<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 33-61151
CIRCON CORPORATION
6500 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
July 20, 1995
Dear Stockholder:
A Special Meeting of Stockholders of Circon Corporation ("Circon") will be
held on Friday, August 25, 1995 at 10:00 a.m., local time, at the Four Seasons
Biltmore Hotel, 1260 Channel Drive, Santa Barbara, California.
At this Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Reorganization (the "Merger
Agreement") among Circon, its wholly-owned subsidiary Circon Sub Corp. ("Sub")
and Cabot Medical Corporation ("Cabot"), providing for the merger (the "Merger")
of Cabot and Sub, as described in the accompanying Proxy Statement.
Pursuant to the Merger, in which Cabot will become a wholly-owned
subsidiary of Circon, each share of Common Stock of Cabot will be converted into
0.415 shares of Circon Common Stock (the "Exchange Ratio"). In addition, each
then outstanding option to purchase shares of Common Stock of Cabot will be
assumed by Circon (the "Assumed Options"). Each Assumed Option will be converted
into an option to purchase a number of shares of Circon Common Stock equal to
the number of shares of Cabot Common Stock that were subject to such option
immediately prior to the Merger, multiplied by the Exchange Ratio. The exercise
price of each Assumed Option will be adjusted by dividing the exercise price by
the Exchange Ratio. Each of the outstanding 7.5% Convertible Subordinated Notes
of Cabot (the "Cabot Convertible Notes") will be convertible following the
Merger into the number of shares of Circon Common Stock determined by
multiplying the Exchange Ratio by the number of shares of Cabot Common Stock
into which the Cabot Convertible Note is convertible immediately prior to the
Merger.
After careful consideration, Circon's Board of Directors has unanimously
approved the Merger Agreement and has determined that the Merger is in the best
interests of Circon and its stockholders. The Board of Directors unanimously
recommends a vote in favor of approval and adoption of the Merger Agreement.
Accompanying this letter is a Joint Proxy Statement relating to the action
to be taken by Circon stockholders at the Special Meeting and to a special
meeting of the stockholders of Cabot. The Joint Proxy Statement more fully
describes the proposed Merger and includes information about Circon and Cabot.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
RICHARD A. AUHLL
President and Chairman of the Board
<PAGE> 2
CIRCON CORPORATION
6500 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 25, 1995
TO THE STOCKHOLDERS OF CIRCON CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Circon
Corporation ("Circon") will be held on Friday, August 25, 1995 at 10:00 a.m.,
local time, at the Four Seasons Biltmore Hotel, 1260 Channel Drive, Santa
Barbara, California.
At this Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Reorganization (the "Merger
Agreement") among Circon, its wholly-owned subsidiary Circon Sub Corp. ("Sub")
and Cabot Medical Corporation ("Cabot"), providing for the merger of Cabot and
Sub (the "Merger"), as described in the accompanying Joint Proxy Statement.
Pursuant to the Merger, in which Cabot will become a wholly-owned subsidiary of
Circon, each share of Common Stock of Cabot will be converted into 0.415 shares
of Circon Common Stock. In addition, each then outstanding option to purchase
shares of Common Stock of Cabot will be assumed by Circon. The Merger is more
fully described in, and the Merger Agreement is attached to, the accompanying
Joint Proxy Statement.
Only stockholders of record at the close of business on June 27, 1995 are
entitled to vote at the Special Meeting, or at any continuance or adjournment
thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Joint Proxy Statement at any time before it has been voted at
the Special Meeting. Any stockholder attending the Special Meeting may vote in
person even if he or she has returned a proxy.
By Order of the Board of Directors
DANIEL J. MEANEY, JR.
Secretary
Santa Barbara, California
July 20, 1995
<PAGE> 3
CABOT MEDICAL CORPORATION
2150 CABOT BOULEVARD WEST
LANGHORNE, PENNSYLVANIA 19047
July 20, 1995
Dear Fellow Shareholder:
We have the pleasure of enclosing for your review the Joint Proxy Statement
describing the proposed transaction between Circon Corporation ("Circon") and
Cabot Medical Corporation ("Cabot"). At the Special Meeting of Shareholders to
be held on Friday, August 25, 1995, shareholders of Cabot will vote on a
transaction in which Cabot merges with a wholly-owned subsidiary of Circon
whereby, as a result of such merger, Cabot will survive and become a
wholly-owned subsidiary of Circon. If the transaction is approved and completed,
each share of Cabot Common Stock will be converted into 0.415 shares of Circon
Common Stock.
The Boards of Directors of Cabot and Circon have unanimously approved the
Merger Agreement and believe that the merger is fair and in the best interests
of both Cabot and Circon and their shareholders. The merger combines two
complementary businesses and business strategies and offers the potential for
enhancing the products and services available to Cabot's customers and those of
Circon.
The attached Joint Proxy Statement provides you with detailed information
regarding the proposed transaction which shareholders of Cabot will be asked to
vote upon at the Special Meeting of the Shareholders. We urge you to read it
carefully. Your Board of Directors unanimously recommends that you vote in favor
of the adoption of the Merger Agreement.
It is important that your shares be represented at the Special Meeting.
Therefore, please sign, date and return the enclosed proxy card as soon as
possible. This will not prevent you from voting your shares in person if you
wish to attend the Special Meeting.
Sincerely,
WARREN G. WOOD
President and Chief Executive Officer
<PAGE> 4
CABOT MEDICAL CORPORATION
2150 CABOT BOULEVARD WEST
LANGHORNE, PENNSYLVANIA 19047
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 25, 1995
TO THE SHAREHOLDERS OF CABOT MEDICAL CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Cabot
Medical Corporation, a New Jersey corporation ("Cabot"), will be held on Friday,
August 25, 1995 at 1:00 p.m., local time, at the Sheraton Bucks County Hotel,
400 Oxford Valley Road, Langhorne, Pennsylvania.
At this Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Reorganization (the "Merger
Agreement") among Circon Corporation, a Delaware corporation ("Circon"), its
wholly-owned subsidiary Circon Sub Corp., a New Jersey corporation ("Sub") and
Cabot, providing for the merger of Cabot and Sub (the "Merger"), as described in
the accompanying Proxy Statement.
Pursuant to the Merger, in which Cabot will become a wholly-owned
subsidiary of Circon, each share of Common Stock of Cabot (other than
dissenters' shares and shares owned by Sub, Circon or any direct or indirect
wholly-owned subsidiary of Circon or Cabot) will be converted into 0.415 shares
of Circon Common Stock (the "Exchange Ratio"). In addition, each then
outstanding option to purchase shares of Common Stock of Cabot will be assumed
by Circon (the "Assumed Options"). Each Assumed Option will be converted into an
option to purchase that number of shares of Circon Common Stock equal (subject
to rounding) to the number of shares of Cabot Common Stock that were subject to
such option immediately prior to the Merger multiplied by the Exchange Ratio.
The exercise price for Assumed Options will be adjusted to an exercise price per
share equal (subject to rounding) to the exercise price per share of the
specific option immediately prior to the Merger divided by the Exchange Ratio.
Additionally, the holders of the outstanding 7.5% Convertible Subordinated Notes
of Cabot due March 1, 1999 (the "Cabot Convertible Notes") will be entitled to
convert each Cabot Convertible Note into the number of shares of Circon Common
Stock determined by multiplying the Exchange Ratio by the number of shares of
Cabot Common Stock into which the Cabot Convertible Note is convertible
immediately prior to the effective time of the Merger.
The Merger is more fully described in, and the Merger Agreement is attached
to, the accompanying Proxy Statement.
Only shareholders of record at the close of business on June 27, 1995 are
entitled to notice of, and to vote at, the Special Meeting, or at any
continuance(s) or adjournment(s) thereof.
All shareholders are cordially invited to attend the meeting in person,
however, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage prepaid envelope for that purpose. YOU MAY REVOKE YOUR PROXY IN THE
MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT HAS
BEEN VOTED AT THE SPECIAL MEETING. ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING
MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
By Order of the Board of Directors
HARRY BRENER
Secretary
Langhorne, Pennsylvania
July 20, 1995
<PAGE> 5
CIRCON CORPORATION CABOT MEDICAL CORPORATION
PROSPECTUS AND JOINT PROXY STATEMENT
This Prospectus and Joint Proxy Statement ("Proxy Statement") is being
furnished to holders of Common Stock of Cabot Medical Corporation ("Cabot") and
to holders of Common Stock of Circon Corporation ("Circon") in connection with
the solicitation of proxies by the Boards of Directors of the two companies for
use at their respective special meetings of stockholders to be held on August
25, 1995 to vote upon the proposed merger (the "Merger") of Cabot with a
wholly-owned subsidiary of Circon, pursuant to the Agreement and Plan of
Reorganization dated April 25, 1995, as amended (the "Merger Agreement"). As a
result of the Merger, Cabot will become a wholly-owned subsidiary of Circon. The
Merger Agreement provides for each share of Cabot Common Stock to be converted
into 0.415 shares of Circon Common Stock (the "Exchange Ratio"). The closing
price of Circon Common Stock on the Nasdaq Stock Market on July 14, 1995, was
$18.25 per share.
Circon has filed a Registration Statement with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), covering an aggregate of up to 4,780,000 shares of its Common Stock to be
issued in connection with the Merger. This Proxy Statement constitutes (i) the
Prospectus of Circon filed as part of the Registration Statement, (ii) the Proxy
Statement of Cabot relating to the Special Meeting of Stockholders of Cabot (the
"Cabot Special Meeting"), and (iii) the Proxy Statement of Circon relating to
the Special Meeting of Stockholders of Circon (the "Circon Special Meeting").
All information herein with respect to Cabot has been furnished by Cabot, and
all information herein with respect to Circon has been furnished by Circon.
This Proxy Statement is first being mailed to stockholders of Circon and
Cabot on or about July 24, 1995.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CIRCON OR CABOT. NEITHER THE DELIVERY HEREOF
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROXY STATEMENT WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION.
NEITHER THE MERGER NOR THE SECURITIES OF CIRCON TO BE ISSUED IN THE MERGER
HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus and Joint Proxy Statement is July 20, 1995.
<PAGE> 6
AVAILABLE INFORMATION
Circon and Cabot are each subject to the information reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-2511.
Copies of such material may be obtained by mail from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Circon's Common Stock and Cabot's Common Stock are
quoted on the Nasdaq Stock Market, and such reports, proxy statements and other
information can also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Circon has filed with the SEC a registration statement on Form S-4 (herein
referred to, together with all amendments and exhibits, as the "Registration
Statement") under the Securities Act. This Proxy Statement does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. For
further information, reference is hereby made to the Registration Statement.
Copies of the Registration Statement and the exhibits and schedules thereto may
be inspected, without charge, at the offices of the SEC, or obtained at
prescribed rates from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Circon are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994;
2. Proxy Statement dated April 26, 1995 in connection with the Circon
1995 Annual Meeting of Stockholders;
3. Quarterly Report on Form 10-Q for the quarter ended March 31, 1995;
and
4. Registration Statement on Form 8-A (File No. 0-12025), as amended,
as declared effective by the SEC on July 7, 1983.
The following documents previously filed with the SEC by Cabot are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended October 29, 1994;
2. Proxy Statement dated March 14, 1995 in connection with the Cabot
1995 Annual Meeting of Stockholders;
3. Quarterly Report on Form 10-Q for the quarter ended January 28,
1995 as amended on Form 10-QA;
4. Current Report on Form 8-K filed April 28, 1995; and
5. Quarterly Report on Form 10-Q for the quarter ended April 29, 1995.
All reports and definitive proxy or information statements filed by Circon
or Cabot pursuant to Sections 13(a), 13(c) and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the termination of
the offering of the Circon Common Stock to which this Proxy Statement relates
shall be deemed to be incorporated by reference into this Proxy Statement from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
2
<PAGE> 7
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT CHARGE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY STATEMENT IS
DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL
DOCUMENTS INCORPORATED HEREIN BY REFERENCE (EXCLUDING EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE). WITH RESPECT TO
DOCUMENTS OF CABOT INCORPORATED HEREIN BY REFERENCE, REQUESTS SHOULD BE DIRECTED
TO CHIEF FINANCIAL OFFICER, CABOT MEDICAL CORPORATION, 2150 CABOT BOULEVARD
WEST, LANGHORNE, PENNSYLVANIA 19047 (TELEPHONE (215) 752-8300), AND WITH RESPECT
TO DOCUMENTS OF CIRCON INCORPORATED HEREIN BY REFERENCE, REQUESTS SHOULD BE
DIRECTED TO CHIEF FINANCIAL OFFICER, CIRCON CORPORATION, 6500 HOLLISTER AVENUE,
SANTA BARBARA, CALIFORNIA 93117 (TELEPHONE (805) 685-5100). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETINGS TO WHICH
THIS PROXY STATEMENT RELATES, ANY SUCH REQUEST SHOULD BE MADE BEFORE AUGUST 18,
1995.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders of Circon and, if the Merger is not concluded, stockholders of
Cabot, may be entitled to submit proposals which they believe should be voted
upon at the next annual meeting of stockholders of the respective companies.
Each proponent and each proposal submitted must conform to the applicable proxy
rules of the SEC concerning the submission, content and form of shareholder
proposals. Stockholder proposals must be received, in the case of Circon, by the
close of business on January 26, 1996, at the executive offices of Circon, 6500
Hollister Avenue, Santa Barbara, California 93117, Attention: Office of the
Secretary; and in the case of Cabot, by the close of business on October 28,
1995, at the executive offices of Cabot, 2150 Cabot Boulevard West, Langhorne,
Pennsylvania 19047, Attention: Office of the Secretary.
3
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUBMISSION OF STOCKHOLDER PROPOSALS................................................... 3
SUMMARY............................................................................... 5
RECENT FINANCIAL RESULTS.............................................................. 10
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................................... 10
RISK FACTORS.......................................................................... 12
CIRCON CORPORATION.................................................................... 13
CABOT MEDICAL CORPORATION............................................................. 14
CIRCON SPECIAL MEETING................................................................ 14
CABOT SPECIAL MEETING................................................................. 15
THE MERGER AND RELATED TRANSACTIONS................................................... 19
TERMS OF THE MERGER................................................................... 35
CIRCON AND CABOT STOCK PRICE INFORMATION.............................................. 43
DIVIDEND POLICY....................................................................... 44
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 44
BENEFICIAL OWNERSHIP OF CIRCON COMMON STOCK........................................... 51
BENEFICIAL OWNERSHIP OF CABOT COMMON STOCK............................................ 52
DESCRIPTION OF CIRCON CAPITAL STOCK................................................... 53
DESCRIPTION OF CABOT CAPITAL STOCK.................................................... 54
COMPARISON OF RIGHTS OF HOLDERS OF CIRCON COMMON STOCK AND HOLDERS OF CABOT COMMON
STOCK............................................................................... 55
EXPERTS............................................................................... 59
LEGAL MATTERS......................................................................... 59
CABOT SELECTED FINANCIAL DATA......................................................... 60
CABOT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 62
INDEX TO CABOT CONSOLIDATED FINANCIAL STATEMENTS...................................... F-1
ANNEX -- Amended and Restated Agreement and Plan of Reorganization among Circon
A..... Corporation, Circon Sub Corp. and Cabot Medical Corporation
ANNEX -- Sections 14A:11-1 through 14A:11-11 of the New Jersey Business
B..... Corporation Act
ANNEX -- Opinion of Smith Barney Inc.
C.....
ANNEX -- Opinion of Bear, Stearns & Co., Inc.
D.....
</TABLE>
4
<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement and in the documents
incorporated by reference herein.
THE COMPANIES
Circon designs, manufactures and markets endoscope, video and
electrosurgery systems for diagnosis and minimally invasive surgery. Circon's
products are used in a number of medical specialties, including urology,
gynecology, arthroscopy, laparoscopy, thoracoscopy and plastic surgery.
Circon is incorporated in Delaware, its principal executive offices are
located at 6500 Hollister Avenue, Santa Barbara, California 93117, and its
telephone number at that address is (805) 685-5100. As used in this Proxy
Statement, unless the context indicates otherwise, "Circon" refers to Circon
Corporation and its subsidiaries.
Circon Sub Corp. ("Sub") is incorporated in New Jersey and was formed for
the purpose of effecting the Merger. Sub has no material assets and has not
engaged in any activities except in connection with the Merger.
Cabot manufactures and markets medical devices and systems principally for
use in general surgical and gynecological diagnostic procedures and surgery as
well as ureteral stents and urological diagnostic equipment and related products
for use in urological procedures.
Cabot is incorporated in New Jersey, its principal executive offices are
located at 2150 Cabot Boulevard West, Langhorne, Pennsylvania 19047, and its
telephone number at that address is (215) 752-8300. As used in this Proxy
Statement, "Cabot" refers to Cabot Medical Corporation and its subsidiary.
SPECIAL MEETING OF STOCKHOLDERS OF CIRCON
Time, Date, Place and Purpose. The Circon Special Meeting will be held at
the Four Seasons Biltmore Hotel, 1260 Channel Drive, Santa Barbara, California
on August 25, 1995 at 10:00 a.m., local time for the sole purpose of voting upon
a proposal to approve and adopt the Merger Agreement.
Record Date and Vote Required. Circon stockholders of record at the close
of business on June 27, 1995 (the "Circon Record Date") are entitled to vote at
the Circon Special Meeting. Approval and adoption of the Merger Agreement
requires the affirmative vote of the holders of a majority of the votes cast on
the proposal in person or by proxy. The presence in person or by proxy of the
holders of a majority of the outstanding shares of Circon Common Stock is
necessary to constitute a quorum at the Circon Special Meeting. As of the Circon
Record Date, there were 7,975,968 shares of Circon Common Stock outstanding.
SPECIAL MEETING OF STOCKHOLDERS OF CABOT
Time, Date, Place and Purpose. The Cabot Special Meeting will be held at
the Sheraton Bucks County Hotel, 400 Oxford Valley Road, Langhorne, Pennsylvania
on August 25, 1995 at 1:00 p.m., local time for the sole purpose of voting upon
a proposal to approve and adopt the Merger Agreement.
Record Date and Vote Required. Cabot stockholders of record at the close
of business on June 27, 1995 (the "Cabot Record Date") are entitled to vote at
the Cabot Special Meeting. Approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the votes cast at the Cabot
Special Meeting by the holders of shares of Cabot Common Stock. The presence in
person or by proxy of the holders of a majority of the outstanding shares of
Cabot Common Stock is necessary to constitute a quorum at the Cabot Special
Meeting. As of the Cabot Record Date, there were 10,392,226 shares of Cabot
Common Stock outstanding.
5
<PAGE> 10
THE MERGER
Effective Time of the Merger. The Merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
New Jersey (the "Effective Time"). It is anticipated that the Effective Time
will be on or about August 28, 1995.
Terms of the Merger. Pursuant to the Merger Agreement, each share of Cabot
Common Stock (other than dissenters' shares) will be converted into 0.415 shares
of Circon Common Stock (the "Exchange Ratio"). No fractional shares will be
issued by Circon in the Merger. Each stockholder of Cabot otherwise entitled to
a fractional share (after aggregating all fractional shares of such stockholder)
will receive an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction multiplied by (ii) the average closing price of
Circon Common Stock during the period of ten consecutive trading days ending on
the trading day immediately prior to the Effective Time, as reported on the
Nasdaq Stock Market.
Each outstanding share of Sub held by Circon will be converted into one
share of Common Stock of Cabot. As a result, Cabot will become a wholly-owned
subsidiary of Circon.
Effect of Merger on Cabot Stock Options. Upon consummation of the Merger,
the obligations of Cabot with respect to outstanding options issued by Cabot to
purchase shares of Cabot Common Stock will be assumed by Circon (the "Assumed
Options"). Each Assumed Option will entitle the holder to purchase the number of
whole shares of Circon Common Stock purchasable under such option immediately
prior to the Effective Time, multiplied by the Exchange Ratio, rounded down to
the nearest whole number. The per share exercise price of each Assumed Option
will be equal to the exercise price per share of Cabot Common Stock divided by
the Exchange Ratio, rounded up to the nearest whole cent. Each Assumed Option
will continue to have and be subject to all other terms and conditions set forth
in the applicable Cabot stock option agreement immediately prior to the
Effective Time. See "Terms of the Merger -- Cabot Stock Options." Prior to the
Effective Time, Circon will file a registration statement under the Securities
Act covering the shares of Circon Common Stock issuable upon exercise of the
Assumed Options.
Effect of Merger on Cabot Convertible Notes. Following the Effective Time,
the holders of the outstanding 7.5% Convertible Subordinated Notes of Cabot due
March 1, 1999 (the "Cabot Convertible Notes") will be entitled to convert each
Cabot Convertible Note into the number of shares of Circon Common Stock
determined by multiplying the Exchange Ratio by the number of shares of Cabot
Common Stock into which the Cabot Convertible Note is convertible immediately
prior to the Effective Time. Each $1,000 principal amount Cabot Convertible Note
is convertible as of the date of this Proxy Statement into 84.89 shares of Cabot
Common Stock. The Cabot Convertible Notes will remain debt obligations of Cabot,
which will become a wholly-owned subsidiary of Circon. However, under the terms
of the Indenture governing the Cabot Convertible Notes, the holders of 75% or
more of the outstanding principal amount of the Cabot Convertible Notes may
elect, during a 60-day period commencing with notice by Cabot of the Effective
Date, to have their Cabot Convertible Notes repurchased, in which event Cabot
will be obligated to repurchase all Cabot Convertible Notes surrendered during a
certain subsequent period at the principal amount plus interest accrued thereon.
On the date of this Proxy Statement, there are $67 million of Cabot Convertible
Notes outstanding. As of March 31, 1995, Circon had cash, temporary cash
investments and marketable securities of approximately $21 million, a portion of
which would be used to retire any Cabot Convertible Notes entitled to
prepayment. In addition, Circon has arranged for a $75,000,000 credit facility,
of which up to $50,000,000 would be available to prepay Cabot Convertible Notes.
See "Terms of the Merger -- Cabot Convertible Notes; Possible Prepayment."
Stock Ownership Following the Merger. Based upon the number of shares of
Cabot Common Stock outstanding as of June 27, 1995 (assuming no exercise of
dissenters' rights and before the elimination of fractional shares), an
aggregate of 4,312,773 shares of Circon Common Stock will be issued to Cabot
stockholders in the Merger. Based upon the number of shares of Circon Common
Stock issued and outstanding as of June 27, 1995, and after giving effect to the
issuance of 4,312,773 shares of Circon Common Stock in connection with the
Merger, former holders of Cabot Common Stock would hold approximately 35.1% of
the total outstanding shares. Based on the Assumed Options outstanding as of
June 27, 1995, Circon will assume options to purchase 1,106,656 shares of Circon
Common Stock.
6
<PAGE> 11
Market Price Data. The Common Stock of Circon is quoted on the Nasdaq
Stock Market under the symbol "CCON." The Common Stock of Cabot is quoted on the
Nasdaq Stock Market under the symbol "CBOT." The following table sets forth the
closing prices of Circon Common Stock and Cabot Common Stock on April 24, 1995,
the last trading day before the public announcement of the execution of the
Merger Agreement, and on July 14, 1995, and the equivalent pro forma per share
value of Cabot Common Stock for each date (calculated by multiplying the
Exchange Ratio by the closing price of Circon Common Stock on such dates).
<TABLE>
<CAPTION>
CIRCON CABOT CABOT
COMMON STOCK COMMON STOCK PRO FORMA
PRICE PRICE EQUIVALENT
------------ ------------ ------------
<S> <C> <C> <C>
April 24, 1995............................ $21.88 $ 6.75 $ 9.08
July 14, 1995............................. $18.25 $ 7.13 $ 7.57
</TABLE>
Reasons for the Merger. The Merger offers many potential benefits that
Circon and Cabot believe will contribute to the success of the combined
companies. Each company manufactures and markets products for use in urology,
gynecology and laparoscopy, among other medical specialties. Circon's products
are particularly strong in urology and Cabot's products are particularly strong
in gynecology. Circon's products are primarily reusable devices and systems,
while Cabot has in recent years increasingly emphasized its disposable products.
The managements of Circon and Cabot believe that their businesses and products
are highly complementary and will enable the combined companies to provide a
much broader product offering, more effective sales penetration from the
combination of the companies' direct sales forces, and a pooling of
technological strengths. In addition, the combination of Circon and Cabot will
result in a much larger company, which may provide enhanced opportunities for
growth and an opportunity to reduce duplicative costs. The managements of Circon
and Cabot believe that this "critical mass" will be important as the U.S.
healthcare market continues to experience rapid and fundamental changes. The
Merger is also expected to enable Circon to utilize its balance sheet strength
to reduce the leverage in Cabot's balance sheet, resulting in a combined company
with a moderate debt to equity ratio and the financial ability to take advantage
of future expansion or acquisition opportunities.
Recommendation of Cabot Board of Directors. The Board of Directors of
Cabot has unanimously approved the Merger Agreement and believes that the Merger
is fair and in the best interests of Cabot and its stockholders. THE CABOT BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "The Merger and Related
Transactions" and "Terms of the Merger -- Interests of Certain Persons in the
Merger."
Recommendation of Circon Board of Directors. The Board of Directors of
Circon has unanimously approved the Merger Agreement and believes that the
Merger is fair and in the best interests of Circon and its stockholders. THE
CIRCON BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "The Merger and
Related Transactions."
Opinions of Financial Advisors. Smith Barney Inc. ("Smith Barney") has
acted as financial advisor to Cabot in connection with the Merger and has
delivered a written opinion, dated the date of this Proxy Statement, to the
Board of Directors of Cabot to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the Exchange Ratio
was fair, from a financial point of view, to the holders of Cabot Common Stock.
The full text of the written opinion of Smith Barney, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex C to this Proxy Statement. HOLDERS OF CABOT COMMON STOCK
ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. See "The Merger and Related
Transactions -- Opinions of Financial Advisors -- Cabot's Financial Advisor."
On April 24, 1995, Bear, Stearns & Co. Inc. ("Bear Stearns") delivered to
the Circon Board of Directors its oral opinion to the effect that, as of such
date, the Merger was fair, from a financial point of view, to the stockholders
of Circon. Bear Stearns has updated its opinion by delivery to the Circon Board
of Directors of a written opinion dated the date of this Proxy Statement. The
full text of the written opinion of Bear Stearns, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex D to this Proxy Statement. HOLDERS OF CIRCON COMMON STOCK
ARE URGED TO READ SUCH
7
<PAGE> 12
OPINION IN ITS ENTIRETY. See "The Merger and Related Transactions -- Opinions of
Financial Advisors -- Circon's Financial Advisor."
Exchange of Cabot Stock Certificates. As soon as possible after the
Effective Time, First Interstate Bank, as exchange agent (the "Exchange Agent"),
will mail to each Cabot stockholder of record a letter of transmittal with
instructions to be used by such stockholder in surrendering stock certificates
which, prior to the Merger, represented shares of Cabot Common Stock. STOCK
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF CABOT COMMON STOCK
UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
See "Terms of the Merger -- Manner and Basis of Converting Shares."
Voting Agreements. Warren G. Wood, Marvin B. Sharfstein and Harry Brener
have entered into Voting Agreements with Circon, pursuant to which each of them
has agreed to vote all shares of Cabot Common Stock owned by them (an aggregate
of approximately 29.4% of the outstanding shares of Cabot Common Stock as of
June 27, 1995) in favor of approval of the Merger Agreement at the Cabot Special
Meeting. Mr. Wood is the Chairman of the Board of Directors, President and Chief
Executive Officer of Cabot. Mr. Sharfstein is a Director and the Treasurer and
Vice President of Corporate Development of Cabot. Mr. Brener is the
Vice-Chairman of the Board of Directors and the Secretary of Cabot.
Interests of Certain Persons in the Merger. Certain directors and officers
of Cabot have interests in the Merger which could present potential conflicts of
interest. These interests include two-year employment and consulting agreements
with Messrs. Wood and Sharfstein commencing at the Effective Time; the
acceleration of vesting of stock options held by all officers and directors if
their services are terminated within six months following the Merger and the
extension of the time during which the options may be exercised after service
has been terminated (all in accordance with the pre-existing terms of the
options relating to a change in control of Cabot); and the indemnification of
Cabot's officers and directors from liabilities arising from acts or omissions
prior to the Effective Time. See "Terms of the Merger -- Interests of Certain
Persons in the Merger."
Income Tax Treatment. Consummation of the Merger is conditioned upon
receipt by Circon and Cabot of opinions by their respective tax counsel to the
effect that the Merger will constitute a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, in which case no gain or loss should
generally be recognized by Cabot stockholders on the exchange of their shares of
Cabot Common Stock for shares of Circon Common Stock. Cabot stockholders should
consult their own tax advisors. See "The Merger and Related
Transactions -- Certain Income Tax Considerations."
Accounting Treatment. The Merger will be treated as a pooling of interests
for financial reporting purposes. Consummation of the Merger is conditioned upon
receipt by Circon and Cabot of letters from independent accountants regarding
those firms' concurrence with Circon management's and Cabot management's
conclusions, respectively, as to the appropriateness of pooling of interests
accounting for the Merger. See "Terms of the Merger -- Accounting Treatment."
Affiliates Agreements. Certain persons who may be deemed to be
"affiliates" (as that term is defined for purposes of Rule 145 promulgated under
the Securities Act) of Cabot have entered into agreements restricting sales,
dispositions or other transactions reducing their risk of investment in respect
of the shares of Cabot Common Stock held by them prior to the Merger and the
shares of Circon Common Stock to be received by them in the Merger, so as to
comply with the requirements of Rule 145, federal income tax regulations
applicable to reorganizations and accounting rules pertaining to pooling of
interests. Certain persons who may be deemed to be affiliates of Circon have
entered into agreements with respect to the Circon Common Stock held by them for
purposes of satisfying the rules pertaining to pooling of interests. See "Terms
of the Merger -- Conditions to the Merger" and "-- Affiliates Agreements."
Dissenters' Rights. Stockholders of Cabot who give proper written notice
of objection to the Merger prior to the Cabot Special Meeting, who do not vote
in favor of the Merger and who comply with other requirements of the New Jersey
Business Corporation Act, will have a right to demand an appraisal of and cash
payment for the "fair value" of their shares. Such Cabot dissenters' rights will
not apply, however, if, at
8
<PAGE> 13
the Effective Time, Circon Common Stock is held by 1,000 or more holders of
record. Circon has the right to terminate the Merger Agreement if dissenting
Cabot shares equal or exceed 5% of the total Cabot shares outstanding on the
Cabot Record Date. Circon stockholders will not have appraisal rights in the
Merger. See "Cabot Special Meeting -- Dissenters' Appraisal Rights."
Reimbursement of Expenses; Break-Up Fee. If the Merger Agreement is
terminated for material breach or under certain other circumstances, Cabot or
Circon may be required to reimburse the other for out-of-pocket transaction
expenses up to $1,000,000. In addition, Cabot may be required to pay Circon a
"break-up fee" of $4,000,000 under certain circumstances if the Cabot Board of
Directors accepts or recommends to Cabot stockholders an acquisition proposed by
another company; or if (i) the Cabot Board of Directors otherwise changes its
recommendation that Cabot stockholders approve the Merger, (ii) the Cabot
stockholders fail to approve the Merger prior to August 31, 1995 or (iii)
dissenting Cabot shares equal or exceed 5% of the total Cabot shares
outstanding, and within three months of the occurrence in clause (i), (ii) or
(iii) Cabot or its stockholders take certain actions with regard to another
acquisition proposal. See "Terms of the Merger -- Break-Up Fee; Expenses."
Stockholder Litigation Involving the Merger. A stockholder of Cabot has
brought a lawsuit against Cabot and its directors seeking to prevent
consummation of the Merger. The complaint alleges that the shares of Circon
Common Stock to be issued to Cabot stockholders pursuant to the Merger represent
"inadequate and unfair compensation" to Cabot's stockholders, that the Cabot
management breached fiduciary duties to the stockholders and that they were
motivated by the prospect of maintaining their positions and associated
compensation benefits. Cabot believes the allegations to be without merit and
intends to defend the lawsuit vigorously. See "The Merger and Related
Transactions -- Stockholder Litigation Involving the Merger."
Conditions to the Merger; Termination; Amendment. Consummation of the
Merger is subject to the satisfaction of various conditions, including those
described above relating to the income tax and accounting treatment of the
Merger. The Merger Agreement may also be terminated under certain other
circumstances, including by mutual written consent of Circon and Cabot and by
either Circon or Cabot if the other party is in material breach of any
representation, warranty or covenant contained in the Merger Agreement or if the
Merger is not consummated on or before October 31, 1995. The Merger Agreement
may be amended by the Board of Directors of Circon and Cabot at any time before
or after the approval of the Merger Agreement by the Circon stockholders and
Cabot stockholders, provided that after any such stockholder approval has been
obtained, no amendment of any of the agreements executed in connection with the
Merger may be made which by law requires the further approval of the
stockholders, without obtaining such further approval. See "Terms of the
Merger -- Termination or Amendment of Merger Agreement."
Anti-takeover Provisions of Delaware Law and Circon's Certificate of
Incorporation. Upon consummation of the Merger, the stockholders of Cabot, a
corporation organized under the laws of New Jersey, will become stockholders of
Circon, a corporation organized under the laws of Delaware. Certain provisions
of Delaware Law and of Circon's Certificate of Incorporation may have the effect
of delaying, deterring, or preventing changes in control or management of
Circon. Section 203 of the Delaware General Corporation Law restricts the
corporation from entering into certain "business combinations" for a period of
three years with any person or entity that has acquired in excess of 15% of the
corporation's voting stock. Circon's Certificate of Incorporation provides for
(i) a Board of Directors only one-third of which is elected each year, (ii) sole
control by the Board of Directors over the holding of stockholder meetings,
(iii) action by stockholders only at stockholder meetings (rather than by
written consent), (iv) a super majority stockholder vote to adopt, amend or
repeal bylaws or certain provisions of the Certificate of Incorporation, and (v)
the right of the Board of Directors to issue series of Preferred Stock the terms
of which are set by the Board of Directors without stockholder approval. See
"Description of Circon Capital Stock -- Preferred Stock;" and "Comparison of
Rights of Holders of Circon Common Stock and Holders of Cabot Common Stock."
9
<PAGE> 14
RECENT FINANCIAL RESULTS
CIRCON
Circon's sales increased 18% to $26.0 million in the quarter ended June 30,
1995, compared with $21.9 million sales in the same quarter in 1994, reflecting
the positive reception accorded to Circon's new VaporTrodeTM electrode and
Rotating Resectoscope system, as well as improving trends in the healthcare
sector. Operating income increased 120% to $2.5 million, net income increased
106% to $1.8 million and earnings per share increased 100% to $.22 per share.
CABOT
Based on preliminary data, Cabot incurred a pre-tax loss of approximately
$1.5 million in the first two months of the third fiscal quarter ending July 29,
1995. Cabot attributes the loss to (i) lower average selling prices, resulting
in lower profit margins, although prices appeared to stabilize during the
quarter, (ii) distractions to the Cabot sales force due to the announcement of
the Merger, and (iii) reduced sales force productivity during the period of
continuing integration of the endoscopy and urology sales forces, which began in
January 1995, and the time required away from the field for training. Cabot
anticipates a small pre-tax profit in July and a loss for the quarter as a
whole. The expected pre-tax profit for July will depend significantly on sales
late in the month, when a substantial portion of total sales frequently occurs,
thereby making forecasts difficult. Cabot expects to announce the results of the
third quarter in August before the Special Meetings of Cabot and Circon
stockholders.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(INFORMATION IN TABLE AND NOTES IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected historical financial data of Circon
and Cabot and selected unaudited pro forma financial data after giving effect to
the Merger as a pooling of interests for accounting purposes, assuming the
Merger had occurred at the beginning of the earliest period presented, but
without giving effect to costs associated with the consummation of the Merger,
which currently are estimated to range between $6 million and $9 million. The
Circon and Cabot historical data for each of the years in the five year period
ended December 31, 1994, and October 29, 1994, respectively, are derived from
the respective historical financial statements of Circon and Cabot, as audited
by Arthur Andersen LLP and KPMG Peat Marwick LLP, independent public accountants
for Circon and Cabot, respectively. The selected financial data for Circon and
Cabot for the three month periods ended March 31, 1995 and 1994 (Circon) and
January 28, 1995 and January 29, 1994 (Cabot), have been obtained from unaudited
financial statements and, in the opinion of the management of the respective
companies, include all adjustments necessary to present fairly the data for such
periods. The pro forma data are not necessarily indicative of the results of
operations or the financial condition that would have been reported had the
Merger been in effect during those periods, or as of those dates, or that may be
reported in the future. Pro forma combined per share data of Circon and Cabot
give effect to the exchange of each share of Cabot Common Stock for 0.415 shares
of Circon Common Stock.
The selected financial data are based upon, and should be read in
conjunction with, the financial statements of Circon in its Annual Report on
Form 10-K which is incorporated herein by reference, the financial statements of
Cabot which are included elsewhere in this Proxy Statement, and the unaudited
pro forma combined condensed financial statements of Circon and Cabot which are
included elsewhere in this Proxy Statement.
10
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 (CIRCON) AND
JANUARY 28/29 YEARS ENDED DECEMBER 31 (CIRCON)
(CABOT)(1) AND OCTOBER 29/31 (CABOT)(1)
--------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CIRCON -- HISTORICAL(4)(10)
Revenues.............................. $ 22,474 $ 20,833 $ 88,944 $ 87,301 $ 83,483 $68,926 $54,706
Income before cumulative effect of
accounting change in 1993 and
extraordinary item in 1992(8)....... 1,114 789 3,811 2,054 6,345 3,515 1,791
Per common share(8)............... 0.13 0.10 0.47 0.25 0.77 0.53 0.32
Total assets.......................... 97,395 89,388 94,976 87,545 83,458 75,019 41,930
Long-term debt........................ -- -- -- -- -- -- 16,029
Book value per common share........... 10.08 9.88
CABOT -- HISTORICAL(5)(6)(7)(10)
Revenues.............................. 15,733 16,716 68,097 69,560 54,998 40,661 27,641
Net income (loss)..................... 219 1,047 3,093 (9,590) (2,193) 2,725 1,598
Per common share.................. .02 .10 .29 (.93) (.21) .25 .16
Total assets.......................... 89,955 90,191 89,778 89,988 100,190 34,150 17,788
Long-term debt........................ 72,234 72,966 72,782 73,488 73,686 12,901 913
Book value per common share........... .90 .89
PRO FORMA -- COMBINED
(CIRCON AND CABOT)(2)
Revenues.............................. 38,207 37,549 157,041 156,861 138,481
Income (loss) before cumulative effect
of accounting change in 1993 and
extraordinary item in 1992(9)....... 1,086 1,759 6,509 (8,116) 4,022
Per common share(9)............... .09 .14 .51 (.68) .32
Total assets.......................... 184,777 177,570 182,428 175,602 182,296
Long-term debt........................ 72,234 72,966 72,782 73,488 73,686
Book value per common share........... 7.09 7.00
CABOT EQUIVALENTS(3)
Income (loss) before cumulative effect
of accounting change in 1993 and
extraordinary item in 1992, per
common share........................ .04 .06 .21 (.29) .13
Book value per common share........... 2.94 2.90
</TABLE>
- ---------------
(1) In 1994, Cabot changed its financial reporting to four thirteen week
periods. Accordingly, the 1994 year ended October 29, 1994, and the first
quarters 1995 and 1994 ended on January 28, 1995, and January 29, 1994,
respectively.
(2) The combined entity data includes pro forma adjustments to reflect Circon's
change in accounting for demonstration equipment to conform with Cabot's
accounting method. See the Unaudited Pro Forma Combined Condensed Financial
Statements and the notes thereto included elsewhere in this Joint Proxy
Statement and Prospectus.
(3) Cabot equivalents represent Cabot shareholders' share of the combined
entity's pro forma earnings (loss) and book value per common share
calculated as if each share of Cabot Common Stock were equivalent to 0.415
shares of Circon Common Stock.
