agreement.
 
  The following is a summary of the Merger Agreement, which summary is
qualified in its entirety by reference to the Merger Agreement which is filed
as Exhibit 1 hereto. Capitalized terms not otherwise defined herein have the
meanings set forth in the Merger Agreement.
 
  General. The Merger Agreement provides that, promptly after expiration of
the Offer and receipt of any required approval by the Company's stockholders
of the Merger Agreement and the satisfaction or waiver of certain other
conditions the Merger Sub will be merged into the Company. If the Merger Sub
acquires 50% of the outstanding Shares pursuant to the Offer, it will have the
votes necessary under the Delaware General Corporation Law ("DGCL") to approve
the Merger. Under the DGCL, if the Merger Sub owns at least 90% of the
outstanding Shares, the Merger Sub will be able to and intends to effect the
Merger without a meeting of
 
                                       1

 
holders of Shares. Upon consummation of the Merger, each then outstanding
Share not owned by Purchaser, the Merger Sub or any other subsidiary of
Purchaser ("Purchaser Companies") (other than Shares held by Dissenting
Stockholders), will be converted into the right to receive an amount in cash
(the "Merger Consideration") equal to $28.50 or such greater amount that may
be paid pursuant to the Offer.
 
  The respective obligations of the Company, the Purchaser and Merger Sub to
consummate the Merger are subject to the fulfillment of certain conditions set
forth in the Merger Agreement, any or all of which may be waived in whole or
in part by Purchaser or the Merger Sub, as the case may be, to the extent
permissible by applicable law including (i) if required by the DGCL, the
approval of the Merger Agreement by the holders of a majority of the Shares in
accordance with applicable law and the Restated Certificate of Incorporation
and Bylaws of the Company, (ii) the purchase by Merger Sub (or one of the
Purchaser Companies) of Shares pursuant to the Offer, (iii) there being no
statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) enacted, issued, promulgated,
enforced or entered by any United States or state court or other Governmental
Entity (as defined in the Merger Agreement) of competent jurisdiction in
effect which prohibits consummation of the transactions contemplated by the
Merger Agreement (collectively, an "Order"), and (iv) the Company's
representations and warranties concerning the Rights Amendment remaining true
and correct and the Company having performed its obligations set forth in the
Merger Agreement concerning, among other things, taking all action to provide
for the cash-out immediately prior to the Effective Time of employee stock
options granted prior to July 22, 1997; provided that this last condition
shall be deemed satisfied if Purchaser's designees to the Company's Board of
Directors constitute a majority of the members of the Board and take any
action to reverse, modify or amend any action taken by the Board of Directors
prior to such designees constituting a majority of the Company's Board.
 
  Termination Provisions. According to its terms, the Merger Agreement may be
terminated and the transactions contemplated thereby abandoned at any time
prior to the Effective Time, before or after approval by holders of Shares:
 
    (a) By the mutual consent of Purchaser and the Company, by action of
  their respective Boards of Directors; or
 
    (b) By action of the Board of Directors of either Purchaser or the
  Company if (i) the Merger Sub, or any Purchaser Company, shall have
  terminated the Offer without purchasing any Shares pursuant thereto; or
  (ii) the Merger shall not have been consummated by December 31, 1997,
  whether or not such date is before or after the approval by holders of
  Shares; or (iii) if required, the stockholders of the Company shall not
  have approved the Merger Agreement at a meeting duly convened therefor; or
  (iv) any court of competent jurisdiction or other governmental body located
  or having jurisdiction within the United States or any country or economic
  region in which either the Company or Purchaser, directly or indirectly,
  has material assets or operations, shall have issued a final order, decree
  or ruling or taken any other final action restraining, enjoining or
  otherwise prohibiting the Offer or the Merger and such order, decree ruling
  or other action is or shall have become final and nonappealable; or
 
    (c) By action of the Board of Directors of Purchaser if: (i) the Company
  shall have breached or failed to perform in any material respect any of the
  covenants or agreements contained in the Merger Agreement to be complied
  with or performed by the Company prior to such date of termination which
  breach or failure shall not have been cured prior to the earlier of (A) ten
  business days following the giving of written notice to the Company of such
  breach or failure and, if applicable, (B) the date on which the Offer is
  then scheduled to expire, or any representation or warranty of the Company
  set forth in the Merger Agreement shall have been inaccurate or incomplete
  when made except for such failures to be complete or accurate that,
  individually or in the aggregate, could not reasonably be expected to have
  a material adverse effect on the financial condition, properties, business
  or results of operations of the Company and its subsidiaries taken as a
  whole or could prevent or materially delay the transactions contemplated by
  the Merger Agreement or impair the ability of Purchaser, Merger Sub, the
  Company or any of their respective affiliates, following consummation of
  the Offer or the Merger, to conduct any material business or operations in
  any jurisdiction where they are now being conducted; or (ii) the Board of
  Directors of the Company (or a
 
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  special committee thereof) shall have amended, modified or withdrawn in a
  manner adverse to Purchaser or Merger Sub its approval or recommendation of
  the Offer, the Merger Agreement or the Merger or the Board of Directors of
  the Company, upon request by Purchaser, shall have failed to publicly
  reaffirm such approval or recommendation within ten business days of such
  request by Purchaser or shall have endorsed, approved or recommended any
  other Acquisition Proposal (as defined under "Acquisition Proposals" below)
  or shall have resolved to do any of the foregoing; or (iii) the Company
  shall have entered into any agreement, letter of intent or agreement in
  principle with respect to any other Acquisition Proposal; or
 
    (d) By action of the Board of Directors of the Company, among other
  things, if: (i) Purchaser or Merger Sub (or another Purchaser Company)
  shall have breached or failed to perform in any material respect any of the
  covenants or agreements contained in the Merger Agreement to be complied
  with or performed by Purchaser or Merger Sub prior to such date of
  termination which breach or failure shall not have been cured prior to the
  earlier of (A) ten business days following the giving of written notice to
  the Purchaser of such breach or failure, and, if applicable, (B) the date
  on which the Offer is then scheduled to expire; or (ii) (w) the Company is
  not in material breach of any of the terms of the Merger Agreement, (x) the
  Board of Directors of the Company authorizes the Company, subject to
  complying with the terms of the Merger Agreement, to enter into a
  definitive written acquisition agreement concerning an Acquisition
  Transaction (as defined under "Acquisition Proposals" below) (such an
  agreement, an "Alternative Acquisition Agreement") and five business days
  elapse after delivery to Purchaser of a written notice that the Board of
  Directors of the Company has so authorized the Company to enter into such
  Alternative Acquisition Agreement, attaching the most current version of
  such agreement (which shall include all of the material terms, including
  the price proposed to be paid for Shares pursuant thereto) to such notice,
  (y) Purchaser does not make, within five business days of receipt of such
  written notice from the Company, an offer that the Board of Directors of
  the Company determines, in good faith after consultation with its financial
  advisors, is at least as favorable, from a financial point of view, to the
  stockholders of the Company as the offer set forth in the Alternative
  Acquisition Agreement that the Company has indicated that it intends to
  enter into following the end of such five business day period, and (z) the
  Company, prior to such termination, pays to Purchaser in immediately
  available funds the fees described in the next paragraph.
 
  The Merger Agreement provides that if (i) (x) the Offer shall have remained
open for a minimum of at least 25 business days, (y) after the date of the
Merger Agreement any corporation, partnership, person, other entity or group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") other than Purchaser or Merger Sub or any of
their respective subsidiaries or affiliates (collectively, a "Person") shall
have become the beneficial owner of 15% or more of the outstanding Shares or
shall have publicly announced a proposal or intention to make an Acquisition
Proposal or any Person shall have commenced, or shall have publicly announced
an intention to commence, a tender offer or exchange offer for 15% or more of
the outstanding Shares, and (z) the Minimum Condition shall not have been
satisfied and the Offer is terminated without the purchase of any Shares
thereunder, or (ii) Purchaser shall have terminated the Merger Agreement in
accordance with clause (c)(ii) or (c)(iii) of the previous paragraph, or (iii)
the Company shall have terminated the Merger Agreement in accordance with
clause (d)(ii) of the previous paragraph then the Company shall promptly, but
in no event later than two days after the date of such termination (except as
otherwise expressly provided in accordance with clause (d)(ii)(z) requiring an
earlier payment), pay Purchaser a fee of $45,000,000 (the "Termination Fee")
and shall reimburse Purchaser and Merger Sub (not later than one business day
after submission of statements therefor) for (i) an amount equal to all of the
actual documented out-of-pocket charges and expenses incurred by Purchaser and
Merger Sub in connection with the Merger Agreement and the transactions
contemplated thereby up to a maximum amount of $3,500,000, plus (ii) an amount
equal to all of the actual documented financing fees paid by Purchaser in
connection with the Credit Agreement, dated July 23, 1997, between Purchaser
and the lenders named therein (the "Credit Facility") up to a maximum amount
of $4,000,000 (such charges, expenses and financing fees referred to in
clauses (i) and (ii) collectively, the "Purchaser Expenses"), in each case
payable by wire transfer in same day funds. If the Merger Agreement is
terminated by Purchaser pursuant to clause (c)(i) of the previous paragraph,
then the Company shall promptly pay to Purchaser the Purchaser Expenses and,
if within 18 months of the date of such termination, the Company shall enter
into any agreement with respect to an Acquisition Transaction, the Company
shall,
 
                                       3

 
promptly but in no event later than two days after the entry into such
agreement, pay Purchaser the Termination Fee. If the Company fails to promptly
pay the Termination Fee or Purchaser Expenses when due, and, in order to
obtain such payment, Purchaser or Merger Sub commences a suit which results in
a judgment against the Company for the fee set forth in this paragraph, the
Company shall pay to Purchaser or Merger Sub its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Morgan Guaranty Trust Company of New
York on the date such payment was required to be made. The Merger Agreement
provides that if the Merger Agreement is terminated by the Company in
accordance with clause (d)(i) of the previous paragraph or by the Company or
Purchaser in accordance with clause (b)(i) of the previous paragraph in the
event Merger Sub or Purchaser shall have terminated the Offer in violation of
the terms of the Offer, then Purchaser shall promptly reimburse the Company
(not later than one business day after submission of statements therefor) for
an amount equal to the Company's actual documented out-of-pocket expenses
incurred in connection with the transactions contemplated by the Merger
Agreement in an amount not to exceed $3,500,000.
 
  Amendment. Subject to the applicable provisions of the DGCL, at any time
prior to the Effective Time, the parties to the Merger Agreement may modify or
amend by written agreement executed and delivered by duly authorized officers
of the respective parties.
 
  Treatment of Options. The Merger Agreement provides that except in
accordance with the next sentence, the Company shall take such actions as may
be necessary such that immediately prior to the effective time of the Merger
(the "Effective Time") each stock option outstanding pursuant to the Company's
stock plans listed in the Merger Agreement (each, an "Option"), whether or not
then exercisable, shall be canceled and only entitle the holder thereof, upon
surrender thereof, to receive an amount in cash from the Company equal to the
result of multiplying the number of Shares previously subject to such Option
by the difference between the Merger Consideration and the per Share exercise
price of such Option. Notwithstanding anything contained in the Merger
Agreement to the contrary, all Options granted after July 21, 1997 shall, at
the Effective Time, be assumed by Purchaser in accordance with the terms of
the applicable Stock Plan and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each post July 21, 1997
Option may be exercised solely for shares of Purchaser common stock, (ii) the
number of shares of Purchaser common stock subject to such Option shall be
equal to the result (rounded down to the nearest whole share) of multiplying
the number of Shares subject to such Option immediately prior to the Effective
Time by a fraction (the "Conversion Fraction"), the numerator of which is the
Merger Consideration and the denominator of which is the average of the
closing prices of one share of Purchaser common stock on the New York Stock
Exchange ("NYSE") for the five business days immediately prior to the
Effective Time and (iii) the per share exercise price under each such Option
shall be equal to the result (rounded up to the nearest whole cent) of
dividing the per share exercise price under each such Option immediately prior
to the Effective Time by the Conversion Fraction, provided, however, that with
respect to any Option which is an "incentive stock option," within the meaning
of Section 422 of the United States Internal Revenue Code of 1986, as amended
(the "Code"), the adjustments provided in the Merger Agreement shall, if
applicable, be modified in a manner so that the adjustments are consistent
with requirements of Section 424(a) of the Code. As a result of the
cancellation of Options granted on or before July 21, 1997 pursuant to the
Merger Agreement, and based upon the Options outstanding as of that date and a
$28.50 Offer price, a total of approximately $69.2 million would be paid to
holders of such Options, including $20.1 million to executive officers and
$6.4 million to non-employee directors of the Company.
 
  The Merger Agreement provides that the Company will take such actions as may
be necessary so that each employee participating in the Company's 1995
Employee Stock Purchase Plan, as amended (the"1995 ESPP") immediately prior to
the Effective Time shall only be entitled to receive an amount in cash equal
to the result of multiplying (i) the Merger Consideration by (ii) a fraction,
the numerator of which is the accumulated payroll deductions in the employee's
account under the 1995 ESPP at the Effective Time, and the denominator of
which is the purchase price for the "Offering" for the "Purchase Period" (as
such terms are defined in the 1995 ESPP) in effect immediately prior to the
Effective Time. The Company agrees to take such actions as may be necessary to
cease as of the Effective Time all further offerings and payroll deductions
under the 1995 ESPP.
 
 
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  All restrictions on the retention of shares of restricted stock granted to
employees under the Company's 1994 Equity Incentive Plan, as amended, shall
lapse immediately prior to the Effective Time.
 
  Indemnification of Officers and Directors. The Merger Agreement provides
that from and after the Effective Time, Purchaser will to the fullest extent
that the Company would have been permitted under Delaware law and the
Company's Restated Certificate of Incorporation and Bylaws, and (ii) cause the
Surviving Corporation, to the fullest extent permitted under Delaware law, to
indemnify and hold harmless each present and former director and officer of
the Company, determined as of the Effective Time, against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the
Effective Time. The Merger Agreement also provides that Purchaser shall cause
the Surviving Corporation either (i) to maintain the Company's existing
officers' and directors' liability insurance (or equivalent thereof) ("D&O
Insurance") for a period of six years after the Effective Time, so long as the
annual premium therefor is not in excess of an amount (the "D&O Premium")
equal to 150% of the last annual premium paid prior to the date of the Merger
Agreement; provided, however, if the existing D&O Insurance expires, is
terminated or canceled during such six year period, the Surviving Corporation
will use its best efforts to obtain as much D&O Insurance as can be obtained
for the remainder of such period for a premium not in excess (on an annualized
basis) of the D&O Premium, or (ii) purchase tail insurance in respect of the
existing D&O Insurance for six years for a premium not to exceed $1,000,000.
 
  Treatment of Employee Benefits. The Merger Agreement provides that during
the period commencing at the Effective Time and ending on the second
anniversary thereof, the employees of the Company will continue to be provided
with benefits under employee benefit plans (other than stock options or other
plans involving the issuance of securities of the Company or Purchaser) which
in the aggregate are substantially comparable to those currently provided by
the Company to such employees; provided, however, that employees covered by
collective bargaining agreements need not be provided with such benefits.
Purchaser will cause each employee benefit plan of Purchaser in which
employees of the Company are eligible to participate to take into account for
purposes of eligibility and vesting thereunder the service of such employees
with the Company as if such service were with Purchaser, to the same extent
that such service was credited under a comparable plan of the Company.
Purchaser will, and will cause the Surviving Corporation to, honor in
accordance with their terms (i) all employee benefit obligations to current
and former employees of the Company accrued as of the Effective Time and (ii)
to the extent set forth in the disclosure letter delivered in connection with
the Merger Agreement, all employee severance plans in existence on the date of
the Merger Agreement and all employment or severance agreements entered into
prior to the date of the Merger Agreement.
 
  Composition of the Board of Directors. The Merger Agreement provides that,
if requested by Purchaser, the Company will, subject to compliance with
applicable law and promptly following the purchase by the Merger Sub of such
number of Shares pursuant to the Offer as satisfies the Minimum Condition,
take all actions necessary to cause persons designated by Purchaser to become
directors of the Company so that the total number of such persons equals not
less than the product of the total number of directors on the Board (giving
effect to the directors elected in accordance with this sentence) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Merger Sub or any affiliate of Merger Sub bears to the total number of Shares
then outstanding. In furtherance thereof, the Company has agreed to increase
the size of its Board of Directors, or use its reasonable efforts to secure
the resignation of directors, or both, as is necessary to permit Purchaser's
designees to be elected to the Company's Board of Directors, provided that at
all times prior to the Effective Time, the Company's Board of Directors shall
consist of at least two members who are neither officers, stockholders,
designees nor affiliates of Purchaser ("Purchaser Representatives"). The
Company's obligations to appoint designees to the Company's Board of Directors
are subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
 
  Acquisition Proposals. Pursuant to the Merger Agreement, the Company agreed
that it, its affiliates and its and their respective officers, directors,
employees, representatives and agents (including, without limitation, any
investment banker, attorney or accountant retained by the Company or any of
its subsidiaries) would
 
                                       5

 
immediately cease any existing discussions or negotiations, if any, with any
parties conducted theretofore with respect to any acquisition or exchange of
all or any material portion of the assets of, or more than 15% of the equity
interest in, the Company or any of its subsidiaries (by direct purchase from
the Company, tender or exchange offer or otherwise) or any business
combination, merger or similar transaction (including an exchange of stock or
assets) with or involving the Company or any subsidiary (except as set forth
in the disclosure letter delivered pursuant to the Merger Agreement) or
division of the Company (an "Acquisition Transaction"). The Merger Agreement
provides that, except as set forth therein, neither the Company nor any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents, will, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Purchaser and Merger Sub, any affiliate or associate of Purchaser
and Merger Sub or any designees of Purchaser and Merger Sub) with respect to
any inquiries or the making of any offer or proposal (including, without
limitation, any offer or proposal to the stockholders of the Company)
concerning an Acquisition Transaction (an "Acquisition Proposal"); provided,
however, that the Company may directly or indirectly, furnish information and
access pursuant to an appropriate confidentiality agreement, in each case only
in response to a request for information or access, to any person making a
written Acquisition Proposal to the Board of Directors of the Company made
after the date of the Merger Agreement which was not encouraged, solicited or
initiated by the Company or any of its affiliates or any of its or their
respective officers, directors, employees, representatives or agents on or
after the date of the Merger Agreement and may participate in discussions and
negotiate with such person concerning any such Acquisition Proposal, if and
only if the Board of Directors of the Company determines in good faith, based
upon the advice of outside counsel to the Company, that failing to provide
such information or access or to participate in such discussions or
negotiations would constitute a breach of the Board's fiduciary duty under
applicable law and provided, further, that nothing in the Merger Agreement
shall prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to any tender offer, and provided, further,
that the Board shall not recommend that the stockholders of the Company tender
their Shares in connection with any such tender offer unless the Board shall
have determined in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law. The Merger Agreement provides
that the Company's Board of Directors will notify Purchaser immediately if any
such written Acquisition Proposal is made and shall in such notice indicate
the identity of the offeror and the terms and conditions of any such proposal.
The Company agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which the
Company is a party, unless the Company's Board of Directors shall have
determined in good faith, based upon the advice of outside counsel to the
Company, that failing to release such third party or waive such provisions
would constitute a breach of the Board's fiduciary duties under applicable
law.
 
  Covenants. The Merger Agreement also contains certain other restrictions as
to the conduct of business by the Company pending the Merger, as well as
representations and warranties of each of the parties customary in
transactions of this kind.
 
  Conditions. Notwithstanding any other provision of the Offer, Merger Sub
shall not be required to accept for payment or, subject to any applicable
rules and regulations of the Securities and Exchange Commission ("SEC"),
including Rule 14e-1(c) under the Exchange Act (relating to Merger Sub's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, or may delay the acceptance for payment of
or payment for, any tendered Shares, or may, in its sole discretion (subject
to the Merger Agreement), terminate or amend the Offer as to any Shares not
then paid for if, (i) prior to the expiration of the Offer, (x) a number of
Shares which, together with any Shares owned by Purchaser or Merger Sub,
constitutes more than 50% of the voting power (determined on a fully-diluted
basis) of all the securities of the Company entitled to vote generally in the
election of directors or in connection with a merger shall not have been
validly tendered and not withdrawn prior to the expiration of the Offer (the
"Minimum Condition") or (y) any waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") applicable to the purchase
of Shares pursuant to the Offer, and any similar waiting periods under any
foreign
 
                                       6

 
statutes or regulations that are applicable to the Offer or the Merger shall
not have expired or been terminated, or any regulatory approvals applicable to
the Offer and the Merger shall not have been obtained on terms satisfactory to
the Purchaser in its reasonable judgment, or (ii) on or after July 23, 1997,
and at or before the time of payment for any of such Shares (whether or not
any Shares have theretofore been accepted for payment), any of the following
events shall occur:
 
  (a) there shall have occurred and be continuing (i) any general suspension
of, or limitation on prices for, trading in securities on the NYSE or in the
over-the-counter market, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) any
material limitation (whether or not mandatory) by any Governmental Entity on,
or any other event that could reasonably be expected to materially adversely
affect, the extension of credit by banks or other lending institutions, (iv)
in the case of any of the foregoing existing at the time of the commencement
of the Offer, a material acceleration or worsening thereof, or (v) any
material adverse change in the relevant financial markets that could
reasonably be expected to materially and adversely affect the syndication of
the Credit Facility;
 
  (b) the Company shall have breached or failed to perform in any material
respect any of the covenants or agreements contained in the Merger Agreement
to be complied with or performed by the Company prior to the date of
termination of the Merger Agreement which breach or failure shall not have
been cured prior to the earlier of (i) ten business days following the giving
of written notice to the Company of such breach or failure and (ii) the date
on which the Offer is then scheduled to expire, or any representation or
warranty of the Company set forth in the Merger Agreement shall have been
inaccurate or incomplete when made or, except for those representations or
warranties that address matters only as of a particular date, thereafter shall
become inaccurate or incomplete except for changes specifically permitted in
the Merger Agreement and the failure of any such representations and
warranties to be complete and accurate that, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on the
financial condition, properties, business or results of operations of the
Company and its subsidiaries taken as a whole or could prevent or materially
delay the transactions contemplated by the Merger Agreement or impair the
ability of Purchaser, the Merger Sub, the Company or any of their respective
affiliates, following consummation of the Offer or the Merger, to conduct any
material business or operations in any jurisdiction where they are now being
conducted;
 
  (c) there shall be instituted or pending any action, litigation, proceeding,
investigation or other application (hereinafter, an "Action") before any court
or other Governmental Entity by any Governmental Entity: (i) challenging the
acquisition by Purchaser or Merger Sub of Shares, seeking to restrain or
prohibit the consummation of the transactions contemplated by the Offer or the
Merger, seeking to obtain any material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer or the
Merger; (ii) seeking to prohibit, or impose any material limitations on,
Purchaser's or Merger Sub's ownership or operation of all or any portion of
their or the Company's business or assets (including the business or assets of
their respective affiliates and subsidiaries), or to compel Purchaser or
Merger Sub to dispose of or hold separate all or any portion of Purchaser's or
Merger Sub's or the Company's business or assets (including the business or
assets of their respective affiliates and subsidiaries) as a result of the
transactions contemplated by the Offer or the Merger; (iii) seeking to make
the acceptance for payment, purchase of, or payment for, some or all of the
Shares illegal or render Merger Sub unable to, or result in a material delay
in, or restrict, the ability of Merger Sub to, accept for payment, purchase or
pay for some or all of the Shares; (iv) seeking to impose material limitations
on the ability of Purchaser or Merger Sub effectively to acquire or hold or to
exercise full rights of ownership of the Shares including, without limitation,
the right to vote the Shares purchased by them on an equal basis with all
other Shares on all matters properly presented to the stockholders; or (v)
that, in any event, is reasonably likely to have a material adverse effect on
the financial condition, properties, business or operations of the Company or
Purchaser or Merger Sub (or any of their respective affiliates or
subsidiaries) or the value of the Shares to Purchaser or Merger Sub or the
benefits expected to be derived by Purchaser or Merger Sub as a result of
consummation of the transactions contemplated by the Offer and the Merger;
 
  (d) any statute, rule, regulation, order or injunction shall be enacted,
promulgated, entered, enforced or deemed or become applicable to the Offer or
the Merger, or any Action shall be instituted or pending brought by
 
                                       7

 
any person not on behalf of a Governmental Entity or other action shall have
been taken by any court or other Governmental Entity other than the
application to the Offer or the Merger of waiting periods under the HSR Act,
that, in the reasonable judgment of Purchaser, could be expected to, directly
or indirectly, result in any of the effects of, or have any of the
consequences sought to be obtained or achieved in, any Action referred to in
clauses (i) through (v) of paragraph (c) above;
 
  (e) a tender or exchange offer for 15% or more of the outstanding Shares
shall have been commenced or publicly proposed to be made by another Person
(including the Company or is subsidiaries), or it shall have been publicly
disclosed or the Purchaser shall have learned that any Person (including the
Company or its subsidiaries), shall have become the beneficial owner (as
defined in Section 13(d) of the Exchange Act and the rules promulgated
thereunder) of more than 15% of any class or series of capital stock of the
Company (including the Shares) (other than for bona fide arbitrage purposes);
 
  (f) any change or development shall have occurred that has had, or is
reasonably likely to have, a material adverse effect on the financial
condition, properties, businesses or results of operations of the Company and
its subsidiaries taken as a whole;
 
  (g) the Board of Directors of the Company (or a special committee thereof)
shall have amended, modified or withdrawn in a manner adverse to Purchaser or
Merger Sub its approval or recommendation of the Offer, the Merger Agreement
or the Merger, or the Board of Directors of the Company, upon request by
Purchaser, shall have failed to publicly reaffirm such approval or
recommendation within ten business days of such request by Purchaser, or shall
have endorsed, approved or recommended any other Acquisition Proposal, or
shall have resolved to do any of the foregoing; or
 
  (h) the Merger Agreement shall have been terminated by the Company or
Purchaser or Merger Sub in accordance with its terms or Purchaser or Merger
Sub shall have reached an agreement or understanding in writing with the
Company providing for termination or amendment of the Offer or delay in
payment for the Shares;
 
which, in the sole judgment of Purchaser and the Merger Sub, in any such case,
and regardless of the circumstances (including any action or inaction by
Purchaser or the Merger Sub) giving rise to any such conditions, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment
of or payment for Shares.
 
