SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
AMENDMENT NO. 5
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES
EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
AMENDMENT NO. 5
UNDER THE SECURITIES EXCHANGE ACT OF 1934
CIRCON CORPORATION
(NAME OF SUBJECT COMPANY)
USS ACQUISITION CORP.
UNITED STATES SURGICAL CORPORATION
(BIDDERS)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
172736 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
THOMAS R. BREMER
USS ACQUISITION CORP.
C/O UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
TELEPHONE: (203) 845-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
with a copy to:
PAUL T. SCHNELL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 735-3000
United States Surgical Corporation, a Delaware corporation
("Parent"), and USS Acquisition Corp., a Delaware corporation
(the "Purchaser"), and a wholly owned subsidiary of Parent,
hereby further amend and supplement their Statement on Schedule
14D-1 ("Schedule 14D-1"), filed with the Securities and Exchange
Commission (the "Commission") on August 2, 1996, as amended by
Amendment No.1 dated August 16, 1996, Amendment No. 2 dated
August 20, 1996, Amendment No.3 dated August 20, 1996, and
Amendment No. 4 dated August 30, 1996 with respect to the
Purchaser's offer to purchase all of the outstanding shares of
Common Stock, par value $0.01 per share (the "Shares"), of Circon
Corporation, a Delaware corporation (the "Company"), at a price
of $18.00 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated August 2, 1996 (the "Offer to
Purchase"). This Amendment No. 5 to Schedule 14D-1 also
constitutes Amendment No. 5 to the Statement on Schedule 13D of
the Purchaser and Parent. The item numbers and responses thereto
below are in accordance with the requirements of Schedule 14D-1.
Unless otherwise indicated herein, each capitalized term
used but not defined herein shall have the meaning assigned to
such term in Schedule 14D-1 or in the Offer to Purchase referred
to therein.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(e) of Schedule 14D-1 is hereby amended and
supplemented as follows:
On September 17, 1996 Parent filed a suit against the
Company in the Court of Chancery for the State of Delaware,
asking the court, among other things, to enjoin and void the
Company's recently adopted "poison pill" and "golden parachutes."
A copy of the complaint is attached as Exhibit (a)(12) and is
incorporated herein by reference.
On September 17, 1996, Parent issued a press release, a copy
of which is attached hereto as Exhibit (a)(13) and incorporated
herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(12) Complaint filed by United States Surgical
Corporation on September 17, 1996 in the
Court of Chancery in the State of Delaware in
and for New Castle County in the action
entitled United States Surgical Corporation,
a Delaware Corporation, and USS Acquisition
Corp., a Delaware Corporation, v. Richard A.
Auhll, R. Bruce Thompson, Harold R. Frank,
Rudolf R. Schulte, Paul W. Hartloff, Jr.,
John Blokker and Circon Corporation, a
Delaware Corporation.
(a)(13) Text of Press Release issued by United States
Surgical Corporation on September 17, 1996.
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: September 17, 1996
USS ACQUISITION CORP.
By:/s/ RICHARD A. DOUVILLE
Name: Richard A. Douville
Title: Treasurer
UNITED STATES SURGICAL
CORPORATION
By:/s/ RICHARD A. DOUVILLE
Name: Richard A. Douville
Title: Vice President, Treasurer and
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT EXHIBIT NAME
(a)(12) Complaint filed by United States Surgical
Corporation on September 17, 1996 in the
Court of Chancery in the State of Delaware in
and for New Castle County in the action
entitled United States Surgical Corporation,
a Delaware Corporation, and USS Acquisition
Corp., a Delaware Corporation, v. Richard A.
Auhll, R. Bruce Thompson, Harold R. Frank,
Rudolf R. Schulte, Paul W. Hartloff, Jr.,
John Blokker and Circon Corporation, a
Delaware Corporation.
(a)(13) Text of Press Release issued by United States
Surgical Corporation on September 17, 1996.
IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
UNITED STATES SURGICAL CORPORATION, :
a Delaware Corporation, and
USS ACQUISITION CORP., a Delaware :
Corporation, Civil Action No.
:
Plaintiffs, COMPLAINT
:
-against-
:
RICHARD A. AUHLL, R. BRUCE
THOMPSON, HAROLD R. FRANK, :
RUDOLF R. SCHULTE, PAUL W.
HARTLOFF, JR., JOHN BLOKKER and :
CIRCON CORPORATION, a Delaware
Corporation, :
Defendants. :
Plaintiffs United States Surgical Corporation and
USS Acquisition Corp. (together, "U.S. Surgical"), for their
Complaint, by their undersigned attorneys, allege, upon
knowledge as to themselves and their own acts, and upon
information and belief as to all other matters, as follows:
SUMMARY OF THIS ACTION
1. Plaintiffs bring this action to prevent
Circon Corporation ("Circon") and its directors from
unlawfully impeding plaintiffs' all-cash premium tender
offer (the "Offer") for Circon's shares. Specifically,
plaintiffs seek to (i) enjoin Circon and its directors from
distributing or triggering the exercise of any rights
pursuant to Circon's recently adopted Preferred Shares
Rights Agreement (the "Rights Plan"); (ii) compel defendants
to amend the Rights Plan to render it inapplicable to the
Offer; (iii) compel the defendants to terminate the hastily
adopted anti-takeover management compensation plan; and (iv)
enjoin defendants from taking any other actions to interfere
with Circon stockholders' right to freely tender their
shares into the Offer.