(4) Restructuring charges of $2,356 and $244 for product restructuring
inventory adjustments and nonrecurring operating expense adjustments,
respectively, were recorded by Circon in 1993. See Note 4 to pro forma
statements.
(5) Balance sheet data at October 31, 1992, reflects the issuance of
convertible subordinated notes on March 20, 1992, and the acquisition of
assets and related liabilities of Medical Engineering Corporation ("MEC").
See Unaudited Pro Forma Combined Condensed Financial Statements and the
notes thereto included elsewhere in this Joint Proxy Statement and
Prospectus.
(6) Includes Cabot special charges of $4,165 and $683 in 1993. See Note 4 to
pro forma statements.
(7) Restructuring charges of $3,940 and $2,941 were recorded by Cabot in the
fiscal years ended October 31, 1993 and 1992, respectively. In 1993,
charges were for costs associated with Cabot's response to anticipated
changes in the healthcare industry. The 1992 charges are for the costs
associated with the consolidation and integration of MEC acquired
operations. See Notes 4 and 7 to pro forma statements.
(8) Circon's net income was $2,258 and $6,579 in 1993 and 1992, respectively.
Circon's income per common share was $0.28 and $0.80 in 1993 and 1992,
respectively. See Notes 5 and 6 to pro forma statements.
(9) Pro forma combined net income (loss) was ($7,912) and $4,256 in 1993 and
1992, respectively. Pro forma combined income (loss) per common share was
($0.66) and $0.34 in 1993 and 1992, respectively. See Notes 5 and 6 to pro
forma statements.
(10) No cash dividends were paid or declared by Circon or Cabot during the
periods presented.
11
<PAGE> 16
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
PROPOSALS TO BE VOTED ON AT THE CIRCON SPECIAL MEETING AND CABOT SPECIAL MEETING
AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY. FOR PERIODS FOLLOWING THE
MERGER, REFERENCES TO THE PRODUCTS, BUSINESS, FINANCIAL RESULTS OR FINANCIAL
CONDITION OF CIRCON SHOULD BE CONSIDERED TO REFER TO CIRCON AND ITS
SUBSIDIARIES, INCLUDING CABOT, UNLESS THE CONTEXT OTHERWISE REQUIRES.
NO ASSURANCE OF SYNERGIES OR COST SAVINGS FROM INTEGRATION OF
OPERATIONS. Circon and Cabot have entered into the Merger Agreement with the
expectation that the Merger will result in beneficial synergies for the combined
companies. See "The Merger and Related Transactions." Achieving the anticipated
benefits of the Merger will depend in part upon integration of the two
companies' businesses in an efficient and effective manner. There can be no
assurance that this will occur or that significant cost savings in operations
will be achieved. The successful combination of the two companies will require,
among other things, integration of the companies' respective product offerings
and coordination of their sales and marketing and research and development
efforts. The process of integration could involve organizational changes or
shifts in employee responsibilities, as well as other factors, that could result
in the loss of the services of qualified employees, some of whom might be
difficult to replace. Training each company's sales force in the products of the
other company will require time out of the field and is expected temporarily to
adversely affect sales and increase selling expenses. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations. The integration of operations following the Merger will
require the dedication of management resources which may temporarily distract
attention from the day-to-day business of the combined companies. There can be
no assurance that integration will be accomplished smoothly or successfully.
Failure to effectively accomplish the integration of the two companies'
operations could have an adverse effect on Circon's results of operations and
financial condition.
VOLATILITY OF STOCK PRICE. The market price of Circon's Common Stock is
highly volatile and has ranged from a high of $23.25 to a low of $11.75 in 1995.
The future market price of Circon's Common Stock could be subject to wide
fluctuations in response to such factors as substantial variations in quarterly
financial results, announcements of technological innovations or new products by
Circon or its competitors, changes in prices of Circon's or its competitors'
products and services, changes in product mix, changes in Circon's revenue and
revenue growth rates for Circon as a whole or for individual geographic areas,
business units, products or product categories, as well as other events or
factors. Statements or changes in opinions, ratings, revenue or earnings
estimates made by brokerage firms or industry analysts relating to the markets
in which Circon does business or relating to Circon specifically have resulted,
and could in the future result, in an immediate and adverse effect on the market
price of Circon's Common Stock. Also, failure to achieve revenue, earnings and
other operating and financial results as forecasted or anticipated could result
in an immediate and adverse effect on the market price of Circon Common Stock.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations which have particularly affected the market price for
the securities of many medical products companies and which often have been
unrelated to the operating performance of these companies. These market
fluctuations may adversely affect the market price of Circon Common Stock.
INCREASING COMPETITION AND RISK OF OBSOLESCENCE FROM TECHNOLOGICAL
ADVANCES. The markets in which Circon's products and Cabot's products compete
are characterized by continuing technical innovation and increasing competition.
Some surgical procedures which utilize the combined companies' products could
potentially be replaced or reduced in importance by alternative medical
procedures or new drugs. To the extent that any of the alternative procedures or
drugs significantly reduces the need for Circon or Cabot products, a substantial
portion of the combined companies' current business could be adversely affected.
GOVERNMENT REGULATION. The manufacture and marketing of medical products
are subject to extensive and rigorous federal and state regulation in the United
States and to various regulatory requirements in other countries. The process of
obtaining and maintaining required regulatory approvals is lengthy, expensive
and uncertain. Although Circon has not experienced any substantial regulatory
delays to date, there is no assurance that delays will not occur in the future,
which could have a significant adverse effect on Circon's
12
<PAGE> 17
ability to introduce new products on a timely basis. Regulatory agencies
periodically inspect Circon's manufacturing facilities to ascertain compliance
with "good manufacturing practices" and can subject approved products to
additional testing and surveillance programs. Failure to comply with applicable
regulatory requirements can, among other things, result in fines, suspensions of
regulatory approvals, product recalls, operating restrictions and criminal
penalties. If Circon experiences a delay in obtaining governmental approval or
fails to comply with regulatory requirements, it could have an adverse effect on
Circon's results of operations and financial condition.
UNCERTAINTIES WITHIN THE HEALTHCARE MARKETS. Political, economic and
regulatory influences are subjecting the healthcare industry in the United
States to rapid, continuing and fundamental change. Although Congress has failed
to pass comprehensive health care reform legislation to date, Circon anticipates
that Congress, state legislatures and the private sector will continue to review
and assess alternative health care delivery and payment systems. Potential
approaches that have been considered include mandated basic health care
benefits, controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending, the
creation of large insurance purchasing groups, price controls and other
fundamental changes to the health care delivery system. Legislative debate is
expected to continue in the future. In addition, responding to increasing costs
and to pressure from the government and from insurance companies to reduce
patient charges, healthcare providers (including customers of Circon and Cabot)
have demanded, and in many cases received, reduced prices on medical devices.
These customers are expected to continue to demand lower prices in the future.
Circon cannot predict what impact the adoption of any federal or state health
care reform measures, private sector reform or market forces may have on its
business. However pricing pressure is expected to continue to adversely affect
profit margins.
PRODUCT LIABILITY RISK. The combined companies' products involve a risk of
product liability. Although Circon and Cabot maintain product liability
insurance at coverage levels which they believe are adequate, there is no
assurance that, if the combined company were to incur substantial liability for
product liability claims, insurance would provide adequate coverage against such
liability.
EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND CIRCON'S CHARTER
DOCUMENTS. Upon consummation of the Merger, the stockholders of Cabot will
become stockholders of Circon, a corporation governed by the laws of Delaware.
Circon is subject to the provisions of Section 203 of the Delaware General
Corporation Law, which has the effect of restricting changes in control of a
company. Moreover, the following provisions of Circon's certificate of
incorporation and bylaws could, in some circumstances, impede a change of
control of Circon: (i) the classification of the Board of Directors into three
groups serving staggered three-year terms, so that a majority of the directors
is not elected at any annual meeting; (ii) a provision that only the Board of
Directors can call a special meeting of stockholders; (iii) a requirement that
stockholders provide advance notice to Circon of any stockholder proposal to be
brought before a stockholder meeting or any intention to cumulate votes in the
election of directors; (iv) a requirement that stockholder action to amend the
provision in clause (ii) or (iii) or to amend any bylaw be adopted by holders of
two-thirds of the outstanding voting shares. In addition, Circon's Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of such shares without any further vote or action by the
stockholders. These and other provisions of Delaware Law applicable to Circon
and Circon's charter documents may have the effect of delaying, deterring, or
preventing changes in control or management of Circon. See "Description of
Circon Capital Stock -- Preferred Stock" and "Comparison of Rights of Holders of
Circon Common Stock and Holders of Cabot Common Stock."
CIRCON CORPORATION
Circon designs, manufactures and markets medical endoscope, video and
electrosurgery systems for diagnosis and minimally invasive surgery. Circon's
products are used in a number of medical specialties, including urology,
gynecology, laparoscopy, arthroscopy, thoracoscopy and plastic surgery.
Circon manufactures a broad line of rigid and flexible endoscope systems
and accessories. Circon believes that its products, marketed under the CIRCON
ACMITM name, have the largest share of the urology
13
<PAGE> 18
endoscope market in the United States. The Company's urology products are used
for diagnosis and surgical procedures involving the urethra, prostate, bladder,
ureter and kidney.
Circon also designs, assembles and markets miniature color video systems
that allow diagnosis and surgery to be performed using a magnified image of the
subject on a video monitor, rather than directly through the endoscope. Circon
also manufactures and sells a line of bi-polar electrosurgical generators and
probes for various surgical procedures.
Circon's principal executive offices are located at 6500 Hollister Avenue,
Santa Barbara, California 93117 (telephone 805-685-5100).
CABOT MEDICAL CORPORATION
Cabot designs, manufactures and markets medical devices and systems
principally for use in general surgical and gynecological diagnosis and surgery
("Endoscopy/Primary Care Products") and designs, manufactures and markets
ureteral stents and urological diagnostic equipment and related products and
markets flexible urological fiberoptic scopes for use in urological procedures
("Urological Products").
Substantially all of the Endoscopy/Primary Care Products are designed to
permit the physician or surgeon to perform various diagnostic and surgical
procedures in a minimally invasive manner. Cabot's Endoscopy/Primary Care
Products generally consist of a basic system together with a number of
disposable products used in conjunction with the system. These products are used
in tubal ligations, general and gynecological laparoscopic surgery, cryosurgery,
electrosurgery, colposcopy, curettage and hemorrhoidal treatment, among other
procedures.
Cabot's Urological Products are principally marketed and sold under the
name "Surgitek" and include a full line of urological diagnostic equipment,
flexible urological fiberoptic scopes and ureteral stents in a variety of
materials.
Cabot's products are in the same industry segment.
Cabot's principal executive offices are located at 2150 Cabot Boulevard
West, Langhorne, Pennsylvania 19047 (telephone 215-752-8300).
CIRCON SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF CIRCON SPECIAL MEETING
The Circon Special Meeting will be held at the Four Seasons Biltmore Hotel,
1260 Channel Drive, Santa Barbara, California on August 25, 1995 at 10:00 a.m.,
local time, for the sole purpose of voting upon a proposal to approve and adopt
the Merger Agreement.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Circon Common Stock at the close of business on
June 27, 1995 (the "Circon Record Date") are entitled to vote at the Circon
Special Meeting. As of the Circon Record Date, there were 7,975,968 shares of
Circon Common Stock outstanding, held by approximately 721 holders of record.
VOTE REQUIRED
Approval of the Merger Agreement by Circon's stockholders is not required
under Delaware law, but is required by the Bylaws of the National Association of
Securities Dealers, Inc. ("NASD Bylaws"). The NASD Bylaws require that the
transaction be approved by a majority of the total votes cast on the proposal at
the Circon Special Meeting. Abstentions will not be counted as "votes cast."
Each holder of Circon Common Stock on the Circon Record Date is entitled to cast
one vote per share, exercisable in person or by properly executed proxy. The
presence, in person or by properly executed proxy, of the holders of a majority
of the
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outstanding shares of Circon Common Stock entitled to vote at the Circon Special
Meeting is necessary to constitute a quorum at the Circon Special Meeting.
See "Beneficial Ownership of Circon Common Stock" for information
concerning the beneficial ownership of Circon Common Stock by the management of
Circon and by persons owning more than 5% of Circon's outstanding Common Stock.
PROXIES
This Proxy Statement is being furnished to holders of Circon Common Stock
in connection with solicitation of proxies by and on behalf of the Board of
Directors of Circon for use at the Circon Special Meeting.
All shares of Circon Common Stock that are entitled to vote, and are
represented at the Circon Special Meeting by properly executed proxies received
prior to or at the Circon Special Meeting and not duly revoked will be voted at
the Circon Special Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the Merger Agreement.
If any other matters are properly presented for consideration at the Circon
Special Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Circon
Special Meeting to another time and/or place (including, without limitation, for
the purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Circon at or before the taking of the vote at the Circon
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Circon, before the taking of the vote at the
Circon Special Meeting or (iii) attending the Circon Special Meeting and voting
in person (although attendance at the Circon Special Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Circon at 6500
Hollister Avenue, Santa Barbara, California 93117, Attention: Secretary or
hand-delivered to the Secretary of Circon, in each case before the taking of the
vote at the Circon Special Meeting.
The cost of the solicitation of Circon stockholders will be borne by
Circon. Circon may retain the services of a proxy solicitation firm to assist in
the solicitation of proxies for a fee not to exceed $5,000, plus reimbursement
of reasonable expenses. In addition, Circon may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies also may be
solicited by certain Circon directors, officers and employees personally or by
telephone, telegram or other means of communication. Such persons will not
receive additional compensation, but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation.
RECOMMENDATION OF CIRCON BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CIRCON HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST INTEREST OF
CIRCON AND ITS STOCKHOLDERS. THE CIRCON BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT.
CABOT SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF CABOT SPECIAL MEETING
The Cabot Special Meeting will be held at the Sheraton Bucks County Hotel,
400 Oxford Valley Road, Langhorne, Pennsylvania on August 25, 1995, at 1:00 p.m.
local time, for the sole purpose of voting upon a proposal to approve and adopt
the Merger Agreement.
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RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Cabot Common Stock at the close of business on
June 27, 1995 (the "Cabot Record Date") are entitled to vote at the Cabot
Special Meeting. As of the Cabot Record Date, there were 10,392,226 shares of
Cabot Common Stock outstanding held by approximately 958 holders of record.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Cabot Special
Meeting by the holders of shares of Cabot Common Stock outstanding on the Cabot
Record Date is required to approve and adopt the Merger Agreement. Under New
Jersey law, abstentions are not "votes" for determining "a majority of the votes
cast." Holders of record of shares of Cabot Common Stock are entitled to one
vote per share. A majority of the outstanding shares of Cabot Common Stock
present or represented at the meeting will constitute a quorum.
As of June 27, 1995, Cabot's directors, executive officers and their
affiliates owned and were entitled to vote 3,107,521 shares at the Cabot Special
Meeting, representing approximately 29.9% of the total number of outstanding
shares of Cabot Common Stock. See "The Merger and Related Transactions -- Voting
Agreements" and "Beneficial Ownership of Cabot Common Stock."
PROXIES
This Proxy Statement is being furnished to holders of Cabot Common Stock in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of Cabot for use at the Cabot Special Meeting.
All shares of Cabot Common Stock that are entitled to vote and are
represented at the Cabot Special Meeting by properly executed proxies received
prior to or at the Cabot Special Meeting and not duly revoked will be voted at
the Cabot Special Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted for the
approval of the Merger Agreement.
If any other matters are properly presented for consideration at the Cabot
Special Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Cabot Special
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies) the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Cabot at or before the taking of the vote at the Cabot
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Cabot before the taking of the vote at the
Cabot Special Meeting, or (iii) attending the Cabot Special Meeting and voting
in person (although attendance at the Cabot Special Meeting will not in and of
itself constitute a revocation of the proxy). Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to Cabot at 2150 Cabot
Boulevard West, Langhorne, Pennsylvania 19047, Attention: Secretary or hand
delivered to the Secretary of Cabot, in each case before the taking of the vote
at the Cabot Special Meeting.
The cost of the solicitation of Cabot stockholders will be borne by Cabot.
Cabot may retain the services of a proxy solicitation firm to assist in the
solicitation of proxies for a fee not to exceed $10,000, plus reimbursement of
reasonable expenses. In addition, Cabot may reimburse brokerage firms and other
persons representing beneficial owners of shares of Cabot Common Stock for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
also may be solicited by certain Cabot directors, officers and employees
personally or by telephone, telegram or other means of communication. Such
persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
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RECOMMENDATION OF CABOT BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CABOT HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
CABOT AND ITS STOCKHOLDERS. THE CABOT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT. SEE
"TERMS OF THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
DISSENTERS' APPRAISAL RIGHTS
The New Jersey Business Corporation Act provides to Cabot stockholders
certain dissenters' appraisal rights described below. However, these rights will
not be available if Circon has at least 1,000 stockholders of record upon
consummation of the Merger. It is not clear whether the Cabot stockholders who
become Circon stockholders as a result of the conversion of their Cabot stock
into Circon stock pursuant to the Merger will be deemed under New Jersey law to
be Circon stockholders of record upon consummation of the Merger. If the Cabot
stockholders are counted for purposes of determining whether Circon will have at
least 1,000 stockholders of record upon consummation of the Merger, the
dissenters' appraisal rights described below will not be available to Cabot
stockholders.
Circon has the right to terminate the Merger Agreement if dissenting Cabot
shares represent 5% or more of the total number of Cabot shares outstanding on
the Cabot Record Date.
The following summary is qualified in its entirety by reference to excerpts
of Chapter 11 of the New Jersey Business Corporation Act set forth in Annex B to
this Proxy Statement.
Each holder of Cabot Common Stock will have the right, upon compliance with
the relevant provisions of the New Jersey Business Corporation Act, to demand
that Cabot purchase all (or in certain cases, some) of such holder's shares for
a cash price equal to the fair value of such shares as of the day prior to the
date on which the vote approving the Merger is taken, without regard to any
appreciation or depreciation as a consequence of the Merger (the "Fair Value").
To be entitled to be paid the Fair Value for his or her shares, a holder of
Cabot Common Stock (a) prior to the Cabot Special Meeting, must file a written
notice of dissent ("Written Objection") stating that such shareholder intends to
demand payment for all shares owned if the Merger is consummated, (b) must not
vote in favor of approval of the Merger, (c) within 20 days after the mailing by
Cabot of a notice of the Effective Time, must make written demand on Cabot for
payment of the Fair Value of such shareholder's shares ("Written Demand"), (d)
within 20 days after the Written Demand, must submit the certificates
representing such shares to Cabot for notation thereon that such Written Demand
has been made and (e) must otherwise comply with the provisions of Section
14A:11-2 of the New Jersey Business Corporation Act. Under New Jersey law, the
marking of the proxy to indicate a vote against approval of the Merger does not
constitute a Written Objection, and failure to vote against the proposed Merger
does not constitute a waiver of a Written Objection previously filed by a
dissenting shareholder. The Written Demand must state the number of shares of
Cabot Common Stock owned by the dissenting shareholder with respect to which
such shareholder dissents. A dissenting shareholder may dissent as to all or
less than all of those shares owned of record by such shareholder; such
shareholder must dissent, if at all, with respect to all of the shares owned
beneficially regardless of whether such shareholder is also the record owner of
such shares.
If the Merger becomes effective, a Cabot shareholder who has not both filed
the Written Objection and made the Written Demand within the periods described
above shall be conclusively presumed to have consented to the Merger and shall
be bound by its terms. Failure of a dissenting shareholder to submit such
shareholder's certificate or certificates for notation thereon that the Written
Demand has been made, as described above, shall, at Cabot's option, terminate
such shareholder's rights of dissent unless a court of competent jurisdiction
for good and sufficient cause shown otherwise directs. The Written Objection,
the Written Demand, and the presentation of certificates for notation, should be
addressed to Cabot Medical Corporation, 2150 Cabot Boulevard West, Langhorne,
Pennsylvania 19047, Attention: Chief Financial Officer. Upon making a Written
Demand, the dissenting shareholder shall not be entitled to vote or to exercise
any other rights of a shareholder as to the shares with respect to which such
shareholder dissents.
If the Merger becomes effective, within 10 days after the expiration of the
20-day period within which Cabot shareholders may make a Written Demand (the
"10-Day Period"), Cabot shall mail to each dissenting
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shareholder the audited or unaudited balance sheet and the surplus statement of
Cabot, as of the latest available date (in any event not earlier than twelve
months prior to the date of such mailing) and a profit and loss statement or
statements for not less than a twelve month period ended on the date of such
balance sheet. Cabot may accompany such mailing with a written offer to pay such
dissenting shareholder for such shareholder's shares at a specified price deemed
by Cabot to be the Fair Value therefor. Such offer shall be made at the same
price per share to all dissenting shareholders. If, within 30 days after the
expiration of the 10-Day Period, the Fair Value of the shares is agreed upon by
any dissenting shareholder and Cabot, payment therefor shall be made upon
surrender of the certificate or certificates representing such shares.
If a dissenting shareholder and Cabot are unable so to agree on the Fair
Value within such 30-day period (the "First 30-Day Period"), such dissenting
shareholder may serve upon Cabot a written demand that it commence an action in
the Superior Court of New Jersey for the determination of the Fair Value of the
Cabot Common Stock held by such dissenting shareholder. Such demand must be
served not later than 30 days after the expiration of the First 30-Day Period
and such action shall be commenced by Cabot not later than 30 days after receipt
by Cabot of such demand (the "Second 30-Day Period"), but Cabot may commence
such action at any earlier time. If Cabot fails to so commence the action, a
dissenting shareholder may do so in Cabot's name not later than 60 days after
the expiration of the Second 30-Day Period. The costs and expenses of such an
action shall be determined by the court and shall be apportioned and assessed
upon the parties as the Court may find equitable. Such expenses shall include
reasonable compensation for and reasonable expenses of the appraiser, if any,
but shall exclude fees and expenses of counsel for and experts employed by any
party, but if the Court finds that the offer of payment made by Cabot was not in
good faith, or if no such offer was made, the Court in its discretion may award
to any dissenting shareholder who is a party to the action reasonable fees and
expenses of counsel for and any experts employed by such dissenting shareholder.
The right of a dissenting shareholder to be paid the Fair Value of such
shareholder's shares shall cease if (a) such shareholder has failed to present
such shareholder's certificates for notation, unless a court having jurisdiction
for good and sufficient cause shown shall otherwise direct, (b) such
shareholder's demand for payment is withdrawn with the written consent of Cabot,
(c) the Fair Value of the shares is not agreed upon and no action for the
determination of Fair Value by the Superior Court is commenced within the time
provided, (d) the Superior Court determines that the shareholder is not entitled
to payment for such shares, (e) the Merger is abandoned, or (f) a court having
jurisdiction permanently enjoins or set aside the Merger.
Dissenters' rights under New Jersey law can only be exercised by holders of
record, not by beneficial owners who are not also the holders of record.
The Delaware General Corporation Law does not provide dissenters' appraisal
rights to Circon stockholders.
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THE MERGER AND RELATED TRANSACTIONS
The following discussion summarizes the proposed Merger and related
transactions. It is not, however, a complete statement of all provisions of the
Merger Agreement and related agreements. Detailed terms of and conditions to the
Merger and certain related transactions are contained in the Merger Agreement, a
copy of which is attached to this Proxy Statement as Annex A. Statements made in
this Proxy Statement with respect to the terms of the Merger and such related
transactions are qualified by reference to the more detailed information set
forth in the Merger Agreement.
JOINT REASONS FOR THE MERGER
Circon and Cabot have identified a number of potential joint benefits that
they believe will contribute to the success of the combined companies, including
the following:
- PRODUCTS AND MARKETS
Both Circon and Cabot manufacture and market products used in minimally
invasive surgery and diagnosis. Most of Circon's products are used in urology.
Circon products also have a growing presence in gynecology, laparoscopy and
other medical specialties. Circon's products are primarily reusable devices and
systems, rather than disposables. Cabot's products, which are used in
gynecology, urology and laparoscopy, include disposables as well as devices and
systems. Cabot has in recent years increasingly emphasized its disposable
products. The management of Circon and Cabot believe that their product lines
are highly complementary and will enable the combined companies to provide a
much broader product offering that should enhance their competitive position in
each of the markets they now serve.
- SALES FORCE
Circon and Cabot each has a U.S. direct sales force of approximately 80
persons. The two sales forces are trained in sales of products for both the
urology and gynecology markets. Although the two sales forces currently compete
for some of the same customer accounts, they have tended to concentrate on
different customers because of the different product strengths of the two
companies. 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.
- CRITICAL MASS
The U.S. healthcare market is undergoing rapid and fundamental changes, a
trend that Circon and Cabot expect to continue. Consolidation among hospitals,
clinics and medical practice groups, and the emergence of cooperative purchasing
arrangements among customers of medical product companies, have intensified
pressures on these companies not only to reduce costs and otherwise operate at
maximum efficiency, but also to increase their own size, realize economies of
scale, and diversify to reduce their dependency on any narrow group of products.
Circon and Cabot believe that the Merger can provide these benefits for the
combined companies and strengthen their positions in their target markets.
Developing such "critical mass" should enable the combined companies to compete
more effectively and enhance their operating performance in the changing
environment of U.S. healthcare.
- TECHNOLOGY
Circon utilizes proprietary optics and electronics technologies in the
design and production of rigid endoscopes, small-diameter flexible endoscopes,
miniature video cameras and electrosurgical devices. Cabot has developed
valuable know-how in plastics technology and manufacturing skills used to
produce its disposable products. The two companies believe that combining their
technological know-how can potentially enable them to pursue a wider range of
product development opportunities in their target markets.
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- 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.
- FINANCIAL CONDITION
Circon at March 31, 1995 had cash and marketable securities of $21 million,
no debt and stockholders' equity of $80 million. Cabot, at April 29, 1995 had
cash and marketable securities of $2 million, debt of $73 million, stockholders'
equity of $9 million and a debt to equity ratio of 7.9 to 1. The Merger will
enable Circon to utilize its balance sheet strength to reduce the leverage in
Cabot's balance sheet, resulting in a combined company with a moderate debt to
equity ratio and the financial ability to take advantage of future expansion or
acquisition opportunities. The managements of Circon and Cabot believe that the
investment community could be more receptive to the combined companies as a
result of potential improvements in future financial performance from the
synergies and costs savings described above, and from the increased size of the
combined companies (pro forma 1994 sales of $157 million and assets of $185
million).
CIRCON'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the
management of Circon believes that for the following additional reasons the
Merger will be beneficial to Circon:
- PRODUCTS AND MARKETS
Circon has sought to expand its presence in the gynecology and laparoscopy
markets and to broaden its product line to include more disposable products.
Circon believes that the Merger will provide greater opportunities for current
and future Circon products to be sold in the gynecology and laparoscopy markets
by providing access to Cabot's customer accounts and access to new customers as
a result of the broadened product line. The addition of Cabot's disposable
products to Circon's line of medical devices and systems will provide a better
balanced product offering and reduce dependence on the higher-cost devices and
systems. Moreover, disposable products typically carry a higher gross profit
margin than devices.
- SALES FORCE
By gaining access to Cabot's customers through the Cabot U.S. direct sales
force, Circon expects to achieve greater market penetration for its existing
products. By effectively doubling the size of Circon's U.S. direct sales force,
the Merger may also provide the benefit of more intensive coverage of existing
sales territories.
- UTILIZATION OF AVAILABLE CASH
In 1991, through two public equity financings Circon retired debt that it
had incurred in a prior acquisition and also raised surplus cash with the
expectation that a significant portion would be used in future acquisitions.
However, during the subsequent three years, Circon was unable to locate
acquisition opportunities with strategic advantages and reasonable terms
comparable to those negotiated with Cabot for the Merger. Circon's cash and
marketable securities can be employed in the Merger either to partially fund the
repayment of the Cabot Convertible Notes (see "Terms of the Merger -- Cabot
Convertible Notes; Possible Prepayment") or to strengthen the post-Merger
balance sheet.
CABOT'S REASONS FOR THE MERGER
At its meeting on April 24, 1995, the Board of Directors of Cabot
determined that the Merger and the Merger Agreement are fair to, and in the best
interests of, Cabot, its employees, and its shareholders. In
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reaching this determination, the Cabot Board consulted with the management of
Cabot, as well as its financial and legal advisors, and considered a number of
factors, including the following:
- The radical and rapid changes that have occurred in the health care
marketplace in the United States over the last two years as well as those
likely to occur in the future and the impact and potential future impact
of those changes on the Company given its revenue base and market
position;
- The terms of the Merger Agreement and the other documents to be executed
in connection with the Merger;
- The financial presentation of Smith Barney (see "The Merger and Related
Transactions -- Financial Advisors -- Cabot's Financial Advisor");
- Review by the Cabot Board, based in part on a presentation by Cabot's
management and legal counsel, regarding (i) the due diligence review of
Circon, including the business, operations, earnings, asset quality,
financial condition and management philosophy of Circon on an historical,
prospective and pro forma bases; (ii) product compatibility,
compatibility of corporate goals and objectives and the respective
contributions which each company would bring to a combined entity; (iii)
the enhanced possibility for significant growth in Cabot's major markets
made possible by the Merger as a result of the strategic mass of the
combined companies; (iv) the opportunities for limited cost savings and
synergies, such as the ability to rationalize production facilities,
consolidate purchasing and pool resources to develop new products faster,
that are expected to result from the Merger;
- Cabot's long-term strategy of promoting disposable products compared with
Circon's strategy of promoting reusable devices and systems and the
complementary relationships between the two;
- The opportunity that the Merger provides to strengthen the management
team of the combined companies by integrating the management teams of
Circon and Cabot;
- The ability of the combined company, by virtue of its size, to compete
more effectively and efficiently in the highly competitive, price-driven
medical device industry, particularly with respect to large national
accounts; and
- The ability of the companies to combine their respective highly-trained
sales forces to drive growth at a much faster pace than would otherwise
be available to either company alone.
The Cabot Board determined that the Merger would better serve Cabot's basic
business strategy (given the realities of the current and foreseeable health
care provider environment) than growth through internal means and/or acquisition
or strategic alliances. In particular, the Board considered that a much broader
national, as well as an international presence would be created without the
burden of acquisition debt or the investment and time that would be required for
internal growth.
Thus, the Cabot Board concluded that the Merger would best advance Cabot's
strategic plan because of the Board's belief that the Merger combines two
companies with complementary businesses and business strategies, thereby
creating a company with greater size, flexibility, breadth of products,
efficiencies, capital strength and profitability than Cabot would possess on a
stand-alone basis. Each company possesses distinct but complementary business
strengths which, the Cabot Board believes, can be successfully blended. Lastly,
the size and capitalization of the combined company may allow it to take
advantage of future acquisitions and/or strategic alliance opportunities which
otherwise might not be available to either company individually.
The Cabot Board did not assign any specific or relative weight to the
foregoing factors in the course of its consideration.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Messrs. Warren G. Wood and Richard A. Auhll, the Chief Executive Officers
of Cabot and Circon, have known each other for a number of years. They
frequently met at trade shows and financial conferences where both were
speakers. At these meetings, they exchanged views on the medical device industry
and generally discussed developments, trends and uncertainties in the U.S.
healthcare market. At these informal, generally
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social meetings, there were no discussions regarding a potential merger of the
two companies. However, in early 1993 and again in mid-1993, Mr. Wood and Mr.
Auhll, in correspondence, each expressed an interest in exploring possible
business arrangements between the companies that might include a merger,
although the matter was not pursued.
In June 1994, Mr. Wood again expressed an interest in an exploratory
meeting. Mr. Auhll responded affirmatively and suggested that they meet at the
meeting of the American College of Surgeons ("ACS") in Chicago in October 1994.
During the ACS meeting, Messrs. Auhll and Wood met informally and discussed
broad possible areas of cooperation between Circon and Cabot. Recognizing that
Circon and Cabot had few products which competed with one another and a number
of products which complemented one another, Messrs. Auhll and Wood generally
discussed possible cooperative arrangements in which each company might
distribute the other's products. While both agreed to consider this possibility,
neither ever acted on the discussion after that meeting and the matter was not
pursued.
In December 1994, Cabot engaged Smith Barney to act as its financial
advisor to investigate possible strategic arrangements with other companies. As
part of these efforts, Smith Barney and/or Cabot's management investigated
several possibilities, the principal among which were joint ventures, joint
distribution and marketing arrangements, acquisitions of other companies by
Cabot, acquisition of Cabot by another company and a merger of Cabot and another
company. After internal discussions, Cabot's management concluded that joint
distribution and marketing arrangements would probably not be available on a
scale to be suitably profitable and that Cabot did not have the financial
strength to acquire a company of the size necessary to establish the critical
mass which management believed necessary to compete successfully in the current
and foreseeable health care environment. Smith Barney contacted 16 companies,
including Circon. Eleven of these companies executed confidentiality agreements
and were given non-public information concerning Cabot. Upon their review of
this information, five of the companies declined to participate further and
discussions (either by telephone or in person) were held with the six which
expressed interest. After these discussions, three companies expressed continued
interest. One expressed interest only in obtaining Cabot's product line and had
no interest in Cabot's manufacturing, sales, marketing, or other operations.
Another proceeded very slowly and was considered by Cabot to be unable to act
decisively in a relatively short time period. Circon was the third company that
had expressed a continuing interest in a merger or other strategic transaction.
On February 1, 1995, representatives of Bear Stearns met with certain
Circon senior managers, who discussed Circon's interest in a possible merger
with Cabot and requested Bear Stearns to compile financial information relating
to such a merger. On March 2, 1995, Circon executed a confidentiality agreement
and on March 7, 1995, Circon received certain confidential information regarding
Cabot. On March 8, 1995, Bear Stearns reviewed with certain members of Circon's
senior management financial information relating to Cabot, stock trading
information relating to the Circon Common Stock and Cabot Common Stock and the
pro forma effect of a merger with Cabot on Circon's earnings per share that
would result from various exchange ratios assuming either pooling of interests
or purchase accounting. Bear Stearns noted that Circon Common Stock was trading
near its highest closing price over the prior 12 months, while Cabot Common
Stock was trading near its lowest closing price. Bear Stearns also noted that a
stock-for-stock merger qualifying for pooling of interests accounting treatment
could avoid an increase in intangible assets of the combined company that would
have to be amortized against future earnings and could also avoid significant
balance sheet leverage and the depletion of Circon's cash resources, which would
be needed in the event that holders of the Cabot Convertible Notes exercised
their right of redemption. At this meeting, Bear Stearn did not recommend or
express any view concerning any particular exchange ratio. Based on the
information reviewed, Circon concluded that a combination of Circon and Cabot
should be structured as a stock-for-stock transaction qualifying for pooling of
interests accounting treatment.
On March 22, 1995, while Mr. Wood was attending a meeting of the Health
Industries Manufacturers Association in Palm Springs, California, he and a
representative of Smith Barney met privately with Mr. Auhll to discuss publicly
available information with respect to the two companies. Mr. Wood and Mr. Auhll
reviewed the history and operations of Cabot and Circon, respectively, over
recent years. The representative of Smith Barney did not actively participate in
the discussions.
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Thereafter, Mr. Wood discussed with Marvin B. Sharfstein, Vice President of
Corporate Development of Cabot, his meeting with Mr. Auhll. Although additional
confidential information regarding Cabot was provided to Circon on March 31,
1995, Mr. Auhll was informed that no further discussions would be held between
Circon and Cabot unless Circon indicated its view regarding a possible
combination or other strategic relationship between the companies and the broad
terms of such a transaction.
On April 4, 1995, the Circon Board of Directors held a meeting at which
representatives of Bear Stearns made a presentation regarding Cabot's financial
projections and provided the Board of Directors with statistical compilations
related to a possible merger. In addition, the Board of Directors reviewed and
approved the terms of a proposed letter from Mr. Auhll to Mr. Wood expressing
Circon's strong preliminary interest in the possibility of a merger of Circon
and Cabot on a stock-for-stock basis.
On April 5, 1995, Mr. Wood received the letter approved by the Circon Board
of Directors from Mr. Auhll. Mr. Wood discussed Mr. Auhll's letter with Mr.
Sharfstein and generally briefed Noel Wray, Vice President of Finance and
Administration and Cabot's Board of Directors concerning the contents of the
letter. Cabot responded that the minimum value that Cabot would consider was at
or above the top of the values suggested in Circon's letter. The parties
nevertheless agreed to conduct additional discussions.
On April 12, 1995, Cabot executed a confidentiality agreement to enable
Cabot to receive confidential information from Circon.
On April 13, 1995, Mr. Auhll, R. Bruce Thompson, Circon's Executive Vice
President and Chief Financial Officer, Winton L. Berci, Circon's Vice President,
Marketing and Sales, Frank D. D'Amelio, Circon's Vice President, Chief
Manufacturing Officer, Daniel J. Meaney, Circon's Vice President and General
Counsel and Douglas Carey, Circon's Manager of Corporate Development,
representatives of Bear Stearns and Circon's attorneys met in Los Angeles,
California with Mr. Wood, Mr. Sharfstein, Mr. Wray, representatives of Smith
Barney and Cabot's attorneys. At that meeting, the parties discussed each
company's product line, customer base, growth prospects and business plans.
Cabot provided to Circon projections of operating performance for the remaining
quarters in fiscal 1995. The participants also generally discussed the potential
benefits of a combination between the two companies and other related matters.
Further discussions ensued regarding a potential exchange ratio, termination
rights in the event Circon stock traded outside a certain range and financing
for possible redemption of Cabot's Convertible Notes if required by the holders
of such Notes, but no agreement was reached.
On April 14, 1995, Mr. Wood, Mr. Sharfstein, Mr. Wray and a representative
of Smith Barney visited Circon's headquarters facility in Santa Barbara,
California and met with Mr. Auhll, several of Circon's senior managers and a
representative of Bear Stearns. No negotiations took place at this meeting. The
parties agreed to consider the topics discussed during the last two days and to
meet again the following week to continue the discussions. Circon's legal
advisors then began preparation of a preliminary draft of the Merger Agreement.
Mr. Auhll, Mr. Thompson, Mr. Berci, Mr. D'Amelio, Mr. Meaney, Mr. Carey and
representatives of Bear Stearns again met with Mr. Wood, Mr. Sharfstein, Mr.
Wray and the other executive officers of Cabot, representatives of Smith Barney
and Cabot's attorneys April 18 and 19, 1995 in Princeton, New Jersey. During
these meetings, Cabot and Circon began to discuss the parameters of an
agreement. During the course of these discussions, Messrs. Wood and Sharfstein
and representatives of Smith Barney, together with Mr. Auhll and representatives
of Bear Stearns, discussed the number of Circon shares to be issued pursuant to
the Merger, a possible adjustment of the terms or right of termination if Circon
stock traded outside a certain range prior to the Effective Time, the structure
of the Merger, employment agreements for Messrs. Wood and Sharfstein, and the
necessity that Circon have secured the financing necessary to repurchase the
Cabot Convertible Notes should the holders exercise their right to be redeemed
after the Merger. At the end of the meeting on April 19, Cabot and Circon agreed
that (i) the consideration for the Merger would be .415 shares of Circon Common
Stock for each Cabot share outstanding, (ii) there would be no change in terms
or right of termination if Circon stock traded above or below certain limits
prior to the Effective Time, (iii) the Merger had to qualify as a pooling of
interests for accounting purposes and (iv) Messrs. Wood and Sharfstein would
enter into employment and consulting agreements for a short period of time after
the Merger (eventually determined to be two years) because of their importance
in the transition period after the Merger, but that no
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other officers or directors of Cabot would receive employment or consulting
agreements as a result of the Merger. All of the foregoing was expressly subject
to the terms of a definitive agreement to be negotiated and approved by the
Cabot and Circon Boards of Directors. However, Circon and Cabot were not able to
agree upon a condition to make the Merger contingent upon receipt by Circon of
financing sufficient to enable Cabot to repurchase the Cabot Convertible Notes
if the holders required it to do so. Cabot agreed not to negotiate any potential
merger or similar proposal from any third party until May 1, 1995, subject to
compliance by the Cabot Board of Directors with its fiduciary duties.