  The foregoing conditions are for the sole benefit of Purchaser and the
Merger Sub and may be asserted by Purchaser or the Merger Sub regardless of
the circumstances (including any action or inaction by Purchaser or the Merger
Sub) giving rise to such condition or may be waived by Purchaser or the Merger
Sub, by express and specific action to that effect, in whole or in part at any
time and from time to time in its sole discretion. Any determination by
Purchaser and the Merger Sub concerning any event described in this section
shall be final and binding upon all parties. The failure by the Merger Sub at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular
facts and other circumstances shall not be deemed a waiver with respect to any
other facts and circumstances, and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time.
 
  A public announcement shall be made of a material change in, or waiver of,
such conditions, and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver.
 
  Chief Executive Officer Agreement. Prior to entering into the Merger
Agreement, Mr. Larkin and Purchaser orally agreed that Mr. Larkin's employment
by the Company shall cease as of the Effective Time. At such time, Mr. Larkin
will be entitled to receive approximately $2.7 million pursuant to his
severance agreement with the Company described in Schedule II hereto. At the
Effective Time, Mr. Larkin will enter into an employment agreement with
Purchaser with a one year term, to serve as Executive Vice President of
Purchaser and pursuant to which he will also serve as President and Chief
Executive Officer of the Company. Mr. Larkin
 
                                       8

 
will receive a base salary equal to the salary currently being paid to him by
the Company, plus an annual bonus of $250,000 to $500,000, depending on the
achievement of specific performance criteria to be mutually agreed upon by Mr.
Larkin and Purchaser. Mr. Larkin will be entitled to a stock appreciation
rights award which will provide him a cash payment in an amount equal to the
price of Purchaser's Common Stock one year after the Effective Time minus the
price at the Effective Time times 25,000. Mr. Larkin will receive vacation and
sick leave in accordance with the Company's policy prior to the Effective Time
and will be entitled to participate in the Company's employee benefit plans.
 
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
 
  (a) Recommendation of the Board of Directors.
 
  The Board of Directors of the Company has unanimously determined that the
Offer and the Merger are fair to, and in the best interest of, the Company and
its stockholders and has unanimously approved the Offer and the Merger
Agreement and unanimously recommends that the Company's stockholders accept
the Offer and tender their Shares pursuant to the Offer.
 
  (b) Background.
 
  By virtue of their respective activities with the Health Industries
Manufacturers Association and contact at industry trade shows and similar
events, C. Raymond Holman, Chairman and Chief Executive Officer of Purchaser,
and C. Ray Larkin, President and Chief Executive Officer of the Company, have
been acquainted with one another for a number of years and have had, from time
to time, informal discussions concerning the respective businesses and
strategies of their two companies.
 
  In January 1997, Mr. Holman and Mr. Larkin had dinner during which Mr.
Holman mentioned that he would be interested in exploring the possibility of
some type of strategic combination between the two companies. Mr. Holman
requested a subsequent meeting and Mr. Larkin agreed.
 
  On January 29, 1997, Mr. Holman and Mr. Larkin met and discussed the general
business strategies of each of their companies. Mr. Holman also reiterated
Purchaser's interest in pursuing some type of strategic business combination
with the Company on a friendly basis. Mr. Larkin indicated that the Company
was committed to carrying out its existing strategy as an independent company.
However, he indicated that the Company's Board of Directors would, of course,
have to consider any firm proposal that was presented to it in the exercise of
the Board's obligation to the Company's stockholders. Mr. Holman suggested
that, to further facilitate discussions, the Company provide Purchaser with
additional information concerning the Company. Mr. Larkin indicated that he
would discuss the matter with the Company's Board.
 
  In late March, the Company engaged Morgan Stanley & Co. Incorporated
("Morgan Stanley") to act as its financial advisor for certain stockholder
relations matters, including the provision of financial advisory services in
connection with evaluating any acquisition or business combination proposals
that might arise. Morgan Stanley and the Company executed an engagement letter
with respect to such services on May 8, 1997.
 
  At the March 27, 1997 regularly scheduled meeting of the Company's Board,
Mr. Larkin updated the Board on his discussions with Mr. Holman. The Board
authorized Mr. Larkin to continue those discussions and for the Company to
exchange information with Purchaser subject to the execution of a
confidentiality/standstill agreement between the parties. Mr. Larkin talked to
Mr. Holman following the March 27, 1997 Board meeting and informed him that
any further discussions would be subject to the execution of a confidentiality
and standstill agreement between the parties.
 
  In early April 1997, Mr. Holman called Mr. Larkin and informed him that,
while Purchaser was still interested in pursuing discussions, those
discussions would need to be postponed for several weeks pending Purchaser's
proposed disposition of its animal-health business.
 
 
                                       9

 
  On May 31, 1997, Mr. Holman called Mr. Larkin to schedule a meeting to
resume the discussions between the parties. On June 3, 1997, Messrs. Holman
and Larkin, Michael P. Downey, Executive Vice President and Chief Financial
Officer of the Company and Michael A. Rocca, Senior Vice President and Chief
Financial Officer of Purchaser, met to exchange information related to the
markets, operations, historical financial performance and strategic direction
of the two companies. On the day prior to the meeting, the Company and
Purchaser had entered into a confidentiality agreement which contained, among
other things, a standstill agreement prohibiting either company from acquiring
securities of the other party for three years without the prior consent of
such other company's Board.
 
  On June 12, 1997, at a meeting of the Company's Board of Directors,
management and representatives of Morgan Stanley updated the Board concerning
the discussions with Purchaser. The Board of Directors authorized the
Company's management to further pursue the possibility of a business
combination with Purchaser. Also at this meeting representatives of Morgan
Stanley made a presentation to the Board concerning its preliminary
conclusions about the valuation of the Company as a stand-alone entity.
 
  On June 18, 1997, the Board of Directors of Purchaser met, at which meeting
Mr. Holman updated the Board concerning the discussions with the Company, and
Purchaser's legal and financial advisors advised the Board concerning a
potential business combination between Purchaser and the Company.
 
  On various dates between June 12 and June 26, 1997, representatives of
Morgan Stanley and Goldman, Sachs & Co. ("Goldman Sachs") had several
telephone conversations in which the Goldman Sachs representatives reiterated
Purchaser's strong interest in pursuing a possible business combination with
the Company based on the due diligence done to date. The representatives of
Morgan Stanley indicated that Purchaser would have to make a proposal with
acceptable terms and conditions, including price, before the Company would
consider further pursuing a potential business combination with Purchaser.
 
  On June 26, 1997, financial advisors for Purchaser and the Company held a
meeting in which representatives of Goldman Sachs presented Purchaser's
proposal that Purchaser and the Company enter into a merger agreement pursuant
to which Purchaser would purchase all of the outstanding Shares for cash at a
price of $26.00 per Share, contingent upon the completion of due diligence and
the negotiation and completion of a definitive merger agreement. The
representatives of Morgan Stanley at the meeting indicated that, based upon
its discussions with the Company's management and Board of Directors, they
believed that a price of $26.00 per Share was below what the Company's
management and Board would deem acceptable.
 
  On July 7, 1997 the financial advisors for Purchaser and the Company had a
telephone conversation during which representatives of Goldman Sachs indicated
that Purchaser would be prepared to increase its offer to $27.00 per Share,
contingent upon the completion of due diligence and the negotiation and
completion of a definitive merger agreement and that Mr. Holman would be
prepared to meet with Mr. Larkin to complete price negotiations. The
representatives of Morgan Stanley indicated that Mr. Larkin would not be
prepared to meet with Mr. Holman based upon an offer of $27.00 per Share and
that Mr. Larkin was of the view that the proposal did not sufficiently take
into account certain operational benefits created by the potential business
combination.
 
  On July 8, 1997, after a number of discussions with Mr. Larkin and the
Company's management, representatives of Morgan Stanley telephoned
representatives of Goldman Sachs and indicated that they believed that the
Company's Board would be receptive to an offer of $29.00 per Share, assuming
that all of the other terms and conditions of the merger agreement were
acceptable to the Company.
 
  On July 9, 1997, Messrs. Larkin and Holman had a telephone conversation in
which Mr. Holman indicated he would be prepared to seek his Board's approval
of a transaction of $28.00 per Share but not at $29.00 per Share. Mr. Larkin
responded that he did not believe his Board would be receptive to a
transaction at that price. Mr. Larkin also indicated that the Company's Board
would be meeting during the afternoon of July 12, 1997 to discuss the impasse
between the parties on the valuation issue.
 
                                      10

 
  On July 10, 1997, at a special meeting of the Company's Board of Directors,
Mr. Larkin updated the Board on the status of the negotiations with the
Purchaser. The Board discussed with Mr. Larkin and other members of management
the current status of the Company's business and its growth and profitability
prospects as reflected in management's strategic plan as well as the relative
benefits to the Company's stockholders represented by continuing to pursue the
Company's strategy as a stand-alone entity as compared to a transaction with
Purchaser at $28.00 per Share. The Board instructed Mr. Larkin to continue to
pursue a transaction with Purchaser but to seek a price in the range of $29.00
per Share.
 
  On July 11, 1997, the financial advisors for Purchaser and the Company had a
telephone conversation during which representatives of Goldman Sachs
reiterated that Purchaser was not prepared to increase its offer to $29.00 per
Share. The representatives of the respective financial advisors for the
Company and Purchaser agreed that, based upon the disagreement regarding
price, discussions regarding the potential business combination would likely
be suspended.
 
  On July 12, 1997, the Company's Board of Directors held a special meeting to
discuss the status of the negotiations with Purchaser. Shortly before the
meeting, Mr. Holman called Mr. Larkin to communicate a revised offer of $28.50
per Share, which Mr. Holman characterized as Purchaser's final offer.
Contemporaneously with Mr. Holman's call, the representatives of Goldman Sachs
called representatives of Morgan Stanley and confirmed that the $28.50 offer
was Purchaser's best and final offer. Mr. Larkin informed the Board of the
negotiations that had taken place since the Board's July 10th meeting and his
belief, supported by his discussions with representatives of Morgan Stanley,
that $28.50 per Share represented the highest offer Purchaser was willing to
make. The Board again discussed with members of management alternatives for
maximizing stockholder value, including remaining an independent company. At
the end of the meeting, the Board authorized Mr. Larkin and the Company's
financial advisor to communicate to Purchaser that the Board would be
receptive to a proposal by Purchaser to acquire the Company at $28.50 per
Share, subject to negotiation of an acceptable definitive merger agreement.
 
  On the evening of July 12, 1997, Mr. Larkin telephoned Mr. Holman and
indicated that he would be prepared to present Mr. Holman's proposal for
consideration by the Company's Board of Directors, contingent upon the
completion of due diligence and the negotiation and completion of an
acceptable definitive merger agreement.
 
  On July 14, 1997, the Board of Directors of the Company met by telephone, at
which meeting Mr. Larkin updated the Board concerning the discussions with
Purchaser and the Company's legal and financial advisors advised the Board
concerning the proposed structure for potential business combination. On July
15, 1997, the Board of Directors of Purchaser met by telephone, at which
meeting Mr. Holman updated Purchaser's Board of Directors concerning the
status of the proposed transaction.
 
  Between July 15, 1997 and July 23, 1997, officers and employees of Purchaser
completed their due diligence review of the Company's business and affairs. On
July 17, 1997, Purchaser's counsel delivered to the Company's counsel a draft
merger agreement, and from July 17, 1997 through July 23, 1997,
representatives of Purchaser and the Company and their respective counsel met
in person and by telephone to negotiate the terms of the Merger Agreement,
including the amount of the termination fee and the circumstances in which it
would be payable to Purchaser. All remaining issues under discussion were
resolved by telephone on the morning of July 23, 1997.
 
  On July 23, 1997, the Board of Directors of Purchaser met, at which meeting
Mr. Holman and other officers of Purchaser updated the Board concerning the
discussions with the Company. Purchaser's counsel advised the Board concerning
the proposed Merger Agreement; and Purchaser's financial advisors advised the
Board concerning the proposed transaction. Purchaser's Board of Directors
unanimously approved and adopted the Merger Agreement.
 
 
                                      11

 
  Following the meeting of Purchaser's Board of Directors, the Board of
Directors of the Company met, at which meeting Mr. Larkin and other officers
of the Company updated the Board on the negotiations with Purchaser concerning
the definitive merger agreement. The Company's counsel advised the Board
concerning the proposed Merger Agreement and the Board's fiduciary duties
under Delaware law in connection with a "change of control" transaction of the
type represented by the Merger Agreement. In addition, representatives of
Morgan Stanley advised the Board concerning the proposed transaction and
rendered Morgan Stanley's opinion, subsequently confirmed in writing, that, as
of the date of such opinion, the terms of the Offer and the Merger were fair
to the stockholders of the Company from a financial point of view. The
Company's Board of Directors unanimously determined that the Offer and the
Merger Agreement to be fair to and in the best interests of the Company and
its stockholders, unanimously approved the Offer and the Merger Agreement, and
unanimously recommended that the Company's stockholders accept the Offer and
tender their Shares pursuant to the Offer.
 
  Following the approval and adoption of the Merger Agreement by the Company's
Board of Directors, Purchaser, the Company and the Merger Sub executed and
delivered the Merger Agreement on July 23, 1997. The terms of the Merger
Agreement are set forth in Item 3. A copy of the Merger Agreement has been
filed as Exhibit I hereto.
 
  (c) Reasons for the Recommendation.
 
  In approving the Merger Agreement and the transactions contemplated thereby,
and recommending that all stockholders tender their Shares pursuant to the
Offer, the Board considered a number of factors, including:
 
    (i) The historical market prices of, and recent trading activity in, the
  Shares, particularly the fact that the Offer and Merger will enable the
  stockholders of the Company to realize a premium of approximately 45.2%
  over the closing price of the Shares on the last trading day prior to the
  date of public announcement on July 23, 1997 of the Merger Agreement and
  premiums of approximately 49.0% and 39.8% over the average closing trading
  price of the Shares for the 20 trading days and twelve months,
  respectively, preceding the date of that announcement.
 
    (ii) The financial valuation, analyses and presentations of Morgan
  Stanley at the July 23, 1997 Board meeting and the opinion of Morgan
  Stanley to the effect that, as of the date of such opinion and based upon
  certain matters considered relevant by Morgan Stanley, the consideration to
  be received by the stockholders of the Company in the Offer and Merger was
  fair to such stockholders from a financial point of view. The full text of
  such opinion, dated July 23, 1997, which sets forth the procedures
  followed, assumptions and qualifications made, matters considered and the
  limitation of the review undertaken by Morgan Stanley in connection with
  its opinion, is included as Schedule 1 hereto, and stockholders are urged
  to read the opinion in its entirety;
 
    (iii) The financial and other terms and conditions of the Offer, the
  Merger and the Merger Agreement, including, without limitation, the fact
  that the terms of the Merger Agreement should not unduly discourage other
  third parties from making bona fide proposals subsequent to signing the
  Merger Agreement and, if any such proposal were made, the Company, in the
  exercise of its fiduciary duties in accordance with the Merger Agreement,
  could determine to provide information to, engage in negotiations and
  subject to payment of the expense reimbursement fee and the termination
  fee, enter into a transaction with another party;
 
    (iv) The Company's view that the Offer and the Merger offer attractive
  terms relative to market prices and financial data relating to other
  companies engaged in the same or similar business as the Company and
  relative to the consideration paid in comparable acquisition transactions;
 
    (v) The historical and prospective business of the Company, including,
  among other things, the current financial condition, assets, liabilities,
  business and operations of the Company, along with the general prospects
  related to the current state of the industry in which the Company operates,
  including the consolidation trends within that industry, and the views of
  management with respect to the foregoing;
 
 
                                      12

 
    (vi) The fact that the Company's business is subject to changes in
  competitive conditions arising from changes in the healthcare industries,
  including those that may arise from current governmental and private
  healthcare reform initiatives;
 
    (viii) The alternatives available to the Company in light of the
  consideration proposed to be received for the Shares pursuant to the Offer
  and Merger, including continuing to maintain the Company as an independent
  company and not engaging in any extraordinary transaction;
 
    (ix) The fact that Purchaser's obligations under the Merger Agreement
  were not subject to any financing condition and the representation of
  Purchaser that it has or would have sufficient funds available to it to
  consummate the Offer and the Merger; and
 
    (x) The possibility that, because of a decline in the Company's business,
  the trading prices of the Shares or the stock market in general, the
  consideration the Company's stockholders would obtain in a future
  transaction might be less advantageous than the consideration they would
  receive pursuant to the Offer and the Merger.
 
  The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In light of the variety
of factors considered in connection with its evaluation of the Offer and
Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
 
  At the July 23, 1997, meeting of the Board, the Board also approved the
Offer and the Merger for the purposes of eliminating the application of
Section 203 of the DGCL, and also took certain actions with respect to the
Rights as described below under Item 8.
 
  A copy of the letter to the Company's stockholders communicating the Board's
recommendation is filed as Exhibit 4 to this Schedule 14D-9 and is
incorporated herein by reference.
 
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
 
  Pursuant to a letter agreement dated May 8, 1997 (the "Engagement Letter"),
the Company engaged Morgan Stanley to act as its financial advisor for certain
stockholder relations matters, including the provision of financial advisory
services in connection with evaluating any acquisition or business combination
proposals that might arise. Pursuant to the Engagement Letter, the Company
agreed to pay Morgan Stanley an Advisory Fee in the amount of $200,000 upon
signing the Engagement Letter and will pay Morgan Stanley a fee of
approximately $8 million upon consummation of the Offer, against which any
prior payment of $200,000 will be credited. The Company has also agreed to
reimburse Morgan Stanley for all its out-of-pocket expenses, including
attorneys' fees, and to indemnify Morgan Stanley against certain liabilities,
including liabilities under the federal securities laws.
 
  Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
 
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
 
  (a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company, except that, in
July 1997, (i) Boudewijn Bollen, an Executive Vice President of the Company,
exercised options to purchase 6,000 shares of Common Stock in connection with
a loan from the Company of approximately $93,000, which loan is secured by
such shares and (ii) each of the Company's non-employee directors (Messrs.
Dole, Glaser, Grafton, Hammond, McDonnell, Van Bronkhorst and Morton and Dr.
Lavizzo-Mourey) received the automatic annual grant of an option to purchase
10,000 shares under the Company's 1988 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan").
 
                                      13

 
  (b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Securities Exchange Act of 1934, each executive officer, director and
affiliate of the Company currently intends to tender all Shares to the
Purchaser over which he or she has sole dispositive power as of the expiration
date of the Offer.
 
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
 
  (a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
 
  (b) Except as described in Item 3(b) above, there are no transactions, Board
of Director resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of the
matters referred to in Item 7(a) above.
 
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
 
  (a) The Information Statement attached as Schedule II hereto is being
furnished in connection with the possible designation by the Purchaser,
pursuant to the Merger Agreement, of certain persons to be appointed to the
Board of Directors other than at a meeting of the Company's stockholders as
described in Item 3 above.
 
  (b) Rights Agreement.
 
  On June 11, 1991, the Board declared a dividend of one Right for each
outstanding share of Common Stock pursuant to the terms of a Rights Agreement
dated June 11, 1991. The dividend was paid on June 26, 1991 (the "Record
Date") to the stockholders of record on that date. Rights have also been
issued with respect to each share of Common Stock issued or delivered after
the Record Date. The Rights Agreement was first amended as of September 1,
1992 with The First National Bank of Boston becoming the Rights Agent (the
"Rights Agent"). On March 8, 1996, the Company and the Rights Agent entered
into the Amended Rights Agreement. On July 23, 1997, the Company and
ChaseMellon Shareholders Service, L.L.C., as successor Rights Agent, entered
into an amendment to the Amended Rights Agreement (the "Rights Amendment").
 
  Each Right entitles the registered holder to purchase from the Company one
two-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.001 per share (the "Preferred Shares"), of the Company at a price of
$160 per one two-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. Initially, the Rights are evidenced by the stock
certificates representing the Common Stock, and no separate Rights
certificates have been or will be distributed until the earlier to occur of
(i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") have acquired
beneficial ownership of 15% or more of the outstanding Common Stock or (ii) 10
business days (or such later date as may be determined by action of the Board
of Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer (other than the Offer) or exchange offer
the consummation of which would result in the beneficial ownership by a person
or group of 15% or more of the outstanding Common Stock (the earlier of such
dates being called the "Distribution Date").
 
  Until the Distribution Date (or earlier redemption, exchange or expiration
of the Rights), the Rights will be transferred with and only with the Common
Stock. Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights), new Common Stock certificates issued after the
Record Date upon transfer or new issuance of Common Stock have contained and
will contain a notation incorporating the current version of the Amended
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption, exchange or expiration of the Rights), the surrender for transfer
of any certificates for Common Stock outstanding as of the Record Date, even
without such notation or a copy of this or other Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate.
 
                                      14

 
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution
Date, and such separate Right Certificates alone will evidence the Rights.
 
  The Rights will expire on March 8, 2006 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
Pursuant to the Rights Amendment, all outstanding Rights will expire (whether
or not tendered and purchased pursuant to the Offer) upon and as of the
acceptance (so long as Purchaser or a wholly-owned subsidiary thereof
thereafter purchases Shares pursuant to the Offer) for payment pursuant to the
Offer of Shares that, together with any Shares owned by Purchaser or the
Merger Sub, constitutes more than 50% of the voting power (determined on a
fully-diluted basis) of all the securities of the Company entitled to vote
generally in the election of directors on in connection with the Merger upon
consummation of the Offer.
 
  The Rights are not exercisable until the Distribution Date and thereafter
are exercisable for a period of 60 days; provided that the Rights are not
exercisable if a person becomes an Acquiring Person pursuant to a tender or
exchange offer for all outstanding Common Stock at a price and on terms
determined by the Board (including a majority of the incumbent Board) to be
fair to the stockholders of the Company after taking into account all factors
deemed relevant and otherwise in the best interest of the Company and its
stockholders. At its meeting on July 23, 1997, the Board of Directors made
such determination with respect to the Offer. In addition, the Rights are not
exercisable until the Company's right of redemption (as described below) has
expired.
 
  The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment pursuant to customary antidilution provisions.
 
  Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Share. In the event
of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Share. Each
Preferred Share will have 100 votes, voting together with the Shares. Finally,
in the event of any merger, consolidation or other transaction in which Shares
are exchanged, each Preferred Share will be entitled to receive 100 times the
amount received per Share. These rights are protected by customary anti-
dilution provisions. Because of the nature of the Preferred Shares, dividend,
liquidation and voting rights, the value of the one one-hundredth interest in
a Preferred Share purchasable upon exercise of each Right should approximate
the value of one Share. The Preferred Shares rank junior to all other series
of the Company's preferred stock.
 
  In the event that the Company is acquired in a merger or other business
combination transaction (other than the Merger) or 50% or more of its
consolidated assets or earning power is sold, proper provision will be made so
that each holder of a Right will thereafter have the right to receive, upon
the exercise thereof at the then current exercise price of the Right, such
number of shares of common stock of the acquiring company as at the time of
such transaction will have a market value of two times the exercise price of
the Right. In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the right to
receive upon exercise that number of shares of Common Stock having a market
value of two times the exercise price of the Right (or, if such number of
shares of Common Stock is not authorized, the Company may issue cash, debt,
stock or a combination thereof in exchange for the Rights).
 
  At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Stock, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in
whole or in part, at an exchange ratio of one Share, or one two-hundredth of a
Preferred Share (or of a share of a class or series of
 
                                      15

 
the Company's preferred stock having equivalent rights, preferences and
privileges or the Company may issue cash, debt or other property or any
combination thereof), per Right (subject to adjustment).
 
  At any time until ten days following the date on which a person becomes an
Acquiring Person, the Company's Board of Directors may redeem the Rights in
whole, but not in part, at a price of $0.01 per Right. Under certain
circumstances, the decision to redeem shall require the concurrence of a
majority of the Incumbent Board (as defined in the Rights Agreement). The
redemption of the Rights may be made effective at such time and upon such
conditions as the Board in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the redemption
price.
 