2. On August 2, 1996, U.S. Surgical commenced an
all-cash tender offer (the "U.S. Surgical Offer" or "Offer")
to acquire all outstanding shares of Circon stock for $18
per share -- an impressive 83% premium to the average price
of Circon's stock for the ten days immediately preceding
August 2. The Offer is fully financed and, therefore, is
not conditioned on obtaining financing.
3. In response to the Offer, Circon's Board of
Directors adopted the Rights Plan, which contains massive
dilutive features that make any offer not blessed by
incumbent management prohibitively expensive. It is
undisputed that the Rights Plan was not adopted to provide
management with time to arrange a superior alternative to
the Offer, as confirmed by Circon's announcement that it is
not undertaking negotiations concerning any alternative
transactions.
4. Under the facts of this case, there was no
justification for adopting the Rights Plan in the first
place; and certainly none for the Board's refusal to redeem
it. To be sure, Circon claimed in its Schedule 14D-9 that
the Rights Plan is necessary to protect its so-called
"strategic plan," which management purportedly believes will
some day result in shareholder value exceeding the
immediately available $18 per share in cash under the Offer.
5. However, Circon's stated "justification" is
merely a contrived afterthought. In truth, the Rights Plan
was designed for the primary purpose and intent of cementing
Richard A. Auhll's control and domination of a company which
he founded and is determined to continue running as his own.
This impermissible purpose was confirmed on August 30, 1996,
when Auhll wrote to all Circon employees that "[w]e have
retained expert financial and legal advisors to help us
prevail, no matter what USSC does." (Emphasis added) Thus,
Circon's incumbent management has already decided to defeat
any offer, regardless of the consequences to Circon's
stockholders -- including, for example, an offer at a price
that even management would concede exceeds any hypothetical
or potential future value of its strategic plan.
Management's conclusive prejudgment of any potential future
offer, without bothering to consider the then existing facts
and circumstances, violates the fiduciary duties of care and
loyalty imposed upon Delaware directors.
6. Even if protecting Circon's strategic plan
were the true motivation behind the Rights Plan, the Board's
adoption of, and failure to redeem, the Rights Plan under
the facts of this case is a breach of fiduciary duty. The
strategic plan, as articulated in Circon's Schedule 14D-9,
consists primarily of the alleged future synergies and
benefits to be derived from Circon's acquisition in August
1995 (the "Acquisition") of Cabot Medical Corporation
("Cabot"). Circon claims that these future benefits will,
at some unspecified date in the future, surpass the $18 per
share in cash that is available immediately under the Offer.
7. For some 18 months, Circon has engaged in a
public campaign touting the expected synergies and benefits
of the Acquisition -- including the alleged immediate cost-
savings, synergistic integrations of Circon's and Cabot's
sales forces, and steadily improved financial results that
would result from the Acquisition -- precisely the same
mantra repeated in the announcement of the Rights Plan. Yet
since the Acquisition was completed, the actual results have
been abysmal. Earnings and sales have been down
substantially; Circon has substantially underperformed
relative to its industry peers; and every earnings report
issued since the Acquisition has been worse than pre-
Acquisition earnings and far below Circon's forecasts --
precisely the opposite of the results Circon had publicly
projected. Indeed, management now has been forced into a
humiliating public retreat from its previous pronouncements
on this subject, admitting that the expected benefits from
the Acquisition have not materialized, and may never be
obtained.
8. Not surprisingly, the market, which has had
ample time to digest the tangible results of Circon's
strategic plan, has resoundingly rejected it. Since the
Acquisition was completed in mid-December 1995, the trading
price of Circon's shares nose-dived from $23.50 per share to
$8.75 per share in mid-July 1996 -- a loss of more than 60%
of its value. In light of this track record, management's
incantation of the same tired refrain concerning the
"expected" future benefits of the Acquisition to justify the
Rights Plan lacks any real credibility. Moreover, it is
undeserving of judicial deference, as its sole function and
effect is preclusive and coercive -- i.e., to force upon
Circon's stockholders the company's now discredited
strategic plan.
9. In addition, the Rights Plan is thwarting the
desires of the overwhelming majority of shareholders. As of
August 30, 1996 (the day U.S. Surgical announced an
extension of the Offer's expiration date until September 30,
1996), 76% of the shares of Circon stock not owned by U.S.
Surgical or Circon's management had been tendered into the
Offer.
10. Indeed, even if Circon's strategic plan was
credible -- and it clearly is not -- the Offer poses no
threat to it. The Acquisition has already occurred, and
will not be undone. Moreover, U.S. Surgical is a strategic
buyer operating in the same industry as Circon and,
therefore, is just as capable as Circon's current management
of reaping the synergies and other benefits of the
Acquisition for the corporation. Thus, the only "threat"
posed by the Offer is to entrenched management's desire to
continue running the company. Under these facts, there is
no legal justification for the Rights Plan.
11. The Board's self-serving motivation was
further demonstrated by its hasty adoption on August 25,
1996, of three lucrative employee "incentive" compensation
plans (the "Compensation Plan") which, in truth, provides no
incentive whatsoever, except to disincentivize any change in
control. Under the Compensation Plan, 300 Circon employees
ostensibly would be awarded bonus payments ranging from 75%
(for management employees) of annual base pay up to 250% of
annual base pay and annual target bonus in the event of a
change in control; and these employees would automatically
receive significant portions of these bonus payments within
90 days of a change in control, even if they thereafter are
retained by the acquiror with no diminution in responsibility,
status or pay.
