Medtronic Inc · S-4 · On 7/23/98

Filed On 7/23/98   ·   SEC File 333-59725   ·   Accession Number 914190-98-268

Registration of Securities Issued in a Business-Combination Transaction   ·   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Registration of Securities Issued in a               118    645K 
                          Business-Combination Transaction                       
 2: EX-2        Agreement and Plan of Merger                          25±   117K 
 3: EX-5        Opinion and Consent of Fredrikson & Byron, P.A.        2±    11K 
 4: EX-8        Opinion and Consent of Preston Gates                   3±    17K 
 5: EX-23.3     Consent of Price Waterhouse                            1      6K 
 6: EX-23.4     Consent of Price Waterhouse                            1      6K 
 7: EX-23.5     Consent of Morgan Stanley                              1      6K 
 8: EX-24       Power of Attorney                                      1     10K 
 9: EX-99.1     Form of Proxy                                          1      8K 

S-4   ·   Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents

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As Filed with the Securities and Exchange Commission on July 23, 1998 
                                                 Registration No: 333-__________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)

     Minnesota                      3845                      41-0793183
(State or other jurisdiction        (Primary Standard         (I.R.S. Employer  
 of incorporation or          Industrial Classification   Identification Number)
organization)                     Code Number)                            

7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000

 (Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
----------------------

Carol E. Malkinson
Senior Legal Counsel and Assistant Secretary
 Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000

 (Name, address, including zip code, and telephone number, including
area code, of agent for service)

Copies to:
David C. Grorud, Esq.                           C. Kent Carlson, Esq.         
Mary E. Strand, Esq.                            Mark R. Beatty, Esq.          
Fredrikson & Byron, P.A.                        Preston Gates & Ellis LLP     
900 Second Avenue South, Suite 1100             701 Fifth Avenue, Suite 5000  
Minneapolis, Minnesota 55402-3397               Seattle, Washington 98104-7078
(612) 347-7000                                  (206) 623-7580                
----------------------

Approximate  date of  commencement  of proposed  sale of the  securities  to the
public:  Upon  consummation  of the Merger,  as described  in this  Registration
Statement.                                                                      

If the securities  being registered on this Form are being offered in connection
with the  formation of a holding  company and there is  compliance  with General
Instruction G, check the following box. [ ]                                     

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the  Securities  Act  registration  statement  number of the  earlier  effective
registration statement for the same offering. [ ]                               

If this Form is a  post-effective  amendment filed pursuant to Rule 462(d) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]                                                      

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                         CALCULATION OF REGISTRATION FEE                                                         
---------------------------- ------------------- ----------------------- ------------------------ ---------------
Title of each class                              Proposed maximum        Proposed maximum         Amount of      
of securities                Amount to be        offering price          aggregate offering       registration   
to be registered             registered(1)       per share               price                    fee(2)         
---------------------------  ------------------- ----------------------- ------------------------ ---------------

                                                                                                                 
Common Stock, par            8,738,828                                                                           
value $.10 per share(3)      shares              Not Applicable          Not Applicable           $156,903.13    

---------------------------- ------------------- ----------------------- ------------------------ ---------------

     (1)    Represents the  approximate  maximum number of shares  issuable upon
            consummation  of  the  Merger  as  described  in  the   Registration
            Statement,  based upon the anticipated maximum number of outstanding
            shares of Physio-Control  International  Corporation Common Stock at
            the Merger's  Effective Time  (20,000,000) and assuming for purposes
            of this calculation that the Average Stock Price for Medtronic, Inc.
            Common Stock is equal to $62.9375 (the  reported  closing sale price
            of  Medtronic,  Inc.  Common Stock as reported by the New York Stock
            Exchange  on  June  26,  1998,   the  last  trading  day   preceding
            announcement  of the  Merger),  thereby  resulting  in a  Conversion
            Fraction  of  0.43694 of a  Medtronic,  Inc.  share  issued for each
Physio-Control International Corporation share.         

     (2)    The  registration  fee was  calculated  pursuant to Section 6 of the
            Securities Act of 1933 (the  "Securities  Act") and Rules  457(f)(1)
            and 457(c) thereunder,  as 0.000295 multiplied by the product of (A)
            20,000,000,   the  anticipated   maximum  number  of  Physio-Control
            International  Corporation  shares that may be exchanged pursuant to
            the Merger, multiplied by (B) $26.59375, the average of the high and
            low sale prices of Physio-Control  International  Corporation Common
            Stock as reported by the Nasdaq  National  Market on July 20,  1998,
            which date was within five  business  days prior to the date of this
filing.                                                 

     (3)    Each share of  Medtronic  Common  Stock  includes a Preferred  Stock
       Purchase Right pursuant to Medtronic's Shareholder Rights Plan.

     The registrant  hereby amends this  Registration  Statement on such date or
     dates as may be necessary to delay its effective  date until the registrant
     shall  file  a  further  amendment  which  specifically  states  that  this
     Registration Statement shall thereafter become effective in accordance with
     Section  8(a) of the  Securities  Act or until the  Registration  Statement
     shall become  effective on such date as the Commission,  acting pursuant to
said Section 8(a), may determine.                                     

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 [Physio-Control letterhead]
                                                             _____________, 1998
Dear Physio-Control Shareholder:                                                

         I  am  pleased  to  invite  you  to  attend  the  Special   Meeting  of
Shareholders of  Physio-Control  International  Corporation  ("Physio-Control"),
which  will  be  held  on  ___________,  1998,  at 9:00  a.m.,  local  time,  at
Physio-Control's  corporate  headquarters,  located  at 11811  Willows  Road NE,
Redmond,  Washington. At the meeting you will be asked to consider and vote upon
a Plan of Merger and an  Agreement  and Plan of Merger dated as of June 27, 1998
(the  "Merger  Agreement")  that  provide  for  the  merger  of  a  wholly-owned
subsidiary of Medtronic, Inc. into Physio-Control.                              

         Under  the  terms  of the  Plan of  Merger  and the  Merger  Agreement,
Physio-Control  shareholders  will receive $27.50 in shares of Medtronic  Common
Stock in exchange for each of their shares of Physio-Control Common Stock.      

         The  materials  accompanying  this  letter  include a Notice of Special
Meeting of Shareholders,  a Proxy Statement/Prospectus  relating to the proposal
to be voted upon at the Special  Meeting,  and a proxy card.  The attached Proxy
Statement/Prospectus  is intended to provide you with the  information  that you
will need to make an  informed  decision  regarding  how you should  vote on the
proposed  merger.  It also serves as a Prospectus for Medtronic,  describing the
investment  in  Medtronic  that you will be making if the merger is approved and
you exchange your Physio-Control Common Stock for Medtronic Common Stock. Copies
of the Plan of  Merger  and the  Merger  Agreement  are  attached  to the  Proxy
Statement/Prospectus  as Appendices A and B. I urge you to read this information
carefully before voting on the proposed merger.                                 

         The Board of Directors  believes that the proposed  transaction is fair
and in the best interests of Physio-Control and its shareholders and unanimously
recommends  approval of the Plan of Merger and the Merger  Agreement.  The Board
believes  that the  merger  will,  among  other  things,  permit  Physio-Control
shareholders  to continue  their equity  participation  on a tax-free basis in a
larger, more diversified medical products enterprise.                           

         The  Board of  Directors  of  Physio-Control  retained  the  investment
banking firm of Morgan Stanley & Co.  Incorporated  to advise it with respect to
the  consideration  to be received in the merger.  Such firm  provided a written
opinion to the  Physio-Control  Board that,  as of the date of such  opinion and
subject to the  assumptions  made,  matters  considered,  and limitations on the
review  undertaken,   the  consideration  to  be  received  by  the  holders  of
Physio-Control  Common  Stock  pursuant to the Merger  Agreement  is fair from a
financial  point of view to such  holders.  A copy of its opinion is attached to
the Proxy Statement/Prospectus as Appendix D.                                   

         The Plan of Merger and the Merger  Agreement  must be  approved  by the
holders of two-thirds of the outstanding shares of Physio-Control  Common Stock.
Your vote on this matter is very important.  We urge you to carefully review the
enclosed material and to return your proxy promptly.                            

         Whether or not you plan to attend the meeting, please sign and promptly
return your proxy card in the enclosed postage-paid  envelope. If you attend the
meeting,  you may vote in person if you wish,  even  though you have  previously
returned your proxy.                                                            

              Sincerely,

                     Richard O. Martin
                                        Chairman and Chief Executive Officer

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PHYSIO-CONTROL INTERNATIONAL CORPORATION
 11811 Willows Road NE
Redmond, Washington 98073-9706

 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held ___________, 1998

To the Shareholders of Physio-Control International Corporation:                

         A Special Meeting of the Shareholders of  Physio-Control  International
Corporation  ("Physio-Control")  will  be  held  at  Physio-Control's  corporate
headquarters,  located  at  11811  Willows  Road  NE,  Redmond,  Washington,  on
___________, 1998, at 9:00 a.m., local time, to consider and act upon a proposal
to approve a Plan of Merger and an  Agreement  and Plan of Merger  (the  "Merger
Agreement"),  copies of which are  included as  Appendices  A and B to the Proxy
Statement/Prospectus  accompanying  this Notice.  Pursuant to the Plan of Merger
and the Merger  Agreement,  (a) PC Merger Corp.  ("Merger  Subsidiary")  will be
merged into Physio-Control,  with Physio-Control to be the surviving corporation
and to become a wholly-owned subsidiary of Medtronic,  Inc.  ("Medtronic"),  and
(b)  holders  of   Physio-Control   common  stock,  par  value  $.01  per  share
("Physio-Control  Common Stock"), will receive shares of Medtronic common stock,
par value $.10 per share  ("Medtronic  Common  Stock"),  based upon a conversion
fraction described in the Proxy Statement/Prospectus accompanying this Notice.  

         With  respect to the  proposal  to  approve  the Plan of Merger and the
Merger Agreement, Physio-Control shareholders have a right to dissent and obtain
payment in cash for their shares by complying  with the terms and  procedures of
Chapter 23B.13 of the Washington  Business  Corporation  Act, a copy of which is
included  as  Appendix  C to the Proxy  Statement/Prospectus  accompanying  this
Notice.                                                                         

         Only  shareholders of record as shown on the books of Physio-Control at
the close of business on ___________, 1998 are entitled to notice of and to vote
at the Special Meeting or any adjournments thereof.                             

         Information relating to the above proposal is set forth in the attached
Proxy  Statement/Prospectus.  Approval  of the  Plan of  Merger  and the  Merger
Agreement will require the affirmative  vote of the holders of two-thirds of the
shares of  Physio-Control  Common  Stock  outstanding  on the record  date.  All
shareholders are cordially invited to attend the Special Meeting in person.     

                  BY ORDER OF THE BOARD OF DIRECTORS

V. Marc Droppert
____________, 1998              Secretary                                       

 WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED PROXY RETURN ENVELOPE, WHICH REQUIRES
 NO POSTAGE IF MAILED IN THE UNITED STATES

DO NOT SEND ANY STOCK CERTIFICATES WITH THE PROXY CARD

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PROXY STATEMENT/PROSPECTUS

Physio-Control International Corporation                         Medtronic, Inc.
11811 Willows Road NE                                   7000 Central Avenue N.E.
Redmond, Washington  98073-9706                    Minneapolis, Minnesota  55432
Telephone:  (425) 867-4000                            Telephone:  (612) 514-4000

SPECIAL MEETING OF SHAREHOLDERS OF
PHYSIO-CONTROL INTERNATIONAL CORPORATION
 TO BE HELD ON ___________, 1998

         This Proxy  Statement/Prospectus is being furnished to the shareholders
of Physio-Control  International  Corporation  ("Physio-Control")  in connection
with the special meeting of shareholders (the "Meeting") of Physio-Control to be
held at Physio-Control's  corporate headquarters,  located at 11811 Willows Road
NE,  Redmond,  Washington,  on  ___________,  1998, at 9:00 a.m. At the Meeting,
Physio-Control shareholders will be asked to consider and act upon a proposal to
approve the Plan of Merger  attached  hereto as Appendix A and the Agreement and
Plan of Merger  attached  hereto as Appendix B,  pursuant to which (a) PC Merger
Corp.  ("Merger  Subsidiary"),  a  wholly-owned  subsidiary of  Medtronic,  Inc.
("Medtronic"), will be merged (the "Merger") into Physio-Control,  which will be
the surviving corporation in the Merger and become a wholly-owned  subsidiary of
Medtronic, and (b) each share of Physio-Control common stock, par value $.01 per
share  ("Physio-Control  Common  Stock"),  will be converted into a portion of a
share of Medtronic  common stock,  par value $.10 per share  ("Medtronic  Common
Stock"), as described in this Proxy Statement/Prospectus.                       

         This Proxy  Statement/Prospectus  also  constitutes  the  Prospectus of
Medtronic  with respect to the shares of Medtronic  Common Stock to be issued in
the Merger.  Medtronic has filed a  Registration  Statement on Form S-4 with the
Securities and Exchange  Commission  (the  "Commission")  covering the shares of
Medtronic  Common Stock that may be issued in connection with the Merger,  based
on the Conversion  Fraction  described in this Proxy  Statement/Prospectus.  The
Medtronic  Common Stock is listed on the New York Stock Exchange  ("NYSE") under
the symbol "MDT." This Proxy  Statement/Prospectus  and  accompanying  letter to
Physio-Control shareholders, Notice of Special Meeting of Shareholders, and form
of proxy  for use at the  Meeting  are  first  being  mailed  to  Physio-Control
shareholders on or about _________, 1998.                                       

         NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION  HAS  APPROVED OR  DISAPPROVED  THESE  SECURITIES  OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY  STATEMENT/PROSPECTUS.  ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.                                             

         Information  contained  or  incorporated  by  reference  in this  Proxy
Statement/Prospectus   regarding  Medtronic  has  been  supplied  by  Medtronic.
Information   contained   or   incorporated   by   reference   in   this   Proxy
Statement/Prospectus    regarding    Physio-Control   has   been   supplied   by
Physio-Control.                                                                 

         Additional copies of this Proxy Statement/Prospectus and the Proxy card
to be  returned  for the  Meeting can be  obtained  from  Physio-Control,  11811
Willows Road NE, Redmond, Washington 98073-9706, Attention: Corporate Secretary,
telephone (425) 867-4000. Questions or requests for assistance in completing and
submitting Proxy cards may also be directed to ________________________________.

 The date of this Proxy Statement/Prospectus is ___________, 1998.

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         No person has been  authorized to give any  information  or to make any
representations other than those contained in this Proxy Statement/Prospectus or
the  documents   incorporated  by  reference  herein,  and  any  information  or
representations not contained herein or therein may not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Medtronic  Common Stock offered by
this  Proxy  Statement/Prospectus,  or  the  solicitation  of a  proxy,  in  any
circumstances  in which such offer or solicitation is unlawful.  The delivery of
this Proxy  Statement/Prospectus  does not imply that the information  herein is
correct as of any time subsequent to the date of such information.              

 AVAILABLE INFORMATION

         This Proxy  Statement/Prospectus is a prospectus of Medtronic delivered
in compliance with the Securities Act of 1933 (the "Securities Act"). This Proxy
Statement/Prospectus  constitutes  part of a Registration  Statement on Form S-4
(the "Registration  Statement") filed by Medtronic with the Commission under the
Securities  Act with  respect  to the  Medtronic  Common  Stock to be  issued in
connection with the Merger. This Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration  Statement and the exhibits and
schedules   thereto.   For  further   information  with  respect  to  Medtronic,
Physio-Control, and the Medtronic Common Stock offered hereby, reference is made
to the Registration Statement, exhibits, and schedules.  Statements contained in
this Proxy  Statement/Prospectus as to the contents of any contract or any other
document  referred  to  are  not  necessarily  complete,  and in  each  instance
reference is made to the copy of such  contract or document  filed as an exhibit
to the Registration Statement or such other document,  each such statement being
qualified in all respects by such reference.                                    

         Medtronic  and   Physio-Control   are  subject  to  the   informational
requirements of the Securities  Exchange Act of 1934 (the "Exchange Act"),  and,
in accordance therewith,  each files reports, proxy and information  statements,
and other  information  with the  Commission.  The  public may read and copy the
Registration  Statement and the reports, proxy and information  statements,  and
other information filed by each of Medtronic and Physio-Control  pursuant to the
Exchange Act at the  Commission's  Public  Reference  Room at 450 Fifth  Street,
N.W.,  Washington,  D.C. 20549, or at one of the Commission's  regional offices:
500 West Madison Street,  Suite 1400,  Chicago,  Illinois 60661-2511 and 7 World
Trade Center,  13th Floor, New York, New York, 10048.  Copies of all or any part
of such  Medtronic  material are available for  inspection at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Copies
of all or any part of such Physio-Control  material are available for inspection
at the offices of the  National  Association  of  Securities  Dealers,  Inc. The
public  may obtain  information  on the  operation  of the  Commission's  Public
Reference  Room by calling the  Commission  at  1-800-SEC-0330.  The  Commission
maintains an Internet site at "http://www.sec.gov" containing reports, proxy and
information  statements,  and  other  information  regarding  issuers  that file
electronically with the Commission, including Medtronic and Physio-Control.     

 INFORMATION INCORPORATED BY REFERENCE

         This  Proxy  Statement/Prospectus  incorporates  certain  documents  by
reference.  Medtronic and  Physio-Control  will provide  without  charge to each
person,   including  any  beneficial  owner,  to  whom  a  copy  of  this  Proxy
Statement/Prospectus is delivered, on written or oral request, copies of any and
all such documents  (other than the exhibits  thereto,  unless such exhibits are
specifically  incorporated  by reference  into the  information  that this Proxy
Statement/Prospectus  incorporates) of Medtronic or Physio-Control,  as the case

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may be,  that are  incorporated  by  reference.  Requests  should be directed to
Medtronic,  Inc.,  7000  Central  Avenue  N.E.,  Minneapolis,  Minnesota  55432,
Attention:  Investor Relations Department, M.S. 206, telephone (612) 514-3035 or
to  Physio-Control  International  Corporation,  11811 Willows Road NE, Redmond,
Washington 98073-9706, Attention: Corporate Secretary, telephone (425) 867-4000.
In order to ensure timely delivery of the documents,  any such request should be
made no later than [five business days prior to Meeting date], 1998.            

         The following  Physio-Control  documents are  incorporated by reference
herein:                                                                         

         1.  Physio-Control's  Annual  Report on Form 10-K for the  fiscal  year
ended December 31, 1997.                                                        

         2.  Physio-Control's  Quarterly  Report  on Form  10-Q  for the  fiscal
quarter ended March 31, 1998.                                                   

     3. Physio-Control's Current Report on Form 8-K filed July 10, 1998.

         4. The  description  of  Physio-Control's  Common  Stock  contained  in
Physio-Control's  Registration  Statement on Form 8-A filed under  Section 12 of
the Exchange Act.                                                               

         All documents filed by Physio-Control  with the Commission  pursuant to
Sections  13(a),  13(c),  14 and 15(d) of the Exchange Act after the date hereof
and  prior to the date of the  Meeting  shall be deemed  to be  incorporated  by
reference  herein  and  shall be a part  hereof  from the date of filing of such
documents.                                                                      

         The following Medtronic documents are incorporated by reference herein:

         1.  Medtronic's  Annual  Report on Form 10-K for the fiscal  year ended
April 30, 1998.                                                                 

         2. Medtronic's  Current Reports on Form 8-K filed July 8, 1998 and July
16, 1998.                                                                       

         3. The description of Medtronic's Common Stock contained in Medtronic's
Registration Statement on Form 8-A filed under Section 12 of the Exchange Act.  

         4. The  description of  Medtronic's  Preferred  Stock  Purchase  Rights
attached to its Common Stock contained in Medtronic's  Registration Statement on
Form 8-A filed under Section 12 of the Exchange Act.                            

         All  documents  filed by  Medtronic  with the  Commission  pursuant  to
Sections  13(a),  13(c),  14 and 15(d) of the Exchange Act after the date hereof
and  prior to the date of the  Meeting  shall be deemed  to be  incorporated  by
reference  herein  and  shall be a part  hereof  from the date of filing of such
documents.                                                                      

         Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded  for purposes  hereof to the extent
that a statement  contained herein (or in any other  subsequently filed document
that also is  incorporated  by reference  herein)  modifies or  supersedes  such
statement.  Any  statement  so  modified  or  superseded  shall not be deemed to
constitute a part hereof except as so modified or superseded.                   

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 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

         Certain  statements   contained  in  this  Proxy   Statement/Prospectus
(including  information  included or incorporated by reference herein) and other
written  and  oral   statements   made  from  time  to  time  by  Medtronic  and
Physio-Control  do not relate  strictly to historical or current facts. As such,
they  are  considered   "forward-looking   statements"   which  provide  current
expectations or forecasts of future events. Such statements can be identified by
the use of terminology such as "anticipate,"  "believe,"  "estimate,"  "expect,"
"intend," "may," "could,"  "possible," "plan," "project," "will," "forecast" and
similar  words  or  expressions.  Medtronic's  and  Physio-Control's  respective
forward-looking   statements   generally  relate  to  their  respective   growth
strategies,  financial  results,  product  development  and regulatory  approval
programs,  and  sales  efforts.  One  must  carefully  consider  forward-looking
statements and understand  that such  statements  involve a variety of risks and
uncertainties, known and unknown, and may be affected by inaccurate assumptions.
Consequently,  no forward-looking statement can be guaranteed and actual results
may vary  materially.  It is not  possible  to foresee or  identify  all factors
affecting Medtronic's or Physio-Control's respective forward-looking statements,
and  investors  therefore  should not  consider  any list of  factors  affecting
Medtronic's or Physio-Control's  respective  forward-looking statements to be an
exhaustive  statement of all risks,  uncertainties,  or  potentially  inaccurate
assumptions.  Neither Medtronic nor Physio-Control  undertakes any obligation to
update any forward-looking statement.                                           

         Although  it is not  possible  to  create a  comprehensive  list of all
factors  that  may  cause  actual   results  to  differ  from   Medtronic's   or
Physio-Control's forward-looking statements, such factors include, among others,
(i) trends toward managed care, health care cost containment,  and other changes
in government  and private  sector  initiatives,  in the United States and other
countries in which Medtronic or   Physio-Control  do business,  that are placing
increased  emphasis on the delivery of more  cost-effective  medical  therapies;
(ii) the trend of  consolidation in the medical device industry as well as among
customers  of  medical  device  manufacturers,  resulting  in more  significant,
complex,  and  long-term  contracts  than in the  past and  potentially  greater
pricing pressures;  (iii) the difficulties and uncertainties associated with the
lengthy and costly new product  development and regulatory  approval  processes,
which  may   result  in  lost   market   opportunities   or   preclude   product
commercialization;  (iv)  efficacy or safety  concerns  with respect to marketed
products,  whether  scientifically  justified  or not,  that may lead to product
recalls,  withdrawals,  or declining  sales;  (v) changes in governmental  laws,
regulations,  and accounting  standards and the enforcement  thereof that may be
adverse to Medtronic or Physio-Control; (vi) increased public interest in recent
years in product  liability  claims for  implanted  medical  devices,  including
pacemakers and leads; (vii) other legal factors including environmental concerns
and patent  disputes with  competitors;  (viii) agency or government  actions or
investigations  affecting the industry in general or Medtronic or Physio-Control
in  particular;  (ix)  the  development  of  new  products  or  technologies  by
competitors,  technological  obsolescence,  and  other  changes  in  competitive
factors;  (x) risks  associated  with  maintaining  and expanding  international
operations;  (xi)  business  acquisitions,  dispositions,   discontinuations  or
restructurings  by  Medtronic  or  Physio-Control;   (xii)  the  integration  of
businesses acquired by Medtronic or Physio-Control;  and (xiii) economic factors
over which  Medtronic or  Physio-Control  has no control,  including  changes in
inflation,   foreign   currency  rates,   and  interest  rates.   Medtronic  and
Physio-Control  note  these  factors  as  permitted  by the  Private  Securities
Litigation Reform Act of 1995.                                                  

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 TABLE OF CONTENTS

                                                                        Page

 SUMMARY...................................................................  7
 GENERAL INFORMATION....................................................... 19

 THE MERGER................................................................ 20
        General............................................................ 21
        Effective Time of the Merger....................................... 21
        Background of the Merger........................................... 21
Physio-Control's Reasons for the Merger; Recommendation       
          of the Physio-Control Board of Directors......................... 24
        Medtronic's Reasons for the Merger................................. 26
        Opinion of Physio-Control's Financial Advisor...................... 26
        Vote Required...................................................... 30
        Conversion of Physio-Control Common Stock in the Merger............ 30
        Shareholder Rights Plan............................................ 32
        Treatment of Stock Options......................................... 32
        Conduct of Business of Physio-Control Pending the Merger........... 32
        Interests of Certain Persons in the Merger......................... 33
        Voting Agreements.................................................. 34
        Stock Option Agreement............................................. 35
        Conditions; Waiver................................................. 35
        Amendment and Termination of the Merger Agreement.................. 36
        Expenses and Fees.................................................. 37
        Restrictions on Resale of Medtronic Common Stock................... 37
        Deregistration of Physio-Control Common Stock...................... 38
        Accounting Treatment of the Merger................................. 38
        Certain Federal Income Tax Consequences............................ 39
        Indemnification.................................................... 41
        Regulatory Requirements............................................ 41
        Rights of Dissenting Physio-Control Shareholders................... 42

COMPARATIVE STOCK PRICES AND DIVIDENDS...................................... 44 

RECENT DEVELOPMENTS......................................................... 45 

COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND  PHYSIO-CONTROL                
SHAREHOLDERS................................................................ 45 
        Classification, Removal and Election of Directors.................. 46
        Preferred Stock.................................................... 47
        Special Meetings of Shareholders................................... 48
        Voting Rights; Shareholder Approvals............................... 48
        Cumulative Voting.................................................. 49
        Preemptive Rights.................................................. 49
        Amendment of the Articles of Incorporation......................... 49
        Business Combinations and Control Share Acquisitions............... 50
        Shareholder Rights Plan............................................ 50
        Related Person Business Transactions............................... 51

CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN PHYSIO-CONTROL AND MEDTRONIC. 52 

LEGAL MATTERS............................................................... 52 

EXPERTS..................................................................... 52 

APPENDIX A -- Plan of Merger................................................ A-1

APPENDIX B -- Agreement and Plan of Merger.................................. B-1

APPENDIX C -- Chapter 23B.13 of Washington Business Corporation Act......... C-1

APPENDIX D -- Opinion of Morgan Stanley & Co. Incorporated.................. D-1

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 SUMMARY

         The  following  is a brief  summary  of certain  information  contained
elsewhere in this Proxy  Statement/Prospectus  and in the documents incorporated
herein by reference.  Certain capitalized terms used in this Summary are defined
elsewhere  in this Proxy  Statement/Prospectus.  Reference  is made to, and this
Summary is qualified in its entirety by, the more detailed information contained
in this Proxy  Statement/Prospectus,  the Appendices  hereto,  and the documents
incorporated in this Proxy Statement/Prospectus by reference.                   

 Parties to the Merger

Physio-Control:   Physio-Control International Corporation ("Physio-Control"), a
                  Washington corporation, was founded in 1955 and reincorporated
                  in Washington in 1997.  Physio-Control designs,  manufactures,
                  markets  and  services  an  integrated   line  of  noninvasive
                  emergency  cardiac  defibrillator  and vital  sign  assessment
                  devices,  disposable  electrodes and data management software.
                  Physio-Control's products are used in both out-of-hospital and
                  hospital   settings  for  the   detection   and  treatment  of
                  life-threatening events including trauma, heart attack and the
                  acute heart rhythm  disturbances of ventricular  fibrillation,
tachycardia and bradycardia.                

                  Physio-Control's  principal offices and corporate headquarters
                  are  located at 11811  Willows  Road NE,  Redmond,  Washington
                  98073-9706,   telephone:   (425)  867-4000.  See  "Information
Incorporated   by  Reference."              

Medtronic:        Medtronic,  Inc. ("Medtronic"),  a Minnesota corporation,  was
                  incorporated in 1957. Medtronic is the world's leading medical
                  technology    company    specializing   in   implantable   and
                  interventional  therapies.  Its primary products include those
                  for bradycardia  pacing,  tachyarrhythmia  management,  atrial
                  fibrillation  management,  heart failure management,  coronary
                  and  peripheral  vascular  disease,  heart valve  replacement,
                  extracorporeal  cardiac  support,  minimally  invasive cardiac
                  surgery, malignant and non-malignant pain, movement disorders,
                  neurosurgery and neurodegenerative disorders. Medtronic serves
      customers and patients in more than 120 countries.

                  Medtronic's  principal offices and corporate  headquarters are
                  located at 7000 Central  Avenue N.E.,  Minneapolis,  Minnesota
                  55432,    telephone:    (612)   514-4000.   See   "Information
Incorporated by Reference."                 

PC Merger Corp.:  PC  Merger   Corp.   ("Merger   Subsidiary"),   a   Washington
                  corporation,  is a corporation recently organized by Medtronic
                  for the purpose of  effecting  the Merger.  It has no material
                  assets  and  has  not  engaged  in any  activities  except  in
connection with the proposed Merger.        

Physio-Control Shareholders' Meeting

Time, Date, and                                                                 
Place of  Meeting:A special meeting of shareholders  of  Physio-Control  will be
                  held on  ___________,  1998,  at 9:00  a.m.,  local  time,  at
                  Physio-Control's  corporate  headquarters,  located  at  11811
         Willows Road NE, Redmond, Washington (the "Meeting").

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Purpose of the                                                                  
 Meeting:         The  purpose  of the  Meeting is to  consider  and vote upon a
                  proposal  to  approve  the Plan of Merger  attached  hereto as
                  Appendix A and the  Agreement  and Plan of Merger  dated as of
                  June 27,  1998  (the  "Merger  Agreement"),  among  Medtronic,
                  Physio-Control,  and  Merger  Subsidiary,  which  is  attached
                  hereto as Appendix B,  providing for the merger (the "Merger")
                  of Merger Subsidiary into Physio-Control, as a result of which
                  Physio-Control  will  become  a  wholly-owned   subsidiary  of
                  Medtronic.  Other terms and  provisions  related to the Merger
                  are set forth in the Merger Agreement,  which is summarized in
this Proxy Statement/Prospectus.            

Record Date:      Only holders of record of  Physio-Control  Common Stock at the
                  close of business on  ___________,  1998,  will be entitled to
                  notice of and to vote at the  Meeting  or any  adjournment  or
adjournments thereof.                       

Vote Required:    The  affirmative  vote by the  holders  of  two-thirds  of the
                  outstanding shares of Physio-Control  Common Stock is required
                  to approve the Plan of Merger and the Merger Agreement.  As of
                  the record date,  17,727,891 shares of  Physio-Control  Common
                  Stock were  outstanding  and entitled to vote. Of such shares,
       136,979 shares (less than 1% of the shares entitled
                  to vote at the  Meeting) are  beneficially  owned by directors
                  and  executive  officers of  Physio-Control.  Physio-Control's
                  directors and executive  officers who hold stock or options to
                  purchase  stock  of   Physio-Control   have  executed   voting
                  agreements  under which such persons agreed to vote the shares
                  of Physio-Control  Common Stock  beneficially owned by them in
favor of the Merger.                        

                  Physio-Control  shareholders  have the power to revoke proxies
                  previously given by them before the shares  represented by any
                  such   proxies  are  voted  at  the   Meeting.   See  "General
Information."                               

                  Approval  of the Plan of Merger  and the Merger  Agreement  by
                  Medtronic  shareholders  is not required  under  Minnesota law
                  and,  accordingly,  will not be sought.  See "The Merger--Vote
Required."                                  

Dissenters' Rights:                                                             
                  Under Washington law, holders of  Physio-Control  Common Stock
                  who give proper notice to  Physio-Control  and who do not vote
                  in favor of the  Merger  have the right to receive in cash the
                  "fair  value"  of  their  Physio-Control  shares  in  lieu  of
                  Medtronic  Common  Stock  pursuant  to the  Merger.  See  "The
                  Merger--Rights of Dissenting Physio-Control  Shareholders" and
                  Chapter 23B.13 of the Washington Business Corporation Act (the
                  "WBCA"),  a copy of which is  attached  hereto as  Appendix C.
                  Holders  of  Medtronic  Common  Stock do not have  dissenters'
rights in connection with the Merger.       

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 Description of the Merger

General; Exchange:                                                              
                  Upon  consummation  of the Merger,  Merger  Subsidiary will be
                  merged into  Physio-Control and  Physio-Control  will become a
                  wholly-owned   subsidiary   of   Medtronic.   Each   share  of
                  Physio-Control  Common Stock outstanding  immediately prior to
                  the  Merger  (excluding  any  shares  as to which  dissenters'
                  rights have been properly  exercised)  will be converted  into
                  the  portion  of  a  share  (the  "Conversion   Fraction")  of
                  Medtronic  Common Stock equal to $27.50 divided by the average
                  of the daily closing sale prices of Medtronic  Common Stock as
                  reported  on the  NYSE  Composite  Tape  (the  "Average  Stock
                  Price") for the 19 consecutive NYSE trading days ending on the
                  first NYSE trading day  immediately  preceding  the  Effective
Time of the Merger.                         

                  The Conversion  Fraction is subject to appropriate  adjustment
                  in the event of a stock split, combination, stock dividend, or
                  other  distribution  of shares of the  Medtronic  Common Stock
                prior to the Effective Time of the Merger. See "The Merger."

                  Each share of Medtronic  Common  Stock  received in the Merger
                  will also  represent one Preferred  Stock Purchase Right under
                  Medtronic's     Shareholder     Rights    Plan.    See    "The
Merger--Shareholder Rights Plan."           

                  Persons  entitled to  fractional  shares of  Medtronic  Common
                  Stock upon such  conversion  shall  receive a cash  payment in
                  lieu thereof.  See "The  Merger--Conversion  of Physio-Control
   Common Stock in the Merger--Fractional Shares."

                  If the  Merger  is  approved  and  the  Merger  is  completed,
                  Physio-Control  shareholders  will be instructed to deliver to
                  Medtronic's   exchange  agent  for  the  Merger  a  letter  of
                  transmittal, which will be sent to such shareholders following
                  the  Merger,   together  with  certificates   evidencing  each
                  shareholder's Physio-Control Common Stock, in exchange for the
                  Medtronic Common Stock and, if applicable, cash in lieu of any
                  fractional  shares of Medtronic  Common Stock.  Physio-Control
                  shareholders  should not send in their certificates until they
                  receive a letter of transmittal.  See "The  Merger--Conversion
  of Physio-Control Common Stock in the Merger."

Effective Time of                                                               
 the  Merger:     It is expected that the Merger will become effective within 10
                  business days following approval of the Plan of Merger and the
                  Merger  Agreement by the requisite vote of the  Physio-Control
                  shareholders  and the  satisfaction  or  waiver  of the  other
                  conditions  to the  Merger,  upon the  filing of  articles  of
                  merger  with  the  Washington  Secretary  of  State.  See "The
                  Merger--Effective  Time  of  the  Merger"  and  "--Conditions;
Waiver."                                    

Background of the                                                               
 Merger:          The  terms  of  the  Merger   Agreement   are  the  result  of
                  arm's-length negotiations between representatives of Medtronic
                  and Physio-Control. The following is a brief discussion of the
                  background  of these  negotiations,  the  Merger  and  related
transactions.                               