  The terms of the Rights may be amended by the Company's Board of Directors
without the consent of the holders of the Rights, including an amendment to
lower the 15% beneficial ownership threshold described above with respect to
an Acquiring Person to any percentage which is (i) greater than the largest
percentage of the outstanding Common Stock then known to the Company to be
beneficially owned by any person or group of affiliated or associated persons
(other than the Company, any subsidiary of the Company, employee benefit plans
of the Company or any subsidiary, or any entity holding Common Stock pursuant
to the terms of any such plan) and (ii) not less than 10%, except that from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person, no amendment may adversely affect the interests
of the holders of the Rights (other than an Acquiring Person). After a person
becomes an Acquiring Person and under certain other circumstances, amendments
to the Amended Rights Agreement require the concurrence of a majority of the
Incumbent Board.
 
  Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
 
  The Company has taken all action necessary to provide that (x) the execution
of the Merger Agreement and the consummation of the transactions contemplated
thereby will not cause (i) Purchaser and/or the Merger Sub to become an
Acquiring Person or (ii) a Distribution Date, a Share Acquisition Date or a
Triggering Event to occur, and (y) all outstanding Rights will expire (whether
or not tendered and purchased pursuant to the Offer) upon and as of the
acceptance of Shares for payment pursuant to the Offer (so long as Purchaser
thereafter purchases Shares accepted for payment pursuant to the Offer), and
neither the Company, Purchaser nor Merger Sub nor any of their respective
affiliates shall have any obligations under the Rights Agreement to any holder
(or former holder) of Rights following consummation of the Offer.
 
  (c) Delaware Takeover Legislation.
 
  Section 203 of the Delaware General Corporation Law ("Sections 203") makes
it more difficult to effect certain transactions between a corporation and a
person or group who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and
was the owner of 15% or more of such voting stock at any time within the
previous three years (excluding persons who became 15% stockholders by action
of the corporation alone). The legislation prevents, for a period of three
years following the date that a stockholder became a holder of 15% or more of
the corporation's outstanding voting stock, the following types of
transactions between the corporation and the 15% stockholder (unless certain
conditions, described below, are met): (i) mergers or consolidations, (ii)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (iii) issuances or transfers by the corporation of
any stock of the corporation which would have the effect of increasing the 15%
stockholder's proportionate share of the stock of any class or series of the
corporation, (iv) receipt by the 15% stockholder of the benefit (except
proportionately as a stockholder) of loans, advances, guarantees, pledges or
other financial benefits provided by the corporation and (v) any other
transaction which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation which is owned by the 15%
stockholder. Section 203
 
                                      16

 
does not apply to transactions involving individuals or entities who became
15% stockholders prior to December 23, 1987 or who became 15% stockholders
through a tender offer commenced prior to December 23, 1987.
 
  The three-year ban does not apply if either the proposed transactions or the
transaction by which the 15% stockholder became a 15% stockholder is approved
by the board of directors of the corporation prior to the date such
stockholder became a 15% stockholder. Additionally, a 15% stockholder may
avoid the statutory restriction if, upon the consummation of the transaction
whereby such stockholder became a 15% stockholder, the stockholder owns at
least 85% of the outstanding voting stock of the corporation without regard to
those shares owned by directors who are officers or certain employee stock
plans. Business combinations are also permitted within the three year period
if approved by the board of directors and, at an annual or special meeting,
the holders of 66 2/3% of the outstanding voting stock not owned by the 15%
stockholder.
 
  A corporation may, at its option exclude itself from the coverage of Section
203 by providing in its certificate of incorporation or bylaws at any time
exempt itself from coverage, provided that a bylaw or charter amendment cannot
become effective for 12 months after such amendment is adopted. In addition,
any transaction is exempt from the statutory ban if it is proposed at a time
when the corporation has proposed, and a majority of certain continuing
directors of the corporation have approved, a transaction with a party who is
not a 15% stockholder of the corporation (or who became such with board
approval) if the proposed transaction involves (i) certain mergers or
consolidations involving the corporation, (ii) a sale or other transfer of
over 50% of the aggregate assets of the corporation or (iii) a tender or
exchange offer for 50% or more of the outstanding voting stock of the
corporation. The Restated Certificate of Incorporation of the Company does not
contain a provision "opting out" of the coverage of Section 203.
 
  The foregoing description of Section 203 is qualified in its entirety by
reference to Section 203 of the DGCL.
 
  Because the Merger Agreement and the transaction contemplated thereby have
been approved by the Board, the provisions of Section 203 do not apply to the
Offer or the Merger.
 
  (d) Restated Certificate of Incorporation.
 
  Article Eleventh of the Company's Restated Certificate of Incorporation
requires the affirmative vote of holders of at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding Shares entitled to vote generally in the
election of directors, voting as a single class, to the effect, among other
things, a merger or consolidation of the Company with any stockholder
beneficially owning, directly or indirectly, of more than 20% of the Company's
outstanding Common Stock. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise. Because the Merger Agreement and the
transactions contemplated thereby have been approved by the Board, the
provisions of Article Eleventh do not apply to the Merger.
 
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
 


 EXHIBIT NO.
 -----------
          
  Exhibit 1  Agreement and Plan of Merger, dated as of July 23, 1997, by and
             among Nellcor Puritan Bennett Incorporated, Mallinckrodt Inc. and
             NPB Acquisition Corp.
  Exhibit 2  Press Release dated July 23, 1997.*
  Exhibit 3  Form of Letter to Stockholders, dated July 29, 1997.*

- --------
* Included in the Schedule 14D-9 mailed to the Company's stockholders.
 
                                      17

 
                                   SIGNATURE
 
  After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
 
Dated: July 28, 1997.
 
                                                    /s/ Laureen DeBuono
                                          By:__________________________________
                                                      Laureen DeBuono
                                              Executive Vice President, Human
                                              Resources, General Counsel and
                                                         Secretary
 
                                      18

 
                                  SCHEDULE I
 
                                                                  July 23, 1997
 
Board of Directors
Nellcor Puritan Bennett, Inc.
4280 Hacienda Drive
Pleasanton, California 94588
 
Members of the Board:
 
We understand that Nellcor Puritan Bennett Inc. ("Nellcor" or the "Company"),
Mallinckrodt Inc. ("Purchaser") and Purchaser Acquisition Corp., a wholly
owned subsidiary of Purchaser ("Merger Sub") have entered into an Agreement
and Plan of Merger, dated as of July 23, 1997 (the "Merger Agreement"), which
provides, among other things, for (i) the commencement by Merger Sub of a
tender offer (the "Tender Offer") for all outstanding shares of common stock,
par value $.001 per share (the "Common Stock"), of Nellcor for $28.50 per
share net to the seller in cash, and (ii) the subsequent merger (the "Merger")
of Merger Sub with and into Nellcor. Pursuant to the Merger, Nellcor will
become a wholly owned subsidiary of Purchaser and each outstanding share of
Common Stock other than shares held in treasury or held by Purchaser or any
affiliate of Purchaser or as to which dissenters' rights have been perfected,
will be converted into the right to receive $28.50 per share in cash. The
terms and conditions of the Tender Offer and the Merger are more fully set
forth in the Merger Agreement.
 
You have asked for our opinion as to whether the consideration to be received
by the holders of shares of Common Stock pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
 
For purposes of the opinion set forth herein, we have:
 
  (i)reviewed certain publicly available financial statements and other
     information of the Company;
 
  (ii)
     reviewed certain internal financial statements and other financial and
     operating data concerning the Company prepared by the management of the
     Company;
 
  (iii)
     analyzed certain financial projections prepared by the management of
     the Company;
 
  (iv)
     discussed the past and current operations and financial condition and
     the prospects of the Company with senior executives of the Company;
 
  (v)reviewed the reported prices and trading activity for the Common Stock;
 
  (vi)
     compared the financial performance of the Company and the prices and
     trading activity of the Common Stock with that of certain other
     publicly-traded companies and their securities we deemed relevant;
 
  (vii)
     reviewed the financial terms, to the extent publicly available, of
     certain comparable acquisition transactions;
 
  (viii)
     participated in discussions and negotiations among representatives of
     the Company and Purchaser and their financial and legal advisors;
 
  (ix)
     reviewed the Merger Agreement and certain related documents;
 
  (x)reviewed financial and operational materials regarding the Company
     prepared by Quattro Consulting Group;
 
  (xi)
     reviewed financial commitment letters regarding Purchaser's financing
     for the Tender Offer and Merger; and
 
  (xii)
     performed such other analyses as we have deemed appropriate.
 
                                      I-1

 
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof.
 
We have not analyzed nor made any assessment of the financeability of the
Tender Offer or Merger, nor have we made any assumptions relating thereto for
purposes of this opinion.
 
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the
Company or any of its assets, nor did we negotiate with any of the parties,
other than the Purchaser, which expressed interest to us in the possible
acquisition of the Company or certain of its constituent businesses.
 
We have acted as financial advisor to the Company and the Board of Directors
of the Company in connection with this transaction and will receive a fee for
our services.
 
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent; except that this opinion may be included in its
entirety in any filing with the Securities and Exchange Commission in
connection with the Tender Offer or the Merger. In addition, we express no
advice or opinion as to whether or not the holders of Common Stock should
tender their shares in connection with the Tender Offer.
 
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such holders
of shares.
 
                                          Very truly yours,
 
                                          Morgan Stanley & Co. Incorporated
 
                                                    /s/ Charles R. Cory
                                          By: _________________________________
                                                      Charles R. Cory
                                                     Managing Director
 
                                      I-2

 
                                  SCHEDULE II
 
                     NELLCOR PURITAN BENNETT INCORPORATED
                              4280 HACIENDA DRIVE
                         PLEASANTON, CALIFORNIA 94588
 
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
                       OF 1934 AND RULE 14F-1 THEREUNDER
 
  This Information Statement is being mailed on or about July 29, 1997 as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Nellcor Puritan Bennett Incorporated (the "Company") with
respect to the tender offer by NPB Acquisition Corp., a Delaware corporation
(the "Purchaser"), a wholly-owned subsidiary of Mallinckrodt Group, Inc., a
New York corporation ("Parent"), to the holders of record of shares of Common
Stock, par value $.001 per share, of the Company (the "Shares"). Capitalized
terms used and not otherwise defined herein shall have the meaning set forth
in the Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons designated by Parent to a
majority of the seats on the Board of Directors of the Company (the "Board").
 
  The Merger Agreement provides that, promptly following the purchase by the
Purchaser of such number of Shares pursuant to the Offer, Parent may request
that the Company take all actions necessary to cause persons designated by
Parent to become directors of the Company (the "Purchaser Designees") so that
the total number of directorships held by such persons is proportionate to the
percentage calculated by dividing (i) the number of Shares accepted for
payment pursuant to the Offer plus Shares beneficially owned by the Purchaser
by (ii) the total number of Shares outstanding at the time of acceptance of
the Shares for payment pursuant to the Offer; provided that prior to the
consummation of the Merger, the Board shall always have at least two members
who are neither officers, designees, stockholders nor affiliates of the
Purchaser. The Company has also agreed to increase the size of the Board or to
secure the resignation of existing directors to ensure that it has complied
with this provision of the Merger Agreement. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14f-1 thereunder.
 
  You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
 
  Pursuant to the Merger Agreement, the Purchaser commenced the Offer on July
29, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on August 25, 1997, unless the Offer is extended, at which time, if all
conditions to the Offer have been satisfied or waived, the Purchaser will
purchase all of the Shares validly tendered pursuant to the Offer and not
properly withdrawn.
 
  The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, the Purchaser and
the Purchaser Designees has been furnished to the Company by Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
 
                                    GENERAL
 
  The Shares are the only class of voting securities of the Company
outstanding. As of the close of business on July 25, 1997, there were
63,687,307 Shares issued and outstanding, each of which is entitled to one
vote on each matter to be considered at meetings of stockholders.
 
                                     II-1

 
                   BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
 
  The Board currently consists of nine members with no vacancies. Each
director holds office for a term of one year until such director's successor
is elected and qualified or until such director's earlier resignation or
removal.
 
DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
 
  Parent has informed the Company that it will choose the Purchaser Designees
from the executive officers of Parent listed in Schedule A of the Offer to
Purchase, a copy of which is being mailed to stockholders of the Company. The
information with respect to such officers in Schedule A is hereby incorporated
by reference. Parent has informed the Company that each of the officers listed
in Schedule A of the Offer to Purchase has consented to act as a director of
the Company, if so designated.
 
  Based solely on the information set forth in Item 2 of the Schedule 14D-1
filed by Purchaser, none of the executive officers and directors of Parent or
the Purchaser (i) is currently a director of, or holds any position with, the
Company or (ii) has a familial relationship with any directors or executive
officers of the Company. The Company has been advised that, to the best
knowledge of Parent and the Purchaser, none of Parent's or the Purchaser's
directors or executive officers beneficially owns any equity securities (or
rights to acquire such equity securities) of the Company, and none have been
involved in any transactions with the Company or any of its directors,
executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the Securities and Exchange
Commission.
 
  It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of such number of Shares pursuant to
the Offer as satisfies the Minimum Condition which purchase cannot be earlier
than August 25, 1997, and that, upon assuming office, the Purchaser Designees
will thereafter constitute at least a majority of the Board. This step will be
accomplished at a meeting or by written consent of the Board providing that
the size of the Board will be increased and/or sufficient numbers of current
directors will resign such that, immediately following such action, the number
of vacancies to be filled by the Purchaser Designees will constitute at least
a majority of the available positions on the Board. Pursuant to the Merger
Agreement, the number of such Purchaser Designees to be added to the Board
will be not less than the product of the total number of directors on the
Board (giving effect to the election of the Purchaser Designees) multiplied by
the percentage that the aggregate number of Shares beneficially owned by
Merger Sub or any affiliate bears to the total number of Shares then
outstanding; provided that, at all times prior to the Effective Time, the
Board shall have at least two members who are neither officers, stockholders,
designees nor affiliates of Purchaser. If the foregoing addition of Purchaser
Designees to the Board is accomplished through a resignation of some of the
Company's current Board members, it is currently not known which of the
current directors of the Company would resign.
 
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
  The following table sets forth certain information as of July 23, 1997 with
respect to the current directors of the Company regarding his or her age,
period or periods served as a Director, position (if any) with the Company,
business experience during the past five years and directorships of other
publicly-owned corporations.
 


          NAME           AGE DIRECTOR SINCE PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
          ----           --- -------------- ----------------------------------------------------
                                   
Burton A. Dole, Jr. ....  59      1995          Mr. Dole serves as Chairman of the Company.
                                                He served as President, Chief Executive
                                                Officer and Chairman of the Board of
                                                Puritan-Bennett Corporation from 1986 until
                                                the merger of Puritan-Bennett and the
                                                Company on August 25, 1995. Mr. Dole was
                                                President and Chief Executive Officer of
                                                Puritan-Bennett from 1980 to 1986. Mr. Dole
                                                is a

 
                                     II-2

 


          NAME           AGE DIRECTOR SINCE PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
          ----           --- -------------- ----------------------------------------------------
                                   
                                                Director of the Metlife Company, the
                                                Anesthesia Patient Safety Foundation, and
                                                the Health Industries Manufacturers
                                                Association and a trustee of the I. Heerman
                                                Anesthesia Foundation. In December 1995,
                                                Mr. Dole completed a three-year term as
                                                Chairman of the Board of the Federal
                                                Reserve Bank of Kansas City.
Robert J. Glaser,         78      1991          Dr. Glaser is a Consulting Professor of
 M.D. ..................                        Medicine at Stanford University where he
                                                served as the Dean of the School of
                                                Medicine from 1965 to 1970. Dr. Glaser
                                                retired as the Director for Medical Science
                                                in June 1996, which position he held since
                                                1984, and as a Trustee of the Lucille P.
                                                Markey Charitable Trust, which provides
                                                major grants in support of basic biomedical
                                                research. Dr. Glaser was a founding member
                                                of the Institute of Medicine of the
                                                National Academy of Sciences. Dr. Glaser is
                                                a Director of Alza Corporation and Hanger
                                                Orthopedic Group.
Frederick M. Grafton....  71      1988          Mr. Grafton is a retired management
                                                consultant to several technology companies.
                                                He retired as President of Raychem
                                                Ventures, Inc., a subsidiary of Raychem
                                                Corporation (a materials technology driven
                                                product company), in February 1990. Mr.
                                                Grafton joined Raychem Corporation in 1962
                                                and served as Division General Manager and
                                                Group Vice President of Raychem Corporation
                                                until 1988 when he became President of
                                                Raychem Ventures, which manages a venture
                                                portfolio of Raychem Corporation.
Donald L. Hammond.......  69      1990          Mr. Hammond is a technical consultant to
                                                several technology companies. Previously,
                                                he was Director of Hewlett-Packard
                                                Laboratories of the Hewlett-Packard
                                                Company, a manufacturer of computer systems
                                                and electronic products. Mr. Hammond joined
                                                Hewlett-Packard in 1959 and served as a
                                                Founding Director of Hewlett-Packard
                                                Laboratories from 1966 until his retirement
                                                in 1988. He is a Director of Mid-Peninsula
                                                Bank and Iridex Corporation.
C. Raymond Larkin,        49      1989          Mr. Larkin is the President and Chief
 Jr. ...................                        Executive Officer of the Company. He has
                                                been with the Company since 1983, serving
                                                as Vice President, Sales and Vice
                                                President, Sales and Marketing until his
                                                election as President and Chief Operating
                                                Officer in February 1989 and Chief
                                                Executive Officer in November 1989. Mr.
                                                Larkin is a Director of Neuromedical
                                                Sciences Inc. and Arthrocare Corporation.

 
 
                                      II-3

 


          NAME           AGE DIRECTOR SINCE PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
          ----           --- -------------- ----------------------------------------------------
                                   
Risa J. Lavizzo-Mourey,   42      1995          Dr. Lavizzo-Mourey is the Sylvan Eisman
 M.D. ..................                        Professor of Medicine and Healthcare
                                                Systems at the University of Pennsylvania.
                                                From 1992 to 1994, Dr. Lavizzo-Mourey was
                                                Deputy Administrator of the United States
                                                Agency for Healthcare Policy and Research.
                                                Dr. Lavizzo-Mourey has been a consultant to
                                                the White House Department of Health and
                                                Human Services, foreign governments and
                                                health care corporations. Dr. Lavizzo-
                                                Mourey has held various faculty positions
                                                at Harvard University Medical School and
                                                Temple University Medical School. She is a
                                                Director of Medicus Systems Corporation and
                                                Beverly Enterprises, Inc.
Thomas A. McDonnell.....  51      1995          Mr. McDonnell served as a Director of
                                                Puritan Bennett Corporation from April 1994
                                                until the merger of Puritan-Bennett and the
                                                Company on August 25, 1995. Mr. McDonnell
                                                has served as Chief Executive officer of
                                                DST Systems, Inc., a provider of data
                                                processing based services to the financial
                                                industry, since October 1984. Mr. McDonnell
                                                has served as President of DST Systems,
                                                Inc. from 1973 until October 1984 and from
                                                March 1987 to the present, and has been a
                                                Director of DST Systems, Inc. since 1971.
                                                He is a Director of Informix Software,
                                                Inc., BHA Group, Inc., Janus Capitol
                                                Corporation and Cerner Corporation.
Edwin E. van              73      1985          Mr. van Bronkhorst has been a consultant to
 Bronkhorst.............                        various technology companies since 1984 and
                                                is currently Treasurer and Trustee of the
                                                David and Lucille Packard Foundation.
                                                Previously, he served as Senior Vice
                                                President, Chief Financial Officer and
                                                Treasurer of the Hewlett Packard Company, a
                                                manufacturer of computer systems and
                                                electronic products, from 1962 until his
                                                retirement in 1984. Mr. van Bronkhorst
                                                joined Hewlett Packard in 1953 and served
                                                on its Board of Directors from 1962 to
                                                1984. He is a Director of California Water
                                                Service Company and Mid-Peninsula Bank.
Dean O. Morton..........  65      1997          Mr. Morton was executive vice president,
                                                chief operating officer and a Director of
                                                Hewlett-Packard Company at the time of his
                                                retirement in October 1992. Mr. Morton
                                                joined Hewlett-Packard in 1960. He was
                                                appointed Chairman of Centigram
                                                Communications Corp. in 1993. Mr. Morton is
                                                a Director of several companies, including
                                                ALZA Corporation, Bea Systems Inc., The
                                                Clorox Company, KLA Tencor Inc. and Kaiser
                                                Foundation Health Plan and Hospitals, and
                                                has served on the Board of Commissioners of
                                                the Joint Commission on Accreditation of
                                                Healthcare Organizations.

 
                                      II-4

 
COMMITTEES OF THE BOARD OF DIRECTORS.
 
  The Board has established two standing committees, the Nominating and
Compensation Committee and the Audit Committee. During fiscal year 1997, the
Nominating and Compensation Committee consisted of Messrs. Glaser, Grafton,
Hammond and van Bronkhorst, with Mr. Hammond serving as Chairperson. The
Nominating and Compensation Committee is authorized to consider and nominate
individuals for election to the Board at the annual meeting of stockholders
for which the candidate is to be nominated, to propose candidates to fill
vacancies on the Board, to review and recommend to the Board for approval the
compensation of the President and Chief Executive Officer of the Company and
to review and recommend to the Board for approval the executive officer salary
and compensation structure recommended by the President and Chief Executive
Officer, including the grant of stock options. The Nominating and Compensation
Committee held two meetings in fiscal year 1997.
 
  During fiscal year 1997, the Audit Committee consisted of Ms. Lavizzo-Mourey
and Messrs. Glaser, Hammond and van Bronkhorst, with Mr. van Bronkhorst
serving as Chairperson. The Audit Committee is the principal link between the
Board and the Company's independent public accountants. The Audit Committee
makes recommendations to the Board regarding selection and employment of the
Company's independent public accountants and, working with the Company's
external auditors, monitors internal control procedures. The Audit Committee
held two meetings in fiscal year 1997.
 
  After the consummation of the Merger, it is expected that the Board will act
to appoint new members to the Nominating and Compensation, and Audit
Committees. To the Company's knowledge, no decision has been made by the
Purchaser Designees regarding the membership of any such committees of the
Board.
 
  The Board held 6 meetings during fiscal year 1997. All Directors attended
more than 75% of the total meetings of the Board and of the committees of
which they are members.
 
  Each non-employee Director received a retainer fee of $11,500 for fiscal
year 1997 to serve on the Board plus a fee of $1,500 for each meeting of the
Board attended and $1,000 for each Board committee meeting attended which was
not held on the same day as a Board meeting. The chairperson of a Board
committee meeting received an additional $1,000 for each committee meeting.
The Company does not pay directors' fees to Directors who are employees of the
Company.
 
  In connection with the merger with Puritan-Bennett, the Company entered into
an employment agreement with Mr. Burton A. Dole, Jr. pursuant to which Mr.
Dole would serve as Chairman of the Board for a two-year term, which commenced
on August 25, 1995. As Chairman of the Board for this two-year term, Mr. Dole
receives a salary of $250,000 per year. Mr. Dole's employment agreement also
provides for an additional term of seven and one-half years during which Mr.
Dole will serve as an employee of the Company with more limited duties at a
salary of $44,000 per year. Mr. Dole's employment agreement provides certain
additional employee benefits, including severance payments upon certain
termination events.
 
  Non-employee Directors receive non-discretionary stock option grants under
the Directors' Plan. Each non-employee Director (i) upon joining the Board for
the first time will be automatically granted an option under the Directors'
Plan to purchase 20,000 shares of Company Common Stock, vesting over four
years from the date of grant, 25% at the end of the first year and 6.25% per
quarter thereafter, and (ii) at the beginning of each fiscal year, will be
automatically granted an option under the Directors' Plan to purchase 10,000
shares, vesting over one year.
 
                                     II-5

 
  The following table sets forth as to all non-employee Directors for fiscal
year 1997 (i) the number of shares of the Company's Common Stock subject to
options granted under the Directors' Plan and the weighted average per share
exercise price for such options and (ii) the number of shares of Common Stock
acquired and the net value realized (fair market value of the shares acquired
on the date of exercise less the exercise price) upon the exercise of options
granted under the Directors' Plan.
 


                                                  FISCAL YEAR 1997
                                      -----------------------------------------
                                       OPTIONS GRANTED     OPTIONS EXERCISED
                                      ------------------ ----------------------
                                       NUMBER   EXERCISE  NUMBER    NET VALUE
NAME                                  OF SHARES  PRICE   OF SHARES REALIZED (1)
- ----                                  --------- -------- --------- ------------
                                                       
Robert J. Glaser, M.D................  10,000   $24       20,000     $ 95,000
Frederick M. Grafton.................  10,000   $24       20,000     $103,750
Donald L. Hammond....................  10,000   $24          --           --
Risa J. Lavizzo Mourey, M.D..........  10,000   $24          --           --
Thomas A. McDonnell..................  10,000   $24          --           --
Dean O. Morton.......................  20,000   $17.375      --           --
Edwin E. van Bronkhorst..............  10,000   $24          --           --

- --------
Notes:
(1) Equal to the fair market value of the shares of Company Common Stock
    acquired on the date the options were exercised less the exercise price.
 