12. Moreover, Circon's current management
unilaterally can terminate the Compensation Plan at any
time, or remove any previously designated employee from
participating in the Plan. Thus, in reality, the
Compensation Plan serves neither to "incentivize" employees,
nor to eliminate the "distractions" attendant to a potential
change in control -- Circon's publicly stated justification
for implementing this highly unusual package. On the
contrary, the only effect of the Compensation Plan, and the
sole purpose behind its adoption, is to increase
substantially the cost of, and thus further deter, any
control offer deemed unfriendly by Mr. Auhll and his Board.
13. Finally, in order to conceal their true
agenda from stockholders, Circon's directors have made
numerous materially false and misleading statements in
opposition to the Offer, in clear violation of their duty of
candor, all as more fully set forth below.
PARTIES
14. Plaintiff U.S. Surgical is a Delaware
corporation, and is a leading multinational developer,
manufacturer and marketer of innovative surgical wound
closure products designed for use in the field of minimally
invasive surgery. U.S. Surgical is the beneficial owner of
1,000,100 shares, or approximately 8%, of Circon's common
stock.
15. Plaintiff USS Acquisition is a Delaware
corporation and a wholly-owned subsidiary of U.S. Surgical.
USS Acquisition was incorporated as a vehicle for the
acquisition of Circon.
16. Defendant Circon is a Delaware corporation
which designs, manufactures and markets medical endoscope
and electro-surgery systems for diagnosis and minimally
invasive surgery.
17. Defendant Richard A. Auhll ("Auhll") is the
Chairman of the Board, President, and Chief Executive
Officer of Circon. Auhll also is a member of the
Compensation Committee that recommended adoption of the
Compensation Plan to the Circon Board. For the year ended
December 31, 1995, Auhll was paid a salary of $298,000, a
bonus of $130,239 and approximately $10,408 in other
compensation, including 401K contributions and insurance
premiums paid by Circon on Auhll's behalf. Auhll engineered
a leveraged buyout of Circon in 1977, and took the company
public in 1983. Auhll owns 12% of Circon's outstanding
shares of common stock.
18. Defendant R. Bruce Thompson ("Thompson") is
Chief Financial Officer and an Executive Vice President of
Circon. For the year ended December 31, 1995, Thompson was
paid a salary of $166,000, a bonus of $60,940 and
approximately $4,192 in other compensation, including 401K
contributions and insurance premiums paid by Circon on
Thompson's behalf.
19. Defendant Harold R. Frank ("Frank") is a
member of the Circon Board of Directors and has been since
1984. Frank is a member of the Compensation Committee that
recommended adoption of the Compensation Plan to the Board.
20. Defendant Rudolf R. Schulte ("Schulte") is a
member of the Circon Board of Directors and has been since
1977. Schulte is a member of the Compensation Committee
that recommended adoption of the Compensation Plan to the
Board. Schulte also owns 3% of Circon's outstanding shares
of common stock. Schulte has a long personal and
professional relationship with Thompson who, prior to his
joining Circon's board, held various positions at Heyer-
Schulte Corporation, a company founded by Schulte.
21. Defendant Paul W. Hartloff, Jr. ("Hartloff")
is a member of the Circon Board of Directors and has been
since 1991. Hartloff also served as Circon's Secretary from
1977 to 1988.
22. Defendant John F. Blokker ("Blokker") is a
member of the Circon Board of Directors and has been since
1991.
23. The Circon directors (the "Director
Defendants"), by reason of their management positions and/or
their representation on Circon's board of directors, are
liable as direct participants in, and as aiders and abettors
of, the wrongs complained of herein in that they direct the
actions taken by Circon, and control the contents of
Circon's public statements and press releases.
FACTUAL BACKGROUND
Circon's Long History of Inaccurately
Assessing the Acquisition
24. On April 25, 1995, Circon's management
announced that it intended to acquire Cabot. From that day
forward, Circon's management issued numerous public
pronouncements proclaiming the synergies and benefits that
were expected to be achieved in short order following
consummation of the Acquisition.
25. For example, the July 20, 1995 Circon and
Cabot Joint Registration Statement and Prospectus
("Prospectus") seeking stockholder approval of the
Acquisition, stated as follows:
Joint Reasons For The Merger
* * *
Sales Force
The Circon and Cabot managements believe that
the effective doubling of the U.S. direct sales
force as a result of the Merger can permit
significantly greater market penetration.
Moreover, the broader product line should
potentially enable the combined sales force to
increase sales to existing accounts.
Synergies And Cost Savings
In addition to the potential synergies from
broadening the product line, better utilization of
the U.S. direct sales force, and pooling the
complementary technological strengths of the two
companies, the managements of Circon and Cabot
anticipate significant cost savings can be
realized from taking actions such as the
elimination of duplicate trade show and marketing
expenses, consolidation of certain administrative
and finance functions, and rationalization of the
use of some facilities.
26. On August 31, 1995, Piper Jaffray, after
obtaining key financial information directly from Circon,
issued a report forecasting the following third and fourth
quarter 1995 revenues, which turned out to be substantially
higher than actual results:
3rd Qtr. 4th Qtr. 1995 Year
Revenues $43.8 million $46.5 million $171 million
27. Circon's management joined in disseminating
bullish forecasts. For example, on September 20, 1995, R.