                  In January 1998,  Physio-Control  engaged Morgan Stanley & Co.
                  Incorporated  ("Morgan  Stanley") to assist in a possible sale
                  of  Physio-Control.   On  February  3,  1998,  Morgan  Stanley
                  contacted Medtronic regarding whether it had any interest in a
                  transaction  with   Physio-Control.   Following  that  initial
                  contact, representatives of both companies and their financial
                  advisors  held  several  meetings  in  March  and  April  1998
regarding a possible transaction.           

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                  On April 16,  1998,  the  parties  executed a  confidentiality
                  agreement.  Medtronic presented certain nonfinancial terms for
                  discussion with Physio-Control on April 28, 1998 and presented
                  certain  financial  terms  for  discussion  on  May  5,  1998.
                  Following  further  discussions  of terms and  negotiation  of
                  definitive  agreements  among the parties and their  advisors,
                  and Medtronic's review of due diligence  information regarding
                  Physio-Control,   on  June  20,  1998,  the  parties   reached
                  tentative   agreement  on  possible   resolutions  of  certain
                  outstanding  issues,  subject  to  approval  of  the  parties'
respective Boards of Directors.             

                  On June 25, 1998, the Board of Directors of Medtronic approved
                  the   acquisition   of   Physio-Control,   subject   to  final
                  negotiations  of  outstanding  issues  by  senior  management.
                  Negotiations  continued  through  June 27,  1998.  On June 27,
                  1998,  the Board of  Directors of  Physio-Control  unanimously
                  approved  the terms of the  Merger  Agreement  and the Plan of
                  Merger.   The  Merger   Agreement  was  signed  following  the
                  conclusion  of  the  meeting  of the  Board  of  Directors  of
                  Physio-Control.  See "The  Merger--Background  of the Merger,"
                  "--Physio-Control's Reasons for the Merger;  Recommendation of
                  the Physio-Control Board of Directors," "--Medtronic's Reasons
                  for the Merger," and "--Opinion of Physio-Control's  Financial
Advisor."                                   

Reasons for the                                                                 
Merger:           In reaching its  conclusions  to approve the Merger  Agreement
                  and to  recommend  the  approval of the Plan of Merger and the
                  Merger  Agreement  by  the  Physio-Control  shareholders,  the
                  Physio-Control  Board of Directors considered various factors,
                  including the opportunity for  Physio-Control  shareholders to
                  continue equity  participation  in a larger,  more diversified
                  medical device company at a premium over current market prices
                  for Physio-Control  Common Stock; the opportunity for enhanced
                  product development,  marketing,  and sales by Physio-Control;
                  Medtronic's reputation and resources; the terms and conditions
                  of the Merger  Agreement;  the  fairness  opinion  provided by
                  Morgan   Stanley;   the  price   offered   to   Physio-Control
                  shareholders and historical  trading prices for Physio-Control
                  Common Stock and  Medtronic  Common Stock;  the  likelihood of
                  consummation  of the  Merger;  and the  expectation  that  the
                  Merger   will   be   nontaxable   to   the   shareholders   of
                 Physio-Control for United States federal income tax purposes.

                  The  Board of  Directors  of  Physio-Control  has  unanimously
                  approved  the  Merger,  and  the  Board  recommends  that  the
                  shareholders  of  Physio-Control  vote in favor of the Plan of
Merger and the Merger Agreement.            

                  See  "The  Merger--Physio-Control's  Reasons  for the  Merger;
                  Recommendation  of the  Physio-Control  Board  of  Directors,"
                  "--Medtronic's   Reasons  for  the  Merger,"   "--Opinion   of
                  Physio-Control's  Financial  Advisor," and "Comparative  Stock
                  Prices and  Dividends."  For  information  on the interests of
                  certain persons in the Merger, see "The  Merger--Interests  of
Certain Persons in the Merger."             

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Physio-Control's                                                                
Financial Advisor:                                                            
                  Morgan Stanley was  retained  by  Physio-Control  to advise it
                  with   respect  to   proposals   for   the    acquisition   of
                  Physio-Control.  Morgan   Stanley   has  rendered  its written
                  opinion  that,   as   of   the  date  of  such  opinion,   the
                  consideration    to    be   received   by   the   holders   of
                  Physio-Control Common Stock  pursuant  to the Merger Agreement
                  is fair from a financial  point  of view to such holders.  The
                  full text of the opinion of  Morgan  Stanley,  which  contains
                  information  , among  other  things,  as  to  the  assumptions
                  made, matters  considered,  and  the  scope and limitations on
                  the review  undertaken,  is set  forth  as  Appendix D to this
                  Proxy  Statement/Prospectus,   and holders  of  Physio-Control
                  Common Stock  are  urged to read the opinion in its  entirety.
                  See  "The   Merger--Opinion  of   Physio-Control's   Financial
Advisor."                                   

Fluctuation in                                                                  
 Market Price:    The number of shares of Medtronic Common Stock received in the
                  Merger will  depend on the market  value of  Medtronic  Common
                  Stock,  which  is  subject  to  fluctuation.  There  can be no
                  assurance  that the recent market  prices of Medtronic  Common
                  Stock will be maintained  until or after the  consummation  of
                  the Merger.  See "Comparative  Stock Prices and Dividends" and
                  "The  Merger--Conversion of Physio-Control Common Stock in the
Merger."                                    

Certain Federal                                                                 
Income Tax                                                                  
  Consequences:   The   Merger  is   expected   to  be  treated  as  a  tax-free
                  reorganization within the meaning of Sections 368(a)(1)(A) and
                  368(a)(2)(E) of the Internal  Revenue Code of 1986, as amended
                  (the "Code"). Medtronic,  Physio-Control and Merger Subsidiary
                  will  each  be a  "party  to the  reorganization"  within  the
meaning of Section 368(b) of the Code.      

                  Physio-Control   has   received   an  opinion  of  counsel  to
                  Physio-Control  to the  effect  that,  assuming  the Merger is
                  consummated in accordance with the Merger  Agreement,  no gain
                  or  loss  will  be   recognized  by   Physio-Control   or  its
                  shareholders  upon their receipt of Medtronic  Common Stock in
                  exchange   for   their   Physio-Control    Common   Stock.   A
                  Physio-Control   shareholder   receiving   cash   in  lieu  of
                  fractional shares or exercising  dissenters' rights,  however,
                  will be required to recognize  gain,  if any,  realized in the
                  transaction  but not in  excess of the cash  received  by such
                  shareholder.   The  opinion  is  based  upon  and  subject  to
                  customary  representations  made to  such  counsel.  See  "The
     Merger--Certain Federal Income Tax Consequences."

Accounting                                                                      
  Treatment:      Medtronic  intends to account  for the Merger as a "pooling of
                  interests"  for accounting  and financial  reporting  purposes
                  under generally accepted accounting  principles.  Consummation
                  of  the  Merger  may  be   conditioned   upon   Medtronic  and
                  Physio-Control  receiving letters from  PricewaterhouseCoopers
                  LLP, Medtronic's and Physio-Control's independent accountants,
                  confirming  that  no  conditions  exist  that  would  preclude
                  Medtronic  from  accounting  for the  Merger as a  pooling  of
                  interests  transaction.  In  order to be  eligible  to use the
                  pooling  of  interests  method  to  account  for  the  Merger,
                  Medtronic  will sell prior to the Merger a number of shares of
                  Medtronic  Common  Stock equal to that number of shares  which
                  are tainted for  purposes of pooling of  interests  accounting
                  and were purchased by Medtronic in the open market pursuant to
                  its  share  repurchase  program.  See "The  Merger--Accounting
Treatment of the Merger."                   

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Treatment of Stock                                                              
 Options:         Pursuant to the terms of the  outstanding  options to purchase
                  Physio-Control   Common  Stock,  such  options  that  are  not
                  otherwise  vested will be  accelerated  and fully  vested as a
                  result of the Merger.  All options that are not  exercised and
                  remain  outstanding  at the Effective  Time will be assumed by
                  Medtronic and will thereafter be exercisable on the same terms
                  and conditions,  except for appropriate adjustments to reflect
                  the  Conversion   Fraction  and  conversion  into  options  to
                  purchase Medtronic Common Stock. See "The Merger--Treatment of
                  Stock  Options"  and  "--Interests  of Certain  Persons in the
Merger."                                    

Interests of                                                                    
Certain Persons                                                               
 in the Merger:   In considering the recommendation of the Board of Directors of
                  Physio-Control  with respect to the Plan of Merger, the Merger
                  Agreement,   and  the   transactions   contemplated   thereby,
                  shareholders  of  Physio-Control  should be aware that certain
                  executive  officers  and  directors  of  Physio-Control   have
                  certain  interests  in the Merger that are in addition to, and
                  may  conflict   with,   the  interests  of   shareholders   of
                  Physio-Control generally. These interests include, among other
                  things,  the interests of certain  executives and directors of
                  Physio-Control  in stock  options  that will  vest and  become
                  exercisable  as a result of the Merger,  and the obligation of
                  Medtronic  to cause  Physio-Control  to  continue  to  provide
                  certain   indemnification,   limited  liability,  and  related
                  insurance  coverage to  directors,  officers,  employees,  and
  agents of Physio-Control following the Merger.

                  Four executive  officers of Physio-Control  have also executed
                  separate noncompetition agreements with Medtronic, conditioned
                  upon the effectiveness of the Merger,  pursuant to which these
                  individuals  have agreed  that they will not be  employed  by,
                  associated  with,  or render  services to certain  competitive
                  businesses,  anywhere  in the world,  for 42 months  after the
                  Merger. In addition, those four executive officers are parties
                  to termination  agreements  with  Physio-Control  that provide
                  certain  payments and other benefits to these  individuals if,
                  during the two-year period  following a "change in control" of
                  Physio-Control  (such as the  Merger),  (i) such  individual's
                  employment  is  terminated  by  Physio-Control  other than for
                  death,  disability,  or "for cause" or (ii) the nature of such
                  individual's  employment with  Physio-Control  is changed in a
materially adverse manner.                  

                  The  Physio-Control  Board of  Directors  was aware of each of
                  these interests and considered them,  among other matters,  in
                  approving the Merger Agreement.  See "The Merger--Interests of
Certain Persons in the Merger."             

Regulatory Approval:                                                            
                  The only federal or state regulatory approval needed to effect
                  the Merger is the  expiration of the waiting  period under the
                  Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
                  Act"),  which period is expected to expire on August 12, 1998.
                  Medtronic  and  Physio-Control  do  not  expect  international
                  regulatory filings that may be required, if any, to affect the
                  expected  timing of the  Merger.  See "The  Merger--Regulatory
Requirements."                              

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No Solicitation:  Pursuant  to the  Merger  Agreement,  Physio-Control  and  its
                  representatives cannot, prior to the Effective Time or earlier
                  termination  of  the  Merger  Agreement,  encourage,  solicit,
                  discuss,  or negotiate with any person (other than  Medtronic)
                  concerning  any merger,  sale,  or license of any  significant
                  portion of the Physio-Control  assets or similar  transaction,
                  except to the extent required by the fiduciary  obligations of
                  the Physio-Control Board and in accordance with the provisions
                  of the Merger Agreement.  See "The Merger--Conduct of Business
of Physio-Control Pending the Merger."      

Conditions                                                                      
 to Merger:       The respective  obligations of Medtronic,  Merger  Subsidiary,
                  and  Physio-Control  to effect the  Merger are  subject to the
                  satisfaction  or waiver at or prior to the  Merger of  certain
     conditions. See "The Merger--Conditions; Waiver."

Termination:      The Merger  Agreement may be terminated prior to the Effective
                  Time,  whether  before or after  approval of the Merger by the
                  Physio-Control shareholders, in certain specified events. Upon
                  certain of such  terminations,  Physio-Control  is required to
                  pay to Medtronic a  termination  fee of $15 million.  See "The
               Merger--Amendment and Termination of the Merger Agreement."

Stock Option                                                                    
 Agreement:       In  connection  with the  execution  of the Merger  Agreement,
                  Medtronic  and  Physio-Control  entered  into a  Stock  Option
                  Agreement   pursuant  to  which   Physio-Control   granted  to
                  Medtronic  an option to  purchase  up to  3,526,683  shares of
                  Physio-Control  Common  Stock  (or  19.9%  of the  outstanding
                  shares of Physio-Control  Common Stock as of June 27, 1998) at
                  an  exercise  price  of  $27.50  per  share.   The  option  is
                  exercisable upon the occurrence of certain events and provides
                  Medtronic  with the right,  under  certain  circumstances,  to
                  require  Physio-Control  to  repurchase  the  option  for  its
                  in-the-money  value,  provided that the sum of any termination
                  fee and the amount paid to repurchase the option cannot exceed
                  $20  million.  The  option,  which  Medtronic  required  as  a
                  condition to Medtronic's  entering into the Merger  Agreement,
                  may increase the likelihood of consummation of the Merger. See
                  "The  Merger--Stock  Option  Agreement" and  "--Amendment  and
Termination of the Merger Agreement."       

Comparison of Rights of Medtronic Shareholders and Physio-Control Shareholders

         Medtronic and  Physio-Control  are  incorporated  under the laws of the
States of Minnesota and Washington,  respectively.  The rights of Physio-Control
shareholders are currently  governed by the Articles of Incorporation and Bylaws
of Physio-Control.  Upon consummation of the Merger, Physio-Control shareholders
will become  shareholders of Medtronic and their rights as such will be governed
by the Restated Articles of Incorporation and Bylaws, as amended,  of Medtronic.
See   Comparative   Rights  of   Medtronic   Shareholders   and   Physio-Control
Shareholders."                                                                  

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Recent Prices of Medtronic and Physio-Control Common Stock

         On June 26, 1998, the last trading day preceding public announcement of
the Merger Agreement,  the reported closing sale price of Medtronic Common Stock
on the NYSE was $62.9375 per share. On that day, the reported closing sale price
of  Physio-Control  Common  Stock on the Nasdaq  National  Market was $23.00 per
share.  On [July 21],  1998,  the latest  practicable  trading  day prior to the
printing of this Proxy Statement/Prospectus,  the reported closing sale price of
Medtronic  Common  Stock on the NYSE was  [$65.00]  per share.  On that day, the
reported  closing  sale  price of  Physio-Control  Common  Stock  on the  Nasdaq
National Market was [$26.50] per share.                                         

         Pursuant to the Merger,  the actual  portion of a Medtronic  share into
which one Physio-Control share will be converted will be equal to $27.50 divided
by the Average Stock Price of Medtronic Common Stock for the 19 consecutive NYSE
trading days ending on the first trading day immediately preceding the Effective
Time of the Merger.  Solely for illustrative  purposes,  the Conversion Fraction
would be .4369 if the Average Stock Price were calculated  based on the reported
closing sale price of Medtronic Common Stock on June 26, 1998, or [.4231] if the
Average Stock Price were calculated  based on the reported closing sale price of
Medtronic  Common Stock on [July 21],  1998. See  "Comparative  Stock Prices and
Dividends" and "The  Merger--Conversion  of  Physio-Control  Common Stock in the
Merger."                                                                        

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Selected Historical Financial Data

         The following table sets forth selected  historical  financial data for
Medtronic  for each of the five  consecutive  fiscal years ended April 30, 1998,
and for  Physio-Control  for each of the five  consecutive  fiscal  years  ended
December 31, 1997 and the three months ended March 31, 1998 and 1997.  Such data
should be read in conjunction with the consolidated financial statements and the
unaudited condensed  consolidated  interim financial statements of Medtronic and
Physio-Control,  all of which are  incorporated  by reference  herein.  Selected
unaudited financial data for Physio-Control for the three months ended March 31,
1998 and 1997  include  all  adjustments  (consisting  only of normal  recurring
accruals) that Physio-Control considers necessary for a fair presentation of the
consolidated operating results for such interim periods. Results for the interim
periods  are not  necessarily  indicative  of results  for the full  years.  See
"Information Incorporated by Reference."                                        

 MEDTRONIC, INC.
 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 (in thousands, except per share data)

                                                        · Enlarge/Download Table


                                                 Year Ended April 30,                        
                                  1994         1995          1996           1997     1998(2) 
                                  ----         ----          ----           ----     ----    
                                                                                             
Net sales.................... $1,390,922  $1,742,392     $2,172,100    $2,438,224  $2,604,819
Net earnings.................    232,357     294,000        428,306       529,988     457,382
Basic earnings per share(1)..       0.51        0.64           0.90          1.11        0.98
Earnings per share assuming                                                                  
dilution (1).................       0.50        0.63           0.89          1.09        0.96
Total assets.................  1,623,252   1,946,732      2,554,700     2,409,210   2,774,727
Long-term debt...............     20,232      14,200         15,336        13,980      16,227
Cash dividends per share(1)..       0.09        0.10           0.13          0.19        0.22

PHYSIO-CONTROL INTERNATIONAL CORPORATION
 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 (in thousands, except per share data)

                                                        · Enlarge/Download Table


                              Year Ended December 31,                           Three Months Ended   
                                                                               March 31,    March 31,
                       1993(3)      1994(3)       1995(4)    1996      1997       1997         1998  
                       ----         ----          ----       ----      ----       ----          ---- 
                                                                                                     
Net sales............. $107,129     $150,028     $148,702  $173,165  $175,311   $40,727       $43,968
Net income (loss).....  (35,947)       3,233        6,254    15,339     9,332     2,653         2,816
Basic earnings per                                                                                   
share.................      N/A          N/A         0.42      0.91      0.54      0.16          0.16
Earnings per share                                                                                   
assuming dilution.....      N/A          N/A         0.40      0.87      0.53      0.15          0.16
Total assets..........   83,045       93,544       78,500    95,862   106,659   100,098       112,660
Long-term debt........        0       36,496       16,211    21,031    15,531    22,136        16,531
Cash dividends per                                                                                   
share.................        0            0            0         0         0         0             0

-------------------                                                             
(1)      In  each  of  September  1994,  September  1995,  and  September  1997,
         Medtronic  effected a two-for-one  common stock split, paid in the form
         of a 100% stock  dividend.  All  references in the Selected  Historical
         Consolidated  Financial  Data to earnings per share and cash  dividends
per share have been restated to reflect these stock splits.   

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(2)      Net earnings, basic earnings per share, and earnings per share assuming
         dilution  reflect  the impact of $205.3  million  pre-tax  nonrecurring
charges recorded in the third quarter of fiscal 1998.         

(3)      Periods beginning July 30, 1994 reflect data of Physio-Control  and its
         subsidiaries  after  the  acquisition  of stock by Bain  Capital,  Inc.
         Periods  prior  to  and  including   July  29,  1994  reflect  data  of
         Physio-Control  as a  wholly-owned  subsidiary of Eli Lilly and Company
         ("Lilly"),  which was acquired by Bain  Capital,  Inc. on July 29, 1994
         from Lilly. The term "Predecessor" refers to Physio-Control  during the
         period in which it was a wholly-owned  subsidiary of Lilly. The results
         of operations of the Predecessor  from January 1, 1994 to July 29, 1994
         and of Physio-Control from July 30, 1994 to December 31, 1994 have been
         combined.  Operating  results for 1993 were  adversely  affected by the
         temporary  suspension  of  Physio-Control's   manufacturing  operations
         beginning  in May 1992  after its  receipt of  notification  of alleged
         deficiencies in compliance with FDA regulations.  Operating results for
         1994 were  positively  impacted  by a reduction  of the large  domestic
         backlog during 1994. Earnings (loss) per share is not calculated due to
Physio-Control's status as a wholly-owned subsidiary.         

(4)      Net income,  basic earnings per share,  and earnings per share assuming
         dilution reflect the impact of a $1.46 million  extraordinary loss from
the early extinguishment of debt.                             

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Comparative Per Share Data

     The  following  summary  sets forth  certain  historical  per share data of
Medtronic  and  Physio-Control  and combined per share data on an unaudited  pro
forma basis after giving  effect to the Merger on a pooling of  interests  basis
assuming,  solely  for  illustrative  purposes  of this  presentation,  that the
Average Stock Price for Medtronic Common Stock is [$65.00] (the reported closing
sale price of Medtronic  Common Stock on [July 21],  1998).  The actual  Average
Stock Price that will be used in the Merger  will be the Average  Stock price of
Medtronic  Common Stock for the 19  consecutive  NYSE trading days ending on the
trading  day  immediately  preceding  the  Effective  Time  of the  Merger.  The
unaudited pro forma data are provided for  comparative  purposes only and do not
purport to be  indicative  of actual or future  operating  results or  financial
position that would have occurred or will occur upon consummation of the Merger.
The information  presented below should be read in conjunction with the selected
historical  financial data and the separate historical  financial  statements of
Medtronic and  Physio-Control,  including  the notes  thereto,  incorporated  by
reference in this Proxy  Statement/Prospectus.  See "Information Incorporated by
Reference."  Presentation of full pro forma financial statements is not included
because the Merger does not constitute a significant  business  combination  and
the disclosure is not deemed to be material.                                    

                                                        · Enlarge/Download Table

                                                                              Basic       Diluted            
                                                                             Earnings     Earnings           
                                                                               from        from              
                                                                    Book    Continuing  Continuing  Cash     
                                                                     Value  Operations  Operations  Dividends
                                                                                                             
MEDTRONIC HISTORICAL DATA:                                                                                   
Per Medtronic share at and for the fiscal year ended April 30,                                               
1998(1)............................................................  $4.36    $0.98       $0.96       $0.22  
Per Medtronic share for the fiscal year ended April 30, 1997.......    *       1.11        1.09        0.19  
Per Medtronic share for the fiscal year ended April 30, 1996.......    *       0.90        0.89        0.13  

PHYSIO-CONTROL HISTORICAL DATA:                                                                              
Per Physio-Control share at and for the 12 months ended March 31,                                            
1998...............................................................  3.52      0.55        0.53           0  
Per Physio-Control share at and for the 3 months ended March 31,                                             
1998...............................................................  3.52      0.16        0.16           0  
Per Physio-Control share for the fiscal year ended December 31,                                              
1997...............................................................  3.25      0.54        0.53           0  
Per Physio-Control share for the 12 months ended March 31, 1997....    *       0.86        0.83           0  
Per Physio-Control share for the fiscal year ended  December 31,                                             
1996...............................................................    *       0.91        0.87           0  
Per Physio-Control share for the 12 months ended March 31, 1996(2).                                          
                                                                       *       0.47        0.45           0  

MEDTRONIC AND PHYSIO-CONTROL PRO FORMA                                                                       
COMBINED DATA:                                                                                               
Per Medtronic share at and for the fiscal year ended April 30,                                               
1998(1) (3)........................................................  4.42      0.98        0.97        0.22  
Per Physio-Control share equivalent(4) at and for the fiscal year                                            
ended April 30, 1998(1)(30.........................................  1.87      0.41        0.41        0.09  
Per Medtronic share for the fiscal year ended April 30, 1997(5)....    *       1.12        1.10        0.19  
Per Physio-Control share equivalent(4) for the fiscal year ended                                             
April 30, 1997(5)..................................................    *       0.48        0.47        0.08  
Per Medtronic share for the fiscal year ended April 30, 1996(2)(6)     *       0.90        0.89        0.13  
Per Physio-Control share equivalent(4) for the fiscal year ended                                             
April 30, 1996(2)(6)...............................................    *       0.38        0.38        0.05  

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-------------------                                                             
(1)      Basic earnings from  continuing  operations  and diluted  earnings from
         continuing  operations  reflect  the impact of $205.3  million  pre-tax
    nonrecurring charges recorded in the third quarter of fiscal 1998.

(2)      Basic earnings from  continuing  operations  and diluted  earnings from
         continuing   operations   reflect   the  impact  of  a  $1.46   million
extraordinary loss from the early extinguishment of debt.     

 (3)     The  combined  pro forma data  combine  the  financial  information  of
         Medtronic  at and for the year ended April 30, 1998 with the  financial
         information  of  Physio-Control  at and for the  12-month  period ended
March 31, 1998.                                               

(4)      The equivalent pro forma combined information  represents the pro forma
         combined net income and book value multiplied by [.4231],  which is the
         assumed Conversion Fraction (based on an assumed Average Stock Price of
[$65.00]) solely for purposes of this illustration.           

(5)      The  combined  pro forma data  combine  the  financial  information  of
         Medtronic  for the  year  ended  April  30,  1997  with  the  financial
         information of  Physio-Control  for the 12-month period ended March 31,
1997.                                                         

(6)      The  combined  pro forma data  combine  the  financial  information  of
         Medtronic  for the  year  ended  April  30,  1996  with  the  financial
         information of  Physio-Control  for the 12-month period ended March 31,
1996.                                                         

*        Disclosure is not required.                                            

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 GENERAL INFORMATION

         This Proxy  Statement/Prospectus is being furnished to the shareholders
of  Physio-Control in connection with the solicitation by the Board of Directors
of  Physio-Control  of  proxies  to be  voted  at  the  Meeting  to be  held  on
___________, 1998.                                                              

         At the Meeting,  Physio-Control  shareholders will be asked to consider
and vote  upon the  approval  of the Plan of  Merger  and the  Merger  Agreement
attached to this Proxy Statement/Prospectus as Appendices A and B, respectively,
providing  for the Merger of Merger  Subsidiary,  a  wholly-owned  subsidiary of
Medtronic,  with and into  Physio-Control,  as a result of which  Physio-Control
will become a wholly-owned  subsidiary of Medtronic.  Other terms and provisions
related  to the  Merger  are set forth in the  Merger  Agreement,  as  described
herein.                                                                         

         The Board of Directors of Physio-Control  has unanimously  approved the
Merger.  The Board of  Directors  of  Medtronic  has approved the Merger and the
issuance  of  shares  of  Medtronic  Common  Stock  in  the  Merger.   See  "The
Merger--Background  of the Merger."  Applicable  Minnesota  law does not require
that Medtronic  shareholders  approve the Merger,  and no such approval is being
sought.  Medtronic,  as the sole shareholder of Merger Subsidiary,  has approved
the Merger.                                                                     

         Pursuant to the Plan of Merger,  upon effectiveness of the Merger, each
outstanding  share  of  Physio-Control   Common  Stock,  except  for  shares  of
Physio-Control   Common  Stock  held  by  shareholders  who  properly   exercise
dissenters'  rights under  Washington  law, will be converted  into the right to
receive  a  portion   of  a  share  of   Medtronic   Common   Stock.   See  "The
Merger--General,"  "--Conversion of Physio-Control  Common Stock in the Merger,"
and "--Rights of Dissenting Physio-Control Shareholders."                       

       The close of business on __________,  1998 (the  "Record  Date") has been
fixed as the record  date for  determination  of the  holders of  Physio-Control
Common  Stock who are entitled to notice of and to vote at the Meeting or at any
adjournment  thereof.  Physio-Control  has  only  one  class  of  capital  stock
outstanding,  Common  Stock,  $.01 par value per share.  As of the Record  Date,
there were [17,727,891]  shares of Physio-Control  Common Stock outstanding held
by approximately 100 holders of record. The holders of record on the Record Date
of shares of  Physio-Control  Common Stock are entitled to one vote per share at
the Meeting. The presence at the Meeting in person or by proxy of the holders of
a majority of the outstanding shares of Physio-Control  Common Stock entitled to
vote shall  constitute a quorum for the  transaction of business;  however,  the
affirmative  vote of the  holders of  two-thirds  of the  outstanding  shares of
Physio-Control  Common Stock is required  for approval of the Merger.  Directors
and executive officers of Physio-Control  have agreed to vote the Physio-Control
shares  beneficially owned by them in favor of the Merger. See "The Merger--Vote
Required" and "--Voting Agreements."                                            

         Representatives   of   PricewaterhouseCoopers   LLP,   Physio-Control's
independent  accountants,  are  expected  to be  present  at the  Meeting.  Such
representatives  will have the opportunity to make a statement if they so desire
and are expected to be available to respond to appropriate questions.           

         A proxy card is enclosed for use by Physio-Control  shareholders.  Such
shareholders are solicited on behalf of the Board of Directors of Physio-Control
to SIGN AND RETURN THE PROXY CARD IN THE  ACCOMPANYING  ENVELOPE.  No postage is
required  if  mailed  within  the  United  States.  Questions  or  requests  for
assistance  in  completing  and  submitting  Proxy  cards  may  be  directed  to
____________________________  at the address or telephone number listed on the  
cover of this Proxy Statement/Prospectus.                                       

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         All properly  executed proxies not revoked will be voted at the Meeting
in accordance with the instructions  contained  therein.  Proxies  containing no
instructions will be voted in favor of approval of the Merger. A shareholder who
has  executed and returned a proxy may revoke it at any time before it is voted,
but only by  executing  and  returning a proxy  bearing a later date,  by giving
written notice of revocation to the corporate secretary of Physio-Control, or by
attending  the  Meeting  and  voting in person.  Abstentions  will be treated as
shares  present for  purposes of  determining  a quorum for the Meeting but will
have the same effect as a vote  against  approval of the Merger.  If a broker or
other  record  holder  or  nominee  indicates  on a proxy  that it does not have
direction or authority as to certain shares to vote on the Merger,  those shares
will be considered  present at the Meeting for purposes of  determining a quorum
but will have the same effect as a vote against approval of the Merger.         

         If any other matters are properly  presented for  consideration  at the
Meeting,  the persons named in the enclosed form of proxy and acting  thereunder
will have  discretion  to vote on such  matters  in  accordance  with their best
judgment.                                                                       

         THE  BOARD  OF  DIRECTORS  OF   PHYSIO-CONTROL   RECOMMENDS   THAT  THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER. See "The  Merger--Interests of
Certain  Persons in the Merger" for a discussion  of conflicts of interest  that
certain directors and members of management have in connection with the Merger. 

 SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.

         In  addition  to the  solicitation  of  proxies  by use  of  mail,  the
directors,  officers or regular  employees  of  Physio-Control  may, but without
compensation other than their regular  compensation,  solicit proxies personally
or by telephone or fax. In addition, _____________________________,  a firm that
provides  professional proxy soliciting services,  has been engaged to assist in
the solicitation of proxies from brokers,  bank nominees,  institutional holders
and  other  Physio-Control  shareholders  and to serve as  information  agent in
connection  with  the  Merger.   ________________________________  will  receive
reasonable and customary  compensation  for such services and  reimbursement  of
reasonable out-of-pocket expenses. Physio-Control intends to reimburse brokerage
houses  and  other   custodians,   nominees,   and  fiduciaries  for  reasonable
out-of-pocket expenses incurred in forwarding copies of solicitation material to
beneficial owners of Physio-Control Common Stock held of record by such persons.
Physio-Control  and Medtronic have agreed to share equally all expenses relating
to the printing and mailing of this Proxy Statement/Prospectus and the filing of
it with the Commission.                                                         

         All  information  in this Proxy  Statement/Prospectus  with  respect to
Medtronic has been  furnished by Medtronic and all  information  with respect to
Physio-Control has been furnished by Physio-Control.                            

         The  mailing  of this Proxy  Statement/Prospectus  to  shareholders  of
Physio-Control is expected to commence on or about ______________, 1998.        

THE MERGER

         Set forth below is a brief  description  of certain terms of the Merger
Agreement and related matters.  This description does not purport to be complete
and is  qualified  in its  entirety by  reference  to the Plan of Merger and the
Merger  Agreement,  which  are  attached  hereto as  Appendices  A and B and are
incorporated herein by reference.                                               

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General                                                                         

         Medtronic,  Merger Subsidiary, and Physio-Control have entered into the
Merger Agreement,  which provides that Merger Subsidiary will be merged with and
into Physio-Control,  with Physio-Control  becoming a wholly-owned subsidiary of
Medtronic.  In the Merger,  Physio-Control  will  change its name to  "Medtronic
Physio-Control,  Inc." Each outstanding  share of  Physio-Control  Common Stock,
other than shares held by  Physio-Control  shareholders who perfect  dissenters'
rights under Washington law, will be converted at the Effective Time (as defined
below)  into the right to receive  the  portion of a share of  Medtronic  Common
Stock equal $27.50 divided by the Average Stock Price of Medtronic  Common Stock
for a specified  determination period, as described in further detail below. See
"The Merger--Conversion of Physio-Control Common Stock in the Merger."          

Effective Time of the Merger                                                    

     As soon as practicable  after the conditions to  consummation of the Merger
described below have been satisfied or waived,  and unless the Merger  Agreement
has been terminated as provided below, articles of merger containing the Plan of
Merger will be filed with the Secretary of State of the State of Washington,  at
which time the Merger  will  become  effective  (the  "Effective  Time").  It is
presently  contemplated  that the Effective  Time will be as soon as practicable
after approval of the Merger at the Meeting, but not later than 10 business days
after  approval  of  the  Merger  by the  Physio-Control  shareholders  and  the
satisfaction  or  waiver  of the  other  conditions  to  the  Merger.  See  "The
Merger--Conditions; Waiver" and "--Accounting Treatment of the Merger."         

Background of the Merger                                                        

         The  terms of the  Merger  Agreement  are the  result  of  arm's-length
negotiations  between  representatives  of  Medtronic  and  Physio-Control.  The
following is a brief  discussion of the  background of these  negotiations,  the
Merger, and related transactions.                                               

         On  November  12,  1997,  at  a  regularly  scheduled  meeting  of  the
Physio-Control  Board of Directors,  the Board  discussed  the strategic  forces
driving  consolidation  within the medical  device  industry and other  industry
factors that  indicated a need for  substantial  growth by  Physio-Control.  The
Physio-Control Board of Directors considered the range of strategic alternatives
available to Physio-Control,  including potential acquisitions by Physio-Control
that had been considered, and authorized the engagement of Morgan Stanley to act
as financial  advisor to assist the Board of Directors of Physio-Control in also
actively considering proposals for the acquisition of Physio-Control.           

         Physio-Control   management  contacted  Morgan  Stanley  following  the
meeting and, in January 1998, an engagement  letter (dated December 9, 1997) was
executed, which, among other terms, specified a limited number of companies that
Morgan   Stanley   could   contact   concerning   a  possible   acquisition   of
Physio-Control.                                                                 

         With the  assistance of  Physio-Control's  management,  Morgan  Stanley
proceeded to contact the  authorized  group of  companies  concerning a possible
acquisition of Physio-Control.  This group of potential  acquirors  consisted of
leading hospital supply and medical technology  companies,  including Medtronic.

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         On  February  3, 1998,  Morgan  Stanley,  on behalf of  Physio-Control,
contacted  Michael Ellwein,  then the Vice President  Corporate  Development and
Associate  General Counsel of Medtronic,  concerning  whether  Medtronic had any
interest in a strategic  transaction  involving  Physio-Control.  As a result of
that telephone call, and following  arrangements  coordinated by Morgan Stanley,
on March 16,  1998,  Richard  Martin  and  Robert  Guezuraga,  respectively  the
Chairman  and Chief  Executive  Officer and the  President  and Chief  Operating
Officer of Physio-Control, Glen Nelson, M.D. and Bobby Griffin, respectively the
Vice Chairman and the Executive Vice President of Medtronic, and Mr. Ellwein met
in Bellevue,  Washington,  to discuss Physio-Control's business in general terms
and Medtronic's potential interest in a possible acquisition of Physio-Control. 