  The per share closing price of the Company's Common Stock as reported by
  the Nasdaq National Market on July 3, 1997 was $18.1875.
 
NOMINATING AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
 
  There are no Nominating and Compensation Committee interlocks between the
Company and other entities involving any of the Company's executive officers
and members of the Board who serve as executive officers of such entities, and
no member of the Nominating and Compensation Committee is a present or former
officer or employee of the Company.
 
EXECUTIVE OFFICERS
 
  Set forth below is information regarding current executive officers on the
Company's Executive Management Committee who are not also directors.
 


NAME                        AGE            POSITION WITH THE COMPANY
- ----                        ---            -------------------------
                          
Boudewijn Bollen...........  51 Executive Vice President, Worldwide Sales and
                                Distribution
Laureen DeBuono............  40 Executive Vice President, Human Resources,
                                General Counsel and Secretary
Michael P. Downey..........  50 Executive Vice President, Chief Financial
                                Officer
Russell D. Hays............  52 Executive Vice President, President, Hospital
                                Business
David J. Illingworth.......  44 Executive Vice President, President, Homecare
                                Business
Kenneth Sumner, Ph.D. .....  55 Vice President, Regulatory/Clinical Affairs and
                                Quality Assurance
David B. Swedlow, M.D. ....  51 Senior Vice President, Medical Affairs and
                                Technology Development

 
  MR. BOLLEN joined the Company in 1986 as Vice President Marketing and Sales
in Europe, became Managing Director, Europe, in April 1989, and Vice President
and Managing Director, Europe, in September
 
                                     II-6

 
1991. Mr. Bollen currently serves as Executive Vice President, Worldwide Sales
and Distribution. Prior to joining the Company, Mr. Bollen was Director of
Marketing and Sales in Europe with Bentley Laboratories, Inc., a manufacturer
of specialized monitoring and medical equipment.
 
  MS. DEBUONO joined the Company in April 1992 as General Counsel and
Secretary and currently serves as Executive Vice President, Human Resources,
General Counsel and Secretary. Prior to joining the Company, Ms. DeBuono was
Division and Corporate Counsel with The Clorox Company, a diversified consumer
products company, from 1987 to 1992, and Corporate Counsel with Varian
Associates, Inc., an electronics device company, from 1984 to 1987.
 
  MR. DOWNEY joined the Company in 1986 as Corporate Controller and became
Vice President, Finance in April 1987 and Vice President, Chief Financial
Officer in July 1989. Mr. Downey currently serves as Executive Vice President,
Chief Financial Officer. Prior to joining the Company, Mr. Downey was Vice
President, Finance with Shugart Corporation, a manufacturer of disk drives,
from 1984 to 1986.
 
  MR. HAYS joined the Company in June 1995 as Executive Vice President,
Nellcor Operations and currently serves as Executive Vice President,
President, Hospital Business. Prior to joining the Company, Mr. Hays served as
the President and Chief Executive Officer of Sequenom from 1993 to 1995.
Previously, Mr. Hays served as President and Chief Executive Officer of
Enzytech, Inc. from 1992 to 1993, and in various capacities at Baxter
Healthcare Corporation from 1985 to 1992. He also served as a General Manager
at Stryker Corporation from 1981 to 1985 and in various capacities at Baxter
Travenol Laboratories, Inc. from 1976 to 1981.
 
  MR. ILLINGWORTH joined the Company in January 1993 as Vice President, Field
Operations. Mr. Illingworth currently serves as Executive Vice President,
President, Homecare Business. Prior to joining the Company, Mr. Illingworth
worked for 14 years in sales and management with General Electric Medical
Systems, a manufacturer of Diagnostic Imaging Products, most recently as
Western Region General Manager.
 
  MR. SUMNER joined the Company in September 1994 as Vice President,
Regulatory/Clinical Affairs and Quality Assurance. Immediately prior to
joining the Company, Mr. Sumner served as Vice President, Regulatory Affairs
and Quality Assurance with Cytyc Corporation, a privately-held medical device
company. From 1990 to 1993, Mr. Sumner was with the Cardiology Group of C.R.
Bard, Inc. as Vice President, Medical and Regulatory Affairs, and, from 1980
to 1990, Mr. Sumner was Director of Clinical and Regulatory Affairs at Zimmer,
Inc., an orthopedic medical device division of Bristol-Myers Squibb, Co.
 
  DR. SWEDLOW joined the Company in June 1987 as Vice President, Medical
Affairs and currently serves as Senior Vice President, Medical Affairs and
Technology Development. Prior to joining the Company, Dr. Swedlow was employed
by the University of Pennsylvania as an Assistant Professor of Anesthesia and
Pediatrics at the University of Pennsylvania School of Medicine and as an
Anesthesiologist and Critical Care Attending Physician and Director of
Research in the Department of Anesthesia and Critical Care of The Children's
Hospital of Philadelphia.
 
                                     II-7

 
                    BENEFICIAL OWNERS OF VOTING SECURITIES
 
  The following table sets forth, as of July 25, 1997, the beneficial holdings
of the Company's Common Stock (the Company's only outstanding voting
securities) by (i) each of the non-employee Directors and nominees, (ii) the
President and Chief Executive Officer and the other named executive officers
listed in the Summary Compensation Table appearing below and (iii) all
directors and executive officers of the Company as a group.
 


                                            AMOUNT AND NATURE OF     PERCENT OF
        NAME OF BENEFICIAL OWNER         BENEFICIAL OWNERSHIP (1)(2)   CLASS
        ------------------------         --------------------------- ----------
                                                               
Laureen DeBuono.........................             90,100              .14%
 Executive Vice President, Human
 Resources,
 General Counsel and Secretary
Burton A. Dole, Jr......................            398,489              .62%
 Director, Chairman of the Board
Michael P. Downey,......................            183,400              .29%
 Executive Vice President, Chief
 Financial Officer
Robert J. Glaser, M.D...................             32,000              .05%
 Director
Frederick M. Grafton....................             60,000              .09%
 Director
Donald L. Hammond.......................             80,000              .13%
 Director
Russell D. Hays.........................             64,600              .10%
 Executive Vice President, President,
 Hospital Business
C. Raymond Larkin, Jr...................            814,258             1.26%
 Director, President
 and Chief Executive Officer
Risa J. Lavizzo-Mourey, M.D.............             19,750              .03%
 Director
Thomas A. McDonnell.....................             30,000              .05%
 Director
Dean O. Morton..........................              2,000             .003%
 Director
David B. Swedlow, M.D...................            215,250              .34%
 Senior Vice President, Medical Affairs
 and Technology Development
Edwin E. van Bronkhorst.................             82,000              .13%
 Director
All Directors and Executive Officers as           2,327,181             3.53%
 a group................................
 (17 persons)(3)

- --------
Notes:
 
(1) Except as hereinafter provided, each Director and named executive officer
    listed in the table has sole voting and sole dispositive power. Mr. Dole
    disclaims beneficial ownership with respect to 112 shares held by an
    immediate family member.
 
                                     II-8

 
(2) Includes for each Director and named executive officer listed in the
    table: (i) in the cases of Messrs. Glaser, Grafton, Hammond, McDonnell and
    van Bronkhorst and Ms. Lavizzo-Mourey, options to purchase 30,000, 50,000,
    50,000, 30,000, 20,000 and 18,750 shares of Common Stock, respectively,
    granted under the Directors' Plan, (ii) in the case of Mr. Dole, options
    to purchase 294,936 shares of Common Stock granted under the 1995 Merger
    Stock Incentive Plan and (iii) in the cases of Ms. DeBuono and Messrs.
    Downey, Hays, Larkin and Swedlow, options to purchase 88,900, 181,400,
    64,400, 667,500 and 143,750 shares of Common Stock, respectively, granted
    under the Company's 1991 Equity Incentive Plan, as amended, and the 1994
    Equity Incentive Plan, as amended, described below, all of which options
    are exercisable within 60 days of July 25, 1997. Also includes for all
    Directors and executive officers as a group options to purchase 1,875,386
    shares of Common Stock which are exercisable within 60 days of July 25,
    1997.
(3) Executive Officers include the Chief Executive Officer and all Executive
    Vice Presidents and Vice Presidents of the Company.
 
  The following table sets forth the beneficial holdings of the Company's
Common Stock (the Company's only outstanding voting securities) by persons or
entities known to the Board to be the beneficial owners of more than 5% of the
Common Stock of the Company.
 


                                      AMOUNT AND NATURE
                                        OF BENEFICIAL   PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER    OWNERSHIP(1)     CLASS(%)
- ------------------------------------  ----------------- ----------
                                                  
FMR Corp.(2)............                  3,717,600       5.91%
 82 Devonshire Street
 Boston, Massachusetts
 02109
Manning & Napier Advi-                    4,901,086       8.14%
 sors, Inc. (3).........
 1100 Chase Square
 Rochester, New York
 14604
Northern Trust Corpora-                   1,221,956       2.03%
 tion(4)................
 50 South LaSalle Street
 Chicago, Illinois 60675

- --------
Notes:
(1) Information regarding the amount and nature of beneficial ownership and
    percent of class of the Company's Common Stock has been obtained from
    Schedule 13Gs filed by the named holders.
(2) FMR Corp. has sole voting power with respect to 7,600 shares and sole
    dispositive power with respect to 3,717,600 shares.
(3) Manning & Napier has sole voting power with respect to 4,722,036 shares
    and sole dispositive power with respect to 4,901,086 shares.
(4) Northern Trust Corporation has sole voting power with respect to 777,285
    shares, sole dispositive power with respect to 787,472 shares, shared
    voting power with respect to 380,721 shares and shared dispositive power
    with respect to 388,350 shares.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
  Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and Directors to file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4
or 5 with the Securities and Exchange Commission ("SEC"). Executive officers
and Directors are also required by SEC rules to furnish the Company with
copies of all Section 16(a) reports filed. As part of a Section 16 compliance
program established by the Company for its executive officers and Directors,
the Company undertakes to file these reports on their behalf. Based solely on
its review of the Forms 3 and 4 filed on behalf of its executive officers and
Directors, as well as written representations from these individuals that all
applicable Forms 5 were timely filed, the Company believes that, during the
fiscal year ended July 6, 1997, all Section
 
                                     II-9

 
16(a) filing requirements applicable to its executive officers and Directors
were complied with pursuant to SEC rules, except for one late filing by Mr.
Illingworth relating to an open market purchase.
 
                            EXECUTIVE COMPENSATION
 
  The Company provides to its executive officers cash compensation and other
compensation pursuant to certain employee incentive and benefit plans.
 
SUMMARY OF CASH COMPENSATION
 
  The following table provides certain summary information regarding cash
compensation paid by the Company on an accrual basis as well as other
compensation for services rendered paid to or on behalf of the named executive
officers for the last three fiscal years ended July 6, 1997, July 7, 1996 and
July 2, 1995:
 
                          SUMMARY COMPENSATION TABLE
 


                                                        LONG-TERM
                                                       COMPENSATION
                                                          AWARDS
                                                       ------------
                                ANNUAL COMPENSATION     SECURITIES
                             -------------------------  UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION  YEAR SALARY ($) BONUS ($) OPTIONS (#)  COMPENSATION (1)
- ---------------------------  ---- ---------- --------- ------------ ----------------
                                                     
C. Raymond Larkin, Jr....    1997  $512,485  $      0    100,000        $   500
 President and Chief         1996   416,173   246,600    120,000            500
 Executive Officer           1995   321,057   417,390    106,000            400
Russell D. Hays(2).......    1997  $292,261  $      0     57,600        $ 1,000
 Executive Vice Presi-
  dent,                      1996   285,577   137,500          0            500
 President, Hospital
  Business                   1995     2,115         0    100,000         50,000
Michael P. Downey........    1997  $292,261  $      0     57,600        $   500
 Executive Vice Presi-
  dent,                      1996   275,153   137,500     44,000          1,000
 Chief Financial Officer     1995   217,041   190,181     40,000            800
Laureen DeBuono..........    1997  $292,261  $      0     57,600        $ 1,000
 Executive Vice Presi-
  dent,                      1996   274,246   137,500     44,000          1,000
 Human Resources, General    1995   212,712   186,116     40,000            800
 Counsel and Secretary
David B. Swedlow, M.D....    1997  $301,340  $      0     35,000        $   500
 Senior Vice President,      1996   293,771   115,729     40,000            500
 Medical Affairs and         1995   274,210   198,015     40,000            800
 Technology Development

- --------
Notes:
(1) Amounts reported as All Other Compensation represent the matching
    contributions paid by the Company to the named executive officers pursuant
    to the Voluntary Investment Plus Plan, as amended and restated ("VIP
    Plan"), described below. With respect to Mr. Hays, the amount reported as
    All Other Compensation for fiscal year 1995 represents the reimbursement
    of certain relocation expenses.
(2) Mr. Hays joined the Company in June 1995.
 
OTHER COMPENSATION
 
  The Company has in effect compensation plans providing various forms of
benefits, payable in cash or deferred for several years (or until retirement).
Executive officers are eligible to participate in certain of these
 
                                     II-10

 
plans, as discussed below. The cash bonus plan for executive officers is
currently administered by the Nominating and Compensation Committee of the
Board, as described and discussed below; all other compensation plans are
currently administered by the Board with the assistance of Ms. DeBuono, the
Executive Vice President, Human Resources, General Counsel and Secretary.
 
EMPLOYEE STOCK OPTION PLANS
 
  The Company has options outstanding under the following plans: the 1985
Equity Incentive Plan (the "1985 Plan"), the 1988 Stock Option Plan for Non-
Employee Directors, as amended (the "1988 Plan"), the 1991 Equity Incentive
Plan, as amended (the "1991 Plan"), the 1994 Equity Incentive Plan, as amended
(the "1994 Plan"), the 1995 Merger Stock Incentive Plan (the "Merger Incentive
Plan"), several Infrasonics, Inc. option plans assumed by the Company upon the
merger of Infrasonics into the Company on June 27, 1996 and several Aequitron
Medical, Inc. option plans assumed by the Company upon the merger of Aequitron
into the Company on December 5, 1996. As of July 25, 1997, options to purchase
an aggregate of 7,143,162 shares were outstanding pursuant to the plans
described above.
 
  The Merger Incentive Plan was approved by stockholders on August 24, 1995 at
the special meeting of stockholders called in connection with the merger of
the Company and Puritan-Bennett Corporation. The Merger Incentive Plan was
adopted to grant Puritan-Bennett employees options to purchase 1,046,996
shares of Company Common Stock in replacement of certain options to purchase
Puritan-Bennett stock remaining outstanding or expiring unexercised at the
closing of the merger. Other than the initial issuance of replacement options
under the Merger Incentive Plan, no additional options to acquire Company
Common Stock will be available for issuance under the Merger Incentive Plan.
 
  In connection with the merger of Infrasonics, Inc. into the Company on June
27, 1996, options outstanding under Infrasonics' option plans (the
"Infrasonics Plans") were assumed by the Company and converted into options to
purchase 128,463 shares of Company Common Stock. No additional options to
acquire Company Common Stock will be available for issuance under the
Infrasonics Plans.
 
  In connection with the merger of Aequitron Medical, Inc. into the Company on
December 5, 1996, options outstanding under the Aequitron option plans (the
"Aequitron Plans") were assumed by the Company and converted into options to
purchase 547,636 shares of Company Common Stock. No additional options to
acquire Company Common Stock will be available for issuance under the
Aequitron Plans.
 
  The 1991 Plan and the 1994 Plan are currently administered by the Nominating
and Compensation Committee of the Board with respect to executive officers and
by the Board with respect to other key employees and consultants. The Board or
the Nominating and Compensation Committee, as the case may be, has the sole
discretion to determine the executive officers, key employees and consultants
to whom options may be granted, the number of shares subject to such options
and the type and term of the options.
 
  The option exercise price of an incentive stock option granted under the
1991 Plan and the 1994 Plan must be at least 100% of the fair market value of
the Company's Common Stock on the date of grant, and the option exercise price
of a nonqualified stock option granted under the 1985 Plan, 1991 Plan and the
1994 Plan must be at least 85% of the fair market value of the Company's
Common Stock on the date of grant. It should be noted, however, that all
options granted to date pursuant to the plans described above have option
exercise prices that are no less than 100% of the fair market value of the
Company's Common Stock on the date of grant and that none may be exercised
more than ten years from the date of grant.
 
                                     II-11

 
  The following table contains information concerning stock option grants in
fiscal year 1997 to the named executive officers:
 
                       OPTION GRANTS IN FISCAL YEAR 1997
 


                                                                                 POTENTIAL REALIZABLE
                                                                                VALUE AT ASSUMED ANNUAL
                            NUMBER OF     % OF TOTAL                             RATES OF STOCK PRICE
                           SECURITIES   OPTIONS GRANTED                            APPRECIATION FOR
                           UNDERLYING   TO EMPLOYEES IN   EXERCISE                    OPTION TERM
                             OPTIONS      FISCAL YEAR      PRICE     EXPIRATION ------------------------
          NAME            GRANTED(#)(1)      1997       ($/SHARE)(2)    DATE     5%($)(3)    10%($)(3)
          ----            ------------- --------------- ------------ ---------- ----------- ------------
                                                                          
C. Raymond Larkin,
 Jr. ...................     100,000        .045571        22.50      7/23/06     1,414,523   3,584,397
Laureen DeBuono.........      57,600        .026249        22.50      7/23/06       814,765   2,064,613
Michael P. Downey.......      57,600        .026249        22.50      7/23/06       814,765   2,064,613
Russell D. Hays.........      57,600        .026249        22.50      7/23/06       814,765   2,064,613
David B. Swedlow, M.D...      35,000        .015950        22.50      7/23/06       495,083   1,254,539

- --------
Notes:
(1) These stock options were granted to each of the named executive officers
    on July 24, 1996. The grants of stock options were made pursuant to the
    standard terms of the 1994 Plan. These stock options have a ten-year term,
    vest on a quarterly basis over a four-year period beginning the date of
    grant and have exercise prices equal to 100% of the fair market value of
    the Company's Common Stock on the date of grant. The Company has not
    granted Stock Appreciation Rights ("SARs") pursuant to any of its employee
    stock option plans to any past or present employee of the Company,
    including any executive officer.
(2) The exercise price may be paid in cash, in shares of common stock valued
    at fair market value on the exercise date or through a cashless exercise
    involving a same-day sale of the purchased shares.
(3) These columns reflect the potential realizable value of each stock option
    grant assuming that the market value of the Company's Common Stock
    appreciates at 5% and 10% annually from the date of grant over the term of
    the option. The potential values of the options with an exercise price of
    $22.50 reflect a 102% increase (@ 5%) and a 221% increase (@ 10%) in the
    value of the Company's Common Stock over the 1997 fiscal year-end market
    price of $18.15, the average of the high and low prices as reported by the
    Nasdaq National Market on July 3, 1997. As a result of the Merger,
    immediately prior to the Effective Time the foregoing options will be
    converted into the right to receive cash in an amount equal to (i) the
    difference between the Merger Consideration and the $22.50 exercise price,
    times (ii) the number of shares covered by the option.
 
                                     II-12

 
STOCK OPTION EXERCISES AND HOLDINGS
 
  The following table provides information concerning the exercise of stock
options by the named executive officers during fiscal year 1997 and the
unexercised options held by such officers as of the end of fiscal year 1997.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                          AND YEAR-END OPTION VALUES
 


                                             NUMBER OF SECURITIES
                                            UNDERLYING UNEXERCISED
                          SHARES             VALUE OF UNEXERCISED      VALUE OF UNEXERCISED
                         ACQUIRED                 OPTIONS AT           IN-THE-MONEY OPTIONS
                            ON     VALUE    FISCAL YEAR END (#)(1)   AT FISCAL YEAR END ($)(2)
                         EXERCISE REALIZED ------------------------- -------------------------
       NAME                (#)      ($)    EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
       ----              -------- -------- ----------- ------------- ----------- -------------
                                                               
C. Raymond Larkin,
 Jr. ...................  25,000  248,438    640,375      188,625     3,994,180     199,570
Laureen DeBuono.........     --       --      77,550       86,550       254,531      75,000
Michael P. Downey.......     --       --     170,050       86,550       818,438      75,000
Russell D. Hays.........     --       --      60,800       96,800             0           0
David B. Swedlow,
 M.D. ..................     --       --     130,063       65,937       519,688      75,000

- --------
Notes:
 
(1) The Company has not granted SARs pursuant to any of its employee stock
    option plans to any past or present employee of the Company, including any
    executive officer.
(2) Amounts in this column are calculated using the per share closing price on
    the Nasdaq National Market of the Company's Common Stock at 1997 fiscal
    year end ($18.1875) less the exercise price. As a result of the Merger,
    immediately prior to the Effective Time the foregoing options will be
    converted into the right to receive cash in an amount equal to (i) the
    difference between the Merger Consideration and the applicable exercise
    price, times (ii) the number of shares covered by the option. As a result
    of such conversion, Mr. Larkin, Ms. DeBuono, Mr. Downey, Mr. Hays and Mr.
    Swedlow will be entitled to receive approximately $11,374,000, $1,430,000,
    $2,947,000, $883,000 and $2,194,000, respectively.
 
VOLUNTARY INVESTMENT PLUS PLAN
 
  Pursuant to the VIP Plan, employees of the Company and certain subsidiaries,
including executive officers, approved by the Board may defer compensation for
income tax purposes under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"). All employees of the Company who
regularly work 30 hours or more per week are eligible to participate in the
VIP Plan at the beginning of their employment with the Company. In addition,
all employees who complete 1,000 hours or more in their first 12 months of
service or in any subsequent calendar year are eligible to participate in the
VIP Plan. As of July 6, 1997, 3,511 employees other than executive officers
were participating in the VIP Plan. Eligible participants may contribute to
their accounts, through payroll deductions, between 1% and 15% of their
compensation on a "pre-tax" basis. Compensation for purposes of the VIP Plan
includes base salary, cash profit sharing, bonuses, commissions and overtime
pay. Pursuant to Section 401(k) of the Code, participants will not be taxed on
the pre-tax amounts they contribute to their accounts until the accounts are
distributed on death, disability, normal retirement or other termination of
employment. Contributed amounts may also be withdrawn from the VIP Plan in
cases of demonstrable hardship or if a participant has attained at least 59
1/2 years of age. All contributions are held by a trustee and participants are
able to direct the investment of their accounts among various investment
alternatives, including Company Common Stock since January 1997.
 
  The Company provides matching contributions equal to 100% of each
participant's contribution, up to $500 per participant semi-annually. Company
contributions to the named executive officers for each of the 1997, 1996 and
1995 fiscal years are included in All Other Compensation listed on the Summary
Compensation Table above.
 
DEFERRED COMPENSATION PLAN
 
  In fiscal 1997, the Company established a new deferred compensation plan for
executive officers, senior director and director-level employees to be
effective in January 1997 (the "Deferred Plan"). Eligibility for
 
                                     II-13

 
participation is based on achievement of a certain employment level at the
Company. Under the terms of the Deferred Plan, an eligible participant may
elect to defer all or part of the participant's annual base salary and/or
bonus award. Amounts deferred under the Deferred Plan are credited to a
separate bookkeeping account for each participant and are commingled with the
general assets of the Company. Participants can allocate amounts deferred to
three accounts: a company stock account the return on which is tied to the
performance of the Company's Common Stock; an interest account in which
amounts deferred earn interest at rate equal to the prime lending rate quoted
by at least 75% of the nations 30 largest commercial banks; and a company
performance account in which amounts deferred earn a rate of return based upon
the Company's return on assets. The time and method of payment of deferred
compensation and other terms and conditions are set forth in deferred
compensation elections made prior to deferral by each participant. The
Deferred Plan is not separately funded, and the undistributed balance of
deferred compensation constitutes an unsecured contractual obligation of the
Company to the participants in accordance with the terms of the plan. Deferred
compensation, if any, relating to the named executive officers is set forth in
the Summary Compensation Table above.
 
SEVERANCE ARRANGEMENTS
 
  The Company has entered into severance agreements (the "Severance
Agreements") with certain executive officers, including the named executive
officers listed in the Summary Compensation Table above, and key employees
(each of such individuals being hereinafter referred to as the "Executive" or
collectively as the "Executives").
 
  Each Severance Agreement has a twenty-four month term, with an automatic one
year extension on each anniversary date thereafter, unless the Company or the
Executive gives written notice to the other that the term of the Severance
Agreement shall not be extended. However, in no event will a Severance
Agreement expire prior to the expiration of twenty-four months after the
occurrence of a "change in control," as defined below.
 
  Under the Severance Agreements, if an Executive's employment with the
Company is terminated by the Company for "cause" (as defined below),
disability or death, or by the Executive other than for "good reason" (as
defined below) during the term of the Severance Agreement and within two years
following a "change in control" (as defined below), the Executive shall be
entitled to accrued but unpaid compensation and, if such termination is other
than by the Company for "cause," a prorated bonus.
 
