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[LETTERHEAD OF NELLCOR]
July , 1995
Dear:
Since [insert name of institution] is a substantial investor in the common stock
of Nellcor Incorporated and very important to us as a shareholder, I am
enclosing with this letter an advanced copy of the Proxy Statement in connection
with our forthcoming Special Meeting of Stockholders scheduled for Thursday,
August 24, 1995 at Nellcor headquarters. At that meeting, Nellcor stockholders
will be asked to approve a merger between Nellcor and Puritan-Bennett
Corporation, as well as three other proposals that are vital for our new company
to remain competitive.
I wanted to offer our perspective on these four Proposals as you prepare to
review the Proxy Statement, so that you are fully informed as to the reasons why
we are seeking your support.
PROPOSALS 1 AND 2: APPROVAL OF NELLCOR/PURITAN BENNETT MERGER:
We encourage you to vote in favor of proposals 1 and 2 and approve the merger,
because we believe that the merger with Puritan-Bennett offers a unique
strategic advantage that will enable the new company to capitalize on
opportunities created by the changing health care industry and will allow us to
better meet the needs of our customers through:
- Broader product offering
- Expanded presence in target markets
- Substantial cost efficiencies
- Increased product innovation
- Substantially larger size
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July , 1995
Page Two
PROPOSAL 3: APPROVAL OF NELLCOR'S 1995 MERGER STOCK INCENTIVE PLAN
We encourage you to approve Proposal 3. Approval of this proposal will allow us
to comply with the terms of the merger agreement to replace existing Puritan-
Bennett options with Nellcor options. This is a one time occurrence, and the
1995 Merger Incentive Plan will be implemented only if the merger is approved.
In addition, we believe this provides a necessary incentive for retention of
current Puritan-Bennett employees.
PROPOSAL 4: APPROVAL OF AN INCREASE IN SHARES AUTHORIZED UNDER NELLCOR'S 1994
EQUITY INCENTIVE PLAN FROM 1.5 MILLION TO 2.5 MILLION SHARES
We encourage you to approve Proposal 4. In evaluating this proposal, please
note that:
- We will commit not to reprice or replace options, not to issue options
below the fair market value of Nellcor stock on the date of grant and to limit
the shares available for issuance as restricted stock to less than 10% of the
approved shares.
- The number of employees in the new company will more than double upon
completion of the merger.
- This proposal will become effective ONLY if the merger is approved.
In addition:
- Nellcor adopted and has in place a limited stock repurchase program in
order to mitigate dilution caused by the exercise of options under the company's
equity incentive plans.
- Nellcor Puritan-Bennett's shareholders will continue to have
cumulative voting with regard to election of board members.
- The Nellcor Puritan-Bennett Board of Directors will not be a
classified board.
- The Nellcor Puritan-Bennett Board will have seven outside members and
two inside members.
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July , 1995
Page Three
I appreciate the opportunity to present our perspective on these issues. Your
comments or questions are welcome. Please feel free to call me at
(510) 463-4120.
On behalf of the Board of Directors and management of Nellcor, we thank you for
your continued interest and support.
Sincerely,
Michael P. Downey
Executive Vice President and
Chief Financial Officer
Enclosure