         After additional  discussions among  representatives of Morgan Stanley,
Medtronic,   and   Physio-Control,   on  March  26,  1998,   Medtronic  sent  to
Physio-Control a draft confidentiality agreement to maintain the confidentiality
of information exchanged by Medtronic and Physio-Control. On April 16, 1998, the
confidentiality agreement was executed.                                         

         On March 30, 1998, Mr. Martin met with William W. George,  the Chairman
and Chief  Executive  Officer of  Medtronic,  and Mr.  Griffin,  at the American
Conference of Cardiologists in Atlanta,  Georgia,  and held further  discussions
regarding  Physio-Control's  business and  Medtronic's  potential  interest in a
possible acquisition of Physio-Control.                                         

         On April 8, 1998,  a  representative  of Morgan  Stanley,  on behalf of
Physio-Control,  spoke by telephone with Mr. Ellwein regarding the general terms
of a possible acquisition of Physio-Control by Medtronic.                       

        On April 23, 1998, Dr. Nelson, Messrs. Griffin and Ellwein,  and Michael
Jeram of Medtronic's Corporate  Development group, met in Bellevue,  Washington,
with Messrs.  Martin and  Guezuraga,  and Joseph  Caffarelli  and Marc Droppert,
respectively  the Executive Vice President and Chief  Financial  Officer and the
Executive Vice President and General Counsel of Physio-Control.  Representatives
of Morgan Stanley and Goldman, Sachs & Co. ("Goldman Sachs"), financial advisors
to Medtronic in connection  with the Merger,  were present.  During the meeting,
the parties  discussed,  among other things,  Physio-Control's  business and the
strategic rationale for a combination  between the two companies.  Following the
meeting,  Dr.  Nelson and Messrs.  Griffin and Ellwein  toured  Physio-Control's
facilities in Redmond, Washington, and received a product demonstration.        

         On April 28, 1998, Mr. Ellwein presented to Mr. Martin for discussion a
proposal   containing  certain   nonfinancial  terms  for  a  possible  business
combination  between  Physio-Control and Medtronic.  Mr. Ellwein indicated that,
subject to the  completion  of some  additional  review,  Medtronic  expected to
propose financial terms within a few days.                                      

         On May 5, 1998, at a regularly  scheduled meeting of the Physio-Control
Board  of  Directors,   representatives  of  Morgan  Stanley  made  a  financial
presentation  to the Board of Directors and also updated the Board on the status
of the discussions with the authorized companies and,  specifically,  Medtronic,
including the proposed discussion terms received from Medtronic.                

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        Also on May 5,  1998,  Mr.  Ellwein  and  Mr.  Martin  had  a  telephone
conversation  and Mr. Ellwein  presented to Mr. Martin for discussion a proposal
that,  subject to  completion  of due  diligence  and  completion  of definitive
agreements,  Medtronic would pay $27.00 for each share of Physio-Control  Common
Stock, to be paid in Medtronic Common Stock. Mr. Martin reported the information
to the  Physio-Control  Board of Directors,  which,  after  discussion,  did not
approve  the  offered  price but  authorized  Mr.  Martin and Morgan  Stanley to
continue discussions with Medtronic.                                            

         Following the Physio-Control  Board meeting,  representatives of Morgan
Stanley  contacted  Medtronic  on  behalf of  Physio-Control  and  informed  its
representatives  that the current discussion terms were not acceptable either as
to price  or as to the  nonfinancial  terms;  however,  due to  Physio-Control's
ongoing interest in a strategic  combination with Medtronic,  Physio-Control was
prepared to allow  Medtronic to begin its due diligence  process in an effort to
encourage a proposal for a transaction more favorable to Physio-Control.        

         On May 18,  1998,  Medtronic's  counsel  distributed  an initial  draft
merger agreement to Physio-Control  and its legal advisors.  Also, on May 20 and
21,  Medtronic  representatives  met at the  offices of  Physio-Control's  legal
counsel to review due diligence materials provided by Physio-Control. During the
week of May 25, 1998,  Physio-Control  and its counsel  provided  additional due
diligence information and provided Medtronic with specific comments on the draft
merger agreement.                                                               

        On  June 1, 1998,  members  of  Medtronic  management  (Messrs. Griffin,
Collins, Johnson,  Eastwood and Cybulski)  met with  Physio-Control  management 
(Messrs. Martin, Guezuraga,  Caffarelli, and Droppert) in Redmond, Washington.  
During the meeting, the parties discussed Physio-Control's business.            

         Between  June  1  and  20,  1998,  Medtronic,   Physio-Control,   their
respective  outside  counsel,  Morgan  Stanley,  and Goldman  Sachs held several
meetings  and  conference   calls,   which   involved  due  diligence   matters,
negotiations  regarding  the terms of the draft  merger  agreement  and  related
documents, integration planning, discussions regarding accounting treatment of a
potential business  combination between Medtronic and Physio-Control,  and other
matters related to the transaction.                                             

         On June 16, 1998,  after a number of  discussions  with Mr.  Martin and
other officers of Physio-Control,  representatives of Morgan Stanley,  on behalf
of Physio-Control,  telephoned  representatives of Medtronic and representatives
of  Goldman  Sachs to  discuss  financial  considerations  in the  draft  merger
agreement.   During  these   discussions,   representatives  of  Morgan  Stanley
reiterated that the draft merger  agreement was not acceptable  either as to (i)
price, (ii) transaction protections,  including the size, scope, and triggers of
any termination fee or termination  option, and (iii) certain other nonfinancial
terms.  At  that  time,  Medtronic  agreed  to  certain   modifications  to  the
transaction  protection clauses, but remained firm as to Medtronic's  discussion
price of $27.00 per share.  Representatives of Morgan Stanley, after discussions
with the  management of  Physio-Control,  again  rejected  Medtronic's  proposed
discussion price on behalf of Physio-Control.                                   

         On June 20,  1998,  Physio-Control,  Medtronic,  and  their  respective
financial  advisors and outside  counsel held a number of discussions  regarding
the outstanding  financial and nonfinancial terms of the draft merger agreement.
At the conclusion of these  discussions,  Medtronic  proposed an increase in the
Merger price to $27.50 for each share of Physio-Control Common Stock, to be paid
in Medtronic  Common Stock,  subject to approval of both  companies'  respective
Boards of Directors and  negotiation  of an  acceptable  merger  agreement,  and
indicated that this was the maximum value it would consider.  After  discussions
with  representatives of Physio-Control,  representatives of Morgan Stanley,  on
behalf of Physio-Control,  and Medtronic reached preliminary verbal agreement on
certain  outstanding issues,  other than certain transaction  protection clauses
(consisting  of the  termination  fee and the  stock  option  to be  granted  to
Medtronic  pursuant  to the Stock  Option  Agreement)  and the Merger  price per
share,  subject to the approval of Physio-Control's  and Medtronic's  respective
Boards of Directors.                                                            

         On June 25, 1998,  the Board of  Directors  of  Medtronic  approved the
acquisition  of  Physio-Control,  subject to final  negotiations  of outstanding
issues by senior management,  and authorized  Medtronic's  officers to undertake
all acts necessary or desirable to effect the Merger. At the time of its June 25
Board meeting, Medtronic anticipated the Merger price to be $27.50 per share.   

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         On  June  26,  1998,  the  Physio-Control  Board  of  Directors  met by
telephone  conference call at 5:30 a.m. (Pacific time) to receive a presentation
by  representatives of Morgan Stanley updating the Board of Directors on (i) the
status of the  discussions  with the  authorized  companies  and,  specifically,
Medtronic  and (ii) the proposed  terms of the  potential  business  combination
between   Physio-Control   and  Medtronic.   The  Board  of  Directors  directed
Physio-Control's  management and  representatives  of Morgan Stanley to continue
negotiations  on  various  aspects  of  the  draft  definitive  agreements  with
Medtronic.                                                                      

         On June 26 and 27,  1998,  Physio-Control  and its  legal  counsel  and
financial advisors continued  negotiations with Medtronic regarding the proposed
merger  agreement  and  completion of various  schedules and related  documents.
During these  negotiations,  management of the parties reached  tentative verbal
agreement on the  transaction  protection  clauses (the  termination fee and the
stock option to be granted to Medtronic)  and the $27.50 price per share payable
in the Merger, subject to the approval of Physio-Control's Board of Directors.  

         At 4 p.m.  (Pacific  time)  on June  27,  the  Physio-Control  Board of
Directors  met  again by  telephone  conference  call to  discuss  the  proposed
transaction   and   received   reports   from    Physio-Control's    management,
representatives  of  Morgan  Stanley,  and its  legal  counsel.  Morgan  Stanley
delivered its oral opinion,  subsequently  confirmed in writing, that, as of the
date of such opinion, and subject to the various considerations set forth in the
opinion,  the  consideration  to be received  by the  holders of  Physio-Control
Common Stock pursuant to the Merger Agreement was fair from a financial point of
view  to such  holders.  Having  reviewed  the  terms  of the  draft  definitive
agreements relating to the Merger, the Physio-Control Board unanimously approved
the Merger Agreement,  Plan of Merger,  and Stock Option  Agreement,  authorized
Physio-Control's officers to execute the agreements, and unanimously recommended
that Physio-Control's  shareholders approve the Merger as provided in the Merger
Agreement and Plan of Merger.                                                   

         Following the approval of the Merger Agreement and related documents by
Physio-Control's  Board of  Directors,  representatives  of  Physio-Control  and
Medtronic  executed the Merger  Agreement and Stock Option Agreement on June 27,
1998. On June 29, 1998,  prior to the opening of trading on the Nasdaq  National
Market, Medtronic and Physio-Control issued a joint press release announcing the
execution of the Merger Agreement.                                              

Physio-Control's Reasons for the Merger; Recommendation of the Physio-Control   
Board of Directors                                                              

         The Board of Directors of Physio-Control has determined that the Merger
is fair to, and in the best interests of,  Physio-Control  and its shareholders.
Accordingly,  the Board of Directors of Physio-Control has unanimously  approved
the Plan of Merger and the Merger Agreement and recommends that the shareholders
of  Physio-Control  vote FOR approval and adoption of the Plan of Merger and the
Merger  Agreement.  In reaching  its  determination,  the Board of  Directors of
Physio-Control consulted with Physio-Control's  management, as well as its legal
counsel  and  its  financial  advisor,  and  considered  a  number  of  factors,
including, without limitation, the following:                                   

                  (1)  The  opportunity  to  continue  to  market  its  external
         defibrillators  with  substantial   additional   financial   resources,
         including the benefit that  Medtronic's  reputation and resources would
         bring  to   Physio-Control's   product   development,   marketing   and
         distribution, and relationships with customers and potential customers;

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                  (2) The ability to provide  Physio-Control  shareholders  with
         Medtronic  Common  Stock in a tax-free  exchange at a premium  over the
market price for Physio-Control Common Stock;                 

                  (3) The  opportunity  to provide  an  integrated  response  to
         cardiac care from initial arrest (with external  defibrillator) through
         definitive  treatment  with  an  implantable  (internal  defibrillator)
device; and                                                   

                  (4) The potential ability to increase  international  revenues
         through  Medtronic's broader  international  distribution and marketing
network.                                                      

        In the course of  its   deliberations,   the  Board  of   Directors   of
Physio-Control  reviewed a number of additional  factors relevant to the Merger.
In particular,  the  Physio-Control  Board considered,  among other things,  the
following factors, each of which it determined were favorable to the Merger: (i)
information concerning  Medtronic's and Physio-Control's  respective businesses,
historical financial  performance,  operations and products,  including possible
future product  releases;  (ii) the comparative  trading prices of Medtronic and
Physio-Control  Common Stock and other selected medical device companies;  (iii)
premiums and  multiples  paid in other merger and  acquisition  transactions  in
Physio-Control's  industry and other  industries;  (iv) the compatibility of the
management  and  businesses of Medtronic and  Physio-Control;  (v) the financial
presentation by Morgan Stanley and the opinion of Morgan Stanley that, as of the
date of such opinion and subject to the assumptions and considerations set forth
in  the  opinion,   the   consideration   to  be  received  by  the  holders  of
Physio-Control  Common Stock  pursuant to the Merger  Agreement  was fair from a
financial point of view to such holders;  (vi) the likelihood of consummation of
the Merger,  including the terms and conditions of the Merger  Agreement and the
limited  conditions to the  consummation of the Merger;  (vii) the fact that the
Merger  Agreement  would  permit  the  Physio-Control  Board to  terminate  such
agreement under certain circumstances; and (viii) no competing offer or proposal
of any kind had been received from any third party.                             

         The  Board of  Directors  of  Physio-Control  also  considered  certain
potentially  negative  factors  in  its  deliberations  concerning  the  Merger,
including,  among other things:  (i) the potential loss of revenues and business
opportunities in the external  defibrillator  market as a result of announcement
of the Merger; (ii) the possibility of management disruption associated with the
Merger  and the  risk  of loss of key  technical  and  management  personnel  of
Physio-Control;  and (iii) the risk that the  benefits  sought to be achieved by
the Merger  will not be  achieved.  In the view of the  Physio-Control  Board of
Directors,   the  potentially   negative  factors  are  not  sufficient   either
individually or collectively to outweigh the potential benefits of the Merger.  

         The foregoing  discussion of the information,  factors, and reasons for
the  Merger  considered  by the  Board of  Directors  of  Physio-Control  is not
intended to be exhaustive  but includes the material  factors  considered by the
Board of Directors of  Physio-Control.  Morgan  Stanley's  opinion and financial
analyses were only one of many factors considered by the Physio-Control Board in
its  evaluation of the Merger and should not be viewed as  determinative  of the
view of the Physio-Control Board or management with respect to the consideration
to be received by Physio-Control shareholders in the Merger. In view of the wide
variety of factors  considered  by the Board of Directors of  Physio-Control  in
connection with its evaluation of the Merger and the complexity of such matters,
the Board of Directors of Physio-Control did not consider it practicable to, nor
did it attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its decision. In addition,  the Physio-Control
Board did not make any determination as to whether any particular factor (or any
aspect  of  any   particular   factor)  was   determinative   to  its   ultimate
determination. In considering the factors described above, individual members of
the Board of Directors of  Physio-Control  may have given  different  weights to
different  factors.  See  "The  Merger--Opinion  of  Physio-Control's  Financial
Advisor" and "Comparative Stock Prices and Dividends."                          

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Medtronic's Reasons for the Merger                                              

         Medtronic   believes  that  the  acquisition  of  Physio-Control   will
complement Medtronic's product offerings and that Physio-Control's broad line of
external   defibrillators,    when   combined   with   Medtronic's   implantable
defibrillators,  will  significantly  enhance  Medtronic's  ability  to  deliver
lifesaving  technologies,  with the  objective  of  increasing  the  survival of
patients who experience life-threatening cardiac events.                        

Opinion of Physio-Control's Financial Advisor                                   

         Pursuant  to a letter  agreement  dated as of  December  9,  1997  (the
"Morgan Stanley Engagement Letter"),  Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the Merger.  Morgan
Stanley was  selected  by the  Physio-Control  Board to act as  Physio-Control's
financial  advisor  based on Morgan  Stanley's  qualifications,  expertise,  and
reputation and its knowledge of the business and affairs of  Physio-Control.  At
the  meeting  of the  Physio-Control  Board on June  27,  1998,  Morgan  Stanley
rendered its oral opinion,  subsequently  confirmed in writing,  that as of June
27, 1998, based upon and subject to the various  considerations set forth in the
opinion,  the  consideration  to be received  by the  holders of  Physio-Control
Common Stock pursuant to the Merger Agreement was fair from a financial point of
view to such holders.                                                           

         The full text of the written  opinion of Morgan  Stanley dated June 27,
1998,  which sets  forth,  among  other  things,  assumptions  made,  procedures
followed,  matters  considered,  and  limitations  on the  scope  of the  review
undertaken by Morgan Stanley in rendering its opinion, is attached as Appendix D
to this Proxy  Statement/Prospectus.  Physio-Control  shareholders are urged to,
and should,  read the opinion  carefully and in its entirety.  Morgan  Stanley's
opinion is directed to the Physio-Control  Board and addresses only the fairness
of the  consideration  to be received by the  holders of  Physio-Control  Common
Stock pursuant to the Merger  Agreement  from a financial  point of view to such
holders as of the date of the opinion,  and it does not address any other aspect
of the  Merger  and  does not  constitute  a  recommendation  to any  holder  of
Physio-Control Common Stock as to how to vote at the Meeting. The summary of the
opinion  of Morgan  Stanley  set  forth in this  Proxy  Statement/Prospectus  is
qualified in its entirety by reference to the full text of such opinion.        

         In connection with rendering its opinion,  Morgan Stanley,  among other
things: (i) reviewed certain publicly available  financial  statements and other
information of Physio-Control and Medtronic, respectively; (ii) reviewed certain
internal financial  statements and other financial and operating data concerning
Physio-Control prepared by the management of Physio-Control; (iii) discussed the
past and  current  operations  and  financial  condition  and the  prospects  of
Physio-Control,  including information relating to certain strategic, financial,
and operational benefits,  anticipated from the Merger with senior executives of
Physio-Control;  (iv)  discussed the past and current  operations  and financial
condition  and the  prospects of Medtronic,  including  information  relating to
certain  strategic,  financial,  and operational  benefits  anticipated from the
Merger with senior executives of Medtronic; (v) reviewed the pro forma impact of
the Merger on the earnings per share of  Medtronic;  (vi)  reviewed the reported
prices  and  trading  activity  for  the  Physio-Control  Common  Stock  and the
Medtronic   Common  Stock;   (vii)   compared  the  financial   performance   of
Physio-Control  and  Medtronic  and  the  prices  and  trading  activity  of the
Physio-Control  Common Stock and the Medtronic Common Stock with that of certain
other  publicly-traded  companies  and their  securities;  (viii)  reviewed  the

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financial  terms,  to the  extent  publicly  available,  of  certain  comparable
acquisition transactions; (ix) reviewed and discussed with the senior management
of   Physio-Control   the  strategic   rationale  for  the  Merger  and  certain
alternatives  to  the  Merger;  (x)  reviewed  and  discussed  with  the  senior
management  of  Medtronic  the   strategic   rationale  for  the  Merger;   (xi)
participated  in  discussions  and   negotiations   among   representatives   of
Physio-Control  and Medtronic  and their  financial  and legal  advisors;  (xii)
reviewed  the  Merger  Agreement  and  certain  related  agreements;  and (xiii)
performed  such other  analysis  and  considered  such  other  factors as Morgan
Stanley deemed appropriate.                                                     

         In  rendering  its  opinion,  Morgan  Stanley  assumed  and relied upon
without   independent   verification   the  accuracy  and  completeness  of  the
information reviewed by it for the purposes of its opinion.  With respect to the
internal  financial   statements  of  Physio-Control  and  other  financial  and
operating  data  and  information  relating  to the  strategic,  financial,  and
operational  benefits anticipated from the Merger provided by Physio-Control and
Medtronic,  Morgan Stanley assumed that they were  reasonably  prepared on bases
reflecting the best  then-available  estimates and judgments of the prospects of
Physio-Control  and  Medtronic,  respectively.  Morgan  Stanley did not make any
independent valuation or appraisal of the assets,  liabilities, or technology of
Physio-Control,  nor was it furnished with any such  appraisals.  Morgan Stanley
assumed  that  the  Merger  will be  accounted  for as a  "pooling-of-interests"
business  combination  in  accordance  with  United  States  generally  accepted
accounting   principles   and  the   Merger   will  be  treated  as  a  tax-free
reorganization and/or exchange pursuant to the Code. Morgan Stanley also assumed
that the Merger would be consummated  in accordance  with the terms set forth in
the Merger Agreement. Morgan Stanley's opinion is necessarily based on economic,
market, and other conditions as in effect on, and the information made available
to it as of, June 27, 1998.                                                     

         The  following  is a brief  summary of certain  analyses  performed  by
Morgan Stanley in preparation of its opinion letter dated June 27, 1998.        

         Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price  performance  of  Physio-Control  and  Medtronic  and compared  such
performance   with   that  of  a  group   of   cardiovascular   companies   (the
"Cardiovascular   Companies"),   patient  monitoring   companies  (the  "Patient
Monitoring  Companies"),   and  hospital  device  and  supplies  companies  (the
"Hospital Device and Supplies Companies"). Morgan Stanley observed that over the
period  from  December  11,  1995  until  June 26,  1998,  the  market  price of
Physio-Control  Common Stock  appreciated  approximately  59%  compared  with an
approximate  appreciation of 128% for Medtronic Common Stock,  130% for an index
of Cardiovascular  Companies,  27% for an index of Patient Monitoring Companies,
and 60% for an index of Hospital Device and Supplies Companies.                 

         Peer  Group  Comparison.  Morgan  Stanley  compared  certain  financial
information of Physio-Control with that of the Patient Monitoring  Companies and
certain  financial  information  of  Medtronic  with that of the  Cardiovascular
Companies.  Such information included,  among other things, market valuation and
stock price as a multiple of earnings per share. Such analysis showed that as of
June 26, 1998, based on earnings per share projections from securities  research
analysts:  Physio-Control traded at 22.2 times next 12 months projected earnings
per share and 19.6  times  calendar  year 1999  projected  earnings  per  share,
compared to median multiples of 16.7 times next 12 months projected earnings per
share and 13.6 times  calendar  year 1999  projected  earnings per share for the
Patient  Monitoring  Companies;  Medtronic  traded at 40.6  times next 12 months
projected  earnings  per  share and 37.5  times  calendar  year  1999  projected
earnings  per share,  compared to median  multiples of 21.2 times next 12 months
projected  earnings  per  share and 18.9  times  calendar  year  1999  projected
earnings per share for the  Cardiovascular  Companies.  No company utilized as a

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comparison  in the peer group  comparison  is  identical  to  Physio-Control  or
Medtronic. In evaluating the comparable companies, Morgan Stanley made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters,  many of which are beyond the
control of  Physio-Control  and Medtronic,  such as the impact of competition on
Physio-Control or Medtronic and the industry generally, industry growth, and the
absence of any adverse material change in the financial  condition and prospects
of  Physio-Control  or Medtronic or the industry or in the financial  markets in
general.                                                                        

         Analysis Of Selected Precedent Transactions.  Morgan Stanley reviewed a
number of transactions  (collectively,  the "Hospital Supply/Medical  Technology
Transactions") and compared certain  statistics for the Hospital  Supply/Medical
Technology  Transactions to the relevant financial statistics for Physio-Control
based on a price of  $27.50  for each  share  of  Physio-Control  Common  Stock.
Analysis of the Hospital Supply/Medical  Technology Transactions showed a median
multiple of next 12 months' earnings of 21.3 times and a median multiple of last
12 months  revenues of 2.6 times and median  premiums over target closing prices
of 22.1%  based on one day prior to  announcement  and 33.7%  based on one month
prior to announcement.  These statistics compared to multiples of 28.6 times for
the next 12 months'  earnings and 3.0 times last 12 months revenues and premiums
of 19.6% and 22.9% over the closing prices of Physio-Control  Common Stock as of
June 26, 1998 and 30 trading days prior to that date,  respectively,  based on a
value of $27.50 for each share of  Physio-Control  Common Stock.  No transaction
utilized as a comparison in the precedent  transaction  analysis is identical to
the Merger.  In  evaluating  the  precedent  transactions,  Morgan  Stanley made
judgments and assumptions with regard to industry performance, general business,
economic,  market and financial conditions and other matters,  many of which are
beyond  the  control  of  Physio-Control  and  Medtronic,  such as the impact of
competition on Physio-Control or Medtronic and the industry generally,  industry
growth and the absence of any adverse material change in the financial condition
and prospects of Physio-Control or Medtronic or the industry or in the financial
markets in general.  Mathematical  analysis (such as determining  the average or
median) is not in itself a  meaningful  method of using  comparable  transaction
data.                                                                           

         Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact
of the Merger on  Medtronic's  projected  earnings per share for calendar  years
1998 and 1999.  Such  analysis was based on earnings  projections  by securities
research  analysts for both companies.  Morgan Stanley  observed that,  assuming
that the Merger was treated as a pooling transaction, the Merger would result in
earnings per share  accretion  for Medtronic  shareholders  of 0.6% and 0.8% for
calendar  years 1998 and 1999,  respectively,  before  taking  into  account any
one-time charges or synergies.                                                  

      Discounted Cash Flow Value Analysis. Morgan Stanley performed a discounted
cash flow  analysis to estimate the present value of the  stand-alone  unlevered
free cash flows that both  Physio-Control and Medtronic are expected to generate
if  Physio-Control  and Medtronic perform in accordance with the scenarios based
upon certain financial forecasts.  Morgan Stanley analyzed two sets of financial
forecasts  for  Physio-Control,  a case  developed  by Morgan  Stanley  based on
information  provided by and discussions  with the management of  Physio-Control
(the "Projected Case") and a case based on projections from securities  research
analysts (the "Research Case").  Morgan Stanley analyzed financial forecasts for
Medtronic based on projections from securities research analysts. Unlevered free
cash flows were calculated as net income plus depreciation and amortization plus
deferred  taxes  plus  minority  interest  plus  other  non-cash  expenses  plus
after-tax  net interest  expense less capital  expenditures  less  investment in
working   capital.   The   projected   unlevered   free  cash  flow  streams  of
Physio-Control and Medtronic were then discounted to                            

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their  present  values using a range of discount  rates from 12% to 14% for both
Physio-Control  and Medtronic.  Terminal values were calculated as a multiple of
terminal year net income over a range of multiples from 18 times to 24 times for
Physio-Control  and 32 times to 40 times for  Medtronic  and then  discounted to
their present values using the aforementioned  discount rates. The discount rate
ranges were selected based upon an analysis of weighted  average cost of capital
for both  Physio-Control and Medtronic.  Adjustments were also made for cash and
indebtedness. Based on this analysis, Morgan Stanley calculated per share equity
values of  Physio-Control  ranging from $24.50 to $33.95 for the Projected  Case
and $19.70 to $27.20  for the  Research  Case on a fully  diluted  share  basis.
Morgan  Stanley  observed  that,  based on this  analysis,  the offered price of
$27.50  per share was higher  than the range  yielded by the  Research  Case and
within the range yielded by the Projected Case.                                 

         In connection with the review of the Merger by the Physio-Control Board
of Directors,  Morgan Stanley  performed a variety of financial and  comparative
analyses for purposes of its opinion given in connection therewith.  The summary
set forth above does not purport to be a complete  description  of the  analyses
performed by Morgan Stanley in connection with the Merger.                      

         The  preparation of a fairness  opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.  In arriving
at its opinion,  Morgan Stanley considered the results of all of its analyses as
a whole and did not  attribute any  particular  weight to any analysis or factor
considered  by it.  Furthermore,  Morgan  Stanley  believes  that  selecting any
portion of its  analyses,  without  considering  all  analyses,  would create an
incomplete  view of the process  underlying  its opinion.  In  addition,  Morgan
Stanley may have given  various  analyses  and factors  more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions,  so that the ranges of valuation resulting from
any  particular  analysis  described  above  should  not be taken  to be  Morgan
Stanley's view of the actual value of Physio-Control or Medtronic. In performing
its analyses,  Morgan Stanley made numerous assumptions with respect to industry
performance,  general business and economic conditions,  and other matters, many
of which are beyond the control of  Physio-Control  or Medtronic.  Any estimates
contained in Morgan Stanley's analyses are not necessarily  indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates.  The analyses  performed were prepared solely
as part of Morgan  Stanley's  analysis of the fairness from a financial point of
view of the  consideration  to be received by holders of  Physio-Control  Common
Stock pursuant to the Merger Agreement and were conducted in connection with the
delivery of Morgan Stanley's opinion to the  Physio-Control  Board of Directors.
The analyses do not purport to be  appraisals  or to reflect the prices at which
Physio-Control  Common Stock or Medtronic Common Stock might actually trade. The
terms of the Merger were determined through  arm's-length  negotiations  between
Physio-Control  and  Medtronic and were  approved by the  Physio-Control  Board.
Morgan  Stanley  provided  advice to  Physio-Control  during such  negotiations;
however,  Morgan  Stanley  did  not  recommend  any  specific  consideration  to
Physio-Control  or  that  any  specific   consideration   constituted  the  only
appropriate  consideration  for the Merger.  In addition,  as  described  above,
Morgan  Stanley's  opinion  and  presentation  to the  Physio-Control  Board  of
Directors was one of many factors taken into  consideration by  Physio-Control's
Board in making its  decision to approve the  Merger.  Consequently,  the Morgan
Stanley analyses as described above should not be viewed as determinative of the
opinion of the  Physio-Control  Board of Directors  with respect to the value of
Physio-Control  or of whether the  Physio-Control  Board of Directors would have
been willing to agree to a different consideration.                             

         The  Physio-Control  Board of Directors  retained  Morgan Stanley based
upon Morgan Stanley's qualifications,  experience, and expertise. Morgan Stanley
is an  internationally  recognized  investment banking and advisory firm. Morgan
Stanley,  as part of its investment banking and financial advisory business,  is
continuously engaged in the valuation of businesses and securities in connection

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with mergers and acquisitions,  negotiated underwritings,  competitive biddings,
secondary  distributions of listed and unlisted securities,  private placements,
and valuations for corporate and other  purposes.  Morgan Stanley makes a market
in  Physio-Control  Common  Stock.  In the ordinary  course of Morgan  Stanley's
trading and brokerage  activities,  Morgan  Stanley or its affiliates may at any
time  hold  long  or  short  positions,   and  may  trade  or  otherwise  effect
transactions,  for its own  account or for the  accounts  of  customers,  in the
equity or debt securities or senior loans of Physio-Control or Medtronic.       

         Pursuant  to the  Morgan  Stanley  Engagement  Letter,  Morgan  Stanley
provided  financial advisory services and a financial opinion in connection with
the Merger, and Physio-Control  agreed to pay Morgan Stanley a fee in connection
therewith  equal to 1.25% of the aggregate  value of the  consideration  that is
paid  by  Medtronic   to  the   Physio-Control   shareholders   in  the  Merger.
Physio-Control  has also agreed to reimburse Morgan Stanley for travel and other
out-of-pocket expenses incurred by Morgan Stanley in performing its services. In
addition,  Physio-Control  has also agreed to indemnify  Morgan  Stanley and its
affiliates, and their respective directors,  officers, agents and employees, and
each person, if any, controlling Morgan Stanley or any of its affiliates against
certain  liabilities  and  expenses,  including  certain  liabilities  under the
federal  securities  laws,  arising out of Morgan  Stanley's  engagement and any
related  transactions.  In the past,  Morgan  Stanley  and its  affiliates  have
provided  financial  advisory and financing services for Physio-Control and have
received fees for rendering these services.                                     

Vote Required                                                                   

        Approval of the Merger requires the  affirmative  vote of the holders of
two-thirds of the outstanding shares of Physio-Control Common Stock. Each holder
of Physio-Control  Common Stock outstanding as of the Record Date is entitled to
one vote for each share held. On the Record Date, there were [17,727,891] shares
of Physio-Control  Common Stock  outstanding.  Of such shares,  [136,979] shares
(less than 1% of the shares of  Physio-Control  Common Stock entitled to vote at
the  Meeting) are  beneficially  owned by directors  and  executive  officers of
Physio-Control.  Physio-Control's directors and executive officers who own stock
or options to purchase stock of  Physio-Control  have executed voting agreements
under which such persons have agreed to vote the shares of Physio-Control Common
Stock beneficially owned by them in favor of the Merger. See "The Merger--Voting
Agreements."                                                                    

         Medtronic,  as the sole shareholder of Merger Subsidiary,  has approved
the Plan of Merger and the Merger Agreement.  Approval of the Plan of Merger and
the Merger Agreement by Medtronic's shareholders is not required under Minnesota
law and is not being sought.                                                    

Conversion of Physio-Control Common Stock in the Merger                         

         At  the  Effective  Time,   each  issued  and   outstanding   share  of
Physio-Control Common Stock, excluding any shares of Physio-Control Common Stock
held by holders who have perfected their dissenters'  rights under the WBCA (see
"The  Merger--Rights  of  Dissenting  Physio-Control  Shareholders"),   will  be
automatically  converted  into the right to receive  the portion of a share (the
"Conversion  Fraction") of Medtronic Common Stock equal to $27.50 divided by the
average of the daily  closing sale prices of Medtronic  Common Stock as reported
on the NYSE  Composite  Tape (the "Average  Stock Price") for the 19 consecutive
trading days ending on the first trading day immediately preceding the Effective
Time.                                                                           

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         The $27.50 amount per share of Physio-Control  Common Stock, payable in
shares  of  Medtronic  Common  Stock  as  described  above,   shall  be  reduced
proportionately  if the sum of the  number of shares  of  Physio-Control  Common
Stock  outstanding  at the Effective  Time plus the number of shares  subject to
outstanding   options,   warrants   or  other   rights  to  acquire   shares  of
Physio-Control Common Stock (collectively, "Stock Rights") at the Effective Time
exceeds 20,693,456 (the number of Physio-Control shares, and options to purchase
such shares,  outstanding on the date the Merger  Agreement was signed) plus the
number of shares  issuable under  Physio-Control's  Employee Share Purchase Plan
and Team Savings  Plan, or if the aggregate  exercise  price of all  outstanding
options and other  rights to purchase  Physio-Control  Common Stock is less than
the aggregate exercise price reflected in  Physio-Control's  Disclosure Schedule
to the  Merger  Agreement.  Physio-Control  does  not  anticipate  that any such
adjustment will be required.                                                    

         If,  prior to the  Effective  Time,  Medtronic  splits or combines  the
Medtronic  Common Stock or pays a stock dividend or other stock  distribution in
shares  of  Medtronic  Common  Stock,  then  the  Conversion  Fraction  will  be
appropriately adjusted.                                                         

         Based  on  the  number  of  shares  of   Physio-Control   Common  Stock
outstanding  on the Record Date (assuming a Conversion  Fraction of [.4231],  or
one  Medtronic  share for  approximately  every  [2.36]  Physio-Control  shares,
calculated by using the [July 21], 1998 Medtronic closing sale price of $[65.00]
as the assumed  Average  Stock Price  solely for  illustrative  purposes of this
paragraph), an estimated [7,500,670]   shares of Medtronic  Common Stock will be
issued in exchange  for  Physio-Control  Common Stock upon  consummation  of the
Merger.  Such shares would  represent  less than 2% of  the  shares of Medtronic
Common Stock that would be outstanding after consummation of the Merger.        

         Physio-Control   shareholders   should   understand  that  shareholders
receiving  Medtronic  Common  Stock in the  Merger  will  receive  a  number  of
Medtronic shares determined pursuant to the Conversion  Fraction,  as defined at
the  beginning of this  section.  Because the market  price of Medtronic  Common
Stock is subject to fluctuation,  the market value of the Medtronic  shares that
Physio-Control  shareholders  receive in the  Merger  (whether  measured  at the
Effective  Time of the Merger or another  date) may be less than or greater than
the Average Stock Price used for purposes of determining  the Conversion  Ratio.
In addition,  because of such fluctuations in the value of Medtronic shares, the
market  value of the  Medtronic  Common Stock that  Physio-Control  shareholders
receive in the  Merger may  increase  or  decrease  following  the  Merger.  See
"Comparative   Stock  Prices  and  Dividends"  for  information   regarding  the
historical market prices of Medtronic Common Stock.                             