  If an Executive's employment with the Company is terminated by the Company
without "cause" or by the Executive for "good reason" during the term of the
Severance Agreement and within two years following a "change in control," the
Executive shall be entitled to: (i) a lump-sum severance payment equal to
three times base salary plus bonus in the case of the chief executive officer,
two times base salary plus bonus in the case of other executive officers and
one time base salary plus bonus in the case of certain key employees; (ii)
accrued but unpaid compensation and a prorated bonus for the year in which the
Executive is terminated; (iii) medical and insurance benefits for the
Executive and the Executive's dependents for three years in the case of the
chief executive officer, two years in the case of other executive officers and
one year in the case of certain key employees, such benefits to be limited to
the extent that the Executive obtains comparable benefits pursuant to a
subsequent employment; (iv) the immediate vesting of, and lapsing of
restrictions on, all outstanding equity incentive awards held by the
Executive, including stock options and restricted stock; and (v) outplacement
and career counseling services. In the event that the employment by the
Company of all of its officers is terminated after the Merger by the Company
without "cause" or by such officer for "good reason," the officers would be
entitled to severance payments of approximately $14.5 million in the
aggregate.
 
  Each Severance Agreement provides that if any amounts due to an Executive
thereunder become subject to the "golden parachute" rules set forth in Section
280G of the Code, then such amounts will be reduced to the extent necessary to
avoid the application of such rules.
 
  A termination of employment is for "cause" under the Severance Agreements if
the basis of the termination is fraud, misappropriation, embezzlement or
willful engagement by the Executive in misconduct which is
 
                                     II-14

 
demonstrably and materially injurious to the Company and its subsidiaries
taken as a whole. "Good reason" includes, among other things, (i) an adverse
change in the Executive's status, title, position, duties or responsibilities;
(ii) a reduction in the Executive's base compensation; (iii) the relocation of
the Executive; (iv) the discontinuance by the Company of any material
compensation or employee benefit plan in which the Executive participates; (v)
the insolvency or the filing of a petition for bankruptcy of the Company; (vi)
material breach by the Company of the Severance Agreement; (vii) any purported
termination for cause by the Company which does not comport with the Severance
Agreement; and (viii) failure or refusal of any successor to the Company to
assume and perform the Severance Agreement.
 
  Pursuant to the Severance Agreements, a "change in control" shall be deemed
to have occurred (i) upon the acquisition by any person, entity or group of
beneficial ownership of twenty-five percent or more of the combined voting
power of the Company's then outstanding voting securities; (ii) if the
individuals who constitute the Board as of the date that the Severance
Agreements are approved by the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any new
director approved by a vote of at least two-thirds of the Incumbent Board
shall be considered a member of the Incumbent Board (other than an individual
initially assuming office as a result of either an actual or threatened
election contest or other actual or threatened solicitation of proxies or
consents by or on behalf of a person, entity or group other than the Incumbent
Board); (iii) upon approval by the stockholders of the Company of a merger,
consolidation or reorganization involving the Company, unless (A) the
stockholders of the Company immediately before such merger, consolidation or
reorganization own immediately thereafter at least 51% of the combined voting
power of the outstanding voting securities of the surviving corporation in
substantially the same proportion as their ownership of securities immediately
before any such transaction; (B) the individuals constituting the Incumbent
Board immediately prior to such merger, consolidation or reorganization
constitute at least a majority of the board of the surviving corporation; and
(C) no person, entity or group (other than the Company and/or certain
affiliated entities) has beneficial ownership of 25% or more of the combined
voting power of the surviving corporation's then outstanding voting
securities; (iv) upon a complete liquidation or dissolution of the Company; or
(v) upon an agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any person, entity or group
(other than a transfer to a Company subsidiary). The transactions contemplated
under the Merger Agreement will constitute a "change of control."
 
INDEBTEDNESS OF MANAGEMENT
 
  The following table sets forth information with regard to promissory notes
from any current executive officers of the Company who have had amounts of
$60,000 or more outstanding at any time during fiscal year 1997.
 


                                           PRINCIPAL AMOUNT   LARGEST AMOUNT OF
                                            OUTSTANDING AT  PRINCIPAL OUTSTANDING
NAME OF INDIVIDUAL         DATE OF NOTE     JULY 23, 1997    DURING FISCAL 1997
- ------------------       ----------------- ---------------- ---------------------
                                                   
David J.
 Illingworth(l)......... February 18, 1993     $250,000           $250,000
Russell D. Hays(2)...... October 5, 1995       $350,000           $350,000
Kenneth Sumner(3)....... November 16, 1994     $125,000           $125,000

- --------
Notes:
(1) In connection with his employment by the Company in November 1992, Mr.
    Illingworth received an interest-bearing loan of $250,000 with which to
    repay an outstanding relocation loan with his former employer. Mr.
    Illingworth's loan with the Company is secured by his primary residence
    with a second mortgage. Payment of interest on the loan, which accrues at
    an annual interest rate of 7.64%, is to be made in 20 semi-annual
    installments over a period of 10 years, with the first payment made on
    August 18, 1993. An amount equal to each interest installment, as made, is
    added to Mr. Illingworth's base salary compensation. The principal amount
    of the loan is due upon the earlier of the sale of the residence,
    termination of employment with the Company, or February 18, 2003.
 
                                     II-15

 
(2) In connection with his employment by the Company in June 1995, Mr. Hays
    received an interest-bearing loan of $350,000 with which to purchase his
    primary residence in California. Mr. Hays' loan with the Company is
    secured by his primary residence with a second mortgage. Payment of
    interest on the loan, which accrues at an annual interest rate of 6.56%,
    is to be made in 10 annual installments over a period of 10 years, with
    the first payment to be made on December 1, 1996. An amount equal to each
    interest installment, as made, is added to Mr. Hays' base salary
    compensation. The principal amount of the loan is due upon the earlier of
    the sale of the residence, termination of employment with the Company, or
    December 1, 2005.
(3) In connection with his employment by the Company in September 1994, Mr.
    Sumner received an interest-bearing loan of $125,000 with which to
    purchase his primary residence in California. Mr. Sumner's loan with the
    Company is secured by his primary residence with a second mortgage.
    Payment of interest on the loan, which accrues at an annual interest rate
    of 7.55%, is to be made in 20 semi-annual installments over a period of 10
    years, with the first payment made on May 16, 1995. An amount equal to
    each interest installment, as made, is added to Mr. Sumner's base salary
    compensation. The principal amount of the loan is due upon the earlier of
    the sale of the residence, termination of employment with the Company, or
    November 16, 2004.
 
                                     II-16

EX-99.1

 
                                                                       EXHIBIT 1

                          AGREEMENT AND PLAN OF MERGER
                          ----------------------------


          AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
                                                                 ---------   
dated as of July 23, 1997, among Nellcor Puritan Bennett Incorporated, a
Delaware corporation (the "Company"), Mallinckrodt Inc., a New York corporation
                           -------                                             
("Purchaser"), and NPB Acquisition Corp., a Delaware corporation and a wholly-
  ---------                                                                  
owned subsidiary of Purchaser ("Merger Sub"), the Company and Merger Sub
                                ----------                              
sometimes being hereinafter collectively referred to as the "Constituent
                                                             -----------
Corporations."
- ------------  


                                    RECITALS

          WHEREAS, the Boards of Directors of Purchaser and the Company each
have determined that it is in the best interests of their respective
shareholders for Purchaser to acquire the Company upon the terms and subject to
the conditions set forth herein; and

          WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.

          NOW, THEREFORE, in consideration of the premises, and of the
representation, warranties, covenants and agreements contained herein the
parties hereto hereby agree as follows:


                                   ARTICLE I

                                THE TENDER OFFER

          1.1.  Tender Offer.  (a) Provided that this Agreement shall not have
                ------------                                                  
been terminated in accordance with Article IX hereof and none of the events set
forth in Annex A hereto shall have occurred or be existing, within five business
days of the date hereof Purchaser shall cause Merger Sub to commence a tender
offer (the "Offer") for all of the outstanding shares of Common Stock, par value
            -----                                                               
$.001 per share, of the Company, including the associated Rights (as defined in
Section 6.1(b)) (together, the "Shares") at a price of $28.50 per Share in cash,
                                ------                                          
net to the seller, subject to the terms and conditions set forth in Annex A
hereto (the "Offer Conditions").  The initial expiration date (the "Initial
             ----------------                                       -------
Expiration Date") shall be the date twenty business days from the date (the
- ---------------                                                            
"Commencement Date") the Offer Documents (as hereinafter defined) are first
- ------------------                                                         
filed with the Securities and Exchange Commission (the "SEC"), including the
                                                        ---                 
Commencement Date as the first business day of such period.  Purchaser and
Merger Sub expressly reserve the right, in their sole discretion, to waive any
condition (other than the Minimum Condition, as defined in the Offer Conditions)
and to set forth or change any other terms and conditions of the Offer, provided
                                                                        --------
that, unless

 
previously approved by the Company in writing, no provision may be set forth or
changed which decreases the price per Share payable in the Offer, changes the
form of consideration payable in the Offer (other than by adding consideration),
reduces the maximum number of Shares to be purchased in the Offer, or imposes
conditions to the Offer in addition to those set forth herein that are
materially adverse to holders of the Shares. Merger Sub covenants and agrees
that, subject to the terms and conditions of the Offer, including but not
limited to the Offer Conditions, it will accept for payment and pay for Shares
as soon as it is permitted to do so under applicable law, provided that Merger
                                                          --------            
Sub shall have the right, in its sole discretion, to extend the Offer from time
to time notwithstanding the prior satisfaction of the Offer Conditions to a date
not beyond the fifth business day following the satisfaction of all of the Offer
Conditions if more than 90% of the outstanding Shares (on a fully diluted basis)
have not been duly tendered (exclusive of Shares tendered by guaranteed
delivery) and not withdrawn.  Purchaser agrees that, unless it is permitted to
terminate this Agreement pursuant to Article IX, it can terminate the Offer only
on a scheduled expiration date.  Purchaser further agrees that:  (A) in the
event that it would otherwise be entitled to terminate the Offer at any
scheduled expiration thereof due to the failure of one or more of the conditions
set forth in paragraphs (a), (c), (d) or (f) of the Offer Conditions to be
satisfied or waived, it shall give the Company notice thereof and, at the
request of the Company, extend the Offer until the earlier of (1) such time as
such condition is or conditions are satisfied or waived and (2) the date chosen
by the Company which shall not be later than (x) September 15, 1997 or (y) the
earliest date on which the Company reasonably believes such condition or
conditions will be satisfied; provided that, if such condition is not or
                              --------                                  
conditions are not satisfied by any date chosen by the Company pursuant to this
clause (y), the Company may request further extensions of the Offer not beyond
September 15, 1997; and (B) it shall, at the request of the Company made in
writing at least one business day prior to the Initial Expiration Date (which
request may be made by the Company only on one occasion), extend the Offer for
up to five business days from such Initial Expiration Date.  It is agreed that
the terms and conditions set forth in the Offer, including but not limited to
the Offer Conditions, are for the benefit of Purchaser and Merger Sub and may be
asserted by Purchaser and Merger Sub regardless of the circumstances giving rise
to any such condition.

          (b)  The Company hereby approves of and consents to the Offer and
represents and warrants that:  (i) its Board of Directors, at a meeting duly
called and held on July 23, 1997, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including each of the Offer
and the Merger (as defined in Section 2.1), are fair to and in the best
interests of the holders of Shares, (B) approved this Agreement and the
transactions contemplated hereby, including each of the Offer and the Merger,
and (C) resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares to Merger Sub thereunder and approve this Agreement
and the transactions contemplated hereby; and (ii) Morgan Stanley & Co.
Incorporated (the "Financial Advisor") has delivered to the Board of Directors
                   -----------------                                          
of the Company its written opinion that the consideration to be received by
holders of Shares, other than Purchaser and Merger Sub,

                                      -2-

 
pursuant to each of the Offer and the Merger is fair to such holders from a
financial point of view.

          (c)  As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer with the SEC.  The Schedule 14D-1
 --------------                                                              
shall contain an Offer to Purchase and forms of the related letter of
transmittal (which Schedule 14D-1, Offer to Purchase and other related
documents, together with any supplements or amendments thereto, are referred to
herein collectively as the "Offer Documents").  Not later than the fifth
                            ---------------                             
business day after the date hereof, the Company will file a Solicitation
Statement on Schedule 14D-9 (the "Schedule 14D-9") with the SEC.   Purchaser
                                  --------------                            
agrees, as to the Offer Documents, and the Company agrees, as to the Schedule
14D-9, that such documents shall, in all material respects, comply with the
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Exchange Act") and other applicable laws.  The
                                 ------------                                  
Company and its counsel, as to the Offer Documents, and Purchaser and its
counsel, as to the Schedule 14D-9, shall be given an opportunity to review such
documents prior to their being filed with the SEC.  Purchaser, Merger Sub and
the Company each agrees promptly to correct any information provided by it for
use in the Offer Documents or the Schedule 14D-9 that shall have become false or
misleading in any material respect, and Purchaser and Merger Sub, on the one
hand, and the Company, on the other hand, further agree to take all steps
necessary to cause the Offer Documents and the Schedule 14D-9, as the case may
be, as so corrected to be filed with the SEC and disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws.

          (d)  In connection with the Offer, the Company will cause its transfer
agent to furnish promptly to Merger Sub a list, as of a recent date, of the
record holders of Shares and their addresses, as well as mailing labels
containing the names and addresses of all record holders of Shares and lists of
security positions of Shares held in stock depositories.  The Company will
furnish Merger Sub with such additional information (including, but not limited
to, updated lists of holders of Shares and their addresses, mailing labels and
lists of security positions) and such other assistance as Purchaser or Merger
Sub or their agents may reasonably request in communicating the Offer to the
record and beneficial holders of Shares. Subject to the requirements of law, and
except for such steps as are necessary to disseminate the Offer Documents and
any other documents necessary to consummate the Offer and the Merger, Purchaser
and each of its affiliates and associates shall hold in confidence the
information contained in any of such lists, labels or additional information
and, if this Agreement is terminated, shall promptly deliver to the Company all
copies of such information then in their possession.

                                      -3-

 
                              ARTICLE II

                      THE MERGER; CLOSING; EFFECTIVE TIME

          2.1.  The Merger.  Subject to the terms and conditions of this
                ----------                                              
Agreement, at the Effective Time (as defined in Section 2.3) Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub shall thereupon cease (the "Merger").  The Company shall be the surviving
                                ------                                       
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
                                                                     ---------
Corporation") and shall continue to be governed by the laws of the State of
- -----------                                                                
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger, except as set forth in Section 3.1.  The Merger shall have the
effects specified in the Delaware General Corporation Law (the "DGCL").
                                                                ----   

          2.2.  Closing.  The closing of the Merger (the "Closing") shall take
                -------                                   -------             
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 9:00 a.m. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VIII hereof shall be fulfilled or
waived in accordance with this Agreement, or (ii) at such other place and time
and/or on such other date as the Company and Purchaser may agree.

          2.3.  Effective Time.  As soon as practicable following the Closing,
                --------------                                                
and provided that this Agreement has not been terminated or abandoned pursuant
to Article IX hereof, the Company and Purchaser will cause a Certificate of
Merger (the "Delaware Certificate of Merger") to be executed and filed with the
             ------------------------------                                    
Secretary of State of Delaware as provided in Section 251 of the DGCL.  The
Merger shall become effective on the date on which the Delaware Certificate of
Merger has been duly filed with the Secretary of State of Delaware, and such
time is hereinafter referred to as the "Effective Time."
                                        --------------  


                                  ARTICLE III

                    CERTIFICATE OF INCORPORATION AND BYLAWS
                          OF THE SURVIVING CORPORATION

          3.1.  The Certificate of Incorporation.  The Restated Certificate of
                --------------------------------                              
Incorporation of the Company (the "Certificate") in effect at the Effective Time
                                   -----------                                  
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with the terms thereof and the DGCL, except that
Article Fourth of the Certificate shall be amended to read in its entirety as
follows:

                                      -4-

 
          "The aggregate number of shares which the Corporation shall have the
          authority to issue is 1,000 shares of Common Stock, par value $.001
          per share."

          3.2.  The Bylaws.  The Bylaws of the Company in effect at the
                ----------                                             
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.


                                   ARTICLE IV

                             OFFICERS AND DIRECTORS
                          OF THE SURVIVING CORPORATION

          4.1.  Officers and Directors.  The directors of Merger Sub and the
                ----------------------                                      
officers of the Company at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.

          4.2.  Boards of Directors; Committees.  If requested by Purchaser, the
                -------------------------------                                 
Company will, subject to compliance with applicable law and promptly following
the purchase by Merger Sub of such number of Shares pursuant to the Offer as
satisfies the Minimum Condition, take all actions necessary to cause persons
designated by Purchaser to become directors of the Company so that the total
number of such persons equals not less than the product of the total number of
directors on the Board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Merger Sub or any affiliate of Merger Sub bears to the
total number of Shares then outstanding.  In furtherance thereof, the Company
will increase the size of the Board, or use its reasonable efforts to secure the
resignation of directors, or both, as is necessary to permit Purchaser's
designees to be elected to the Company's Board of Directors; provided that at
                                                             --------        
all times prior to the Effective Time, the Company's Board of Directors shall
consist of at least two members who are neither officers, stockholders,
designees nor affiliates of Purchaser ("Purchaser Representatives").  At such
                                        -------------------------            
time, the Company, if so requested, will use its reasonable efforts to cause
persons designated by Purchaser to constitute the same percentage of each
committee of such board, each board of directors of each subsidiary of the
Company and each committee of each such board (in each case to the extent of the
Company's ability to elect such persons).  The Company's obligations to appoint
designees to the Board of Directors shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to such Section and Rule in order to fulfill
its obligations under this Section 4.2 and shall include in the Schedule 14D-9,
or in a separate Rule 14f-1 information statement provided

                                      -5-

 
to stockholders, such information with respect to the Company and its officers
and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its
obligations under this Section 4.2.  Purchaser and Merger Sub will supply to the
Company and will be solely responsible for any information with respect to
either of them and their nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-1.

          4.3  Actions by Directors.  For purposes of Article IX and Sections
               --------------------                                          
10.3 and 10.4, and with respect to any amendment of the Certificate or the
Bylaws of the Company, no action taken by the Board of Directors of the Company
prior to the Merger shall be effective unless such action is approved by the
affirmative vote of at least a majority of the directors of the Company which
are not Purchaser Representatives.


                                   ARTICLE V

               CONVERSION OR CANCELLATION OF SHARES IN THE MERGER

          5.1.  Conversion or Cancellation of Shares.  The manner of converting
                ------------------------------------                           
or canceling shares of the Company and Merger Sub in the Merger shall be as
follows:

          (a)  At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Purchaser,
Merger Sub or any other subsidiary of Purchaser (collectively, the "Purchaser
                                                                    ---------
Companies") or Shares that are held by stockholders ("Dissenting Stockholders")
- ---------                                             -----------------------  
exercising appraisal rights pursuant to Section 262 of the DGCL) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive, without interest, an amount in cash (the
"Merger Consideration") equal to $28.50 or such greater amount which may be paid
 --------------------                                                           
pursuant to the Offer.  All such Shares, by virtue of the Merger and without any
action on the part of the holders thereof, shall no longer be outstanding and
shall be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except the right to receive the Merger
Consideration for such Shares upon the surrender of such certificate in
accordance with Section 5.2 or the right, if any, to receive payment from the
Surviving Corporation of the "fair value" of such Shares as determined in
accordance with Section 262 of the DGCL.

          (b)  At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Purchaser Companies, and each Share
issued and held in the Company's treasury at the Effective Time, shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.

                                      -6-

 
          (c)  At the Effective Time, each share of Common Stock, par value
$0.001 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders of such shares, be converted into one Share.

          5.2.   Payment for Shares.  Purchaser shall make available or cause to
                 ------------------                                             
be made available to the paying agent appointed by Purchaser with the Company's
prior approval (the "Paying Agent") amounts sufficient in the aggregate to
                     ------------                                         
provide all funds necessary for the Paying Agent to make payments pursuant to
Section 5.1(a) hereof to holders of Shares issued and outstanding immediately
prior to the Effective Time.  Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record (other than any of the Purchaser Companies) of Shares a
form (mutually agreed to by Purchaser and the Company) of letter of transmittal
and instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any of such Shares in
exchange for payment therefor.  Upon surrender to the Paying Agent of such
certificates, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the Surviving Corporation
shall promptly cause to be paid to the persons entitled thereto a check in the
amount to which such persons are entitled, after giving effect to any required
tax withholdings.  No interest will be paid or will accrue on the amount payable
upon the surrender of any such certificate.  If payment is to be made to a
person other than the registered holder of the certificate surrendered, it shall
be a condition of such payment that the certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Surviving Corporation or the
Paying Agent that such tax has been paid or is not applicable.  One hundred and
eighty days following the Effective Time, the Surviving Corporation shall be
entitled to cause the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) made available to the Paying Agent which
have not been disbursed to holders of certificates formerly representing Shares
outstanding on the Effective Time, and thereafter such holders shall be entitled
to look to the Surviving Corporation only as general creditors thereof with
respect to the cash payable upon due surrender of their certificates.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to any holder of certificates formerly representing Shares for
any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.  The Surviving Corporation shall pay all
charges and expenses, including those of the Paying Agent, in connection with
the exchange of cash for Shares and Purchaser shall reimburse the Surviving
Corporation for such charges and expenses.

          5.3.  Dissenters' Rights.  If any Dissenting Stockholder shall be
                ------------------                                         
entitled to be paid the "fair value" of his or her Shares, as provided in
Section 262 of the DGCL, the Company shall give Purchaser notice thereof and
Purchaser shall have the right to participate

                                      -7-

 
in all negotiations and proceedings with respect to any such demands.  Neither
the Company nor the Surviving Corporation shall, except with the prior written
consent of Purchaser, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment.  If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares had been converted into the Merger Consideration
pursuant to Section 5.1.

          5.4.  Transfer of Shares After the Effective Time.  No transfers of
                -------------------------------------------                  
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

          6.1.  Representations and Warranties of the Company.  The Company
                ---------------------------------------------              
hereby represents and warrants to Purchaser and Merger Sub that, except (with
respect to any particular subsection of this Section 6.1) to the extent
specifically disclosed in the corresponding subsection of that certain letter
delivered by the Company to the Purchaser on or prior to the date hereof (the
"Disclosure Letter"):
- ------------------   

          (a)  Corporate Organization and Qualification. Each of the Company and
               ----------------------------------------                         
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization, has all
requisite corporate or similar power and authority to carry on its business as
presently conducted and is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except for any such failure of any
of the Company's subsidiaries to be so organized, existing, in good standing or
to have such power and authority or to so qualify, which, when taken together
with all other such failures, is not reasonably likely to have a material
adverse effect on the financial condition, properties, business or results of
operations of the Company and its subsidiaries taken as a whole.  The Company
has made available to Purchaser a complete and correct copy of the Certificate
and the Company's Bylaws, each as currently in effect.  The Certificate and
Bylaws so delivered are in full force and effect. The Company has delivered to
Purchaser prior to the date hereof a list of the current subsidiaries of the
Company which evidences, among other things, the amount of capital stock or
other equity interests owned by the Company, directly or indirectly, in such
subsidiaries, if such amount is less than 100%.  No entity in which the Company
owns, directly or indirectly, an equity interest but less than a 50% equity
interest is, individually or when taken together with all such other entities,
material to the business of the Company and its subsidiaries taken as a whole.

                                      -8-

 
          (b)  Authorized Capital.  The authorized capital stock of the Company
               ------------------                                              
consists of 150,000,000 Shares, of which 63,677,435 Shares were outstanding on
July 22, 1997, and 5,000,000 shares of Preferred Stock par value $.001 per share
(the "Preferred Shares"), of which no shares were outstanding on July 23, 1997.
      ----------------                                                          
All of the outstanding Shares have been duly authorized and are validly issued,
fully paid and nonassessable.  As of July 22, 1997, options to purchase an
aggregate of 7,412,644 Shares were outstanding (or, in the case of the 1995 ESPP
(as defined below) reserved for issuance) pursuant to the Infrasonics 1995 Stock
Option Plan (the "Infrasonics 1995 Plan"), the 1995 Merger Stock Incentive Plan
                  ---------------------                                        
(the "1995 Plan"), the 1994 Equity Incentive Plan, as amended (the "1994 Plan"),
      ---------                                                     ---------   
the Infrasonics 1991 Stock Option Plan (the "Infrasonics 1991 Plan"), the 1991
                                             ---------------------            
Equity Incentive Plan, as amended (the "1991 Plan"), the 1988 Stock Option Plan
                                        ---------                              
for Non-Employee Directors, as amended (the "1988 Plan"), the 1985 Equity
                                             ---------                   
Incentive Plan (the "1985 Plan"), the Infrasonics 1983 Employee Stock Option
                     ---------                                              
Plan (the "Infrasonics 1983 Plan"), the Aequitron Medical, Inc. 1985 Incentive
           ---------------------                                              
Stock Option Plan, the Aequitron Medical, Inc. 1988 Stock Option Plan, the 1986
Employee Stock Participation Plan, as amended (the "1986 ESPP"), which
                                                    ---------         
terminated August 1996, and the 1995 Employee Stock Participation Plan (the
                                                                           
"1995 ESPP" and collectively with the Plans listed in this sentence, the "Stock
- ----------                                                                -----
Plans") and 5,000,000 Preferred Shares were reserved for issuance upon exercise
- -----                                                                          
of the rights (the "Rights") issued pursuant to the Rights Agreement, dated as
                    ------                                                    
of September 1, 1992, as amended and restated as of March 8, 1996, between the
Company and The First National Bank of Boston (the "Rights Agreement"). Each of
                                                    ----------------           
the outstanding shares of capital stock of each of the Company's subsidiaries
(as defined in Rule 1.02(v) of Regulation S-X promulgated pursuant to the
Exchange Act) is duly authorized, validly issued, fully paid and nonassessable
and is owned, either directly or indirectly, by the Company, free and clear of
all liens, pledges, security interests, claims or other encumbrances.  Except as
set forth above, there are no shares of capital stock of the Company authorized,
issued or outstanding and except as set forth above, there are no pre emptive
rights nor any outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of the Company or any of
its subsidiaries. Immediately prior to the consummation of the Offer and the
Merger, no Preferred Shares or any other securities of the Company will be
subject to issuance pursuant to the Rights Agreement as a result of any of the
transactions contemplated by this Agreement, no Distribution Date (as defined in
the Rights Agreement) shall have occurred as a result of any of the transactions
contemplated by this Agreement and, at or after the Effective Time, except as
provided in Section 7.8(a), neither the Surviving Corporation nor the Purchaser
will have any obligation to issue, transfer or sell any Shares or common stock
of the Surviving Corporation or Purchaser pursuant to any Benefit Plan referred
to in Section 7.1(d).