Bruce Thompson, Circon's Chief Financial Officer, gave the
following interview, broadcast on the Dow Jones Investor
Network, in which he forecast earnings per share for 1995 of
"70 to 75 cents" -- a figure which, as set forth below,
turned out to be more than twice the actual results:
Turner: Where do you see the cost savings
specifically coming from this merger?
Thompson: Well, as I mentioned earlier, clearly in the
marketing and sales efforts, this duplication
of several hundred medical meetings a year
that can be eliminated is a, is a major
aspect of the cost savings. . . . So, I
think there are several million dollars that
can, can very quickly and easily be
eliminated. (Emphasis added)
* * *
Turner: Can you give us an idea of your earnings
outlook for 1995?
Thompson: Well, 1995, before the acquisition, we were
looking for sales growth in the, in the 15
percent or so range and we were looking for
earnings per share of approximately 70 to 75
cents, and I think even with the, if you
ignore the one-time charges that will be
associated with the acquisition of Cabot, I
think overall we will still be in that range.
(Emphasis added)
28. On September 20, 1995, Piper Jaffray issued a
report on Circon after having consulted with Circon
management, which stated, among other things, "We expect a
steady increase in the productivity of the 150 person direct
sales force in the U.S. over the next two to three quarters"
-- a view fully endorsed by Circon.
29. Finally, after reporting its third quarter
1995 results, Circon executives spoke with securities
analysts and told them, among other things, that they
anticipated strong fourth quarter 1995 revenues of over $45
million and earnings per share exceeding $.25 per share.
Circon Fails to Achieve The Predicted
Benefits of the Acquisition.
30. On February 1, 1996, Circon reported its
fourth quarter results. Circon's actual performance was
dramatically worse than what had been publicly forecast only
a few months before, and down from previous results for the
comparable period. Specifically, sales were only $38.6
million -- far short of the $46.5 million forecast, and down
from the $41.6 million of combined Circon/Cabot sales for
the comparable period the prior year; and earnings per share
were only $.08 -- a sharp decline from Circon's public
forecast only months before of earnings per share exceeding
$.25.
31. Circon's financial results for the full year
1995 were equally disappointing. Sales totalled $160.4
million -- roughly $20 million less than Thompson had
publicly forecast in September; and earnings per share
(exclusive of the one time costs of the Acquisition) were
$.33 -- less than one-half of the forecast level of $.70 -
$.75.
32. Furthermore, Circon's downward spiral has
continued this year. Sales for the quarter ended June 30,
1996 were $37.06 million, down 11.4% from 1995 second
quarter sales of $41.83 million; and earnings per share
dropped to $.03 from their already disappointing $.08 level
for the fourth quarter of 1995.
33. Circon now has conceded that these poor
results were due in large part to the disappointingly poor
productivity of the combined Circon/Cabot U.S. sales force -
- the precise synergy from the Acquisition which Circon had
been trumpeting since April 1995. Moreover, Circon's
previously unreserved optimism has been replaced by their
recent public confession, following on the heels of
announcing the company's most recent poor quarterly
performance, that:
The productivity of the combined US Direct sales force
has been below expectations. . . . There can be no
assurance that integration [of product offerings and
sales forces] will be accomplished successfully or
achieve the expected synergies. . . . Failure to
effectively accomplish the integration of the two
companies could have a material adverse effect on
Circon's results of operations and financial condition.
(Exhibit A) This, in stark contrast to Circon's previous
assurances that "[t]he integration is well underway."
Notably, Circon failed to disclose any of the above negative
facts in its Schedule 14D-9 disclosures to stockholders, in
which it continued to trumpet the expected synergies and
benefits of the Acquisition as the primary reason for
opposing the Offer and installing the Rights Plan.
34. The market reflected Circon's continuing poor
post-Acquisition performance in the valuation of Circon's
stock, which fell to $8.75 per share in mid-July 1996 from
its $23.50 per share trading price in mid-December 1995.
U.S. Surgical Commences its Tender Offer
35. On August 2, 1996, U.S. Surgical commenced a
fully financed all-cash tender offer for all of the shares
of Circon common stock for $18 per share -- a premium of
$7.50, or 83% above the average price of Circon's shares
during the 10 days before the Offer was commenced. Pursuant
to the terms of the Offer, as soon as practicable following
its consummation, U.S. Surgical will consummate a merger in
which all non-tendered shares will be acquired for the same
cash consideration of $18 per share.
Circon's Board Adopts the Rights Plan
36. On August 14, 1996, Circon's Board of
Directors adopted the Rights Plan. Pursuant to the Rights
Plan, Circon's Board of Directors declared a dividend of one
preferred stock purchase right per share of common stock (a
"Right"), payable to each of Circon's stockholders of record
as of August 26, 1996. Each Right entitles the registered
holder thereof to purchase from Circon, following the
Distribution Date (as defined), one one-thousandth of a
share of Circon's Series A Preferred Stock at an exercise
price of $70. Furthermore, following the occurrence of
certain other events, including the acquisition of 15% or
more of Circon's common stock, each holder of a Right will
be able to exercise that Right and purchase common stock of
Circon (or the surviving company in the event of a merger)
at half price. Because any current acquiror of 15% or more
of Circon's common stock would not be entitled to exercise
Rights in its possession, the dilutive effect of the Rights
Plan, if implemented, on the value of such acquiror's common
stock is overwhelming; and, as a result of this prohibitive
economic consequence, the Rights Plan effectively precludes
the U.S. Surgical Offer and proposed merger.