Fractional Shares                                             

         No certificates or scrip  representing  fractional  shares of Medtronic
Common Stock will be issued, and no Medtronic dividend,  stock split or interest
will relate to any fractional  share. No fractional share interests will entitle
the owner  thereof to vote or to any rights of a shareholder  of Medtronic.  All
fractional  shares of Medtronic Common Stock to which a holder of Physio-Control
Common  Stock  immediately  prior  to the  Effective  Time  would  otherwise  be
entitled,  at the  Effective  Time,  shall be  aggregated  if and to the  extent
multiple Physio-Control stock certificates of such holder are submitted together
to _________________,  the exchange agent for the Merger (the "Exchange Agent").
If a fractional share results from such  aggregation,  then, in lieu of any such
fractional share, each holder of Physio-Control Common Stock who otherwise would
be entitled  to receive a  fractional  share of  Medtronic  Common  Stock in the
Merger  will  receive  an  amount  of  cash  (without  interest)  determined  by
multiplying (i) the Average Stock Price by (ii) the fractional share interest of
Medtronic Common Stock to which such holder would otherwise be entitled.        

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Exchange of Shares of Physio-Control Common Stock             

         As soon as  practicable  after the Effective  Time,  the Exchange Agent
will mail a letter of transmittal  to holders of a certificate  or  certificates
that prior to the Effective Time  represented  shares of  Physio-Control  Common
Stock.  The  letter of  transmittal  will  include  instructions  regarding  the
surrender of certificates  representing shares of Physio-Control Common Stock in
exchange for certificates representing shares of Medtronic Common Stock.        

         As soon as  practicable  after the Effective  Time,  the Exchange Agent
will  distribute  to  holders of shares of  Physio-Control  Common  Stock,  upon
surrender to the Exchange Agent of one or more  certificates  for such shares of
Physio-Control  Common Stock for  cancellation,  together  with a  duly-executed
letter of transmittal,  (i) one or more certificates  representing the number of
whole shares of Medtronic Common Stock into which the shares  represented by the
certificate(s) have been converted and (ii) a check in the amount of any cash in
lieu of fractional  shares.  Holders of Physio-Control  Common Stock will not be
entitled to receive interest on any cash to be received in the Merger.          

         After  the  Effective  Time,   certificates   representing   shares  of
Physio-Control  Common Stock converted into Medtronic Common Stock in the Merger
will be deemed for all purposes to evidence ownership of the shares of Medtronic
Common Stock into which they were converted.  Holders of  Physio-Control  Common
Stock will be entitled to any dividends  that become  payable to persons who are
holders of record of Medtronic Common Stock as of a record date that follows the
Effective  Time,  but  only  after  they  have  surrendered  their  certificates
representing  shares  of  Physio-Control  Common  Stock for  exchange.  Any such
dividends will be remitted to each Physio-Control  shareholder entitled thereto,
without  interest,  at the time that such  certificates  representing  shares of
Physio-Control  Common  Stock  are  surrendered  for  exchange,  subject  to any
applicable abandoned property, escheat or similar law. Holders of Physio-Control
Common Stock will not be entitled,  however,  to dividends  that become  payable
before or after the  Effective  Time to  persons  who were  holders of record of
Medtronic Common Stock as of a record date prior to the Effective Time.         

Shareholder Rights Plan                                                         

         Each Physio-Control shareholder entitled to receive shares of Medtronic
Common Stock  pursuant to the Merger will  receive,  together with each share of
Medtronic Common Stock, one Medtronic Preferred Stock Purchase Right pursuant to
the Medtronic  Shareholder  Rights Plan.  Such Right will be  represented by the
certificate  representing such share of Medtronic Common Stock. See "Comparative
Rights of Medtronic  Shareholders and  Physio-Control  Shareholders--Shareholder
Rights Plan."                                                                   

Treatment of Stock Options                                                      

         Under  the  terms of the  outstanding  options  to  purchase  shares of
Physio-Control Common Stock, any such options that are not otherwise vested will
become fully vested and  exercisable  at the  Effective  Time as a result of the
Merger.  All such options that are not exercised and remain  outstanding  at the
Effective Time will be assumed by Medtronic and,  following the Effective  Time,
will be  exercisable  upon the same terms and conditions as prior to the Merger,
except  that the  exercise  price and the number of shares of  Medtronic  Common
Stock that can be  purchased  upon  exercise of the  options  will be revised to
reflect  conversion of the options on the same basis as shares of Physio-Control
Common Stock are converted into shares of Medtronic  Common Stock in the Merger.
As promptly as practicable  after the Effective Time,  Medtronic will provide to
each holder of a Physio-Control option a written statement informing such holder
of the assumption by Medtronic of such option.                                  

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Conduct of Business of Physio-Control Pending the Merger                        

         Physio-Control  has agreed that,  prior to  consummation of the Merger,
unless  Medtronic  agrees  otherwise,  it will conduct its business  only in the
ordinary  course,  it will use all  reasonable  efforts to  preserve  intact its
business  organization and  relationships  with third parties,  and it will not:
declare or pay any dividends or other distributions; amend or alter any material
term of its securities;  incur,  assume or guarantee any indebtedness other than
in the  ordinary  course of  business;  create,  assume or incur any lien on any
material  asset;  issue or repurchase  any  securities  (other than issuances of
securities upon the exercise of stock options previously granted and pursuant to
other existing  benefit plans);  alter its accounting  principles;  increase the
compensation  or benefits of any of its directors,  officers or other  employees
(except under existing agreements or in the ordinary course of business);  amend
its Articles of Incorporation or Bylaws; sell any property,  pay any liabilities
or waive any claims,  except in the ordinary  course of  business;  make capital
investments  in any other company;  purchase fixed assets  exceeding a specified
aggregate  purchase price;  distribute mass  communications to any group without
allowing  Medtronic to comment on them;  merge or  consolidate  with any person;
acquire  the stock or assets of any  business;  take or fail to take any  action
that would cause its  representations  and warranties in the Merger Agreement to
be  inaccurate;  enter  into  or  make  any  material  change  in  any  material
agreements,  except in the ordinary  course and  consistent  with past practice;
institute, settle or compromise any claim or suit involving amounts in excess of
a  specified  amount;  knowingly  take any  action  that  would  jeopardize  the
treatment of the Merger as a pooling of interests or as a tax-free  transaction;
or agree or commit to do any of the foregoing.                                  

         Physio-Control  has agreed that (except as is required by the fiduciary
duties of  Physio-Control's  directors and officers as so advised by independent
counsel) neither  Physio-Control  nor any of its  representatives  or affiliates
will,  directly or indirectly,  solicit,  initiate or encourage any  acquisition
proposal, or engage in any negotiations with, or provide any information to, any
person,  entity or group  (other  than  Medtronic)  that has made or may make an
alternate  proposal with respect to Physio-Control or any subsidiary.  For these
purposes, an "alternate proposal" would include a proposal involving a merger or
consolidation,  a sale,  lease or  licensing of any  significant  portion of the
assets,  or a  sale  of  shares  of  capital  stock  of  Physio-Control  or  any
subsidiary.  Physio-Control  has agreed that it will notify Medtronic  promptly,
and prior to furnishing information or entering into discussions or negotiations
with a third party, regarding the terms of any such proposal that Physio-Control
may receive.                                                                    

         Pursuant  to  the  Merger  Agreement  and a  confidentiality  agreement
between  Medtronic  and  Physio-Control,   Physio-Control  has  agreed  to  give
Medtronic  and  its   representatives   access  to   Physio-Control's   offices,
properties,   books  and  records,   and  to  furnish  to   Medtronic   and  its
representatives  such  financial and  operating  data and other  information  as
Medtronic   may   reasonably   request,   and  will  have  its   employees   and
representatives  cooperate with Medtronic in  Medtronic's  investigation  of the
business of Physio-Control.                                                     

Interests of Certain Persons in the Merger                                      

         In  considering  the  recommendation  of  the  Board  of  Directors  of
Physio-Control with respect to the Plan of Merger, the Merger Agreement, and the
transactions  contemplated  thereby,  shareholders of  Physio-Control  should be
aware that certain members of the management of Physio-Control  and the Board of
Directors of  Physio-Control  have  certain  interests in the Merger that are in
addition  to, and may be in conflict  with,  the  interests of  shareholders  of
Physio-Control generally.                                                       

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        Stock Options. Under the terms of the outstanding  options  to  purchase
shares of  Physio-Control  Common Stock, any such options that are not otherwise
vested will become  fully  vested and  exercisable  at the  Effective  Time as a
result  of  the  Merger.   Physio-Control's  executive  officers  and  directors
collectively   hold  outstanding   options  to  purchase   1,160,787  shares  of
Physio-Control  Common Stock, of which options to purchase an aggregate  596,998
shares will vest as a result of the Merger. The following executive officers and
directors  hold the  following  number of options  that will become  vested as a
result of the Merger: Richard Martin, 184,666; Robert Guezuraga, 184,666; Joseph
Caffarelli,  129,000;  and Marc  Droppert,  98,666.  See  "--Treatment  of Stock
Options."                                                                       

         Noncompetition Agreements. Simultaneously with or immediately following
the execution of the Merger  Agreement,  but  specifically  conditioned upon the
effectiveness of the Merger, four executive officers of Physio-Control  (Messrs.
Martin,  Guezuraga,  Caffarelli,  and Droppert) executed separate noncompetition
agreements with Medtronic,  pursuant to which these individuals have agreed that
they will not be employed by,  associated  with or render services to any person
or entity (other than Physio-Control or another Medtronic  affiliate) engaged in
the design,  development,  manufacture,  marketing or sale of products  that are
similar to current or planned products of Physio-Control  anywhere in the world.
Each  noncompetition  agreement  expires 42 months after the Effective  Time. No
additional consideration beyond their interest as shareholders and optionholders
is to be received by such executive  officers for executing such  noncompetition
agreements.                                                                     

         Termination  Agreements.  On November 12, 1997,  Physio-Control entered
into termination  agreements with the four executive  officers of Physio-Control
named  above.  The  agreements  provide  certain  payments and benefits to these
individuals in the event that, during the two-year period following a "change in
control" of  Physio-Control,  (i) such individual's  employment is terminated by
Physio-Control for any reason other than for death,  disability,  or "for cause"
or (ii) certain  material  adverse  changes in the  executive's  salary,  bonus,
benefits, title, responsibilities,  or city of work. The executive will be paid,
in that  event,  a lump sum equal to a  specified  multiple  of the  executive's
highest  total  cash  compensation,  including  bonus,  in any one of the  three
calendar  years  preceding  the  termination.  The  specified  multiples  are as
follows:  Mr. Martin,  2.5; Mr.  Guezuraga,  2.5; Mr.  Caffarelli,  1.5; and Mr.
Droppert,  1.0. The  terminated  executive  will also be entitled to continue to
receive continuing health insurance coverage for 24 months.  Consummation of the
Merger  will  constitute  the  occurrence  of a "change  in  control"  under the
termination agreements.                                                         

         Indemnification.  Medtronic has agreed to cause the articles and bylaws
of  Physio-Control,  for at  least  six  years  after  the  Merger,  to  contain
provisions  regarding  indemnification and exculpation from liability equivalent
to that provided by the Articles of Incorporation  and Bylaws of  Physio-Control
prior  to the  Effective  Time.  Medtronic  has also  agreed  to  guarantee  the
obligations of Physio-Control  under such provisions.  Medtronic has also agreed
to extend,  for three years,  Physio-Control's  current officers' and directors'
liability insurance coverage periods with respect to acts occurring prior to the
Effective  Time. If that coverage is not available at a total cost not exceeding
150% of the annual premium  currently paid by  Physio-Control  for the coverage,
then  Medtronic is required to obtain the maximum  extension of coverage that is
available  for  a  cost  not  exceeding  150%  of  such  annual   premium.   See
"--Indemnification."                                                            

         Medtronic also agreed that Physio-Control, as the surviving corporation
in the Merger,  will provide  employees of  Physio-Control  and its subsidiaries
employee  benefits  and  programs  that  are  substantially  comparable  or more
favorable  to such  employees  as those  in  effect  on the  date of the  Merger
Agreement.                                                                      

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         Each of Messrs.  Martin and Guezuraga  participated  in the discussions
and  deliberations of the  Physio-Control  Board of Directors in connection with
the  Merger,  and  Messrs.  Martin and  Guezuraga  voted in favor of the Merger.
Messrs. Caffarelli and Droppert are not Board members.                          

Voting Agreements                                                               

         Pursuant to agreements to facilitate  merger between Medtronic and each
of the  executive  officers  and  directors of  Physio-Control  who own stock or
options  to  acquire  stock  of  Physio-Control  (Messrs.   Martin,   Guezuraga,
Caffarelli,  Droppert,  Dollens,  and Sandler),  such individuals have agreed to
vote the shares of Physio-Control Common Stock beneficially owned by them (i) in
favor of the approval,  consent, and ratification of the Merger and (ii) against
any action that would impede,  interfere  with, or discourage the Merger,  would
facilitate an acquisition of  Physio-Control in any manner by a party other than
Medtronic,  or would  result  in any  breach  of any  representation,  warranty,
covenant, or agreement of Physio-Control under the Merger Agreement.  The voting
agreements  terminate upon termination of the Merger Agreement by Medtronic.  As
of the Record Date, the shareholders who executed the voting agreements owned an
aggregate  [136,979]  shares  of  Physio-Control   Common  Stock,   representing
less  than  1% of  Physio-Control  Common Stock   outstanding  on   the  Record 
Date.                                                                           

Stock Option Agreement                                                          

         Simultaneously   with   the   execution   of  the   Merger   Agreement,
Physio-Control  and Medtronic entered into a Stock Option Agreement  pursuant to
which  Physio-Control  granted to  Medtronic an option,  exercisable  only under
certain   specified   circumstances,   to   purchase   a  number  of  shares  of
Physio-Control  Common  Stock  equal  to an  aggregate  19.9% of the  shares  of
Physio-Control Common Stock outstanding on the date of the Merger Agreement,  or
3,526,683 such shares,  at an exercise price of $27.50 per share.  The specified
circumstances  are the  same as  those  that  could  result  in the  payment  by
Physio-Control  of a  termination  fee upon certain  terminations  of the Merger
Agreement.                                                                      

         Under the Stock Option Agreement,  Medtronic also has the right,  under
certain  circumstances  following the occurrence of specified proposals by third
parties to acquire stock or assets of Physio-Control or to merge or combine with
Physio-Control,  and in  lieu  of  exercising  Medtronic's  option,  to  require
Physio-Control to pay to Medtronic,  in cancellation of Medtronic's  option, the
in-the-money value of such option. Such value is calculated as the lesser of (i)
$15  million  or (ii)  the  number  of  shares  subject  to  Medtronic's  option
multiplied by the excess of the  then-current  trading  price of  Physio-Control
Common  Stock or the  price  per  share  offered  in the  third-party  proposal,
whichever is greater,  over $27.50.  In no event,  however,  can the sum of such
cancellation  amount  and the $15  million  termination  fee  under  the  Merger
Agreement, if then payable, exceed $20 million. See "--Amendment and Termination
of the Merger Agreement."                                                       

Conditions; Waiver                                                              

         The  respective  obligations  of  Medtronic,   Merger  Subsidiary,  and
Physio-Control  to effect the Merger are subject to the satisfaction at or prior
to the Merger of certain conditions,  including,  among others: (a) the approval
by the  Physio-Control  shareholders of the Merger; (b) the effectiveness of the
Registration Statement; (c) the expiration or termination of the waiting periods
applicable to the  consummation  of the Merger under the HSR Act and any foreign
merger  laws;  (d) the shares of Medtronic  Common Stock  issuable in the Merger
having been duly authorized for listing by the NYSE,  subject to official notice
of  issuance;  and (e) the absence of an order,  decree,  or  injunction  by any
federal or state court or other  governmental  body,  agency,  or official  that
would prevent or materially delay consummation of the Merger.                   

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         In addition, the obligations of Physio-Control to effect the Merger are
subject to the  satisfaction  at or prior to the  Merger of certain  conditions,
including  that:  (a)  Medtronic  and Merger  Subsidiary  have  performed in all
material respects their  obligations  under the Merger Agreement  required to be
performed by them; (b) each  representation and warranty of Medtronic  contained
in the Merger  Agreement  is true in all material  respects as of the  Effective
Time;  and (c)  Physio-Control  has received an opinion of Preston Gates & Ellis
LLP, to the effect that the Merger will  constitute a "tax-free"  reorganization
for  federal  income tax  purposes.  Physio-Control  has already  received  such
opinion. See "The Merger--Certain Federal Income Tax Consequences."             

         In addition,  the  obligations  of Medtronic  and Merger  Subsidiary to
effect the Merger are subject to the  satisfaction  at or prior to the Merger of
certain  conditions,  including  that: (a)  Physio-Control  has performed in all
material  respects its  obligations  under the Merger  Agreement  required to be
performed  by  it;  (b)  each  representation  and  warranty  of  Physio-Control
contained in the Merger  Agreement  is true in all  material  respects as of the
Effective Time; (c) all necessary consents have been received; (d) Medtronic has
received written  resignations from each of the directors and specified officers
of  Physio-Control  effective as of the Effective  Time;  (e) certain  specified
executive  officers of  Physio-Control  have agreed to continue their employment
with Physio-Control following the Merger; and (f) Medtronic has received certain
letters from PricewaterhouseCoopers LLP regarding Medtronic's eligibility to use
the pooling of interests method to account for the Merger,  or such condition as
to  Medtronic  has been  waived.  See "The  Merger--Accounting  Treatment of the
Merger."                                                                        

Amendment and Termination of the Merger Agreement                               

         Any of the provisions of the Merger Agreement may be amended by written
agreement of the respective  parties at any time before or after approval of the
Merger by the  Physio-Control  shareholders;  however,  after such approval,  no
amendment may be made to the Plan of Merger  attached  hereto as Appendix A that
materially  affects  the  rights  of  the  Physio-Control  shareholders  without
shareholder approval.                                                           

         The Merger  Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval of the Merger
by the Physio-Control shareholders, only as follows:                            

                  (a) By mutual  consent  of the Board of  Directors  of each of
Medtronic and Physio-Control;                                 

                  (b) By either  Medtronic or  Physio-Control  if the Merger has
         not been  effected  by December  1, 1998,  except  that a party  cannot
         terminate  the  Merger  Agreement  if its  own  breach  of  the  Merger
         Agreement is the primary  cause of, or results in, the Merger not being
effected by such date;                                        

                  (c) By either Medtronic or  Physio-Control if a court or other
         governmental authority has issued a final, nonappealable order, decree,
or ruling that permanently enjoins or prohibits the Merger;   

                  (d)   By   either   Medtronic   or   Physio-Control   if   the
         Physio-Control  shareholders do not vote to approve the Merger,  except
         that a party cannot  terminate the Merger  Agreement if its own failure
         to  perform  under the Merger  Agreement  is the  primary  cause of, or
         results in, the failure of the  Physio-Control  shareholders to approve
the Merger;                                                   

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                  (e) By Medtronic if Physio-Control has solicited,  entertained
         or negotiated a competing offer to acquire  Physio-Control in violation
         of the Merger Agreement,  or recommended,  approved, or entered into an
         agreement  regarding  any such offer,  or  withdrawn  or modified (in a
         manner adverse to Medtronic) its  recommendation of the Merger, or if a
         tender or exchange offer for 15% or more of the  Physio-Control  Common
         Stock is commenced  and the  Physio-Control  Board,  within 10 business
         days  thereafter,  fails to recommend  against  acceptance  or takes no
position regarding acceptance of the offer;                   

                  (f) By  Physio-Control  if it is not in material breach of its
         obligations  under the Merger  Agreement and its Board of Directors has
         accepted a competing  offer by a party other than  Medtronic to acquire
         Physio-Control, and has paid to Medtronic the termination fee described
below; or                                                     

                  (g) By  Medtronic  if it is not then in  material  breach  and
         there  occurs a material  breach of any  representation,  warranty,  or
         obligation under the Merger Agreement on the part of Physio-Control, or
         by an affiliate of Physio-Control  under its affiliate's  letter,  that
cannot be cured within 30 days.                               

                  (h) By Physio-Control if it is not then in material breach and
         there  occurs a material  breach of any  representation,  warranty,  or
         obligation  under the Merger  Agreement on the part of  Medtronic  that
cannot be cured within 30 days.                               

         Physio-Control  has agreed to pay  Medtronic  $15 million if either (i)
the Merger Agreement is terminated as described in paragraph (e) or (f) above or
(ii) a third party either makes an acquisition  proposal or in fact acquires 15%
or more of the outstanding Physio-Control Common Stock prior to the Meeting, and
either (A) the  Physio-Control  shareholders do not approve the Merger,  (B) the
number of shares of  Physio-Control  Common  Stock whose  holders give notice of
exercise of dissenters'  rights prevents the Merger from qualifying as a pooling
of  interests,  or (C) the Merger  Agreement is terminated  (except  pursuant to
paragraph (a),(b), (c), or (h) above). See "The Merger--Stock Option Agreement."

Expenses and Fees                                                               

         Whether or not the Merger is consummated,  all  out-of-pocket  expenses
incurred in connection with the Merger  (including but not limited to accounting
and legal fees) and the  transactions  contemplated  thereby will be paid by the
party   incurring   such  costs  and   expenses,   except  that   Medtronic  and
Physio-Control  will share equally all expenses  related to printing and mailing
the Registration Statement and this Proxy Statement/Prospectus,  the filing fees
required  under the HSR Act and any foreign  merger laws, and the costs and fees
charged  by  PricewaterhouseCoopers  LLP  for  the  letters  described  in  "The
Merger--Accounting Treatment of the Merger."                                    

         Goldman, Sachs & Co. provided certain financial advisory and investment
banking services to Medtronic in connection with the Merger, for which Medtronic
has agreed to pay a fee of $4 million.                                          

Restrictions on Resale of Medtronic Common Stock                                

         The Medtronic  Common Stock issuable in connection  with the Merger has
been registered under the Securities Act and will be freely  transferable by the
recipients,  but this  registration  does not cover resales by  shareholders  of
Physio-Control  who may be deemed to control  or be under  common  control  with
Physio-Control  at the time of the Meeting  ("Affiliates").  Affiliates  may not
sell their shares of  Medtronic  Common Stock  acquired in  connection  with the

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Merger  except  pursuant  to  an  effective  registration  statement  under  the
Securities Act covering such shares,  or in compliance with Rule 145 promulgated
under the Securities Act or another  applicable  exemption from the registration
requirements of the Securities Act.  Physio-Control  has delivered to Medtronic,
and agreed to update as  necessary,  a list  identifying  all  persons  who,  in
Physio-Control's   opinion,   upon  advice  of  counsel,   are   Affiliates   of
Physio-Control  for  purposes  of Rule  145.  Physio-Control  has  delivered  to
Medtronic from each person already identified as an Affiliate, and has agreed to
use all reasonable  efforts to cause each person who is subsequently  identified
as an Affiliate to deliver to Medtronic at or prior to the  Effective  Time,  an
agreement  that such  persons  (i) will not offer to sell,  sell,  or  otherwise
dispose  of any  shares of  Medtronic  Common  Stock  received  in the Merger in
violation  of the  Securities  Act,  (ii)  have no  present  intention  to sell,
transfer or otherwise  dispose of any of the Medtronic  Common Stock received in
the  Merger  and  (iii)  will not take any  action  that  would  jeopardize  the
treatment of the Merger as a pooling of interests for  accounting  purposes.  In
that regard, pursuant to Commission guidelines, such Affiliates should not sell,
transfer,  or dispose of any shares of Physio-Control  Common Stock or Medtronic
Common Stock or related stock options  during the 30 days prior to the Effective
Time and should not sell,  transfer,  or dispose of any  Medtronic  Common Stock
received  as a result  of the  Merger  or  otherwise  until  after  such time as
Medtronic  publicly  releases  a  quarterly  earnings  report or files  with the
Commission a registration statement or report, or makes any other public filing,
statement,  or  announcement  that  includes the combined  financial  results of
Medtronic  and  Physio-Control  for a period  of at  least  30 days of  combined
operations of Medtronic and  Physio-Control  following the Effective Time. It is
expected that Affiliates  will be able to sell such shares without  registration
and in  accordance  with the  volume,  manner  of  sale,  and  other  applicable
limitations  of  the  Securities  Act  and  the  rules  and  regulations  of the
Commission thereunder.                                                          

     It is estimated that Affiliates of Physio-Control will receive a maximum of
approximately  [549,085] shares of Medtronic  Common Stock upon  consummation of
the Merger  (assuming full exercise of all  outstanding  Physio-Control  options
held by such  Affiliates  and assuming a Conversion  Fraction of [.4231]).  Such
shares would  constitute less than 1% of the total number of shares of Medtronic
Common Stock anticipated to be outstanding  immediately after the Effective Time
after  giving  effect to the shares  issued  pursuant to the Merger.  Solely for
illustrative  purposes of the foregoing  estimate,  the Conversion  Fraction was
calculated by using the [July 21], 1998 Medtronic closing sale price of $[65.00]
as  the  assumed   Average   Stock  Price.   See  "The   Merger--Conversion   of
Physio-Control Common Stock in the Merger."                                     

Deregistration of Physio-Control Common Stock                                   

         If the Merger is  consummated,  the  Physio-Control  Common  Stock will
cease to be quoted on the Nasdaq  National  Market,  and Medtronic will apply to
the Commission for the  deregistration of Physio-Control  Common Stock under the
Exchange Act.                                                                   

Accounting Treatment of the Merger                                              

         Medtronic intends to account for the Merger as a "pooling of interests"
for  accounting  and  financial  reporting  purposes  under  generally  accepted
accounting  principles.  Under the pooling of  interests  method,  the  recorded
assets and  liabilities  of the  companies  are carried  forward to the combined
corporation  at their  recorded  amounts and the income  (loss) of the companies
constitutes the income (loss) of the combined  corporation for the entire fiscal
period in which the combination  occurs as well as for prior fiscal periods.  It
is a  condition  to  the  obligation  of  Medtronic  and  Merger  Subsidiary  to

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consummate  the Merger that  Medtronic  and  Physio-Control  shall have received
letters  from   PricewaterhouseCoopers  LLP,  Medtronic's  and  Physio-Control's
independent accountants, dated the closing date, confirming the letters provided
by  PricewaterhouseCoopers  LLP as of the  date of the  Merger  Agreement  which
stated that (i) based upon the information  furnished to  PricewaterhouseCoopers
LLP and  appropriate  review and  familiarity  with  Physio-Control,  subject to
customary qualifications, no conditions exist that would preclude Physio-Control
from  being a party to a pooling of  interests  business  combination,  and (ii)
based upon the information furnished to PricewaterhouseCoopers  LLP, appropriate
review and  familiarity  with  Medtronic,  and  review of the Merger  Agreement,
subject to customary  qualifications,  no conditions  exist that would  preclude
Medtronic's accounting for the Merger as a pooling of interests.                

        To be eligible to use the pooling of interests method to account for the
Merger,  Medtronic must, prior to the Merger,  sell in one or more  transactions
approximately  12.5 million shares of Medtronic  Common Stock,  which equals the
number  of  shares  that are  tainted  for  purposes  of  pooling  of  interests
accounting  and were  purchased by Medtronic in the open market  pursuant to its
share repurchase program. If for any reason Medtronic is unable to complete such
sale of shares or such sale does not make  Medtronic  eligible  for  pooling  of
interests  treatment with respect to the Merger but all other  conditions to the
Merger are met,  Medtronic  will be required to consummate  the Merger within 10
business  days after all other  conditions  to the Merger  have been met. If the
Merger is  consummated  but  Medtronic  is not  eligible  to use the  pooling of
interests  method to account for the Merger (whether due to Medtronic's  failure
to sell the necessary  number of shares,  the exercise of dissenters'  rights by
holders  of at least 10  percent  of the  outstanding  shares of  Physio-Control
Common Stock,  or for any other reason),  then the Merger would be accounted for
using the purchase  accounting method. If, for any reason not within Medtronic's
control,  Medtronic is not  eligible to use the pooling of  interests  method to
account for the Merger,  Medtronic will have the right to determine, in its sole
discretion, whether to proceed with the Merger. If the Merger were accounted for
using the  purchase  method of  accounting,  such  accounting  method  would not
materially  affect  Medtronic's  cash flow or the  results  of  operations  on a
continuing basis based on current and anticipated profitability levels. However,
the  Merger  could  result  in a  one-time  purchased  in-process  research  and
development charge, which could be significant. See "Recent Developments."      

Certain Federal Income Tax Consequences                                         

         The following is a discussion of certain material United States federal
income tax  considerations  relevant to  Physio-Control  and the  Physio-Control
shareholders in connection with the Merger.  This discussion  merely  summarizes
certain  principal  United States federal income tax  consequences of the Merger
and  does  not  purport  to be a  complete  analysis  or  listing  of all of the
potential tax effects  relevant to the Merger.  In this regard,  this discussion
does not deal with all federal income tax considerations that may be relevant to
certain Physio-Control  shareholders in light of their particular circumstances,
such as dealers in securities, shareholders who do not hold their Physio-Control
Common Stock as capital assets, foreign persons, tax-exempt entities, or persons
who  are  subject  to the  alternative  minimum  tax  provisions  of  the  Code.
Furthermore,  it does not address Physio-Control shareholders who acquired their
shares in  connection  with stock  options or stock  purchase  plans or in other
compensatory transactions. Moreover, it does not address the tax consequences of
the Merger under foreign, state, or local tax laws.                             

         Physio-Control shareholders are urged to consult their own tax advisors
as to the  consequences  of the Merger,  including the applicable  United States
federal, state, local, and foreign tax consequences to them.                    

         Preston Gates & Ellis LLP, counsel to  Physio-Control,  has rendered an
opinion (the "Tax Opinion") that the Merger  constitutes a reorganization  under
section 368 of the Code.  Neither  Physio-Control  nor Medtronic  will request a
ruling from the Internal  Revenue  Service (the "IRS") with regard to any of the
United States federal income tax consequences of the Merger.  The Tax Opinion is

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based on and subject to certain  assumptions  and limitations as well as factual
representations  received from Physio-Control and Medtronic, as discussed below.
An opinion of counsel  represents  only counsel's best legal judgment and has no
binding  effect or official  status of any kind,  and no assurance  can be given
that contrary  positions may not be taken by the IRS or a court  considering the
issues.                                                                         

         Subject  to  the  accuracy  of  representations  contained  in  certain
certificates  received from  Physio-Control and Medtronic,  it is the opinion of
Preston  Gates & Ellis LLP that the material  United States  federal  income tax
consequences of the Merger are as follows:                                      

         Nature of the Merger.  The Merger will constitute a  reorganization  as
defined  in  Section   368(a)(1)(A)  of  the  Code  by  application  of  Section
368(a)(2)(E) of the Code, and Physio-Control,  Medtronic,  and Merger Subsidiary
will each be "a party to a reorganization"  within the meaning of section 368(b)
of the Code if the Merger is  carried  out in the manner set forth in the Merger
Agreement.                                                                      

         Consequences to Physio-Control.  Physio-Control will not recognize gain
or  loss  upon   Medtronic's   issuance  of   Medtronic   Common  Stock  to  the
Physio-Control  shareholders  in the Merger and the transfer by operation of law
of  Merger   Subsidiary's   assets  and  liabilities  to   Physio-Control   upon
consummation of the Merger.                                                     

         Consequences to Physio-Control's  Shareholders. No gain or loss will be
recognized by Physio-Control's  shareholders upon their receipt in the Merger of
Medtronic  Common  Stock,  except to the  extent of cash  received  in lieu of a
fractional share of Medtronic Common Stock.                                     

         The  aggregate  tax basis of  Medtronic  Common  Stock  received in the
Merger  (including any fractional share deemed received) will be the same as the
aggregate tax basis of the  Physio-Control  Common Stock surrendered in exchange
therefor,  increased  by the  amount of  Medtronic  Common  Stock  treated  as a
dividend,  if any,  and the  amount  of gain  recognized  on the  exchange  (not
including any portion of such gain that was treated as a dividend).             

         The holding period of each share of Medtronic  Common Stock received by
each of  Physio-Control's  shareholders  in the Merger  will  include the period
during  which such  Physio-Control  shareholder  held his or her  Physio-Control
Common Stock surrendered in exchange therefor,  provided that the Physio-Control
Common Stock is held as a capital asset at the time of the Merger.              

         Cash  payments in lieu of a fractional  share should be treated as if a
fractional  share of  Medtronic  Common  Stock had been issued in the Merger and
then redeemed by Medtronic.  A  Physio-Control  shareholder  receiving such cash
should  generally  recognize  gain  or  loss  upon  such  payment  equal  to the
difference  (if any) between the amount of cash received and such  shareholder's
basis  in  the  fractional  share  (which  will  be a pro  rata  portion  of the
shareholder's basis in the Medtronic Common Stock received in the Merger).      

         Assuming that the Merger qualifies as a reorganization,  a recipient of
shares of  Medtronic  Common  Stock could  nonetheless  recognize  income to the
extent that such shares are considered by the IRS to be received in exchange for
consideration  other than the  Physio-Control  Common  Stock,  such as dividends
accrued on such Physio-Control Common Stock. All or a portion of such income may
be taxable as ordinary  income.  It is not  anticipated,  however,  that the IRS
would make any such determination.                                              

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         A  Physio-Control  shareholder  who receives solely cash for his or her
Physio-Control  Common Stock pursuant to the exercise of dissenters' rights will
be obligated to report (i) either  capital gain or loss equal to the  difference
between the cash received by such  shareholder and such  shareholder's  basis in
his or her  Physio-Control  Common  stock,  if the  shareholder  held his or her
Physio-Control  Common  Stock as a capital  asset on the date of the Merger,  or
(ii) dividend income,  depending on whether the deemed redemption resulting from
the exercise of  dissenters'  rights  qualifies  for sale or exchange  treatment
under the tests set forth in section 302(b) of the Code. Under those tests, most
Physio-Control shareholders who exercise their dissenters' rights should receive
capital gain or loss treatment (rather than dividend  treatment),  if the deemed
redemption  of  their  Physio-Control   Common  Stock  constitutes  a  "complete
redemption"  of their  interests in  Physio-Control  (and  Medtronic,  after the
Merger). To the extent that persons related to any such shareholder  continue to
hold stock in Medtronic  after the Merger,  the rules of section 318 of the Code
may require  dividend  treatment  unless  section 302 of the Code permits  those
rules to be waived in a particular instance.                                    

         Limitations  on  Opinion  and  Discussion.  As noted  earlier,  the Tax
Opinion is subject to certain  assumptions,  including,  but not limited to, the
truth  and  accuracy  of  certain  representations  made by  Physio-Control  and
Medtronic.  Furthermore,  the Tax Opinion  will not bind the IRS and the IRS is,
therefore, not precluded from asserting a contrary position. The Tax Opinion and
this discussion are based on currently existing provisions of the Code, existing
and proposed Treasury regulations,  and current administrative rulings and court
decisions.  There can be no  assurance  that future  legislative,  judicial,  or
administrative changes or interpretations will not adversely affect the accuracy
of the Tax Opinion or of statements and conclusions  set forth herein.  Any such
changes or interpretations  could be applied  retroactively and could affect the
tax consequences of the Merger.                                                 

         A successful challenge by the IRS to the tax-free reorganization status
of the Merger would result in Physio-Control's  shareholders recognizing taxable
gain or  loss  with  respect  to  each  share  of  Physio-Control  Common  Stock
surrendered,  equal to the difference  between the  shareholder's  basis in such
share and the fair market  value,  as of the  Effective  Date,  of the Medtronic
Common  Stock and any cash  received in  exchange  therefor.  In such  event,  a
shareholder's  aggregate basis in Medtronic Common Stock so received would equal
its fair market  value at the  Effective  Date and the  holding  period for such
stock would begin on the day after the Effective Date.                          