          (c)  Corporate Authority.  Subject only to approval of this Agreement
               -------------------                                             
by the holders of a majority of the outstanding Shares, the Company has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.  Assuming

                                      -9-

 
the due authorization, execution and delivery hereof by Purchaser and Merger
Sub, this Agreement is a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
affecting creditors' rights and to general equitable principles.

          (d)  Governmental Filings; No Violations.  (i) Other than the filings
               -----------------------------------                             
provided for in Section 2.3, as required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), filings required under the Exchange
                               -------                                       
Act and such filings or consents, registrations, approvals, permits or
authorizations as may be required under the laws of Germany, Ireland, Canada,
Belgium, Hungary and Mexico (collectively, the "Regulatory Approvals"), no
                                                --------------------      
notices, reports or other filings are required to be made by the Company with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any governmental or regulatory
authority, agency, commission or other entity, domestic or foreign
                                                                  
("Governmental Entity"), in connection with the execution and delivery of this
- ---------------------                                                         
Agreement by the Company and the consummation of the transactions contemplated
hereby, the failure to make or obtain any or all of which is reason ably likely
to have a material adverse effect on the financial condition, properties,
business or results of operations of the Company and its subsidiaries taken as a
whole, or could prevent or materially delay the transactions contemplated by
this Agreement or impair the ability of Purchaser, Merger Sub, the Company or
any of their respective affiliates, following consummation of the Offer or the
Merger, to conduct any material business or operations in any jurisdiction where
they are now being conducted.

          (ii)  The execution and delivery of this Agreement by the Company do
not, and the consummation by the Company of the transactions contemplated by
this Agreement will not, constitute or result in (A) a breach or violation of,
or a default under, the Certificate or the Company's Bylaws or the comparable
governing instruments of any of its subsidiaries, (B) a breach or violation of,
or a default under, the acceleration of or the creation of a lien, pledge,
security interest or other encumbrance on assets (with or without the giving of
notice or the lapse of time) pursuant to, any provision of any agreement, lease,
permit, contract, note, mortgage, indenture, arrangement or other legal
obligation ("Contracts") of the Company or any of its subsidiaries or any law,
             ---------                                                        
rule, ordinance or regulation or judgment, decree, order, award or governmental
or non-governmental permit or license to which the Company or any of its
subsidiaries is subject or (C) any change in the rights or obligations of any
party under any of the Contracts, except, in the case of clause (B) or (C)
above, for such breaches, violations, defaults, accelerations or changes that,
alone or in the aggregate, are not reasonably likely to have a material adverse
effect on the financial condition, properties, business or results of operations
of the Company and its subsidiaries taken as a whole or that could not prevent
or materially delay the transactions contemplated by this Agreement or impair
the ability of Purchaser, Merger Sub, the Company or any of their respective
affiliates, following consummation of the Offer or the Merger, to conduct any
material business or

                                      -10-

 
operations in any jurisdiction where they are now being conducted.  The
Disclosure Letter sets forth, to the knowledge of the officers of the Company, a
list of any consents required under any material Contracts to be obtained prior
to consummation of the transactions contemplated by this Agreement (whether or
not subject to the exception set forth with respect to clause (B) above).

          (e)  Company Reports; Financial Statements.  The Company and, to the
               -------------------------------------                          
extent applicable, each of its then or current subsidiaries, has made all
filings required to be made with the SEC since July 1, 1995 (collectively,
including any such reports filed subsequent to the date hereof, the "Company
                                                                     -------
Reports") and the Company has delivered to Purchaser each registration
- -------                                                               
statement, schedule, report, proxy statement or information statement prepared
by it since July 7, 1996 (the "Audit Date"), including, without limitation, (i)
                               ----------                                      
the Company's Annual Report on Form 10-K for the fiscal year ended July 7, 1996,
(ii) the Company's Quarterly Reports on Form 10-Q for the periods ended October
6, 1996, January 5, 1997 and April 6, 1997, (iii) a Form 8-K dated March 26,
1997, (iv) a Form 8-K dated December 5, 1996, (v) a Form 8-K dated September 9,
1996, (vi) a Form 8-K dated June 27, 1996, (vii) a Form S-8 Registration
Statement dated December 12, 1996, (viii) a Form S-8 Registration Statement
dated November 27, 1996, (ix) a Form S-8 Registration Statement dated July 26,
1996, (x) a Form 11-K for the fiscal year ended December 3, 1995, and (xi) a
definitive proxy statement on Schedule 14A dated September 16, 1996, each in the
form (including exhibits and any amendments thereto) filed with the SEC.  As of
their respective dates, the Company Reports did not, and any Company Reports
filed with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.  Each of the consolidated
balance sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of the Company and its subsidiaries as of its date and each
of the consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings and changes in financial position, as the case may be, of the Company
and its subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.  Other than the Company Reports specifically
recited above, the Company has not, on or prior to the date hereof, filed any
other definitive reports or statements with the SEC since the Audit Date.  The
Company will periodically provide Purchaser with current draft versions of the
Company's Annual Report on Form 10-K, including documents incorporated therein
by reference, for the fiscal year ended July 6, 1997, (the "1997 l0-K") promptly
                                                            ---------           
after preparation of such draft. As soon as practicable after receiving its
auditor's opinion with respect to the Company's financial statements for the
fiscal year ended July 6, 1997 (the "1997 Financial Statements"), the
                                     -------------------------       

                                      -11-

 
Company will deliver to Purchaser a copy of such 1997 Financial Statements
(including such auditor's opinion).

          (f)  Absence of Certain Changes.  Except as disclosed in the Company
               --------------------------                                     
Reports filed with the SEC prior to the date hereof, since the Audit Date the
Company and its subsidiaries have conducted their respective businesses only in,
and have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been (i) any
material adverse change in the financial condition, properties, business or
results of operations of the Company and its subsidiaries taken as a whole or
any development or combination of developments of which management of the
Company has knowledge that is reasonably likely to result in any such change;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company; or (iii) any
change by the Company in accounting principles, practices or methods. Since the
Audit Date, except as provided for herein or as disclosed in the Company Reports
filed with the SEC prior to the date hereof and other than in the ordinary
course, there has not been any increase in the compensation payable or which
could become payable by the Company and its subsidiaries to their officers or
key employees, or any amendment of any Benefit Plans (as defined in Section
6.1(h), other than increases or amendments made in the ordinary course of
business.  Since July 7, 1997, with respect to members of the Company's Board of
Directors, and since July 24, 1996, with respect to officers or employees of the
Company (other than new hires), neither the Company nor any subsidiary of the
Company has issued to any directors or officers or employees of the Company any
options, warrants, rights or convertible securities relating to the issued or
unissued capital stock of the Company.

          (g)  Litigation and Liabilities.  Except as disclosed with reasonable
               --------------------------                                      
specificity in the Company Reports filed with the SEC prior to the date hereof
or in the Disclosure Letter, there are no (i) civil, criminal or administrative
actions, suits, claims, hearings, investigations or proceedings pending or, to
the knowledge of the management of the Company, threatened against the Company
or any of its subsidiaries or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise, including, without limitation, those relating
to matters involving any Environmental Law (as defined in Section 6.1(m)), or
any other facts or circumstances of which the management of the Company is aware
that insofar as can reasonably be foreseen could result in any claims against or
obligations or liabilities of the Company or any of its subsidiaries, that,
alone or in the aggregate, are reasonably likely to have a material adverse
effect on the financial condition, properties, business or results of operations
of the Company and its subsidiaries taken as a whole.  For purposes of this
subsection (g), a civil, criminal or administrative action, suit or claim shall
be deemed to be "disclosed with reasonable specificity" in a Company Report if
it is referred to by case name or case caption in such Company Report.

                                      -12-

 
          (h)  Employee Benefits.
               ----------------- 

          (i)  All bonus, deferred compensation, pension, retirement, profit-
sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option, employment, termination, severance,
compensation, medical, health or other plan, contract, policy or arrangement
which cover employees or former employees of the Company and its subsidiaries
and directors and former directors of the Company and its subsidiaries (the
"Compensation and Benefit Plans"), including, but not limited to, "employee
- -------------------------------                                            
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") are listed in the Disclosure
                                          -----                               
Letter.  True and complete copies of all Compensation and Benefit Plans and such
other benefit plans, contracts or arrangements, including, but to limited to,
any trust instruments and insurance contracts, if any, forming a part of any
such plans and agreements, and all amendments thereto have been made available
to Purchaser.

          (ii)  All Compensation and Benefit Plans are in substantial compliance
with applicable law and all Compensation and Benefit Plans which are employee
benefit plans, other than "multiemployer plans" within the meaning of Sections
3(37) of ERISA, to the extent subject to ERISA, are in substantial compliance
with ERISA.  Each Compensation and Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and
                                                            ------------      
which is intended to be qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), has received a favorable determination
                               ----                                          
letter from the Internal Revenue Service with respect to "TRA" (as defined in
Section 1 of Internal Revenue Service Revenue Procedure 93-39), and the Company
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter.  There is no material pending or, to the
knowledge of the Company, threatened litigation relating to the Compensation and
Benefit Plans.  Neither the Company nor any subsidiary has engaged in a
transaction with respect to any Compensation and Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject
the Company or any of its subsidiaries to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA.

          (iii)  No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any subsidiary with respect
to any ongoing, frozen or terminated "single-employer plan", within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate").  The Company and its Subsidiaries have not incurred and do
- ----------------                                                              
not expect to incur any withdrawal liability with respect to a multiemployer
plan under Subtitle E of Title IV of ERISA.  No notice of a "reportable event",
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been

                                      -13-

 
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof.

          (iv)  All contributions required to be made under the terms of any
Compensation and Benefit Plan have been timely made.  Neither any Pension Plan
nor any single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Neither the Company nor its subsidiaries has
provided, or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.

          (v)  Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent actuarial valuation),
did not exceed the then current value of the assets of such Plan, and there has
been no material change in the financial condition of such Plan since the last
day of the most recent Plan Year.  The withdrawal liability of the Company and
its subsidiaries under each Compensation and Benefit Plan which is a
multiemployer plan to which the Company, its subsidiaries or an ERISA Affiliate
has contributed during the preceding 12 months, determined as if a "complete
withdrawal", within the meaning of Section 4203 of ERISA, had occurred as of the
date hereof, does not exceed $100,000.

          (vi)  Neither the Company nor the subsidiaries have any obligations
for retiree health and life benefits under any Compensation and Benefit Plan,
except as set forth in the Disclosure Letter.  The Company or its subsidiaries
may amend or terminate any such Plan without incurring any liability thereunder.

          (vii)  Except as set forth in Section 7.8, the consummation of the
transactions contemplated by this Agreement will not (x) entitle any employees
of the Company or any of its subsidiaries to severance pay, (y) accelerate the
time of payment or vesting or trigger any payment of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any of the Compensation and Benefit Plans or (z) result in any
breach or violation of, or a default under any of the Compensation and Benefit
Plans.

          (viii)  All Compensation and Benefit Plans covering non-U.S. Employees
comply in all material respects with applicable local law.  The Company and its
subsidiaries have no material unfunded liabilities with respect to any Pension
Plan which covers non-U.S. Employees.

          (i)  Compliance.  Except to the extent specifically disclosed in
               ----------                                                 
Company Reports filed prior to the date hereof, neither the Company nor any of
its subsidiaries is in

                                      -14-

 
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which its or any of their respective properties are bound or affected, or
(ii) any Contract to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, except for any such conflicts,
defaults or violations that, individually or in the aggregate, are not
reasonably likely to have a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
subsidiaries taken as a whole, or could prevent or materially delay the
transactions contemplated by this Agreement or impair the ability of Purchaser,
Merger Sub, the Company or any of their respective affiliates, following
consummation of the Offer or the Merger, to conduct any material business or
operations in any jurisdiction where they are now being conducted.

          (j)  Brokers and Finders.  Neither the Company nor any of its
               -------------------                                     
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated herein, except that the Company has employed
the Financial Advisor as its financial advisors, the arrangements with which
have been disclosed in writing to Purchaser prior to the date hereof.

          (k)  Other Actions.
               ------------- 

          (i)  The transactions contemplated hereby have been approved by a
majority of the total number of Disinterested Directors, as defined in Article
Eleventh of the Certificate of the Company, in accordance with such Article and,
as a result thereof, Article Eleventh is inapplicable to the Offer and the
Merger.

          (ii)  The Company has taken all necessary action to provide that (x)
the execution of this Agreement and the consummation of the transactions
contemplated hereby will not cause (i) Merger Sub and/or the Purchaser to become
an Acquiring Person (as defined in the Rights Agreement) or (ii) a Distribution
Date, a Shares Acquisition Date or a Triggering Event (as such terms are defined
in the Rights Agreement) to occur  and (y) all outstanding Rights will expire
(whether or not tendered and purchased pursuant to the Offer) upon and as of the
acceptance of Shares for payment pursuant to the Offer (so long as Purchaser
thereafter purchases Shares accepted for payment pursuant to the Offer) and
neither the Company, Merger Sub nor Purchaser nor any of their respective
affiliates shall have any obligations under the Rights Agreement to any holder
(or former holder) of Rights following consummation of the Offer.

          (l) Takeover Statutes.  The Board of Directors of the Company has
              -----------------                                            
taken all necessary action to approve the transactions contemplated by this
Agreement such that the restrictions on transactions under Section 203 of the
DGCL shall not apply to such

                                      -15-

 
transactions.  No other "fair price," "moratorium," "control share acquisition"
or other similar antitakeover statute or regulation (each a "Takeover Statute")
                                                             ----------------  
is applicable to the Company, the Shares, the Offer, the Merger or the
transactions contemplated thereby or hereby.

          (m)  Environmental Matters. Except as disclosed in the Disclosure
               ---------------------                                       
Letter and except for such matters that, alone or in the aggregate, are not
reasonably likely to have a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
subsidiaries taken as a whole:  (i)  Company and its subsidiaries have complied
at all times with all applicable Environmental Laws; (ii) the properties
currently owned or operated by the Company or any subsidiary (including soils,
groundwater and surface water) have not been contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by the Company or
any of its subsidiaries were not contaminated with Hazardous Substances during
or prior to such period of ownership or operation; (iv) neither the Company nor
any subsidiary is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Company nor any
subsidiary has received any notice, demand, letter, claim or request for
information indicating that it may be subject to liability for any release or
threat of release of any Hazardous Substance or in violation of or liable under
any Environmental Law; (vi) neither the Company nor any subsidiary is subject to
any order, decree, injunction or other legally binding arrangement with any
governmental entity or any indemnity or other legally binding agreement with any
third party relating to liability under any Environmental Law; (vii) none of the
properties currently owned or operated by the Company or any subsidiary contain
any underground storage tanks, asbestos-containing material, lead products, or
polychlorinated biphenyls; (viii) there are no other circumstances or conditions
involving the Company or any subsidiary that could reasonably be expected to
result in any claims, liability, investigations, costs or restrictions against
the Company or any subsidiary or on the ownership, use, or transfer of any
property currently owned or operated by the Company or any of its subsidiaries
pursuant to any Environmental Law; and (ix) the Company has delivered to
Purchaser copies of all environmental reports, studies, assessments, sampling
data and other environmental information in its possession relating to Company
or any subsidiary or any of their current or former properties or operations.

          As used herein, the term "Environmental Law" means any federal, state
                                    -----------------                          
or local law, regulation, order, decree, permit, authorization, common law or
legally binding agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property and the
term "Hazardous Substance" means any substance that is:  (A) listed, classified
      -------------------                                                      
or regulated pursuant to any applicable Environmental Law; or (B) any petroleum
product or by-product, asbestos-containing material, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive materials or radon.

                                      -16-

 
          (n) Tax Matters.  The Company and each of its subsidiaries, and any
              -----------                                                    
consolidated, combined or unitary group for tax purposes of which the Company or
any of its subsidiaries is or has been a member, has timely filed all Tax
Returns required to be filed by it in the manner provided by law except where
the failure to file would not be reasonably likely to have a material adverse
effect on the financial condition, properties, business or results of operations
of the Company and its subsidiaries taken as a whole.  All such Tax Returns are
true, correct and complete in all material respects.  The Company and each of
its subsidiaries have paid all Taxes (including interest and penalties) due or
required to be withheld from amounts owing to any employee, creditor or third
party or have provided adequate reserves in their financial statements for any
Taxes that have not been paid, whether or not shown as being due on any returns.
Except as has been disclosed to Purchaser in Schedule 6.1(n) to this Agreement:
(i) no material claim for unpaid Taxes has become a lien or encumbrance of any
kind against the property of the Company or any of its subsidiaries or is being
asserted against the Company or any of its subsidiaries; (ii) no audit,
examination, investigation or other proceeding in respect of Taxes is pending,
threatened or being conducted by a Tax Authority; (iii) no extension or waiver
of the statute of limitations on the assessment of any Taxes has been granted by
the Company or any of its subsidiaries and is currently in effect; (iv) neither
the Company nor any of its subsidiaries is a party to, is bound by, or has any
obligation under, or potential liability with regards to, any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement; (v)
no power of attorney has been granted by or with respect to the Company or any
of its subsidiaries with respect to any matter relating to Taxes; (vi) neither
the Company nor any of its subsidiaries is a party to any agreement, plan,
contract or arrangement that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code; (vii) neither the Company nor any of its subsidiaries has any
deferred intercompany gain or loss arising as a result of a deferred
intercompany transaction within the meaning of Treasury Regulation Section
1.1502-13 (or similar provision under state, local or foreign law) or any excess
loss accounts within the meaning of Treasury Regulation Section 1.1502-19;
(viii) the Company is not and has not been a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(ii) of the Code.  As used herein, "Taxes"
                                                                         ----- 
shall mean any taxes of any kind, including but not limited to those on or
measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
                                      ----------                               
or statement required to be filed with any governmental authority with respect
to Taxes.

          (o)  Contracts with Physicians, Hospitals, HMOs and Third Party
               ----------------------------------------------------------
Providers. The Company has made available to representatives of Purchaser a list
- ---------                                                                       
of all outstanding contracts, partnerships, joint ventures and other
arrangements or understandings (written or

                                      -17-

 
oral) that are material to the Company's business and that are between (i) the
Company and any of its subsidiaries and (ii) any physician, hospital, HMO, other
managed care organization or other third-party provider relating to the sale or
supply of medical devices, the provision of medical or consulting services,
treatments or patient referrals or any other similar activities.

          (p)  (i)  The Disclosure Letter sets forth a complete and accurate
list (and, with respect to the Company's Aequitron and Eden Prairie divisions, a
complete and accurate list, to the knowledge of the Company's executives) for
the last five years, of (A) all Regulatory Letters (as defined below), Notices
of Adverse Findings and Section 305 notices and similar letters or notices
issued by the Food and Drug Administration (the "FDA") or any other governmental
                                                 ---                            
entity that is concerned with the safety, efficacy, reliability or manufacturing
of the medical products sold by the Company or its subsidiaries (any such
governmental entity, a "Medical Device Regulatory Agency") to the Company or any
                        --------------------------------                        
of its subsidiaries; (B) all United States Pharmacopoeia product problem
reporting program complaints or reports, MedWatch FDA forms 3500 and device
experience network complaints received by the Company or any of its subsidiaries
and all Medical Device Reports filed by the Company or any of its subsidiaries,
which complaints or reports pertain to any incident involving death or serious
injury, and for which incident there has been (I) a notice or follow-up inquiry
to the Company by the FDA, (II) a litigation or arbitration claim or cause of
action commenced, or (III) a notice to any insurance carrier of the Company
tendering the defense or giving any notice of a possible or actual claim against
the Company; (C) all product recalls and safety alerts conducted by or issued to
the Company or any of its subsidiaries and any requests from the FDA or any
other Medical Device Regulatory Agency requesting the Company or any of its
subsidiaries to cease to investigate, test or market any product; (D) any civil
penalty actions begun by the FDA or any other Medical Device Regulatory Agency
against the Company or any of its subsidiaries and known of by the Company or
any of its subsidiaries and all consent decrees and all documents relating to
the negotiation of and compliance with such consent decree issued with respect
to the Company or the Company's subsidiaries; and (E) any other written
communications between the Company or any of its subsidiaries, on the one hand,
and the FDA or any other Medical Device Regulatory Agency on the other hand that
describe matters that could have a material adverse effect on the sales or
revenues attributable to any product or product line of the Company or its
subsidiaries or discuss material issues concerning the safety or efficacy of any
such product or product line.  The Company has made available to Purchaser
copies of all documents referred to in Section 6.1(p) of the Disclosure Letter
as well as copies of all complaints and other information required to be
maintained by the Company pursuant to 21 CFR Section 820.  For purposes of this
subparagraph (i), "Regulatory Letter" means a letter characterized by the FDA as
                   -----------------                                            
a warning letter, a notice of adverse finding or a similar letter in which FDA
or any other Medical Device Regulatory Agency expresses the opinion that
violations of law have occurred.

                                      -18-

 
     (ii)  Except to the extent that such items would not, individually or in
the aggregate, have a material adverse effect on the financial condition,
properties, businesses or results of operations of the Company and its
subsidiaries taken as a whole, and would not result in the entry or filing of
any material injunction or criminal action or proceeding against or involving
the Company, and would not require that executive officers of the Company or
Purchaser be added as a named individual party to the consent decree to which
the Company is presently subject: (A) the Company (or, if applicable, a
subsidiary of the Company) has obtained all consents, approvals, certifications,
authorizations and permits of, and has made all filings with, or notifications
to, all Medical Device Regulatory Agencies pursuant to applicable requirements
of all FDA rules, regulations and consent decrees, and all applicable state and
foreign laws, rules and regulations applicable to the Company or any of its
subsidiaries; (B) all representations made by the Company or any of its
subsidiaries in connection with any such consents, approvals, certifications,
authorizations, permits, filings and notifications were true and correct in all
material respects at the time such representations and warranties were made, and
the Company's products, and the products of the Company's subsidiaries, comply
with, and perform in accordance with the specifications described in, such
representations; (C) the Company and the Company's subsidiaries are in
compliance with all applicable FDA rules, regulations and consent decrees, and
all applicable state and foreign laws, rules and regulations (including Good
Manufacturing Practices and Medical Device Reporting requirements) relating to
medical device manufacturers and distributors or otherwise applicable to the
Company's or the Company's subsidiaries' business; (D) the Company has no reason
to believe that any of the consents, approvals, authorizations, registrations,
certifications, permits, filings or notifications that it or any of its
subsidiaries has received or made to operate their respective businesses have
been or are being revoked or challenged; and (E) there are no investigations or
inquiries pending or threatened relating to the operation of the Company's or
the Company's subsidiaries' business or the Company's compliance with applicable
laws relating to its medical device business or otherwise applicable to the
Company's or its subsidiaries' business.

          6.2.  Representations and Warranties of Purchaser and Merger Sub.
                ----------------------------------------------------------  
Purchaser and Merger Sub represent and warrant to the Company that:

          (a)  Corporate Organization and Qualification.  Each of Purchaser and
               ----------------------------------------                        
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization, has all
requisite corporate power and authority to carry on its business as presently
conducted and is in good standing as a foreign corporation in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification except for any such failure to be so organized,
existing, in good standing or to have such power and authority or to so qualify,
which, when taken together with all other such failures, is not reasonably
likely to have a material adverse effect on the financial condition, properties,
business or results of operations of Purchaser and its subsidiaries, taken as a
whole.

                                      -19-

 
          (b)  Corporate Authority.  Purchaser and Merger Sub each has the
               -------------------                                        
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Assuming the due authorization, execution and
delivery hereof by the Company, this Agreement is a valid and binding agreement
of Purchaser and Merger Sub enforceable against Purchaser and Merger Sub in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws affecting creditors'
rights and to general equitable principles.

          (c)  Governmental Filings; No Violations.  (i) Other than the
               -----------------------------------                     
Regulatory Filings, no notices, reports or other filings are required to be made
by Purchaser and Merger Sub with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by Purchaser and
Merger Sub from, any Governmental Entity in connection with the execution and
delivery of this Agreement by Purchaser and Merger Sub and the consummation of
the transactions contemplated hereby, the failure to make or obtain any or all
of which could prevent or materially delay the transactions contemplated by this
Agreement.