Circon's Purported Justification for the Rights Plan
37. On August 14, 1996, Circon filed a
Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") with the Securities and Exchange
Commission, which stated the recommendation of the Circon
Board of Directors that the Circon stockholders should
reject the Offer. The 14D-9 sets forth the basis for that
decision:
At the August 13, 1996 meeting, the Board determined
that the best means for providing value to its
stockholders is for the Company to continue to pursue
its strategic plan and not to be put up for sale at
this time. The Board unanimously concluded that the
Offer is inadequate and not in the best interests of
the Company and its stockholders. In particular, the
Board determined that the Company's strategic plan
offers the potential for greater long-term benefits for
the Company's stockholders than the Offer based on,
among other things, greater opportunities for business
expansion, revenue and earnings growth, as well as
benefits following the full integration of the business
of Cabot Medical Corporation ("Cabot") into the
Company. (Emphasis added)
A copy of the Circon Schedule 14D-9 is attached as
Exhibit B.
38. In addition, the Circon Schedule 14D-9
disclosed that Circon is not engaged in, and is not
undertaking, negotiations on any alternative transactions to
the Offer that might benefit Circon's stockholders.
Instead, Circon's now firmly entrenched management has
determined to compel its stockholders to stick with
management's strategic plan -- the same plan which caused
the value of Circon's shares to decline by over 60% between
December 1995 and July 1996.
The "Real" Reason Behind the Rights Plan
39. On or about August 30, 1996, Circon
disseminated a letter signed by Auhll (the "Auhll Letter")
to all Circon employees, and publicly filed the Letter as an
amendment to the Circon Schedule 14D-9. A copy of the Auhll
Letter is attached hereto as Exhibit C. After assuring
employees that the Offer "has very little chance of success
due to our defensive positions," Auhll showed his and his
Board's true colors by declaring that: "We have retained
expert financial and legal advisors to help us prevail, no
matter what USSC does." (Exh. C at 1, 3)(emphasis added).
Circon's determination, in advance, to defeat any future
offer without first engaging in the careful analysis of such
offer which directors are duty-bound to perform under
Delaware law, convincingly disproves Circon's purported
justification for the Rights Plan. In truth, the adoption
of, and refusal to redeem, the Rights Plan was an act of
entrenchment, pure and simple.
The Circon Compensation Plan
40. To add to its anti-takeover arsenal, on
August 25, 1996, the Circon Board adopted three new
"compensation" plans: the Circon Management Retention Plan,
the Circon Sales Force Retention Plan and the Circon
Managers, Professionals and Key Contributors Retention Plan
(collectively, the "Compensation Plan"). The stated purpose
of the Compensation Plan was to incentivize employees and
assuage the "disruptive effects of the Offer" or any other
potential change of control of Circon. (Exh. D at 2) In
truth, the Compensation Plan has nothing to do with
incentivizing Circon's workforce -- it was implemented
solely to ensure that Circon's incumbent management will not
be replaced.
41. Under the Compensation Plan, 300 employees
-- including Circon's senior executives, sales force,
managers and other "professionals" and "key contributors" --
would be entitled to receive additional payments ranging
from 75% of annual base pay (for management employees) to
250% of combined annual base salary and target bonus in the
event of a change in control. These payments would not be
limited to key employees who are terminated, or whose
responsibilities are diminished, following a change in
control. Rather, employees who remain employed 90 days or
more following a change of control will receive between one-
sixth and one-half of their total payments -- even if their
employment is not adversely affected at all by the control
change.
42. Moreover, the current Circon Board -- and
only the current Circon Board -- is free unilaterally to
amend or terminate the Compensation Plan, or to remove any
of its designated employees from participating therein.
Obviously, a benefits plan that can be eliminated at any
time provides no true incentive for Circon's employees to
remain with the company, and does nothing to assuage any
fears concerning continued employment in the event of a
change in control. Rather, the only purpose and effect of
such a plan is to substantially increase the acquisition
expense to a potential acquiror -- an expense that would
come directly out of the pockets of Circon stockholders, who
otherwise would receive such funds as payments for their
shares -- and thereby further entrench Circon's current
management.
43. The Circon Board also was grossly negligent
in adopting the Compensation Plan. Among other things, the
Board failed to ascertain the cost of the Compensation Plan,
and therefore could not, and did not, have an adequate basis
to weigh the relative costs and benefits, if any, to the
company of adopting this highly unusual program.
The Circon Directors' Materially
False and Misleading Disclosures
44. Circon's disclosures to its stockholders
contained numerous materially false and misleading
statements intended to unfairly prejudice stockholders
against the Offer and in favor of management's ill-conceived
agenda. Among other things:
(i) The Schedule 14D-9 discloses
management's belief that the long-term values of the
strategic plan exceed the Offer, without disclosing the
Company's previous inability to achieve the expected
benefits and synergies from the Acquisition, which is
the centerpiece of this strategic plan; the fact that
the integration of the Cabot/Circon operations, to
date, has fallen well short of expectations; and that,
based on the continuing downward trend of their
business, management is concerned about their ability
ever to achieve the highly publicized expected
synergies and benefits from the Acquisition.
(ii) The Auhll Letter (Exh. C at 1)
unequivocally states that Circon's "strategic plan
. . . will reward stockholders with greater value than
they can obtain through tendering their shares in this
offer," without disclosing the facts set forth in (i)
above, and the numerous uncertainties inherent in the
strategic plan.