Indemnification                                                                 

         Under   the   Merger   Agreement,   Medtronic   has   agreed  to  cause
Physio-Control,  as the  surviving  corporation  in the  Merger,  to continue to
indemnify  the present  and former  officers  and  directors  of  Physio-Control
following  the Merger with respect to acts or omissions  occurring  prior to the
Effective Time, to the extent that they were  indemnified  under  Washington law
and Physio-Control's  Articles of Incorporation and Bylaws as of the date of the
Merger Agreement.  Medtronic has also agreed to purchase a three-year  extension
of  the  directors'  and  officers'   liability   insurance  coverage  currently
maintained by Physio-Control.  See "The  Merger--Interests of Certain Persons in
the Merger."                                                                    

Regulatory Requirements                                                         

         Under the HSR Act,  certain  acquisition  transactions,  including  the
Merger,  cannot be consummated unless certain  information has been furnished to
the Federal Trade  Commission  and the  Antitrust  Division of the United States
Department  of  Justice  and  certain  waiting  period  requirements  have  been
satisfied.  Medtronic and Physio-Control each furnished such information on July
13, 1998,  and the requisite  waiting period is expected to expire on August 12,
1998.                                                                           

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         The Antitrust  Division of the United States  Department of Justice and
the Federal Trade Commission  ("FTC")  frequently  scrutinize the legality under
the antitrust  laws of  transactions  such as the Merger.  At any time before or
after the  consummation of the Merger,  the Antitrust  Division or the FTC could
take such action under the antitrust laws as it deems  necessary or desirable in
the public interest,  including seeking to enjoin the consummation of the Merger
or seeking the divestiture of substantial assets of Physio-Control or Medtronic.
Physio-Control  and  Medtronic  believe  that the Merger  will not  violate  the
antitrust  laws.  There can be no  assurance,  however,  that a challenge to the
Merger on  antitrust  grounds  will not be made or, if such a challenge is made,
what the results will be.                                                       

         Due to the  international  scope of  Medtronic's  and  Physio-Control's
businesses,  regulatory  filings may also be required  in certain  European  and
other  jurisdictions.  Medtronic  and  Physio-Control  are  in  the  process  of
determining  whether any such filings  will be required,  but they do not expect
any such filings to affect the expected timing of the Merger.                   

         Other  than as  described  herein,  the  Merger  does not  require  the
approval of any federal,  state, or other agency.  See "The  Merger--Conditions;
Waiver."                                                                        

Rights of Dissenting Physio-Control Shareholders                                

         If the Merger  occurs,  Physio-Control  shareholders  are  entitled  to
dissenters'  rights  under  Chapter  23B.13 of the WBCA in  connection  with the
Merger.  Medtronic  shareholders  are not  entitled  to  dissenters'  rights  in
connection with the Merger.                                                     

         The  following  discussion  is not a  complete  statement  of  the  law
pertaining to dissenters' rights under the WBCA and is qualified in its entirety
by reference to the full text of Chapter  23B.13 of the WBCA,  which is attached
to  this  Proxy   Statement/Prospectus   as  Appendix  C.  Any   shareholder  of
Physio-Control  who  wishes  to  exercise,  or to  preserve  his or her right to
exercise, dissenters' rights should review the following discussion and Appendix
C carefully,  because  failure to timely and properly  comply with the specified
procedures will result in the loss of dissenters' rights under the WBCA.        

         Under the WBCA,  Physio-Control  shareholders have the right to dissent
with respect to the Merger and, subject to certain conditions,  will be entitled
to receive payment in cash of the "fair value" of their shares.  Under the WBCA,
the  "fair  value"  of  dissenting  shares  means  the  value of the  shares  of
Physio-Control  immediately  before the effective date of the Merger,  excluding
any appreciation or depreciation in anticipation of the Merger.                 

         Each  beneficial  owner asserting  dissenters'  rights must assert such
rights with  respect to all shares that such  shareholder  beneficially  owns or
which such  shareholder has power to direct the vote, and such  shareholder must
submit  to  Physio-Control,  with or prior to such  shareholder's  assertion  of
dissenters' rights, the record shareholder's  written consent to such dissent. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered  in such  shareholder's  name only if the  shareholder  dissents with
respect  to all  shares  beneficially  owned  by any  one  person  and  notifies
Physio-Control in writing of the name and address of each person on whose behalf
such  shareholder  asserts  dissenters'  rights.  A  Physio-Control   dissenting
shareholder (i) must deliver to Physio-Control, before the vote on the Merger is
taken,  written notice of such  shareholder's  intent to demand payment for such
shareholder's  shares  if  the  Merger  occurs  and  (ii)  must  not  vote  such
shareholder's  shares in favor of the Merger. Such notice should be delivered to
Physio-Control at its principal executive offices, located at 11811 Willows Road
NE,  Redmond,   Washington   98073-9706,   Attention:   Corporate  Secretary.  A
shareholder who does not satisfy both of these requirements will not be entitled
to dissenters' rights.                                                          

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         If  the  Merger  is  approved  by  the   Physio-Control   shareholders,
Physio-Control  will  send  written  notice  not  later  than 10 days  after the
Effective Time to each  Physio-Control  dissenting holder (i) stating where such
shareholder must send his or her written payment demand,  (ii) stating where and
when certificates  representing  Physio-Control  Common Stock must be deposited,
(iii) containing a form for demanding payment, which requires that the dissenter
certify whether or not he or she acquired beneficial  ownership before the first
public  announcement  of the Merger on June 29, 1998, and (iv) setting a date by
which  such  written  payment  demand  must be  received.  Such  notice  must be
accompanied  by  a  copy  of  Chapter  23B.13  of  the  WBCA.  A  Physio-Control
shareholder who does not demand payment,  certify that such shareholder acquired
the shares  before June 29, 1998,  and deposit his or her shares within the time
provided by such notice will not be entitled to dissenters' rights.             

         Physio-Control shall pay to each Physio-Control  dissenting shareholder
who  complies  with the  procedures  described  above,  within 30 days after the
Effective Time, the amount that Physio-Control estimates to be the fair value of
such dissenter's  shares,  plus accrued interest.  Physio-Control  will provide,
along   with   such   payment,   certain   financial   information,    including
Physio-Control's  balance sheet,  income statement,  and statement of changes in
shareholders'  equity  for its  last  fiscal  year and  Physio-Control's  latest
available interim  financial  statements,  an explanation of how  Physio-Control
estimated  the fair  value of the  shares,  an  explanation  of how the  accrued
interest was  calculated,  and certain  other  information.  Physio-Control  may
elect,  however,  to withhold  such payment from any  dissenter  who was not the
beneficial  owner  of the  shares  of  Physio-Control  Common  Stock as to which
dissenters' rights are asserted before the date of first public  announcement of
the Merger on June 29, 1998. Any dissenting shareholder who is dissatisfied with
such  payment or such offer may,  within 30 days after such payment or offer for
payment, notify Physio-Control in writing of such shareholder's estimate of fair
value of his or her shares and the amount of interest  due,  and demand  payment
thereof.                                                                        

         If any Physio-Control  dissenting  shareholder's  demand for payment is
not settled within 60 days after receipt by Physio-Control of such shareholder's
payment  demand (as described  above),  the WBCA  requires  that  Physio-Control
commence a proceeding, and petition the court to determine the fair value of the
shares and accrued interest,  naming all Physio-Control  dissenting shareholders
whose  demands  remain  unsettled  as parties to the  proceeding.  The court may
appoint one or more persons as appraisers to receive  evidence and recommend the
fair value of the shares.  The dissenters will be entitled to the same discovery
rights as parties in other civil  actions.  Each  dissenter  made a party to the
proceeding  will be entitled to  judgment  for the amount,  if any, by which the
court finds that the fair value of his or her  shares,  plus  accrued  interest,
exceeds the amount paid by Physio-Control.                                      

         Court  costs and  approval  fees  generally  will be  assessed  against
Physio-Control,  except that the court may assess such costs against some or all
of the  dissenters  to the  extent  that the court  finds the  dissenters  acted
arbitrarily,  vexatiously,  or not in good faith in demanding payment. The court
may also assess the fees and  expenses of counsel and experts of the  respective
parties in amounts that the court finds equitable:  (i) against  Physio-Control,
if the court finds that it did not  substantially  comply with provisions of the
WBCA  concerning  dissenters'  rights and (ii) against  either the  dissenter or
Physio-Control,  if the court  finds  that the party  against  whom the fees and
expenses are assessed acted arbitrarily,  vexatiously,  or not in good faith. If
the court finds that services of counsel for any dissenter  were of  substantial
benefit to other dissenters similarly situated,  and that the fees should not be
assessed against Physio-Control,  the court may award to such counsel reasonable
fees to be paid out of the amounts  awarded to dissenters who benefited from the
proceedings.                                                                    

         It is a condition to  Medtronic's  obligation to consummate  the Merger
that Medtronic  receive  letters from  PricewaterhouseCoopers  LLP to the effect
that the Merger will qualify as a pooling-of-interests transaction under Opinion
16 of the Accounting  Principles Board and applicable SEC rules and regulations.
For the Merger to qualify as a pooling-of-interests  transaction, holders of not
more  than  10%  of the  outstanding  Physio-Control  Common  Stock  may  assert
dissenters' rights.                                                             

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COMPARATIVE STOCK PRICES AND DIVIDENDS

         Medtronic  Common  Stock is listed  and  traded  on the New York  Stock
Exchange  (symbol:  MDT),  and it is a condition to all parties'  obligations to
consummate the Merger that the Medtronic Common Stock to be issued in the Merger
be  approved  for such  listing.  Physio-Control  Common  Stock is traded on the
Nasdaq National Market (symbol: PHYS).                                          

         The following table sets forth,  for the quarters  indicated,  the high
and low sales  prices per share of  Medtronic  Common  Stock on the NYSE and the
cash dividends paid per share of Medtronic Common Stock. Also set forth, for the
calendar  period  indicated,  are the high and low  sales  prices  per  share of
Physio-Control Common Stock as reported by the Nasdaq National Market.          

                                                        · Enlarge/Download Table


                                                                               Physio-Control     
                                               Medtronic Common Stock          Common Stock       
                                       High         Low             Dividends  High       Low     
                                                                                                  
Calendar 1996                                                                                     
First Quarter....................... $31.3125      $22.25            $.0325    $22.50     $17.50  
Second Quarter...................... $29.875       $24.375           $.0325    $23.75     $17.125 
Third Quarter....................... $32.4375      $23.50            $.0475    $25.25     $15.375 
Fourth Quarter...................... $34.9375      $30.25            $.0475    $24.125    $18.25  
Calendar 1997                                                                                     
First Quarter....................... $35.875       $28.8125          $.0475    $23.50     $13.25  
Second Quarter...................... $44.4375      $30.375           $.0475    $15.25     $11.375 
Third Quarter....................... $49.25        $42.50            $.055     $19.125    $12.50  
Fourth Quarter...................... $52.75        $40.5625          $.055     $17.50     $14.50  
Calendar 1998                                                                                     
First Quarter....................... $58.4375      $45.4375          $.055     $19.875    $15.125 
Second Quarter...................... $66.00        $47.9375          $.055     $26.50     $16.25  
Third Quarter (through [July 20])... $72.75        $64.25            $.065     $26.6875   $26.3125


         Physio-Control  has  never  paid  cash  dividends.   Under  the  Merger
Agreement,  Physio-Control has agreed not to pay any dividends on Physio-Control
Common  Stock prior to the Merger.  Medtronic  has paid regular  quarterly  cash
dividends on Medtronic Common Stock since 1978. It is expected that the Board of
Directors of Medtronic will continue the practice of declaring cash dividends on
a quarterly basis; however, no assurance can be given as to the amount of future
dividends,  which will  necessarily be dependent on future  earnings,  financial
requirements of Medtronic and its subsidiaries, and other factors.              

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         In the Merger,  shares of Physio-Control Common Stock will be converted
into shares of Medtronic  Common Stock based on the Conversion  Fraction,  which
equals  $27.50  divided by the Average Stock Price for the 19  consecutive  NYSE
trading  days ending on the first NYSE  trading day  immediately  preceding  the
Effective  Time of the Merger.  On June 26, 1998, the last trading day preceding
public  announcement of the Merger, the reported closing sale price of Medtronic
Common  Stock  on the NYSE was  $62.9375  per  share,  resulting  in an  implied
Conversion  Fraction (if it were determined based on the closing sale price that
day) of .4369.  On that day, the reported  closing sale price of  Physio-Control
Common Stock on the Nasdaq  National  Market was $23.00 per share. On [July 21],
1998,  the latest  practicable  trading day prior to the  printing of this Proxy
Statement/Prospectus,  the closing sale price of  Medtronic  Common Stock on the
NYSE was [$65.00] per share,  resulting in an implied Conversion Fraction (if it
were determined based on the closing sale price that day) of .4231. The reported
closing sale price of Physio-Control  Common Stock on the Nasdaq National Market
on that day was $[26.50]  per share.  Shareholders  are urged to obtain  current
market quotations.                                                              

         As of [July 2],  1998,  there were  approximately  [32,850]  registered
holders of Medtronic Common Stock and  approximately [100] registered holders of
Physio-Control Common Stock.                                                    

 RECENT DEVELOPMENTS

Medtronic Stock Offering                                                        

         To be  eligible to use the pooling of  interests  accounting  method to
account for the Merger and other future acquisitions,  Medtronic intends to sell
in one or more transactions up to approximately 12.5 million shares of Medtronic
Common Stock. The offering is expected to be completed prior to the Merger,  but
there can be no assurance that the offering will be completed successfully.  See
"The Merger--Accounting Treatment of the Merger" and "--Conditions; Waiver."    

AVECOR Cardiovascular Inc.                                                      

         On July 13,  1998,  Medtronic  announced  that it had  entered  into an
agreement  to acquire  AVECOR  Cardiovascular  Inc.  ("Avecor"),  a company that
develops,  manufactures,  and markets  specialty  medical devices for heart/lung
bypass surgery and long-term  respiratory  support.  Pursuant to the acquisition
agreement,  upon the fulfillment or waiver of certain conditions, a wholly-owned
subsidiary of Medtronic  created for the Avecor  acquisition will merge with and
into Avecor. Avecor will then become a wholly-owned subsidiary of Medtronic in a
stock-for-stock  merger that is expected to be tax-free and  accounted for using
the  purchase  accounting  method.  In the  Avecor  merger,  which is  valued at
approximately  $91 million,  each  outstanding  share of stock of Avecor will be
exchanged  for the right to receive the portion of a share of  Medtronic  Common
Stock equal to $11.125  divided by the average of the daily  closing sale prices
of a share of Medtronic  Common Stock as reported on the NYSE Composite Tape for
the 18  consecutive  NYSE  trading  days ending on the second  NYSE  trading day
immediately  preceding the effective time of the Avecor  merger.  It is expected
that the Avecor  acquisition will be completed in the third or fourth quarter of
the 1998 calendar year, but there can be no assurance that the acquisition  will
be completed successfully.                                                      

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COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND
 PHYSIO-CONTROL SHAREHOLDERS

         Upon consummation of the Merger,  shareholders of  Physio-Control  will
become shareholders of Medtronic.  Medtronic and Physio-Control are incorporated
under the laws of the states of  Minnesota  and  Washington,  respectively.  The
rights  of  Medtronic   shareholders  under  Medtronic's  Restated  Articles  of
Incorporation as amended ("Medtronic's  Articles"),  Medtronic's Bylaws, and the
Minnesota Business  Corporation Act (the "MBCA") differ in certain respects from
the rights of Physio-Control  shareholders  under  Physio-Control's  Articles of
Incorporation  ("Physio-Control's  Articles"),  Physio-Control's Bylaws, and the
WBCA.  Certain   significant   differences   between  the  rights  of  Medtronic
shareholders and Physio-Control  shareholders are summarized below. This summary
does  not,  however,  purport  to  be a  complete  description  of  all  of  the
differences  between the rights of shareholders of Physio-Control and the rights
of shareholders of Medtronic.                                                   

Classification, Removal and Election of Directors                               

         Classification.  Medtronic's Articles provide for a classified Board of
Directors, under which directors are elected to three-year terms, with one-third
of the directors being elected each year.  Physio-Control's  Articles  similarly
classifies   its   Board   of   Directors.   Both   Medtronic's   Articles   and
Physio-Control's  Articles  provide for vacancies on the Board to be filled by a
majority of the remaining Board members.                                        

         The  WBCA  provides  that  the  board  of  directors  of  a  Washington
corporation shall consist of one or more directors as fixed by the corporation's
articles of  incorporation  or bylaws.  The  Physio-Control  Articles and Bylaws
provide for a board of directors to be set by resolution of the Board adopted by
70% affirmative vote of the total number of directors then in office.  The Board
currently  consists  of seven  directors.  As  permitted  under  the  WBCA,  the
Physio-Control  Board is  classified  into three  classes  which are as equal in
number as possible.  Directors in each class serve for a  three-year  term,  and
elections  are  staggered  such that one class is elected  each  year.  The WBCA
provides for cumulative voting for directors, unless a corporation has opted out
of such provision. Physio-Control has not opted out of this provision.          

         Removal.  Medtronic's  Articles  provide that directors may be removed,
with or without cause, only by the vote of not less than 75% of the voting power
of all then outstanding voting shares.                                          

         The WBCA provides that a corporation's  shareholders  may remove one or
more  directors  with or without  cause  unless the  articles  of  incorporation
provide  that  directors  may be  removed  only for  cause.  The  Physio-Control
Articles  provide  that any director may be removed only for cause and only at a
special meeting called for such purpose and then only if the affirmative vote to
remove by holders of shares of outstanding stock of  Physio-Control  entitled to
vote  generally  in the  election of  directors  exceeds the numbers cast not to
remove the director.                                                            

         Nomination and Election.  Medtronic's Articles provide that nominations
for  the  election  of  directors  may be  made  by or at the  direction  of the
Medtronic  Board of  Directors  or by any  shareholder  entitled  to vote in the
election  of  directors  generally.  Nominations  by  shareholders  must be made
pursuant  to timely  notice in  writing to the  Secretary  of  Medtronic.  To be
timely,  a  shareholder's  notice must be delivered to or mailed and received at
the principal executive offices of Medtronic not less than 50 days nor more than
90 days  prior to the  meeting;  provided,  however,  that if less than 60 days'

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notice or prior public disclosure of the date of the meeting is given or made to
the shareholders, notice by the shareholder to be timely must be so received not
later than the close of  business  on the tenth day  following  the day on which
such notice of the date of the meeting was mailed or such public  disclosure was
made. The notice must set forth certain information  concerning such shareholder
and his or her nominee(s),  including  their names and addresses,  the principal
occupation or employment  of the  nominee(s),  the class and number of shares of
capital stock of Medtronic  that are  beneficially  owned by such persons,  such
other  information  as would be required  to be  included  in a proxy  statement
soliciting proxies for the election of the nominees of such shareholder, and the
consent of each  nominee  to serve as a director  of  Medtronic  if so  elected.
Physio-Control's  Articles and Bylaws do not address the issue of  nomination of
directors.                                                                      

         Amendment of Provisions.  Medtronic's  Articles require the affirmative
vote of not less than 75% of the  voting  power of all then  outstanding  voting
shares  to  amend,  repeal  or adopt  any  provisions  inconsistent  with  these
provisions regarding classification, removal and nomination of directors.       

         The WBCA authorizes a corporation's  board of directors to make various
changes to its  articles of  incorporation  without  shareholder  action.  These
so-called  housekeeping changes include changes of corporate name, the number of
outstanding  shares  to  effectuate  a stock  split  or  stock  dividend  in the
corporation's own shares, and the par value of its stock. Otherwise,  amendments
to a  corporation's  articles  of  incorporation  must  be  recommended  to  the
shareholders by the board of directors, unless the board of directors determines
that because of conflict of interest or other  special  circumstances  it should
make no  recommendation  and communicates the basis for its determination to the
shareholders with the amendment,  and must be approved by two-thirds,  or in the
case of a public company, a majority of all the votes entitled to be cast by any
voting group entitled to vote thereon unless another  proportion is specified in
the articles of  incorporation,  by the board of directors as a condition to its
recommendation,  or by  provisions  of the  WBCA.  The  Physio-Control  Articles
specify  that  amendment  requires  at  least  two-thirds  of the  votes of then
outstanding  shares of each  voting  group as  specified  in the WBCA to approve
amendment,  alteration or repeal of any provision in the Physio-Control Articles
of Incorporation.                                                               

         The  above-described   provisions  of  Medtronic's  Articles  regarding
directors  will be subject to the terms of the  certificate  of  designation  or
other  instrument  creating  any class or series of  preferred  stock giving the
holders of such class or series of preferred stock the right,  voting separately
as a class,  to elect one or more  directors  (such as is often  required by the
terms of preferred stock in the event that dividend  payments are in arrears for
a period  of  time).  See  "Comparative  Rights of  Medtronic  Shareholders  and
Physio-Control Shareholders--Preferred Stock."                                  

         These provisions  regarding  classification,  removal and nomination of
directors afford some assurance of stability in the composition of the Medtronic
Board of Directors,  but may  discourage  or deter  attempts by  individuals  or
entities to take control of Medtronic by electing  their own slate of directors.
To the extent that  potential  acquirers of Medtronic  stock are deterred by the
classified Board, such provision also may deter certain mergers,  tender offers,
or other  future  takeover  attempts  which  some or a  majority  of  holders of
Medtronic Common Stock may deem to be in their best interests.  In addition, the
classified  Medtronic  Board  would  delay  shareholders  who do not  favor  the
policies  of  Medtronic's  Board of  Directors  from  removing a majority of the
Medtronic Board of Directors for two years, unless they can obtain the requisite
vote.                                                                           

         Liability of Directors.  Both Medtronic's Articles and Physio-Control's
Articles  exempt  directors  from personal  liability to the  corporation or its
shareholders  for monetary damages for breach of fiduciary duty as a director to
the full extent permitted by Minnesota and Washington law, respectively.        

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Preferred Stock                                                                 

         Medtronic has  2,500,000  authorized  but unissued  shares of Preferred
Stock,  par value $1 per share.  Medtronic's  Articles provide that whenever the
holders  of a class or series  of  Preferred  Stock  have the right to elect any
directors,  the election, term and other features of such directorships shall be
governed  by the terms set forth in the  resolution  of the  Medtronic  Board of
Directors  designating  the  rights and  preferences  of such class or series of
Preferred  Stock,  and any directors  elected by the holders of Preferred  Stock
shall not be divided into classes  unless  provision is expressly  made for such
classification  by the  terms  of such  Preferred  Stock.  Shares  of  Medtronic
Preferred  Stock could be issued  that would have the right to elect  directors,
either  separately  or  together  with the  Medtronic  Common  Stock,  with such
directors either divided or not divided into classes.                           

         Under certain  circumstances  such Medtronic  Preferred  Stock could be
used to  create  voting  impediments  or to deter  persons  seeking  to effect a
takeover or otherwise  gain control of Medtronic in a transaction  which holders
of some or a majority of the Medtronic Common Stock may deem to be in their best
interests.  Such shares of Medtronic  Preferred stock could be sold in public or
private  transactions  to purchasers  who might  support the Medtronic  Board of
Directors  in  opposing a takeover  bid that the  Medtronic  Board of  Directors
determines not to be in the best interests of Medtronic and its shareholders. In
addition, the Medtronic Board of Directors could authorize holders of a class or
series of Preferred Stock to vote, either separately as a class or together with
the holders of  Medtronic  Common  Stock,  on any merger,  sale,  or exchange of
assets  by  Medtronic  or any other  extraordinary  corporate  transaction.  The
ability  to issue  such  Medtronic  Preferred  Stock  might  have the  effect of
discouraging an attempt by another person or entity,  through the acquisition of
a substantial  number of shares of Medtronic Common Stock, to acquire control of
Medtronic  with a view to  imposing  a  merger,  sale of all or any  part of the
assets or a similar  transaction,  because the  issuance of new shares  could be
used to dilute the stock  ownership of such person or entity.  See  "Comparative
Rights of Medtronic  Shareholders and  Physio-Control  Shareholders--Shareholder
Rights Plan."                                                                   

         Physio-Control   has  5,000,000   authorized  but  unissued  shares  of
Preferred  Stock,  par value $.01 per share,  and the Board of Directors has the
authority to fix or alter the terms of such shares.                             

Special Meetings of Shareholders                                                

         Under Minnesota law, a special meeting of shareholders may be called by
certain  officers,  two or more directors,  a person  authorized to do so in the
articles or bylaws, or shareholders  holding at least 10% of the voting power of
all shares  entitled to vote,  except that a special  meeting for the purpose of
considering an action to effect, directly or indirectly,  a business combination
must be called by  shareholders  holding at least 25% of the voting power of all
shares entitled to vote.                                                        

         The  WBCA  provides  that  a  special  meeting  of  shareholders  of  a
corporation may be called by its board of directors,  by holders of at least 10%
of all the votes  entitled to be cast on any issue  proposed to be considered at
the proposed  special  meeting,  or by other persons  authorized to do so by the
articles of incorporation or bylaws of the corporation. However, the WBCA allows
the right of  shareholders  to call a special meeting to be limited or denied to
the  extent  provided  in the  articles  of  incorporation.  The  Physio-Control
Articles deny this right by providing that a special meeting of shareholders may
only be called by either a majority  of the total  number of  directors  then in
office or the chief executive officer.                                          

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Voting Rights; Shareholder Approvals                                            

         Under both Medtronic's Articles and Physio-Control's  Articles, holders
of Medtronic Common Stock and  Physio-Control  Common Stock,  respectively,  are
entitled  to one  vote  per  share  on all  matters  submitted  to a vote of the
shareholders.  Medtronic's Bylaws provide that, except as specifically  required
otherwise  under  Medtronic's  Articles,  Bylaws or  Minnesota  law, all matters
submitted  to the  shareholders  are  decided by a  majority  vote of the shares
entitled to vote and represented at a meeting at which there is a quorum.       

         Under the WBCA,  a merger or share  exchange of a  corporation  must be
approved by the  affirmative  vote of a majority of  directors  when a quorum is
present, and by each shareholder voting group entitled to vote separately on the
plan by  two-thirds  of all the  votes  entitled  to be cast on the plan by each
voting shareholder group, unless another proportion is specified in the articles
of incorporation. The Physio-Control Articles do not provide otherwise. The WBCA
also provides that certain  mergers need not be approved by the  shareholders of
the surviving  corporation if (i) the articles of incorporation  will not change
in the merger, except for specified permitted amendments,  (ii) no change occurs
in the number,  designations,  preferences,  limitations, and relative rights of
shares held by those  shareholders  who were  shareholders  prior to the merger;
(iii) the number of voting shares outstanding immediately after the merger, plus
the  voting  shares  issuable  as a result of the  merger,  will not  exceed the
authorized  voting shares specified in the surviving  corporation's  articles of
incorporation   immediately  prior  to  the  merger;  and  (iv)  the  number  of
participating  shares outstanding  immediately after the merger, plus the number
of participating  shares issuable as a result of the merger, will not exceed the
authorized  participating  shares  specified  in the  corporation's  articles of
incorporation  immediately prior to the merger.  Under the WBCA, approval by the
Physio-Control  shareholders of the Merger by a two-thirds vote is required. The
Board of Directors unanimously approved the Merger.                             

         The WBCA also provides that, in general, a corporation may sell, lease,
exchange,  or otherwise  dispose of all, or substantially  all, of its property,
other than in the usual and regular  course of business or dissolve if the board
of directors  recommends the proposed  transaction to the  shareholders  and the
shareholders  approve the transaction by two-thirds of all the votes entitled to
be cast in the  transaction,  unless  another  proportion  is  specified  in the
articles of incorporation. The Physio-Control Articles do not provide otherwise.

Cumulative Voting                                                               

         Medtronic's  Articles do not provide for cumulative  voting with regard
to the Medtronic Common Stock.  Under the WBCA, unless otherwise provided in the
articles  of  incorporation,  shareholders  entitled  to vote at an  election of
directors are entitled to cumulative  voting.  Physio-Control's  Articles do not
otherwise provide.                                                              

Preemptive Rights                                                               

         Under  Medtronic's  Articles,  holders of Medtronic stock are expressly
denied preemptive  rights.  The WBCA provides that a corporation's  shareholders
have  preemptive  rights  only if  such  rights  are  expressly  granted  in the
corporation's  articles of  incorporation.  Physio-Control's  Articles  does not
grant preemptive rights.                                                        

Amendment of the Articles of Incorporation                                      

         Under  Minnesota  law, an amendment  to the  articles of  incorporation
requires the affirmative vote of the holders of a majority of the shares present
and  entitled  to vote  unless  a larger  affirmative  vote is  required  by the
corporation's  articles.  Except as  specifically  described  otherwise  in this

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"Comparative Rights of Medtronic Shareholders and Physio-Control  Shareholders,"
Medtronic's  Articles  do not  contain  any  provisions  that  require  a larger
affirmative vote in order to amend Medtronic's Articles.                        

         Under  Washington  law, an amendment  to the articles of  incorporation
requires  the  affirmative  vote of the  holders  of  two-thirds  of the  shares
entitled to vote thereon,  or, in the case of a public company, by a majority of
all  shares  entitled  to vote  thereon,  unless the  corporation's  certificate
requires a greater  or lesser  number for  approval.  Physio-Control's  Articles
contain a provision requiring two-thirds majority vote for approval.            

Business Combinations and Control Share Acquisitions                            

         Medtronic is governed by Sections 302A.671 and 302A.673 of the MBCA. In
general,  Section 302A.671 provides that the shares of a corporation acquired in
a "control  share  acquisition"  have no voting  rights unless voting rights are
approved  in  a  prescribed   manner.  A  "control  share   acquisition"  is  an
acquisition,  directly or  indirectly,  of  beneficial  ownership of shares that
would,  when  added to all  other  shares  beneficially  owned by the  acquiring
person,  entitle the acquiring person to have voting power of 20% or more in the
election of directors. In general, Section 302A.673 prohibits a public Minnesota
corporation  from  engaging  in a  "business  combination"  with an  "interested
shareholder"  for a period of four years  after the date of the  transaction  in
which  the  person  became  an  interested  shareholder,   unless  the  business
combination is approved in a prescribed manner.  "Business combination" includes
mergers,  asset sales and other transactions resulting in a financial benefit to
the interested shareholder.  An "interested  shareholder" is a person who is the
beneficial  owner,  directly or indirectly,  of 10% or more of the corporation's
voting stock or who is an affiliate or associate of the  corporation  and at any
time within four years prior to the date in question was the  beneficial  owner,
directly or indirectly,  of 10% or more of the corporation's  voting stock. Such
provisions  of  Minnesota  law could have the effect of  delaying,  deferring or
preventing a change in control of Medtronic.                                    

         Chapter   23B.19  of  the  WBCA,   which  applies  to  all   Washington
corporations  which have a class of voting stock  registered with the Commission
under  the  Exchange  Act,  prohibits  a  "target   corporation,"  with  certain
exceptions,  from engaging in certain "significant business transactions" with a
person or group of  persons  which  beneficially  owns 10% or more of the voting
securities of the target  corporation (i.e., an "Acquiror") for a period of five
years after such acquisition, unless the transaction or acquisition of shares is
approved  by a majority  of the  members of the  target  corporation's  board of
directors  prior  to the  time  of  acquisition.  Such  prohibited  transactions
include,  among other things,  a merger or  consolidation  with,  disposition of
assets  to,  or  issuance  or  redemption  of stock to or  from,  the  Acquiror,
termination of 5% or more of the employees of the target corporation as a result
of the  Acquiror's  acquisition  of 10% or more of the shares,  or allowing  the
Acquiror to receive any  disproportionate  benefit as a  shareholder.  After the
five-year  period,  a "significant  business  transaction"  may take place if it
complies with certain "fair price" provisions of the statute.  A corporation may
"opt out" of this statute;  however since it has not,  Physio-Control is subject
to it. The Merger will not be subject to the  provisions of the statute  because
the Physio-Control  Board has approved the Merger Agreement and the transactions
contemplated thereby.                                                           

Shareholder Rights Plan                                                         

     Medtronic  has in effect a  Shareholder  Rights Plan and has entered into a
Rights Agreement with Norwest Bank Minnesota,  N.A., as Rights Agent. The Rights
Plan provides for a dividend  distribution of one preferred stock purchase right

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(a "Right") to be attached to each outstanding  share of Medtronic Common Stock.
The Right  associated  with each  outstanding  share of  Medtronic  Common Stock
entitles the holder to buy 1/1600th of a Series A Junior Participating Preferred
Share (the "Series A Preferred  Shares") of  Medtronic,  which is  substantially
equivalent  to one share of  Medtronic  Common  Stock,  at an exercise  price of
$37.50 per 1/1600th of a Series A Preferred  Share. The Rights are not currently
exercisable or transferable apart from the Medtronic Common Stock.              

         The Rights will become exercisable if a person or group acquires 15% or
more of the Medtronic  Common Stock (and thereby becomes an "Acquiring  Person")
or announces a tender offer or exchange  offer that would increase the Acquiring
Person's beneficial ownership to 15% or more of the outstanding Medtronic Common
Stock, subject to certain exceptions. After the Rights become exercisable,  each
Right  entitles the holder (other the Acquiring  Person),  instead,  to purchase
Medtronic  Common Stock that has a market value of two times the exercise  price
of the Right. If Medtronic is acquired in a merger or other business combination
transaction, each exercisable Right entitles the holder to purchase common stock
of the Acquiring Person or an affiliate that has a market value of two times the
exercise  price of the Right.  Each Right is redeemable by Medtronic at $.000625
any time  before a person  or group  triggers  the 15%  threshold  to  become an
Acquiring Person. The Rights expire on July 10, 2001.                           

         The Rights issued under the Medtronic  Shareholder Rights Plan may make
any  merger  not  approved  by  Medtronic's  Board  of  Directors  prohibitively
expensive,  because the Rights  allow  Medtronic  shareholders  to purchase  the
voting  securities of Medtronic or a potential  acquirer at one-half of its fair
market value.                                                                   

Physio-Control does not have a shareholder rights plan.       

Related Person Business Transactions                                            

         Medtronic's  Articles  provide  that,  in  certain  circumstances,   an
affirmative  vote of  two-thirds  of the  voting  power of all then  outstanding
voting  shares is required  for the  approval or  authorization  of any "related
person business transaction." Such two-thirds approval is not required, however,
if (i) a majority vote of "continuing  directors"  (as defined below)  expressly
approves the related  person  business  transaction,  or (ii) the related person
business transaction is a merger,  consolidation,  exchange of shares or sale of
all or substantially all of the assets of Medtronic, and the cash or fair market
value of the  property  received  by the  Medtronic  shareholders  is equal to a
defined minimum  purchase price.  For purposes of this provision,  a "continuing
director"  means,  generally,  those  directors  who were  directors  before the
"related person" (as defined below) became a related person.                    