On April 21, 1995, at a regularly scheduled meeting of the Cabot Board of
Directors, Messrs. Wood and Sharfstein made a presentation to the Board with
respect to the possible combination of Circon and Cabot. Representatives of
Smith Barney also attended that meeting. The business and prospects of Cabot,
both alone and combined with Circon, were discussed at great length and in great
detail. Representatives of Smith Barney also made a financial presentation to
the Board (see "The Merger and Related Transaction -- Opinions of Financial
Advisors -- Cabot's Financial Advisor"). After a full discussion on the
philosophies of each company and the potential short and long term benefits of a
combination of the businesses, the future of Cabot's business both alone and as
part of Circon and after reviewing the lack of interest expressed by most other
parties contacted by Smith Barney, the Board, having reviewed a preliminary
draft of a Merger Agreement, authorized Messrs. Wood and Sharfstein, together
with Cabot's financial and legal advisors, to meet again with Circon to attempt
to conclude discussions with respect to the potential merger. The Board,
however, expressed concern with respect to the fact that Circon had not yet
received a commitment from a financial institution to provide it with the
financing necessary to repay the Cabot Convertible Notes should the need arise
after a possible merger. The Board was of the view that no agreement could be
reached with Circon until this issue was resolved to its satisfaction.
On April 24, 1995, Messrs. Wood and Sharfstein, together with
representatives of Smith Barney, met with Messrs. Auhll, Thompson, Meaney and
Carey, representatives of Bear Stearns and Circon's attorneys in Las Vegas,
Nevada (the site of the annual convention of the American Urological
Association) and completed discussions regarding the terms of the Merger
Agreement, principally that Circon be given a limited period of time to secure a
financing commitment to repay the Cabot Convertible Notes (which commitment has
been obtained) and certain terms related to the conduct of Cabot's and Circon's
respective businesses prior to the Effective Time. Certain matters relating to
the voting agreements to be signed by Messrs. Wood, Sharfstein and Brener were
also considered at this meeting. That evening, Mr. Wood convened a telephonic
meeting of the Cabot Board, explained the proposed resolution of the final
points as tentatively agreed upon by Messrs. Wood and Auhll (including the
provisions with regard to Circon's securing the financing necessary to repay
Cabot's long-term indebtedness, if necessary) and received the Board's unanimous
approval of the Merger Agreement. Also on April 24, the Board of Directors of
Circon met in Las Vegas, together with representatives of Bear Stearns, who
discussed with the directors in detail the terms of the Merger Agreement and
various business aspects of the proposed Merger. Following these discussions and
consultations with Circon's legal counsel, the Circon Board of Directors
unanimously approved the Merger Agreement.
Thereafter, the Merger Agreement was executed and, prior to the opening of
the stock market on April 25, 1995, Circon and Cabot issued a joint press
release announcing the Merger.
In July 1995, Circon and Cabot amended the Merger Agreement to make clear
the intention that Cabot stockholders will become Circon stockholders of record
at the Effective Time and to correct minor errors.
The representatives of Smith Barney and Bear Stearns, respectively, who
attended the meetings described above participated primarily by making inquiries
concerning various aspects of each company's current and prospective business
and by providing technical assistance to the companies, such as computations of
the pro forma effect of the Exchange Ratio and advice concerning the
possibilities of obtaining bank financing within certain parameters. The
negotiations were led by Mr. Auhll for Circon and Messrs. Wood and Sharfstein
for Cabot. Outside the meetings, the representatives of Smith Barney and Bear
Stearns provided more extensive financial advisory services in connection with
the Merger, as described below.
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OPINIONS OF FINANCIAL ADVISORS
CIRCON'S FINANCIAL ADVISOR
From the first meeting with senior Circon management on February 1, 1995,
Bear Stearns has provided advice to Circon regarding financial aspects of the
Merger. During this period, the terms of engagement of Bear Stearns were also
negotiated with Circon, which on April 20, 1995 formally retained Bear Stearns
to act as its financial advisor in connection with the Merger. As its financial
advisor, Circon engaged Bear Stearns to provide advice regarding the range of
potential values for Cabot and transaction structure, assist Circon in
negotiations with Cabot and its advisors, present to the Circon Board of
Directors a valuation analysis and financial review of the Merger, analyze the
pro forma effects of the Merger on Circon's projected financial performance,
render its opinion to the Circon Board of Directors as to the fairness of the
Merger, from a financial point of view, to the stockholders of Circon, and
provide other investment banking and financial advisory services as requested by
Circon. Circon selected Bear Stearns based on its qualifications, expertise and
familiarity with Circon and Cabot.
Bear Stearns delivered its oral opinion to the Circon Board of Directors to
the effect that, as of April 24, 1995, the Merger was fair, from a financial
point of view, to the stockholders of Circon. Bear Stearns has delivered its
written fairness opinion, updated to the date of this Proxy Statement.
The full text of Bear Stearns fairness opinion, which sets forth certain
assumptions made, certain procedures followed and certain matters considered by
Bear Stearns, is attached as Annex D to this Proxy Statement. As set forth
therein, Bear Stearns relied upon and assumed the accuracy and completeness of
the financial and other information provided to it by Circon and Cabot. With
respect to Circon's and Cabot's projected financial results, Bear Stearns
assumed that the projections have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the managements of
Circon and Cabot as to the expected future performance of Circon and Cabot,
respectively. Bear Stearns did not perform any independent verification of the
information or projections provided to it and Bear Stearns relied upon the
assurances of the managements of Circon and Cabot that they are unaware of any
facts that would make the information or projections provided to Bear Stearns
incomplete or misleading. In arriving at its opinion, Bear Stearns did not
perform or obtain any independent appraisal of the assets of Circon or Cabot.
Bear Stearns' opinion is necessarily based on economic, market and other
conditions, and the information made available to it, as of the date of its
opinion. Bear Stearns further assumed that the Merger would be accounted for in
accordance with the pooling of interests method of accounting under Accounting
Principles Board Opinion No. 16. Bear Stearns' opinion addresses only the
fairness of the Merger from a financial point of view and does not constitute a
recommendation to any stockholder of Circon as to how such stockholder should
vote on the Merger Agreement. The Exchange Ratio in the Merger was determined
through arm's-length negotiations between Circon and Cabot.
The summary of the opinion of Bear Stearns set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion. CIRCON STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THIS OPINION
CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT FOR
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY BEAR STEARNS.
In rendering the fairness opinion, Bear Stearns, among other things: (i)
reviewed this Proxy Statement in substantially final form, (ii) reviewed Cabot's
Annual Reports to Shareholders and its Annual Reports on Form 10-K for the
fiscal years ended on or about October 31, 1991 through 1994, and its Quarterly
Reports on Form 10-Q for the periods ended January 28, and April 29, 1995, (iii)
reviewed Circon's Annual Reports to Shareholders for the years ended December
31, 1991 through 1994, and its Annual Reports on Form 10-K for the years ended
December 31, 1991 through 1994, and its Quarterly Report on Form 10-Q for the
period ended March 31, 1995, (iv) reviewed certain operating and financial
information, including projections, provided by the managements of Cabot and
Circon relating to their respective business prospects, (v) met with certain
members of Cabot's and Circon's senior management to discuss their respective
operations, historical financial statements and future prospects, and their
views of the benefits and other implications of the Merger, (vi) reviewed the
historical stock prices and trading volumes of the common shares of Cabot and
Circon, (vii) reviewed publicly available financial data and stock market
performance data of companies
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which Bear Stearns deemed generally comparable to Cabot and Circon, (viii)
reviewed the terms of recent combinations of companies which Bear Stearns deemed
generally comparable to Cabot and Circon, and (ix) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate.
The following is a brief summary of certain of the financial analyses used
by Bear Stearns in connection with providing its opinions to the Circon Board of
Directors.
Contribution Analysis. Bear Stearns analyzed the pro forma contribution of
each of Cabot and Circon to the combined company, if the Merger were to be
consummated, and reviewed certain historical and estimated future operating and
financial information including, among other things, the revenues, operating
cash flow, operating income and net income of Cabot and Circon, and the pro
forma revenues, operating cash flow, operating income and net income of the
combined company resulting from the Merger based on internal financial analyses
and projections for Cabot and Circon prepared by their respective managements.
The contribution analysis did not take into account any potential synergies or
cost savings that might be realized after the Merger. Such analysis indicated
that, based on management projections, for 1995 and 1996 Circon's relative
contribution to the financial results of the combined company would be (i) 57%
and 58% respectively, of revenues, (ii) 42% and 44%, respectively, of operating
cash flow, (iii) 48% and 49%, respectively, of operating income and (iv) 74% and
66%, respectively, of adjusted net income, which is net of material non-
recurring items. Bear Stearns noted that the approximately 64% of the pro forma
fully diluted number of shares for the combined company to be owned by former
Circon stockholders after the Merger is less than Circon's relative
contributions in 1995 and 1996 of adjusted net income, but is greater than its
relative contributions of revenue, operating cash flows and operating net
income. Bear Stearns further noted that the contribution analysis did not
consider the different valuation multiples, such as the price-earnings
multiples, that the market ascribed to Circon and Cabot both on a current basis
and on a historical basis.
Pro Forma Combination Analysis. Bear Stearns analyzed earnings per share
estimates for 1995 and 1996 for both Circon and, on a pro forma basis, for the
combined company after the Merger. These analyses were based upon projections
provided by the managements of Circon and Cabot. The pro forma analysis took
into account potential synergies or cost savings that might be realized after
the Merger. Based on managements' projections and managements' estimates of
potential cost savings of $4.0 million per annum and after taking into account
the Exchange Ratio, Bear Stearns' analysis showed the Merger resulting in
accretion in Circon's fully diluted earnings per share of 2.7% and 9.2% for 1995
and 1996, respectively, assuming full realization of estimated potential
synergies and costs savings in each year. When estimated pro forma earnings per
share were calculated assuming zero Merger-related synergies and cost savings,
such analysis showed dilution in Circon's fully diluted earnings per share of
23.4% and 10.5%, respectively. Bear Stearns further noted that the combination
analysis did not consider the different valuation multiples, such as the
price-earnings multiples, that the market ascribed to Circon and Cabot both on a
current basis and on a historical basis.
Comparable Company Analysis. Using publicly available information, Bear
Stearns analyzed, among other things, the public market values and valuation
multiples of Circon, Cabot and a group of certain public companies (the
"Comparable Companies") which are generally comparable to Circon and Cabot. The
group of Comparable Companies includes Boston Scientific Corp., Conmed Corp.,
C.R. Bard, Inc., STERIS Corp., Stryker Corp. and U.S. Surgical Corp. Bear
Stearns compared the valuation multiples of Circon implied by its public market
valuation against the valuation multiples of Cabot implied by the Exchange Ratio
and the valuation multiples of the Comparable Companies implied by their
respective public market valuations. Specific valuation multiples analyzed
included: (i) equity value to latest 12 months net income, estimated 1995 net
income and estimated 1996 income, and (ii) transaction value (defined as equity
value plus the book value of debt less the book value of cash and cash
equivalents) to latest 12 months revenue, latest 12 months operating cash flow
and latest 12 months operating income. The ranges of multiples of the Comparable
Companies, based on the public market closing prices of their respective common
shares as of April 18, 1995, were as follows: (i) latest 12 months net income:
16.2x -- 47.3x with a harmonic mean of 26.4x, (ii) estimated 1995 net income:
14.4x -- 34.3x with a harmonic mean of 21.5x, (iii) estimated 1996 net income:
12.8x -- 21.6x with a harmonic mean of 16.3x, (iv) latest twelve months revenue:
1.7x -- 5.5x with a harmonic mean of 2.3x, (v) latest twelve months operating
cash flow: 9.2x -- 25.3x with a harmonic mean of
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12.4x and (vi) latest twelve months operating income: 11.6x -- 33.7x with a
harmonic mean of 17.7x. Based on a closing price of Circon on April 19, 1995 of
$20.50, the valuation multiples of Circon were: (i) latest 12 months net income:
44.0x, (ii) estimated 1995 net income: 26.9x, (iii) estimated 1996 net income:
20.6x, (iv) latest twelve months revenue: 1.7x, (v) latest twelve months
operating cash flow: 20.3x and (vi) latest twelve months operating income:
28.4x. Based on the $20.50 closing price of Circon on April 19, 1995 and the
resulting equity and transaction values of Cabot implied by the Exchange Ratio
of 0.415, the valuation multiples of Cabot were: (i) latest 12 months net
income: 61.4x, (ii) estimated 1995 net income: 52.4x, (iii) estimated 1996 net
income: 26.1x, (iv) latest twelve months revenue: 2.5x, (v) latest twelve months
operating cash flow: 13.2x and (vi) latest twelve months operating income:
22.6x. Based on the $17.00 closing price of Circon on May 16, 1995 (three weeks
after the Merger announcement) and the resulting equity and transaction values
of Cabot implied by the Exchange Ratio of 0.415, the valuation multiples of
Cabot were: (i) latest 12 months net income: 50.9x, (ii) estimated 1995 net
income: 43.4x, (iii) estimated 1996 net income: 21.6x, (iv) latest twelve months
revenue: 2.2x, (v) latest twelve months operating cash flow: 11.7x and (vi)
latest twelve months operating income: 20.0x. Net income projections for the
Comparable Companies were analyzed based on estimates of selected Wall Street
brokerage firms and net income projections for Cabot and Circon were analyzed
based on internal estimates of the managements of Circon and Cabot.
Analysis of Precedent M&A Transactions. Bear Stearns reviewed nine merger
and acquisition transactions (the "Comparable Transactions") which are generally
comparable to the Merger. The Comparable Transactions reviewed included the
following: Mitek Surgical Products, Inc./Johnson & Johnson, SCIMED Life Systems,
Inc./Boston Scientific Corporation, NAMIC USA Corp./Pfizer Inc., Orthomet,
Inc./Wright Medical, Cardiovascular Imaging Systems, Inc./Boston Scientific
Corporation, Kirschner Medical Corporation/Biomet, Inc., Kendall International,
Inc./TYCO International Ltd., Diasonics Ultrasound, Inc./Elbit Ltd., and Medical
Engineering (Surgitek)/Cabot Medical Corporation. Bear Stearns compared the
valuation multiples (the "Transaction Multiples") implied by the Comparable
Transactions to the valuation multiples of Cabot implied by the Merger. The
ranges of Transaction Multiples were as follows: (i) latest 12 months net
income: 18.9x -- 31.8x with a harmonic mean of 23.9x, (ii) one year forward
estimated net income: 17.3x -- 28.0x with a harmonic mean of 21.3x, (iii) latest
twelve months revenue: 0.3x -- 6.3x with a harmonic mean of 1.3x, (iv) latest
twelve months operating cash flow: 7.8x -- 13.4x with a harmonic mean of 9.8x
and (v) latest twelve months operating income: 10.5x -- 20.9x with a harmonic
mean of 14.5x. Based on the $20.50 closing price of Circon on April 19, 1995 and
the resulting equity and transaction values of Cabot implied by the Exchange
Ratio of 0.415, the valuation multiples of Cabot were: (i) latest 12 months net
income: 61.4x, (ii) estimated 1995 net income: 52.4x, (iii) latest twelve months
revenue: 2.5x, (iv) latest twelve months operating cash flow: 13.2x and (v)
latest twelve months operating income: 22.6x. Based on the $17.00 closing price
of Circon on May 16, 1995 (three weeks after the Merger announcement) and the
resulting equity and transaction values of Cabot implied by the Exchange Ratio
of 0.415, the valuation multiples of Cabot were: (i) latest 12 months net
income: 50.9x, (ii) estimated 1995 net income: 43.4x, (iii) latest twelve months
revenue: 2.2x, (iv) latest twelve months operating cash flow: 11.7x and (v)
latest twelve months operating income: 20.0x. Net income projections for the
acquired companies in the Comparable Transactions were analyzed based on
estimates of selected Wall Street brokerage firms immediately prior to the
announcement of the respective Comparable Transactions. Transaction Multiples
were based on the acquired companies' equity values and transaction values
(equity value plus book value of debt assumed less cash and cash equivalents
assumed) implied by the terms of the respective Comparable Transactions.
No company, transaction or business used in the Comparable Company Analysis
or Analysis of Precedent M&A Transactions is identical to Circon, Cabot or the
combined entity. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition or public trading value of the
comparable companies or the business segment or company to which they are being
compared.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow analysis of the projected free cash flow of Cabot based on certain
operating and financial assumptions, forecasts and other
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information provided by the management of Cabot and, assuming, among other
things, discount rates ranging from 14% -- 18% and terminal values ranging from
14x -- 22x estimated trailing net income. This analysis resulted in a range of
estimated equity values of Cabot of $71 million -- $166 million, assuming $4
million per annum in Merger related cost savings and $47 million -- $128
million, assuming zero Merger related cost savings. These ranges were compared
to the $97 million equity value of Cabot shares implied by the Exchange Ratio of
0.415 based on the market value of Circon shares of $20.50 on April 19, 1995.
These ranges were also compared to the $78 million equity value of Cabot shares
implied by the Exchange Ratio of 0.415 based on the market value of Circon
shares of $17.00 on May 16, 1995 (three weeks after the Merger announcement).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The foregoing summary, which does
not purport to be a complete description of the analyses performed by Bear
Stearns, sets forth the material analyses performed by Bear Stearns in
connection with its opinion. The analyses were prepared solely for purposes of
providing its opinion as to the fairness of the Merger, from a financial point
of view, to the stockholders of Circon. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, Bear Stearns' opinion and presentation to the Circon Board of
Directors was one of many factors taken into consideration by the Circon Board
of Directors in making its determination to approve the Merger Agreement.
Bear Stearns is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and other purposes.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of Circon and Cabot for its own account and for the accounts
of customers and, accordingly, may, at any time, hold a long or short position
in such securities.
Pursuant to a letter agreement, dated April 20, 1995, Circon agreed to pay
Bear Stearns a $50,000 retainer and $300,000 for rendering its fairness opinion
in connection with the Merger. These fees are fully creditable against a Merger
fee of $1,700,000 which Circon agreed to pay to Bear Stearns upon consummation
of the Merger. Circon has also agreed to reimburse Bear Stearns for its
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel, and to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with the engagement of Bear
Stearns, including certain liabilities under the federal securities laws.
CABOT'S FINANCIAL ADVISOR
Smith Barney was retained by Cabot to act as its financial advisor in
connection with the Merger. In connection with such engagement, Cabot requested
that Smith Barney evaluate the fairness, from a financial point of view, to the
holders of Cabot Common Stock of the consideration to be received by such
holders in the Merger. On April 21, 1995, at a special meeting of the Board of
Directors of Cabot held to evaluate the proposed Merger, Smith Barney made a
financial presentation (described below) to the Board of Directors of Cabot with
respect to the Exchange Ratio. Smith Barney also has delivered to the Board of
Directors of Cabot a written opinion, dated the date of this Proxy Statement to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated in such opinion, the Exchange Ratio was fair, from a
financial point of view, to the holders of Cabot Common Stock.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
this Proxy Statement, and held discussions with certain senior officers,
directors and other representatives and advisors of Cabot and certain senior
officers and other representatives and advisors of Circon concerning the
businesses, operations and prospects of Cabot and Circon. Smith Barney examined
certain publicly available business and financial information relating to Cabot
and Circon as well as certain financial forecasts and other data for Cabot and
Circon which were provided to Smith Barney by the respective managements of
Cabot and Circon, including information relating to certain strategic
implications and operational benefits anticipated from the Merger.
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Smith Barney reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Cabot Common Stock and the Circon
Common Stock; the historical and projected earnings of Cabot and Circon; and the
capitalization and financial condition of Cabot and Circon. Smith Barney
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which Smith Barney considered
comparable to the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose businesses Smith Barney considered comparable to those of Cabot and
Circon. Smith Barney also evaluated the potential pro forma financial impact of
the Merger on Circon. In addition to the foregoing, Smith Barney conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as Smith Barney deemed appropriate to arrive at its opinion.
Smith Barney noted that its opinion was necessarily based upon information
available, and financial, stock market and other conditions and circumstances
existing and disclosed, to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise reviewed by or discussed with Smith Barney,
the managements of Cabot and Circon advised Smith Barney that such forecasts and
other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
Cabot and Circon as to the future financial performance of Cabot and Circon and
the strategic implications and operational benefits anticipated from the Merger.
Smith Barney assumed, with the consent of the Board of Directors of Cabot, that
the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and as a tax-free reorganization for
federal income tax purposes. Smith Barney's opinion relates to the relative
values of Cabot and Circon. Smith Barney did not express any opinion as to what
the value of the Circon Common Stock actually will be when issued to Cabot
stockholders pursuant to the Merger or the price at which the Circon Common
Stock will trade subsequent to the Merger. In addition, Smith Barney did not
make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Cabot or Circon nor did Smith Barney
make any physical inspection of the properties or assets of Cabot or Circon. In
connection with its engagement, Smith Barney approached, and held discussions
with, certain third parties to solicit indications of interest in a possible
acquisition of Cabot. In addition, although Smith Barney evaluated the Exchange
Ratio from a financial point of view, Smith Barney was not asked to and did not
recommend the specific consideration payable in the Merger. No other limitations
were imposed by Cabot on Smith Barney with respect to the investigations made or
procedures followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE. CABOT STOCKHOLDERS ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In preparing its opinion, Smith Barney performed a variety of financial and
comparative analyses, including those described below which Smith Barney
performed in connection with its presentation to the Board of Directors of Cabot
on April 21, 1995. The summary of such analyses, which does not purport to be a
complete description of the analyses underlying Smith Barney's opinion, sets
forth the material analyses performed by Smith Barney in connection with its
opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not attribute
any
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particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Smith Barney believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Smith Barney made numerous assumptions with respect to Cabot, Circon, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Cabot and Circon. The
estimates contained in such analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
Cabot, Circon and the following selected companies in the medical device
industry: American Home Products Corporation; C.R. Bard, Inc.; Biomet, Inc.;
Boston Scientific Corporation; Pfizer Inc.; Johnson & Johnson; Stryker
Corporation; and U.S. Surgical Corporation (collectively, the "Comparable
Companies"), and compared these multiples against the multiples for Cabot
implied by the Exchange Ratio. Smith Barney compared market values as multiples
of, among other things, estimated calendar 1995 net income, and adjusted market
values (equity market value, plus debt, less cash) as multiples of latest 12
months net revenue and earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The range of multiples of estimated calendar 1995 net
income and latest 12 months net revenue and EBITDA of the Comparable Companies
were as follows: (i) estimated calendar 1995 net income: 14.4x to 28.8x (with a
mean of 21.7x and a median of 22.8x); (ii) latest 12 months net revenue: 1.6x to
5.8x (with a mean of 3.2x and a median of 2.9x); and (iii) latest 12 months
EBITDA: 9.7x to 19.3x (with a mean of 14.9x and a median of 15.8x). The
multiples of estimated calendar 1995 net income and latest 12 months net revenue
and EBITDA of Circon were 28.8x, 1.6x and 19.3x, respectively. The multiples of
estimated calendar 1995 net income and latest 12 months net revenue and EBITDA
of Cabot were 19.5x, 2.2x and 10.6x, respectively. Based on a closing sale price
of Circon Common Stock on April 20, 1995 of $21.00, the Exchange Ratio equated
to implied multiples of estimated calendar 1995 net income and latest 12 months
net revenue and EBITDA for Cabot of 50.0x, 2.50x and 12.2x, respectively. Net
income projections for the Comparable Companies were analyzed based on estimates
of selected investment banking firms, and net income projections for Cabot and
Circon were analyzed based on internal estimates of the managements of Cabot and
Circon. All multiples were based on closing stock prices as of April 20, 1995.
No company, transaction or business used in the comparable company analysis
as a comparison is identical to Cabot, Circon or the Merger. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition or public trading value of the comparable companies or the business
segment or company to which they are being compared.
Contribution Analysis. Smith Barney analyzed the respective contributions
of Cabot and Circon to the revenue, EBITDA, earnings before interest and taxes
("EBIT") and net income of the pro forma combined entity for fiscal years 1992
through 1996 (with particular focus on fiscal years 1994 through 1996), based on
projections provided by the respective managements of Cabot and Circon. This
analysis indicated that (i) in fiscal year 1994, Cabot would have contributed
approximately 43.7% of revenue, 64.1% of EBITDA, 59.7% of EBIT and 43.3% of net
income, and Circon would have contributed approximately 56.3% of revenue, 35.9%
of EBITDA, 40.3% of EBIT and 56.7% of net income, (ii) in fiscal year 1995,
Cabot would contribute approximately 41.5% of revenue, 51.5% of EBITDA, 44.6% of
EBIT and 25.0% of net income, and Circon would contribute approximately 58.5% of
revenue, 48.5% of EBITDA, 55.4% of EBIT and 75.0% of net income, and (iii) in
fiscal year 1996, Cabot would contribute approximately 40.8% of revenue, 52.6%
of EBITDA, 48.5% of EBIT and 37.6% of net income, and Circon would contribute
approximately 59.2% of revenue, 47.4% of EBITDA, 51.5% of EBIT and 62.4% of net
income. Immediately following consummation of the Merger, stockholders of Cabot
and Circon would own approximately 35.7% and 64.3%, respectively, of the
combined company. Smith Barney noted that the capital structure of Cabot
includes significantly more
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debt than does the capital structure of Circon, and that the revenue, EBITDA and
EBIT contributions of Cabot relative to Circon do not give effect to the
significant negative effect of Cabot interest expense on the pro forma net
income of the combined company. For this reason, Smith Barney viewed net income
as a significant factor for purposes of its contribution analysis. Smith Barney
noted that, taken as a whole, the net income contributions of Cabot to the
combined company were not materially inconsistent with the ownership interest of
Cabot's stockholders in the combined company immediately following consummation
of the Merger.
Premium Analysis. Smith Barney analyzed the implied premium payable in the
Merger and the premiums paid in approximately 10 selected medical device
transactions and approximately 19 medical services transactions for which public
information was available, based on stock prices both one day and one month
prior to the announcement date of such transactions. The medical device
transactions included (acquiror/target): Wright Medical Technology,
Inc./Orthomet, Inc.; Boston Scientific Corporation/Cardiovascular Imaging
Systems, Inc.; Tyco International Ltd./Kendall International, Inc.; Maxxim
Medical, Inc./Kirschner Medical Corporation; Elbit Ltd./Diasonics Ultrasound,
Inc.; Biomet, Inc./Kirschner Medical Corporation; Orthomet, Inc./Kirschner
Medical Corporation; Benson Eyecare Corporation/Optical Radiation Corporation;
Medtronic, Inc./Electromedics, Inc.; and Rhone-Poulenc Rorer, Inc./Applied
Immune Sciences, Inc. The medical services transactions included
(acquiror/target): Omega Healthcare Investors, Inc./Health Equity Properties,
Inc.; Community Health Systems, Inc./Hallmark Healthcare Corporation;
Columbia/HCA Healthcare Corporation/Medical Care America, Inc.; W.R. Grace &
Co./Home Nutritional Services, Inc.; United HealthCare Corporation/Ramsay-HMO,
Inc.; Caremark International, Inc./Critical Care America, Inc.; Healthtrust,
Inc. - The Hospital Company/EPIC Holdings, Inc.; FHP International
Corporation/TakeCare, Inc.; Sun Healthcare Group/The Mediplex Group, Inc.;
Regency Health Services, Inc./Care Enterprises, Inc.; OrNda HealthCorp/Summit
Health Ltd.; OrNda HealthCorp/American Healthcare Management, Inc.; Novacare,
Inc./RehabClinics, Inc.; Columbia Hospital Corporation/HCA-Hospital Corporation
of America; Abbey Healthcare Group Incorporated/Total Pharmaceutical Care, Inc.;
Value Health, Inc./Preferred HealthCare Ltd.; Horizon Healthcare
Corporation/Greenery Rehabilitation Group, Inc.; Columbia Hospital
Corporation/Galen Health Care, Inc.; and Olsten Corporation/Lifetime
Corporation. The aggregate ranges of premiums one day and one month prior to the
announcement date of such transactions (excluding outliers) were approximately
1.3% to 86.9% and 1.3% to 125.5%, respectively (with an aggregate mean of
approximately 39.6 and 51.8%, respectively), as compared to the implied premiums
payable in the Merger (based on closing sale prices of Cabot Common Stock on
April 19, 1995 of $6.75 and on March 19, 1995 of $4.00) of approximately 29.1%
and 117.9%, respectively.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the projected earnings per share ("EPS") of Circon for the fiscal
years ended December 31, 1995 through 1997. Based on projections provided by the
managements of Cabot and Circon, the results of the pro forma merger analysis
suggested that the Merger would be dilutive to Circon's EPS in fiscal year 1995
and accretive in the remaining years analyzed. The actual results achieved by
the combined company may vary from projected results and the variations may be
material.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flow of Cabot for the fiscal years
ended October 31, 1995 through 1999 based upon certain operating and financial
assumptions, forecasts and other information provided by the management of Cabot
and, assuming, among other things, discount rates of 20%, 25% and 30% and
terminal multiples of net income of 16.0x to 24.0x. This analysis resulted in an
equity valuation reference range for Cabot Common Stock of approximately $113
million to $244 million, or approximately $6.45 to $16.54 per share, as compared
to the per share equity values for Cabot Common Stock implied by the Exchange
Ratio of approximately $8.72 (based on a closing sale price of Circon Common
Stock on April 20, 1995 of $21.00).
Pursuant to the terms of Smith Barney's engagement, Cabot has agreed to pay
Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee equal to 1.5% of the first $100 million of the total
consideration (including liabilities assumed) payable in connection with the
Merger, plus 1% of such total consideration in excess of $100 million. Cabot
also has agreed to reimburse Smith Barney for
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reasonable travel and other out-of-pocket expenses incurred by Smith Barney in
performing its services, including the reasonable fees and expenses of its legal
counsel, and to indemnify Smith Barney and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement.
Smith Barney has advised Cabot that, in the ordinary course of business, it
may actively trade the securities of Cabot and Circon for its own account or for
the account of its customers and, accordingly, may at any time hold a long or
short position in such securities. Smith Barney has in the past provided
financial advisory and investment banking services to Cabot unrelated to the
Merger, for which services Smith Barney has received compensation.
Smith Barney is a nationally recognized investment banking firm and was
selected by Cabot based on Smith Barney's experience, expertise and familiarity
with Cabot and its business. Smith Barney regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material income tax considerations
of the merger that are generally applicable to holders of Cabot Common Stock.
This discussion does not deal with all income tax considerations that may be
relevant to particular Cabot stockholders in light of their particular
circumstances, such as stockholders who are dealers in securities, foreign
persons, stockholders who acquired their shares in connection with stock option
or stock purchase plans or in other compensatory transactions, or warrantholders
or holders of Cabot Convertible Notes. Furthermore, no foreign, state or local
tax considerations are addressed herein. ACCORDINGLY, CABOT STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
with each of Circon, Sub and Cabot intended to qualify as a "party to the
reorganization" under Section 368(b) of the Code, in which case the following
tax consequences will generally result (subject to the limitations and
qualifications referred to herein).
1. No gain or loss will be recognized by holders of Circon Common Stock or
Cabot Common Stock, except as discussed below with respect to any cash received
by Cabot stockholders in lieu of fractional shares of Circon Common Stock.
2. The aggregate tax basis of shares of Circon Common Stock received in the
Merger by Cabot stockholders will equal the aggregate tax basis of shares of
Cabot Common Stock exchanged therefor, reduced by any amount allocable to any
fractional share interest of Cabot stockholders for which cash is received.
3. No gain or loss will be recognized by Circon or Cabot in connection with
the Merger.
4. Provided that the shares of Cabot Common Stock are held as a capital
asset at the Effective Time, the holding period of shares of Circon Common Stock
will include the holding period of shares of Cabot Common Stock surrendered
therefor.
5. A Cabot stockholder who receives cash in the Merger in lieu of a
fractional interest in shares of Circon Common Stock will be treated for federal
income tax purposes as having received cash in redemption of such fractional
share interest. The stockholder will recognize gain or loss as of the Effective
Time equal to the difference between the amount of cash received and the portion
of the stockholder's adjusted tax basis in the shares of Cabot Common Stock
allocable to such fractional interest. Any gain or loss generally will be
capital gain or loss if the stockholder holds the Cabot Common Stock as a
capital asset at the Effective Time and will be long-term capital gain or loss
if the holding period (determined as described above) for the fractional
interest deemed to be received and then redeemed is more than one year.
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The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. As a condition to the obligations of
Cabot and Circon to consummate the Merger, Cabot and Circon will receive
opinions from their respective legal counsel, Stradley, Ronon, Stevens & Young
and Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, to the effect
that, for federal income tax purposes, the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code. These
opinions, which are collectively referred to herein as the "Tax Opinions,"
neither bind the IRS nor preclude the IRS from adopting a contrary position. In
addition, the Tax Opinions will be subject to certain assumptions and
qualifications and will be based on the truth and accuracy of certain
representations made by Circon, Sub and Cabot and stockholders of Cabot
including representations in certificates to be delivered to counsel by the
respective managements of Circon, Sub and Cabot and certain stockholders of
Cabot.
A successful IRS challenge to the "reorganization" status of the Merger
would result in a Cabot stockholder recognizing gain or loss with respect to
each share of Common Stock of Cabot surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time of the Merger of the Circon Common Stock received in exchange
therefor. In such event, a stockholder's aggregate basis in the Circon Common
Stock so received would equal its fair market value and his holding period for
such stock would begin the day after the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW. BECAUSE EACH STOCKHOLDER'S TAX CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, AND OTHER TAX LAWS AND ANY PROPOSED CHANGES IN SUCH TAX
LAWS.
VOTING AGREEMENTS
Warren G. Wood, Marvin B. Sharfstein and Harry Brener have entered into
Voting Agreements with Circon, each dated April 25, 1995 (collectively the
"Voting Agreements") pursuant to which they have agreed not to transfer, sell,
exchange, pledge (except to Cabot to secure indebtedness existing on the date of
the Voting Agreements) or otherwise dispose of or encumber any of the Cabot
Common Stock owned beneficially and of record as defined in Rule 13d-3 under the
Exchange Act (the "Restricted Shares"). Messrs. Wood, Sharfstein and Brener have
agreed that any additional shares of Cabot Common Stock purchased or
beneficially owned by such shareholder shall be subject to the same restrictions
as the Restricted Shares. Furthermore, they have agreed to vote all shares
subject to the Voting Agreements in favor of the Merger Agreement and the Merger
and have irrevocably appointed the Chairman of the Board of Circon and the Chief
Financial Officer of Circon as exclusive attorneys and proxies of such
shareholders with full power of substitution to vote all shares subject to the
Voting Agreements in favor of the Merger Agreement and the Merger.
At June 27, 1995, Messrs. Wood, Sharfstein and Brener owned an aggregate of
approximately 29.4% of the outstanding shares of Cabot Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of Cabot have interests in the Merger which
could present potential conflicts of interest.
Pursuant to the Merger Agreement, Warren G. Wood and Marvin B. Sharfstein
have entered into an employment and consulting agreements with Cabot. Under
these agreements, Messrs. Wood and Sharfstein have agreed to provide services to
Cabot beginning on the Effective Date and ending two years later. During the
first twenty-five weeks of the agreements (the "Transition Period"), Messrs.
Wood and Sharfstein will be employees of Cabot and will perform such duties as
may be requested by the chief executive officer of Cabot following the Merger.
During the remainder of the term of the agreements, Messrs. Wood and Sharfstein
will be consultants to Cabot and will perform such duties as may be reasonably
requested by the Board of Directors of Cabot, consistent with their past
experience with Cabot. In consideration of the services to be
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rendered, Cabot will pay Messrs. Wood and Sharfstein 100% of their respective
current annual salaries during the first year of the agreements and 50% of such
annual salaries during the second year of the agreements. In addition, Messrs.
Wood and Sharfstein shall be entitled to an automobile allowance and to
participate in Cabot's employee health and other insurance benefit programs, and
shall accrue vacation time, the same benefits generally available to all Cabot
executive employees. In accordance with their pre-existing terms relating to a
change in control of Cabot, all stock options held by Messrs. Wood and
Sharfstein will (i) accelerate and vest in full upon termination of their
employment after expiration of the Transition Period and (ii) be exercisable at
any time during the full term of the options, as though termination of
employment had not occurred. Of the Cabot stock options which will accelerate
and vest upon termination of Messrs. Wood's and Sharfstein's employment after
the Transition Period, Mr. Wood holds options to purchase 94,366 shares with a
weighted average exercise price of $5.08 per share and Mr. Sharfstein holds
options to purchase 94,366 shares with a weighted average exercise price of
$4.61 per share. Assuming a price of Circon Common Stock of $18.375 (the closing
price on the Nasdaq National Market on July 13, 1995), if Messrs. Wood and
Sharfstein exercised all such options and immediately sold the Circon Common
Stock received upon such exercise, they would realize pre-tax profits (prior to
brokerage commissions) of $240,650 and $284,120, respectively. Beginning on the
Effective Date and for three years thereafter, Messrs. Wood and Sharfstein may
not design, develop, manufacture, produce, market, license, sell or service any
product that is similar to or competitive with any product manufactured,
produced, marketed, licensed or sold by Cabot in North America, or induce any
employee of Cabot or Circon to perform work or services for any other person or
entity.
The stock options held by other Cabot officers, as well as those held by
non-officer employees and by non-employee directors, contain provisions relating
to acceleration upon termination of services and exercise after termination
identical to the change-of-control provisions of the stock options held by
Messrs. Wood and Sharfstein.
The Merger Agreement provides that the Certificate of Incorporation and
Bylaws of Cabot will, for a period of six years after the Effective Date,
continue to provide the same indemnification rights to pre-Merger officers and
directors as provided by Cabot's current Certificate of Incorporation and
Bylaws. In addition, Cabot will be required to indemnify such persons against
all losses, expenses, claims, damages, liabilities or amounts paid in settlement
of or otherwise in connection with any claim, action, suit, proceeding or
investigation arising from or pertaining to any action or omission by any of
them occurring at or prior to the Effective Date, in each case to the full
extent permitted by applicable law. Circon is required to guarantee these
indemnification obligations and to maintain current levels of officer and
director liability insurance for a period of six years.
AFFILIATES AGREEMENTS
Certain persons who may be deemed to be "affiliates" (as that term is
defined for purposes of Rule 145 promulgated under the Securities Act) of Cabot
have entered into certain Affiliate Agreements so as to comply with Rule 145,
federal income tax regulations applicable to reorganizations and accounting
rules pertaining to pooling of interests. Specifically, each person has agreed
not to sell, dispose or enter into any other transaction in order to reduce,
directly or indirectly, such person's risk of investment with respect to any
shares of Circon Common Stock received by such person in connection with the
Merger. Each person has also agreed not to sell, transfer or otherwise dispose
of Circon Common Stock issued to such person in the Merger unless such
disposition is made in conformity with Rule 145(d) of the Securities Act or such
person delivers to Circon a legal opinion to the effect that such disposition is
otherwise exempt from registration under the Securities Act.
Certain persons who may be deemed to be affiliates of Circon have entered
into similar Affiliate Agreements in order to help assure that the Merger will
be treated as a pooling of interests for accounting and financial reporting
purposes.
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ACCOUNTING TREATMENT
The Merger is expected to be treated as a pooling of interests for
accounting purposes under Accounting Principles Board Opinion No. 16 ("APB16").
In accordance with APB16, for the Merger to be treated as a pooling of
interests, at least 90% of the outstanding Cabot Common Stock must be exchanged
solely for Circon Common Stock. Accordingly, if Circon were to pay cash for more
than 10% of the outstanding Cabot Common Stock as a result of the exercise of
appraisal rights by dissenting Cabot shareholders and the elimination of
fractional shares, treatment of the Merger as a pooling of interests would not
be possible. In addition, repurchases of shares by Circon and Cabot during the
two preceding years reduces the number of shares that could be purchased for
cash in the Merger. Under the Merger Agreement, receipt of opinions of each of
Circon's and Cabot's independent accountants as to the availability of pooling
of interests is a condition to the obligation of each of Cabot and Circon to
consummate the Merger. Circon and Cabot have no intention to waive satisfaction
of this condition. See "Cabot Special Meeting -- Dissenters' Appraisal Rights."