          (ii)  The execution and delivery of this Agreement by Purchaser and
Merger Sub do not, and the consummation by Purchaser and Merger Sub of the
transactions contemplated by this Agreement will not, constitute or result in
(i) a breach or violation of, or a default under, the Certificate of
Incorporation or Bylaws of Purchaser or Merger Sub or the comparable governing
instruments of any of their subsidiaries or (ii) a breach or violation of, a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any Contract of Purchaser or
Merger Sub or any of their subsidiaries or any law, ordinance, rule or
regulation or judgment, decree, order, award or governmental or non-governmental
permit or license to which Purchaser or Merger Sub or any of their subsidiaries
are subject, except, in the case of clause (ii) above, for such breaches,
violations, defaults or accelerations or changes that, alone or in the
aggregate, could not prevent or materially delay the transactions contemplated
by this Agreement.

          (d)  Funds.  Purchaser has or will have the funds necessary to
               -----                                                    
consummate the transactions contemplated by this Agreement.  On or prior to the
date hereof, Purchaser has made available to the Company a copy of the executed
Commitment Letter, dated July 21, 1997, among Purchaser and the Lenders party
thereto (the "Commitment Letter").
              -----------------   

                                      -20-

 
                                  ARTICLE VII

                                   COVENANTS

          7.1.  Interim Operations of the Company.  The Company covenants and
                ---------------------------------                            
agrees, as to itself and its subsidiaries, that, after the date hereof and prior
to the date on which Purchaser's nominees comprise a majority of the Board of
Directors of the Company (unless Purchaser shall otherwise agree in writing and
except as otherwise permitted by this Agreement (including Section 7.2) or
specifically disclosed in the corresponding section of the Disclosure Letter):

          (a)  the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent consistent
therewith, each of the Company and its subsidiaries shall use its best efforts
to preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates;

          (b)  the Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of its subsidiaries; (ii) amend the
Certificate or its Bylaws or amend, modify or terminate the Rights Agreement, or
redeem the Rights issued pursuant thereto; (iii) split, combine or reclassify
the outstanding Shares; or (iv) declare, set aside or pay any dividend payable
in cash, stock or property with respect to the Shares;

          (c)  neither the Company nor any of its subsidiaries shall (i) issue,
sell, pledge, dispose of or encumber any additional shares of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class of
the Company or its subsidiaries or any other property or assets other than, in
the case of the Company, Shares issuable pursuant to options outstanding on the
date hereof under the Stock Plans; (ii) transfer, lease, license, guarantee,
sell, mortgage, pledge, dispose of or encumber any assets or incur or modify any
indebtedness (other than drawings under existing credit facilities in the
ordinary course of business) or other liability other than in the ordinary and
usual course of business; (iii) acquire directly or indirectly by redemption or
otherwise any shares of the capital stock of the Company or (iv) authorize
capital expenditures in excess of $500,000 individually or $5,000,000 in the
aggregate or make any acquisition of another company (by merger, consolidation
or acquisition of stock or assets) or any investment in, assets or stock of any
other person or entity;

          (d)  except to the extent required under the existing Compensation and
Benefit Plans (as in effect prior to the date of this Agreement and set forth in
the Disclosure Schedule) neither the Company nor any of its subsidiaries shall
grant any severance

                                      -21-

 
or termination pay to, or enter into any employment or severance agreement with
any director, officer or other employee of the Company or such subsidiaries,
other than as required by statute in foreign jurisdictions and except in the
ordinary course of business consistent with past practice; and neither the
Company nor any of its subsidiaries shall establish, adopt, enter into, make any
new grants or awards under or amend, any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, employee stock ownership, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees (the
"Benefit Plans");
- --------------   

          (e)  neither the Company nor any of its subsidiaries shall settle or
compromise any material claims or litigation or, except in the ordinary and
usual course of business and with the consent of Purchaser (which consent shall
not be unreasonably withheld), modify, amend or terminate any of its material
Contracts or waive, release or assign any material rights or claims;

          (f)  neither the Company nor any of its subsidiaries shall make any
tax election or permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated without notice to Purchaser, except
in the ordinary and usual course of business;

          (g)  except as may be required as a result of a change in law or in
generally accepted accounting principles, neither the Company nor any of its
subsidiaries shall change any of the accounting practices or principles used by
it;

          (h)  neither the Company nor any of its subsidiaries shall adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization, or other reorganization of the Company or any
of its subsidiaries not constituting an inactive subsidiary (other than the
Merger); and

          (i)  neither the Company nor any of its subsidiaries will authorize or
enter into an agreement to do any of the foregoing or take any action that would
knowingly cause any of the representations or warranties of the Company
contained in this Agreement to be untrue or incorrect or would result in any of
the Offer Conditions set forth in Annex A not being satisfied.

                                      -22-

 
          7.2.  Acquisition Proposals.  The Company, its affiliates and its and
                ----------------------                                         
their respective officers, directors, employees, representatives and agents
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) shall immediately cease any
existing discussions or negotiations, if any, with any parties conducted
heretofore with respect to any acquisition or exchange of all or any material
portion of the assets of, or more than 15% of the equity interest in, the
Company or any of its subsidiaries (by direct purchase from the Company, tender
or exchange offer or otherwise) or any business combination, merger or similar
transaction (including an exchange of stock or assets) with or involving the
Company or any subsidiary (except for the subsidiary specified in Section 7.2 of
the Disclosure Letter) or division of the Company (an "Acquisition
                                                       -----------
Transaction").  Except as set forth in this Section 7.2, neither the Company nor
any of its affiliates, nor any of its or their respective officers, directors,
employees, representatives or agents, shall, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than Purchaser and Merger Sub, any affiliate or associate of
Purchaser and Merger Sub or any designees of Purchaser and Merger Sub) with
respect to any inquiries or the making of any offer or proposal (including,
without limitation, any offer or proposal to the stockholders of the Company)
concerning an Acquisition Transaction ( an "Acquisition Proposal"); provided,
                                            --------------------             
however, that the Company may, directly or indirectly, furnish information and
access pursuant to an appropriate confidentiality agreement, in each case only
in response to a request for information or access, to any person making a
written Acquisition Proposal to the Board of Directors of the Company made after
the date hereof which was not encouraged, solicited or initiated by the Company
or any of its affiliates or any of its or their respective officers, directors,
employees, representatives or agents on or after the date hereof and may
participate in discussions and negotiate with such person concerning any such
Acquisition Proposal, if and only if the Board of Directors of the Company
determines in good faith, based upon the advice of outside counsel to the
Company, that failing to provide such information or access or to participate in
such discussions or negotiations would constitute a breach of the Board's
fiduciary duty under applicable law and provided, further, that nothing herein
shall prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer; provided, further, that the
Board shall not recommend that the stockholders of the Company tender their
Shares in connection with any such tender offer unless the Board shall have
determined in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law.  The Board shall notify Purchaser
immediately if any such written Acquisition Proposal is made and shall in such
notice indicate the identity of the offeror and the terms and conditions of any
such proposal. The Company agrees not to release any third party from, or waive
any provisions of, any confidentiality or standstill agreement to which the
Company is a party, unless the Board shall have determined in good faith, based
upon the advice of outside counsel to the Company, that

                                      -23-

 
failing to release such third party or waive such provisions would constitute a
breach of the fiduciary duties of the Board of Directors under applicable law.

          7.3.  Meetings of the Company's Stockholders.  (a) If required to
                --------------------------------------                     
consummate the Merger, the Company will take, consistent with applicable law,
the Certificate and the Company's Bylaws, all action necessary to convene a
meeting of holders of Shares as promptly as practicable following the purchase
of Shares pursuant to the Offer to consider and vote upon the approval of this
Agreement and the Merger.  Subject to fiduciary requirements of applicable law,
the Board of Directors of the Company shall recommend such approval and the
Company shall take all lawful action to solicit such approval.  At any such
meeting of the Company all of the Shares then owned by the Purchaser Companies
will be voted in favor of this Agreement.  The Company's proxy or information
statement with respect to such meeting of shareholders (the "Proxy Statement"),
                                                             ---------------   
at the date thereof and at the date of such meeting, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
                                                          --------  ------- 
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by the Company
in reliance upon and in conformity with written information concerning the
Purchaser Companies furnished to the Company by Purchaser specifically for use
in the Proxy Statement.  The Proxy Statement shall not be filed, and no
amendment or supplement to the Proxy Statement will be made by the Company,
without consultation with Purchaser and its counsel.

          (b)  Notwithstanding the foregoing, in the event that Merger Sub shall
acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Merger Sub, subject to Article VIII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.

          7.4.  Filings; Other Action.  (a) Subject to the terms and conditions
                ---------------------                                          
herein provided, the Company and Purchaser shall:  (i) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act and other Regulatory Filings with respect to the Offer and the Merger;
and (ii) use all commercially reasonable efforts to promptly take, or cause to
be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including but not limited to cooperating in the preparation and filing of the
Offer Documents, the Schedule 14D-9, the Proxy Statement, any required filings
under the HSR Act or other foreign filings and any amendments to any thereof.
Each party hereto shall use all commercially reasonable efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to Contracts with the Company and
its subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Offer and
the

                                      -24-

 
Merger. The Company, as reasonably requested by Purchaser and in a manner not
inconsistent with the terms of the Commitment Letter, will cooperate with
Purchaser and Merger Sub with respect to consummating the financing for the
Offer and the Merger and any refinancing of the Company's indebtedness.

          (b)  The Company and Purchaser each shall keep the other apprised of
the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Purchaser or the Company, as the case may be, or any
of their subsidiaries, from any Governmental Authority with respect to the Offer
or the Merger or any of the other transactions contemplated by this Agreement.
The parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with
proceedings under or relating to the HSR Act or any other antitrust law.

          7.5.  Access.  (a)  Upon reasonable notice, the Company shall (and
                ------                                                      
shall cause each of its subsidiaries to) afford Purchaser's officers, employees,
counsel, lenders, accountants and other authorized representatives
("Representatives") access, during normal business hours throughout the period
- -----------------                                                             
prior to the Effective Time, to its properties, books, Contracts and records
and, during such period, the Company shall (and shall cause each of its
subsidiaries to) furnish promptly to Purchaser all information concerning its
business, properties and personnel as Purchaser or its Representatives may
reasonably request, provided that no investigation pursuant to this Section 7.5
shall affect or be deemed to modify any representation or warranty made by the
Company and provided, further, that the foregoing shall not require the Company
            --------  -------                                                  
to permit any inspection, or to disclose any information, which in the
reasonable judgment of the Company (a) would result in the disclosure of any
trade secrets of third parties or violate any obligation of the Company with
respect to confidentiality if the Company shall have used reasonable efforts to
obtain the consent of such third party to such inspection or disclosure, (b)
would be in violation of applicable law, rules or regulation or (c) constitutes
information protected by attorney-client privilege or attorney work product, but
only to the extent that disclosure, in the opinion of counsel to the Company,
would jeopardize the Company's ability to assert such attorney-client privilege
or attorney work product and Purchaser is informed at the time that information
is being withheld on the foregoing bases.  Upon any termination of this
Agreement, Purchaser will collect and deliver to the Company all documents
obtained by it or any of its Representatives then in their possession and any
copies thereof.

          (b)  Upon any termination of this Agreement, Purchaser will treat all
documents obtained by it or any of its Representatives in accordance with the
terms of the Confidentiality Agreement, dated as of June 3, 1997 ( the
"Confidentiality Agreement") between the Company and Purchaser.  All requests
- --------------------------                                                   
for information made pursuant to this

                                      -25-

 
Section shall be directed to an executive officer of the Company or such person
as may be designated by any such officer.

          7.6.  Notification of Certain Matters.  The Company shall give prompt
                -------------------------------                                
notice to Purchaser of:  (a) any notice of, or other communication relating to,
any environmental matter, a default or event that, with notice or lapse of time
or both, would become a default, received by the Company or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any Contract to which the Company or any of its subsidiaries is a
party or is subject; and (b) any material adverse change in the financial
condition, properties, business or results of operations of the Company and its
subsidiaries taken as a whole or the occurrence of any event which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in any such change.  Each of the Company and Purchaser shall give
prompt notice to the other party of any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement.

          7.7.  Publicity.  The initial press release shall be a joint press
                ---------                                                   
release and thereafter the Company and Purchaser each shall consult with the
other prior to issuing any press releases or otherwise making public
announcements with respect to the transactions contemplated hereby and prior to
making any filings with any Governmental Entity or with any national securities
exchange with respect thereto.

          7.8.  Stock Plans and Benefits.
                ------------------------ 

          (a) Stock Plans.  Except as provided in the next sentence, the Company
              -----------                                                       
shall take such actions as may be necessary such that immediately prior to the
Effective Time each stock option outstanding pursuant to the Stock Plans (the
"Option"), whether or not then exercisable, shall be canceled and only entitle
- -------                                                                       
the holder thereof, upon surrender thereof, to receive an amount in cash from
the Company equal to the result of multiplying the number of Shares previously
subject to such Option by the difference between the Merger Consideration and
the per Share exercise price of such Option.  Notwithstanding anything contained
herein to the contrary, all Options granted after July 21, 1997 shall, at the
Effective Time, be assumed by Purchaser in accordance with the terms of the
applicable Stock Plan and the stock option agreement by which it is evidenced.
From and after the Effective Time, (i) each post July 21, 1997 Option may be
exercised solely for shares of Purchaser common stock, (ii) the number of shares
of Purchaser common stock subject to such Option shall be equal to the result
(rounded down to the nearest whole share) of multiplying the number of Shares
subject to such Option immediately prior to the Effective Time by a fraction
(the "Conversion Fraction"), the numerator of which is the Merger Consideration
      -------------------                                                      
and the denominator of which is the average of the closing prices of one share
of Purchaser common stock on the New York Stock Exchange for the five business
days immediately prior to the Effective Time and (iii) the per share exercise
price under each such Option shall be equal to

                                      -26-

 
the result (rounded up to the nearest whole cent) of dividing the per share
exercise price under each such Option immediately prior the Effective Time by
the Conversion Fraction; provided, however, that with respect to any Option
which is an "incentive stock option", within the meaning of Section 422 of the
Code, the adjustments provided in this Section shall, if applicable, be modified
in a manner so that the adjustments are consistent with requirements of Section
424(a) of the Code.

          The Company agrees to take such actions as may be necessary so that
each employee participating in the 1995 ESPP immediately prior to the Effective
Time shall only be entitled to receive an amount in cash equal to the result of
multiplying (i) the Merger Consideration by (ii) a fraction, the numerator of
which is the accumulated payroll deductions in the employee's account under the
1995 ESPP at the Effective Time, and the denominator of which is the purchase
price for the "Offering" for the "Purchase Period" (as such terms are defined in
the 1995 ESPP) in effect immediately prior to the Effective Time. The Company
agrees to take such actions as may be necessary to cease as of the Effective
Time all further Offerings and payroll deductions under the 1995 ESPP.

          All restrictions on the retention of shares of restricted stock
granted to employees under the 1994 Plan shall lapse immediately prior to the
Effective Time.

          (b) Employee Benefits. Purchaser agrees that during the period
              -----------------                                         
commencing at the Effective Time and ending on the second anniversary thereof,
the employees of the Company will continue to be provided with benefits under
employee benefit plans (other than stock options or other plans involving the
issuance of securities of the Company or Purchaser) which in the aggregate are
substantially comparable to those currently provided by the Company to such
employees; provided, however, that employees covered by collective bargaining
agreements need not be provided with such benefits.  Purchaser will cause each
employee benefit plan of Purchaser in which employees of the Company are
eligible to participate to take into account for purposes of eligibility and
vesting thereunder the service of such employees with the Company as if such
service were with Purchaser, to the same extent that such service was credited
under a comparable plan of the Company.  Purchaser will, and will cause the
Surviving Corporation to, honor in accordance with their terms (i) all employee
benefit obligations to current and former employees of the Company accrued as of
the Effective Time and (ii) to the extent set forth in the Disclosure Letter,
all employee severance plans in existence on the date hereof and all employment
or severance agreements entered into prior to the date hereof.

          7.9.  Indemnification; Directors' and Officers' Insurance.  (a) From
                ---------------------------------------------------           
and after the Effective Time, Purchaser agrees that it will (i) to the fullest
extent that the Company would have been permitted under Delaware law and the
Certificate or the Company's Bylaws in effect on the date hereof, and (ii) cause
the Surviving Corporation, to the fullest extent permitted under Delaware law,
to indemnify and hold harmless each present and former

                                      -27-

 
director and officer of the Company, determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
- --------------------                                                       
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
                -----                                                       
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, (and Purchaser shall also advance expenses as incurred to the fullest
extent permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification); provided that
                                                                 --------     
if there is any disagreement between any Indemnified Party and the Merger Sub or
Purchaser with respect to whether an officer's or director's conduct complies
with the standards set forth under Delaware law and the Certificate and the
Company's Bylaws, such determination shall be made by independent counsel
selected by the Surviving Corporation.  The indemnification provisions of
Article X and Article XI of the Bylaws of the Company shall not be amended,
modified or repealed for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were officers, directors or employees of the Company.

          (b)  Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 7.9, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Purchaser thereof but
failure to so notify will not relieve Purchaser of liability except to the
extent Purchaser is materially adversely affected thereby. In the event of any
such claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) Purchaser or the Surviving Corporation shall have
the right to assume the defense thereof and Purchaser shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Purchaser or the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties advises
that, in such counselor's reasonable judgment, there are issues that constitute
conflicts of interest between Purchaser or the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and Purchaser or the Surviving Corporation shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Purchaser shall be obligated
                       --------  -------                                   
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such matter and (iii) Purchaser shall not be
liable for any settlement effected without its prior written consent; and
provided further that Purchaser shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.

                                      -28-

 
          (c)  Purchaser shall cause the Surviving Corporation either (i) to
maintain the Company's existing officers' and directors' liability insurance (or
equivalent thereof) ("D&O Insurance") for a period of six years after the
                      -------------                                      
Effective Time so long as the annual premium therefor is not in excess of an
amount (the "D&O Premium") equal to 150% of the last annual premium paid prior
             -----------                                                      
to the date hereof; provided, however, if the existing D&O Insurance expires, is
                    --------  -------                                           
terminated or canceled during such six year period, the Surviving Corporation
will use its best efforts to obtain as much D&O Insurance as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of the D&O Premium or (ii) purchase tail insurance in respect of the
existing D&O Insurance for six years for a premium not to exceed $1,000,000.

          (d)  If the Surviving Corporation or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume all of the obligations set
forth in Section 7.8 and this Section 7.9.

          (e)  The provisions of this Section 7.9 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.

          7.10.  Other Actions by the Company.  If any Takeover Statute shall
                 ----------------------------                                
become applicable to the transactions contemplated hereby, the Company and the
members of the Board of Directors of the Company shall grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.


                                  ARTICLE VIII

                                   CONDITIONS

          8.1.  Conditions to Obligations of Purchaser and Merger Sub.  The
                -----------------------------------------------------      
respective obligations of Purchaser and Merger Sub to consummate the Merger are
subject to the fulfillment of each of the following conditions, any or all of
which may be waived in whole or in part by Purchaser or Merger Sub, as the case
may be, to the extent permitted by applicable law:

                                      -29-

 
          (a)  Stockholder Approval.  If required by the DGCL, this Agreement
               --------------------                                          
shall have been duly approved by the holders of a majority of the Shares, in
accordance with applicable law and the Certificate and the Company's Bylaws;

          (b)  Purchase of Shares.  Merger Sub (or one of the Purchaser
               ------------------                                      
Companies) shall have purchased Shares pursuant to the Offer;

          (c)  Injunction.  No United States or state court or other
               ----------                                           
Governmental Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and prohibits consummation of the transactions contemplated
by this Agreement (collectively, an "Order"); and
                                     -----       

          (d)  Other Obligations.  The Company shall have fulfilled its
               -----------------                                       
obligations under Section 7.8(a) and the representations set forth in Section
6.1(k) shall be true and correct; provided, however, that this condition shall
                                  --------  -------                           
be deemed satisfied if Purchaser Representatives constitute not less than a
majority of the Board of Directors of the Company and take any action to
reverse, modify or amend any action taken by the Board of Directors of the
Company prior to the Purchaser Representatives constituting such majority.

          8.2.  Conditions to Obligations of the Company.  The obligations of
                ----------------------------------------                     
the Company to consummate the Merger are subject to the fulfillment of each of
the following conditions, any or all of which may be waived in whole or in part
by the Company to the extent permitted by applicable law:

          (a)  Stockholder Approval.  If required by the DGCL, this Agreement
               --------------------                                          
shall have been duly approved by the holders of a majority of the Shares, in
accordance with applicable law and the Certificate and the Company's Bylaws;

          (b)  Purchase of Shares.  Merger Sub (or one of the Purchaser
               ------------------                                      
Companies) shall have purchased Shares pursuant to the Offer;

          (c)  Order.  There shall be in effect no Order.
                                   -----                                     


                                   ARTICLE IX

                                  TERMINATION

          9.1.  Termination by Mutual Consent.  This Agreement may be terminated
                -----------------------------                                   
and the transactions contemplated hereby may be abandoned at any time prior to
the Effective

                                      -30-

 
Time, before or after the approval by holders of Shares, by the mutual consent
of Purchaser and the Company, by action of their respective Boards of Directors.

          9.2.  Termination by either Purchaser or the Company.  This Agreement
                ----------------------------------------------                 
may be terminated and the transactions contemplated hereby may be abandoned by
action of the Board of Directors of either Purchaser or the Company if (i)
Merger Sub, or any Purchaser Company, shall have terminated the Offer without
purchasing any Shares pursuant thereto; or (ii) the Merger shall not have been
consummated by December 31, 1997, whether or not such date is before or after
the approval by holders of Shares; or (iii) if required, the approval of
shareholders required by Section 8.1(a) shall not have been obtained at a
meeting duly convened therefor; or (iv) any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United States
or any country or economic region in which either the Company or Purchaser,
directly or indirectly, has material assets or operations, shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Offer or the Merger and such order,
decree, ruling or other action is or shall have become final and nonappealable.

          9.3.  Termination by Purchaser.  This Agreement may be terminated and
                ------------------------                                       
the transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, before or after the approval by holders of Shares, by action of
the Board of Directors of Purchaser, if (i) the Company shall have breached or
failed to perform in any material respect any of the covenants or agreements
contained in this Agreement to be complied with or performed by the Company
prior to such date of termination which breach or failure shall not have been
cured prior to the earlier of (A) ten business days following the giving of
written notice to the Company of such breach or failure and, if applicable, (B)
the date on which the Offer is then scheduled to expire, or any representation
or warranty of the Company set forth in this Agreement shall have been
inaccurate or incomplete when made except for such failures to be complete or
accurate that, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
subsidiaries taken as a whole or could prevent or materially delay the
transactions contemplated by this Agreement or impair the ability of Purchaser,
Merger Sub, the Company or any of their respective affiliates, following
consummation of the Offer or the Merger, to conduct any material business or
operations in any jurisdiction where they are now being conducted, (ii) the
Board of Directors of the Company (or a special committee thereof) shall have
amended, modified or withdrawn in a manner adverse to Purchaser or Merger Sub
its approval or recommendation of the Offer, this Agreement or the Merger or the
Board of Directors of the Company, upon request by Purchaser, shall have failed
to publicly reaffirm such approval or recommendation within ten business days of
such request by Purchaser, or shall have endorsed, approved or recommended any
other Acquisition Proposal, or shall have resolved to do any of the foregoing,
or (iii) the Company shall have entered into any agreement, letter of intent or
agreement in principle with respect to any other Acquisition Proposal.

                                      -31-

 
          9.4.  Termination by the Company.  This Agreement may be terminated
                --------------------------                                   
and the transactions contemplated hereby may be abandoned at any time prior to
the Effective Time, before or after the approval by holders of Shares by action
of the Board of Directors of the Company, (i) if Purchaser or Merger Sub (or
another Purchaser Company) (x) shall have breached or failed to perform in any
material respect any of the covenants or agreements contained in this Agreement
to be complied with or performed by Purchaser or Merger Sub prior to such date
of termination which breach or failure shall not have been cured prior to the
earlier of (A) ten business days following the giving of written notice to the
Purchaser of such breach or failure, and, if applicable, (B)  the date on which
the Offer is then scheduled to expire, or (y) shall have failed to commence the
Offer within the time required in Section 1.1, or (ii)  if (w) the Company is
not in material breach of any of the terms of this Agreement, (x) the Board of
Directors of the Company authorizes the Company, subject to complying with the
terms of this Agreement, to enter into a definitive written acquisition
agreement concerning an Acquisition Transaction (the "Alternative Acquisition
                                                      -----------------------
Agreement") and five business days elapse after delivery to Purchaser of a
- ---------                                                                 
written notice that the Board of Directors has so authorized the Company to
enter into such Alternative Acquisition Agreement, attaching the most current
version of such agreement (which shall include all of the material terms,
including the price proposed to be paid for Shares pursuant thereto) to such
notice, (y) Purchaser does not make, within five business days of receipt of
such written notice from the Company, an offer that the Board of Directors of
the Company determines, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
stockholders of the Company as the offer set forth in the Alternative
Acquisition Agreement that the Company has indicated that it intends to enter
into following the end of such five business day period, and (z) the Company,
prior to such termination, pays to Purchaser in immediately available funds the
fees required to be paid pursuant to Section 9.5(b).