         Generally,  a related  person  business  transaction  includes  (i) any
merger or  consolidation  of Medtronic with or into a related  person,  (ii) any
exchange of shares of Medtronic (or a subsidiary) for shares of a related person
which  would have  required  an  affirmative  vote of at least a majority of the
voting power of the outstanding  shares entitled to vote, (iii) any sale, lease,
exchange,  transfer,  or other  disposition  (in one  transaction or a series of
transactions),  including  without  limitation a mortgage or any other  security
device,  of  all or any  substantial  part  of the  assets  of  Medtronic  (or a
subsidiary) to or with a related  person,  (iv) any sale,  lease,  transfer,  or
other disposition (in one transaction or a series of transactions) of all or any
substantial  part of the assets of a related  person to or with  Medtronic (or a
subsidiary),  (v) the issuance, sale, transfer or other disposition to a related
person of any securities of Medtronic (except pursuant to stock dividends, stock
splits, or similar transactions that would not have the effect of increasing the
proportion  of voting  power of a related  person)  or of a  subsidiary  (except
pursuant to a pro rata  distribution to all holders of Medtronic  Common Stock),
(vi) any  recapitalization  or  reclassification  that  would have the effect of
increasing the  proportionate  voting power of a related  person,  and (vii) any
agreement,  contract,  arrangement  or  understanding  providing  for any of the
transactions described above.                                                   

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         Generally,  for purposes of a related person business transaction,  the
term  "related  person" is broadly  defined to include a wide range of potential
persons,  including  any person or entity that,  together  with  affiliates  and
associates,  beneficially  owns 15% or more of the  outstanding  voting stock of
Medtronic.                                                                      

         Such a provision could have the effect of impeding a potential acquirer
of  Medtronic   by  requiring  a  larger  than  normal   majority  of  Medtronic
shareholders  to  approve a  transaction.  There is no similar  "related  person
business transaction" provision in Physio-Control's Articles.                   

CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN PHYSIO-CONTROL AND MEDTRONIC

         Stock Option Agreement.  Physio-Control  and Medtronic are parties to a
Stock Option Agreement dated June 27, 1998, pursuant to which Physio-Control has
granted  to   Medtronic  an  option,   exercisable   under   certain   specified
circumstances,   to  purchase  19.9%  of  the  Physio-Common   Stock.  See  "The
Merger--Stock Option Agreement."                                                

 LEGAL MATTERS

         The validity of the  Medtronic  Common Stock to be issued in connection
with the Merger will be passed upon for Medtronic by  Fredrikson & Byron,  P.A.,
Minneapolis,   Minnesota.   Members  of  such  firm  own,   in  the   aggregate,
approximately 86,000 shares of Medtronic Common Stock.                          

         Certain legal matters for Physio-Control,  including the federal income
tax  consequences  in  connection  with the Merger,  were passed upon by Preston
Gates & Ellis  LLP,  Seattle,  Washington.  Members  of such  firm  own,  in the
aggregate, approximately 300 shares of Medtronic Common Stock.                  

 EXPERTS

         The  consolidated  financial  statements  incorporated  in  this  Proxy
Statement/Prospectus  by  reference  to  the  Annual  Report  on  Form  10-K  of
Medtronic,  Inc. for the year ended April 30, 1998 have been so  incorporated in
reliance on the report of  PricewaterhouseCoopers  LLP, independent accountants,
given on the authority of said firm as experts in auditing and  accounting.  The
consolidated     financial    statements     incorporated    in    this    Proxy
Statement/Prospectus  by  reference  to  the  Annual  Report  on  Form  10-K  of
Physio-Control  International  Corporation  for the year ended December 31, 1997
have been so  incorporated  in reliance on the report of  PricewaterhouseCoopers
LLP, independent accountants,  given on the authority of said firm as experts in
auditing and accounting.                                                        

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                                                                      APPENDIX A
PLAN OF MERGER
OF
 PC MERGER CORP.
INTO
PHYSIO-CONTROL INTERNATIONAL CORPORATION

 ARTICLE 1
 NAMES OF CONSTITUENT CORPORATIONS

     1.1 Constituent Corporations. The names of the Constituent Corporations are
PC  Merger  Corp.,  a  Washington   corporation   ("Merger   Subsidiary"),   and
Physio-Control   International   Corporation,   a  Washington  corporation  (the
"Company").  The  Constituent  Corporations  shall be  combined by the merger of
Merger Subsidiary into the Company as the Surviving  Corporation (the "Merger"),
pursuant to the applicable provisions of the Washington Business Corporation Act
("WBCA").                                                                       

     1.2  Certain  Definitions.  As used in this Plan of Merger,  the  following
capitalized terms shall have the following meanings:                            

                  (a) "Company  Common Stock" means common stock of the Company,
par value $.01 per share.                                     

                  (b) "Company  Options" means all options to purchase shares of
  Company Common Stock that are outstanding at the Effective Time.

                  (c)  "Conversion  Fraction" means as defined in Section 2.2(a)
hereof.                                                       

                  (d) "Merger  Agreement" means that certain  Agreement and Plan
         of  Merger  dated  June ___,  1998,  by and among  Medtronic,  Inc.,  a
         Minnesota   corporation  and  sole  shareholder  of  Merger  Subsidiary
         ("Parent"),  Merger Subsidiary,  and the Company, a copy of which shall
         be maintained at the Surviving Corporation's principal executive office
         and made available to any shareholder of either Constituent Corporation
upon request.                                                 

                  (e) "Merger  Subsidiary  Common  Stock"  means common stock of
Merger Subsidiary, par value $.01 per share.                  

                  (f)  "Parent  Average  Stock  Price"  shall  mean the  average
         (rounded to the  nearest  full cent,  with the cents  rounded up if the
         third decimal place is 5 or more) of the daily closing sale prices of a
         share of Parent Common Stock as reported on the New York Stock Exchange
         ("NYSE")  Composite Tape, as reported in The Wall Street  Journal,  for
         the 19 consecutive  NYSE trading days ending on and including the first
NYSE trading day immediately preceding the Effective Time.    

                  (g) "Parent  Common  Stock" means common stock of Parent,  par
value $.10 per share.                                         

                  (h) "Surviving Corporation" means the Company as the surviving
         corporation  of the  merger  of  Merger  Subsidiary  with  and into the
Company.                                                      

                  (i) "Surviving Corporation Common Stock" means common stock of
the Surviving Corporation, par value $.01 per share.          

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 ARTICLE 2
TERMS AND CONDITIONS

         2.1 Merger;  Effective  Time.  The Merger shall be  effective  upon the
filing with the  Washington  Secretary of State of Articles of Merger  including
this Plan of Merger and such other  documents  as are required by the WBCA to be
filed with the Secretary of State of  Washington  (the time of such filing being
the "Effective  Time"). At the Effective Time, the separate  existence of Merger
Subsidiary  shall cease and the Company shall alone continue in existence as the
Surviving Corporation. All transactions on and after the Effective Time shall be
deemed  transactions  of and for the  account of the  Company  as the  Surviving
Corporation.                                                                    

         2.2  Conversion  of Shares.  At the  Effective  Time,  by virtue of the
Merger and  without any action on the part of any holder of any share of capital
stock of the Company or Merger Subsidiary:                                      

                  (a) Each share of Company Common Stock issued and  outstanding
         immediately prior thereto (except for Dissenting  Shares, as defined in
         Section 2.3 hereof, and except for shares referred to in Section 2.2(b)
         hereof) shall be converted  into the right to receive the fraction of a
         share  (subject  to  adjustment  as  provided  below,  the  "Conversion
         Fraction") of Parent Common Stock equal to $27.50 divided by the Parent
Average Stock Price.                                          

                  Notwithstanding  the  foregoing,  if the sum of the  number of
         shares of Company  Common Stock  outstanding  immediately  prior to the
         Effective  Time plus the number of shares  subject to then  outstanding
         options,  warrants, or other rights to acquire shares of Company Common
         Stock  (collectively,  "Company Stock  Acquisition  Rights") is greater
         than  20,693,456  shares plus that number of shares  issuable under the
         Company's  Employee Share Purchase Plan and Team Savings Plan or if the
         aggregate  exercise price of all such Company Stock Acquisition  Rights
         then outstanding is less than the aggregate exercise price reflected in
         Section 3.3 of the Company Disclosure Schedule to the Merger Agreement,
         then the $27.50 amount per share of Company Common Stock,  as described
         above,  shall  be  reduced  to an  amount  equal to (i)  $[27.50  times
         20,693,456  shares  plus  that  number  of  shares  issuable  under the
         Company's Employee Share Purchase Plan and Team Savings Plan] minus the
         aggregate  exercise  price  reflected  in  Section  3.3 of the  Company
         Disclosure  Schedule to the Merger  Agreement plus the aggregate amount
         received by the Company as a result of any  issuance of Company  Common
         Stock after the date of the Merger Agreement and prior to the Effective
         Time plus the aggregate exercise price of all Company Stock Acquisition
         Rights  outstanding  immediately prior to the Effective Time divided by
         (ii) the sum of (A) the  number  of  shares  of  Company  Common  Stock
         outstanding immediately prior to the Effective Time plus (B) the number
         of shares subject to Company Stock Acquisition Rights then outstanding.

                  An appropriate adjustment shall similarly be made in the event
         that,  prior to the Effective Time, the  outstanding  shares of Company
         Common Stock, without new consideration,  are changed into or exchanged
         for a different kind of shares or securities  through a reorganization,
         reclassification,  stock  dividend,  stock  combination,  or other like
         change in the Company's capitalization.  Notwithstanding the foregoing,
         nothing in this section shall be deemed to constitute  authorization or
         permission  for or  consent  from  Parent or Merger  Subsidiary  to any
         increase in the number of shares of Company Common Stock outstanding or
         subject  to  outstanding  Company  Stock  Acquisition  Rights,  to  any
         decrease   in  the   exercise   price  of  such   Rights,   or  to  any
         reorganization, reclassification, stock dividend, stock combination, or
other like change in capitalization.                          

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                  (b) Each share of Company Common Stock issued and  outstanding
         immediately prior to the Effective Time that is held in the treasury of
         the  Company  or is then  owned  beneficially  or of record by  Parent,
         Merger  Subsidiary,  or any direct or indirect  subsidiary of Parent or
         the Company  shall be cancelled  without  payment of any  consideration
therefor and without any conversion thereof.                  

                  (c) Each  share of any  other  class of  capital  stock of the
         Company  (other than Company  Common Stock) shall be cancelled  without
         payment  of any  consideration  therefor  and  without  any  conversion
thereof.                                                      

                  (d) Each share of Merger  Subsidiary  Common  Stock issued and
         outstanding  immediately prior to the Effective Time shall be converted
into one share of Surviving Corporation Common Stock.         

     2.3  Notwithstanding any provision of the Merger Agreement to the contrary,
each outstanding share of Company Common Stock, the holder of which has demanded
and perfected  such holder's right to dissent from the Merger and to be paid the
fair value of such shares in accordance with Sections  23B.13.020 et seq. of the
WBCA and, as of the Effective Time, has not  effectively  withdrawn or lost such
dissenters'  rights  ("Dissenting  Shares"),  shall  not be  converted  into  or
represent  a right to receive  the  Parent  Common  Stock  into which  shares of
Company  Common  Stock are  converted  pursuant to Section  2.2 hereof,  but the
holder thereof shall be entitled only to such rights as are granted by the WBCA.
The Company shall give Parent (i) prompt  written notice of any notice of intent
to demand fair value for any shares of Company Common Stock, withdrawals of such
notices,  and any other  instruments  served  pursuant  to the WBCA or any other
provisions  of  Washington  law  and  received  by the  Company,  and  (ii)  the
opportunity to conduct jointly all  negotiations and proceedings with respect to
demands for fair value for shares of Company  Common  Stock under the WBCA.  The
Company shall not, except with the prior written consent of Parent,  voluntarily
make any  payment  with  respect  to any  demands  for fair  value for shares of
Company Common Stock or offer to settle or settle any such demands.             

2.4      Exchange of Company Common Stock.                    

                  (a)  Promptly  after the  Effective  Time,  Parent shall cause
         Parent's  stock  transfer  agent or such  other  person as  Parent  may
         appoint to act as exchange agent (the "Exchange Agent") to mail to each
         holder of record (other than Parent, Merger Subsidiary, the Company, or
         any   subsidiary  of  Parent  or  the  Company)  of  a  certificate  or
         certificates  that immediately  prior to the Effective Time represented
         outstanding  shares of Company Common Stock ("Company  Certificates") a
         form letter of transmittal  (which shall specify that delivery shall be
         effective,  and risk of loss and  title to the  Company  Certificate(s)
         shall pass,  only upon  delivery of the Company  Certificate(s)  to the
         Exchange Agent) and instructions for such holder's use in effecting the
         surrender  of the Company  Certificates  in exchange  for  certificates
representing shares of Parent Common Stock.                   

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                  (b) As soon as  practicable  after  the  Effective  Time,  the
         Exchange Agent shall  distribute to holders of shares of Company Common
         Stock,  upon  surrender  to the  Exchange  Agent of one or more Company
         Certificates for cancellation,  together with a duly-executed letter of
         transmittal,  (i)  one or more  Parent  certificates  representing  the
         number of whole  shares of Parent  Common  Stock  into which the shares
         represented  by the Company  Certificate(s)  shall have been  converted
         pursuant to Section 2.2(a), and (ii) a bank check in the amount of cash
         into which the shares represented by the Company  Certificate(s)  shall
         have been converted  pursuant to Section 2.4(f) (relating to fractional
         shares),  and  the  Company  Certificate(s)  so  surrendered  shall  be
         cancelled.  In the event of a transfer of ownership  of Company  Common
         Stock that is not registered in the transfer records of the Company, it
         shall be a condition to the  issuance of shares of Parent  Common Stock
         that the  Company  Certificate(s)  so  surrendered  shall  be  properly
         endorsed  or be  otherwise  in proper form for  transfer  and that such
         transferee  shall (i) pay to the  Exchange  Agent any transfer or other
         taxes  required or (ii) establish to the  satisfaction  of the Exchange
Agent that such tax has been paid or is not payable.          

                  (c)  Holders of Company  Common  Stock will be entitled to any
         dividends or other distributions  pertaining to the Parent Common Stock
         received in exchange  therefor  that become  payable to persons who are
         holders  of  record  of Parent  Common  Stock as of a record  date that
         follows the Effective Time, but only after they have surrendered  their
         Company  Certificates for exchange.  Subject to the effect,  if any, of
         applicable  law, the Exchange Agent shall receive,  hold, and remit any
         such  dividends  or other  distributions  to each  such  record  holder
         entitled  thereto,  without  interest,  at the time that  such  Company
         Certificates  are  surrendered  to the  Exchange  Agent  for  exchange.
         Holders  of Company  Common  Stock will not be  entitled,  however,  to
         dividends or other  distributions  that become  payable before or after
         the  Effective  Time to  persons  who were  holders of record of Parent
       Common Stock as of a record date that is prior to the Effective Time.

                  (d)  All  shares  of  Parent  Common  Stock  issued  upon  the
         surrender for exchange of Company  Common Stock in accordance  with the
         terms hereof (including any cash paid for fractional shares pursuant to
         Section  2.4(f)  hereof)  shall be deemed  to have been  issued in full
         satisfaction of all rights  pertaining to such shares of Company Common
Stock.                                                        

                  (e)  After  the  Effective  Time,  there  shall be no  further
         registration  of transfers on the stock transfer books of the Surviving
         Corporation of the shares of Company Common Stock that were outstanding
         immediately  prior to the Effective Time. If, after the Effective Time,
         Company  Certificates  representing  such shares are  presented  to the
         Surviving  Corporation,  they  shall  be  cancelled  and  exchanged  as
         provided in this Article 2. As of the  Effective  Time,  the holders of
         Company Certificates  representing shares of Company Common Stock shall
         cease to have any rights as  shareholders  of the Company,  except such
         rights,  if any,  as they may have  pursuant  to the  WBCA.  Except  as
         provided  above,  until such Company  Certificates  are surrendered for
         exchange,  each such Company  Certificate  shall,  after the  Effective
         Time,  represent  for all purposes only the right to receive the number
         of whole shares of Parent Common Stock into which the shares of Company
         Common  Stock  shall  have been  converted  pursuant  to the  Merger as
         provided  in Section  2.2(a)  hereof and the right to receive  the cash
         value of any fraction of a share of Parent  Common Stock as provided in
Section 2.4(f) hereof.                                        

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                  (f)  No  fractional  shares  of  Parent  Common  Stock  and no
         certificates or scrip therefor, or other evidence of ownership thereof,
         shall  be  issued   upon  the   surrender   for   exchange  of  Company
         Certificates,  no dividend or other distribution of Parent shall relate
         to any fractional  share, and such fractional share interests shall not
         entitle the owner thereof to vote or to any rights of a shareholder  of
         Parent.  All fractional shares of Parent Common Stock to which a holder
         of Company Common Stock  immediately  prior to the Effective Time would
         otherwise be entitled,  at the Effective  Time,  shall be aggregated if
         and to the extent  multiple  Company  Certificates  of such  holder are
         submitted together to the Exchange Agent. If a fractional share results
         from such  aggregation,  then (in lieu of such  fractional  share)  the
         Exchange  Agent  shall pay to each  holder of shares of Company  Common
         Stock who otherwise would be entitled to receive such fractional  share
         of Parent Common Stock an amount of cash (without interest)  determined
         by  multiplying  (i)  the  Parent  Average  Stock  Price  by  (ii)  the
         fractional  share of Parent  Common  Stock to which such  holder  would
         otherwise be entitled. Parent will make available to the Exchange Agent
any cash necessary for this purpose.                          

                  (g) In the  event any  Company  Certificates  shall  have been
         lost, stolen, or destroyed,  the Exchange Agent shall issue in exchange
         for such lost,  stolen,  or destroyed  Company  Certificates,  upon the
         making of an affidavit of that fact by the holder thereof,  such shares
         of Parent Common Stock and cash for fractional  shares,  if any, as may
         be required pursuant to this Article 2; provided,  however, that Parent
         may, in its  discretion  and as a condition  precedent  to the issuance
         thereof,  require the owner of such lost,  stolen, or destroyed Company
         Certificate  to  deliver  a bond in such sum as  Parent  may  direct as
         indemnity  against  any claim  that may be made  against  Parent or the
         Exchange Agent with respect to such Company Certificate alleged to have
been lost, stolen, or destroyed.                              

                  (h) Each person  entitled to receive  shares of Parent  Common
         Stock  pursuant  to this  Article 2 shall  receive  together  with such
         shares the number of Parent  preferred share purchase rights  (pursuant
         to the Rights  Agreement dated as of June 27, 1991,  between Parent and
         Norwest Bank  Minnesota,  N.A.,  the "Parent Rights Plan") per share of
         Parent  Common  Stock  equal to the  number of Parent  preferred  share
         purchase rights associated with one share of Parent Common Stock at the
Effective Time.                                               

         2.5  Exchange of Merger  Subsidiary  Common  Stock.  From and after the
Effective Time, each outstanding  certificate previously  representing shares of
Merger  Subsidiary  Common  Stock  shall be deemed for all  purposes to evidence
ownership  of and to  represent  the number of shares of  Surviving  Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock shall have
been  converted.  Promptly after the Effective  Time, the Surviving  Corporation
shall issue to Parent a stock  certificate  or  certificates  representing  such
shares of Surviving  Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which shall be cancelled.                                                       

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2.6      Stock Options.                                       

                  (a) Except as  provided  below with  respect to the  Company's
         Employee Share Purchase Plan,  each Company Option shall,  by virtue of
         the Merger and without any action on the part of the holder thereof, be
         assumed  by Parent in such  manner  that  Parent  (i) is a  corporation
         "assuming  a stock  option in a  transaction  to which  Section  424(a)
         applies"  within  the  meaning  of  Section  424 of the  Code  and  the
         regulations  thereunder  or (ii) to the extent that  Section 424 of the
         Code  does  not  apply  to any  such  Company  Option,  would be such a
         corporation  were  Section 424 of the Code  applicable  to such Company
         Option.  From and after  the  Effective  Time,  all  references  to the
         Company in the Company Options shall be deemed to refer to Parent.  The
         Company  Options  assumed by Parent shall be exercisable  upon the same
         terms and conditions as under the Company  Options except that (i) such
         Company  Options  shall  entitle the holder to purchase from Parent the
         number of shares of Parent  Common Stock  (rounded  down to the nearest
         whole number of such shares) that equals the product of the  Conversion
         Fraction  multiplied  by the number of shares of Company  Common  Stock
         subject to such option  immediately  prior to the Effective  Time,  and
         (ii) the option  exercise  price per share of Parent Common Stock shall
         be an amount  (rounded up to the nearest full cent) equal to the option
         exercise price per share of Company Common Stock in effect  immediately
         prior to the  Effective  Time divided by the  Conversion  Fraction.  As
         promptly as practicable after the Effective Time, Parent shall issue to
         each holder of a Company  Option a written  instrument  informing  such
holder of the assumption by Parent of such Company Option.    

                  (b) Immediately  prior to the Effective Time, the current Plan
         Period under the Company's Employee Share Purchase Plan shall be ended,
         and each  participant  shall be  deemed to have  purchased  immediately
         prior to the  Effective  Time,  to the  extent  of  payroll  deductions
         accumulated by such  participant as of such Plan Period end, the number
         of whole shares of Company Common Stock at a per share price determined
         pursuant to the  provisions of the Company's  Employee  Share  Purchase
         Plan,  and each  participant  shall receive a cash payment equal to the
         balance, if any, of such accumulated payroll deductions remaining after
         such  purchase  of  such  shares.   As  of  the  Effective  Time,  each
         participant  shall  receive by virtue of the Merger,  for each share of
         Company  Common  Stock  such  participant  has so  purchased  under the
         Employee  Share  Purchase  Plan, a fraction of a share of Parent Common
         Stock equal to the Conversion  Fraction.  The Company's  Employee Share
         Purchase  Plan  and all  purchase  rights  thereunder  shall  terminate
effective as of the Effective Time.                           

         2.7  Capitalization  Changes.  If,  between  the  date  of  the  Merger
Agreement and the Effective Time, the outstanding  shares of Parent Common Stock
shall have been changed into a different  number of shares or a different  class
by  reason of any  reclassification,  recapitalization,  split-up,  combination,
exchange of shares, or stock dividend, the Conversion Fraction and all per-share
price  amounts  and  calculations  set forth in the  Merger  Agreement  shall be
appropriately adjusted.                                                         

 ARTICLE 3
 ORGANIZATION OF THE SURVIVING CORPORATION

         3.1  Articles  of  Incorporation  of  the  Surviving  Corporation.  The
Articles of Incorporation of the Company,  as in effect immediately prior to the
Effective Time, shall be amended so as to be restated in their entity to read as
set forth on Schedule A-1 attached to this Plan of Merger.                      

         3.2  Bylaws  of  the  Surviving  Corporation.   The  Bylaws  of  Merger
Subsidiary,  as in effect  immediately prior to the Effective Time, shall be the
Bylaws of the Surviving  Corporation until thereafter amended in accordance with
applicable law.                                                                 

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         3.3 Directors and Officers of the Surviving Corporation.  The directors
and officers of Merger Subsidiary  immediately prior to the Effective Time shall
be the directors and officers,  respectively, of the Surviving Corporation until
their respective successors shall be duly elected and qualified.                

 ARTICLE 4
GENERAL PROVISIONS

         4.1  Certain  Effects of the  Merger.  As of the  Effective  Time,  the
Company,  as the  Surviving  Corporation,  shall  succeed to and possess all the
rights, privileges, powers, immunities,  franchises,  concessions,  certificates
and  authority,  of a  public  as  well  as a  private  nature,  of  each of the
Constituent Corporations;  and all property, real, personal and mixed, and every
interest  therein,  and all other  choses in action of or belonging to either of
the Constituent  Corporations on whatever account shall be vested in the Company
as the Surviving Corporation, without any further act or deed; and all property,
assets,  rights,  privileges,  powers,  immunities,   franchises,   concessions,
certificates  and authority  shall be thereafter as effectively  the property of
the  Company,  as the  Surviving  Corporation,  as they  were or would be of the
Constituent  Corporations or either of them; and title to any real estate or any
interest  therein  vested by deed or  otherwise  in  either  of the  Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger.

         4.2 Rights and Duties of Surviving  Corporation.  The  Company,  as the
Surviving  Corporation,  shall be  responsible  and  liable  for all the  debts,
liabilities, duties and obligations of each of the Constituent Corporations, and
as of the Effective  Time all such debts,  liabilities,  duties and  obligations
shall attach to the Company, as the Surviving  Corporation,  and may be enforced
against  it to the  same  extent  as if  such  debts,  liabilities,  duties  and
obligations  had been  originally  incurred or  contracted  by it; and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the merger had not taken place;
or the Company, as the Surviving  Corporation,  may be substituted in its place;
and neither the rights of creditors nor any liens upon property of either of the
Constituent Corporations shall be impaired by the merger.                       

         4.3 Further  Assurances.  If at any time after the  Effective  Time the
Surviving  Corporation  shall  consider or be advised  that any  instruments  of
further  assurance  are  desirable in order to evidence the vesting in it of the
title of either of the Constituent Corporations to any of the property rights of
the Constituent  Corporations,  the appropriate  officers or directors of Merger
Subsidiary and the Company are hereby  authorized to execute,  acknowledge,  and
deliver all such instruments of further  assurance and to do all acts or things,
either in the name of Merger  Subsidiary or the Company,  as may be requisite or
desirable to carry out the provisions hereof.                                   

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                                                                    Schedule A-1

RESTATED ARTICLES OF INCORPORATION
OF
PHYSIO-CONTROL INTERNATIONAL CORPORATION

ARTICLE 1 - NAME

         1.1)The name of the corporation shall be Medtronic Physio-Control, Inc.

 ARTICLE 2 - REGISTERED OFFICE AND AGENT

         2.1)  The  registered  office  of  the  corporation  in  the  State  of
Washington  is 520  Pike  Street,  Seattle,  Washington  98101.  The name of its
registered agent at such address is C T Corporation System.                     

 ARTICLE 3 - STOCK

         3.1) Authorized  Shares. The aggregate number of shares the corporation
has  authority to issue shall be 2,500 shares of Common  Stock,  $.01 par value.
Holders of Common  Stock  shall be entitled to one vote for each share of Common
Stock held of record.                                                           

         3.2)  Issuance  of Shares to Holders of  Another  Class or Series.  The
Board of Directors is authorized to issue shares of the corporation of one class
or series to holders  of that class or series or to holders of another  class or
series to effectuate share dividends or splits.                                 

ARTICLE 4 - RIGHTS OF SHAREHOLDERS

         4.1) No  Preemptive  Rights.  No  holder  of any  class of stock of the
corporation  shall be  entitled  to  subscribe  for or  purchase  such  holder's
proportionate  share of stock of any class of the  corporation  now or hereafter
authorized or issued.                                                           

         4.2) No Cumulative  Voting Rights.  No shareholder shall be entitled to
cumulate  votes for the election of directors  and there shall be no  cumulative
voting for any purpose whatsoever.                                              

         4.3) Voting  Agreements.  A written  agreement  among  shareholders  or
subscribers for shares to be issued,  relating to the voting of their shares, is
valid and  specifically  enforceable by and against the parties to the agreement
under Section 23B.07.310 of the Act.                                            

 ARTICLE 5 - DIRECTORS

         5.1) The number of directors of the  corporation  shall be fixed in the
manner specified by the Bylaws of the corporation.                              

ARTICLE 6 - LIMITATION OF DIRECTOR LIABILITY

                  6.1) Limitation. To the fullest extent permitted by the Act as
it now  exists  or may  hereafter  be  amended  (but,  in the  case of any  such
amendment,  only to the extent that such  amendment  permits the  corporation to
provide  broader  limitation of liability than  permitted  prior  thereto),  and
except as otherwise  provided in the  corporation's  Bylaws,  no director of the
corporation  shall be personally  liable to the corporation or its  shareholders
for monetary damages for conduct as a director, except for:                     

                 (a)      Acts or omissions involving  intentional  misconduct
   by the  director  or a  knowing violation of law by the director;

                  (b) Conduct  violating  Section  23B.08.310  of the Act (which
involves certain distributions by the corporation);           

                  (c) Any  transaction  from which the director will  personally
         receive a benefit in money, property, or services to which the director
is not legally entitled.                                      

                  6.2) Rights of Directors.  Any repeal or  modification  of the
foregoing  paragraph by the shareholders of the corporation  shall not adversely
affect any right or protection of a director of the corporation  existing at the
time of such repeal or modification.                                            

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                                                                      APPENDIX B

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

MEDTRONIC, INC.,

PC MERGER CORP.,

 AND

PHYSIO-CONTROL INTERNATIONAL CORPORATION

 JUNE 27, 1998

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 TABLE OF CONTENTS

ARTICLE 1 THE MERGER; CONVERSION OF SHARES...................................B-5
         1.1      The Merger.................................................B-5
         1.2      Effective Time.............................................B-5
         1.3      Conversion of Shares.......................................B-6
         1.4      Dissenting Shares..........................................B-7
         1.5      Exchange of Company Common Stock...........................B-7
         1.6      Exchange of Merger Subsidiary Common Stock.................B-9
         1.7      Stock Options..............................................B-9
         1.8      Capitalization Changes....................................B-10
         1.9      Articles of Incorporation of the Surviving Corporation....B-10
         1.10     Bylaws of the Surviving Corporation.......................B-10
         1.11     Directors and Officers of the Surviving Corporation.......B-10

ARTICLE 2 CLOSING...........................................................B-10
         2.1      Time and Place............................................B-10
         2.2      Filings at the Closing....................................B-11

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................B-11
         3.1      Organization..............................................B-11
         3.2      Authorization.............................................B-11
         3.3      Capitalization............................................B-12
         3.4      Reports and Financial Statements..........................B-13
         3.5      Absence of Undisclosed Liabilities........................B-13
         3.6      Consents and Approvals....................................B-13
         3.7      Compliance with Laws......................................B-14
         3.8      Litigation................................................B-14
         3.9      Absence of Material Adverse Changes.......................B-15
         3.10     Environmental Laws and Regulations........................B-15
         3.11     Officers, Directors and Employees.........................B-16
         3.12     Taxes.....................................................B-16
         3.13     Contracts.................................................B-17
         3.14     Title to Properties; Liens................................B-18
         3.15     Permits, Licenses, Etc....................................B-18
         3.16     Intellectual Property Rights..............................B-18
         3.17     Benefit Plans.............................................B-19
         3.18     Minute Books..............................................B-21
         3.19     Insurance Policies........................................B-21
         3.20     Bank Accounts.............................................B-21
         3.21     Powers of Attorney........................................B-21
         3.22     Product Liability Claims..................................B-21
         3.23     Warranties................................................B-22
         3.24     Inventories...............................................B-22
         3.25     Relations with Suppliers and Customers....................B-22
         3.26     No Finders................................................B-22
         3.27     Proxy Statement...........................................B-22
         3.28     Merger Filings............................................B-23
         3.29     Fairness Opinion..........................................B-23
         3.30     State Takeover Laws.......................................B-23

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY....B-23
         4.1      Organization..............................................B-23
         4.2      Authorization.............................................B-24
         4.3      Capitalization............................................B-24
         4.4      Consents and Approvals....................................B-24
4.5      Reports; Financial Statements; Absence of Changes;   
                    Litigation..............................................B-25
         4.6      Registration Statement....................................B-25
         4.7      Merger Filings............................................B-25
         4.8      No Finders................................................B-25

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ARTICLE 5 COVENANTS.........................................................B-26
         5.1      Conduct of Business of the Company........................B-26
         5.2      No Solicitation...........................................B-28
         5.3      Access and Information....................................B-29
5.4      Approval of Shareholders; Proxy Statement;           
                    Registration Statement..................................B-29
         5.5      Consents..................................................B-30
         5.6      Affiliates' Letters.......................................B-30
         5.7      Expenses..................................................B-31
         5.8      Reasonable Efforts; Further Actions.......................B-31
         5.9      Regulatory Approvals......................................B-31
         5.10     Certain Notifications.....................................B-31
         5.11     Voting of Shares..........................................B-32
         5.12     Noncompetition Agreements.................................B-32
         5.13     NYSE Listing Application..................................B-32
         5.14     Indemnification, Exculpation and Insurance................B-32
         5.15     Letters of the Company's and Parent's Accountants.........B-33
         5.16     Subsidiary Shares.........................................B-33
         5.17     Stock Option Agreement....................................B-33
         5.18     Conduct of Business by Parent.............................B-33
         5.19     Benefit Plans and Employee Matters........................B-34
         5.20     Delivery of Specified Documents...........................B-34

ARTICLE 6 CLOSING CONDITIONS................................................B-35
  6.1      Conditions to Obligations of Parent, Merger Subsidiary,
                    and the Company.........................................B-35
6.2      Conditions to Obligations of Parent and Merger       
                    Subsidiary..............................................B-35
         6.3      Conditions to Obligations of the Company..................B-37

ARTICLE 7 TERMINATION AND ABANDONMENT.......................................B-37
         7.1      Termination...............................................B-37
         7.2      Effect of Termination.....................................B-39

ARTICLE 8 MISCELLANEOUS.....................................................B-39
         8.1      Amendment and Modification................................B-39
         8.2      Waiver of Compliance; Consents............................B-40
8.3      Investigation; Survival of Representations           
                    and Warranties..........................................B-40
         8.4      Notices...................................................B-40
         8.5      Assignment................................................B-41
         8.6      Governing Law.............................................B-41
         8.7      Counterparts..............................................B-41
         8.8      Knowledge.................................................B-41
         8.9      Interpretation............................................B-41
         8.10     Publicity.................................................B-41
         8.11     Entire Agreement..........................................B-42

EXHIBITS:                                                     

Exhibit A:        Form of Plan of Merger                      
Exhibit B:        Form of Affiliate's Letter                  
Exhibit C:        Form of Agreement to Facilitate Merger      
Exhibit D:        Form of Noncompetition Agreement            
Exhibit E:        Form of Stock Option Agreement              
Exhibit F:        Form of Opinion of the Company's Counsel    
Exhibit G:        Form of Opinion of Parent's Counsel         
Exhibit H:        Form of Company's Certificate               
                   (regarding tax opinion representations)
Exhibit I:        Form of Parent's Certificate                
                   (regarding tax opinion representations)

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AGREEMENT AND PLAN OF MERGER

         THIS  AGREEMENT is dated as of June 27, 1998,  by and among  Medtronic,
Inc.,  a  Minnesota  corporation  ("Parent"),  PC  Merger  Corp.,  a  Washington
corporation and  wholly-owned  subsidiary of Parent ("Merger  Subsidiary"),  and
Physio-Control   International   Corporation,   a  Washington  corporation  (the
"Company").                                                                     

         WHEREAS, the Boards of Directors of Parent, Merger Subsidiary,  and the
Company have approved the merger of Merger  Subsidiary with and into the Company
(the  "Merger")  upon the terms and subject to the  conditions set forth herein;
and                                                                             

         WHEREAS,  for federal  income tax  purposes,  it is  intended  that the
Merger  shall  qualify  as  a  reorganization  within  the  meaning  of  Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"); and                                                                    

         WHEREAS, for accounting purposes,  it is intended that the Merger shall
be  recorded  as a  "pooling  of  interests"  within the  meaning of  Accounting
Principles Board Opinion No. 16, and the rules and regulations of the Securities
and Exchange Commission (the "SEC"); and                                        

         WHEREAS,  as a  condition  to, and upon or  immediately  following  the
execution of, this Agreement, Parent and the Company are entering into the Stock
Option Agreement described in Section 5.17 hereof; and                          

         WHEREAS,  the parties  hereto  desire to make certain  representations,
warranties,  and agreements in connection  with the Merger and also to prescribe
various conditions to the Merger;                                               

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

 ARTICLE 1
THE MERGER; CONVERSION OF SHARES

     1.1  The  Merger.  Subject  to the  terms  and  conditions  of this
Agreement,  at the  Effective  Time (as defined in Section 1.2  hereof),  Merger
Subsidiary  shall be merged  with and into the  Company in  accordance  with the
provisions of the Washington  Business  Corporation Act (the "WBCA"),  whereupon
the separate  corporate  existence  of Merger  Subsidiary  shall cease,  and the
Company  shall   continue  as  the   surviving   corporation   (the   "Surviving
Corporation").  From and after the Effective  Time,  the  Surviving  Corporation
shall possess all the rights, privileges,  powers, and franchises and be subject
to all the  restrictions,  disabilities,  and duties of the  Company  and Merger
Subsidiary, all as more fully described in the WBCA.                            