STOCKHOLDER LITIGATION INVOLVING THE MERGER
On June 6, 1995, Steven G. Cooperman, a stockholder of Cabot, commenced an
action in the Superior Court of New Jersey, Mercer County, Chancery Division, on
behalf of himself and all Cabot stockholders (except the defendants), against
Cabot, Warren G. Wood, Harry Brener, Marvin B. Sharfstein, Eugene V. Howard and
Harvey W. Grossman. The complaint alleges that the shares of Circon Common Stock
to be received by Cabot stockholders pursuant to the Merger represent
"inadequate and unfair compensation for Cabot's public stockholders"; that the
individual defendants breached their fiduciary duties as directors and officers
to the stockholders of Cabot in that they allegedly failed "to seek to maximize
shareholder value by means of an auction, active market check or other
exploration of strategic alternatives under the circumstances"; and that they
did so "in order to achieve certain benefits that the public stockholders of
Cabot will be unable to enjoy," which alleged benefits include "the maintenance
of their positions as senior executives and/or directors of the combined entity
and the substantial compensation and perquisites" accruing to them as a result.
The complaint seeks that the proposed merger be declared a "legal nullity," that
the defendants be enjoined from consummating the Merger and that Mr. Cooperman
be awarded costs and expenses, including attorneys fees. Cabot believes the
allegations to be without merit and intends to defend the lawsuit vigorously.
TERMS OF THE MERGER
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate with the
Secretary of State of the State of New Jersey in accordance with the New Jersey
Business Corporation Act (the "Effective Time"). It is anticipated that if the
Merger Agreement is approved at the Special Meetings and all other conditions of
the Merger have been fulfilled or waived, the Effective Time will occur on or
about August 28, 1995, or on a date as soon as practicable thereafter.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time of the Merger, each share of Cabot Common Stock
(other than shares, if any, held by stockholders who have exercised dissenters'
rights under Sections 14A:11-1 through 14A:11-11 of the New Jersey Business
Corporation Act, or owned by Sub, Circon or any direct or indirect wholly-owned
subsidiary of Circon or Cabot) will be converted into 0.415 shares of Circon
Common Stock (the "Exchange Ratio"). Each outstanding share of Sub will be
converted in the Merger into one share of Cabot, which will thereby become a
wholly-owned subsidiary of Circon.
On April 24, 1995, the last trading day prior to the execution of the
Merger Agreement by Circon and Cabot, the closing price of Circon Common Stock
as reported by Nasdaq was $21.88 and the closing price of Cabot Common Stock as
reported by Nasdaq was $6.75. On July 14, 1995, the closing price of Circon
Common Stock as reported by Nasdaq was $18.25 and the closing price of Cabot
Common Stock as reported
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by Nasdaq was $7.13. There can be no assurance as to the market price of Circon
Common Stock at the Effective Time or any time thereafter.
Based upon the number of shares of Cabot Common Stock issued and
outstanding as of June 27, 1995 (assuming no exercise of dissenters' rights or
outstanding Cabot stock options or warrants from such date and through the
Effective Time, and ignoring the cancellation of fractional shares for cash), an
aggregate of 4,312,773 shares of Circon Common Stock will be issued to Cabot
stockholders in the Merger. Based upon the number of shares of Circon Common
Stock issued and outstanding as of June 27, 1995, and after giving effect to the
issuance of the 4,312,773 shares of Circon Common Stock in connection with the
Merger, former holders of Cabot Common Stock would hold approximately 35.1% of
Circon's total outstanding shares. Based upon the Assumed Options outstanding as
of June 27, 1995, Circon will assume options to purchase up to 1,106,656
additional shares of Circon Common Stock or approximately 9.0% of Circon's total
issued and outstanding shares after the Merger.
No fractional shares will be issued by Circon in the Merger. Each
stockholder of Cabot otherwise entitled to a fractional share (after aggregating
all fractional shares of Circon Common Stock) will receive from Circon an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fractional amount, multiplied by (ii) the average closing price of a share of
Circon Common Stock for the period of ten trading days ending on the trading day
immediately prior to the Effective Time.
As soon as possible after the Effective Time, Circon's exchange agent,
First Interstate Bank (the "Exchange Agent"), will mail to each Cabot
stockholder of record a letter of transmittal with instructions to be used by
such stockholder in surrendering certificates which, prior to the Merger
represented shares of Cabot Common Stock. After the Effective Time, there will
be no further registration of transfers on the stock transfer books of shares of
Cabot Common Stock which were outstanding immediately prior to the Effective
Time. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF CABOT COMMON
STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE
AGENT.
Upon the surrender of a certificate representing shares of Cabot Common
Stock to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such certificate will be entitled to receive in
exchange therefor the number of shares of Circon Common Stock to which the
holder of Cabot Common Stock is entitled pursuant to the provisions of the
Merger Agreement. In the event a holder of shares of Cabot Common Stock desires
to have the Circon stock certificate deliverable in exchange therefor issued in
the name of a person other than such holder, the letter of transmittal will
provide instructions to do so, including delivery to the Exchange Agent of the
certificate representing such shares of Cabot Common Stock properly endorsed,
together with the related letter of transmittal, and accompanied by all
documents required to effect such transfer and to evidence that any applicable
stock transfer taxes have been paid.
Until a certificate representing shares of Cabot Common Stock has been
surrendered to the Exchange Agent, each such certificate will be deemed at any
time after the Effective Time to represent the right to receive upon such
surrender the number of shares Circon Common Stock to which the stockholder is
entitled under the Merger Agreement.
CABOT STOCK OPTIONS
As of June 27, 1995, there were outstanding options to purchase 2,666,642
shares of Cabot Common Stock. At the Effective Time, each then outstanding
option to purchase shares of Cabot Common Stock will be assumed by Circon (the
"Assumed Options") without any action on the part of a holder of any Assumed
Options. All of such Assumed Options will continue to have, and be subject to,
the same terms and conditions set forth in the applicable Cabot stock option
agreements, except that following the Effective Time, (a) each Assumed Option
will be exercisable to purchase the number of whole shares of Circon Common
Stock determined by multiplying the number of shares of Cabot Common Stock
purchasable under such option immediately prior to the Effective Time by the
Exchange Ratio, rounded down to the nearest whole number, and (b) the per share
exercise price of the Assumed Option will be equal to the per share exercise
price of the specific Assumed Option, divided by the Exchange Ratio, rounded up
to the nearest whole cent. After the
36
<PAGE> 41
Effective Time, Circon will issue to each holder of an Assumed Option a document
evidencing the assumption by Circon of such option. OPTION AGREEMENTS NEED NOT
BE SURRENDERED BY HOLDERS OF ASSUMED OPTIONS.
Prior to the Effective Time, Circon will file a registration statement
under the Securities Act covering the shares of Circon Common Stock issuable
upon exercise of the Assumed Options.
CABOT WARRANT
In connection with Cabot's acquisition of certain assets of Medical
Engineering Corporation ("MEC"), a subsidiary of Bristol-Myers Squibb Company,
in 1992, Cabot issued to MEC a warrant to purchase 305,464 shares of Cabot
Common Stock at $11.78 per share (as adjusted to reflect subsequent Cabot stock
dividends). As a result of the Merger and the application of the Exchange Ratio,
this warrant after the Effective Time will entitle MEC (or any subsequent
holder) to purchase 126,767 shares of Circon Common Stock at $28.39 per share.
The warrant expires July 29, 1999. Cabot is not obligated, and Circon will not
be obligated, to register under the Securities Act the shares issuable upon
exercise of the warrant.
CABOT CONVERTIBLE NOTES; POSSIBLE PREPAYMENT
Following the Effective Time, the holders of the outstanding $67,000,000
principal amount of Cabot Convertible Notes will be entitled to convert each
Cabot Convertible Note into the number of shares of Circon Common Stock
determined by multiplying the Exchange Ratio by the number of shares of Cabot
Common Stock into which the Cabot Convertible Note is convertible immediately
prior to the Effective Time. Each $1,000 principal amount Cabot Convertible Note
is convertible as of the date of this Proxy Statement into 84.89 shares of Cabot
Common Stock. Based on this conversion rate, the effective conversion price
immediately after the Merger will be approximately $28.39 per share of Circon
Common Stock. At that conversion price, approximately 2,360,000 shares of Circon
Common Stock will be issuable upon conversion of the Cabot Convertible Notes.
The Cabot Convertible Notes will remain debt obligations of Cabot, which
will become a wholly-owned subsidiary of Circon. The Cabot Convertible Notes are
due March 1, 1999. However, under the terms of the Indenture governing the Cabot
Convertible Notes, the holders of 75% or more of the outstanding principal
amount of the Cabot Convertible Notes may elect, during a 60-day period
commencing with notice by Cabot of the Effective Date, to have their Cabot
Convertible Notes prepaid by Cabot, in which event Cabot will be obligated to
prepay all Cabot Convertible Notes surrendered during a certain subsequent
period at the principal amount plus interest accrued thereon. As of March 31,
1995, Circon had cash, temporary cash investments and marketable securities of
approximately $21 million, a portion of which would be used to retire any Cabot
Convertible Notes entitled to prepayment. In addition, Circon has arranged for a
$75,000,000 credit facility, of which up to $50,000,000 would be available to
prepay Cabot Convertible Notes. If the Cabot Convertible Notes are not prepaid
as a result of an election made by the holders, they may also be redeemed at
Cabot's option in whole or in part at a premium of 2.5% over the principal
currently, declining to no premium after March 1, 1997.
CONDUCT OF CABOT'S AND CIRCON'S BUSINESSES PRIOR TO THE MERGER
Under the Merger Agreement, Cabot has agreed that, during the period from
the date of the Merger Agreement up to the Effective Time (unless the Merger
Agreement is terminated), except to the extent that Circon otherwise consents,
Cabot will carry on its business in the usual and ordinary course in
substantially the same manner as previously conducted, pay its debts and taxes
when due (subject to good faith disputes over such debts or taxes), pay or
perform other material obligations when due, and use all reasonable efforts
consistent with past practices and policies to preserve intact Cabot's present
business organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
Cabot, to the end that Cabot's goodwill and ongoing businesses will be
unimpaired at the Effective Time. Cabot has specifically agreed that it will
not, without the prior written consent of Circon, which shall not be
unreasonably withheld or
37
<PAGE> 42
delayed: (a) enter into or amend any agreement or take any action which
reasonably would be expected to have a material adverse effect on Cabot; (b)
enter into, amend or terminate certain types of agreements, plans or
arrangements; (c) transfer or license or otherwise extend, amend or modify any
rights to Cabot's intellectual property rights; (d) grant any severance or
termination pay to any executive officer or to any other employee except
payments made in connection with the termination of employees who are not
executive officers in amounts consistent with Cabot's policies and past
practices or pursuant to existing written agreements or policies as previously
disclosed to Circon or pursuant to written agreements consistent with Cabot's
past agreements under similar circumstances; (e) adopt or amend any employee
benefit or stock purchase or option plan, or enter into any employment contract,
pay any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its employees other than in the ordinary
course of business, consistent with past practice; (f) accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under the employee stock plans or authorize cash payments in
exchange for any options granted under any of such plans; (g) declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of its capital stock, or split, combine or reclassify its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of Cabot;
(h) repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock; (i) issue, deliver or sell or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or enter into
other agreements or commitments of any character obligating it to issue, any
such shares or other convertible securities, other than the issuance of shares
of Cabot Common Stock pursuant to the exercise of outstanding stock options or
the Cabot warrant or upon conversion of outstanding Cabot Convertible Notes; (j)
cause, permit or propose any amendments to Cabot's Certificate of Incorporation
or Bylaws; (k) acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Cabot, except for inventory and supplies
acquired in the ordinary course of business consistent with past practice; (l)
sell, lease, license, encumber or otherwise dispose of any of Cabot's properties
(except the facilities located at 2021 Cabot Boulevard in Langhorne,
Pennsylvania) or assets which are material, individually or in the aggregate, to
the business of Cabot, except in the ordinary course of business consistent with
past practice; (m) incur any indebtedness for borrowed money (other than
pursuant to existing credit facilities in the ordinary course of business) or
guarantee any indebtedness or issue or sell any debt securities or warrants or
rights to acquire debt securities of Cabot; (n) engage in any transaction not in
the ordinary course of business with any executive officer; (o) intentionally
take any action which would be reasonably likely to interfere with Circon's
ability to account for the Merger as a pooling of interests; or (p) take any of
certain other specific actions, or any action which would cause or would be
reasonably likely to cause any of the conditions to the Merger set forth in the
Merger Agreement not to be satisfied.
Under the Merger Agreement, Circon has agreed, during the period from the
date of the Merger Agreement up to the Effective Time (unless the Merger
Agreement is terminated), not to do any of the following without the prior
written consent of Cabot: (a) enter into or amend any agreement or take any
action which reasonably would be expected to have a material adverse effect on
Circon; (b) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Circon; (c) repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock; (d) issue, deliver or
sell or authorize or propose the issuance, delivery or sale of any shares of its
capital stock of any class or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue, any such shares or other convertible
securities, other than the issuance of (i) shares of Circon Common Stock
pursuant to the exercise of Circon stock options issued or to be issued under
Circon stock option plans or outstanding warrants or shares of Circon Common
Stock issuable under the Circon Employee Stock Purchase Plan; (e) cause, permit
or propose any amendments to Circon's Certificate of Incorporation (except for
an amendment approved by Circon stockholders in June 1995 to
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<PAGE> 43
require all stockholder action to be taken at meetings rather than by written
consents) or any material amendments to the Circon Bylaws; (f) sell or otherwise
dispose of any of Circon's properties or assets which are material, individually
or in the aggregate, to the business of Circon, except in the ordinary course of
business; (g) intentionally take any action which would be reasonably likely to
interfere with Circon's ability to account for the Merger as a pooling of
interests; or (h) take any action which would cause or would be reasonably
likely to cause any of the conditions to the Merger set forth in the Merger
Agreement not to be satisfied.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Once the Merger is consummated, Sub will cease to exist as a corporation,
and all of the business, assets, liabilities and obligations of Sub will be
merged into Cabot with Cabot remaining as the surviving corporation. Circon's
current intention is to operate Cabot as an independent subsidiary. Circon does
not currently plan layoffs of any significant number of employees as a result of
the Merger.
The Board of Directors of Cabot following the Merger will consist of three
Circon employees who are currently directors of Sub, together with Warren G.
Wood, who is currently the Chairman of the Board of Directors of Cabot. Mr. Wood
and another officer of Cabot have entered into employment and consulting
agreements with Cabot pursuant to which each will continue to provide services
to Cabot for a period of two years following the Merger. See "The Merger and
Related Transactions -- Interests of Certain Persons in the Merger." In
addition, certain officers of Circon will also serve as officers of Cabot.
Following the Effective Time and pursuant to the Merger Agreement, Circon's
Board of Directors will take action to appoint Warren G. Wood to serve as an
officer of Circon for a limited time and as a Circon Class II Director. As a
Class II Director, Mr. Wood's term would ordinarily expire at the 1998 annual
meeting of Circon stockholders. However, Circon's certificate of incorporation
provides that if a director is appointed who is serving as an officer and then
ceases to be an officer, that director's term will expire at the next subsequent
stockholders' meeting. Because Mr. Wood will be an officer of Circon at the time
of his appointment as a Class II Director, but is not expected to remain an
officer of Circon for more than six months thereafter, Mr. Wood's term as a
Class II Director is expected to expire at the 1996 annual meeting of Circon
stockholders.
NO SOLICITATION
The Merger Agreement provides that Cabot and its subsidiaries will not, and
will cause their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, (i)
initiate, solicit or express a receptiveness to the submission of any inquiries,
proposals or offers by any person, entity or group (other than Circon, Sub and
their affiliates, agents and representatives) relating to any Acquisition
Proposal (as defined below), or (ii) participate in any discussions or
negotiations with, or disclose any non-public information concerning Cabot or
any of its subsidiaries to, or afford any access to the properties, books or
records of Cabot or any of its subsidiaries to, or otherwise assist, facilitate
or express a receptiveness to, or enter into any agreement or understanding
with, any person, entity or group (other than Circon, Sub and their affiliates,
agents and representatives) in connection with any Acquisition Proposal. Under
the Merger Agreement, an "Acquisition Proposal" means any proposal relating to
the possible acquisition of (i) Cabot (whether by way of merger or otherwise),
(ii) all or a substantial portion of the assets of Cabot or (iii) a substantial
portion of the equity securities of Cabot (except by conversion or exercise of
currently outstanding securities). Additionally, subject to certain exceptions
described below, Cabot and its subsidiaries will not, and will cause their
respective directors, officers, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly, make or authorize any
statement, recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than Circon and/or Sub).
Notwithstanding the foregoing, prior to the approval of the Merger
Agreement and the Merger by the stockholders of Cabot at the Cabot Special
Meeting, Cabot may, to the extent the Board of Directors of Cabot determines in
good faith, after consultation with outside legal counsel, that the Board's
fiduciary duties under
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<PAGE> 44
applicable law require it to do so, participate in discussions or negotiations
with, and, subject to the requirements set forth below, furnish information to
any person, entity or group after such person, entity or group shall have
delivered to Cabot in writing an unsolicited bona fide Acquisition Proposal
which the Board of Directors of Cabot in its good faith reasonable judgment
determines, after consultation with all its principal advisors in connection
with the Merger, would result in a transaction more favorable to the
stockholders of Cabot than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Board of Directors of Cabot (based upon the advice of all its principal
advisors in connection with the Merger), is reasonably capable of being financed
by such person, entity or group and which is probable to be consummated (a
"Superior Proposal"). Cabot may furnish information with respect to a Superior
Proposal only if Cabot (i) first notifies Circon of the information proposed to
be disclosed, (ii) communicates to Circon the terms and conditions of any
Acquisition Proposal or potential Acquisition Proposal, and (iii) provides such
information pursuant to a confidentiality agreement at least as restrictive as
the Confidentiality Agreement entered into by Circon. In the event Cabot
receives a Superior Proposal, nothing contained in the Merger Agreement shall
prevent the Board of Directors of Cabot from approving such Superior Proposal or
recommending such Superior Proposal to Cabot's stockholders, if the Board
determines in good faith, after consultation with outside legal counsel, that
such action is required by its fiduciary duties under applicable law; in such
case, the Board may amend or withdraw its recommendation of the Merger.
BREAK-UP FEE; EXPENSES
If for any reason (a) the Board of Directors of Cabot accepts a Superior
Proposal or recommends a Superior Proposal to Cabot's stockholders, or (b) (i)
the Board of Directors of Cabot adversely amends, withholds or withdraws its
recommendation that Cabot's stockholders approve the Merger, (ii) the
stockholders of Cabot fail to approve the Merger prior to August 31, 1995, or
(iii) there are Dissenting Shares representing 5% or more of the Cabot shares
outstanding on the record date for the Cabot Stockholders Meeting, and, within
three months following the occurrence in clause (i), (ii) or (iii) above, Cabot
merges with another individual, corporation, partnership, trust or other entity,
including any group of the foregoing acting in concert ("Person"), issues stock
representing a 40% or greater voting interest in Cabot to another Person,
transfers more than 50% of its assets to another Person or enters into an
option, agreement or letter of intent to do any of the foregoing or any other
arrangement intended to transfer Cabot or control of Cabot to such other Person,
or the stockholders of Cabot, in response to a tender offer or exchange offer by
any Person tender shares representing a 40% or greater voting interest in Cabot
or give options or rights to any Person to acquire such shares, then, provided
that Circon shall not have materially breached any of the representations,
warranties, covenants or agreements made on its part under the Merger Agreement,
Cabot shall pay to Circon, within five business days following Circon's written
request therefor, a break-up fee of $4 million.
In addition to the provisions regarding a break-up fee described above, the
Merger Agreement contains provisions under which Circon or Cabot may be required
to reimburse the other for expenses incurred in connection with the proposed
Merger. If the Merger Agreement is terminated by Circon as a result of Cabot's
breach of any representation, warranty, covenant or agreement in the Merger
Agreement, then Cabot will be required to pay Circon for all of its reasonable
out-of-pocket expenses, including but not limited to attorney's fees, accounting
fees, financial printer expenses, filing fees and fees and expenses of financial
advisors incurred in connection with the Merger Agreement and the Merger ("Out
of Pocket Expenses"), not to exceed $1,000,000. If the Merger Agreement is
terminated by Cabot as a result of Circon's breach of any representation,
warranty, covenant or agreement in the Merger Agreement, then Circon shall pay
Cabot's Out-of-Pocket Expenses, not to exceed $1,000,000, incurred in connection
with the Merger Agreement and the Merger. If (i) Cabot's Board of Directors
adversely amends, withholds or withdraws its recommendation of the Merger or
(ii) Cabot's stockholders do not approve the Merger at the Cabot Special
Meeting, then, provided that Circon is not then in material breach of the terms
of the Merger Agreement, Cabot shall pay Circon's Out-of-Pocket Expenses, not to
exceed $1,000,000 upon written request therefor; provided, however, that any
amounts paid to Circon in the event of clause (i) or (ii) shall reduce, on a
dollar-for-dollar basis, the amount, if any, of the break-up fee described in
the preceding paragraph. If (i) Circon's Board of Directors adversely amends,
withholds or withdraws its recommendation of the Merger or (ii) Circon's
stockholders do
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not approve the Merger at the Circon Special Meeting, then, provided that Cabot
is not then in material breach of the terms of the Merger Agreement, Circon
shall pay Cabot's Out-of-Pocket Expenses, not to exceed $1,000,000 upon written
request therefor.
Other than the fees and expenses described above, and the fees incurred in
connection with the printing and filing of the registration statement which will
be shared equally by Circon and Cabot, each of Circon and Cabot will pay their
own fees and expenses incurred in connection with the Merger.
The provisions in the Merger Agreement regarding the break-up fee or
expenses are not intended to relieve any party from liability for any breach of
the Merger Agreement.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions: (a) the Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote under applicable law of the
stockholders of each of Cabot and Circon; (b) the SEC shall have declared the
Registration Statement effective, and no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this Proxy
Statement, shall have been initiated or threatened in writing by the SEC; (c) no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect; (d) Circon and Cabot shall each have received substantially identical
written opinions from their counsel, Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, and Stradley, Ronon, Stevens & Young, respectively, in
form and substance reasonably satisfactory to them, to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code; (e) each of Circon and Cabot shall have received letters from Arthur
Andersen LLP and KPMG Peat Marwick LLP, respectively, regarding those firms'
concurrence with Circon management's and Cabot management's conclusions,
respectively, as to the appropriateness of pooling of interests accounting for
the Merger under APB No. 16 if closed and consummated in accordance with the
Merger Agreement; (f) the shares of Circon Common Stock issuable to stockholders
of Cabot pursuant to the Merger Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the Nasdaq Stock Market upon official notice of issuance; and (g)
employment and consulting agreements between Cabot and, respectively, Warren
Wood and Marvin Sharfstein shall have been executed by each of the parties
thereto containing such terms and conditions as are acceptable to each of them
and to Circon.
In addition, the obligations of Cabot to consummate the Merger Agreement
and effect the transactions contemplated thereby shall be subject to the
satisfaction at or prior to the Effective Time of certain other conditions, any
of which may be waived, in writing, exclusively by Cabot, including: (a) the
truth and accuracy in all material respects of the representations and
warranties of Circon and Sub contained in the Merger Agreement and delivery to
Cabot of a certificate to such effect signed on behalf of Circon by the
President and the Chief Financial Officer of Circon; (b) Circon and Sub shall
have performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
them on or prior to the Effective Time, and Cabot shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of Circon; (c) Cabot shall have received a legal opinion covering
certain matters from Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, counsel to Circon; (d) since the date of the Merger Agreement,
there shall not have occurred any material adverse change in the business,
assets, results of operations or financial condition of Circon and its
subsidiaries taken as a whole; and (e) each of the persons identified by Circon
as being an affiliate or deemed affiliate of Circon shall have delivered to
Cabot an executed Circon affiliate agreement which shall be in full force and
effect.
In addition, the obligations of Circon and Sub to consummate the Merger
Agreement and effect the transactions contemplated thereby shall be subject to
the satisfaction at or prior to the Effective Time of certain other conditions,
any of which may be waived, in writing, exclusively by Circon, including: (a)
the truth and accuracy in all material respects of the representations and
warranties of Cabot contained in the
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Merger Agreement and delivery to Circon and Sub of a certificate to such effect
signed on behalf of Cabot by the President and the Chief Financial Officer of
Cabot; (b) Cabot shall have performed or complied in all material respects with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time, and Circon and Sub shall
have received a certificate to such effect signed by the President and the Chief
Financial Officer of Cabot; (c) Circon shall have received a legal opinion
covering certain matters from Stradley, Ronon, Stevens & Young, legal counsel to
Cabot; (d) since the date of the Merger Agreement, there shall not have occurred
any material adverse change in the business, assets, results of operations or
financial condition of Cabot and its subsidiaries taken as a whole (provided,
however, that any negative impact on Cabot's results of operations or financial
condition resulting from the postponement or cancellation of any projected
orders for Cabot products from any governmental entity or agency in India, or
any organization purchasing on behalf of such entity or agency shall not be
deemed to be such a material adverse change); and (e) each of the persons
identified by Cabot as being an affiliate or deemed affiliate of Cabot shall
have delivered to Circon an executed Cabot affiliate agreement which shall be in
full force and effect.
No filing has been made under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, because none of the filing thresholds has been reached. If a filing
threshold is reached before the Effective Time, the Effective Time could be
delayed until the filing is made and the applicable review period and any
government inquiries have been satisfied.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time (a) by mutual written consent
of Circon and Cabot; (b) by Circon or Cabot if it is not in material breach of
its obligations under the Merger Agreement and there has been a material breach
by the other of any representation, warranty, covenant or agreement contained in
the Merger Agreement such that the conditions to consummation of the Merger will
not be satisfied, and such breach has not been cured within ten days after
notice; (c) by Circon if the Board of Directors of Cabot adversely amends,
withholds or withdraws its recommendation of the Merger (provided Circon is not
in material breach of the Merger Agreement); (d) by Cabot if the Board of
Directors of Circon adversely amends, withholds or withdraws its recommendation
of the Merger (provided Cabot is not in material breach of the Merger
Agreement), (e) by either Circon or Cabot if: (1) there shall be any final,
non-appealable order of a federal or state court in effect preventing
consummation of the Merger; (2) there shall be any final action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity which would make
consummation of the Merger illegal or which would prohibit Circon's ownership or
operation of all or a material portion of the business of Cabot, or compel
Circon to dispose of or hold separate all or a material portion of the business
or assets of Cabot or Circon as a result of the Merger; (3) Cabot's stockholders
do not approve the Merger and the Merger Agreement by September 30, 1995
(provided that Cabot may not terminate in these circumstances if it is in
material breach of the terms of the Merger Agreement); (4) Cabot's stockholders
approve the Merger and the Merger Agreement, but there are Dissenting Shares
representing 5% or more of the Cabot shares outstanding on the record date for
the Cabot stockholders' meeting; or (5) Circon's stockholders do not approve the
Merger and the Merger Agreement by September 30, 1995 (provided that Circon may
not terminate in these circumstances if it is in material breach of the terms of
the Merger Agreement); (f) by either Circon or Cabot if the Merger shall not
have been consummated by October 31, 1995, provided, that the right to terminate
the Merger Agreement shall not be available to any party whose willful failure
to fulfill any material obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before such
date; or (g) by either Circon or Cabot if Cabot's Board of Directors accepts,
approves or recommends to Cabot's stockholders a Superior Proposal.
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CIRCON AND CABOT STOCK PRICE INFORMATION
The Common Stock of Circon is quoted on the Nasdaq Stock Market under the
symbol "CCON". The following table sets forth the range of high and low closing
prices for the Common Stock of Circon as reported by Nasdaq for the calendar
quarters indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1993
First quarter............................................ $22.50 $15.00
Second quarter........................................... 18.25 10.50
Third quarter............................................ 14.25 10.25
Fourth quarter........................................... 14.75 11.00
1994
First quarter............................................ 14.25 11.50
Second quarter........................................... 13.38 9.00
Third quarter............................................ 13.25 8.50
Fourth quarter........................................... 13.38 10.75
1995
First quarter............................................ 19.50 11.75
Second quarter........................................... 23.25 16.00
Third quarter (through July 14, 1995).................... 19.50 18.25
</TABLE>
On April 24, 1995, the last trading day prior to the announcement of the
Merger Agreement, the closing price of Circon Common Stock as reported by Nasdaq
was $21.88 per share. On July 14, 1995, the closing price of Circon Common Stock
as reported by Nasdaq was $18.25. There can be no assurance as to the actual
price of Circon Common Stock at the Effective Time or at any time thereafter.
The Cabot Common Stock is quoted on the Nasdaq Stock Market under the
symbol "CBOT". The following table sets forth the range of high and low closing
prices for the Common Stock of Cabot as reported by Nasdaq for calendar quarters
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1993
First quarter............................................ $ 9.85 $ 7.23
Second quarter........................................... 7.80 5.48
Third quarter............................................ 6.20 3.82
Fourth quarter........................................... 6.41 3.93
1994
First quarter............................................ 8.41 4.89
Second quarter........................................... 8.88 6.75
Third quarter............................................ 7.13 4.75
Fourth quarter........................................... 6.25 4.50
1995
First quarter............................................ 5.88 3.38
Second quarter........................................... 7.50 4.00
Third quarter (through July 14, 1995).................... 7.88 7.13
</TABLE>
On April 24, 1995, the last trading day prior to the announcement of the
Merger Agreement, the closing price of Cabot Common Stock as reported by Nasdaq
was $6.25 per share. On July 14, 1995, the closing price of Cabot Common Stock
as reported by Nasdaq was $7.13. The closing prices set forth above reflect
stock dividends previously declared by Cabot.
43
<PAGE> 48
DIVIDEND POLICY
Neither Circon nor Cabot has ever paid cash dividends on its shares of
Common Stock. Following the Merger, it is expected that the Board of Directors
of Circon will continue its policy of not paying cash dividends in order to
retain earnings for reinvestment in the business of the combined companies.
Circon will be prohibited from paying cash dividends by the terms of the bank
loans to be obtained in the event that the Cabot Convertible Notes must be
repaid as a consequence of the Merger. See "Terms of the Merger -- Cabot
Convertible Notes; Possible Prepayment."
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet at March
31, 1995, combines Cabot's historical balance sheet at January 29, 1995, with
Circon's historical balance sheet at March 31, 1995. The unaudited pro forma
condensed statements of income for the three months ended March 31, 1995 and
1994, combine Cabot's statements of operations for the thirteen weeks ended
January 28, 1995 and January 29, 1994, with Circon's statements of income for
the three months ended March 31, 1995 and 1994, respectively. The unaudited pro
forma statements of income for each of the three years ended December 31, 1994,
combine Cabot's statements of operations for the years ended October 29, 1994,
October 31, 1993 and 1992, with Circon's statements of income for the years
ended December 31, 1994, 1993 and 1992, respectively. The unaudited pro forma
condensed statements give affect to the proposed Merger as a pooling of
interests for accounting purposes as if it had occurred at the beginning of the
earliest period presented. These statements should be read in conjunction with
Circon's historical financial statements and the related notes contained in
Circon's' Annual Report on Form 10-K for the year ended December 31, 1994, and
subsequent filings with the SEC, which have been incorporated by reference into
this Proxy Statement, and Cabot's historical financial statements and the
related notes contained elsewhere in this Proxy Statement.
The unaudited pro forma data are presented for information purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred had the Merger been consummated at the dates
indicated, nor are they necessarily indicative of future operating results or
financial position.
44
<PAGE> 49
CIRCON CORPORATION AND CABOT MEDICAL CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------------------------------------
PRO FORMA PRO FORMA
CIRCON CABOT ADJUSTMENTS NOTE COMBINED
-------- ------- ----------- ---- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CASH AND MARKETABLE SECURITIES.......... $ 21,326 $ 3,196 $ 24,522
OTHER CURRENT ASSETS.................... 39,302 24,625 $ (869) 1B 63,058
PROPERTY, PLANT and EQUIPMENT,
at cost............................... 44,364 32,630 1,373 1B 78,367
Accumulated depreciation.............. (11,118) (8,886) (4,491) 1B (24,495)
-------- ------- -------
Property, Plant and Equipment, net.... 33,246 23,744 (3,118) 53,872
-------- ------- -------
INTANGIBLE ASSETS....................... 2,782 35,693 38,475
OTHER ASSETS............................ 739 2,697 1,414 1B 4,850
-------- ------- -------
Total Assets....................... $ 97,395 $89,955 $(2,573) $ 184,777
======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt, including current
maturities......................... $ -- $ 726 $ 726
Other current liabilities............. 11,514 7,353 18,867
-------- -------
Total Current Liabilities.......... 11,514 8,079 19,593
-------- -------
LONG-TERM DEBT.......................... -- 72,234 72,234
DEFERRED INCOME TAXES................... 5,354 357 5,711
OTHER NONCURRENT LIABILITIES............ 192 -- 192
SHAREHOLDERS' EQUITY
Common stock.......................... 80 104 $ (61) 1A 123
Amounts paid in excess of par value... 59,431 30,657 61 1A 90,149
Retained earnings (deficit)........... 20,883 (20,907) (2,573) 1B (2,597)
Notes receivable from officers........ -- (569) (569)
Foreign currency translation
adjustment......................... 107 -- 107
Unrealized losses on marketable
securities......................... (166) -- (166)
-------- ------- -------
Total Shareholders' Equity......... 80,335 9,285 (2,573) 87,047
-------- ------- -------
Total Liabilities and Shareholders'
Equity........................... $ 97,395 $89,955 $(2,573) $ 184,777
======== ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
45
<PAGE> 50
CIRCON CORPORATION AND CABOT MEDICAL CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------------------------------
PRO FORMA PRO FORMA
CIRCON CABOT ADJUSTMENTS (NOTE 1B) COMBINED
------- ------- --------------------- ---------
<S> <C> <C> <C> <C>
REVENUES................................. $22,474 $15,733 $38,207
COSTS AND EXPENSES....................... 20,993 14,145 $ 365 35,503
------- ------- -------- ---------
Operating Income....................... 1,481 1,588 (365) 2,704
------- ------- -------- ---------
OTHER DEDUCTIONS:
Interest income (expense).............. 329 (1,393) (1,064)
Other -- net........................... (166) 118 (48)
------- ------- ---------
163 (1,275) (1,112)
------- ------- ---------
Income before income taxes............. 1,644 313 (365) 1,592
INCOME TAX PROVISION..................... 530 94 (118) 506
------- ------- -------- ---------
Net income............................. $ 1,114 $ 219 ($ 247) $ 1,086
======= ======= ================= ========
NET INCOME PER COMMON SHARE.............. $ 0.13 $ 0.02 $ 0.09
======= ======= ========
AVERAGE COMMON SHARES OUTSTANDING........ 8,434 10,307 12,711
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1994
-----------------------------------------------------------
PRO FORMA PRO FORMA
CIRCON CABOT ADJUSTMENTS (NOTE 1B) COMBINED
------- ------- --------------------- ---------
<S> <C> <C> <C> <C>
REVENUES................................. $20,833 $16,716 $37,549
COSTS AND EXPENSES....................... 19,700 14,166 $ 119 33,985
------- ------- -------- ---------
Operating Income....................... 1,133 2,550 (119) 3,564
------- ------- -------- ---------
OTHER DEDUCTIONS:
Interest income (expense).............. 84 (1,405) (1,321)
Other -- net........................... (3) 5 2
------- ------- ---------
81 (1,400) (1,319)
------- ------- ---------
Income before income taxes............. 1,214 1,150 (119) 2,245
INCOME TAX PROVISION..................... 425 103 (42) 486
------- ------- -------- ---------
Net income............................. $ 789 $ 1,047 ($ 77) $ 1,759
======= ======= ================= ========
NET INCOME PER COMMON SHARE.............. $ 0.10 $ 0.10 $ 0.14
======= ======= ========
AVERAGE COMMON SHARES
OUTSTANDING............................ 8,145 11,362 12,860
======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
46
<PAGE> 51
CIRCON CORPORATION AND CABOT MEDICAL CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------
PRO FORMA PRO FORMA
CIRCON CABOT ADJUSTMENTS (NOTE 1B) COMBINED
------- ------- --------------------- ---------
<S> <C> <C> <C> <C>
REVENUES................................. $88,944 $68,097 $ 157,041
COSTS AND EXPENSES....................... 83,326 59,355 $ 607 143,288
------- ------- ----- --------
Operating Income....................... 5,618 8,742 (607) 13,753
------- ------- ----- --------
OTHER DEDUCTIONS:
Interest (income) expense.............. 511 (5,597) (5,086)
Other -- net........................... (266) 54 (212)
======= ======= ========
245 (5,543) (5,298)
======= ======= ========
Income before income taxes............. 5,863 3,199 (607) 8,455
INCOME TAX PROVISION..................... 2,052 106 (212) 1,946
------- ------- ----- --------
Net income............................. $ 3,811 $ 3,093 $(395) $ 6,509
======= ======= ===== ========
NET INCOME PER COMMON SHARE.............. $ 0.47 $ 0.29 $ 0.51
======= ======= ========
AVERAGE COMMON SHARES
OUTSTANDING............................ 8,147 11,062 12,738
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------
CABOT
CIRCON (NOTE PRO FORMA PRO FORMA
(NOTE 3) 4) ADJUSTMENTS (NOTE 1B) COMBINED
-------- ------- --------------------- ---------
<S> <C> <C> <C> <C>
REVENUES................................ $ 87,301 $69,560 $ 156,861
COSTS AND EXPENSES...................... 84,852 72,614 $ 849 158,315
------- ------- ----- --------
Operating Income...................... 2,449 (3,054) (849) (1,454)
------- ------- ----- --------
OTHER DEDUCTIONS:
Interest income (expense)............. 623 (5,690) (5,067)
Other -- net.......................... (64) 196 132
------- ------- --------
559 (5,494) (4,935)
------- ------- --------
Income (loss) before income taxes and
cumulative effect of accounting
change............................. 3,008 (8,548) (849) (6,389)
INCOME TAX PROVISION.................... 954 1,042 (269) 1,727
------- ------- ----- --------
Income (loss) before cumulative effect
of
accounting change.................. 2,054 (9,590) (580) (8,116)
Cumulative effect of accounting change
(Note 5)........................... 204 -- -- 204
------- ------- ----- --------
NET INCOME (LOSS)....................... $ 2,258 $(9,590) $(580) $ (7,912)
======= ======= ===== ========
Income (loss) per common share before
cumulative effect of accounting
change............................. $ 0.25 $ (0.93) $ (0.68)
Cumulative effect of accounting
change............................. 0.03 -- 0.02
------- ------- --------
NET INCOME (LOSS) PER COMMON SHARE...... $ 0.28 $ (0.93) $ (0.66)
======= ======= ========
AVERAGE COMMON SHARES
OUTSTANDING........................... 8,158 10,265 12,018
======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
47
<PAGE> 52
CIRCON CORPORATION AND CABOT MEDICAL CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------
CABOT
(NOTE PRO FORMA PRO FORMA
CIRCON 4) ADJUSTMENTS (NOTE 1B) COMBINED
------- ------- --------------------- ---------
<S> <C> <C> <C> <C>
REVENUES................................. $83,483 $54,998 $ 138,481
COSTS AND EXPENSES....................... 74,943 55,300 $ 191 130,434
------- ------- -------- ---------
Operating Income....................... 8,540 (302) (191) 8,047
------- ------- -------- ---------
OTHER DEDUCTIONS:
Interest income (expense).............. 882 (2,882) (2,000)
Other -- net........................... (90) 169 79
------- ------- ---------
792 (2,713) (1,921)
------- ------- ---------
Income (loss) before income taxes and
extraordinary item.................. 9,332 (3,015) (191) 6,126
INCOME TAX PROVISION..................... 2,987 (822) (61) 2,104
------- ------- -------- ---------
Income (loss) before extraordinary
item................................ 6,345 (2,193) (130) 4,022
Extraordinary item -- utilization of
net operating loss carryforward
(Note 6)............................ 234 -- 234
------- ------- -------- ---------
NET INCOME (LOSS)........................ $ 6,579 $(2,193) $ (130) $ 4,256
======= ======= ================= ========
Income (loss) per common share before
extraordinary item.................. $ 0.77 $ (0.21) $ 0.32
Extraordinary item -- utilization of
net operating loss carryforward
(Note 6)............................ 0.03 -- 0.02
------- ------- ---------
NET INCOME (LOSS) PER COMMON SHARE....... $ 0.80 $ (0.21) $ 0.34
======= ======= ========
AVERAGE COMMON SHARES
OUTSTANDING............................ 8,245 10,312 12,524
======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
48
<PAGE> 53
CIRCON CORPORATION AND CABOT MEDICAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 1 -- PRO FORMA ADJUSTMENTS
(A) The shareholders' equity accounts of Circon and Cabot as of March 31,
1995, and January 28,
1995, respectively, have been adjusted to reflect the issuance of approximately
4 million shares of Circon Common Stock in accordance with the Exchange Ratio of
0.415 shares of Circon Common Stock for each share of Cabot Common Stock. The
actual number of shares of Circon Common Stock to be issued pursuant to the
Merger will be based upon the number of shares of Cabot Common Stock outstanding
immediately prior to the Effective Time. The common stock of Circon reflects the
par value of $.01 per share with additional amounts contributed included in
amounts paid in excess of par value.