          9.5.  Effect of Termination and Abandonment.  (a) In the event of the
                -------------------------------------                          
termination of this Agreement pursuant to this Article IX, no party hereto (or
any of its directors or officers, employees, agents or advisors) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Section 9.5(b) below and Section 10.2 and except that nothing herein
will relieve any party from liability for any willful breach of this Agreement,
including, without limitation, Section 1.1 hereof.

          (b) If (i) (x) the Offer shall have remained open for a minimum of at
least 25 business days, (y) after the date hereof any corporation, partnership,
person, other entity or group (as defined in Section 13(d)(3) of the Exchange
Act) other than Purchaser or Merger Sub or any of their respective subsidiaries
or affiliates (collectively, a "Person") shall have become the beneficial owner
                                ------                                         
of 15% or more of the outstanding Shares or shall have publicly announced a
proposal or intention to make an Acquisition Proposal or any Person shall have
commenced, or shall have publicly announced an intention to commence, a tender
offer or exchange offer for 15% or more of the outstanding Shares, and (z) the
Minimum

                                      -32-

 
Condition (as defined in Annex A) shall not have been satisfied and the Offer is
terminated without the purchase of any Shares thereunder, or (ii) the Purchaser
shall have terminated this Agreement pursuant to Section 9.3 (ii) or 9.3(iii),
or (iii) the Company shall have terminated this Agreement pursuant to Section
9.4(ii), then the Company shall promptly, but in no event later than two days
after the date of such termination (except as otherwise expressly provided in
Section 9.4(ii) requiring an earlier payment), pay Purchaser a fee of
$45,000,000 (the "Termination Fee") and shall reimburse Purchaser and Merger Sub
                  ---------------                                               
(not later than one business day after submission of statements therefor) for
(i) an amount equal to all of the actual documented out-of-pocket charges and
expenses incurred by Purchaser or Merger Sub in connection with this Agreement
and the transactions contemplated by this Agreement up to a maximum amount of
$3,500,000, plus (ii) an amount equal to all of the actual documented financing
fees paid by Purchaser in connection with the debt facilities referred to in the
Commitment Letter up to a maximum amount of $4,000,000 (such charges, expenses
and financing fees referred to in clauses (i) and (ii) collectively, the
"Purchaser Expenses"), in each case payable by wire transfer in same day funds.
- -------------------                                                             
If this Agreement is terminated by Purchaser pursuant to Section 9.3(i), then
the Company shall promptly pay to Purchaser the Purchaser Expenses and, if
within 18 months of the date of such termination, the Company shall enter into
any agreement with respect to an Acquisition Transaction, the Company shall,
promptly, but in no event later than two days after the entry into such
agreement, pay Purchaser the Termination Fee.  The Company acknowledges that the
agreements contained in this Section 9.5(b) are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Purchaser and Merger Sub would not enter into this Agreement; accordingly, if
the Company fails to promptly pay the amount due pursuant to this Section
9.5(b), and, in order to obtain such payment, Purchaser or Merger Sub commences
a suit which results in a judgment against the Company for the fee set forth in
this paragraph (b), the Company shall pay to Purchaser or Merger Sub its costs
and expenses (including attorneys' fees) in connection with such suit, together
with interest on the amount of the fee at the prime rate of Morgan Guaranty
Trust Company of New York on the date such payment was required to be made.

          (c)  If this Agreement is terminated by the Company pursuant to
Section 9.4(i) or by the Company or Purchaser pursuant to Section 9.2(i) in the
event Merger Sub or Purchaser shall have terminated the Offer in violation of
the terms of the Offer, then Purchaser shall promptly reimburse the Company (not
later than one business day after submission of statements therefor) for an
amount equal to the Company's actual documented out-of-pocket expenses incurred
in connection with the transactions contemplated by the Agreement in an amount
not to exceed $3,500,000.

                                      -33-

 
                              ARTICLE X

                           Miscellaneous and General

          10.1.  Payment of Expenses.  Whether or not the Merger shall be
                 -------------------                                     
consummated, each party hereto shall, subject to Section 9.5(b), pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Merger.

          10.2.  Survival.  The agreements of the Company, Purchaser and Merger
                 --------                                                      
Sub contained in Sections 5.2 (but only to the extent that such Section
expressly relates to actions to be taken after the Effective Time), 5.3, 5.4,
7.8, 7.9, 7.10, 10.1 and 10.6 through 10.13 shall survive the consummation of
the Merger.  The agreements of the Company, Purchaser and Merger Sub contained
in the Confidentiality Agreement and Sections 7.5(b), 9.5, 10.1 and 10.6 through
10.13 shall survive the termination of this Agreement.  Except as provided in
Section 9.5(b), all other representations, warranties, agreements and covenants
in this Agreement shall not survive the consummation of the Merger or the
termination of this Agreement.

          10.3.  Modification or Amendment.  Subject to the applicable
                 -------------------------                            
provisions of the DGCL, at any time prior to the Effective Time, the parties
hereto may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.

          10.4.  Waiver of Conditions.  The conditions to each of the parties'
                 --------------------                                         
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.

          10.5.  Counterparts.  For the convenience of the parties hereto, this
                 ------------                                                  
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.

          10.6.  Governing Law.  This Agreement shall be governed by and
                 -------------                                          
construed in accordance with the laws of the State of Delaware.

          10.7.  Notices.  Any notice, request, instruction or other document to
                 -------                                                        
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, if to
                                                                     -----
Purchaser or Merger Sub, addressed to Purchaser or Merger Sub, as the case may
- -----------------------                                                       
be, at Mallinckrodt Inc., 7733 Forsyth Boulevard, St. Louis, Missouri 63105-
1820, Attention:  Roger A. Keller, Esq. (with a copy to James C. Morphy, Esq.,
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004); and
                                                                  ---

                                      -34-

 
if to the Company, addressed to the Company at Nellcor Puritan Bennett
- -----------------                                                     
Incorporated, 4280 Hacienda Drive, Pleasanton, California 94588, Attention:
Laureen DeBuono (with a copy to Robert M. Mattson, Jr., Esq., Morrison &
Foerster LLP, 19900 MacArthur Boulevard, 12th Floor, Irvine, California 92612),
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.

          10.8.  Severability.  If any term or other provision of this Agreement
                 ------------                                                   
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party.  Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.

          10.9.  Entire Agreement, etc.  This Agreement (including the
                 ---------------------                                
Disclosure Letter and any exhibits or Annexes hereto) (a) constitutes the entire
agreement, and supersedes all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof, and (b) shall not be assignable by
operation of law or otherwise and is not intended to create any obligations to,
or rights in respect of, any persons other than the parties hereto; provided,
                                                                    -------- 
however, that Purchaser may designate, by written notice to the Company, another
- -------                                                                         
wholly-owned direct or indirect subsidiary to be a Constituent Corporation in
lieu of Merger Sub, in the event of which, all references herein to Merger Sub
shall be deemed references to such other subsidiary except that all
representations and warranties made herein with respect to Merger Sub as of the
date of this Agreement shall be deemed representations and warranties made with
respect to such other subsidiary as of the date of such designation.

          10.10.  Parties in Interest.  This Agreement shall be binding upon and
                  -------------------                                           
inure solely to the benefit of each party hereto, and, except for Section 7.9,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.

          10.11.  Definition of "Subsidiary".  When a reference is made in this
                  --------------------------                                   
Agreement to a subsidiary of a party, the word "subsidiary" means any
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries, or by such party and
one or more of its subsidiaries.

                                      -35-

 
          10.12.  Obligation of Purchaser.  Whenever this Agreement requires
                  -----------------------                                   
Merger Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Purchaser to cause Merger Sub to take such action.

          10.13.  Captions.  The Article, Section and paragraph captions herein
                  --------                                                     
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.

                                      -36-

 
          IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.



                         MALLINCKRODT INC.


                         By: /s/    C. Ray Holman
                             ------------------------
                             Name:  C. Ray Holman
                             Title: Chairman & Chief Executive Officer


                         NELLCOR PURITAN BENNETT INC.


                         By: /s/ C. Raymond Larkin, Jr.
                             ---------------------------------
                             Name:  C. Raymond Larkin, Jr.
                             Title:    President & Chief Executive Officer


                         NPB ACQUISITION CORP.


                         By: /s/ C. Ray Holman
                             -----------------------
                             Name:  C. Ray Holman
                             Title: Chairman & Chief Executive Officer

                                      -37-

 
                                                                         ANNEX A


          CERTAIN CONDITIONS OF THE OFFER.  The capitalized terms used in this
          -------------------------------                                     
Annex A have the meanings set forth in the attached Agreement.  Notwithstanding
any other provision of the Offer, Merger Sub shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Merger Sub's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, or may delay the acceptance for payment of or
payment for, any tendered Shares, or may, in its sole discretion (subject to the
Merger Agreement), terminate or amend the Offer as to any Shares not then paid
for if, (i) prior to the expiration of the Offer, (x) a number of Shares which,
together with any Shares owned by Purchaser or Merger Sub, constitutes more than
50% of the voting power (determined on a fully-diluted basis) of all the
securities of the Company entitled to vote generally in the election of
directors or in connection with a merger shall not have been validly tendered
and not withdrawn prior to the expiration of the Offer (the "Minimum Condition")
                                                             -----------------  
or (y) any waiting periods under the HSR Act applicable to the purchase of
Shares pursuant to the Offer, and any similar waiting periods under any foreign
statutes or regulations that are applicable to the Offer or the Merger shall not
have expired or been terminated, or any Regulatory Approvals applicable to the
Offer and the Merger shall not have been obtained on terms satisfactory to the
Purchaser in its reasonable judgment, or (ii) on or after July 23, 1997, and at
or before the time of payment for any of such Shares (whether or not any Shares
have theretofore been accepted for payment), any of the following events shall
occur:

          (a)  there shall have occurred and be continuing (i) any general
     suspension of, or limitation on prices for, trading in securities on the
     NYSE or in the over-the-counter market, (ii) a declaration of a banking
     moratorium or any suspension of payments in respect of banks in the United
     States, (iii) any material limitation (whether or not mandatory) by any
     Governmental Entity on, or any other event that could reasonably be
     expected to materially adversely affect, the extension of credit by banks
     or other lending institutions, (iv) or in the case of any of the foregoing
     existing at the time of the com mencement of the Offer, a material
     acceleration or worsening thereof, or (v) any material adverse change in
     the relevant financial markets that could reasonably be expected to
     materially and adversely affect the syndication of the senior bank debt
     facilities referred to in the Commitment Letter;

          (b)  the Company shall have breached or failed to perform in any
     material respect any of the covenants or agreements contained in the
     Agreement to be complied with or performed by the Company prior to the date
     of termination of the Agreement which breach or failure shall not have been
     cured prior to the earlier of (A) ten business days following the giving of
     written notice to the Company of such breach or failure and (B), the date
     on which the Offer is then scheduled to expire, or any representation or
     warranty of the Company set forth in the Agreement shall have been
     inaccurate or incomplete when made or, except for those representations or
     warranties that address matters only as of a particular date, thereafter
     shall

                                      -1-

 
     become inaccurate or incomplete and except for changes specifically
     permitted in this Agreement and the failure of any such representations and
     warranties to be complete and accurate that, individually or in the
     aggregate, could not reasonably be expected to have a material adverse
     effect on the financial condition, properties, business or results of
     operations of the Company and its subsidiaries taken as a whole or could
     prevent or materially delay the transactions contemplated by this Agreement
     or impair the ability of Purchaser, the Merger Sub, the Company or any of
     their respective affiliates, following consummation of the Offer or the
     Merger, to conduct any material business or operations in any jurisdiction
     where they are now being conducted.

          (c)  there shall be instituted or pending any action, litigation,
     proceeding, investigation or other application (hereinafter, an "Action")
                                                                      ------  
     before any court or other Governmental Entity by any Governmental Entity:
     (i) challenging the acquisition by Purchaser or Merger Sub of Shares,
     seeking to restrain or prohibit the consummation of the transactions
     contemplated by the Offer or the Merger, seeking to obtain any material
     damages or otherwise directly or indirectly relating to the transactions
     contemplated by the Offer or the Merger; (ii) seeking to prohibit, or
     impose any material limitations on, Purchaser's or Merger Sub's ownership
     or operation of all or any portion of their or the Company's business or
     assets (including the business or assets of their respective affiliates and
     subsidiaries), or to compel Purchaser or Merger Sub to dispose of or hold
     separate all or any portion of Purchaser's or Merger Sub's or the Company's
     business or assets (including the business or assets of their respective
     affiliates and subsidiaries) as a result of the transactions contemplated
     by the Offer or the Merger; (iii) seeking to make the acceptance for
     payment, purchase of, or payment for, some or all of the Shares illegal or
     render Merger Sub unable to, or result in a material delay in, or restrict,
     the ability of Merger Sub to, accept for payment, purchase or pay for some
     or all of the Shares; (iv) seeking to impose material limitations on the
     ability of Purchaser or Merger Sub effectively to acquire or hold or to
     exercise full rights of ownership of the Shares including, without
     limitation, the right to vote the Shares purchased by them on an equal
     basis with all other Shares on all matters properly presented to the
     stockholders; or (v) that, in any event, is reasonably likely to have a
     material adverse effect on the financial condition, properties, business or
     operations of the Company or Purchaser or Merger Sub (or any of their
     respective affiliates or subsidiaries) or the value of the Shares to
     Purchaser or Merger Sub or the benefits expected to be derived by Purchaser
     or Merger Sub as a result of consummation of the transactions contemplated
     by the Offer and the Merger;

                                      -2-

 
          (d)  any statute, rule, regulation, order or injunction shall be
     enacted, promulgated, entered, enforced or deemed or become applicable to
     the Offer or the Merger, or any Action shall be instituted or pending
     brought by any person not on behalf of a Governmental Entity or other
     action shall have been taken by any court or other Governmental Entity
     other than the application to the Offer or the Merger of waiting periods
     under the HSR Act, that, in the reasonable judgment of Purchaser, could be
     expected to, directly or indirectly, result in any of the effects of, or
     have any of the consequences sought to be obtained or achieved in, any
     Action referred to in clauses (i) through (v) of paragraph (c) above;

          (e)  a tender or exchange offer for 15% or more of the outstanding
     Shares shall have been commenced or publicly proposed to be made by another
     Person (including the Company or its subsidiaries), or it shall have been
     publicly disclosed or the Purchaser shall have learned that any Person
     (including the Company or its subsidiaries), shall have become the
     beneficial owner (as defined in Section 13(d) of the Exchange Act and the
     rules promulgated thereunder) of more than 15% of any class or series of
     capital stock of the Company (including the Shares) (other than for bona
     fide arbitrage purposes);

          (f)  any change or development shall have occurred that has had, or is
     reasonably likely to have, a material adverse effect on the financial
     condition, properties, businesses or results of operations of the Company
     and its subsidiaries taken as a whole;

          (g)  the Board of Directors of the Company (or a special committee
     thereof) shall have amended, modified or withdrawn in a manner adverse to
     Purchaser or Merger Sub its approval or recommendation of the Offer, the
     Agreement or the Merger, or the Board of Directors of the Company, upon
     request by Purchaser, shall have failed to publicly reaffirm such approval
     or recommendation within ten business days of such request by Purchaser, or
     shall have endorsed, approved or recommended any other Acquisition
     Proposal, or shall have resolved to do any of the foregoing; or

          (h)  the Agreement shall have been terminated by the Company or
     Purchaser or Merger Sub in accordance with its terms or Purchaser or Merger
     Sub shall have reached an agreement or understanding in writing with the
     Company providing for termination or amendment of the Offer or delay in
     payment for the Shares;

                                      -3-

 
which, in the sole judgment of Purchaser and Merger Sub, in any such case, and
regardless of the circumstances (including any action or inaction by Purchaser
or Merger Sub) giving rise to any such conditions, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment for
Shares.

          The foregoing conditions are for the sole benefit of Purchaser and
Merger Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances (including any action or inaction by Purchaser or Merger Sub)
giving rise to such condition or may be waived by Purchaser or Merger Sub, by
express and specific action to that effect, in whole or in part at any time and
from time to time in its sole discretion.  Any determination by Purchaser and
Merger Sub concerning any event described in this Annex A shall be final and
binding upon all parties.  The failure by Merger Sub at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.

                                      -4-

EX-99.2

                                                                       EXHIBIT 2
 
   NELLCOR PURITAN BENNETT ANNOUNCES DEFINITIVE AGREEMENT TO BE ACQUIRED BY
                         MALLINCKRODT FOR $1.9 BILLION
 
  Combined companies will be premier supplier to healthcare providers
worldwide
 
  Pleasanton, CA--July 23, 1997--In an action designed to create one of the
world's premier medical products suppliers, Nellcor Puritan Bennett
Incorporated (Nasdaq:NELL) and Mallinckrodt Inc. (NYSE:MKG) today announced
the execution of a definitive agreement whereby Mallinckrodt would purchase
for cash all outstanding shares of Nellcor Puritan Bennett common stock for
$28.50 per share. This represents a 36 percent premium to today's Nellcor
closing price of $20.94. Mallinckrodt's stock closed today at $39.75 a share.
 
  Under the terms of the merger agreement, unanimously approved today by the
boards of both of the companies, Mallinckrodt will initiate a tender offer for
all of the outstanding shares of Nellcor Puritan Bennett to commence within
five business days. Once initiated, the offer will be open for 20 business
days unless further extended. Mallinckrodt's tender offer is conditioned upon,
among other things, there being validly tendered and not withdrawn a number of
shares that equals at least a majority of the outstanding shares of Nellcor
Puritan Bennett. After the consummation of the tender offer, Mallinckrodt has
agreed to acquire any of the remaining outstanding shares of Nellcor pursuant
to a second-step merger in which holders of such shares will receive $28.50 a
share. It is anticipated that the proposed merger will be accounted for using
purchase accounting.
 
  Nellcor Puritan Bennett is the world leader in providing products that
monitor, diagnose and treat the respiratory-impaired patient in every setting
from the hospital to the home. Products include devices that aid in sleep
diagnosis, oxygen monitoring, apnea monitors, critical care ventilators,
oxygen concentrators, and anesthetic gases.
 
  Mallinckrodt holds leading market positions worldwide in numerous hospital
product lines, including x-ray contrast media, radiopharmaceuticals and
devices for diagnostic imaging; endotracheal and tracheostomy tubes; and
temperature management systems. Mallinckrodt also is the world's leading
producer of acetaminophen and narcotic analgesics.
 
  The combined companies will have revenues of approximately $2.4 billion for
the year ended June 30, 1997. Mallinckrodt will have three attractive growth
platforms in healthcare--a $1.1 billion critical care business serving the
respiratory-impaired patient, a $900 million medical imaging business, and a
$400 million specialty pharmaceutical business. Both companies have fiscal
years ending in the second calendar quarter.
 
  In a joint statement, C. Ray Holman and C. Raymond Larkin, Jr., Mallinckrodt
and Nellcor's chief executive officers, respectively, noted that the benefits
of the proposed merger offer meaningful opportunities for growth and
achievement of global leadership in a rapidly changing healthcare environment.
 
    "Nellcor Puritan Bennett is an excellent strategic fit with
  Mallinckrodt's critical care business," said Holman. "Nellcor's world
  leadership positions in oxygen monitoring, critical care ventilation and
  other respiratory products combine with Mallinckrodt's world leadership
  positions in airway management disposables and other critical care products
  to form by far the largest organization in this field of medicine. The
  combined company represents an even more significant supplier that meets
  essential healthcare needs: medical diagnosis, management of patients in
  critical care settings, and management of pain. Mallinckrodt and Nellcor
  will be well positioned to provide innovative, cost-effective products for
  our healthcare customers."
 
    Larkin said, "We have great respect for Mallinckrodt and its long history
  of serving healthcare markets. It was only two years ago that Nellcor and
  Puritan-Bennett came together to create one of the world's 15 largest
  medical device companies. We have gained significant advantages together.
  We believe our businesses will be strengthened even more through the
  addition of the Mallinckrodt critical care unit." Larkin will become the
  executive vice president of Mallinckrodt and will be president and chief
  executive officer of the Nellcor Puritan Bennett subsidiary taking
  responsibility for the combined critical care unit and reporting directly
  to Holman.
 
 
                                       1

 
    Holman said the acquisition of Nellcor represents the culmination of a
  significant effort by Mallinckrodt to expand its core medical products
  business during a period of industry consolidation. "Mallinckrodt expects
  to benefit from the merger through enhanced revenue growth and through
  consolidation synergies, cost reductions and other benefits to be
  implemented during the balance of fiscal 1998. Based on our expectations
  for revenues and synergies, we would expect the transaction to be accretive
  to earnings per share in fiscal year 1999."
 
  In the past fiscal year, Mallinckrodt divested its animal health business
and sold its interest in the Tastemaker flavors joint venture. Proceeds from
those transactions, along with borrowings of approximately $1.6 billion under
a credit agreement entered into with J.P. Morgan, Goldman, Sachs & Co. and
Citibank in connection with the transaction are being used for the tender
offer. The previously announced share repurchase program continues in effect.
 
  Goldman, Sachs & Co. advised Mallinckrodt, provided a fairness opinion to
the Board of Directors, and is acting as dealer manager for the tender offer.
Morgan Stanley & Co. Incorporated advised Nellcor Puritan Bennett and provided
a fairness opinion to the Board of Directors of Nellcor Puritan Bennett.
 
  Nellcor Puritan Bennett is the worldwide leader in providing products for
monitoring, diagnosing and treating the respiratory-impaired patient across
the continuum of care. The Nellcor Puritan Bennett web site address is
.
 
  Mallinckrodt Inc. serves healthcare and specialty chemicals markets
worldwide. The company is a major producer of diagnostic imaging agents,
medical devices, analgesic pharmaceuticals, catalysts, and laboratory and
microelectronic chemicals. The St. Louis, Missouri-based company, with fiscal
1996 adjusted net sales of $1.75 billion, sells more than 1,000 products in
more than 100 countries. The Mallinckrodt web site address is
.
 
  This news release contains forward-looking statements including statements
concerning the projected impact of the proposed merger on earnings results and
sales growth. These statements are based on current expectations; actual
results may differ materially. Among the factors that could cause actual
results to differ materially are the following: the effect of business and
economic conditions; the impact of competitive products and continued downward
pressure on prices; market acceptance issues, including the failure of new
products to generate anticipated sales levels; difficulties or delays in
receiving required governmental or regulatory approvals; the cost and effect
of legal and administrative proceedings; and the other risk factors reported
in Nellcor's filings with the Securities and Exchange Commission.
 
                                     # # #
 
News Release
 
Contact:
Michael Downey
(510) 463-4000
Susan Freschi
Kathy Call
(510) 463-4119
 
Nellcor Puritan Bennett Incorporated
4280 Hacienda Drive Pleasanton, CA 94588
Phone: (510) 463-4000 Fax: (510) 463-4450
 
 
                                       2

EX-99.3

                                                                      EXHIBIT 3
 
                                 July 29, 1997
 
Dear Stockholder:
 
  I am pleased to inform you that on July 23, 1997, Nellcor Puritan Bennett
Incorporated ("NPB") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Mallinckrodt Inc. ("Mallinckrodt") and its wholly-owned
subsidiary, NPB Acquisition Corp. (the "Purchaser"), that provides for the
acquisition of NPB by Mallinckrodt through the Purchaser at a price of $28.50
per share. Under the terms of the Merger Agreement, the Purchaser has
commenced today a cash tender offer to purchase all NPB common stock at a
price of $28.50 per share, net cash to tendering stockholders. The tender
offer is currently scheduled to expire at 12:00 o'clock midnight New York time
on Tuesday, August 26, 1997.
 
  Following the successful completion of the tender offer, the Purchaser will
be merged into NPB and all shares not purchased in the tender offer (other
than shares held by dissenting stockholders, if applicable) will be converted
into the right to receive in cash the same price per share as paid in the
tender offer, without interest.
 
  Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer, and the merger and has determined that the terms of the tender
offer and the merger are fair to and in the best interests of NPB and its
stockholders. Accordingly, the Board of Directors unanimously recommends that
you accept the tender offer and tender your NPB stock to the Purchaser
pursuant to the tender offer.
 
  In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors that are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of Morgan Stanley &
Co. Incorporated that the financial terms of the tender offer and the merger
are fair to NPB stockholders from a financial point of view as of the date of
such opinion.
 
  Also accompanying this letter is a copy of the Purchaser's Offer to Purchase
and related materials, including a letter of transmittal for use in tendering
your shares. These documents set forth the terms and conditions of the
Purchaser's tender offer and provide instructions as to how to tender your
shares. We urge you to read each of the enclosed materials carefully.
 
                                          Very truly yours,
 
                                          Nellcor Puritan Bennett Incorporated
 
                                          /s/ C. Raymond Larkin, Jr.
                                          President and Chief Executive Officer
 
 
Enclosures