     1.2  Effective  Time.  As soon  as  practicable  after  each of the
conditions set forth in Article 6 has been satisfied or waived,  the Company and
Merger  Subsidiary will file, or cause to be filed,  with the Secretary of State
of the State of  Washington  Articles of Merger for the Merger,  which  Articles
shall be in the form required by and executed in accordance  with the applicable
provisions of the WBCA and shall include as a part thereof a plan of merger (the
"Plan of Merger")  substantially  in the form attached  hereto as Exhibit A. The
Merger shall  become  effective at the time such filing is made or, if agreed to
by Parent and the Company,  such later time or date set forth in the Articles of
Merger (the "Effective Time").                                                  

     1.3  Conversion  of Shares. At the Effective Time, by virtue of the
Merger and  without any action on the part of any holder of any share of capital
stock of the Company or Merger Subsidiary:                                      

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                  (a) Each share of common stock of the Company,  par value $.01
         per share ("Company Common Stock"),  issued and outstanding immediately
         prior thereto (except for Dissenting  Shares, as defined in Section 1.4
         hereof,  and except for shares  referred to in Section  1.3(b)  hereof)
         shall be  converted  into the right to receive the  fraction of a share
         (subject to adjustment as provided below, the "Conversion Fraction") of
         common  stock of  Parent,  par  value  $.10 per share  ("Parent  Common
         Stock"), equal to $27.50 divided by the Parent Average Stock Price. The
         "Parent  Average  Stock Price"  shall mean the average  (rounded to the
         nearest full cent, with the cents rounded up if the third decimal place
         is 5 or more) of the  daily  closing  sale  prices of a share of Parent
         Common  Stock as  reported  on the New  York  Stock  Exchange  ("NYSE")
         Composite  Tape,  as reported in The Wall  Street  Journal,  for the 19
         consecutive  NYSE trading days ending on and  including  the first NYSE
trading day immediately preceding the Effective Time.         

                  Notwithstanding  the  foregoing,  if the sum of the  number of
         shares of Company  Common Stock  outstanding  immediately  prior to the
         Effective  Time plus the number of shares  subject to then  outstanding
         options,  warrants, or other rights to acquire shares of Company Common
         Stock  (collectively,  "Company Stock  Acquisition  Rights") is greater
         than  20,693,456  shares plus that number of shares  issuable under the
         Company's  Employee Share Purchase Plan and Team Savings Plan or if the
         aggregate  exercise price of all such Company Stock Acquisition  Rights
         then outstanding is less than the aggregate exercise price reflected in
         Section 3.3 of the Company Disclosure Schedule,  then the $27.50 amount
         per share of Company Common Stock, as described above, shall be reduced
         to an amount  equal to (i) [$27.50  times  20,693,456  shares plus that
         number of shares  issuable under the Company's  Employee Share Purchase
         Plan  and  Team  Savings  Plan]  minus  the  aggregate  exercise  price
         reflected in Section 3.3 of the Company  Disclosure  Schedule  plus the
         aggregate amount received by the Company as a result of any issuance of
         Company  Common Stock after the date of this Agreement and prior to the
         Effective  Time plus the aggregate  exercise price of all Company Stock
         Acquisition Rights outstanding  immediately prior to the Effective Time
         divided by (ii) the sum of (A) the  number of shares of Company  Common
         Stock outstanding  immediately prior to the Effective Time plus (B) the
         number of shares  subject  to Company  Stock  Acquisition  Rights  then
outstanding.                                                  

                  An appropriate adjustment shall similarly be made in the event
         that,  prior to the Effective Time, the  outstanding  shares of Company
         Common Stock, without new consideration,  are changed into or exchanged
         for a different kind of shares or securities  through a reorganization,
         reclassification,  stock  dividend,  stock  combination,  or other like
         change in the Company's capitalization.  Notwithstanding the foregoing,
         nothing in this section shall be deemed to constitute  authorization or
         permission  for or  consent  from  Parent or Merger  Subsidiary  to any
         increase in the number of shares of Company Common Stock outstanding or
         subject  to  outstanding  Company  Stock  Acquisition  Rights,  to  any
         decrease   in  the   exercise   price  of  such   Rights,   or  to  any
         reorganization, reclassification, stock dividend, stock combination, or
other like change in capitalization.                          

                  (b) Each share of Company Common Stock issued and  outstanding
         immediately prior to the Effective Time that is held in the treasury of
         the  Company  or is then  owned  beneficially  or of record by  Parent,
         Merger  Subsidiary,  or any direct or indirect  subsidiary of Parent or
         the Company  shall be cancelled  without  payment of any  consideration
therefor and without any conversion thereof.                  

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                  (c) Each  share of any  other  class of  capital  stock of the
         Company  (other than Company  Common Stock) shall be cancelled  without
         payment  of any  consideration  therefor  and  without  any  conversion
thereof.                                                      

                  (d) Each share of common stock of Merger Subsidiary, par value
         $.01  per  share  ("Merger   Subsidiary  Common  Stock"),   issued  and
         outstanding  immediately prior to the Effective Time shall be converted
         into one share of the common stock of the  Surviving  Corporation,  par
value $.01 per share ("Surviving Corporation Common Stock").  

       1.4 Notwithstanding  any provision of this Agreement to the contrary,
each outstanding  share of Company Common Stock, the holder of which has        
demanded and perfected such holder's right to dissent from the Merger and to be 
paid the fair value of such shares in accordance with Sections  23B.13.020 et   
seq. of the WBCA and, as of the Effectiv  Time,  has not  effectively  withdrawn
or lost such dissenters' rights ("Dissenting Shares"), shall  not be  converted 
into or represent  a right to receive  the  Parent  Common  Stock  into which   
shares of Company  Common  Stock are  converted  pursuant to Section 1.3 hereof,
but the holder thereof shall be entitled only to such rights as are granted by  
the WBCA. The Company shall give Parent (i) prompt  written notice of any notice
of intent to demand fair value for any shares of Company Common Stock,          
withdrawals of such notices,  and any other instruments served pursuant to the  
WBCA or any other provisions  of  Washington  law  and  received by the Company,
and  (ii)  the opportunity to conduct jointly all  negotiations and proceedings 
with respect to demands for fair value for shares of Company  Common Stock under
the WBCA. The Company shall not, except with the prior written consent of       
Parent, voluntarily make any payment with respect to any demands for fair value 
for shares of Company Common Stock or offer to settle or settle any such        
demands.                                                                        

1.5      Exchange of Company Common Stock.                    

                  (a)  Promptly  after the  Effective  Time,  Parent shall cause
         Parent's  stock  transfer  agent or such  other  person as  Parent  may
         appoint to act as exchange agent (the "Exchange Agent") to mail to each
         holder of record (other than Parent, Merger Subsidiary, the Company, or
         any   subsidiary  of  Parent  or  the  Company)  of  a  certificate  or
         certificates  that immediately  prior to the Effective Time represented
         outstanding  shares of Company Common Stock ("Company  Certificates") a
         form letter of transmittal  (which shall specify that delivery shall be
         effective,  and risk of loss and  title to the  Company  Certificate(s)
         shall pass,  only upon  delivery of the Company  Certificate(s)  to the
         Exchange Agent) and instructions for such holder's use in effecting the
         surrender  of the Company  Certificates  in exchange  for  certificates
representing shares of Parent Common Stock.                   

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                  (b) As soon as  practicable  after  the  Effective  Time,  the
         Exchange Agent shall  distribute to holders of shares of Company Common
         Stock,  upon  surrender  to the  Exchange  Agent of one or more Company
         Certificates for cancellation,  together with a duly-executed letter of
         transmittal,  (i)  one or more  Parent  certificates  representing  the
         number of whole  shares of Parent  Common  Stock  into which the shares
         represented  by the Company  Certificate(s)  shall have been  converted
         pursuant to Section 1.3(a), and (ii) a bank check in the amount of cash
         into which the shares represented by the Company  Certificate(s)  shall
         have been converted  pursuant to Section 1.5(f) (relating to fractional
         shares),  and  the  Company  Certificate(s)  so  surrendered  shall  be
         cancelled.  In the event of a transfer of ownership  of Company  Common
         Stock that is not registered in the transfer records of the Company, it
         shall be a condition to the  issuance of shares of Parent  Common Stock
         that the  Company  Certificate(s)  so  surrendered  shall  be  properly
         endorsed  or be  otherwise  in proper form for  transfer  and that such
         transferee  shall (i) pay to the  Exchange  Agent any transfer or other
         taxes  required or (ii) establish to the  satisfaction  of the Exchange
Agent that such tax has been paid or is not payable.          

                  (c)  Holders of Company  Common  Stock will be entitled to any
         dividends or other distributions  pertaining to the Parent Common Stock
         received in exchange  therefor  that become  payable to persons who are
         holders  of  record  of Parent  Common  Stock as of a record  date that
         follows the Effective Time, but only after they have surrendered  their
         Company  Certificates for exchange.  Subject to the effect,  if any, of
         applicable  law, the Exchange Agent shall receive,  hold, and remit any
         such  dividends  or other  distributions  to each  such  record  holder
         entitled  thereto,  without  interest,  at the time that  such  Company
         Certificates  are  surrendered  to the  Exchange  Agent  for  exchange.
         Holders  of Company  Common  Stock will not be  entitled,  however,  to
         dividends or other  distributions  that become  payable before or after
         the  Effective  Time to  persons  who were  holders of record of Parent
       Common Stock as of a record date that is prior to the Effective Time.

                  (d)  All  shares  of  Parent  Common  Stock  issued  upon  the
         surrender for exchange of Company  Common Stock in accordance  with the
         terms hereof (including any cash paid for fractional shares pursuant to
         Section  1.5(f)  hereof)  shall be deemed  to have been  issued in full
         satisfaction of all rights  pertaining to such shares of Company Common
Stock.                                                        

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                  (e)  After  the  Effective  Time,  there  shall be no  further
         registration  of transfers on the stock transfer books of the Surviving
         Corporation of the shares of Company Common Stock that were outstanding
         immediately  prior to the Effective Time. If, after the Effective Time,
         Company  Certificates  representing  such shares are  presented  to the
         Surviving  Corporation,  they  shall  be  cancelled  and  exchanged  as
         provided in this Article 1. As of the  Effective  Time,  the holders of
         Company Certificates  representing shares of Company Common Stock shall
         cease to have any rights as  shareholders  of the Company,  except such
         rights,  if any,  as they may have  pursuant  to the  WBCA.  Except  as
         provided  above,  until such Company  Certificates  are surrendered for
         exchange,  each such Company  Certificate  shall,  after the  Effective
         Time,  represent  for all purposes only the right to receive the number
         of whole shares of Parent Common Stock into which the shares of Company
         Common  Stock  shall  have been  converted  pursuant  to the  Merger as
         provided  in Section  1.3(a)  hereof and the right to receive  the cash
         value of any fraction of a share of Parent  Common Stock as provided in
Section 1.5(f) hereof.                                        

                  (f)  No  fractional  shares  of  Parent  Common  Stock  and no
         certificates or scrip therefor, or other evidence of ownership thereof,
         shall  be  issued   upon  the   surrender   for   exchange  of  Company
         Certificates,  no dividend or other distribution of Parent shall relate
         to any fractional  share, and such fractional share interests shall not
         entitle the owner thereof to vote or to any rights of a shareholder  of
         Parent.  All fractional shares of Parent Common Stock to which a holder
         of Company Common Stock  immediately  prior to the Effective Time would
         otherwise be entitled,  at the Effective  Time,  shall be aggregated if
         and to the extent  multiple  Company  Certificates  of such  holder are
         submitted together to the Exchange Agent. If a fractional share results
         from such  aggregation,  then (in lieu of such  fractional  share)  the
         Exchange  Agent  shall pay to each  holder of shares of Company  Common
         Stock who otherwise would be entitled to receive such fractional  share
         of Parent Common Stock an amount of cash (without interest)  determined
         by  multiplying  (i)  the  Parent  Average  Stock  Price  by  (ii)  the
         fractional  share of Parent  Common  Stock to which such  holder  would
         otherwise be entitled. Parent will make available to the Exchange Agent
any cash necessary for this purpose.                          

                  (g) In the  event any  Company  Certificates  shall  have been
         lost, stolen, or destroyed,  the Exchange Agent shall issue in exchange
         for such lost,  stolen,  or destroyed  Company  Certificates,  upon the
         making of an affidavit of that fact by the holder thereof,  such shares
         of Parent Common Stock and cash for fractional  shares,  if any, as may
         be required pursuant to this Article 1; provided,  however, that Parent
         may, in its  discretion  and as a condition  precedent  to the issuance
         thereof,  require the owner of such lost,  stolen, or destroyed Company
         Certificate  to  deliver  a bond in such sum as  Parent  may  direct as
         indemnity  against  any claim  that may be made  against  Parent or the
         Exchange Agent with respect to such Company Certificate alleged to have
been lost, stolen, or destroyed.                              

                  (h) Each person  entitled to receive  shares of Parent  Common
         Stock  pursuant  to this  Article 1 shall  receive  together  with such
         shares the number of Parent  preferred share purchase rights  (pursuant
         to the Rights  Agreement dated as of June 27, 1991,  between Parent and
         Norwest Bank  Minnesota,  N.A.,  the "Parent Rights Plan") per share of
         Parent  Common  Stock  equal to the  number of Parent  preferred  share
         purchase rights associated with one share of Parent Common Stock at the
Effective Time.                                               

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         1.6  Exchange of Merger  Subsidiary  Common  Stock.  From and after the
Effective Time, each outstanding  certificate previously  representing shares of
Merger  Subsidiary  Common  Stock  shall be deemed for all  purposes to evidence
ownership  of and to  represent  the number of shares of  Surviving  Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock shall have
been  converted.  Promptly after the Effective  Time, the Surviving  Corporation
shall issue to Parent a stock  certificate  or  certificates  representing  such
shares of Surviving  Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which shall be cancelled.                                                       

1.7      Stock Options.                                       

                  (a) Except as  provided  below with  respect to the  Company's
         Employee Share Purchase Plan, each option to purchase shares of Company
         Common  Stock that is  outstanding  at the  Effective  Time (a "Company
         Option")  shall,  by virtue of the Merger and without any action on the
         part of the holder  thereof,  be assumed by Parent in such  manner that
         Parent (i) is a  corporation  "assuming a stock option in a transaction
         to which Section 424(a)  applies"  within the meaning of Section 424 of
         the Code and the  regulations  thereunder  or (ii) to the  extent  that
         Section  424 of the Code  does not  apply to any such  Company  Option,
         would be such a corporation  were Section 424 of the Code applicable to
         such Company Option.  From and after the Effective Time, all references
         to the  Company  in the  Company  Options  shall be  deemed to refer to
         Parent. The Company Options assumed by Parent shall be exercisable upon
         the same terms and conditions as under the Company  Options except that
         (i) such  Company  Options  shall  entitle the holder to purchase  from
         Parent the number of shares of Parent Common Stock (rounded down to the
         nearest  whole  number of such  shares)  that equals the product of the
         Conversion  Fraction  multiplied  by the  number of  shares of  Company
         Common Stock subject to such option  immediately prior to the Effective
         Time,  and (ii) the option  exercise  price per share of Parent  Common
         Stock shall be an amount (rounded up to the nearest full cent) equal to
         the option  exercise  price per share of Company Common Stock in effect
         immediately  prior to the  Effective  Time  divided  by the  Conversion
         Fraction.  As promptly as practicable  after the Effective Time, Parent
         shall  issue to each  holder of a Company  Option a written  instrument
         informing  such  holder of the  assumption  by  Parent of such  Company
Option.                                                       

                  (b) Immediately  prior to the Effective Time, the current Plan
         Period under the Company's Employee Share Purchase Plan shall be ended,
         and each  participant  shall be  deemed to have  purchased  immediately
         prior to the  Effective  Time,  to the  extent  of  payroll  deductions
         accumulated by such  participant as of such Plan Period end, the number
         of whole shares of Company Common Stock at a per share price determined
         pursuant to the  provisions of the Company's  Employee  Share  Purchase
         Plan,  and each  participant  shall receive a cash payment equal to the
         balance, if any, of such accumulated payroll deductions remaining after
         such  purchase  of  such  shares.   As  of  the  Effective  Time,  each
         participant  shall  receive by virtue of the Merger,  for each share of
         Company  Common  Stock  such  participant  has so  purchased  under the
         Employee  Share  Purchase  Plan, a fraction of a share of Parent Common
         Stock equal to the Conversion  Fraction.  The Company's  Employee Share
         Purchase  Plan  and all  purchase  rights  thereunder  shall  terminate
effective as of the Effective Time.                           

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         1.8 Capitalization  Changes. If, between the date of this Agreement and
the Effective  Time,  the  outstanding  shares of Parent Common Stock shall have
been changed into a different number of shares or a different class by reason of
any  reclassification,  recapitalization,  split-up,  combination,  exchange  of
shares,  or stock  dividend,  the  Conversion  Fraction and all per-share  price
amounts and  calculations  set forth in this  Agreement  shall be  appropriately
adjusted.                                                                       

         1.9  Articles  of  Incorporation  of  the  Surviving  Corporation.  The
Articles of Incorporation of Merger  Subsidiary,  as in effect immediately prior
to the Effective Time,  shall be the Articles of  Incorporation of the Surviving
Corporation  until  thereafter   amended  in  accordance  with  applicable  law;
provided,  however,  that upon the Effective Time,  Article 1 of the Articles of
Incorporation  of the  Surviving  Corporation  shall be  amended  to read in its
entirety  as  follows:   "The  name  of  the  corporation   shall  be  Medtronic
Physio-Control, Inc."                                                           

         1.10  Bylaws  of  the  Surviving  Corporation.  The  Bylaws  of  Merger
Subsidiary,  as in effect  immediately prior to the Effective Time, shall be the
Bylaws of the Surviving  Corporation until thereafter amended in accordance with
applicable law.                                                                 

         1.11 Directors and Officers of the Surviving Corporation. The directors
and officers of Merger Subsidiary  immediately prior to the Effective Time shall
be the directors and officers,  respectively, of the Surviving Corporation until
their respective successors shall be duly elected and qualified.                

 ARTICLE 2
 CLOSING

         2.1 Time and  Place.  Subject  to the  satisfaction  or  waiver  of the
provisions  of Article 6, the closing of the Merger (the  "Closing")  shall take
place at 3:00  p.m.,  local  time,  on the day the  Merger  is  approved  by the
shareholders of the Company at the Company  Shareholders  Meeting (as defined in
Section 5.4 hereof),  or as soon  thereafter  as all  conditions to Closing have
been  satisfied  or waived,  or on such other date  and/or at such other time as
Parent  and the  Company  may  mutually  agree.  The date on which  the  Closing
actually  occurs is herein  referred to as the "Closing Date." The Closing shall
take place at the  corporate  headquarters  offices of the  Company,  or at such
other place or in such other  manner  (e.g.,  by telecopy  exchange of signature
pages with originals to follow by overnight  delivery) as the parties hereto may
agree.                                                                          

         2.2 Filings at the Closing.  At the Closing,  subject to the provisions
of Article 6, Parent, Merger Subsidiary, and the Company shall cause Articles of
Merger to be filed in accordance  with the  provisions of Section  23B.11.050 of
the WBCA,  and take any and all other  lawful  actions  and do any and all other
lawful things necessary to cause the Merger to become effective.                

 ARTICLE 3
 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         Except as set forth in a  document  of even  date  herewith,  referring
specifically  to the  representations  and  warranties in this  Agreement  which
identifies  by section  number to which such  disclosure  relates (the  "Company
Disclosure  Schedule"),  the Company hereby makes the following  representations
and warranties to Parent and Merger Subsidiary:                                 

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         3.1  Organization.  The  Company  and each  subsidiary  of the  Company
(referred to herein as a  "Subsidiary")  is a  corporation  duly  organized  and
validly existing under the laws of its respective  jurisdiction of incorporation
and has all requisite  corporate power and authority to own, lease,  and operate
its properties and to carry on its business as now being conducted.  The Company
and each  Subsidiary  is duly  qualified  and in good standing to do business in
each jurisdiction in which the property owned,  leased, or operated by it or the
nature of the business  conducted by it makes such  qualification  necessary and
where the  failure to qualify  could  reasonably  be  expected to have a Company
Material  Adverse Effect (as defined below).  "Company  Material Adverse Effect"
means an effect that, individually or in the aggregate with other effects, is or
would  reasonably  be expected to be materially  adverse:  (i) to the present or
specifically planned business, properties, liabilities, results of operation, or
financial condition of the Company and its Subsidiaries,  considered as a whole;
(ii) to the  ability of Parent or the  Surviving  Corporation  to  conduct  such
businesses,  as presently  conducted,  following the Effective Time; or (iii) to
the Company's  ability to perform any of its obligations under this Agreement or
to  consummate  the  Merger.  The  jurisdictions  in which the  Company and each
Subsidiary  are qualified  are listed on the Company  Disclosure  Schedule.  The
Company has heretofore  delivered to Parent  complete and accurate copies of the
Articles of  Incorporation  and Bylaws of the Company  and each  Subsidiary,  as
currently in effect. Except to the extent specifically  disclosed on the Company
Disclosure  Schedule,  neither  the  Company  nor any  Subsidiary,  directly  or
indirectly,   owns  or  controls  or  has  any  capital,  equity,   partnership,
participation,  or other  ownership  interest in any  corporation,  partnership,
joint venture, or other business association or entity.                         

         3.2  Authorization.  The Company has full corporate power and authority
to execute and deliver this  Agreement  and,  subject to obtaining the necessary
approval  of its  shareholders,  to  consummate  the  transactions  contemplated
hereby, and to file and distribute the Proxy Statement/Prospectus (as defined in
Section 5.4 hereof). The execution and delivery of this Agreement by the Company
and the consummation of the transactions  contemplated hereby have been duly and
validly  authorized and approved by the Company's  Board of Directors,  no other
corporate proceedings on the part of the Company or any Subsidiary are necessary
to recommend  and submit this  Agreement  to the  Company's  shareholders,  and,
subject to  obtaining  the  approval  of the  Company's  shareholders,  no other
corporate  action on the part of the Company or any  Subsidiary  is necessary to
consummate the transactions  contemplated  hereby.  This Agreement has been duly
and validly  executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms,  subject to laws of general application  relating to bankruptcy,
insolvency,  and the  relief  of  debtors  and rules of law  governing  specific
performance,  injunctive relief, or other equitable  remedies.  To the Company's
knowledge,  each  Agreement  to  Facilitate  Merger and  Affiliate's  Letter (as
described  in  Sections  5.11 and 5.6) has been duly and  validly  executed  and
delivered by the Company  shareholder who is a party thereto and constitutes the
valid and binding obligation of such shareholder, enforceable in accordance with
its terms,  subject  to laws of  general  application  relating  to  bankruptcy,
insolvency,  and the  relief  of  debtors  and rules of law  governing  specific
performance, injunctive relief, or other equitable remedies.                    

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         3.3  Capitalization.  As of June 24, 1998, the authorized capital stock
of the Company  consists of (i) 40,000,000  shares of Company Common Stock,  par
value $.01 per share, of which 17,722,021  shares are issued and outstanding and
no shares  are held in the  Company's  treasury,  and (ii)  5,000,000  shares of
Company  Preferred Stock, par value $.01 per share,  none of which are issued or
outstanding.  Except as set forth on the Company Disclosure Schedule, all issued
and  outstanding   shares  of  capital  stock  of  each  Subsidiary  are  owned,
beneficially  and of  record,  by the  Company,  free and clear of any Liens (as
defined in Section 3.14).  All issued and  outstanding  shares of Company Common
Stock have been validly issued, are fully paid and  nonassessable,  and have not
been issued in  violation  of and are not  currently  subject to any  preemptive
rights.  Except for options to purchase an aggregate 2,971,435 shares of Company
Common Stock granted pursuant to the Company 1994 Stock Purchase and Option Plan
and the 1997 Stock and Incentive Plan (collectively, the "Company Option Plans")
listed,  together with their respective  exercise prices,  in Section 3.3 of the
Company  Disclosure  Schedule,  and except for the rights to purchase  under the
Company's Team Savings Plan shares of Company Common Stock  (estimated to be the
number of shares equal to approximately  $105,000 of matching  contributions per
quarter  divided by the trading price of the Company  Common Stock at the end of
any such quarter,  based on the current match rates, as listed in Section 3.3 of
the Company Disclosure Schedule) and except for the rights to purchase under the
Company's Employee Share Purchase Plan shares of Company Common Stock (estimated
to be approximately  50,000 shares,  at a per share price of $13.4938,  based on
the current contribution rates of the participants,  as listed in Section 3.3 of
the Company Disclosure  Schedule,  and assuming the current Plan Period is ended
at the Effective  Time (which is assumed to be not later than September 30, 1998
for this purpose)),  there are not any outstanding or authorized  subscriptions,
options,   warrants,   calls,  rights,   convertible  securities,   commitments,
restrictions,  arrangements,  or any other  agreements of any character to which
the Company or any  Subsidiary  is a party that,  directly  or  indirectly,  (i)
obligate the Company or any  Subsidiary  to issue any shares of capital stock or
any  securities  convertible  into,  or  exercisable  or  exchangeable  for,  or
evidencing the right to subscribe  for, any shares of capital  stock,  (ii) call
for or relate to the sale, pledge, transfer, or other disposition or encumbrance
by the Company or any Subsidiary of any shares of its capital stock, or (iii) to
the  knowledge of the  Company,  relate to the voting or control of such capital
stock. The Company  Disclosure  Schedule sets forth a complete and accurate list
of all stock  options,  warrants,  and other  rights to acquire  Company  Common
Stock,  including the name of the holder, the date of grant,  acquisition price,
expiration date, number of shares,  exercisability schedule, and, in the case of
options, the type of option under the Code. The Company Disclosure Schedule also
sets forth the  restrictions  to which any shares of Company Common Stock issued
pursuant to the Company Option Plans or otherwise are currently subject and also
sets forth the  restrictions  to which such shares  will be subject  immediately
after the  Effective  Time.  No consent of  holders  or  participants  under the
Company  Option Plans or Employee  Share  Purchase Plan is required to carry out
the provisions of Section 1.7. All actions,  if any, required on the part of the
Company under the Company  Option Plans or Employee Share Purchase Plan to allow
for the treatment of Company  Options and the Employee Share Purchase Plan as is
provided in Section  1.7,  has been,  or prior to the Closing  will be,  validly
taken by the  Company,  and the Company  will not from and after the date hereof
allow any increase in the rate of a participant's  contributions to the Employee
Share Purchase Plan or any enrollments or re-enrollments in such Plan.          

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         3.4 Reports and Financial Statements.  The Company has filed all forms,
reports,  registration statements, and documents required to be filed by it with
the  Securities  and Exchange  Commission  ("SEC")  since  January 1, 1996 (such
forms,  reports,  registration  statements,  and  documents,  together  with any
amendments thereto,  are referred to as the "Company SEC Filings").  As of their
respective  dates,  the  Company  SEC  Filings  (i)  complied  as to form in all
material respects with the applicable requirements of the Securities Act of 1933
and the rules and  regulations  thereunder  (the "1933 Act") and the  Securities
Exchange Act of 1934 and the rules and regulations  thereunder (the "1934 Act"),
as the case may be, and (ii) did 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  under which
they were made, not misleading.  The audited financial  statements and unaudited
interim  financial  statements  included or  incorporated  by  reference  in the
Company  SEC  Filings,  including  but  not  limited  to the  Company's  audited
financial  statements at and for the year ended  December 31, 1997 (the "Company
1997  Financials"),  (i) were prepared in  accordance  with  generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except as may be indicated  therein or in the notes thereto),  (ii) complied as
of their  respective dates in all material  respects with applicable  accounting
requirements  and the published  rules and  regulations  of the SEC with respect
thereto,  and (iii) fairly present the  consolidated  financial  position of the
Company as of the dates  thereof  and the  income,  cash  flows,  and changes in
shareholders'  equity for the  periods  involved.  The  statements  of  earnings
included in the audited or unaudited interim financial statements in the Company
SEC Filings do not contain  any items of special or  nonrecurring  income or any
other income not earned in the ordinary course of business,  except as expressly
specified in the applicable  statement of operations or notes thereto.  Prior to
the date  hereof,  the Company has  delivered  to Parent  complete  and accurate
copies of all Company SEC Filings since  January 1, 1995.  The Company has filed
in a timely  manner all reports  required to be filed by it pursuant to Sections
13, 14, or 15(d) of the 1934 Act.                                               

         3.5  Absence  of   Undisclosed   Liabilities.   Except  to  the  extent
specifically  disclosed on the Company Disclosure Schedule,  neither the Company
nor any  Subsidiary has any  liabilities  or obligations of any nature  (whether
absolute,   accrued,   contingent,  or  otherwise)  except  (a)  liabilities  or
obligations   required  by  generally  accepted  accounting   principles  to  be
recognized  or  disclosed  on a  consolidated  balance  sheet of Company and its
consolidated  subsidiaries  or in the notes thereto that are accrued or reserved
against in the audited  consolidated balance sheet of the Company as of December
31, 1997 contained in the Company 1997 Financials (the "Company  Audited Balance
Sheet") or in the  unaudited  consolidated  balance  sheet of the  Company as of
March 31, 1998 contained in the Company's  Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998 (the "Company Interim Balance  Sheet"),  and
(b)  liabilities  or  obligations  arising  since March 31, 1998 in the ordinary
course of  business  and  consistent  with past  practice  that would not have a
Company Material Adverse Effect.                                                

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         3.6 Consents and Approvals.  Except for (i) any applicable requirements
of the 1933 Act, the 1934 Act,  state  securities  laws,  the  Hart-Scott-Rodino
Antitrust  Improvements  Act of 1976 and the  regulations  thereunder  (the "HSR
Act"), and the antitrust,  competition,  foreign investment,  or similar laws of
any foreign  countries  or  supranational  commissions  or boards  that  require
pre-merger  notifications  or filings with respect to the Merger  (collectively,
"Foreign Merger Laws"), (ii) approval by the Company's  shareholders,  (iii) the
filing and recordation of appropriate  merger documents as required by the WBCA,
(iv) compliance with Chapter 13 of the WBCA regarding  dissenters'  rights,  and
(v) any items disclosed on the Company  Disclosure  Schedule,  the execution and
delivery of this Agreement by the Company, and, to the Company's knowledge,  the
execution  and  delivery  of  the  Agreements  to  Facilitate  Merger,  and  the
consummation of the transactions  contemplated  hereby and thereby will not: (a)
violate any provision of the Articles of  Incorporation or Bylaws of the Company
or any Subsidiary;  (b) violate any statute, rule, regulation,  order, or decree
of any federal,  state, local, or foreign body or authority (including,  but not
limited to, the Food and Drug  Administration (the "FDA") or any nongovernmental
self-regulatory  agency) by which the Company or any  Subsidiary or any of their
respective  properties  or assets may be bound;  (c)  require any filing with or
permit,  consent,  or approval of any federal,  state,  local, or foreign public
body or authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory  agency);  or (d)  result  in any  violation  or  breach  of, or
constitute  (with or  without  due  notice  or lapse of time or both) a  default
under,  result in the loss of any material  benefit  under,  or give rise to any
right of termination,  cancellation,  increased payments, or acceleration under,
or result in the creation of any Lien (as defined in Section 3.14) on any of the
properties or assets of the Company or any Subsidiary  under,  any of the terms,
conditions,  or  provisions of any note,  bond,  mortgage,  indenture,  license,
franchise, permit,  authorization,  agreement, or other instrument or obligation
to which the Company or any Subsidiary is a party,  or by which it or any of its
properties  or assets may be bound,  except,  in the case of clause (d), for any
such violations, breaches, defaults, or other occurrences that would not prevent
or delay  consummation  of any of the  transactions  contemplated  hereby in any
material  respect,   or  otherwise  prevent  the  Company  from  performing  its
obligations under this Agreement in any material  respect,  and would not have a
Company Material Adverse Effect.                                                

         3.7 Compliance with Laws. Except to the extent  specifically  described
on the  Company  Disclosure  Schedule,  all  activities  of the Company and each
Subsidiary have been, and are currently being,  conducted in compliance with all
applicable  federal,  state, local, and foreign laws,  ordinances,  regulations,
interpretations,    judgments,   decrees,   injunctions,    permits,   licenses,
certificates,  governmental requirements, orders, and other similar items of any
court or other governmental entity (including,  but not limited to, those of the
FDA or any nongovernmental  self-regulatory  agency), the failure to comply with
which could  reasonably be expected to have a Company  Material  Adverse Effect.
The Company and each  Subsidiary  has timely  filed or  otherwise  provided  all
registrations,  reports,  data,  and other  information  and  applications  with
respect to its medical device, pharmaceutical,  consumer, health care, and other
governmentally  regulated  products (the  "Regulated  Products")  required to be
filed with or otherwise provided to the FDA or any other federal,  state, local,
or foreign governmental authorities with jurisdiction over the manufacture, use,
or sale of the Regulated  Products,  and all regulatory licenses or approvals in
respect  thereof are in full force and effect,  except where the failure to file
timely such registrations,  reports, data, information,  and applications or the
failure to have such  licenses and  approvals in full force and effect would not
have a Company Material Adverse Effect.                                         

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         3.8  Litigation.  Except to the extent  specifically  disclosed  on the
Company Disclosure  Schedule,  to the Company's  knowledge,  no investigation or
review by any federal,  state,  local, or foreign body or authority  (including,
but not limited to, the FDA or any nongovernmental  self-regulatory agency) with
respect to the Company or any Subsidiary is pending or  threatened,  nor has any
such  body  or  authority  (including,  but  not  limited  to,  the  FDA  or any
nongovernmental   self-regulatory  agency)  indicated  to  the  Company  or  any
Subsidiary an intention to conduct the same.  Except to the extent  specifically
disclosed  on the Company  Disclosure  Schedule,  there are no claims,  actions,
suits, or proceedings by any private party that could  reasonably be expected to
involve individually an amount in excess of $50,000 or collectively an aggregate
amount  in  excess  of  $200,000,  or by  any  governmental  body  or  authority
(including,  but not limited to, the FDA or any nongovernmental  self-regulatory
agency), against or affecting the Company or any Subsidiary,  pending or, to the
knowledge of the Company, threatened at law or in equity, or before any federal,
state, local,  foreign,  or other governmental  department,  commission,  board,
bureau,  agency, or instrumentality  (including,  but not limited to, the FDA or
any  nongovernmental  self-regulatory  agency),  and,  to the  knowledge  of the
Company,  there is no basis for any such investigation,  review,  claim, action,
suit, or proceeding that could reasonably be expected to have a Company Material
Adverse Effect.                                                                 

         3.9  Absence  of  Material  Adverse  Changes.   Except  to  the  extent
specifically  disclosed on the Company Disclosure  Schedule,  since December 31,
1997 there has not been any (a) change or circumstance  that could reasonably be
expected to have a Company Material Adverse Effect; (b) action by the Company or
any  Subsidiary  that,  if taken on or after the date of this  Agreement,  would
require the consent or approval of Parent pursuant to Section 5.1 hereof, except
for actions as to which consent or approval has been given as provided  therein;
(c) damage,  destruction,  or loss,  whether or not covered by  insurance,  that
could  reasonably be expected to have a Company  Material  Adverse  Effect;  (d)
change by the Company or any Subsidiary in accounting methods or principles used
for financial  reporting  purposes,  except as required by a change in generally
accepted accounting  principles and concurred with by the Company's  independent
public accountants;  or (e) agreement,  whether in writing or otherwise, to take
any action described or referenced in this Section 3.9.                         