(iii) Circon failed to disclose that the
Compensation Plan unlawfully discriminates against, and
limits the ability of, duly elected future directors of
Circon to exercise their fiduciary duties, by providing
that only the current Board or its hand-picked
successors can amend, modify or eliminate the
Compensation Plans. The Circon Board also falsely
stated that the "Plan is designed to help Circon retain
its employees . . ." (Exh. C at 2) without disclosing
that incumbent management unilaterally can terminate
the plan or any designated employee's right to
participate therein at any time.
Delaware Business Combination Statute, Section 203
45. Section 203 of the Delaware General
Corporation Law, entitled "Business Combinations With
Interested Stockholders," applies to any Delaware
corporation that has not opted out of the statute's
coverage. Circon has not opted out of the statute's
coverage.
46. Section 203 was designed to impede coercive
and inadequate tender offers. Section 203 provides that if
a person acquires 15% or more of a corporation's voting
stock (thereby becoming an "interested stockholder"), such
interested stockholder may not engage in a "business
combination" with the corporation (defined to include a
merger or consolidation) for three years after the
interested stockholder becomes such, unless: (i) prior to
the 15% acquisition, the corporation's board of directors
has approved either the acquisition or the business
combination, (ii) the interested stockholder acquires 85% of
the corporation's voting stock (excluding stock owned by (a)
persons who are directors and also officers and (b) certain
employee stock plans) in the same transaction in which it
crosses the 15% threshold, or (iii) on or subsequent to such
time of the 15% acquisition, the business combination is
approved by the corporation's board of directors and
authorized at an annual or special meeting of the
corporation's stockholders, and not by written consent, by
the affirmative vote of at least 66-2/3% of the outstanding
voting stock which is not owned by the interested
stockholder.
47. The Offer in this case is a fully financed,
all cash offer, available to all Circon stockholders for all
outstanding shares. The Offer is not "front-end loaded" or
otherwise coercive in nature, is at a substantial premium,
and represents a full and fair value to Circon stockholders.
Furthermore, the Offer poses no threat to the interests of
Circon's stockholders or to Circon's corporate policy and
effectiveness. Accordingly, a proper exercise of the Circon
Board's fiduciary duties requires it to take the requisite
steps to render Section 203 inapplicable to the Offer.
IRREPARABLE INJURY
48. Plaintiffs do not have an adequate remedy at
law. Only through the exercise of the Court's equitable
powers will plaintiffs and Circon's other stockholders be
protected from immediate and irreparable injury. Unless the
Court enjoins the application of Circon's anti-takeover
devices, Circon's stockholders will be deprived of the
opportunity to decide for themselves whether or not to
accept the Offer. Furthermore, U.S. Surgical will be
precluded from consummating the Offer, which is conditioned
on removal or inapplicability of the Rights Plan and Section
203, and will be deprived of realizing the benefits of a
unique business opportunity.
COUNT ONE
[For Breach of Fiduciary Duty with
Respect to the Rights Plan]
49. Plaintiffs repeat each of the foregoing
allegations as if fully set forth in this paragraph.
50. The Director Defendants were and are
obligated to consider the Offer, and all reasonable
acquisition proposals, in a timely fashion and on an
informed basis, and must be guided by the single principle
of the best interests of the corporation, its stockholders
and other relevant constituencies. They may not place
management's own self-interests and personal considerations
ahead of the interests of Circon stockholders.
51. The Director Defendants rejected the Offer,
adopted the Rights Plan, and have failed to redeem the
Rights Plan, for the sole or primary purpose of perpetuating
Auhll's and incumbent management's control of Circon and
their continued enjoyment of the perquisites of such
continuing control, all to the detriment of Circon and its
stockholders.
52. In addition, the Director Defendants have
already decided, in advance, to defeat any future unfriendly
offer, regardless of price or any other factor, and
regardless of the adverse consequences such decision will
have upon Circon's stockholders. The Director Defendants
made this decision without undertaking the careful review
and analysis of the particular offer, which review is
mandated of directors under Delaware law.
53. As a result of the foregoing, the Director
Defendants have breached their fiduciary duties of loyalty
and care to Circon's stockholders.
54. Unless enjoined by this Court, defendants
will continue to breach the fiduciary duties owed to Circon
stockholders and entrench themselves in their corporate
offices, causing irreparable harm to Circon's stockholders
and U.S. Surgical.
55. Plaintiffs have no adequate remedy at law.
COUNT TWO
[For Breach of Fiduciary Duty with
Respect to the Rights Plan]
56. Plaintiffs repeat each of the foregoing
allegations as if fully set forth in this paragraph.
57. The Rights Plan is unreasonable in relation
to any purported threat posed by the Offer, and is
preclusive and coercive. The Offer poses no threat to any
legitimate corporate policy, because (i) the Acquisition has
already occurred and cannot, and will not be undone; and
(ii) U.S. Surgical is a strategic buyer in the same industry
as Circon, and, accordingly, there is no basis to believe
that the synergies and benefits ostensibly achievable from
the Acquisition cannot be obtained for the corporation by
U.S. Surgical. Furthermore, the Rights Plan is coercive in
that it forces shareholders to accept management's strategic
plan, even though the vast majority of unaffiliated
stockholders have indicated their preference for the Offer.
58. Under the foregoing circumstances, the
Director Defendants' adoption of the Rights Plan in response
to the Offer, and their refusal to redeem the rights, was
and is a breach of their fiduciary duties of loyalty and
care under Delaware law.