(B) The pro forma statements reflect retroactive adjustments to conform
Circon's accounting for demonstration equipment and salesmen's inventory
("demonstration equipment") to Cabot's accounting policy. Cabot depreciates
demonstration equipment. Circon, which had not depreciated demonstration
equipment, will adopt a policy similar to Cabot's. Demonstration equipment is
depreciated on a straight line basis, after considering estimated residual
value, over a period of one to three years. The pro forma balance sheet also
reflects an adjustment to increase property, plant and equipment by $1,373 and
accumulated depreciation by $504 to classify all demonstration equipment as
property, plant and equipment.
The pro forma data are presented for information purposes only and do not
give effect to any synergies that may occur due to the integration of Cabot with
Circon's existing operations. Additionally, the adjustments to the Unaudited
Combined Pro Forma Condensed Consolidated Financial Statements do not include
expenses related to the Merger which will be recorded at the time of the Merger.
These costs are currently estimated to range between $6,000 and $9,000.
Accordingly, the pro forma data are not necessarily indicative of the operating
results or financial position that would have occurred had the Merger been
consummated at the dates indicated, nor necessarily indicative of future
operating results or financial position.
NOTE 2 -- PRO FORMA PER SHARE DATA
Pro forma per share data are based on the average number of Circon shares
that would have been outstanding had the Merger occurred at the beginning of the
earliest period presented based upon an Exchange Ratio of 0.415 shares of Circon
Common Stock for each share of Cabot Common Stock. Common stock equivalents have
been included in the calculation of earnings per share, except when
anti-dilutive.
NOTE 3 -- CIRCON RESTRUCTURING CHARGE
In the fourth quarter of 1993, Circon recorded a $2,600 pretax
restructuring charge consisting of $2,400 product restructuring inventory
adjustments and $200 of nonrecurring operating expense adjustments associated
with executive and reorganization changes and personnel reductions to improve
competitiveness in the marketplace.
NOTE 4 -- CABOT RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1993, as a result of anticipated changes in the health care industry
caused by proposed health care reform legislation, Cabot recorded a $3,940
pretax restructuring charge to 1993 operations consisting primarily of: (1)
$2,034 write-off of inventory of products no longer being marketed by the
Company; (2) $250 provision for equipment relating to discontinued products; (3)
$1,536 of estimated costs relating to the Company's human resource and facility
rationalization program, including severance, relocation, disposal costs and
other related charges; and (4) $120 for other restructuring related costs.
In addition, Cabot recorded a charge of approximately $4,165 to write-down
certain inventory which was experiencing reduced customer demand to their
estimated net realizable value. Such charge was included as a
49
<PAGE> 54
component of cost of sales in Cabot's 1993 statement of operations. Cabot also
recorded a charge of approximately $683 to write-off certain nonproductive
equipment which was included as a component of selling and administrative
expense in Cabot's 1993 statement of operations.
During 1992, restructuring charges of $2,941 were recorded for the costs
incurred in the consolidation and integration into Cabot the assets acquired and
liabilities assumed from Medical Engineering Company ("MEC") (Note 7). Such
charges consisted mainly of severance payments, facility closure costs and
clinical project termination costs.
NOTE 5 -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The 1993 pro forma income statement reflects the cumulative effect of
Circon's adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," of $204.
NOTE 6 -- EXTRAORDINARY ITEM
In 1992, Circon recognized a tax benefit of $234 (classified as an
extraordinary item) from utilization of net operating loss carryforwards of a
foreign subsidiary.
NOTE 7 -- CABOT ACQUISITION
Effective July 29, 1992, the Company acquired certain assets and assumed
certain liabilities of Medical Engineering Corporation ("MEC"), a wholly-owned
subsidiary of Bristol-Myers Squibb Company ("BMS"). This transaction was
accounted for as a purchase and accordingly, the results of operations of MEC
were included in Cabot's statements of operations beginning July 29, 1992.
The following unaudited pro forma results of operations for 1992 gives
effect to the acquisition of MEC as though it had occurred on November 1, 1991,
and include adjustments to reflect amortization and depreciation expense on the
assets acquired, to increase interest expense to reflect the issuance of the
convertible subordinated notes to finance the acquisition and amortization of
related debt issuance costs, and to reflect related tax effects of combining the
results of operations for the periods presented. The following 1992 unaudited
pro forma results of operations do not include charges for restructuring costs
($2,941) or the expensing of the purchase accounting adjustment of inventory to
its estimated fair market value ($2,748) as such charges are considered
nonrecurring.
<TABLE>
<CAPTION>
1992
(UNAUDITED)
--------------
(IN THOUSANDS,
EXCEPT PER
SHARE
AMOUNT)
<S> <C>
Net sales............................................................... $ 73,700
Net (loss).............................................................. (2,318)
Net (loss) per share.................................................... (.22)
</TABLE>
NOTE 8 -- FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Unaudited Pro Forma Combined Condensed Financial Statements assume that
the Merger will be treated for federal income tax purposes as a "tax-free
reorganization" within the meaning of Section 368(a) of the Code.
50
<PAGE> 55
BENEFICIAL OWNERSHIP OF CIRCON COMMON STOCK
The following table sets forth certain information as of June 27, 1995,
except as otherwise indicated, regarding the beneficial ownership of Common
Stock of Circon by (i) each person who is known to Circon to be the beneficial
owner of 5% or more of Circon's Common Stock, (ii) each director of Circon,
(iii) certain executive officers of Circon and (iv) all directors and executive
officers as a group. To the Company's knowledge, the beneficial owners named in
the table have sole voting and investment power with respect to the shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS(1)
- ----------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Richard A. Auhll....................................................... 1,527,579(2) 18.6%
6500 Hollister Avenue
Santa Barbara, CA 93117
State of Wisconsin Investment Board.................................... 650,000(3) 7.9%
P.O. Box 7842
Madison, WI 53707
Rudolf R. Schulte...................................................... 407,841(4) 5.0%
2927 De La Vina Street, Suite C
Santa Barbara, CA 93105
R. Bruce Thompson...................................................... 36,203(5) *
Harold R. Frank........................................................ 34,419(6) *
Winton L. Berci........................................................ 24,057(7) *
Paul W. Hartloff, Jr................................................... 22,837(8) *
John F. Blokker........................................................ 21,837(9) *
Frank D. D'Amelio...................................................... 19,257(10) *
David P. Zielinski..................................................... 10,593(11) *
All directors and executive officers as a group (10 persons)........... 2,092,456(12) 25.9%
</TABLE>
- ---------------
* Less than 1%.
(1) Percent of the outstanding shares of Common Stock, treating as outstanding
all shares issuable upon exercise of options held by the particular
beneficial owners that are included in the first column.
(2) Includes 120,000 shares subject to warrants and options exercisable
currently or within 60 days.
(3) Information is given as of December 31, 1994, and is based on a Schedule
13G filed by this shareholder.
(4) Includes 1,429 shares subject to options exercisable currently or within 60
days.
(5) Includes 2,857 shares subject to options exercisable currently or within 60
days.
(6) Includes 1,429 shares subject to options exercisable currently or within 60
days.
(7) Includes 24,057 shares subject to options exercisable currently or within
60 days.
(8) Includes 21,837 shares subject to options exercisable currently or within
60 days.
(9) Includes 21,837 shares subject to options exercisable currently or within
60 days.
(10) Includes 19,257 shares subject to options exercisable currently or within
60 days.
(11) Includes 3,393 shares subject to options exercisable currently or within 60
days.
(12) Includes 218,953 shares subject to options exercisable currently or within
60 days.
51
<PAGE> 56
BENEFICIAL OWNERSHIP OF CABOT COMMON STOCK
The following table sets forth certain information as of June 27, 1995,
except as otherwise indicated, regarding the beneficial ownership of Common
Stock of Cabot by (i) each person who is known to Cabot to be the beneficial
owner of 5% or more of Cabot's Common Stock, (ii) each director of Cabot, (iii)
certain executive officers of Cabot and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME(1) OWNED(2) CLASS(3)
- -------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Warren G. Wood(4)................................................... 1,406,645 13.3%
2150 Cabot Boulevard West
Langhorne, PA 19047
Harry Brener(5)..................................................... 1,280,973 12.1%
2150 Cabot Boulevard
West Langhorne, PA 19047
Marvin B. Sharfstein(6)............................................. 928,513 8.8%
2150 Cabot Boulevard West
Langhorne, PA 19047
Eugene V. Howard(7)................................................. 84,000 *
Harvey W. Grossman(8)............................................... 20,364 *
Glenn H. Stahl(9)................................................... 39,951 *
Noel G. Wray(10).................................................... 53,540 *
Palisade Capital Management(11)..................................... 707,416 6.4%
One Bridge Plaza, Suite 695
Fort Lee, NJ 07024
The Travelers Inc.(12).............................................. 667,375 6.0%
65 East 55th Street
New York, NY 10022
All officers and directors as a group (13 persons).................. 3,930,005(13) 35.0%
</TABLE>
- ---------------
* Less than 1%
(1) Messrs. Wood, Brener, Sharfstein, Howard and Grossman are all of the
Company's present Directors.
(2) The Company has been advised that each of the persons hereinbefore listed
has the sole power to vote and dispose of the number of shares set forth
opposite such person's name in the table or in the notes hereinafter set
forth, except as described in Notes (4) through (12).
(3) The class consists of (a) 10,392,226 shares of Common Stock issued and
outstanding as of June 27, 1995, (b) 822,484 shares of Common Stock subject
to outstanding options held by all officers and directors as a group under
the Company's stock option plans, (c) 304,449 shares of Common Stock
subject to outstanding options held by plan participants other than
officers and directors under the Company's stock option plans, and (d)
5,687,606 shares of Common Stock issuable upon conversion of the Company's
7.5% Convertible Subordinated Notes due March 1, 1999, all of which are
presently convertible (the "Notes"). Excludes 976,580 shares of Common
Stock subject to outstanding options held by all officers and directors as
a group under the Company's stock option plans that are not exercisable
within 60 days and 564,029 shares of Common Stock subject to outstanding
options held by plan participants other than officers and directors under
the Company's stock options plans that are not exercisable within 60 days.
(4) Includes 187,506 shares subject to outstanding options held by Mr. Wood
under the Company's stock option plans. Excludes 213,512 shares subject to
outstanding options under the Company's stock option plans that are not
exercisable within 60 days.
(5) Includes 187,573 shares subject to outstanding options held by Mr. Brener
under the Company's stock option plans. Excludes 213,512 shares subject to
outstanding options under the Company's stock option plans that are not
exercisable within 60 days.
52
<PAGE> 57
(6) Includes 187,708 shares subject to outstanding options held by Mr.
Sharfstein under the Company's stock option plans. Excludes 213,512 shares
subject to outstanding options under the Company's stock option plans that
are not exercisable within 60 days.
(7) Includes 38,013 shares subject to outstanding options held by Mr. Howard
under the Company's stock option plans. Excludes 10,182 shares held of
record by Mr. Howard's wife. Mr. Howard expressly disclaims beneficial
ownership of the shares held by his wife. Also, excludes 10,000 shares
subject to outstanding options under the Company's stock option plans that
are not exercisable within 60 days.
(8) Consists of 20,364 shares subject to outstanding options held by Mr.
Grossman under the Company's stock option plans. Excludes 10,000 shares
subject to outstanding options under the Company's stock option plans that
are not exercisable within 60 days.
(9) Consists of 39,951 shares subject to outstanding options held by Mr. Stahl
under the Company's stock option plans. Excludes 51,954 shares subject to
outstanding options under the Company's stock option plans that are not
exercisable within 60 days.
(10) Consists of 48,018 shares subject to outstanding options held by Mr. Wray
under the Company's stock option plans. Excludes 85,803 shares subject to
outstanding options under the Company's stock option plans that are not
exercisable within 60 days.
(11) Consists of 707,416 shares beneficially owned by Palisade Capital
Management ("PCM") (includes: 137,416 shares acquirable upon conversion of
registered bonds) based upon PCM's Schedule 13G dated May 2, 1995. Based
upon PCM's Schedule 13G dated May 2, 1995, PCM has sole power to vote or
direct the vote and sole power to dispose or to direct the disposition of
707,416 shares.
(12) Consists of 667,375 shares issuable upon conversion of Notes beneficially
owned by Smith Barney Inc., Smith Barney Holdings Inc. ("SB Holdings") and
The Travelers Inc. ("TRV"), based upon the TRV's Schedule 13G dated
February 8, 1995. Based upon the TRV's Schedule 13G dated February 8, 1995,
the TRV has shared power to vote or to direct the vote and sole power to
dispose or to direct the disposition of 667,375 shares. SB Holdings Inc.
and TRV disclaim beneficial ownership of the shares referred to in the
Schedule 13G dated February 8, 1995.
(13) Includes 822,484 shares of Common Stock subject to outstanding options held
by all officers and directors as a group under the Company's stock option
plans. Excludes 976,580 shares subject to outstanding options under the
Company's stock option plans that are not exercisable within 60 days.
DESCRIPTION OF CIRCON CAPITAL STOCK
The authorized capital stock of Circon consists of 50,000,000 shares of
Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par
value.
COMMON STOCK
As of the Circon Record Date, there were 7,975,968 shares of Circon Common
Stock outstanding held of record by approximately 721 stockholders. Holders of
Circon Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. The stockholders do not have a right to take
action by written consent nor may they cumulate votes in connection with the
election of directors. In the event of a liquidation, dissolution or winding up
of Circon, the holders of Circon Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the preferences of any
outstanding shares of Preferred Stock. The Circon Common Stock has no preemptive
or other subscription rights. All outstanding shares of Circon Common Stock are
fully paid and non-assessable, and the shares of Circon Common Stock to be
outstanding upon completion of the Merger will be fully paid and non-assessable.
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PREFERRED STOCK
As of the date of this Proxy Statement, Circon has 5,000,000 shares of
Preferred Stock authorized and no shares outstanding. The Board of Directors has
the authority to issue shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued and undesignated shares of Preferred Stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the Board of Directors, without stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power or other rights of the holders of Circon
Common Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Circon. Circon has no present
plans to issue Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Circon Common Stock is First
Interstate Bank of California, 707 Wilshire Boulevard, Los Angeles, California
90017 and its telephone number is (213) 614-2372.
DESCRIPTION OF CABOT CAPITAL STOCK
The authorized capital stock of Cabot consists of 50,000,000 shares of
Common Stock, no par value, and 500,000 shares of Preferred Stock, no par value.
There are no shares of Preferred Stock outstanding. At the Cabot Record Date,
there were 10,392,226 shares of Common Stock outstanding.
The Board of Directors of Cabot may, without approval of the holders of
shares of capital stock of Cabot, provide for the issuance from time to time of
shares of Preferred Stock in series and may establish, as to each series, the
designation and number of shares to be issued and the relative rights,
preferences and limitations of the shares of each series, including provisions
regarding voting powers, redemption, dividend rights, liquidation preferences
and conversion rights.
VOTING RIGHTS
Each holder of shares of Common Stock is entitled to one vote per share in
all matters to be voted on by shareholders. There are no cumulative voting
rights, which means that the holders of shares having more than 50% of the
voting power of the Common Stock can elect all of the directors in an election
of directors.
All questions that must be put to a vote of Cabot's shareholders are to be
determined by a majority of the votes cast at a meeting of shareholders, except
as otherwise required by the law of the State of New Jersey or Cabot's
Certificate of Incorporation.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any action required to be taken by shareholders of Cabot may be
taken only at a duly called annual or special meeting of shareholders or by
unanimous written consent of the shareholders entitled to vote on the matter.
The Certificate of Incorporation also requires the affirmative vote of the
holders of at least 80% of the voting power of all shares entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single class, for any of the following matters: (a) subject to the rights of the
holders of any series of Preferred Stock then outstanding, the removal of any
director or the entire Board of Directors from office (which may be done only
for cause); (b) the approval of any "Business Combination" (as defined in the
Certificate of Incorporation and hereinafter described) involving Cabot and any
"Interested Shareholder" (as defined in the Certificate of Incorporation and
hereinafter described), unless (1) the transaction is approved by a majority of
the members of the Board of Directors who are unaffiliated with the Interested
Shareholder and who were directors before the Interested Shareholder became an
Interested Shareholder or (2) certain minimum price, form of consideration and
procedural requirements specified in the Certificate of Incorporation are met;
and (c) the alteration, amendment or repeal of the Articles of the certificate
of incorporation and corresponding provisions of Cabot's By-Laws relating to the
Board of Directors, action by shareholders or Business Combinations or the
adoption of any provision inconsistent with those provisions.
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An "Interested Shareholder" is defined in the Certificate of Incorporation
as anyone, other than Cabot or its subsidiaries, any employee benefit plan of
Cabot or its subsidiaries or any entity holding Voting Stock for or pursuant to
any such plan, who is the beneficial owner of more than 20% of the Voting Stock.
The definition also includes any person who is an assignee of or has otherwise
acquired, in a transaction not involving a public offering, any shares of voting
Stock which were at any time within the prior five-year period beneficially
owned by another Interested Shareholder.
As defined in the Certificate of Incorporation, a "Business Combination"
includes the following transactions: (a) a merger or consolidation of Cabot or
any subsidiary with an Interested Shareholder or with any other corporation or
entity that is, or after such merger or consolidation would be, an affiliate or
associate of an Interested Shareholder; (b) the sale or other disposition by
Cabot or a subsidiary of assets with a value equal to 10% or more of the
aggregate market value of all the assets, determined on a consolidated basis, of
Cabot or 10% or more of the aggregate market value of all outstanding stock of
Cabot or representing 10% or more of the earning power or income, determined on
a consolidated basis, of Cabot, if an Interested Shareholder or an affiliate or
associate thereof is a party to the transaction; (c) the issuance of stock or
other securities of Cabot or of a subsidiary, which securities are worth 5% or
more of the aggregate market value of all the outstanding stock of Cabot, to an
Interested Shareholder or an affiliate or associate thereof; (d) the adoption of
any plan or proposal for the liquidation or dissolution of Cabot proposed by or
on behalf of an Interested Shareholder or an affiliate or associate thereof; (e)
any reclassification of securities, recapitalization, merger with a subsidiary
or other transaction that has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding stock (or securities convertible into
stock) of any class of Cabot or a subsidiary owned by an Interested Shareholder
or an affiliate or associate thereof; and (f) any receipt by an Interested
Shareholder or an affiliate or associate thereof of certain benefits (other than
proportionately as a shareholder of Cabot).
DIVIDEND AND LIQUIDATION RIGHTS
The holders of shares of Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of assets legally available
for payment of dividends, subject to the rights of the holders of Preferred
Stock, if any.
Upon the liquidation or dissolution of Cabot, whether voluntary or not, the
holders of shares of Common Stock will be entitled to share equally in the
assets of Cabot, subject to the rights of creditors and the holders of Preferred
Stock, if any.
OTHER MATTERS
The holders of Common Stock have no preemptive rights to purchase shares of
stock of Cabot and are not entitled to the benefits of any sinking fund
provisions. Shares of the Common Stock are not subject to any redemption
provision and are not convertible into any other security or other property of
Cabot. All outstanding shares of Common Stock are fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005.
COMPARISON OF RIGHTS OF HOLDERS OF CIRCON
COMMON STOCK AND HOLDERS OF CABOT COMMON STOCK
Upon consummation of the Merger, the shareholders of Cabot, a New Jersey
corporation, will become stockholders of Circon, a Delaware corporation.
Although the Delaware General Corporation Law, ("DGCL" or "Delaware Law") and
the Business Corporation Act of New Jersey, ("NJBCA" or "New Jersey Law") are
similar in many respects, there are a number of differences between the two
statutes which should be carefully considered by Cabot shareholders in
evaluating the proposed merger. The following summary, which
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sets forth certain material differences between the two statutes, does not
purport to be a complete statement of all differences between the DGCL and
NJBCA, nor does it purport to be a complete statement of the provisions of the
two statutes which it compares.
FIDUCIARY DUTIES OF DIRECTORS
Both Delaware Law and New Jersey Law provide that the board of directors
has the ultimate responsibility for managing the business affairs of a
corporation. In discharging this function, directors owe fiduciary duties of
care and loyalty to the corporation and to its shareholders.
Delaware courts have held that the duty of care requires the directors to
exercise an informed business judgment. An informed business judgment means that
the directors have informed themselves of all material information reasonably
available to them. Delaware courts have, under certain circumstances, also
imposed a heightened standard of conduct upon directors in matters involving a
contest for control of the corporation.
Similar to Delaware Law, New Jersey Law requires that directors perform
their duties in good faith. The NJBCA, however, contains a provision
specifically permitting (not requiring) directors, in discharging their duties,
to consider the effects of any action taken by them upon any or all affected
groups (including, e.g., shareholders, employees, suppliers, customers,
creditors and the community in which the corporation operates) as well as all
other pertinent factors. Furthermore, unlike Delaware Law, the NJBCA expressly
makes clear that a director has no greater obligation to justify any act
relating to an actual or potential takeover of the corporation than he or she
has with respect to any other act as a director.
LIMITATION OF DIRECTOR LIABILITY
Both Delaware Law and New Jersey Law permit a corporation's certificate of
incorporation to limit a director's exposure to monetary liability for breach of
fiduciary duty.
Pursuant to Delaware Law, a director cannot be relieved of liability for
(i) breach of his/her duty of loyalty to the company, (ii) acts or omissions not
in good faith or constituting intentional misconduct or knowing violation of the
law, (iii) declaration of an improper dividend, stock purchase or redemption of
shares, or (iv) any transaction from which the director derived an improper
personal benefit.
Similarly, pursuant to New Jersey Law, a director cannot be relieved of
liability for (i) breach of his/her duty of loyalty to the company, (ii) acts or
omissions not in good faith or constituting knowing violation of the law, or
(iii) acts or omissions which result in receipt of any improper personal
benefit.
INDEMNIFICATION
Both Delaware Law and New Jersey Law permit a corporation to indemnify any
person involved in a third party action by reason of his/her being an officer or
director of the corporation, against expenses, judgments, fines and settlement
amounts paid in such third party action (and against expenses incurred in any
derivative action), if such person acted in good faith and reasonably believed
that his/her actions were in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe that his/her conduct was unlawful. Furthermore, both states'
laws provide that a corporation may advance expenses incurred in defending any
action upon receipt of an undertaking by the person to repay the amount advanced
if it is ultimately determined that he/she is not entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under either the DGCL or the NJBCA where the person has been adjudged
liable to the corporation, unless a court finds him entitled to such
indemnification. If, however, the person has been successful in defending a
third party or derivative action, indemnification for expenses incurred is
mandatory under both states' laws.
In both states, the statutory provisions for indemnification are
non-exclusive with respect to any other rights, such as contractual rights (and,
in the case of a Delaware corporation, under a bylaw, agreement or vote of
stockholders or disinterested directors, and in the case of a New Jersey
corporation, under the certificate of
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incorporation, bylaw, agreement or vote of shareholders), to which a person
seeking indemnification may be entitled. Unlike Delaware law, however, New
Jersey law expressly permits such contractual or other rights to provide for
indemnification in connection with a third party action, including a derivative
action, unless a court determines that the acts or omissions giving rise to the
claim for indemnification (i) were in breach of the duty of loyalty to the
company, (ii) were not in good faith or involved a knowing violation of law, or
(iii) resulted in receipt of an improper personal benefit.
SHAREHOLDER PROTECTIVE PROVISIONS
Both Delaware Law and New Jersey Law contain provisions which provide
protection to shareholders, and the corporation in which they own shares,
against abusive acquisition and takeover techniques.
Under the DGCL, a corporation is prohibited from engaging in any business
combination with an interested stockholder (beneficial owner of 15% or more of
the corporation's voting stocks) for a period of three years from the date the
stockholder became interested unless (i) prior to such date the board of
directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) the
interested stockholder acquired 85% of the voting stocks at the time the
transaction commenced, or (iii) on or subsequent to such date the business
combination is approved by the board and 66 2/3% of the noninterested
stockholders. This provision of the DGCL does not apply to a corporation if the
certificate of incorporation or bylaws contain a provision expressly electing
not to be governed by this position or the corporation does not have voting
stock either listed on a national securities exchange, authorized for quotation
on an inter-dealer quotation system of a registered national securities
association or held of record by more than 2,000 stockholders.
Under the NJBCA, a corporation is prohibited from engaging in any business
combination with an interested shareholder (beneficial owner of 10% or more of
the corporation's voting shares) for a period of five years from the date the
shareholder became interested unless (i) prior to such date the board of
directors approved the business combination, (ii) subsequent to such date the
business combination is approved by 66 2/3% of the noninterested shareholders,
or (iii) the business combination meets certain conditions set forth in the
NJBCA which concern the amount of consideration to be received by noninterested
shareholders. Unless the certificate of incorporation provides otherwise, this
provision of the NJBCA does not apply to a corporation if the corporation does
not have voting shares either registered or traded on a national securities
exchange or registered with the Securities and Exchange Commission.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under Delaware Law, amending the certificate of incorporation generally
requires the approval of the holders of a majority of the shares of stock
entitled to vote, unless the certificate of incorporation provides for a greater
vote. Under Circon's certificate of incorporation, the affirmative vote of the
holders of two-thirds of the shares entitled to vote is required to amend
certain provisions of Circon's certificate of incorporation. New Jersey Law only
requires the affirmative vote of a majority of the votes cast by the holders of
shares entitled to vote on a proposed amendment, unless a specific provision of
the NJBCA or the certificate of incorporation requires a greater percentage.
MERGERS AND MAJOR TRANSACTIONS
Under Delaware Law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets, dissolutions,
etc.) require the approval of the holders of a majority of the outstanding stock
entitled to vote. New Jersey Law reduces the approval threshold to a majority of
the votes cast. Delaware Law and New Jersey Law each permit a corporation to
increase the minimum percentage vote required above the statutory minimums
described above.
DIVIDENDS
Delaware Law permits dividends to be paid out of (i) surplus (the excess of
net assets of the corporation over capital) or (ii) net profits for the current
and/or the then preceding fiscal year, unless the net assets are
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less than the capital of any outstanding preferred stock. New Jersey Law permits
the payment of dividends unless after payment (i) the corporation would be
unable to pay its debts as they become due in the usual course of its business,
or (ii) the corporation's total assets would be less than its total liabilities.
SHARE REPURCHASE
Under Delaware Law, a corporation may not purchase or redeem its own stock
by reducing the capital represented by such shares unless the assets of the
corporation remaining after such reduction shall be sufficient to pay any debts
of the corporation for which payment has not been otherwise provided.
Under New Jersey Law, a corporation may not purchase or redeem its own
shares if, after giving effect thereto, either (i) the corporation would be
unable to pay its debts as they become due in the usual course of its business,
or (ii) the corporation's total assets would be less than its total liabilities.
VOTING RIGHTS
Under both Delaware and New Jersey Law, cumulative voting in the election
of directors in only permitted if expressly authorized in a corporation's
certificate of incorporation.
APPRAISAL OR DISSENTERS RIGHTS
The rights of shareholders to demand payment in cash by a corporation of
the fair value of their shares under certain circumstances are called appraisal
rights under the DGCL and dissenters rights under the NJBCA. Delaware Law does
not afford appraisal rights to holders of shares which are either listed on a
national securities exchange, quoted on the Nasdaq Stock Market or held of
record by more than 2,000 stockholders, unless the plan of merger or
consolidation converts such shares into anything other than shares of the
surviving corporation or shares of stock of another corporation which, at the
effective date of the merger or consolidation, will either be listed on a
national securities exchange, quoted on Nasdaq Stock Market or held of record by
more than 2,000 stockholders.
New Jersey does not afford dissenters rights to shareholders of a
corporation which is a party to any plan of merger (i) with respect to shares of
a class or series which is listed on a national securities exchange or is held
on the record date by not less than 1,000 shareholders or (ii) where pursuant to
the plan of merger such shareholder will receive (x) cash, (y) shares which upon
consummation of the merger will either be listed on a national securities
exchange or held of record by not less than 1,000 shareholders, or (z) cash and
such securities.
AMENDMENTS TO BYLAWS
Under Delaware Law, the certificate of incorporation may confer on the
board of directors the power to amend the bylaws. Under New Jersey Law, the
board of directors has the power to amend bylaws unless such power is reserved
to the shareholders in the certificate of incorporation.
Under Delaware Law, a corporation's bylaws may be amended by the
stockholders entitled to vote, which power shall not be divested or limited
where the board also has such power. Under New Jersey Law, shareholders may
prescribe in the bylaws that any bylaw made by them shall not be altered or
repealed by the board of directors, and bylaws made by the board may be altered
or amended by the shareholders.
ACTION BY WRITTEN CONSENT
Delaware Law permits a majority or higher required percentage of
stockholders entitled to vote to consent in writing to any action that could be
taken by stockholders at a meeting, unless the certificate of incorporation
prohibits such written consent. Circon's certificate of incorporation prohibits
stockholder actions by written consent. New Jersey Law permits any corporate
action, other than the annual election of directors, to be taken by nonunanimous
shareholder consent without a meeting where shareholders having the minimum
number of votes that would be required to take such action at a meeting sign
written consents, unless the certificate of incorporation provides otherwise.
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SPECIAL MEETING OF SHAREHOLDERS
Under Delaware Law, a special meeting of the stockholders may be called by
the board of directors or such other person as may be authorized by the
certificate of incorporation or bylaws. Circon's certificate of incorporation
and bylaws authorize a special meeting of stockholders to be called only by the
board of directors. New Jersey Law permits a special meeting of shareholders to
be called by the president or the board of directors, or by such other officers,
directors or shareholders as may be provided in the bylaws.
ANNUAL MEETING OF SHAREHOLDERS
Under Delaware Law, if the annual meeting for the election of directors is
not held on the designated date, the directors are required to cause such a
meeting to be held as soon thereafter as convenient. If they fail to do so for a
period of 30 days after the designated date, or if no date has been designated
for a period of 13 months after the organization of the corporation or after its
last annual meeting, the Court of Chancery may summarily order a meeting to be
held upon the application of any stockholder or director.
Under New Jersey Law, if the annual meeting for election of directors is
not held on the designated date the directors are required to cause such a
meeting to be held as soon thereafter as may be convenient. If they fail to do
so for a period of 30 days after the designated date, or if no date has been
designated for a period of 13 months after the organization of the corporation
or after its annual meeting, the Superior Court may, upon application of any
shareholder, summarily order the meeting or the election, or both, to be held.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. A comparable body of judicial interpretation
does not yet exist in New Jersey. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under the DGCL. New Jersey does
not have an equivalent court system. As a result of these factors, there may be
less certainty as to the outcome of matters governed by the NJBCA, and therefore
it may be more difficult to obtain legal guidance as to such matters than would
be the case under Delaware Law.
EXPERTS
The consolidated financial statements of Circon, included or incorporated
by reference in this Proxy Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and included herein and reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Cabot as of October 29, 1994 and
October 31, 1993, and for each of the years ended October 29, 1994 and October
31, 1993 and 1992 have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Circon Common Stock issuable pursuant to the Merger and
certain other legal matters relating to the Merger and the transactions
contemplated thereby will be passed upon for Circon by Wilson, Sonsini, Goodrich
& Rosati, Professional Corporation, Palo Alto, California.
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CABOT SELECTED FINANCIAL DATA
The following table contains selected consolidated financial data and is
qualified by the more detailed consolidated financial statements and the notes
thereto included elsewhere in this Proxy Statement. The consolidated balance
sheet data as of October 29, 1994 and October 31, 1993 and the consolidated
statement of operations data for each of the years ended October 29, 1994 and
October 31, 1993 and 1992 have been derived from Cabot's consolidated financial
statements, included elsewhere herein. The consolidated balance sheet data as of
October 31, 1992, 1991 and 1990 and the consolidated statement of operations
data for each of the two years in the period ended October 31, 1991 and 1990
have been derived from Cabot's consolidated financial statements not included
herein. In the opinion of management of Cabot, the unaudited consolidated
statement of operations data for the six month period ended April 29, 1995 and
April 30, 1994 and the unaudited consolidated balance sheet at April 29, 1995
and April 30, 1994 include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the information set forth therein. The
results of operations for the six months ended April 29, 1995 are not
necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
FISCAL
SIX MONTHS ENDED YEAR
------------------- ENDED
APRIL APRIL OCTOBER FISCAL YEAR ENDED OCTOBER 31,
29, 30, 29, --------------------------------------
1995 1994 1994 1993 1992(1) 1991 1990
-------- -------- ---------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales......................................... $32,233 $33,902 $ 68,097 $69,560 $ 54,998 $40,661 $27,641
Cost of Sales(2).................................. 13,508 12,462 25,829 32,359 27,665 19,353 13,386
------- ------- ------- ------- -------- ------- -------
Gross Profit...................................... 18,725 21,440 42,268 37,201 27,333 21,308 14,255
------- ------- ------- ------- -------- ------- -------
Operating Expenses:
Selling and Administrative(3)................... 12,911.. 12,567 25,967 28,790 21,473 14,399 10,426
Research and Development........................ 1,688 2,167 4,783 4,791 2,469 1,942 967
Amortization of Intangibles..................... 1,410.. 1,393 2,776 2,734 752 75 104
Restructuring(4)................................ (188 ) -- -- 3,940 2,941 -- --
------- ------- ------- ------- -------- ------- -------
15,821.. 16,127 33,526 40,255 27,635 16,416 11,497
------- ------- ------- ------- -------- ------- -------
Operating Income (Loss)........................... 2,904 5,313 8,742 (3,054) (302) 4,892 2,758
------- ------- ------- ------- -------- ------- -------
Interest Expense, Net(5).......................... 2,795 2,811 5,597 5,690 2,882 471 132
Other Income...................................... (135 ) (23 ) (54) (196) (169) (119) (39)
------- ------- ------- ------- -------- ------- -------
2,660.. 2,788 5,543 5,494 2,713 352 93
------- ------- ------- ------- -------- ------- -------
Earnings (Loss) before income taxes............... 244 2,525 3,199 (8,548) (3,015) 4,540 2,665
Income Taxes (Benefit)............................ 89 350 106 1,042 (822) 1,815 1,067
------- ------- ------- ------- -------- ------- -------
Net Earnings (Loss)............................... $ 155 $ 2,175 $ 3,093 $(9,590) $ (2,193) $ 2,725 $ 1,598
======= ======= ======= ======= ======== ======= =======
Net Earnings (Loss) per Common and Equivalent
Share(6):
Primary......................................... $ .02 $ .20 $ .29 $ (.93) $ (.21) $ .25 $ .16
Fully Diluted................................... $.02.... $ .19 $ .29 $ (.93) $ (.21) $ .25 $ .16
======= ======= ======= ======= ======== ======= =======
Weighted Average Number of Common and Equivalent
Shares:
Primary......................................... 10,333 11,323 11,062 10,265 10,312 10,700 10,083
Fully Diluted................................... 10,333 11,327 11,064 10,265 10,312 10,712 10,303
======= ======= ======= ======= ======== ======= =======
Balance Sheet Data (at end of each period):
Current Assets.................................... $28,309 $27,632 $ 27,003 $26,836 $ 33,352 $23,466 $13,940
Property, Plant and Equipment..................... 23,767 22,302 23,643 21,759 22,519 9,152 2,610
Intangible Assets................................. 35,006 37,882 36,509 39,125 41,620 746 788
Total Assets...................................... 89,553 90,291 89,778 89,988 100,190 34,150 17,788
Short-term Borrowings(7).......................... 716 701 701 696 523 991 1,115
Long-term Borrowings.............................. 72,186 72,910 72,782 73,488 73,686 12,901 913
Total Liabilities................................. 80,332 80,949 80,747 82,552 82,455 17,145 6,091
Shareholders' Equity.............................. 9,221 9,342 9,031 7,436 17,735 17,005 11,697
======= ======= ======= ======= ======== ======= =======
</TABLE>
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- ---------------
(1) Balance Sheet Data at October 31, 1992, reflects the issuance of the Notes
on March 20, 1992, and the acquisition of assets and related liabilities of
the Urological Business on July 29, 1992.
(2) Including special charges of $4,165,000 in 1993.
(3) Includes special charges of $683,000 in 1993.
(4) Restructuring charges of $3,940,000 and $2,941,000 were accrued in the
fiscal years ended October 31, 1993 and 1992, respectively. In 1993, charges
are for costs associated with the Company's plan to reduce future operating
costs. In 1992, charges are for costs associated with the consolidation and
integration of the Urological Business into the Company.
(5) Interest Expense, Net for the fiscal year ended October 31, 1992, includes
interest incurred on the Notes, net of interest income from investment of
the proceeds of the Notes, pending the acquisition of the Urological
Business.
(6) The amount of net earnings (loss) per share is based on the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding.
Net earnings (loss) per share computations and weighted average number of
common and equivalent shares outstanding give retroactive recognition to the
2% stock dividend declared February 2, 1993, the 10% stock dividend declared
June 1, 1993, the 10% stock dividend declared December 6, 1993 and the 10%
stock dividend declared April 13, 1994 for all periods presented.
(7) Includes current maturities of long-term obligations.
(8) Total liabilities at October 29, 1994 and October 31, 1993 and 1992, include
$1,074,000, $1,332,000 and $1,436,000 related to restructurings charged to
operations in 1993 and 1992.
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CABOT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
of Cabot included elsewhere in this Proxy Statement.
Overview
Cabot manufactures and markets medical devices and systems principally for
use in general surgical and gynecological diagnostic procedures and surgery as
well as ureteral stents and urological diagnostic equipment and related products
for use in urological procedures.
In fiscal 1993 and 1994, due to a fundamental restructuring of the
healthcare delivery system in the United States, Cabot's capital equipment
business was materially impacted. As a result, Cabot's management determined to
(1) stress development and sales of specialty reusable and disposable products
and to reduce the number of product offerings, (2) reduce operating costs
(commensurate with the reduction in gross margin as a result of pricing
pressures) and (3) combine the theretofore separate urological and endoscopy
sales forces so as to increase the overall efficiency and productivity of the
sales force. The costs associated with the strategy have been significant and
have impacted the Company's profitability.
Comparison of the six months ended April 29, 1995 to the six months ended
April 30, 1994.
Net sales decreased $1,669,000 or 5% primarily due to a decrease of
$2,239,000 or 7% in domestic sales offset in part by an international sales
increase of $570,000 or 17%.