         3.10  Environmental  Laws  and  Regulations.   The  Company  Disclosure
Schedule  completely and accurately sets forth the following:  (a) a list of all
above-ground  storage tanks or underground storage tanks for Hazardous Materials
(as defined below) on the Company's  principal facility located at 11811 Willows
Road N.E., Redmond, WA 98052 (the "Principal Facility"); (b) the identity of any
Hazardous Materials (as defined below) used, generated,  transported or disposed
of by the  Company or any  Subsidiary  now or at any time in the past,  together
with a brief  description  and location of each  activity  using such  Hazardous
Materials  (with  respect  to sites  other than  Redmond,  only to the extent of
material  Hazardous  Materials);  (c) a  summary  of  the  identity  of,  to the
Company's knowledge, any Hazardous Materials that have been disposed of or found
on,  above or  below  the  Principal  Facility;  and (d) a list of all  reports,
studies,  and  tests in the  possession  of the  Company  or any  Subsidiary  or
initiated  by the  Company or any  Subsidiary  pertaining  to the  existence  of
Hazardous  Materials on, above, or below real property now or at any time owned,
leased or occupied by the Company or any Subsidiary (such real property referred
to in this Section as the "Real  Property")  or any property  adjoining or which
could  reasonably  be  expected  to  affect  the Real  Property,  or  concerning
compliance  with or liability  under the  Regulations  (as defined  below).  The
Company has heretofore  delivered to Parent complete and accurate copies of such
reports, studies, and tests.                                                    

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         The Company and each Subsidiary  have obtained,  and maintained in full
force and effect,  all  required  environmental  permits and other  governmental
approvals  and are in compliance  with all  applicable  Regulations  (as defined
below),  except  where  the  failure  to  so  obtain  and  maintain  or to be in
compliance would not have a Company Material Adverse Effect. Neither the Company
nor any Subsidiary (i) has received a written notice or Claim (as defined below)
alleging  potential  liability  under  any  of the  Regulations  or  alleging  a
violation of the  Regulations  or (ii) has any  knowledge  that such a notice or
Claim may be issued in the future.  Neither the Company nor any  Subsidiary  has
any  knowledge of any notices to or Claims  against any persons,  or  reasonable
basis therefor,  alleging potential  liability under any of the Regulations with
respect  to the  Real  Property  or any  adjoining  properties  or  which  could
reasonably be expected to affect the Real Property.  Neither the Company nor any
Subsidiary  (i) has been or is presently  subject to or, to the knowledge of the
Company,  threatened with any administrative or judicial  proceeding pursuant to
the  Regulations,  or (ii) has any information  that it may be subject to or, to
the knowledge of the Company,  threatened  with such a proceeding in the future.
Neither  the Company nor any  Subsidiary  has  knowledge  of any  conditions  or
circumstances  that could reasonably be expected to result in the  determination
of liability  against the Company or any  Subsidiary  relating to  environmental
matters that would have a Company  Material Adverse Effect,  including,  but not
limited to, any Claim arising from past or present environmental  practices with
respect to Hazardous  Materials,  the Real Property,  or any disposal  sites. No
Hazardous  Materials have been or are threatened to be discharged,  emitted,  or
released into the air,  water,  soil, or subsurface at or from the Real Property
by the Company or, to the Company's knowledge, by any other person.             

         For purposes of this Section 3.10,  the following  terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea formaldehyde,
polychlorinated   biphenyls,   nuclear  fuel  or  materials,   chemical   waste,
radioactive materials,  explosives, known human carcinogens,  petroleum products
or other substances or materials listed,  identified,  or designated as toxic or
hazardous or as a pollutant or contaminant  in, or the use,  release or disposal
of  which is  regulated  by,  the  Regulations;  (ii)  "Regulations"  means  the
Comprehensive  Environmental  Response Compensation and Liability Act ("CERCLA")
as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
42 U.S.C.  ss.ss.  9601 et seq.; the Federal Resource  Conservation and Recovery
Act of 1976  ("RCRA"),  42 U.S.C.  ss.ss.  6901 et seq.; the Clean Water Act, 33
U.S.C.  ss.ss.  1321 et seq.; the Clean Air Act, 42 U.S.C.  ss.ss. 7401 et seq.,
and any other federal,  state,  county,  local,  foreign,  or other governmental
statute, regulation, or ordinance, as now in existence, that relates to or deals
with employee  safety and human health,  pollution,  health,  or the environment
including, but not limited to, the use, generation,  discharge,  transportation,
disposal, recordkeeping, notification, and reporting of Hazardous Materials; and
(iii)  "Claim"  means any and all claims,  demands,  causes of  actions,  suits,
proceedings,  administrative  proceedings,  losses,  judgments,  decrees, debts,
damages,  liabilities,  court costs,  penalties,  attorneys' fees, and any other
expenses incurred,  assessed,  sustained or alleged by or against the Company or
any Subsidiary.                                                                 

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         3.11 Officers,  Directors and Employees.  Prior to the date hereof, the
Company has provided to Parent a list that  completely and accurately sets forth
the name and  current  annual  salary  rate of each  officer or  employee of the
Company or any Subsidiary whose total remuneration for the last fiscal year was,
or for the current  fiscal year has been set at, in excess of $50,000,  together
with a summary of the bonuses, commissions,  additional compensation,  and other
like benefits,  if any, paid or payable to such persons for the last fiscal year
and  proposed  for the current  fiscal  year.  The Company  Disclosure  Schedule
completely  and  accurately  sets  forth  the  names of the  officers  (with all
positions  and  titles   indicated)  and  directors  of  the  Company  and  each
Subsidiary.  No unfair  labor  practice  complaint  against  the  Company or any
Subsidiary is pending before the National Labor Relations Board, and there is no
labor strike,  slowdown or stoppage pending or, to the knowledge of the Company,
threatened  against or involving  the Company or any  Subsidiary.  No unionizing
efforts  have,  to the  knowledge of the Company,  been made by employees of the
Company or any Subsidiary,  neither the Company nor any Subsidiary is a party to
or subject to any collective bargaining agreement,  and no collective bargaining
agreement is currently being negotiated by the Company or any Subsidiary.  There
is no labor  dispute  pending or, to the  knowledge of the  Company,  threatened
between the Company or any  Subsidiary  and its  employees.  During the 12-month
period  preceding  the date of this  Agreement  there has not been any  material
increase in the rate of turnover of employees  of the Company or any  Subsidiary
over historical rates.                                                          

         3.12 Taxes. The Company has previously furnished to Parent complete and
accurate copies of all federal income tax returns  actually filed by the Company
for each of the  fiscal  years  ended  December  31,  1995 and 1996 and has made
available for review by Parent (or, with respect to those that are not available
at the Company's  Principal  Facility,  will make available for review by Parent
within 15 days after execution of this  Agreement)  complete and accurate copies
of all other tax or assessment reports and tax returns (including any applicable
information  returns) required by any law or regulation  (whether United States,
foreign,  state,  local or other  jurisdiction) and filed by the Company for the
fiscal  years ended  December 31,  1995,  1996 or 1997,  and of all such returns
filed  separately by any Subsidiary for fiscal years ended during or after 1995.
The Company and each  Subsidiary has filed,  or has obtained  extensions to file
(which  extensions have not expired without filing),  all state,  local,  United
States, foreign, or other tax reports and returns required to be filed by any of
them. The Company and each  Subsidiary has duly paid, or accrued on its books of
account,  all taxes (including estimated taxes) shown as due on such reports and
returns (or such  extension  requests),  or  assessed  against it, or that it is
obligated to withhold from amounts owed by it to any person. The liabilities and
reserves for taxes reflected on the Company Audited Balance Sheet or the Company
Interim Balance Sheet are adequate to cover all taxes payable by the Company and
its  Subsidiaries  for all taxable  periods and  portions  thereof  ending on or
before the dates  thereof.  There are no Liens (as defined in Section  3.14) for
taxes upon any property or asset of the Company or any  Subsidiary.  Neither the
Company nor any  Subsidiary is  delinquent in the payment of any tax  assessment
(including,  but not limited to, any applicable  withholding taxes). None of the
tax returns or reports for the tax periods ended  December 31, 1995,  1996,  and
1997 have been  audited by the  Internal  Revenue  Service (the "IRS") or by any
other taxing authority.  Further, to the knowledge of the Company, except to the
extent specifically  disclosed on the Company Disclosure  Schedule,  no state of
facts exists or has existed that would subject the Company or any  Subsidiary to
an additional  material tax liability for any taxes assessable by either the IRS
or any separate state, local, foreign, or other taxing authority with respect to
any reports or returns filed on or before the date hereof (other than  extension
requests for which returns have not been filed as of the date  hereof).  Neither
the Company nor any Subsidiary  has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section  341(f)(2) of the Code. Except to the extent  specifically  disclosed on
the Company Disclosure Schedule,  neither the Company nor any Subsidiary has (i)
received  notification of any pending or proposed  examination by either the IRS
or  any  state,  local,  foreign,  or  other  taxing  authority,  (ii)  received
notification  of any  pending or  proposed  deficiency  by either the IRS or any
state, local, foreign, or other taxing authority, or (iii) granted any extension
of the limitations period applicable to any claim for taxes.                    

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         For the  purposes of this  Section  3.12,  "tax" shall mean and include
taxes,  additions to tax,  penalties,  interest,  fines,  duties,  withholdings,
assessments,  and  charges  assessed or imposed by any  governmental  authority,
including  but not limited to all federal,  state,  county,  local,  and foreign
income, profits, gross receipts, import, ad valorem, real and personal property,
franchise,  license,  sales,  use, value added,  stamp,  transfer,  withholding,
payroll, employment,  excise, custom, duty, and any other taxes, obligations and
assessments  of any kind  whatsoever;  "tax" shall also  include  any  liability
arising  as a result of being  (or  ceasing  to be) a member of any  affiliated,
consolidated,  combined, or unitary group as well as any liability under any tax
allocation, tax sharing, tax indemnity, or similar agreement.                   

         3.13 Contracts.  The Company Disclosure Schedule lists, and the Company
has heretofore furnished to Parent complete and accurate copies of (or, if oral,
the Company  Disclosure  Schedule states all material  provisions of), (a) every
independent  sales  representative,  noncompetition  (except  only for  standard
noncompetition  agreements entered into with the Company's employees,  the forms
of which  have  been  provided  to  Parent),  loan,  credit,  escrow,  security,
mortgage,   guaranty,   pledge,   buy-sell,   letter  of  credit,  OEM,  supply,
distribution,  manufacturers' representative,  dealer, agency, lease (except for
immaterial personal property leases), licensing (except for immaterial licenses,
which  include,  without  limitation,   licenses  for  off-the-shelf  software),
franchise,   development,   joint  development,   joint  venture,  research  and
development,  or similar contract,  agreement,  or understanding material to the
Company and to which the Company or any  Subsidiary  is a party or may be bound,
(b) every material employment or consulting agreement or arrangement with or for
the benefit of any director,  officer,  employee, other person or shareholder of
the Company or any  Subsidiary or any  affiliate  thereof,  (c) every  contract,
agreement,  or  understanding  to which the Company or any Subsidiary is a party
that could  reasonably  be expected to involve  payments by or to the Company or
any  Subsidiary in excess of $150,000  during the Company's  current 1998 fiscal
year or in excess of $250,000 in the aggregate  during the Company's  1998, 1999
and 2000 fiscal years, or would have a Company Material Adverse Effect,  or that
was not made in the ordinary course of business, (d) every agreement or contract
between  the  Company  or any  Subsidiary  and  any of the  Company's  officers,
directors,  or more  than 5%  shareholders  or any  entity  in which  any of the
Company's officers,  directors,  or more than 5% shareholders has a greater than
2%  equity  interest,  and  (e)  every  other  contract,   plan,  agreement,  or
understanding  to which the Company or any Subsidiary is a party or may be bound
and  which  would  be  required  to be filed  with the SEC in a filing  to which
paragraph  (b)(10) of Item 601 of Regulation S-K of the Rules and Regulations of
the SEC would be applicable.  The Company and each  Subsidiary has performed all
obligations  required  to be  performed  by it  under  any  listed  or  material
contract, plan, agreement, understanding, or arrangement made or obligation owed
by or to the Company or any Subsidiary,  except where the failure would not have
a Company Material  Adverse Effect;  to the Company's  knowledge,  there has not
been any event of default  (or any event or  condition  which with notice or the
lapse  of time,  both or  otherwise,  would  constitute  an  event  of  default)
thereunder on the part of the Company, any Subsidiary, or any other party to any
thereof that would have a Company Material Adverse Effect;  the same are in full
force and effect and valid and enforceable by the Company or its Subsidiaries in
accordance with their  respective  terms subject to laws of general  application
relating to bankruptcy,  insolvency,  and the relief of debtors and rules or law
governing specific performance, injunctive relief, and other equitable remedies;
and the performance of any such contracts,  plans,  agreements,  understandings,
arrangements, or obligations would not have a Company Material Adverse Effect.  

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         3.14 Title to Properties;  Liens.  The Company and/or its  Subsidiaries
have good and marketable  title to all  properties  and assets  reflected on the
Company  Audited  Balance Sheet or the Company Interim Balance Sheet or acquired
after the dates  thereof  (except for  properties  and assets sold or  otherwise
disposed of in the ordinary course of business since the dates  thereof),  which
includes each asset the absence or  unavailability of which would have a Company
Material Adverse Effect, subject only to (a) statutory Liens arising or incurred
in the  ordinary  course  of  business  with  respect  to which  the  underlying
obligations  are not  delinquent,  (b) with  respect to personal  property,  the
rights of customers of the Company or any  Subsidiary  with respect to inventory
or work in progress under orders or contracts entered into by the Company or any
Subsidiary  in the  ordinary  course of  business,  (c) Liens  reflected  on the
Company Audited  Balance Sheet or the Company  Interim Balance Sheet,  (d) Liens
for taxes not yet delinquent, and (e) and defects in title that would not have a
Company Material Adverse Effect. The term "Lien" as used in this Agreement means
any mortgage, pledge, security interest,  encumbrance, lien, claim, or charge of
any kind. All properties and assets purported to be leased by the Company or any
Subsidiary are subject to valid and effective  leases that are in full force and
effect, and there does not exist, and the Merger will not result in, any default
or  event  that  with  notice  or lapse of  time,  or both or  otherwise,  would
constitute a default  under any such leases which would have a Company  Material
Adverse  Effect.  The properties  and assets of the Company and each  Subsidiary
have been kept in good condition and repair in the ordinary course of business. 

         3.15  Permits,  Licenses,  Etc..  Except  as set  forth on the  Company
Disclosure  Schedule,  the Company and each Subsidiary has all rights,  permits,
certificates,  licenses, consents,  franchises,  approvals,  registrations,  and
other  authorizations  necessary to sell its products and services and otherwise
carry on and  conduct  its  business  and to own,  lease,  use,  and operate its
properties  and  assets  at the  places  and in the  manner  now  conducted  and
operated,  except  those the absence of which would not have a Company  Material
Adverse  Effect.  Neither the Company nor any Subsidiary has received any notice
or claim pertaining to the failure to obtain any permit,  certificate,  license,
franchise,  approval,  registration,  or  other  authorization  required  by any
federal, state, local, or foreign body or authority (including,  but not limited
to, the FDA or any nongovernmental self-regulatory agency).                     

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         3.16  Intellectual  Property Rights.  The Company  Disclosure  Schedule
contains a complete and accurate list of all material patents, trademarks, trade
names, service marks,  copyrights,  and all applications for or registrations of
any of the foregoing as to which the Company or any Subsidiary is the owner or a
licensee  (indicating  whether such license is exclusive or  nonexclusive).  The
Company and each  Subsidiary  exclusively  owns,  free and clear of any Lien (as
defined in Section 3.14), or is exclusively  (unless otherwise  indicated in the
Company  Disclosure  Schedule) licensed to use, all patents,  trademarks,  trade
names,  service marks,  copyrights,  applications for or registrations of any of
the foregoing, processes,  inventions,  designs, technology,  formulas, computer
software  programs,  know-how,  and trade  secrets used in or necessary  for the
conduct of its  respective  business as  currently  conducted  or proposed to be
conducted  (the  "Company   Intellectual   Property").   Except  to  the  extent
specifically  disclosed on the Company  Disclosure  Schedule,  no claim has been
asserted  or, to the  knowledge of the  Company,  threatened  by any person with
respect  to the use of the  Company  Intellectual  Property  or  challenging  or
questioning  the  validity or  effectiveness  of any license or  agreement  with
respect thereto. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company or any Subsidiary in the present or planned
conduct  of its  business  nor any  product  or  service  of the  Company or any
Subsidiary  infringes  on the  intellectual  property  rights of any person.  No
current or former  shareholder,  employee,  or  consultant of the Company or any
Subsidiary has any rights in or to any of the Company Intellectual Property. All
Company Intellectual  Property listed on the Company Disclosure Schedule has the
status indicated therein and all applications are still pending in good standing
and have not been abandoned.  Except to the extent specifically disclosed on the
Company Disclosure Schedule:  (i) the Company Intellectual Property is valid and
has not been challenged in any judicial or administrative  proceeding;  (ii) the
Company and each Subsidiary have made all statutorily  required filings, if any,
to record their interests, and taken reasonable actions to protect their rights,
in the Company Intellectual Property;  (iii) to the knowledge of the Company, no
person  or entity  nor such  person's  or  entity's  business  or  products  has
infringed,  misused,  or misappropriated  any Company  Intellectual  Property or
currently is infringing,  misusing, or misappropriating any Company Intellectual
Property;  and (iv) no other  person or entity  has any right to  receive or any
obligation to pay a royalty with respect to any Company Intellectual Property or
any product or service of the Company or any Subsidiary.                        

       3.17    Benefit Plans.  Except as set forth in the Company Disclosure
Schedule:                                                                       

                  (a)  Neither  the   Company  nor  any   Subsidiary   sponsors,
         maintains, contributes to, or has sponsored, maintained, or contributed
         to or been required to contribute  to, any  "employee  pension  benefit
         plan" ("Pension  Plan"), as such term is defined in Section 3(2) of the
         Employee  Retirement Income Security Act of 1974, as amended ("ERISA"),
         including,  solely for the purpose of this subsection,  a plan excluded
         from  coverage  by Section  4(b)(5) of ERISA.  Each such  Pension  Plan
         presently  maintained  by the  Company  or any  Subsidiary  is,  in all
         material respects,  in compliance with applicable  provisions of ERISA,
the Code, and other applicable law.                           

                  (b)  Neither  the   Company  nor  any   Subsidiary   sponsors,
         maintains, contributes to, or has sponsored, maintained, or contributed
         to or been  required  to  contribute  to,  any  Pension  Plan that is a
         "Multiemployer Plan" within the meaning of Section 4001(a)(3) of ERISA.

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                  (c)  Neither  the   Company  nor  any   Subsidiary   sponsors,
         maintains,  contributes to, or has sponsored,  maintained,  contributed
         to, or been required to contribute  to, any "employee  welfare  benefit
         plan"  ("Welfare  Plan"),  as such term is defined  in Section  3(1) of
         ERISA,  whether  insured  or  otherwise,  and  any  such  Welfare  Plan
         presently  maintained  by the  Company  or any  Subsidiary  is,  in all
         material  respects,  in compliance  with the  provisions of ERISA,  the
         Code, and all other  applicable  laws,  including,  but not limited to,
         Section 4980B of the Code and the regulations thereunder, and Part 6 of
         Title  I  of  ERISA.   Neither  the  Company  nor  any  Subsidiary  has
         established or contributed  to any  "voluntary  employees'  beneficiary
   association" within the meaning of Section 501(c)(9) of the Code.

                  (d)  Neither  the   Company  nor  any   Subsidiary   sponsors,
         maintains,  or  contributes  to,  or  has  sponsored,   maintained,  or
         contributed to, a "self-insured  medical reimbursement plan" within the
       meaning of Section 105(h) of the Code and the regulations thereunder.

                  (e) Neither the Company nor any Subsidiary currently maintains
         or  contributes   to  any  oral  or  written   bonus,   profit-sharing,
         compensation  (incentive or otherwise),  commission,  stock option,  or
         other  stock-based  compensation,   retirement,  severance,  change  of
         control,  vacation,  sick or parental leave,  dependent care,  deferred
         compensation, cafeteria, disability,  hospitalization,  medical, death,
         retiree,  insurance, or other benefit or welfare or other similar plan,
         policy,  agreement,  trust,  fund,  or  arrangement  providing  for the
         remuneration  or benefit of all or any employees or shareholders or any
         other  person,  that is  neither  a  Pension  Plan nor a  Welfare  Plan
(collectively, the "Compensation Plans").                     

                  (f) To the knowledge of the Company, neither any Pension Plans
         or Welfare  Plans nor any trust  created or insurance  contract  issued
         thereunder  nor any trustee,  fiduciary,  custodian,  or  administrator
         thereof, nor any officer,  director,  or employee of the Company or any
         Subsidiary,  custodian,  or any other "disqualified  person" within the
         meaning  of  Section  4975(e)(2)  of the Code,  or "party in  interest"
         within the meaning of Section 3(14) of ERISA,  with respect to any such
         plan has  engaged  in any act or  omission  that  could  reasonably  be
         expected to subject the Company or any  Subsidiary,  either directly or
         indirectly,  to a liability for breach of fiduciary  duties under ERISA
or a tax or penalty imposed by Section 502 of ERISA.          

                  (g) Full and timely  payment has been made of all amounts that
         the Company or any Subsidiary is required,  under  applicable law, with
         respect to any Pension Plan, Welfare Plan, or Compensation Plan, or any
         agreement  relating to any Pension Plan,  Welfare Plan, or Compensation
         Plan,  to have paid as a  contribution  to each Pension  Plan,  Welfare
         Plan,  or  Compensation  Plan.  To the  extent  required  by  generally
         accepted   accounting   principles,   the  Company  has  made  adequate
         provisions for reserves to meet  contributions  that have not been made
         because  they are not yet due  under  the  terms of any  Pension  Plan,
         Welfare Plan, or Compensation Plan or related agreements. There will be
         no change on or before the Closing Date in the operation of any Pension
         Plan,  Welfare Plan, or Compensation  Plan or documents under which any
         such plan is maintained  that will result in an increase in the benefit
         liabilities  under such plan, except as may be required by law. The IRS
         has issued favorable  determination letters with respect to all Company
         and  Subsidiary  Pension Plans that are intended to be qualified  under
         Section 401(a) of the Code. The Company has provided to Parent complete
         and accurate copies of all Pension Plans,  Welfare Plans,  Compensation
         Plans, and related  agreements,  annual reports (Form 5500),  favorable
         determination  letters,  current  summary  plan  descriptions,  and all
employee handbooks or manuals.                                

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                  (h) The  execution  of, and  performance  of the  transactions
         contemplated  in, this  Agreement  will not  (either  alone or upon the
         occurrence of any additional or subsequent  events) constitute an event
         under any Pension  Plan,  Welfare  Plan,  Compensation  Plan,  or other
         arrangement  that  will  or may  result  in  any  payment  (whether  of
         severance pay or otherwise), acceleration, forgiveness of indebtedness,
         vesting,  distribution,  increase in benefits,  or  obligation  to fund
         benefits. No amount that could be received (whether in cash or property
         or the  vesting  of  property)  as a result of any of the  transactions
         contemplated by this Agreement by any employee, officer, or director of
         the Company or any of its affiliates who is a "disqualified individual"
         (as such  term is  defined  in  proposed  Treasury  Regulation  Section
         1.280G-1) under any Pension Plan,  Welfare Plan, or  Compensation  Plan
         currently  in effect  would be an "excess  parachute  payment" (as such
term is defined in Section 280G(b)(1) of the Code).           

         3.18  Minute   Books.   The  minute   books  of  the  Company  and  the
Subsidiaries,  as previously  made available to Parent and its  representatives,
contain, in all material respects, complete and accurate records of all meetings
of and  corporate  actions or written  consents by the  shareholders,  Boards of
Directors,  and  committees  of the Boards of  Directors  of the Company and the
Subsidiaries.                                                                   

         3.19 Insurance  Policies.  The Company Disclosure Schedule sets forth a
complete and accurate list, including the term, coverages, premium rates, limits
and deductibles thereof, of all material policies of insurance maintained by the
Company  or any  Subsidiary  with  respect  to any of its  officers,  directors,
employees,  shareholders,  agents, properties,  buildings, machinery, equipment,
furniture,  fixtures or operations  and a description  of each claim made by the
Company or any Subsidiary during the three-year period preceding the date hereof
under any such policy of  insurance.  The Company has  previously  delivered  to
Parent  complete  and  accurate  copies of all such  policies of  insurance  and
complete  and  accurate  copies  of  all  documentation  regarding  claims  made
thereunder.  All such policies of insurance  are in full force and effect,  have
been issued for the  benefit of the  Company,  its  Subsidiaries,  and/or  their
respective  directors,  officers and  employees by properly  licensed  insurance
carriers,  and  are  adequate  and  customary  for  the  assets,  business,  and
operations  of the Company and its  Subsidiaries.  The Company has  promptly and
properly notified its insurance  carriers of any and all claims known to it with
respect to its operations or products for which it is insured.                  

         3.20 Bank Accounts.  The Company Disclosure  Schedule sets forth a list
of each  bank,  broker,  or other  depository  with  which  the  Company  or any
Subsidiary has an account or safe deposit box (other than those having a balance
or value not exceeding $25,000  individually or $250,000 in the aggregate),  the
names  and  numbers  of such  accounts  or boxes  and the  names of all  persons
authorized to draw thereon or execute transactions.                             

         3.21 Powers of Attorney. The Company Disclosure Schedule sets forth the
names of all persons, if any, holding powers of attorney from the Company or any
Subsidiary  relating to authority  for actions  taken in the United States and a
description  of the  scope of each  such  power of  attorney.  The  Company  has
delivered to Parent prior to the date hereof complete and accurate copies of all
such powers of attorney.  Within 15 days after execution of this Agreement,  the
Company shall provide  Parent with a list setting forth the names of all persons
holding any other  powers of attorney  from the  Company or any  Subsidiary  not
included in the Company  Disclosure  Schedule and a description  of the scope of
each such other power of attorney (other than powers of attorney  granted in the
ordinary course of business for the prosecution of intellectual  property filing
matters).                                                                       

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         3.22 Product Liability  Claims.  During the three-year period preceding
the date  hereof,  neither the Company nor any  Subsidiary  has ever  received a
claim, or incurred any uninsured or insured liability,  for or based upon breach
of product warranty (other than warranty service, repair claims and MDR's in the
ordinary  course of business  not  material in amount or  significance),  strict
liability in tort,  negligent  manufacture  of product,  negligent  provision of
services or any other  allegation of  liability,  including or resulting in, but
not limited to, product recalls,  arising from the materials,  design,  testing,
manufacture,  packaging,  labeling (including  instructions for use), or sale of
its products or from the provision of services (hereafter  collectively referred
to as "Product  Liability").  To the knowledge of the Company,  no basis for any
claim  based upon  alleged  Product  Liability  exists that would have a Company
Material Adverse Effect.                                                        

         3.23  Warranties.  To  the  knowledge  of  the  Company,  all  products
manufactured  or  sold,  and  all  services  provided,  by  the  Company  or any
Subsidiary have complied,  and are in compliance,  in all material respects with
all  contractual  requirements,  warranties  or  covenants,  express or implied,
applicable thereto, and with all applicable  governmental,  trade association or
regulatory  specifications  therefor or applicable  thereto,  including,  to the
extent applicable,  FDA Good Manufacturing  Practices.  The terms of all product
and service  warranties of the Company and each Subsidiary are  specifically set
forth on the Company  Disclosure  Schedule.  The Company has delivered to Parent
prior to the date hereof  complete and accurate  copies of the forms of all such
warranties and policies used by the Company in the last twenty (20) months,  and
no  warranties  with terms of more than twelve (12) months have been used by the
Company other than those used in the last twenty (20) months.                   

         3.24  Inventories.  Except as  specifically  set  forth on the  Company
Disclosure  Schedule,  all inventories owned by the Company and its Subsidiaries
consist of items of  merchantable  quality and quantity usable or salable in the
ordinary  course of business,  are salable at prevailing  market prices that are
not less than the book value amounts thereof or the price customarily charged by
the Company or the applicable Subsidiary therefor, conform to the specifications
established  therefor,  and have been manufactured in accordance with applicable
regulatory  requirements,  except  to  the  extent  that  the  failure  of  such
inventories so to consist,  be saleable,  conform,  or be manufactured would not
have a Company Material Adverse Effect.  Except as specifically set forth on the
Company Disclosure Schedule, the quantities of all inventories,  materials,  and
supplies of the Company and each  Subsidiary  (net of the  obsolescence  reserve
therefor  shown on the  Company  Interim  Balance  Sheet and  determined  in the
ordinary  course of business  consistent  with past  practice) are not obsolete,
damaged,  slow-moving,  defective, or excessive, and are reasonable and balanced
in the circumstances of the Company and its  Subsidiaries,  except to the extent
that the failure of such  inventories to be in such conditions  would not have a
Company Material Adverse Effect.  The Company  Disclosure  Schedule sets forth a
true and complete list of the addresses of all warehouses or other facilities in
which inventories of the Company or any Subsidiary are located.                 

         3.25  Relations  with  Suppliers  and  Customers.  No material  current
supplier of the Company or any  Subsidiary  has  cancelled any contract or order
for provision of, and, to the knowledge of the Company, there has been no threat
by or basis for any such  supplier  not to  provide,  raw  materials,  products,
supplies,  or services  to the  businesses  of the Company and its  Subsidiaries
either prior to or following the Merger. Except as specifically set forth on the
Company Disclosure Schedule,  neither the Company nor any Subsidiary has, to the
knowledge  of the  Company,  received any  information  from any  customer  that
accounted  for more than 5% of the revenues of the Company and its  Subsidiaries
during the last full  fiscal year to the effect  that such  customer  intends to
materially  decrease the amount of business it does with the  businesses  of the
Company and its  Subsidiaries  either  prior to or  following  the  Merger.  The
Company Disclosure Schedule lists each supplier to the Company or any Subsidiary
that is the sole  source of a  particular  raw  material,  product,  supply,  or
service.                                                                        

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         3.26 No Finders.  No act of the Company or any  Subsidiary has given or
will give rise to any claim  against any of the  parties  hereto for a brokerage
commission,  finder's  fee,  or  other  like  payment  in  connection  with  the
transactions  contemplated  herein,  except payments in the amounts specified on
the Company  Disclosure  Schedule to those parties  identified  thereon who have
acted as a finder  for the  Company  or have been  retained  by the  Company  as
financial  advisors  pursuant to the agreements or other documents  described in
the Company  Disclosure  Schedule,  copies of which have been provided to Parent
prior to the date of this Agreement.                                            

         3.27 Proxy  Statement.  The Proxy  Statement/Prospectus  (as defined in
Section 5.4 hereof) and any amendments or supplements thereto will comply in all
material respects with all applicable laws, and none of the information relating
to the  Company or its  affiliates  included or  incorporated  therein or in any
amendments or supplements  thereto,  or any schedules  required to be filed with
the SEC in connection  therewith,  will, at any time during the period beginning
at the time it is mailed to  shareholders  and ending at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact  required to be stated  therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading;  provided,  however, that no representation or warranty is
made by the  Company  with  respect  to  information  relating  to Parent or any
affiliate of Parent supplied by Parent  specifically  for inclusion in the Proxy
Statement/Prospectus.                                                           

         3.28  Merger  Filings.  The  information  as to  the  Company  and  the
Subsidiaries  or  any  of  their  affiliates  or  shareholders  included  in the
Company's  filing,  or submitted to Parent for inclusion in its filing,  if any,
required  to be  submitted  under the HSR Act or under any  Foreign  Merger Laws
shall be true,  correct,  and complete in all material respects and shall comply
in all material  respects with the applicable  requirements  of the HSR Act, the
rules and regulations  issued by the Federal Trade Commission  pursuant thereto,
and the Foreign Merger Laws.                                                    

         3.29 Fairness Opinion.  The Company has received an opinion from Morgan
Stanley & Co.  Incorporated  to the  effect  that,  as of the date  hereof,  the
consideration  to be  received  by the  holders of Company  Common  Stock in the
Merger is fair to such holders from a financial  point of view,  and the Company
will promptly deliver a copy of such opinion to Parent.                         

         3.30 State  Takeover  Laws.  The Board of  Directors of the Company has
approved the  transactions  contemplated  by this  Agreement,  the Agreements to
Facilitate  Merger  described  in  Section  5.11  hereof,  and the Stock  Option
Agreement  described in Section 5.17 hereof such that the  provisions of Section
23B.19.040  of the WBCA will not apply to this  Agreement or the  Agreements  to
Facilitate  Merger  or the Stock  Option  Agreement  or any of the  transactions
contemplated hereby or thereby.                                                 

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 ARTICLE 4
REPRESENTATIONS AND WARRANTIES
 OF PARENT AND MERGER SUBSIDIARY

         Except as set forth in a  document  of even  date  herewith,  referring
specifically  to the  representations  and  warranties in this  Agreement  which
identifies  by section  number to which such  disclosure  relates  (the  "Parent
Disclosure Schedule"), Parent and Merger Subsidiary hereby jointly and severally
make the following representations and warranties to the Company:               

         4.1  Organization.  Parent is a  corporation  duly  organized,  validly
existing, and in good standing under the laws of the state of Minnesota.  Merger
Subsidiary is a corporation  duly organized and validly  existing under the laws
of the  state of  Washington.  Each of  Parent  and  Merger  Subsidiary  has all
requisite  corporate  power  and  authority  to  own,  lease,  and  operate  its
properties and to carry on its business as now being  conducted.  Each of Parent
and Merger  Subsidiary is duly  qualified and in good standing to do business in
each jurisdiction in which the property owned,  leased, or operated by it or the
nature of the business  conducted by it makes such  qualification  necessary and
where the  failure to qualify  could  reasonably  be  expected  to have a Parent
Material  Adverse Effect (as defined below).  "Parent  Material  Adverse Effect"
means an effect that, individually or in the aggregate with other effects, is or
would  reasonably  be expected to be materially  adverse:  (i) to the present or
planned business,  properties,  liabilities,  results of operation, or financial
condition  of Parent and its  subsidiaries,  considered  as a whole,  or (ii) to
Parent's  ability to perform any of its  obligations  under this Agreement or to
consummate the Merger.                                                          

         4.2  Authorization.  Each of  Parent  and  Merger  Subsidiary  has full
corporate  power and  authority  to execute and deliver  this  Agreement  and to
consummate the transactions  contemplated  hereby, and Parent has full corporate
power and authority to prepare,  file, and distribute the Registration Statement
(as defined in Section 5.4 hereof). The execution and delivery of this Agreement
by  Pare