59. Plaintiffs have no adequate remedy at law.
COUNT THREE
[For Breach of Fiduciary Duty with
Respect to the Adoption
of the Compensation Plan]
60. Plaintiffs repeat each of the foregoing
allegations as if fully set forth in this paragraph.
61. The Compensation Plan was adopted for the
sole or primary purpose of entrenching current Circon
management, regardless of the effect on Circon stockholders,
and serves no legitimate justification. Furthermore, the
Compensation Plan is unreasonable in relation to any
purported threat posed, and was not adopted in good faith
and after reasonable investigation.
62. In addition, the Compensation Plan
impermissibly interferes with the stockholders' right to
elect directors capable of fully exercising their fiduciary
duties and directorial powers, in that it prevents any duly-
elected Board, other than the incumbent Board or its hand-
picked successors, from terminating the Compensation Plan --
even if such Board concludes that termination would serve
the best interests of Circon and its shareholders.
63. The Director Defendants also were grossly
negligent in adopting the Compensation Plan in that, among
other things, they failed to ascertain the cost to the
company of adopting the Plan, and therefore did not, and
could not, undertake a responsible cost-benefits analysis
before hastily adopting this unique compensation package.
64. As a result of the foregoing, the Director
Defendants have breached their fiduciary duties of care and
loyalty under Delaware law.
65. Plaintiffs have no adequate remedy at law.
COUNT FOUR
[For Breach of the Duty of Candor]
66. Plaintiffs repeat each of the foregoing
allegations as if fully set forth in this paragraph.
67. The Board of Directors of Circon owes to all
Circon stockholders a duty of candor to disclose fully and
truthfully all material facts relating to the Board's
opposition to the Offer. The duty of candor is intended to
ensure that fiduciaries not deny their cestui que trust
information necessary for them to make informed decisions as
to the trust, including investment decisions.
68. The Circon Schedule 14D-9 and the amendments
thereto contain materially false and misleading statements
and omit material information, as alleged above. The
failure to provide the requisite material information in a
truthful manner disables stockholders from accurately
assessing Circon management's bias and from making informed
decisions with respect to their investment in Circon. As a
result, the Director Defendants have breached their duty of
candor to Circon stockholders.
69. Plaintiffs and Circon's stockholders have no
adequate remedy at law.
COUNT FIVE
[Injunctive Relief]
70. Plaintiffs repeat and reallege each and every
foregoing allegation as if fully set forth herein.
71. The Offer is not "front-end loaded" or
coercive in any other way. It represents a substantial
premium over the market price of Circon shares, and offers
full and fair value to all Circon stockholders. The Offer
complies with all applicable laws and other obligations --
including, without limitation, the securities laws, the
antitrust laws, and all other legal obligations to which
plaintiffs are subject -- and poses no threat to the
interests of Circon's stockholders or to Circon's corporate
policy or effectiveness.
72. Under these circumstances, the sole purpose
and effect of Circon's anti-takeover devices is to force
management's strategic plan upon Circon's stockholders, and
to prevent stockholders from deciding for themselves whether
or not to accept the Offer. Accordingly, these anti-
takeover devices are coercive and preclusive, and are not
proportionate, nor within the range of reasonable responses,
to the Offer or any alleged threat posed by the Offer.
73. The Director Defendants' actions in adopting
these anti-takeover responses to the Offer constituted a
breach of their fiduciary duties of care and loyalty to
Circon's stockholders. Accordingly, Circon's use of such
measures should be enjoined by this Court.
74. Plaintiffs do not have an adequate remedy at
law.
COUNT SIX
[Injunctive Relief]
75. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth herein.
76. Under Section 203 of the Delaware General
Corporation Law, the Director Defendants can render this
section inapplicable to the Offer by approving the Offer.
As a result of the facts alleged herein, the Director
Defendants' failure to approve the Offer, and to take any
other steps necessary to render Section 203 inapplicable,
constitutes a breach of fiduciary duty to Circon's
stockholders.
77. Plaintiffs do not have an adequate remedy at
law.
WHEREFORE, plaintiffs respectfully request that
this Court enter an order:
(a) preliminarily and permanently enjoining
Circon's directors, officers, successors, agents, servants,
subsidiaries, employees and attorneys, and all persons
acting in concert or participating with them, from taking
any steps to impede or frustrate the ability of Circon's
stockholders to consider and make their own determination as
to whether to accept the terms of the Offer, or taking any
other action to thwart or interfere with the Offer;
(b) preliminarily and permanently enjoining
Circon's Board of Directors from triggering the distribution
of the Rights associated with the Rights Plan;
(c) compelling Circon's Board of Directors
to redeem the Rights associated with the Rights Plan or to
amend the Rights Plan so as to make the Rights inapplicable
to the Offer and preliminarily and permanently enjoining
Circon, its directors, officers, successors, agents,
servants, subsidiaries, employees and attorneys, and all
persons acting in concert or participating with them, from
taking any action to implement, distribute or recognize any
rights or powers with respect to said Rights (other than to
redeem the Rights), and from taking any actions pursuant to
the Rights Plan that would dilute or interfere with U.S.