The domestic sales decrease was primarily attributable to lower prices for
disposable products resulting from price concessions demanded by large buying
groups and from competitive product pricing in the marketplace. The lower prices
for disposable products impacted Cabot significantly as product mix has shifted
from capital equipment to disposables. In addition, the lower sales reflect the
shift to lower unit priced disposables from higher unit priced capital
equipment. Cabot is attempting to address this effect of the shift in product
mix through the introduction of higher margin specialty disposable and reusable
products. Late in the first quarter of 1995, Cabot integrated its endoscopy and
urology sales forces, thus enabling each person in the sales force to sell both
product lines. This resulted in an expected reduction in the productivity of the
sales force in the second quarter. Cabot expects productivity to increase as the
integrated sales force becomes more proficient in selling both product lines.
Gross profit decreased as a percentage of sales from 63% to 58% primarily
due to the impact of lower prices and the shift in product mix described above.
In addition, Cabot is absorbing the costs of excess production capacity, which
should be reduced when Cabot completes its facility rationalization program in
the third quarter.
Selling and administrative expenses increased by $344,000 from 37% to 40%
of sales. Sales and marketing expenses increased by $1,109,000 primarily due to
expenses related to the training and other related expenses associated with the
integration of Cabot's endoscopy and urology sales force initiated during the
first quarter of the current year. Administrative expenses decreased
approximately $764,000 primarily due to a reduction of administrative operating
costs resulting from Cabot's human resource rationalization program and a
reduction in bad debt expense resulting from Cabot's belief that the overall
reserve for bad debt is adequate for future needs.
Research and development expenses decreased $480,000 due to the reduction
in the departmental operating costs as redundant positions were eliminated when
the research and development functions were consolidated into one facility
(Langhorne, Pennsylvania). In addition, specialty disposables and reusable
instrument product lines do not require as high a level of product development
and support as capital equipment product lines.
The restructuring credit of $188,000 reflects adjustments made for changes
(savings) in relocation, severance, facility refurbishing and carrying costs
associated with Cabot's previously announced facility and
62
<PAGE> 67
human resource rationalization programs. These savings were due primarily to
higher than expected voluntary resignations, lower actual refurbishing costs and
a reduced need for transitional equipment costs.
Other income increased $112,000 reflecting the net proceeds from the sale
of an intangible asset.
The reduction in income tax expense of $261,000 resulted primarily from
lower taxable earnings in fiscal 1995 than in fiscal 1994. The federal effective
tax rate of 24% in 1995 as compared to 14% in fiscal 1994 reflects a higher
level of utilization of federal net operating loss carryforwards than in fiscal
1994.
Comparison of the fiscal year ended October 29, 1994 to the fiscal year
ended October 31, 1993.
In fiscal 1994, pursuant to the previously announced human resources and
facility rationalization program, Cabot began to implement certain aspects of
its restructuring plan by reducing operating costs, consolidating facilities and
streamlining its product offerings (primarily to the durable capital equipment
market).
Net sales decreased $1,463,000 or 2% due to a decrease of $288,000 and
$1,175,000 in domestic and international sales respectively. The domestic sales
decrease is primarily the result of a de-emphasis of capital equipment and a
greater emphasis on specialty disposables and reusable instrument products. The
unit prices of Cabot's specialty disposables and reusable instrument products
are generally lower than the unit prices of Cabot's capital equipment products.
While unit sales of specialty disposables and reusable instrument products
increased, unit sales of capital equipment decreased. The increase in revenue
from increased unit sales of specialty disposables and reusable instrument
products was not sufficient to offset the decrease in revenue from lower unit
sales of capital equipment (which generally have higher unit prices than
specialty disposables and reusable instrument products). The international sales
decrease is primarily a result of the continued recessionary pressures in the
European and Latin America markets, which reduced the demand for capital
equipment thereby causing Cabot to reduce the unit prices of capital equipment
in order to compete for sales.
Gross profit increased as a percentage of sales to 62% from 53% (59% before
the $4,165,000 in special charges for the write-down of inventory in fiscal
1993). This improvement is attributable to the increased sales of the more
profitable specialty disposables and reusable instrument products and the
reduced sales of the less profitable capital equipment.
Selling and administrative expenses decreased by $2,823,000 from 41% to 38%
of sales. Sales and marketing expenses decreased by $1,597,000 primarily as a
result of a reduction of sales commission expense caused by a lower sales volume
coupled with the change in product mix. Due to the increase in sales of
specialty disposables and reusable instruments (which in fiscal 1994 had a lower
commission rate than capital equipment) as a percentage of total sales,
commission expense as a percentage of sales decreased correspondingly. In fiscal
1995 Cabot modified its commission schedule and may modify it further as the
year progresses. Commission expense as a percentage of sales may exceed or be
less than in fiscal 1994. Administrative expenses decreased by approximately
$1,226,000 primarily due to: (i) a $466,000 decrease in the overall
administrative departmental operating costs resulting from Cabot's human
resource rationalization program; (ii) a $74,000 decrease in costs associated
with public reporting expenses; and (iii) the non-recurrence of the $683,000 in
special charges related to the 1993 write-off of certain equipment no longer
required and other restructuring related costs.
Research and development expenses remained at 7% of sales, unchanged from
the prior period.
The $936,000 reduction in income tax expense resulted primarily from the
generation of a net operating loss for tax purposes in Fiscal Year 1994 caused
by the reversal of deferred tax assets and the resulting decrease in the
beginning-of-the-year balance of the valuation allowance for deferred tax assets
allocated to income tax expense.
63
<PAGE> 68
Comparison of the fiscal year ended October 31, 1993 to the fiscal year
ended October 31, 1992.
In fiscal 1993, as a result of the changes in the health care industry
described above, Cabot initiated a restructuring plan and took other measures
which resulted in restructuring, and other special charges, of $3,940,000 and
$4,848,000, respectively.
The restructuring charges of $3,940,000 consist primarily of: (1) a
$2,034,000 write-off of inventory of discontinued products; (2) $250,000
provision for the disposal of certain production equipment relating to
discontinued products; (3) $1,536,000 of estimated costs associated with Cabot's
human resource and facility rationalization program; and (4) $120,000 for other
restructuring related costs.
Additional charges of $4,848,000 consisted primarily of $4,165,000 of
write-downs of obsolete or excessive inventory to its estimated net realizable
value based on revised future sales level projections and $683,000 for the
disposal of certain assets, such as furniture, fixtures and other equipment, no
longer required.
Net sales increased by $14,562,000 or 26% due to increases of $13,505,000
and $1,057,000 in domestic and international sales, respectively. The increase
is primarily due to the inclusion of Cabot's Surgitek operation for a full year
in fiscal 1993, as compared to only one quarter in fiscal 1992.
Gross profit increased as a percentage of sales to 53% from 50%
notwithstanding $4,165,000 in special charges to cost of sales for the
write-down of inventory. These charges are not necessarily indicative of ongoing
operations. This improvement is attributable to the change in product mix in
favor of higher margin disposable products and the inclusion of a full year of
higher margin Surgitek product sales, primarily of disposable products. While
competitive pricing pressure in the minimally invasive surgical equipment market
has had a negative impact on Cabot's margins, this impact has been partially
offset by a shift of emphasis to higher margin disposable and equipment products
and the discontinuation or phase out of certain non-competitive products.
Selling and administrative expenses increased $7,317,000 from 39% to 41% of
sales. Selling and administrative expenses associated with Surgitek, which is
included for a full year in 1993 as compared to one quarter in 1992, accounted
for approximately $5,903,000 of the increase. Of the $1,414,000 additional
increase, $683,000 related to the write-off of certain equipment no longer
required, approximately $414,000 related to increased provisions for doubtful
accounts principally related to international accounts receivable and $398,000
related to increases in the promotional costs for Cabot's disposable products
and selected new instrumentation.
Research and development costs increased $2,322,000 or 94% primarily as a
result of an additional $1,000,000 of expenses from Surgitek, which is included
for a full year in 1993, as compared to only one quarter in 1992 and the
increased levels of funding necessary to provide for continued new product
development for the new product development for the minimally invasive market.
Amortization of intangibles increased approximately $1,982,000 reflecting
amortization of the Surgitek intangibles for a full year versus one quarter in
the prior year.
Restructuring charges of $3,940,000 have been provided for the estimated
costs associated with Cabot's plan to reduce future operating costs through
human resource and facility rationalization and by streamlining its product
offerings, primarily in the nondisposable equipment market.
Interest income decreased due to the utilization of funds in the
acquisition of Surgitek in the third quarter of fiscal 1992. Interest expense
increased approximately $1,847,000 in 1993 reflecting one full year's interest
on the Cabot Convertible Notes as compared to approximately eight months in the
prior fiscal year.
The 1993 provision for income taxes resulted from an income tax benefit of
approximately $493,000 being recognized upon the carryback of tax losses
generated in 1993, offset by a deferred tax provision of $1,535,000 representing
primarily the write-offs of deferred income tax assets generated in prior years
due to uncertainty as to their ultimate realization.
64
<PAGE> 69
Comparison of the fiscal year ended October 31, 1992, to the fiscal year
ended October 31, 1991.
The acquisition of the Urological Business from MEC occurred on July 29,
1992; therefore the sales and expenses relating to such operations are reflected
in the Consolidated Condensed Statements of Operations subsequent to that date.
Net sales increased by $14,337,000 due to an increase of $12,769,000 in
domestic sales and an increase of $1,568,000 in international sales. The
increase in domestic sales is a direct result of Cabot's aggressive marketing of
its minimally invasive surgical equipment and disposable products to the general
surgery market through an expanded sales force and the addition of $5,686,000 in
domestic sales to the urological surgery market. The increase in international
sales is due primarily to the addition of $1,506,000 in sales of Urological
Products to an affiliate of BMS and certain foreign markets.
Gross profit decreased as a percentage of sales to 50% from 52% primarily
due to the non-recurring charge of approximately $2,335,000 in increased cost of
sales associated with the inventory of the Urological Business acquired from
MEC, which were written up to fair market value at the time of acquisition
(pursuant to purchase accounting rules). This charge was not necessarily
indicative of ongoing operations. Competitive pricing pressure in the minimally
invasive surgical equipment market had minimal impact on margins.
Selling and administrative expenses increased by $7,074,000 from 35% to 39%
of sales. Selling and administrative expenses associated with the Urological
Business acquired from MEC accounted for $3,266,000 of the increase. Of the
$3,808,000 additional increase, approximately $2,343,000 was due primarily to
commission expense associated with the increase in domestic sales volume and the
additional personnel, including the expanded sales force, with related benefits,
hired in the Sales and Marketing departments to support the growth. Expenses for
promotion, demonstration, including marketing seminars and workshops, and
advertising of Cabot's products through various mediums accounted for
approximately $254,000 of the increase. Administrative expenses increased by
approximately $1,106,000 primarily due to a $768,000 increase in costs
associated with the hiring of additional administrative personnel, related
benefits and departmental operating costs, approximately $237,000 in write-offs
of questionable accounts receivable and a $101,000 increase in costs associated
with the preparation of proxy material, annual reports to the shareholders and
other public reporting expenses.
Research and development expenses increased by $527,000 due to the
increased levels of funding needed for the continuing development of products
for the laparoscopic and other minimally invasive general surgery markets and
research and development expenses of $279,000, associated with the Urological
Business acquired from MEC.
Amortization expense increased $677,000 primarily due to the addition of
goodwill and intangibles, including patents, trademarks, trade names, copyrights
and service marks acquired pursuant to the acquisition of the Urological
Business from MEC.
Restructuring charges of $2,941,000, net, were provided for the costs of
consolidation and integration into Cabot of the Urological Business acquired
from MEC. Such charges consist mainly of severance payments, facility closure
costs and clinical project termination costs determined by Cabot subsequent to
the acquisition date. Pursuant to an agreement between Cabot and BMS, upon
satisfaction of certain terms and conditions, which have been fully satisfied,
BMS agreed to reimburse Cabot for certain severance and related obligations in
connection with personnel reductions at Surgitek in an amount up to $661,000.
Cabot has recorded such reimbursement receivable as a reduction to the
restructuring charge in fiscal 1992.
Interest expense increased by $3,376,000 primarily due to the interest of
$3,143,000 incurred on the $67,000,000 of Cabot Convertible Notes. Interest
income increased by $965,000 primarily from the short term investment of the
proceeds of the Cabot Convertible Notes pending completion of the acquisition of
the Urological Business from MEC.
The provision for income taxes decreased by $2,637,000 (resulting in a
benefit of $822,000 in 1992) due to a pre-tax loss for fiscal 1992 of $3,015,000
primarily resulting from the restructuring charges of $2,941,000, net, from the
acquisition of the Urological Business from MEC.
65
<PAGE> 70
Financial Condition and Liquidity
Cabot's financial position remains strong as working capital increased by
$1,125,000 over fiscal year 1994 to $20,520,000 at the end of the second quarter
of fiscal 1995. This was primarily the result of the decrease in expenses
related to ongoing operations as part of Cabot's cost containment programs. At
the end of the second quarter, the current ratio was 3.6:1 and Cabot's cash and
cash equivalents and short-term investment position was approximately
$2,393,000. Cabot expects that the new sales mix consisting of more specialty
disposables and reusable instrument products than durable capital equipment
should continue to improve cash flow. Cabot believes that it has sufficient cash
resources to support its operations in the foreseeable future.
Cabot presently has $5,000,000 of unused, unsecured revolving credit with
two banks, $2,000,000 of which is short term (maximum of one year). Interest on
$3,000,000 of these lines is indexed to the Federal Funds rate and $2,000,000 is
indexed to the respective bank's base rate. In addition, Cabot presently has an
$11,000,000 unused, unsecured, long term (maximum seven years) credit line, with
interest at either .25% over the bank's base rate or varying percentages over
other indexed base rates, at the borrower's option. Cabot also has a $7,147,000
line of credit reserved for the letter of credit underlying Cabot's Industrial
Development Bonds. Cabot presently has $16,638,000 available on all bank credit
lines, after contingent liabilities for guarantees of currently issued letters
of credit.
There are no existing material commitments for capital expenditures nor are
there any anticipated in the foreseeable future. If material unanticipated
capital expenditures are required, Cabot believes it has adequate credit lines
to meet such needs. Cabot believes it has sufficient cash resources from
operations and available credit lines to meet foreseeable cash needs.
66
<PAGE> 71
INDEX TO CABOT CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-2
Consolidated Balance Sheets as of October 29, 1994 and October 31, 1993............... F-3
Consolidated Statements of Operations for the Years Ended October 29, 1994 and October
31, 1993 and 1992................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended October 29, 1994
and October 31, 1993 and 1992....................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended October 29, 1994 and October
31, 1993 and 1992................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cabot Medical Corporation:
We have audited the accompanying consolidated balance sheets of Cabot
Medical Corporation and subsidiaries as of October 29, 1994 and October 31,
1993, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years ended October 29, 1994 and October
31, 1993 and 1992. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all materials respects, the financial position of Cabot
Medical Corporation and subsidiaries as of October 29, 1994 and October 31,
1993, and the results of their operations and their cash flows for each of the
years ended October 29, 1994 and October 31, 1993 and 1992, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Princeton, New Jersey
December 2, 1994
F-2
<PAGE> 73
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 29, 1994 AND OCTOBER 31, 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS (NOTE 7) 1994 1993
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 2,129 $ 3,452
Short-term investments............................................... 891 --
Accounts receivables, less allowance for doubtful accounts of $849 in
1994 and $908 in 1993............................................. 9,410 8,642
Inventory (note 4)................................................... 13,052 12,268
Prepaid expenses and other current assets............................ 821 679
Refundable income taxes (note 9)..................................... 390 1,340
Deferred income taxes (note 9)....................................... 310 455
-------- --------
Total current assets......................................... 27,003 26,836
Property, plant and equipment, net (notes 5 and 7)..................... 23,643 21,759
Intangible assets, net (notes 2 and 6)................................. 36,509 39,125
Deferred income taxes (note 9)......................................... 47 --
Other assets, net...................................................... 2,576 2,268
-------- --------
$ 89,778 $ 89,988
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations (notes 7 and 10)......... $ 701 $ 696
Accounts payable..................................................... 1,370 1,514
Accrued expenses (note 8)............................................ 5,537 6,399
-------- --------
Total current liabilities.................................... 7,608 8,609
Long-term obligations, less current maturities (notes 7 and 10)........ 72,782 73,488
Deferred income taxes (note 9)......................................... 357 455
-------- --------
Total liabilities............................................ 80,747 82,552
-------- --------
Shareholders' equity (notes 11 and 15):
Preferred stock -- authorized 500,000 shares of no par value; no
shares issued and outstanding..................................... -- --
Common stock -- authorized 50,000,000 shares of no par value; issued
10,185,682 shares in 1994 and 9,564,221 shares in 1993 at stated
value of $.01 per share........................................... 102 96
Additional paid-in capital........................................... 30,327 23,848
Notes receivable from officers....................................... (272) --
Accumulated deficit.................................................. (21,126) (15,258)
Less treasury stock, 253,900 shares in 1993 (none in 1994) of common
stock, at cost.................................................... -- (1,250)
-------- --------
Total shareholders' equity................................... 9,031 7,436
Commitments and contingencies (notes 7, 10 and 14)
-------- --------
$ 89,778 $ 89,988
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 29, 1994 AND OCTOBER 31, 1993 AND 1992
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net sales (note 13)......................................... $68,097 $69,560 $54,998
Cost of sales (including special charges of $4,165 in 1993)
(note 3).................................................. 25,829 32,359 27,665
-------- -------- --------
--- --- ---
Gross profit...................................... 42,268 37,201 27,333
-------- -------- --------
--- --- ---
Operating expenses:
Selling and administrative (including special charges of
$683 in 1993) (note 3)................................. 25,967 28,790 21,473
Research and development.................................. 4,783 4,791 2,469
Amortization of intangibles (note 6)...................... 2,776 2,734 752
Restructuring (note 3).................................... -- 3,940 2,941
-------- -------- --------
--- --- ---
33,526 40,255 27,635
-------- -------- --------
--- --- ---
Operating income (loss)........................... 8,742 (3,054) (302)
Other income (expense):
Interest income........................................... 112 9 970
Interest expense (notes 7 and 10)......................... (5,709) (5,699) (3,852)
Other income.............................................. 54 196 169
-------- -------- --------
--- --- ---
(5,543) (5,494) (2,713)
-------- -------- --------
--- --- ---
Earnings (loss) before income tax expense
(benefit)....................................... 3,199 (8,548) (3,015)
Income tax expense (benefit) (note 9)..................... 106 1,042 (822)
-------- -------- --------
--- --- ---
Net earnings (loss)............................... $ 3,093 $(9,590) $(2,193)
=========== =========== ===========
Net earnings (loss) per common and equivalent share:
Primary................................................ $ .29 $ (.93) $ (.21)
=========== =========== ===========
Fully diluted.......................................... $ .29 $ (.93) $ (.21)
=========== =========== ===========
Weighted average number of common and equivalent shares:
Primary................................................ 11,061,701 10,264,988 10,311,794
Fully diluted.......................................... 11,063,543 10,264,988 10,311,794
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 75
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 29, 1994 AND OCTOBER 31, 1993 AND 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES RETAINED
ADDITIONAL RECEIVABLE EARNINGS
COMMON PAID-IN FROM (ACCUMULATED TREASURY
STOCK CAPITAL OFFICERS DEFICIT) STOCK TOTAL
------ ---------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1991....... 77 $ 7,938 $-- $ 9,420 $ (430 ) $17,005
Issuance of 39,400 shares under
stock option plans (note
11)........................... 1 172 -- -- -- 173
Tax benefits associated with
exercise of stock options..... -- 1,267 -- -- -- 1,267
Issuance of warrants for
acquisition (note 2).......... -- 1,483 -- -- -- 1,483
Net loss for the year ended
October 31, 1992.............. -- -- -- (2,193) -- (2,193)
---- ------- ----- -------- ------- -------
Balance at October 31, 1992....... 78 10,860 -- 7,227 (430 ) 17,735
Issuance of 11,060 shares under
stock option plans (note
11)........................... -- 54 -- -- -- 54
Tax benefits associated with
exercise of stock options..... -- 57 -- -- -- 57
Stock dividends of 1,767,818
shares (note 15).............. 18 12,877 -- (12,895) -- --
Purchase of 75,000 shares of
treasury stock................ -- -- -- -- (820 ) (820)
Net loss for the year ended
October 31, 1993.............. -- -- -- (9,590) -- (9,590)
---- ------- ----- -------- ------- -------
Balance at October 31, 1993....... 96 23,848 -- (15,258) (1,250 ) 7,436
Issuance of 197,649 shares under
stock option plans (note
11)........................... 2 615 (272) -- -- 345
Stock dividends of 946,212
shares (note 15).............. 9 8,952 -- (8,961) -- --
Purchase of 268,500 shares of
treasury stock................ -- -- -- -- (1,843 ) (1,843)
Retirement of 522,400 shares of
treasury stock................ (5) (3,088) -- -- 3,093 --
Net earnings for the year ended
October 29, 1994................ -- -- -- 3,093 -- 3,093
---- ------- ----- -------- ------- -------
Balance at October 29, 1994....... $102 $ 30,327 $ (272) $(21,126) $ -- $ 9,031
==== ======= ===== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 76
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 29, 1994 AND OCTOBER 31, 1993 AND 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)......................................... $ 3,093 $(9,590) $(2,193)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 5,262 7,709 2,872
Provision for losses on accounts receivable.............. 32 669 290
Deferred income tax expense (benefit).................... -- 1,535 (1,353)
Loss on disposal of property, plant and equipment........ 115 1,270 --
Changes in current assets and liabilities, net of effects
of acquisitions:
(Increase) decrease in accounts receivable............. (800) 2,406 17
(Increase) decrease in inventory....................... (784) 3,961 2,437
(Increase) decrease in prepaid expenses and other
current assets...................................... (142) 570 (888)
(Increase) decrease in refundable income taxes......... 950 (604) (736)
Increase (decrease) in accounts payable and accrued
expenses............................................ (1,006) (259) 4,056
Increase in income taxes payable....................... -- 57 1,140
------- ------- -------
Net cash provided by operating activities........... 6,720 7,724 5,642
------- ------- -------
Cash flows from investing activities:
Purchase of short-term investments.......................... (891) -- --
Payment for purchase of assets from MEC..................... -- -- (58,876)
Proceeds from disposal of property, plant and equipment..... -- 21 --
Purchase of property, plant and equipment................... (4,086) (4,518) (4,225)
Increase in intangible assets............................... (160) (239) (43)
(Increase) decrease in other assets......................... (707) 32 557
------- ------- -------
Net cash used in investing activities............... (5,844) (4,704) (62,587)
------- ------- -------
Cash flows from financing activities:
Net decrease in short-term borrowings....................... -- -- (865)
Principal payments on capital lease obligations............. (256) (194) (124)
Proceeds from issuance of common stock...................... 345 54 173
Payments for treasury stock................................. (1,843) (820) --
Net paydowns on lines of credit............................. -- -- (12,694)
Proceeds from issuance of Industrial Development Authority
Bonds.................................................... -- -- 7,000
Principal payments on Industrial Development Authority
Bonds.................................................... (445) (420) --
Proceeds from issuance of Convertible Subordinated Notes.... -- -- 67,000
Debt issuance costs......................................... -- -- (2,924)
------- ------- -------
Net cash provided by (used in) financing
activities........................................ (2,199) (1,380) 57,566
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... (1,323) 1,640 621
Cash and cash equivalents at beginning of year................ 3,452 1,812 1,191
------- ------- -------
Cash and cash equivalents at end of year...................... $ 2,129 $ 3,452 $ 1,812
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................. $ 5,308 $ 5,301 $ 3,030
======= ======= =======
Income taxes (net of refunds received)................... $ (852) $ (249) $ 127
======= ======= =======
) (continued
</TABLE>
F-6
<PAGE> 77
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $589 in 1993 were incurred when the Company
entered into leases for new equipment.
The Company received income tax benefits on the exercise of certain of its
stock options in the amount of $57 in 1993 and $1,267 in 1992 which benefits
were recorded as additions to additional paid-in capital.
In 1994, certain officers of the Company exercised options for 134,640
shares of common stock in exchange for issuing to the Company promissory notes
aggregating $272.
The Company declared a 10% stock dividend on April 13, 1994 resulting in
additions of $9 and $8,952 to common stock and additional paid-in capital,
respectively, and a $8,961 reduction in retained earnings in 1994 (note 15).
The Company declared a 2% stock dividend on February 2, 1993, a 10% stock
dividend on June 1, 1993 and a 10% stock dividend on December 6, 1993, resulting
in additions of $18 and $12,877 to common stock and additional paid-in capital,
respectively, and a $12,895 reduction in retained earnings in 1993 (note 15).
In 1992, the Company issued warrants to purchase 305,464 shares (as
adjusted for stock dividends) of its common stock as partial consideration for
the acquisition of certain assets and liabilities of Medical Engineering
Corporation (note 2).
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 78
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 1994 AND OCTOBER 31, 1993 AND 1992
(1) DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company designs, develops, manufactures and markets medical devices,
equipment and related medical disposable products for the health care industry.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
Fiscal year:
In 1994, the Company changed its fiscal year-end from October 31 to the
date that coincides with the last Saturday of October. This fiscal year was
adopted to conform all fiscal quarters to a thirteen week period. Adoption of
this new fiscal year had no material effect on the accompanying 1994 financial
statements.
Inventory:
Inventory is valued at the lower of cost or net realizable value, cost
being determined under the first-in, first-out method.
Property, plant and equipment:
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for depreciable assets over their estimated service
lives, principally on a straight-line basis. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, whichever is shorter. The straight-line method of depreciation is
followed for substantially all assets for financial reporting purposes, but
accelerated methods are used for tax purposes.
Property leased under capital leases is recorded in property, plant and
equipment, with corresponding payment obligations carried in long-term
obligations. Amortization is recorded on a straight-line basis, generally over
the lease term.
Intangible assets:
Intangible assets are recorded at cost and are amortized on a straight-line
basis over their estimated useful lives. The Company periodically assesses the
recoverability of its intangible assets, including patents, trademarks, FDA
registration and costs in excess of net assets acquired, by determining whether
the carrying value of the intangible assets can be recovered through projected
undiscounted future cash flows to be generated by the related business over the
remaining useful lives of the intangible assets.
Debt issuance costs:
Costs associated with the issuance in 1992 of the Convertible Subordinated
Notes and the Industrial Development Authority Bonds are capitalized and
amortized as a component of interest expense over the respective lives of the
debt instruments. Such costs were approximately $1,854,000 and $2,253,000 (net
of accumulated amortization of approximately $1,070,000 and $671,000) as of
October 29, 1994 and October 31, 1993, respectively, and are included under the
caption "Other assets, net" in the accompanying consolidated balance sheets.
F-8
<PAGE> 79
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes:
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109 (FAS 109) "Accounting for
Income Taxes." FAS 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established to reduce deferred
tax assets if it is determined to be "more likely than not" that all or some
portion of the potential deferred tax assets will not be realized. Under FAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Effective November 1, 1993, the Company adopted FAS 109. Adoption of FAS
109 had no material effect on the 1994 results of operations.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1993 and prior years, deferred income taxes were recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Cash equivalents:
Cash equivalents are short-term highly liquid investments readily
convertible to known amounts of cash or have original maturities of three months
or less. Cash equivalents include overnight repurchase agreements in the amount
of $1,763,000 and $1,000,000 as of October 29, 1994 and October 31, 1993,
respectively, which are secured by U.S. government backed obligations.
Short-term investments:
Short-term investments consist of United States government agency
obligations with an original maturity of greater than three months but less than
one year. Such investments are recorded at amortized cost, which approximates
market value.
Net earnings (loss) per share:
Net earnings (loss) per share are based on the weighted average number of
common shares outstanding including common stock equivalents utilizing the
modified treasury stock method in 1994. In 1993 and 1992, the calculation was
based solely on weighted average number of common shares outstanding as all
options and warrants were anti-dilutive.
Shares issuable upon conversion of the Company's 7.50% Convertible
Subordinated Notes due March 1, 1999 (note 7) are excluded from the per share
computations as they are not common stock equivalents and are anti-dilutive.
Weighted average number of common shares outstanding and net earnings
(loss) per share computations give retroactive recognition to the 2% stock
dividend declared February 2, 1993, and the 10% stock dividends declared June 1,
1993, December 6, 1993, and April 13, 1994 for all periods presented.
Research and development costs:
Research and development costs are charged to operations as incurred.
F-9
<PAGE> 80
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue recognition:
The Company recognizes revenue when goods are shipped to the customer and
all significant obligations have been satisfied.
New FASB accounting pronouncements:
The FASB has issued a new standard on "Employers' Accounting for
Postemployment Benefits." Under this standard, postemployment benefits should be
recognized on the accrual basis during the period that employees render service
to earn such benefits.
The FASB has issued a new standard on "Accounting for Certain Investments
in Debt and Equity Securities." Under this new standard, investments in certain
equity and debt securities should be recorded at fair value with resulting
unrealized gains or losses either included in earnings or in shareholders'
equity, unless the enterprise has the positive intent and ability to hold the
debt security until maturity, in which case the debt security may be recorded at
amortized cost.
These new standards must be adopted by the Company in fiscal 1995. The
Company does not believe that the adoption of these new standards will have a
material impact on the consolidated financial position or results of operations
of the Company.
(2) ACQUISITION
Effective July 29, 1992, the Company acquired certain assets and assumed
certain liabilities of Medical Engineering Corporation ("MEC"), a wholly-owned
subsidiary of Bristol-Meyers Squibb Company ("BMS"). The assets purchased
consisted primarily of accounts receivable, inventory, fixed assets, real
property, patents and other intellectual property used by MEC to manufacture and
sell stents, urodynamic devices, flexible urological fiber optic scopes and
related products (the "Business"). The Business is being carried on by Surgitek,
Inc. ("Surgitek"), a wholly-owned subsidiary of the Company. The accompanying
consolidated financial statements of the Company therefore include the Business'
operations since that date.
The purchase price of the Business consisted of $57,567,000 in cash plus
warrants to purchase 305,464 shares (as adjusted for stock dividends) of the
Company's common stock at an exercise price of $11.78 per share (as adjusted for
stock dividends) exercisable over seven years, which warrants had an estimated
fair value of $1,483,000. The acquisition was financed by the issuance of
$67,000,000 of 7.50% Convertible Subordinated Notes due March 1, 1999 (note 7).
The acquisition agreement required the Company, through January 1994, to
maintain compensation arrangements for Surgitek employees that were, in the
aggregate, no less favorable than those previously provided by MEC and BMS, to
provide Surgitek employees with the benefits that the Company currently provides
to its own employees and to adopt and maintain a severance policy for Surgitek
employees that is identical to that which was provided by MEC and BMS. In
addition, the acquisition agreement included an international distribution
agreement with BMS for a period of up to 18 months.
F-10
<PAGE> 81
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This transaction was accounted for as a purchase and accordingly, the total
purchase price of the assets acquired and liabilities assumed were allocated
based upon their fair value at the date of acquisition as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accounts receivable............................................ $ 3,202
Inventory...................................................... 5,548
Other current assets........................................... 26
Property, plant and equipment.................................. 10,990
Patents........................................................ 6,600
Trademarks..................................................... 20,400
FDA registration............................................... 2,030
Costs in excess of net assets acquired......................... 12,553
Accounts payable............................................... (304)
Accrued expenses............................................... (686)
-------
Total purchase price, including out-of-pocket
expenses........................................... $ 60,359
=======
</TABLE>
The following unaudited pro forma results of operations for 1992 gives
effect to the acquisition of the Business as though it had occurred on November
1, 1991 and include adjustments to reflect amortization and depreciation expense
on the assets acquired, to increase interest expense to reflect the issuance of
the Convertible Subordinated Notes and amortization of related debt issuance
costs and to reflect related tax effects of combining the results of operations
for the periods presented. The 1992 unaudited pro forma results of operations do
not include charges for restructuring costs ($2,941,000) or the expensing of the
purchase accounting adjustment to inventory to its estimated fair market value
($2,748,000) as such charges are considered nonrecurring.
<TABLE>
<CAPTION>
1992
---------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Net sales.................................................... $73,700
Net earnings (loss).......................................... (2,318)
Net earnings (loss) per share................................ (.22)
</TABLE>
The unaudited pro forma results of operations are not necessarily
indicative of the actual results of operations that would have occurred had the
acquisition been made on November 1, 1991, or of results which may occur in the
future.
(3) RESTRUCTURING AND OTHER SPECIAL CHARGES
Restructuring:
During the fourth quarter of 1993, as a result of anticipated changes in
the health care industry caused by proposed health care reform legislation, the
Company initiated a restructuring plan to reduce future operating costs through
human resource and facility rationalization and by streamlining its product
offerings, primarily in the non-disposable equipment product area.
In connection with this plan, the Company recorded a $3,940,000 pre-tax
charge to 1993 operations consisting primarily of: (1) $2,034,000 write-off of
inventory of products no longer being marketed by the Company; (2) $250,000
provision for equipment relating to discontinued products and no longer
required; (3) $1,536,000 of estimated costs relating to the Company's human
resource and facility rationalization program,
F-11
<PAGE> 82
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including severance, relocation, disposal costs and other related charges; and
(4) $120,000 for other restructuring related costs.
The aforementioned restructuring plan resulted in asset write-downs of
approximately $2,322,000, an accrual in the amount of approximately $1,332,000
as of October 31, 1993 for probable future cash expenditures and the payment of
approximately $286,000 of cash in 1993. The Company currently anticipates that
its human resource and facility consolidation program should be completed in the
second quarter of 1995 and should result in the payment in 1995 of substantially
all of the remaining amounts accrued for as of October 29, 1994.
During 1992, restructuring charges of $2,941,000, net, were recorded for
the costs incurred in the consolidation and integration into the Company of the
Business acquired from MEC (note 2). Such charges consisted mainly of severance
payments, facility closure costs and clinical project termination costs
determined by the Company subsequent to the acquisition date. Pursuant to an
agreement between the Company and BMS, BMS reimbursed the Company for severance
and related obligations in connection with personnel reductions at Surgitek in
an amount aggregating $661,000. The Company recorded such reimbursement as a
reduction to the restructuring charge in fiscal 1992.
Other special charges:
During the fourth quarter of 1993, the Company re-evaluated the carrying
values of certain inventory of products still being marketed by the Company
which were most affected by proposed health care reform legislation and for
which customer demand patterns had changed substantially since 1992. As a
result, the Company recorded a charge of approximately $4,165,000 in 1993 to
write-down these assets to their estimated net realizable value. Such charge is
recorded as a component of cost of sales in the accompanying 1993 consolidated
statement of operations.
In addition, during the fourth quarter of 1993, the Company recorded a
charge of approximately $683,000 to write-off certain nonproductive equipment no
longer required. Such charge is recorded as a component of selling and
administrative expense in the accompanying 1993 consolidated statement of
operations.
(4) INVENTORY
Inventory as of October 29, 1994 and October 31, 1993 consists of the
following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................ $ 5,799 $ 5,643
Work-in-process.......................... 1,394 1,618
Finished goods........................... 5,859 5,007
------- -------
$13,052 $12,268
======= =======
</TABLE>
F-12
<PAGE> 83
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, and their respective estimated useful
lives as of October 29, 1994 and October 31, 1993 consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(IN YEARS) 1994 1993
------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................. -- $ 1,154 $ 1,154
Buildings........................................ 31 14,382 12,815
Machinery and equipment.......................... 3-8 7,043 8,229
Office equipment................................. 8 5,433 5,187
Tooling.......................................... 4 2,967 2,264
Motor vehicles................................... 4 78 103
Assets under capital leases (note 10)............ Term of lease 422 753
-------- --------
31,479 30,505
Less accumulated depreciation and amortization... 7,836 8,746
-------- --------
$ 23,643 $ 21,759
======= =======
</TABLE>
(6) INTANGIBLE ASSETS
Intangible assets, net and their estimated useful lives as of October 29,
1994 and October 31, 1993 consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(IN YEARS) 1994 1993
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Patents............................................ 5-17 $ 7,411 $ 7,411
Trademarks......................................... 10-23 20,536 20,536
Licenses........................................... 3-17 544 384
FDA registration................................... 21 2,030 2,030
Costs in excess of net assets acquired............. 20-25 12,791 12,791
Other.............................................. 5 279 279
-------- --------
43,591 43,431
Less accumulated amortization...................... 7,082 4,306
-------- --------
$ 36,509 $ 39,125
======= =======
</TABLE>
F-13
<PAGE> 84
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM OBLIGATIONS
Long-term obligations as of October 29, 1994 and October 31, 1993 consist
of the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
7.50% Convertible Subordinated Notes
due March 1, 1999.............................. $67,000 $67,000
Industrial Development Authority Bonds
due December 1, 2006........................... 6,135 6,580
Obligations under capital leases (note 10)....... 348 604
------- -------
73,483 74,184
Less current maturities.......................... 701 696
------- -------
$72,782 $73,488
======= =======
</TABLE>
Future principal maturities on long-term obligations at October 29, 1994
are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR (IN THOUSANDS)
--------------------------------------------- --------------
<S> <C>
1995......................................... $ 701
1996......................................... 602
1997......................................... 515
1998......................................... 370
1999......................................... 67,390
Thereafter................................... 3,905
-------
$ 73,483
=======
</TABLE>
Industrial Development Authority Bonds:
The Company has a letter of credit facility in the amount of approximately
$6,282,000 as of October 29, 1994 underlying $7,000,000 of tax exempt Industrial
Development Authority Bonds issued in December 1991 with a 15 year maturity
requiring monthly interest payments and annual principal payments. The letter of
credit has a renewable 5 year term and carries an annual fee of 1% of the
outstanding bond principal amount. The bonds are subject to weekly repricing at
an interest rate based on the remarketing agents' professional judgment and
prevailing market conditions at the time. The Bonds and the letter of credit
facility are collateralized by the Company's two Langhorne, Pennsylvania
operating facilities and a vacant lot adjacent to one of the facilities. These
facilities had a net carrying value of $5,596,000 as of October 29, 1994.
Convertible Subordinated Notes:
To finance the acquisition of the Business (note 2), on March 20, 1992, the
Company issued and sold $67,000,000 (aggregate principal amount) of its 7.50%
Convertible Subordinated Notes due March 1, 1999 (the "Notes"), to institutional
buyers in a private placement. The Notes bear interest at the rate of 7.50% per
annum which is payable semi-annually on each March 1 and September 1, until
maturity (March 1, 1999) or earlier redemption or conversion.
The Notes are unsecured general obligations of the Company and are
subordinated in right of payment to the prior payment in full of existing and
future senior indebtedness of the Company. The Indenture does not contain any
restriction or limitation on the incurrence of additional senior indebtedness by
the Company.
On and after March 1, 1995, the Company, at its option, may redeem all of
the Notes at any time or some of the Notes from time to time at the redemption
prices equal to the principal amount plus a premium
F-14
<PAGE> 85
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ranging from 1.25% to 2.50% of the principal amount) until February 28, 1997,
and the principal amount thereafter, plus accrued and unpaid interest to the
redemption date in each case. If a change in control of the Company occurs,
there are provisions under which the Company may be required, upon election by
holders of at least 75% (in aggregate principal amount) of the Notes, to
repurchase the Notes within 180 days of such event at a price equal to the
principal amount of the Notes plus accrued interest, to the repurchase date.
Each of the Notes is convertible at the option of the holder, in whole or in
part in portions of $1,000 or any whole multiple of $1,000, into shares of
common stock at a conversion price of $11.78 per share (as adjusted for stock
dividends) at any time until the close of business on the fifth day prior to
maturity, unless previously redeemed. The conversion price of the Notes is
adjustable based on certain events affecting the Company's common stock.