Surgical's voting rights or in any other way discriminate
against U.S. Surgical in the exercise of its rights with
respect to its Circon stock;
(d) compelling Circon's Board of Directors
to approve the Offer for the purposes of Section 203, and
preliminarily and permanently enjoining Circon, its
directors, officers, successors, agents, servants,
subsidiaries, employees and attorneys, and all persons
acting in concert or participating with them, from taking
any actions to enforce or apply Section 203 that would
interfere with the commencement, continuation or
consummation of Circon's Offer;
(e) compelling Circon's Board of Directors
to terminate the Compensation Plan, and preliminarily and
permanently enjoining defendants, and their agents,
servants, attorneys, assigns, successors, and all persons in
active concert or participation with them from modifying the
compensation structure in place before the Offer was
commenced;
(f) requiring that appropriate corrective
disclosure be made in order to cure all of the materially
false and misleading statements and omissions made by Circon
and the Director Defendants in connection with the purchase
or sale of Circon stock;
(g) awarding plaintiffs their costs and
disbursements, including attorneys' fees, incurred in this
action; and
(h) granting plaintiffs such other and
further relief as the Court shall deem just and proper.
SKADDEN, ARPS, SLATE
MEAGHER & FLOM
By /s/ Edward P. Welch
___________________________
Edward P. Welch
Andrew J. Turezyn
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs
United States Surgical
Corporation and USS
Acquisition Corp.
Of Counsel:
Barry H. Garfinkel
George A. Zimmerman
Michael H. Gruenglas
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
919 Third Avenue
New York, NY 10022
(212) 735-3000
Thomas R. Bremer
Donald S. Crane
UNITED STATES
SURGICAL CORPORATION
150 Glover Avenue
Norwalk, CT 06850
(203) 845-1000
Dated: September 17, 1996
FOR IMMEDIATE RELEASE: September 17, 1996
INVESTOR CONTACT: MEDIA CONTACT: U.S. SURGICAL HOME PAGE:
Marianne Scipione Steve Rose http:/www.ussurg.com
Vice President Director
Corporate Media Relations
Communications
203-845-1404 203-845-1732
[email protected] [email protected]
UNITED STATES SURGICAL CORPORATION FILES SUIT AGAINST CIRCON:
CHARGES RECENTLY ADOPTED SHAREHOLDERS RIGHTS PLAN
RESTRICTS SHAREHOLDERS FROM TENDERING TO
UNITED STATES SURGICAL CORPORATION
NORWALK, Conn. - United States Surgical Corporation (NYSE:USS)
announced today that it has filed suit against Circon Corporation
(NASDAQ:CCON) in the Court of Chancery for the State of Delaware,
asking the court to enjoin and void Circon's recently adopted
"poison pill" and "golden parachutes."
The lawsuit claims that Circon's Board of Directors breached
their fiduciary duties by adopting the "poison pill" and "golden
parachutes" for the improper sole purpose of cementing President
and CEO Richard A. Auhll's continuing control over the company
which he founded. The lawsuit cites Mr. Auhll's recent statement
to Circon's employees that Circon has "retained expert financial
and legal advisors to help us prevail no matter what USS does"
(emphasis added), as confirmation that Circon's Board has
determined to resist any offer threatening Mr. Auhll's control,
regardless of the price of the offer or the consequences of such
resistance to Circon's shareholders.
The lawsuit further claims that Circon's stated desire to
protect the benefits and purported synergies of its acquisition
last year of Cabot Medical Corporation does not justify the "poison
pill" and "golden parachutes." According to the lawsuit, based on
Circon's public announcements, Circon's sales and financial results
since the acquisition have been disappointingly poor; and the
benefits and synergies of the Cabot acquisition that Circon has
been publicly predicting for approximately 17 months have not been
achieved. The lawsuit states that Circon's shareholders should now
be permitted to decide for themselves whether the USS offer is a
superior alternative to Circon management's long-term strategic
plan.
In addition, the lawsuit claims that Circon's recently adopted
"golden parachute" compensation plans were adopted for the same
improper purpose as the "poison pill." The suit alleges that the
"golden parachutes" do not truly incentivize employees, and that
their only function is to discourage any change in control. The
lawsuit further claims that Circon has made numerous materially
false and misleading statements in opposition to the tender offer.
U.S. Surgical also said today that it will file shortly a
separate lawsuit against Circon in Delaware Chancery Court seeking
to compel Circon to provide USS with full information necessary to
enable USS to communicate directly with Circon's shareholders
concerning its offer. USS has requested this information from
Circon pursuant to its rights under Delaware law, but to date
Circon has refused to provide all such information.
USS also said that, as a result of Circon's adoption of the
"poison pill" rights plan, USS' offer is now conditioned upon,
among other things, the redemption of the rights issued pursuant to
such plan, or USS being satisfied, in its sole discretion, that the
rights have been invalidated or are otherwise inapplicable to the
offer and proposed second-step merger.
According to a USS senior spokesperson, "We are committed to
pursuing a combination of USS and Circon. Our cash tender offer of
$18 per share resulted in nearly 7 million shares being tendered as
of August 29, 1996, despite the efforts Circon's management
undertook to discourage shareholders from tendering. The shares
tendered, combined with the shares owned by USS, amount to
approximately 76% of the stock not owned by Circon's management and
Board. We are delighted by the support we have already received
from Circon's shareholders, and we are hopeful that even more
shareholders will see the merits of our offer and tender their
shares prior to or on September 30th, the date to which the offer
has been extended. We hope that Circon's Board and management will
recognize the business realities and agree to meet with us. In the
meantime, we will not stand by while they illegally erect obstacles
to our tender offer."
United States Surgical Corporation is a diversified surgical
products company specializing in minimally invasive technologies
that improve patient care and lower health care costs.