Lines of credit:
The Company also has a $21,147,000 credit arrangement consisting of: (1) a
$3,000,000 unsecured revolving line of credit with interest payable monthly at
the lower of 140 basis points over the daily Federal Funds Rate or at the
lender's base rate minus .25%; (2) a $11,000,000 unsecured nonrevolving line of
credit, which may be termed out for periods up to 7 years with interest only
payable monthly, in certain circumstances for up to 6 months, at either .25%
over the lender's base rate, 2.75% over the LIBOR rate, 3.00% over the lender's
certificate of deposit rate or may be negotiated at a fixed rate to be quoted by
the bank at the time of term out, and; (3) a $7,147,000 line of credit reserved
for the outstanding letter of credit issued to support the Industrial
Development Authority Bonds. The credit arrangement is subject to certain
restrictive covenants, among which are maintenance of stipulated financial
ratios, limitations on capital expenditures and restrictions on declaring and
paying cash dividends, and borrowings are subject to a negative pledge of all
assets of the Company. These credit facilities expire in February, 1996. There
were no advances under these lines of credit as of October 29, 1994 and October
31, 1993.
The Company also has an unsecured $2,000,000 demand loan credit arrangement
with another lender. Interest is payable monthly at this lender's base rate.
As of October 29, 1994, the Company had approximately $14,865,000 (the
aforementioned $21,147,000 credit arrangement less the $6,282,000 letter of
credit outstanding) and $1,773,000 (the aforementioned $2,000,000 credit
arrangement less a $227,000 letter of credit outstanding) of unused lines of
credit with the two lenders that may be drawn as needed ($18,273,000 and
$1,746,000, respectively, as of October 31, 1993).
F-15
<PAGE> 86
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) ACCRUED EXPENSES
Accrued expenses as of October 29, 1994 and October 31, 1993 consist of the
following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Inventory purchases........................................ $ 256 $ 435
State and local taxes...................................... 793 990
Wages...................................................... 414 367
Vacations.................................................. 356 370
Commissions................................................ 889 745
Royalties.................................................. 232 181
Interest................................................... 887 885
Professional fees.......................................... 98 168
Restructuring costs (note 3)............................... 1,074 1,332
Miscellaneous.............................................. 538 926
------ ------
$5,537 $6,399
====== ======
</TABLE>
(9) INCOME TAXES
As discussed in note 1, the Company adopted FAS 109 as of November 1, 1993.
Adoption of FAS 109 had no material effect on the 1994 consolidated financial
statements. Prior years' financial statements have not been restated to apply
the provisions of FAS 109.
The provision for income taxes for the years ended October 29, 1994 and
October 31, 1993 and 1992 consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $106 $ (493) $ 531
State................................................... -- -- --
---- ------ -------
106 (493) 531
---- ------ -------
Deferred:
Federal................................................. -- 1,535 (1,353)
State................................................... -- -- --
---- ------ -------
-- 1,535 (1,353)
---- ------ -------
$106 $1,042 $ (822)
==== ====== =======
</TABLE>
F-16
<PAGE> 87
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual income tax expense (benefit) differs from the "expected" tax
expense (benefit) (computed by applying the U. S. corporate tax rate of 34% to
earnings (loss) before income tax expense (benefit)) for the years ended October
29, 1994 and October 31 1993 and 1992 as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).............. $1,088 $(2,906) $(1,025)
Increase (decrease) resulting from:
Change in the beginning-of-the-year
balance of the valuation allowance
for Federal deferred tax assets
allocated to income tax expense................... (902) -- --
Write-off of deferred income tax assets.............. -- 3,246 --
Net operating loss not providing
current benefit................................... -- 653 --
Nondeductible amortization........................... 4 23 168
Other, net........................................... (84) 26 35
------ ------- -------
$ 106 $ 1,042 $ (822)
====== ======= =======
</TABLE>
The significant components of deferred income tax expense attributable to
income from continuing operations for the year ended October 29, 1994 are as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Deferred tax expense (exclusive of
the effect of the other
component listed below).................................................... $ 951
Decrease in beginning-of-the-year
balance of the valuation
allowance for deferred tax assets.......................................... (951)
------
$ --
======
</TABLE>
The tax effects of timing differences in the recognition of income and
expenses for tax and financial statement purposes for the years ended October
31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Depreciation and amortization.................................... $ (229) $ (141)
Inventory obsolescence........................................... (548) (504)
Bad debts........................................................ (194) (105)
Accrued expenses................................................. (1,395) (579)
Write-off of deferred income tax assets.......................... 3,246 --
Net operating loss not providing current benefit................. 653 --
Other............................................................ 2 (24)
------- -------
$ 1,535 $(1,353)
======= =======
</TABLE>
F-17
<PAGE> 88
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 29,
1994 are presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts............................................................ $ 359
Allowance for returns.................................................. 290
Inventories, principally due to reserve for obsolescence............... 1,077
Sales taxes, principally due to accrual for financial reporting
purposes............................................................ 194
Accrued expenses....................................................... 709
Net operating loss carryforwards....................................... 896
Alternative minimum tax credit carryforwards........................... 341
Other.................................................................. 143
-------
Total gross deferred tax assets................................ 4,009
Less valuation allowance............................................... (3,178)
-------
Net deferred tax assets........................................ 831
-------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation and
capital leases...................................................... (437)
Intangible assets, principally due to differences in amortization...... (120)
Other.................................................................. (274)
-------
Total gross deferred tax liabilities........................... (831)
-------
Net deferred tax liability..................................... $ --
=======
</TABLE>
The valuation allowance for deferred tax assets as of November 1, 1993 was
$4,129,000. The net change in the total valuation allowance for the year ended
October 29, 1994 was a decrease of $951,000.
In 1993, the Company evaluated the realizability of its deferred income tax
assets and determined that, as a result of the continuing uncertainty in the
health care industry caused by proposed health care reform legislation, the
ultimate realizability of such deferred income tax assets was not assured beyond
a reasonable doubt. Accordingly, the Company wrote-off deferred income tax
assets of approximately $3,246,000 in 1993.
The Company has Federal net operating loss carryforwards available of
approximately $1,221,000 to offset future Federal taxable income, if any,
through 2009. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $341,000 which are available to reduce future
Federal regular income taxes, if any, over an indefinite period.
(10) COMMITMENTS AND CONTINGENCIES
Lease commitments:
Property and equipment under capital leases are capitalized using interest
rates (ranging from 6.00% to 14.77%) in effect at the inception of the lease.
F-18
<PAGE> 89
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A schedule of future minimum lease payments is as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
------------------------------------------------------------------ ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995.............................................................. $ 256 $48
1996.............................................................. 114 32
1997.............................................................. -- 13
---- ---
Total minimum lease payments...................................... 370 $93
===
Less taxes........................................................ 3
----
Net minimum lease payments........................................ 367
Less amount representing interest................................. 19
----
Present value of net minimum lease payments....................... 348
Current obligation under capital leases........................... 236
----
Long-term obligation under capital leases......................... $ 112
====
</TABLE>
Total assets under capital leases as of October 29, 1994 aggregated
$422,000 and accumulated amortization aggregated $23,000 ($753,000 and $410,000,
respectively, as of October 31, 1993).
Total rent expense charged to operations was $82,000, $22,000 and $108,000
in the years ended October 29, 1994 and October 29, 1993 and 1992, respectively.
Contingencies:
The Company is a defendant in various legal actions as of October 29, 1994
arising out of the ordinary course of its business. These claims primarily
relate to the Company's products and are subject to coverage under the Company's
product liability insurance. The Company believes that its existing product
liability insurance should be sufficient to cover any material liabilities which
may result from the pending legal actions relating to the Company's products.
Claims in other matters are not material based on information currently
available to the Company.
The Company is currently undergoing an audit by the Internal Revenue
Service relating to the Company's 1992 Federal income tax return. The Company
believes that, based upon information currently available, the ultimate
resolution of this audit should not have a material effect on the future
consolidated results of operations or financial position of the Company.
(11) STOCK OPTION/PURCHASE PLAN
Stock option plans:
The Company's stock option plans (the Plans), the 1983 and 1985 incentive
and the 1987 and 1992 nonqualified, were established to enable the Company to
grant options to key management, other employees and independent directors to
purchase common stock. The option price cannot be less than the fair market
value at date of grant. Options can be granted for varying exercise periods, but
in no case exceed ten years from date of grant. The 1983, 1985, 1987 and 1992
Plans were approved by the Directors and Shareholders for the granting of
options to purchase up to 152,053, 608,214, 3,815,240 (reflecting an increase of
1,000,000 shares so approved in 1994) and 67,881 shares of common stock,
respectively.
F-19
<PAGE> 90
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of activity under the plans for the years ended
October 29, 1994 and October 31, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Shares under option -- beginning of year.................. 1,940,448 1,397,850 594,250
Options granted:
Incentive stock options at an exercise price of
$8.50.............................................. -- 63,000 --
Nonqualified stock options at exercise prices ranging
from $4.60 to $9.35................................ 889,220 162,300 843,000
Options cancelled:
Incentive stock options at exercise prices ranging
from $1.32 to $6.89................................ (29,929) -- --
Nonqualified stock options at exercise prices ranging
from $4.60 to $8.50................................ (551,085) (40,800) --
Options exercised:
Incentive stock options at exercise prices ranging
from $.93 to $1.63................................. (2,530) (2,000) (9,950)
Nonqualified stock options at exercise prices ranging
from $1.42 to $8.50................................ (195,119) (9,060) (29,450)
Net effect of stock dividends (note 15)................. 247,000 369,158 --
--------- --------- ---------
Shares under option -- end of year........................ 2,298,005 1,940,448 1,397,850
========= ========= =========
Options available for future grants:
Incentive stock options................................. 47,381 13,453 73,900
Nonqualified stock options.............................. 789,641 107,992 209,000
--------- --------- ---------
837,022 121,445 282,900
========= ========= =========
</TABLE>
At October 29, 1994, 1,126,326 options were currently exercisable at prices
ranging from $1.20 to $6.89 per share.
On November 1, 1994, the Company granted options to its independent
directors to purchase, at $5.25 per share, 20,000 shares in the aggregate under
the 1992 Plan.
Stock purchase plan:
In July 1989, the Company initiated an employee stock purchase plan (the
"Plan") which is offered to substantially all employees, including officers.
Employees may purchase the Company's common stock through payroll deductions not
to exceed 6% of their salary per month and shares are purchased in the open
market at the then market price. The Company contributes an amount equal to 43%
of the employee's contribution towards the purchase of these shares. The shares
purchased with the Company's contributions reside in a separate account for each
employee, vesting quarterly over a three-year period. Company contributions
under this Plan aggregated $48,000, $59,000 and $24,000 for fiscal 1994, 1993
and 1992, respectively.
(12) TRANSACTIONS WITH RELATED PARTIES
On November 11, 1992, the Company advanced $100,000 to an officer of the
Company in the form of a demand promissory note. Such note incurs interest at
prime plus .25% per annum and is secured by 42,000 shares of the Company's
common stock.
On November 9, 1993, the Company loaned approximately $479,000 to certain
officers of the Company in connection with their exercise of Company stock
options in exchange for promissory notes maturing in
F-20
<PAGE> 91
CABOT MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 1998. Such notes bear interest at prime plus .25% per annum and are
secured by 134,640 shares of the Company's common stock. The amount of the loans
that relate to the exercise price for the options of $272,000, has been recorded
as a reduction to shareholders equity as of October 29, 1994.
On October 12, 1994, the Company advanced $250,000 to a Director of the
Company in the form of a promissory note maturing December 31, 1995. Such note
incurs interest at prime plus .25% and is secured by 41,000 shares of the
Company's common stock.
(13) SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are located in the United States and constitute a
single industry segment. Sales by geographic area for the years ended October
29, 1994 and October 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic...................................... $61,161 $61,449 $47,944
Export........................................ 6,936 8,111 7,054
------- ------- -------
$68,097 $69,560 $54,998
======= ======= =======
</TABLE>
(14) FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET AND CREDIT RISK
The Corporation enters into foreign exchange contracts as a hedge against
foreign currency denominated accounts payable for the purchase of certain
inventory components. Realized market gains and losses are recorded as material
price variances on those payables. As of October 29, 1994, the Company had no
outstanding foreign exchange contracts. The Company had letters of credit, in
favor of vendors, outstanding as of October 29, 1994 for $227,000 (note 7).
In December 1992, the Company was issued a letter of credit, in favor of
the holders of its tax exempt Industrial Development Authority Bonds, for
$6,282,000 (note 7).
The Company typically extends unsecured trade credit to its customers for
product sales on a thirty to ninety day basis. However, under certain
circumstances, product sales made to foreign customers are made on a letter of
credit or sight draft basis. The Company's customers consist primarily of
hospitals, physicians and other health care providers.
(15) STOCK DIVIDENDS
The Company declared a 10% stock dividend on April 13, 1994, which
aggregated 946,212 shares of common stock. The fair market value of the shares
issued in the stock dividend has been charged to accumulated deficit and
transferred to additional paid-in capital and common stock through October 29,
1994.
The Company declared a 2% stock dividend on February 2, 1993, a 10% stock
dividend on June 1, 1993 and a 10% stock dividend on December 6, 1993, which
aggregated 1,767,818 shares of common stock. The fair market value of the shares
issued or issuable in the stock dividends has been charged to accumulated
deficit and transferred to additional paid-in capital and common stock through
October 31, 1993.
(16) SUBSEQUENT EVENT
On November 23, 1994, the Company loaned approximately $508,000 to certain
officers of the Company in connection with their exercise of Company stock
options in exchange for demand promissory notes. Such notes bear interest at
prime plus .25% per annum and are secured by 162,000 shares of the Company's
common stock.
F-21
<PAGE> 92
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CIRCON CORPORATION
CIRCON SUB CORP.
AND
CABOT MEDICAL CORPORATION
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- THE MERGER................................................................. 1
1.1 The Merger................................................................ 1
1.2 Effective Time............................................................ 1
1.3 Corporate Effect of the Merger............................................ 1
1.4 Effect of the Merger on Capital Stock..................................... 1
1.5 Dissenting Shares......................................................... 2
1.6 Surrender of Cabot Common Stock Certificates and Delivery of Circon Common
Stock Certificates...................................................... 3
1.7 No Further Ownership Rights in Cabot Common Stock......................... 3
1.8 Lost, Stolen or Destroyed Certificates.................................... 4
1.9 Tax and Accounting Consequences........................................... 4
1.10 Registration of Merger Shares............................................. 4
1.11 Taking of Necessary Action; Further Action................................ 4
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF CABOT................................... 4
2.1 Organization of Cabot..................................................... 4
2.2 Cabot Capital Structure................................................... 5
2.3 Obligations With Respect to Subsidiary Capital Stock...................... 5
2.4 Authority................................................................. 5
2.5 SEC Filings; Cabot Financial Statements................................... 6
2.6 Absence of Certain Changes or Events...................................... 7
2.7 Tax....................................................................... 7
2.8 Absence of Restrictions on Business Activities............................ 8
2.9 Absence of Liens and Encumbrances......................................... 8
2.10 Intellectual Property..................................................... 8
2.11 Agreements, Contracts and Commitments..................................... 9
2.12 No Default................................................................ 10
2.13 Governmental Authorization................................................ 10
2.14 Litigation................................................................ 10
2.15 Environmental Matters..................................................... 10
2.16 Brokers' and Finders' Fees................................................ 11
2.17 Labor Matters............................................................. 11
2.18 Employee Benefit Plans.................................................... 11
2.19 Pooling of Interests...................................................... 13
2.20 Change of Control Payments................................................ 13
2.21 Registration Statements; Proxy Statement/Prospectus....................... 13
2.22 Board Approval............................................................ 13
2.23 Voting Agreement.......................................................... 13
2.24 Employment and Consulting Agreement....................................... 13
2.25 Non-Public Information Provided to Circon................................. 13
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF CIRCON AND
MERGER SUB........................................................... 14
3.1 Organization of Circon.................................................... 14
3.2 Capital Structure......................................................... 14
3.3 Authority................................................................. 14
3.4 SEC Filings; Circon Financial Statements.................................. 15
3.5 Absence of Certain Changes or Events...................................... 15
</TABLE>
i
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.6 Taxes..................................................................... 16
3.7 Restrictions on Business Activities....................................... 16
3.8 Absence of Liens and Encumbrances; Condition of Equipment................. 16
3.9 Intellectual Property..................................................... 16
3.10 Litigation................................................................ 17
3.11 Environmental Matters..................................................... 17
3.12 Agreements, Contracts and Commitments..................................... 17
3.13 Labor Matters............................................................. 18
3.14 Compliance With Laws...................................................... 18
3.15 Pooling of Interests...................................................... 18
3.16 Broker's and Finders' Fees................................................ 18
3.17 Registration Statement; Proxy Statement/Prospectus........................ 18
3.18 Employee Benefit Plans.................................................... 18
3.19 Board Approval............................................................ 19
3.20 Fairness Opinion.......................................................... 19
3.21 Non-Public Information Provided to Cabot.................................. 19
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME....................................... 19
4.1 Conduct of Business of Cabot.............................................. 19
4.2 Conduct of Business of Circon............................................. 21
4.3 SEC Filings............................................................... 21
ARTICLE V -- ADDITIONAL AGREEMENTS...................................................... 22
5.1 Proxy Statement/Prospectus; Registration Statement........................ 22
5.2 Meetings of Stockholders.................................................. 22
5.3 Access to Information; Confidentiality.................................... 22
5.4 No Solicitation........................................................... 23
5.5 Expenses.................................................................. 24
5.6 Break-Up Fee.............................................................. 24
5.7 Public Disclosure......................................................... 24
5.8 Pooling Accounting........................................................ 25
5.9 Auditors' Letters......................................................... 25
5.10 Affiliate Agreements...................................................... 25
5.11 FIRPTA.................................................................... 25
5.12 Legal Requirements........................................................ 25
5.13 Blue Sky Laws............................................................. 25
5.14 Best Efforts and Further Assurances....................................... 26
5.15 Stock Options............................................................. 26
5.16 Registration of Circon Shares Issuable Upon Exercise of Cabot Stock
Options................................................................. 26
5.17 Tax-Free Reorganization................................................... 26
5.18 NMS Listing............................................................... 26
5.19 Board Representation...................................................... 26
5.20 Compliance with Indenture................................................. 26
5.21 Indemnification of Directors and Officers................................. 27
5.22 Commitment Letters........................................................ 28
ARTICLE VI -- CONDITIONS TO THE MERGER.................................................. 28
6.1 Conditions to Obligations of Each Party to Effect the Merger.............. 28
6.2 Additional Conditions to Obligations of Cabot............................. 28
6.3 Additional Conditions to the Obligations of Circon and Merger Sub......... 29
</TABLE>
ii
<PAGE> 95
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER........................................ 30
7.1 Termination............................................................... 30
7.2 Effect of Termination..................................................... 31
7.3 Notice of Termination..................................................... 31
7.4 Amendment................................................................. 31
7.5 Extension; Waiver......................................................... 31
ARTICLE VIII -- GENERAL PROVISIONS...................................................... 32
8.1 Non-Survival of Representations and Warranties............................ 32
8.2 Notices................................................................... 32
8.3 Interpretation............................................................ 32
8.4 Counterparts.............................................................. 32
8.5 Entire Agreement.......................................................... 33
8.6 Severability.............................................................. 33
8.7 Other Remedies............................................................ 33
8.8 Governing Law............................................................. 33
8.9 Rules of Construction..................................................... 33
8.10 Assignment................................................................ 33
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
A Voting Agreement
B Cabot Affiliate Agreement
C Circon Affiliate Agreement
D Legal Opinion, Counsel to Circon
E Legal Opinion, Counsel to Cabot
</TABLE>
iii
<PAGE> 96
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made and entered into as of July 10, 1995 among Circon
Corporation, a Delaware corporation ("Circon"), Circon Sub Corp., a New Jersey
corporation and a wholly-owned subsidiary of Circon ("Merger Sub"), and Cabot
Medical Corporation, a New Jersey corporation ("Cabot").
In consideration of the covenants, promises and representations set forth
herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, Merger Sub shall be merged with and into Cabot in accordance with the
New Jersey Business Corporation Act (the "State Law").
1.2 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger with the Secretary of State of New Jersey, in accordance with the
relevant provisions of State Law (the time of such filing being the "Effective
Time"). The closing of the Merger (the "Closing") shall take place at the law
offices of Stradley, Ronon, Stevens & Young in Philadelphia, Pennsylvania
(unless the parties agree to a different location) at a time and date to be
specified by the parties, which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VI (the
"Closing Date").
1.3 Corporate Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of State Law. Without limiting the generality of the foregoing, at the Effective
Time:
(a) The separate corporate existence of Merger Sub shall cease and Cabot
shall continue as the surviving corporation ("Surviving Corporation").
(b) The Certificate of Incorporation of Cabot shall be amended (except
Article One, setting forth the name of the corporation) to be identical to the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time.
(c) The Bylaws of Cabot shall be amended to be identical to the Bylaws
of Merger Sub.
(d) The directors of Merger Sub shall be the directors of Cabot until
their respective successors are duly elected or appointed and qualified. The
officers of Merger Sub shall be the officers of Cabot, until their respective
successors are duly elected or appointed and qualified.
1.4 Effect of the Merger on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, Cabot or
the holders of the securities of either:
(a) Conversion of Cabot Common Stock. Each share of Cabot Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares of Cabot Common Stock to be canceled pursuant to Section 1.4(b) and any
Dissenting Shares (as defined in and to the extent provided in Section 1.5(a))
will be converted into 0.415 share of Circon Common Stock (the "Exchange
Ratio"). Upon conversion of the shares of Cabot Common Stock into shares of
Circon Common Stock as set forth in the preceding sentence, former holders of
Cabot Common Stock shall become holders of record of Circon Common Stock. Stock
certificates which immediately prior to the Effective Time represented
outstanding shares of Cabot Common Stock shall be exchanged for stock
certificates representing shares of Circon Common Stock in the manner provided
in Section 1.6 (or in the case of a lost, stolen or destroyed certificate, in
the manner provided in Section 1.8).
(b) Cancellation of Certain Stock. Each share of Cabot Common Stock
owned by Circon, Merger Sub, Cabot or any direct or indirect wholly owned
subsidiary of Circon or Cabot immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
<PAGE> 97
(c) Stock Options; Employee Stock Purchase Plan; Warrant. At the
Effective Time, all options to purchase Cabot Common Stock then outstanding
under the Cabot Stock Option Plans (as defined in Section 2.2) shall be assumed
by Circon in accordance with Section 5.15 hereof. At the Effective Time, in
accordance with the terms of Cabot's Employee Stock Investment Plan (the
"Employee Stock Purchase Plan") all rights to purchase shares of Cabot Common
Stock under the Employee Stock Purchase Plan shall be converted into rights to
purchase a number of shares of Circon Common Stock as provided in the Employee
Stock Purchase Plan. At the Effective Time, the outstanding warrant held by
Medical Engineering Corporation to purchase 305,464 shares of Cabot Common Stock
(the "Warrant") will be assumed by Circon and become a warrant to purchase
shares of Circon Common Stock in accordance with the terms of the Warrant.
(d) Capital Stock of Merger Sub. Each share of Common Stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one share of Cabot
Common Stock.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Circon Common Stock or Cabot Stock), reorganization, recapitalization or other
like change with respect to Circon Common Stock or Cabot Common Stock occurring
after the date hereof and prior to the Effective Time. Cabot shall not effect
any such transaction in violation of Section 4.1 hereof.
(f) Fractional Shares. No fraction of a share of Circon Common Stock
will be issued by virtue of the Merger. In lieu thereof, each holder of shares
of Cabot Common Stock who would otherwise be entitled to a fraction of a share
of Circon Common Stock (after aggregating all fractional shares of Circon Common
Stock to be received by such holder) shall receive from Circon an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the average closing price, as reported on the Nasdaq National
Market, of a share of Circon Common Stock for the ten most recent days that
Circon Common Stock has traded ending on the trading day immediately prior to
the Effective Time.
(g) Convertible Notes. Following the Effective Time, the holders of
outstanding 7.5% Convertible Subordinated Notes of Cabot due March 1, 1999 (the
"Cabot Notes") will, pursuant to the terms of the Indenture dated as of March
20, 1992 (the "Indenture"), be entitled to convert each Note into the number of
shares of Circon Common Stock determined by multiplying the Exchange Ratio by
the number of shares of Cabot Common Stock into which the Note is convertible
immediately prior to the Effective Time.
1.5 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of Cabot Common Stock who has demanded appraisal rights for
such shares in accordance with State Law and who, as of the Effective Time, has
not effectively withdrawn or lost such appraisal rights ("Dissenting Shares"),
shall not be converted into Circon Common Stock pursuant to Section 1.4(a), but
the holder thereof shall only be entitled to such rights as are granted by State
Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Cabot Common Stock who demands appraisal of such shares under State
Law shall effectively lose or withdraw the right to appraisal, then, as of the
later of the Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into Circon Common Stock, without
interest thereon.
(c) Cabot shall give Circon (i) prompt notice of any written demands for
appraisal of any shares of Cabot Common Stock, withdrawals of such demands or
failures to perfect appraisal rights resulting in a loss of such rights, and any
other instruments served pursuant to State Law and received by Cabot which
relate to any such demand for appraisal and (ii) the opportunity to participate
in all negotiations and proceedings which take place prior to the Effective Time
with respect to demands for appraisal under State Law. Cabot shall not, except
with the prior written consent of Circon, voluntarily make any payment with
respect to any demands for appraisal of Cabot Common Stock or offer to settle or
settle any such demands.
2
<PAGE> 98
1.6 Surrender of Cabot Common Stock Certificates and Delivery of Circon
Common Stock Certificates.
(a) Exchange Agent. Prior to the Closing Date, Circon shall appoint the
bank which acts as transfer agent for Circon Common Stock or another similar
institution to act as the exchange agent (the "Exchange Agent") in the Merger.
(b) Circon to Provide Common Stock. Promptly after the Effective Time,
Circon shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Circon may adopt, the
shares of Circon Common Stock issuable pursuant to Section 1.4 in exchange for
outstanding shares of Cabot Common Stock, and cash in an amount sufficient for
payment in lieu of fractional shares pursuant to Section 1.4(f).
(c) Exchange Procedures. Within ten days after the Effective Time,
Circon shall cause to be mailed to each holder of record of a certificate which
immediately prior to the Effective Time represented outstanding shares of Cabot
Common Stock (the "Certificates") whose shares were converted into shares of
Circon Common Stock pursuant to Section 1.4, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Circon may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Circon
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Circon Common Stock and payment in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 1.4, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate will be deemed, from and
after the Effective Time, for all corporate purposes other than the payment of
dividends, to evidence the ownership of the number of full shares of Circon
Common Stock into which such shares of Cabot Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.4.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Circon Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate
(with respect to the shares of Circon Common Stock represented thereby) until
the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the shares of Circon Common Stock issued
in exchange therefor, without interest, at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time payable with respect to such whole shares of Circon Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Circon
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Circon or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Circon Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Circon or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.6, neither the Exchange Agent, Cabot nor any party hereto shall be
liable to a holder of shares of Circon Common Stock or Cabot Common Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.7 No Further Ownership Rights in Cabot Common Stock. All shares of
Circon Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof) shall be deemed to
3
<PAGE> 99
have been issued in full satisfaction of all rights pertaining to such shares of
Cabot Common Stock, and there shall be no further registration of transfers on
the records of Cabot of shares of Cabot Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to Cabot for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.8 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Cabot Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Circon Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.4; provided, however,
that Circon may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Circon or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.9 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) qualify for accounting treatment as a pooling of interests. The obligations
of each party to effect the Merger are subject to satisfaction of these
conditions as set forth in Section 6.1 of this Agreement.
1.10 Registration of Merger Shares. As promptly as practicable after the
execution of this Agreement, Circon and Cabot shall prepare and Circon shall
file with the Securities and Exchange Commission ("SEC") a registration
statement on Form S-4 (the "Registration Statement") to register under the
Securities Act of 1933 as amended (the "Securities Act") the issuance of the
shares of Circon Common Stock pursuant to the Merger and this Agreement, as
provided in Section 5.1.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Cabot and Merger Sub, the officers and directors of Cabot and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CABOT
Cabot represents and warrants to Circon and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by Cabot to Circon (the "Cabot Schedules") and dated as of the date hereof, as
set forth below. As used in this Article II and in Article III, the term
"Material Adverse Effect" with respect to a party means a material adverse
effect on the business, assets (including intangible assets), financial
condition, or results of operations of such party and its subsidiaries, taken as
a whole.
2.1 Organization of Cabot. Cabot and each of its material subsidiaries
(which material subsidiaries are set forth in Cabot Schedules) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own, lease and
operate its property and to carry on its business as now being conducted and as
proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Cabot. Cabot has
delivered to Circon a true and complete list of all of Cabot's subsidiaries,
together with the jurisdiction of incorporation of each subsidiary. Cabot owns,
directly or indirectly through one or more subsidiaries, 100% of the capital
stock of each of its subsidiaries. Except as set forth in Cabot SEC Reports (as
defined below in Section 2.5), Cabot does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any interest in, any corporation, partnership, joint venture
or other business association or entity other than the securities of any
publicly-traded entity held for investment only and constituting less than 5% of
the outstanding capital stock of any such entity. Cabot has delivered or made
available to counsel for Circon a
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true and correct copy of the Certificate of Incorporation and Bylaws of Cabot
and similar governing instruments of its material subsidiaries, each as amended
to date.
2.2 Cabot Capital Structure. The authorized capital stock of Cabot
consists of 50,000,000 shares of Cabot Common Stock, of which 10,359,165 shares
were issued and outstanding as of March 31, 1995, and 500,000 shares of
Preferred Stock, no par value, of which no shares are issued and outstanding.
All outstanding shares of Cabot Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Cabot or any
agreement or document to which Cabot is a party or by which it is bound. As of
April 21, 1995, Cabot had reserved 3,021,512 shares of Common Stock for issuance
to employees and consultants pursuant to the stock option plans of Cabot
identified in the Cabot Schedules, copies of which have been provided to Circon
(collectively, the "Cabot Stock Option Plans"), of which 2,710,304 shares were
subject to outstanding options. Cabot Schedules list for each outstanding option
at April 21, 1995, the name of the holder of such option, the number of shares
subject to such option, the exercise price of such option, the number of shares
as to which such option will have been vested at April 20, 1995 and, if the
exercisability of such option may be accelerated in any way by the transactions
contemplated by this Agreement or for any other reason, an indication of the
extent of such acceleration. Cabot Schedules also include a list of all the
participants in the Employee Stock Purchase Plan and the number of shares of
Cabot Common Stock which will be issuable, subject to vesting provisions, to the
participants therein for the offering period ending April 21, 1995. The only
warrant to purchase Cabot Common Stock outstanding on the date of this Agreement
is the Warrant described in Section 1.4(c) of the Agreement, a copy of which
Warrant has been provided to Circon by Cabot. As of April 21, 1995, $67,000,000
principal amount of the Cabot Notes was outstanding, and each $1,000 principal
amount of Note is convertible into 84.89 shares of Cabot Common Stock. Cabot has
provided to Circon a copy of the Indenture as amended to the date of this
Agreement. Since January 31, 1995, there have been no changes in the capital
structure of Cabot other than issuances of Cabot Common Stock (i) upon the
exercise of options granted under Cabot Stock Option Plans, and (ii) pursuant to
Cabot's Employee Stock Purchase Plan. Except as set forth in this Section 2.2,
Cabot has no capital stock of any class issued or authorized, or any security
exchangeable into or exercisable for Cabot capital stock. Except for the Cabot
stock options described in the Cabot Schedules, rights outstanding under the
Employee Stock Purchase Plan and the Warrant, and rights granted under the
Indenture, there are no options, calls, rights, commitments of agreements of any
character, written or oral, to which Cabot is a party or by which it is found
obligating Cabot to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Cabot Common
Stock or other Cabot securities, or obligating Cabot to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. All shares of
Cabot Common Stock subject to issuance as described in this Section 2.2, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable.
2.3 Obligations With Respect to Subsidiary Capital Stock. Except for
securities Cabot owns, there are no securities of any class of any subsidiary of
Cabot, or any security exchangeable into or exercisable for such securities,
issued, reserved for issuance or outstanding. There are no options, warrants,
securities, calls, rights, commitments or agreements of any character to which
Cabot or any of its subsidiaries is a party or by which it is bound obligating
Cabot or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, securities of any of Cabot's subsidiaries or
obligating Cabot or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement with respect to such securities.
2.4 Authority. Cabot has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and, subject to the next
sentence, the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Cabot, subject
only to the approval of the Merger by the vote of the holders of a majority of
the outstanding shares of Cabot Common Stock on the record date for the Cabot
Stockholders Meeting (as defined in Section 2.21). This Agreement has been duly
executed and delivered by Cabot and constitutes the valid and binding obligation
of Cabot, enforceable in accordance with
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its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity. Except as set forth on the Cabot
Schedules, the execution and delivery of this Agreement by Cabot does not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation, or Bylaws of Cabot or similar governing
instruments of any of its subsidiaries or (ii) any mortgage, indenture, lease,
contract or other agreement disclosed in Cabot Schedules or of the type referred
to in clause (i) or (ii) of Section 2.12, or any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Cabot or its properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Cabot in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of Merger
with the New Jersey Secretary of State, (iii) the filing of the Proxy Statement
(as defined in Section 2.21) with the SEC in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (iv) the filing of a Form
8-K with the SEC, (v) the listing of the shares of Circon Common Stock issuable
in the Merger for trading on the Nasdaq National Market, (vi) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Cabot or Circon.
2.5 SEC Filings; Cabot Financial Statements.
(a) Cabot has filed all forms, reports and documents required to be
filed with the SEC, and has made available to Circon in the form filed with the
SEC (i) its Annual Report on Form 10-K for the fiscal year ended October 29,
1994, (ii) its Quarterly Report on Form 10-Q for the period ended January 28,
1995, (iii) all proxy statements relating to Cabot's meetings of stockholders
(whether annual or special) held since April 22, 1994, (iv) all other reports or
registration statements filed by Cabot with the SEC, and (v) all amendments and
supplements to all such reports and registration statements filed by Cabot with
the SEC. All such reports and documents and any similar reports and documents
filed with the SEC after the date of this Agreement and prior to the Effective
Time (collectively referred to herein as the "Cabot SEC Reports") (i) were and
will be prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Cabot SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Cabot's subsidiaries is required to file any reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in Cabot SEC Reports (the "Company
Financials"), including any Cabot SEC Reports filed after the date hereof until
the Closing, (x) complies as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (y) was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto) and (z) fairly presented the consolidated financial position of Cabot
and its subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount and except that there are no footnotes accompanying the
unaudited interim financial statements. The unaudited balance sheet of Cabot
contained in Cabot's Quarterly Report on Form 10-Q for the Quarter ended January
28, 1995 is hereinafter referred to as the "Cabot Balance Sheet."
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(c) There are no amendments or modifications which have not yet been
filed with the SEC but which are required to be filed, to agreements, documents
or other instruments which previously had been filed by Cabot with the SEC
pursuant to the Securities Act or the Exchange Act.
(d) Cabot has furnished to Circon certain non-public financial
projections, which the executive officers of Cabot believe to be attainable, but
as to which no additional representation or warranty is made or to be implied.
2.6 Absence of Certain Changes or Events. Since the date of Cabot Balance
Sheet, Cabot has conducted its business only in the ordinary course and in a
manner consistent with past practice and, since such date, there has not been
(i) any material adverse change in the business, assets (including intangible
assets), financial condition or results of operations of Cabot and its
subsidiaries taken as a whole, or any development that reasonably would be
expected to cause such a material adverse change (provided, however, that any
negative impact on Cabot's results of operations or financial condition
resulting from the postponement or cancellation of any projected orders for
Cabot products from any governmental entity or agency in India, or any
organization purchasing on behalf of such entity or agency (all such postponed
or cancelled orders are hereafter called the "Lost Indian Orders") shall not be
deemed to be such a material adverse change); (ii) any material damage,
destruction or loss (whether or not covered by insurance) on Cabot having a
Material Adverse Effect on Cabot; (iii) any material change by Cabot in its
accounting methods, principles or practices; (iv) any material revaluation by
Cabot of its assets, including, without limitation, writing off or writing down
in an amount material to Cabot the value of any asset; or (v) any other action
or event that would have required the consent of Circon pursuant to Section 4.1
had such action or event occurred after the date of this Agreement.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Cabot and each of its subsidiaries has timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to Taxes required to be filed by Cabot and each of its
subsidiaries, except such Returns which are not material to Cabot, and has paid
all Taxes shown to be due on such Returns or is contesting them in good faith.
(ii) Except as is not material to Cabot, Cabot and each of its
subsidiaries as of the Effective Time will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) Except as is not material to Cabot, neither Cabot nor any of
its subsidiaries has been delinquent in the payment of any Tax nor is there any
Tax deficiency outstanding, proposed or assessed against Cabot or any of its
subsidiaries, nor has Cabot or any of its subsidiaries executed any waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) Except as is not material to Cabot or as set forth in the Cabot
Schedules, no audit or other examination of any Return of Cabot or any of its
subsidiaries is presently in progress, nor has Cabot or any of its subsidiaries
been notified of any request for such an audit or other examination.
(v) Except as set forth in the Cabot Schedules, neither Cabot nor any
of its subsidiaries has any liability for unpaid federal, state, local or
foreign Taxes which have not been accrued for or reserved on Cabot Balance
Sheet, whether asserted or unasserted, contingent or otherwise, which is
material to Cabot.
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(vi) None of Cabot's assets are treated as "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(vii) Except as set forth in the Cabot Schedules, there is no
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of Cabot
or any of its subsidiaries that, individually or collectively, could give rise
to the payment of any amount that would not be deductible pursuant to Sections
280G, 404 or 162(m) of the Code.
(viii) Neither Cabot nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Cabot.
(ix) Cabot is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
2.8 Absence of Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding upon Cabot which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any material current business practice of Cabot, any acquisition of
material property by Cabot or the conduct of business by Cabot as currently
conducted or as proposed to be conducted by Cabot.
2.9 Absence of Liens and Encumbrances. Cabot and each of its subsidiaries
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its material tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in Cabot Financial Statements and
except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby.
2.10 Intellectual Property. Cabot, directly or indirectly, owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material that are material
to the business of Cabot as currently conducted or as proposed to be conducted
by Cabot ("Cabot Intellectual Property Rights"). Cabot Schedules set forth a
complete list of all patents, trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in Cabot Intellectual
Property Rights, and specify, where applicable, the jurisdictions in which each
such Cabot Intellectual Property Right has been issued or registered or in which
an application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners. Cabot Schedules also set forth a complete list of all material licenses,
sublicenses and other agreements as to which Cabot is a party and pursuant to
which Cabot or any other person is authorized to use any Cabot Intellectual
Property Right or other trade secret material to Cabot, and includes the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof. Cabot is not in violation
of any license, sublicense or agreement described on such list except such
violations as do not materially impair Cabot's rights under such license,
sublicense or agreement. The execution and delivery of this Agreement by Cabot,
and the consummation of the transactions contemplated hereby, will neither cause
Cabot to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in the Cabot Schedules, Cabot is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of any
liens or encumbrances), Cabot Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which Cabot
Intellectual Property Rights are being used. No claims have been asserted or, to
the knowledge of Cabot, are threatened by any person nor are there any valid
grounds, to the knowledge of Cabot, for any bona fide claims (i) to the effect
that the manufacture, sale, licensing or use of any of the products of Cabot or
any of its subsidiaries as now manufactured, sold or licensed
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or used or proposed for manufacture, use, sale or licensing by Cabot infringes
on any copyright, patent, trademark, service mark or trade secret, (ii) against
the use by Cabot or any of its subsidiaries of any trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in Cabot's business as
currently conducted or as proposed to be conducted by Cabot, or (iii)
challenging the ownership by Cabot, validity or effectiveness of any of Cabot
Intellectual Property Rights. All material registered trademarks, service marks
and copyrights held by Cabot are valid and subsisting. To the knowledge of
Cabot, there is no material unauthorized use, infringement or misappropriation
of any of Cabot Intellectual Property Rights by any third party, including any
employee or former employee of Cabot. No Cabot Intellectual Property Right or
product of Cabot or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by Cabot or any of its subsidiaries. Neither Cabot nor any of its
subsidiaries has entered into any agreement (other than exclusive distribution
agreements identified as such in Cabot Schedules) under which Cabot or its
subsidiaries is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. Cabot has a policy requiring
each employee to execute a proprietary information and confidentiality agreement
substantially in Cabot's standard forms.
2.11 Agreements, Contracts and Commitments. Except as set forth in Cabot
Schedules, neither Cabot nor any of its subsidiaries has, nor is it a party to
nor is it bound by, any of the following:
(a) any product distribution agreement,
(b) any joint marketing agreement or product development agreement,
(c) any agreement relating to the performance of clinical trials,
product evaluations or testing or regulatory compliance by other parties with
respect to products of Cabot or its subsidiaries,
(d) any agreement with or order by any Government Entity relating to the
testing, manufacture, registration, labeling, marketing or sale of products
manufactured, marketed or sold by Cabot or its subsidiaries,
(e) any agreement, contract or commitment containing any covenant
limiting the freedom of Cabot to engage in any line of business or compete with
any person,
(f) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements,
(g) any employment or consulting agreement, contract or commitment with
any officer or director level employee, not terminable by Cabot on thirty days
notice without liability,
(h) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(i) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than such agreements or guarantees between
Cabot and any of its subsidiaries,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $100,000,
(k) any agreement, contract or commitment relating to the disposition or
acquisition of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise,
(l) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of money or
extension of credit,
(m) any collective bargaining agreement,
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(n) any real property or personal property lease requiring aggregate
future payments by Cabot or its subsidiaries in excess of $100,000,
(o) any joint venture or partnership agreement or arrangement, or
(p) any other agreement, contract or commitment which involves payment
by Cabot of $100,000 or more and is not cancelable without penalty within thirty
(30) days.
2.12 No Default. Neither Cabot nor any of its subsidiaries has breached,
or received in writing any claim or threat that it has breached, any of the
terms or conditions of any (i) agreement, contract or commitment that was or is
required to be filed as an exhibit to Cabot SEC Reports or (ii) any agreement
under which Cabot or any of its subsidiaries licenses from a third party any
Company Intellectual Property Rights included in Cabot's products in such a
manner as would permit any other party to cancel or terminate the same or would
permit any other party to seek material damages from Cabot thereunder. Each of
the agreements, contracts and commitments referred to in clauses (i) and (ii)
above that has not expired or been terminated in accordance with its terms is in
full force and effect and, except as otherwise disclosed, is not subject to any
material default thereunder of which Cabot is aware by any party obligated to
Cabot pursuant thereto.
2.13 Governmental Authorization. Cabot holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of Cabot's business as currently conducted (the
"Company Permits"). Cabot is in material compliance with the terms of Cabot
Permits. Except as disclosed in Cabot SEC Reports filed prior to the date of
this Agreement, the business of Cabot is not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for violations
or possible violations which individually or in the aggregate are not, and
insofar as reasonably can be foreseen, in the future will not be, material to
Cabot. As of the date of this Agreement, no investigation or review by any
Governmental Entity with respect to Cabot is pending or, to the knowledge of
Cabot, threatened, nor has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, will not be material. There are no products now
being manufactured, assembled or sold by Cabot which at the date hereof would
require any approval of the United States Food and Drug Administration (the
"FDA") or any other governmental body, whether Federal, state, local or foreign
for the purpose for which they are being manufactured, assembled or sold, for
which such approval has not been obtained. All products now being commercially
distributed by Cabot in any jurisdiction meet the applicable legal requirements
of such jurisdiction and all requisite governmental approvals have been duly
obtained and are in full force and effect, and there is no basis known to Cabot
for the FDA or any other governmental body to deny or rescind any approval for
any of their commercially distributed products for the purpose for which the are
being manufactured, assembled or sold or for any products that Cabot proposes to
commercially distribute in the future. Except as disclosed in the Cabot
Schedules, there is no action or proceeding by the FDA or any other governmental
body, including, but not limited to, recall procedures, pending or, to the
knowledge of Cabot, threatened against Cabot, and no such proceeding was brought
at any time in the past, relating to the safety or efficacy of any of its
products, and, to the knowledge of Cabot, there is no basis for any such action
or proceeding. No Institutional Review Board or Institutional Review Committee
has terminated or recommended termination of a clinical study of any product of
Cabot.
2.14 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation pending, or as to which Cabot or any of its
subsidiaries has received any notice of assertion nor, to the actual knowledge
of Cabot's executive officers, is there a reasonable basis to expect such
assertion against Cabot or any of its subsidiaries which, if determined
adversely to Cabot or any of its subsidiaries reasonably would be expected to
have a Material Adverse Effect on Cabot, or which in any manner challenges or
seeks to prevent, enjoin, alter or delay any of the transactions contemplated by
this Agreement.
2.15 Environmental Matters.
(a) Hazardous Material. Except as reasonably would not be expected to
result in a material liability to Cabot, no underground storage tanks and no
amount of any substance that has been designated by
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any Governmental Entity or by applicable federal, state or local law to
be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "Hazardous Material"), but excluding
office and janitorial supplies, are present, as a result of the deliberate
actions of Cabot or any of its subsidiaries, or, to Cabot's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Cabot or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would not be
expected to result in a material liability of Cabot, neither Cabot nor any of
its subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has Cabot or any of its
subsidiaries disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (collectively "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Cabot currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of Cabot's Hazardous Material Activities and other
businesses of Cabot as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Cabot's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Cabot or any
of its subsidiaries. To the actual knowledge of Cabot's executive officers,
there is no fact or circumstance which could involve Cabot or any of its
subsidiaries in any material environmental litigation or impose upon Cabot any
material environmental liability.
2.16 Brokers' and Finders' Fees. Except for fees payable to Smith Barney
Inc. pursuant to the engagement letter dated December 13, 1994, a copy of which
has been provided to Circon, Cabot has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.17 Labor Matters. Except as set forth in the Cabot Schedules, there are
no pending material claims against Cabot or any of its subsidiaries under any
workers compensation plan or policy or for long term disability. Cabot and each
of its United States subsidiaries, has complied in all material respects with
all applicable provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA") and has no material obligations with respect to any former
employees or qualifying beneficiaries thereunder. Except as is not material to
Cabot's business and operations, neither Cabot nor any of its subsidiaries has
given to or received from any current employee of Cabot or any of its
subsidiaries notice of termination of employment.
2.18 Employee Benefit Plans.
(a) Cabot Schedules set forth all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar employee
benefit plans, programs or arrangements, and any current or former employment or
executive compensation or severance agreements, written or otherwise, for the
benefit of, or relating to, any current or former employee of Cabot or any trade
or business (whether or not incorporated) which is a member or which is under
common control with Cabot (an "ERISA Affiliate") within the meaning of Section
414 of the Code, or any subsidiary of Cabot (together, the "Employee Plans").
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(b) Cabot Schedules set forth a complete and correct list of each plan,
policy or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental employment benefits, vacation benefits, fringe benefits
or other forms of compensation or benefits which (i) is not an Employee Plan,
(ii) is maintained, established or contributed to by Cabot or any related
person, and (iii) covers any employee or former employee of Cabot or any related
person, including without limitation any employee or former employee of a
Related Person that does business outside of the United States. Such plans and
arrangements as are described above are hereinafter referred to collectively as
the "Benefit Arrangements."
(c) (i) None of the Employee Plans or Benefit Arrangements promises or
provides retiree medical or other retiree welfare benefits to any person except
as required by applicable law, including but not limited to COBRA; (ii) all
Employee Plans and Benefit Arrangements are in compliance in all material
respects with the requirements prescribed by any and all applicable statutes
(including ERISA and the Code), orders, or governmental rules and regulations
currently in effect with respect thereto (including all applicable requirements
for notification to participants or beneficiaries or the Department of Labor,
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and Cabot
has performed all material obligations required to be performed by it under, is
not in default under or violation of, and has no knowledge of any default or
violation by any other party to, any of the Employee Plans or Benefit
Arrangements; (iii) each Employee Plan intended to qualify under Section 401(a)
of the Code and each trust intended to qualify under Section 501(a) of the Code
either has received a favorable determination letter with respect to each such
Employee Plan from the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS pronouncements in which to apply for such
a determination letter and to make any amendments necessary to obtain a
favorable determination; and (iv) no Employee Plan or Benefit Arrangement is or
within the prior six (6) years has been subject to, and Cabot has not incurred
and does not expect to incur any liability under, Title IV of ERISA or Section
412 of the Code and (v) nothing in any Employee Plan or Benefit Arrangements
precludes or interferes with Circon's ability to cause Cabot to terminate (or
consolidate, at Circon's option) any Employee Plan or Benefit Arrangement after
the Closing; provided that (i) the Employee Plans and Benefit Arrangements may
be terminated prospectively only, subject to rights accrued by Cabot's employees
at the time of such termination and (ii) not more than sixty days notice may be
required to terminate certain Employee Plans and Benefit Arrangements.
(d) None of the following now exists or has existed within the six-year
period ending on the date hereof with respect to any Employee Plan: (i) any act
or omission by Cabot constituting a violation of Section 402, 403, 404 or 405 of
ERISA; (ii) any act or omission by Cabot which constitutes a violation of
Sections 406 and 407 of ERISA and is not exempted by Section 408 of ERISA or
which constitutes a violation of Section 4975(c) of the Code and is not exempted
by Section 4975(d) of the Code; (iii) any act or omission by Cabot constituting
a violation of Section 503, 510 or 511 of ERISA; or (iv) any act or omission by
Cabot which could give rise to liability under Section 502 of ERISA or under
Sections 4972 or 4975 through 4980 of the Code.
(e) Each Employee Plan and Benefit Arrangement has been maintained in
substantial compliance with its terms, and all contributions, premiums or other
payments due from Cabot or any of its subsidiaries to (or under) any such
Employee Plan or Benefit Arrangement have been fully paid or adequately provided
for on the audited Company Financials for the most recently-ended fiscal year.
All accruals thereon (including, where appropriate, proportional accruals for
partial periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis. There has been no
amendment, written interpretation or announcement (whether or not written) by
Cabot with respect to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement that would increase materially the
expense of maintaining such plans or arrangements, individually or in the
aggregate, above the level of expense incurred with respect thereto for the most
recently-ended fiscal year.
(f) Cabot has made available to Circon complete, accurate and current
copies of all Employee Plans and Benefit Arrangements and all amendments,
documents, correspondence and filings relating thereto, including but not
limited to any statements, filings, reports or returns filed with any
governmental agency with
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respect to the Employee Plans and Benefit Arrangements at any time
within the three-year period ending on the date hereof.
2.19 Pooling of Interests. Cabot's executive officers have no actual
knowledge that Cabot or any of its directors, officers or stockholders has taken
any action which would interfere with (i) Circon's ability to account for the
Merger as a pooling of interests or (ii) Cabot's ability to continue to account
for as a pooling of interests any past transaction by Cabot currently accounted
for as a pooling of interests.
2.20 Change of Control Payments. Cabot Schedules set forth the terms of
all agreements, commitments, employment policies, plans or arrangements pursuant
to which all amounts may become payable (whether currently or in the future) to
current or former officers, directors or employees of Cabot or others as a
result of or in connection with the Merger, including any termination of
employment relating to or within one year following the Merger.
2.21 Registration Statements; Proxy Statement/Prospectus. The information
to be supplied by Cabot for inclusion in the Registration Statement shall not at
the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, 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 not misleading. The
information to be supplied by Cabot for inclusion in the proxy
statement/prospectus to be sent to the stockholders of Cabot and stockholders of
Circon in connection with the meeting of Cabot's stockholders to consider the
Merger (the "Cabot Stockholders' Meeting") and the meeting of Circon's
stockholders to consider the Merger (the "Circon Stockholders' Meeting") (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Proxy Statement") shall not, on the date the Proxy Statement is first
mailed to Cabot's stockholders and Circon's stockholders, at the time of Cabot
Stockholders' Meeting or Circon Stockholders' Meeting and at the Effective Time,
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 are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for Cabot Stockholders' Meeting or Circon Stockholders' Meeting which
has become false or misleading. To Cabot's best knowledge at the time the Proxy
Statement is mailed to the stockholders of Cabot and Circon, the Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time any information relating to Cabot or any of its affiliates,
officers or directors should be discovered by Cabot which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, Cabot shall promptly inform Circon. Notwithstanding any of the
foregoing, Cabot makes no representation or warranty with respect to any
information supplied by Circon or Merger Sub which is contained in any of the
foregoing documents.
2.22 Board Approval. The Board of Directors of Cabot has, on or prior to
the date hereof, unanimously approved this Agreement and the Merger and has
heretofore adopted the resolutions contained in the Cabot Schedules.
2.23 Voting Agreement. The Voting Agreement between Circon and certain
stockholders of Cabot who are also members of the Board of Directors of Cabot, a
copy of which is attached to this Agreement as Exhibit A, is duly executed by
each stockholder shown as a party thereto.
2.24 Employment and Consulting Agreement. The Employment and Consulting
Agreements, dated the date of this Agreement, between Cabot and, respectively,
Warren Wood and Marvin Sharfstein were duly executed by each of the Cabot
Executives and constitute their respective valid and binding obligations
enforceable in accordance with their respective terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles of
equity.
2.25 Non-Public Information Provided to Circon. The non-public written
product and historical financial information provided to Circon by Cabot since
April 5, 1995 did not, to the actual knowledge of Cabot's executive officers,
contain any material misrepresentation of a material fact or omit any
information necessary to make the information provided not materially
misleading. The written projections of Cabot's
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future financial performance provided by Cabot to Circon are believed by Cabot's
executive officers to be attainable; however, no other representation is made
concerning such projections.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CIRCON AND MERGER SUB
Circon and Merger Sub represent and warrant to Cabot, subject to the
exceptions specifically disclosed in the disclosure letter supplied by Circon to
Cabot (the "Circon Schedules") and dated as of the date hereof as follows:
3.1 Organization of Circon. Each of Circon and its material subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on Circon.
Except as set forth in the Circon SEC Reports (as defined in Section 3.4),
Circon does not directly or indirectly own any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for any interest
in, any corporation, partnership, joint venture or other business association or
entity. Circon has delivered or made available to counsel for the Company, a
true and correct copy of the Certificate of Incorporation and Bylaws or other
charter documents of Circon, each as amended to date.
3.2 Capital Structure.
(a) The authorized stock of Circon consists of 50,000,000 shares of
Circon Common Stock, of which 7,970,703 shares were issued and outstanding as of
April 4, 1995, and 1,000,000 shares of Preferred Stock, of which no shares are
issued or outstanding. All such shares have been duly authorized, and all such
issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. As of March 31,
1995, 909,282 shares of Circon Common Stock were reserved for issuance upon
exercise of outstanding options (excluding the purchase options granted under
the Circon ESPP), and 381,826 shares were reserved for future grant. There is
outstanding a warrant to purchase 100,000 shares of Circon Common Stock held by
Richard Auhll. Circon has a warrant plan for physician consultants under which
25,000 shares have been reserved and warrants to purchase 3,000 shares have been
issued. All shares of Circon Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. There are no other equity securities, options, warrants,
calls, rights, commitments or agreements of any character to which Circon is a
party or by which it is bound obligating Circon to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Circon or obligating Circon to
grant, extend or enter into any such equity security, option, warrant, call,
right, commitment or agreement.
(b) The shares of Circon Common Stock to be issued pursuant to the
Merger will, upon issuance, be (i) duly authorized, validly issued, fully paid
and non-assessable, (ii) registered pursuant to the Securities Act and, except
for affiliates of Cabot as to whom the provisions of Rule 145 apply, freely
tradeable, and (iii) authorized for trading on the Nasdaq National Market.
3.3 Authority. Circon and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and, subject to the next sentence, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Circon and
Merger Sub subject only to the approval of the Merger by Circon's stockholders
as contemplated by Section 6.1(a). This Agreement has been duly executed and
delivered by Circon and Merger Sub and constitutes the valid and binding
obligations of Circon and Merger Sub, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or
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result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Circon or Merger Sub or (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Circon or its properties or assets
other than any such conflicts, violations, defaults, terminations, cancellations
or accelerations which would not have a material adverse effect on the ability
of Circon to consummate the transactions contemplated hereby.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Circon and Merger Sub in connection with the execution and delivery
of this Agreement by Circon and Merger Sub or the consummation by Circon and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
the Registration Statement with the SEC, (ii) the filing of the certificate of
merger with the New Jersey Secretary of State, (iii) the filing of a Form 8-K
and Form 10-C with the SEC within 15 days and 10 days, respectively, after the
Closing Date, (iv) listing of Circon Common Stock on the Nasdaq National Market,
(v) any filings as may be required under applicable state securities laws and
the laws of any foreign country, and (vi) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not
have a Material Adverse Effect on Circon.
3.4 SEC Filings; Circon Financial Statements.
(a) Circon and each of its subsidiaries has filed all forms, reports and
documents required to be filed with the SEC and has made available to Cabot, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
year ended December 31, 1994, (ii) its Quarterly Reports on Form 10-Q for the
periods ended March 31, June 30, and September 30, 1994, (iii) all proxy
statements relating to Circon's meetings of stockholders (whether annual or
special) held since December 31, 1992, (iv) all other reports or registration
statements filed by Circon with the SEC since December 31, 1992 and (v) all
amendments and supplements to all such reports and registration statements filed
by Circon with the SEC. All such required forms, reports and documents
(including those enumerated in clauses (i) through (v) of the preceding
sentence) are referred to herein as the "Circon SEC Reports." As of their
respective dates, the Circon SEC Reports (i) were prepared in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Circon
SEC Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to made the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Circon's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Circon SEC Reports, including
any Circon SEC Reports filed after the date hereof until the Closing, (x)
complies as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (y) was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and (z) fairly presented the consolidated financial position of Circon
and its subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. The audited balance sheet of Circon contained in the Circon SEC
Reports, as of December 31, 1994 is hereinafter referred to as the "Circon
Balance Sheet."
(c) Circon has heretofore furnished or made available to Cabot a
complete and correct copy of any amendments or modifications, which have not yet
been filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Circon with
the SEC pursuant to the Securities Act or the Exchange Act.
3.5 Absence of Certain Changes or Events. Since the date of the Circon
Balance Sheet, except with respect to the actions contemplated by this
Agreement, Circon and its subsidiaries have conducted their
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businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any Material Adverse
Change in Circon, or any development that reasonably would be expected to cause
a Material Adverse Change in Circon; (ii) any damage, destruction or loss
(whether or not covered by insurance) having a Material Adverse Effect on
Circon; (iii) any material change by Circon in its accounting methods,
principles or practices; (iv) any material revaluation by Circon of assets
including, without limitation, writing off or writing down in an amount material
to Circon the value of any material asset; or (v) any other action or event that
would have required the consent of Cabot pursuant to Section 4.2 had such action
or event occurred after the date of this Agreement.
3.6 Taxes.
(i) Circon and each of its subsidiaries has timely filed all
Returns relating to Taxes required to be filed by Circon and each of its
subsidiaries, except such Returns which are not material to Circon and has paid
all Taxes shown to be due on such Returns, or is contesting them in good faith.
(ii) Except as is not material to Circon, Circon and each of its
subsidiaries as of the Effective Time will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) Except as is not material to Circon, neither Circon nor any
of its subsidiaries has been delinquent in the payment of any Tax nor is there
any Tax deficiency outstanding, proposed or assessed against Circon or any of
its subsidiaries nor has Circon or any of its subsidiaries executed any waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) Except as is not material to Circon, no audit or other
examination of any Return of Circon or any of its subsidiaries is presently in
progress, nor has Circon or any of its subsidiaries been notified of any request
for such an audit or other examination.
(v) Circon does not have any liability for unpaid federal, state,
local or foreign Taxes which have not been accrued or reserved against on the
Circon Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Circon.
3.7 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon Circon which has or
reasonably would be expected to have the effect of prohibiting or materially
impairing any material current business practice of Circon, any acquisition of
material property by Circon or the conduct of business by Circon as currently
conducted or as proposed to be conducted by Circon.
3.8 Absence of Liens and Encumbrances; Condition of Equipment. Circon has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets,
real, personal and mixed, used in its business, free and clear of any liens or
encumbrances except as reflected in the Circon Financial Statements and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
3.9 Intellectual Property. Circon, directly or indirectly, owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material (excluding
Commercial Software) that are material to the business of Circon as currently
conducted or as proposed to be conducted by Circon (the "Circon Intellectual
Property Rights"). Circon is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any agreement to which a Circon is a party and pursuant to which
Circon or any other person is authorized to use any Circon Intellectual Property
Rights except such violations as do not materially impair Circon's rights under
any such agreement. Circon is the sole and exclusive owner or licensee of, with
all right, title and interest in and to (free and clear of any liens or
encumbrances), Circon Intellectual Property Rights, and has sole and exclusive
rights (and is not contractually obligated to pay any compensation
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to any third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in respect of which
Circon Intellectual Property Rights are being used. No claims have been asserted
or, to the knowledge of Circon, are threatened by any person that reasonably
would be expected to have a Material Adverse Effect on Circon, nor is there any
valid grounds for any bona fide claims that reasonably would be expected to have
a Material Adverse Effect on Circon, (i) to the effect that the manufacture,
sale, licensing or use of any product as now used, sold or licensed or proposed
for use, sale or license by Circon infringes on any copyright, patent, trade
mark, service mark or trade secret, (ii) against the use by Circon of any
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in Circon's
business as currently conducted or as proposed to be conducted, or (iii)
challenging the ownership, validity or effectiveness of any of Circon
Intellectual Property Rights. All material United States registered trademarks,
service marks and copyrights held by Circon are valid and subsisting. To the
knowledge of Circon, there is no material unauthorized use, infringement or
misappropriation of any Circon Intellectual Property Rights by any third party,
including any employee or former employee of Circon. Circon has not entered into
any agreement (other than exclusive distribution agreements) under which Circon
is restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market. There is no outstanding order, judgment,
decree or stipulation on Circon restricting in any manner the licensing of
Circon's products by Circon. Circon has a policy of requiring each technical
employee to execute a proprietary information and confidentiality agreement
substantially in the Circon's standard form.
3.10 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Circon has received any notice of
assertion nor, to the actual knowledge of Circon's executive officers, is there
a reasonable basis to expect such notice of assertion against Circon which if
determined adversely to Circon reasonably would be expected to have a Material
Adverse Effect on Circon, or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
3.11 Environmental Matters.
(a) Hazardous Material. Except as reasonably would not be expected to
result in a material liability to Circon, no underground storage tanks and no
Hazardous Material, but excluding office and janitorial supplies, is present, as
a result of the deliberate actions of Circon, or, to Circon's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Cabot has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would not be
expected to result in a material liability of Circon, Circon has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has Circon conducted Hazardous Material
Activities in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Circon currently holds all Environmental Permits necessary
for the conduct of Circon's Hazardous Material Activities and other businesses
of Circon as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is pending
or, to Circon's knowledge, threatened concerning or relating to any
Environmental Permit, Hazardous Materials or any Hazardous Materials Activity of
Circon. To the actual knowledge of Circon' executive officers, there is no fact
or circumstance which reasonably would be expected to involve Circon in any
material environmental litigation or impose upon Circon any material
environmental liability.
3.12 Agreements, Contracts and Commitments. Circon has not breached, or
received in writing any claim or threat that it has breached, any of the
material terms or conditions of any material agreement,
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contract or commitment that is required to be filed as an exhibit to the Circon
SEC Reports filed in 1994 in such a manner as would permit any other party to
cancel or terminate the same or would permit any other party to seek material
damages from Circon thereunder. Each of the agreements, contracts and
commitments referred to in the first sentence of this Section 3.12 is in full
force and effect and, except as otherwise disclosed, is not subject to any
material default thereunder of which Circon is aware by any party obligated to
Circon pursuant thereto.
3.13 Labor Matters. There are no pending material claims against Circon
under any workers compensation plan or policy or for long term disability.
3.14 Compliance With Laws. Circon has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except in any such case as reasonably would not be
expected to be material to Circon.
3.15 Pooling of Interests. The executive officers of Circon have no
actual knowledge that Circon or any of its subsidiaries has taken any action
which would interfere with (i) Circon's ability to account for the Merger as a
pooling of interests or (ii) Circon's ability to continue to account for as a
pooling of interests any past transaction by Circon currently accounted for as a
pooling of interests.
3.16 Broker's and Finders' Fees. Except for fees payable to Bear, Stearns
& Co. pursuant to the engagement letter dated as of April 5, 1995, a copy of
which has been provided to Cabot, Circon has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement, the Merger
or any transaction contemplated hereby.
3.17 Registration Statement; Proxy Statement/Prospectus. Subject to the
accuracy of the representations of Cabot made in Section 2.21, the Registration
Statement shall not, at the time the Registration Statement is filed with the
SEC and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein not misleading. The information
to be supplied by Circon for inclusion in the Proxy Statement shall not, on the
date the Proxy Statement is first mailed to stockholders of Cabot and of Circon,
at the time of Cabot Stockholders' Meeting, at the time of the Circon
Stockholders' Meeting and at the Effective Time, 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 are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for Cabot
Stockholders' Meeting or Circon Stockholders' Meeting which has become false or
misleading. To Circon' best knowledge at the time the Proxy Statement is mailed
to the stockholders of Circon and Cabot, the Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time any
information relating to Circon, Merger Sub or any of their respective
affiliates, officers or directors should be discovered by Circon or Merger Sub
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Circon or Merger Sub will promptly inform
Cabot. Notwithstanding any of the foregoing, Circon and Merger Sub make no
representation or warranty with respect to any information supplied by Cabot
which is contained in any of the foregoing documents.
3.18 Employee Benefit Plans. Circon's Schedules list all employee benefit
plans that are subject to ERISA that are material to Circon's business. (i) None
of Circon's employee benefit plans or arrangements promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, including but not limited to COBRA; (ii) all material employee
benefit plans and arrangements of Circon are in compliance in all material
respects with the requirements prescribed by any and all applicable statutes
(including ERISA and the Code), orders, or governmental rules and regulations
currently in effect with respect thereto (including all applicable requirements
for notification to participants or beneficiaries or the Department of Labor,
IRS or Secretary of the Treasury), and Circon has performed all material
obligations required to be performed by it under, is not in default under or
violation of, and has no
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knowledge of any default or violation by any other party to, any of its employee
benefit plans or arrangements; (iii) each employee benefit plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code either has received a favorable determination
letter with respect to each such employee benefit plan from the IRS or still has
a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such a determination letter and to make any
amendments necessary to obtain a favorable determination; and (iv) no employee
benefit plan or arrangement is or within the prior five (5) years has been
subject to, and Circon has not incurred and does not expect to incur any
liability under, Title IV of ERISA or Section 412 of the Code and (v) nothing in
any employee benefit plan or arrangements precludes or interferes with Circon's
ability to terminate any employee benefit plan or arrangement after the Closing;
provided that (x) Circon's employee benefit plans and arrangements may be
terminated prospectively only, subject to rights accrued by Circon's employees
at the time of such termination and (y) not more than ninety days notice may be
required to terminate certain of Circon's employee benefit plans and
arrangements.
3.19 Board Approval. The Board of Directors of Circon has, as of the date
here, approved this Agreement and the Merger and has heretofore adopted the
resolutions contained in the Circon Schedules.
3.20 Fairness Opinion. Circon has received an oral opinion from Bear
Stearns & Co., Inc. to the effect that the Exchange Ratio is fair to the holders
of Common Stock of Circon from a financial point of view.
3.21 Non-Public Information Provided to Cabot. The non-public written
product and historical financial information provided to Cabot by Circon since
April 12, 1995 did not, to the actual knowledge of Circon' executive officers,
contain any material misrepresentation of a material fact or omit any
information necessary to make the information provided not materially
misleading. The written projections of Circon' future financial performance
provided by Circon to Cabot were prepared in good faith based on assumptions
believed by Circon to be reasonable; however, no other representation is made
concerning such projections.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Cabot. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms and the Effective Time, Cabot (which for the purposes of
this Section 4.1 shall include Cabot and each of its subsidiaries) agrees,
except to the extent that Circon shall otherwise consent in writing, to carry on
its business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and taxes when due (subject to
good faith disputes over such debts or taxes), to pay or perform other material
obligations when due, and to use all reasonable efforts consistent with past
practices and policies to preserve intact Cabot's present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with Cabot, to the end that Cabot's goodwill
and ongoing businesses will be unimpaired at the Effective Time. Cabot shall
not, without the prior written consent of Circon, which shall not be
unreasonably withheld or delayed:
(a) Enter into or amend any agreement or take any action which
reasonably would be expected to have a Material Adverse Effect on Cabot;
(b) Enter into, amend or terminate any agreement, plan or arrangement of
the types described in Section 2.11 of this Agreement (except any agreement
described in clause (c) or (d) thereof);
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to Cabot's Intellectual Property Rights or enter into
grants to future patent rights, other than licenses in connection with the sale
of goods or services entered into in the ordinary course of business consistent
with past practices;
(d) Grant any severance or termination pay (i) to any executive officer
or (ii) to any other employee except payments made in connection with the
termination of employees who are not executive
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officers in amounts consistent with Cabot's policies and past practices
or pursuant to written agreements outstanding, or policies existing, on the date
hereof and as previously disclosed in writing to Circon or pursuant to written
agreements consistent with Cabot's past agreements under similar circumstances;
(e) Adopt or amend any employee benefit or stock purchase or option
plan, or enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees other than in the ordinary course of business, consistent with
past practice;
(f) Accelerate, amend or change the period of exercisability of options
or restricted stock, or reprice options granted under the employee stock plans
of Cabot or authorize cash payments in exchange for any options granted under
any of such plans;
(g) Commence any litigation other than (i) for the routine collection of
bills, or (ii) where Cabot in good faith determines that failure to commence
suit would result in the material impairment of a valuable aspect of Cabot's
business, provided that Cabot consults with Circon prior to the filing of such a
suit;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Cabot;
(i) Repurchase or otherwise acquire, directly or indirectly, any shares
of its capital stock;
(j) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
enter into other agreements or commitments of any character obligating it to
issue, any such shares or other convertible securities, other than the issuance
of shares of Cabot Common Stock (i) pursuant to the exercise of stock options
outstanding under the Cabot Stock Option Plans on the date of this Agreement,
(ii) issuable to participants in Cabot's Employee Stock Purchase Plan consistent
with the terms of that plan, (iii) issuable upon conversion of Cabot Notes
outstanding on the date of this Agreement, and (iv) issuable upon exercise of
the Warrant;
(k) Cause, permit or propose any amendments to Cabot's Certificate of
Incorporation or Bylaws;
(l) Except as set forth on the Cabot Schedules, acquire or agree to
acquire by merging or consolidating with, or by purchasing any equity interest
in or a material portion of the assets of, or by any other manner, any business
or any corporation, partnership interest, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
Cabot, except for inventory and supplies acquired in the ordinary course of
business consistent with past practice;
(m) Sell, lease, license, encumber or otherwise dispose of any of
Cabot's properties (except the facilities located at 2021 Cabot Boulevard in
Langhorne, Pennsylvania) or assets which are material, individually or in the
aggregate, to the business of Cabot, except in the ordinary course of business
consistent with past practice;
(n) Incur any indebtedness for borrowed money (other than pursuant to
existing credit facilities in the ordinary course of business) or guarantee any
indebtedness or issue or sell any debt securities or warrants or rights to
acquire debt securities of Cabot;
(o) Pay, discharge or satisfy in an amount in excess of $100,000 (in any
one case) or $250,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities of the type reflected or reserved against in the Cabot Financials
(including the notes thereto) provided that the consent of Circon shall not be
unreasonably withheld; engage in any transaction not in the ordinary course of
business with any executive officer, regardless of whether the amount thereof
exceeds $100,000;
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(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes (except
settlements effected solely through payment of immaterial sums of money), or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(q) Intentionally take any action which would be reasonably likely to
interfere with Circon's ability to account for the Merger as a pooling of
interests; or
(r) Take, or agree (in writing or otherwise) to take, any of the actions
described in clauses (a) through (r) of this Section 4.1, or any action which
would cause or would be reasonably likely to cause any of the conditions set
forth in Sections 6.1 or 6.3 not to be satisfied.
4.2 Conduct of Business of Circon. Except as contemplated by this
Agreement, Circon (which for purposes of this Section 4.2 shall include Circon
and each of its subsidiaries) shall not prior to the Effective Time or earlier
termination of this Agreement pursuant to its terms, without the prior written
consent of Cabot, which consent shall not be unreasonably withheld or delayed:
(a) Enter into or amend any agreement or take any action which
reasonably would be expected to have a Material Adverse Effect on Circon;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Circon,
(c) Repurchase or otherwise acquire, directly or indirectly, any shares
of its capital stock;
(d) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of any shares of its capital stock of any class or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue, any
such shares or other convertible securities, other than the issuance of (i)
shares of Circon Common Stock pursuant to the exercise of Circon stock options
issued or to be issued under Circon stock option plans or warrants outstanding
as of the date hereof, or (ii) shares of Circon Common Stock issuable under the
Circon Employee Stock Purchase Plan;
(e) Cause, permit or propose any amendments to Circon's Certificate of
Incorporation (except for the amendment approved in April 1994 by the Circon
Board of Directors and to be submitted for Circon stockholder approval) or any
material amendments to the Circon Bylaws;
(f) Sell or otherwise dispose of any of Circon's properties or assets
which are material, individually or in the aggregate, to the business of Circon,
except in the ordinary course of business;
(g) Intentionally take any action which would be reasonably likely to
interfere with Circon's ability to account for the Merger as a pooling of
interests; or
(h) Take, or agree (in writing or otherwise) to take, any of the actions
described in clauses (a) through (g) of this Section 4.2, or any action which
would cause or would be reasonably likely to cause any of the conditions set
forth in Sections 6.1 or 6.2 not to be satisfied.
4.3 SEC Filings. At all times prior to the Closing, each of Circon and
Cabot shall:
(a) Make all filings with the SEC required to be made by each of them,
in a timely manner and in accordance with the applicable rules and regulations
of the SEC;
(b) Promptly notify the other of any communications received from the
SEC with respect to any such filings, or with respect to any similar filings
made prior to the date of this Agreement, or with respect to the Registration
Statement or Proxy Statement; and
(c) Promptly provide to the other copies of all such SEC filings, and
SEC written communications, as well as copies of all written communications with
stockholders generally.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Circon and Cabot shall
prepare and file with the SEC, the Proxy Statement and Circon shall prepare and
file with the SEC the Registration Statement in which the Proxy Statement will
be included as a prospectus. Each of Circon and Company shall use its best
efforts to have the Registration Statement declared effective as soon thereafter
as practicable; provided, however, that Circon shall have no obligation to agree
to account for the Merger as a "purchase" in order to cause the Registration
Statement to become effective. The Proxy Statement shall include the fairness
opinions of Smith Barney Inc. and Bear Stearns & Co., Inc., referred to in
Sections 6.2 and 6.3, respectively (it being understood that the failure of
Smith Barney Inc. or Bear Stearns & Co., Inc. to deliver to Cabot or Circon, as
the case may be, such an opinion for inclusion in the Proxy Statement shall not
be considered, in and of itself, a breach of this Agreement). The Proxy
Statement shall also include the recommendations of (i) the Board of Directors
of Cabot in favor of the Merger, which shall not be withdrawn, modified or
withheld except in compliance with the fiduciary duties of Cabot's Board under
applicable law and (ii) the Board of Directors of Circon in favor of the Merger,
which shall not be withdrawn, modified or withheld except in compliance with the
fiduciary duties of Circon's Board under applicable law.
5.2 Meetings of Stockholders.
(a) Promptly after the date hereof, Cabot shall take all action
necessary in accordance with State Law and its Certificate of Incorporation and
Bylaws to cause Cabot Stockholders' Meeting to be held as promptly as
practicable after the effectiveness of the Registration Statement for the
purpose of voting upon this Agreement and the Merger. Cabot shall consult with
Circon and use all reasonable efforts to hold Cabot Stockholders' Meeting on the
same day as the Circon Stockholders' Meeting.
(b) Promptly after the date hereof, Circon shall take all action
necessary in accordance with Delaware General Corporation Law and its
Certificate of Incorporation and Bylaws to cause the Circon Stockholders'
Meeting to be held as promptly as practicable after the effectiveness of the
Registration Statement for the purpose of voting upon this Agreement and the
Merger. Circon shall consult with Cabot and shall use all reasonable efforts to
hold the Circon Stockholders' Meeting on the same day as Cabot Stockholders'
Meeting.
5.3 Access to Information; Confidentiality.
(a) Each party shall afford the other party and its accountants, counsel
and other representatives reasonable access, upon reasonable notice and during
normal business hours, during the period prior to the Effective Time to all
information concerning the business, including the status of product development
efforts, properties and personnel of such party as the other party may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(b) The parties acknowledge that Circon and Cabot have previously
executed separate confidentiality agreements dated, respectively, March 2, 1995
and April 12, 1995 (together, the "Confidentiality Agreements"), which
Confidentiality Agreements shall continue in full force and effect in accordance
with their terms.
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5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time,
Cabot and its subsidiaries will not, and will cause their respective directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, (i) initiate, solicit or express a receptiveness
to submission of any inquiries, proposals or offers by any person, entity or
group (other than Circon, Merger Sub and their affiliates, agents and
representatives) relating to any Acquisition Proposal, or (ii) participate in
any discussions or negotiations with, or disclose any non-public information
concerning Cabot or any of its subsidiaries to, or afford any access to the
properties, books or records of Cabot or any of its subsidiaries to, or
otherwise assist, facilitate or express a receptiveness to, or enter into any
agreement or understanding with, any person, entity or group (other than Circon,
Merger Sub and their affiliates, agents and representatives) in connection with
any Acquisition Proposal. For the purposes of this Agreement, an "Acquisition
Proposal" shall mean any proposal relating to the possible acquisition of (i)
Cabot (whether by way of merger or otherwise), (ii) all or a substantial portion
of the assets of Cabot or (iii) a substantial portion of the equity securities
of Cabot (except by conversion or exercise of currently outstanding securities).
In addition, subject to the other provisions of this Section 5.4, from and after
the date of this Agreement until the Effective Time, Cabot and its subsidiaries
will not, and will cause their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any statement, recommendation or solicitation in
support of any Acquisition Proposal made by any person, entity or group (other
than Circon and/or Merger Sub). Cabot will immediately cease any existing
discussions, negotiations or other activities with any parties with respect to
any of the foregoing.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
approval of this Agreement and the Merger by the stockholders of Cabot at Cabot
Stockholders' Meeting, Cabot may, to the extent the Board of Directors of Cabot
determines in good faith, after consultation with outside legal counsel, that
the Board's fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c) below, furnish information to any person, entity
or group after such person, entity or group shall have delivered to Cabot in
writing an unsolicited bona fide Acquisition Proposal which the Board of
Directors of Cabot in its good faith reasonable judgment determines, after
consultation with all its principal advisors in connection with the Merger,
would result in a transaction more favorable to the stockholders of Cabot than
the Merger and for which financing, to the extent required, is then committed or
which, in the good faith reasonable judgment of the Board of Directors of Cabot
(based upon the advice of all its principal advisors in connection with the
Merger), is reasonably capable of being financed by such person, entity or group
and which is probable to be consummated (a "Superior Proposal"). In addition,
notwithstanding the provisions of paragraph (a) above, in connection with a
possible Acquisition Proposal, Cabot may refer any third party to this Section
5.4 or make a copy of this Section 5.4 available to a third party.
(c) Cabot may furnish information with respect to a Superior Proposal
only if Cabot (i) first notifies Circon of the information proposed to be
disclosed, (ii) first complies with the provisions of paragraph (e), below and
(iii) provides such information pursuant to a confidentiality agreement at least
as restrictive as the Confidentiality Agreement entered into by Circon.
(d) In the event Cabot receives a Superior Proposal, nothing contained
in this Agreement shall prevent the Board of Directors of Cabot from approving
such Superior Proposal or recommending such Superior Proposal to Cabot's
stockholders, if the Board determines in good faith, after consultation with
outside legal counsel, that such action is required by its fiduciary duties
under applicable law; in such case, the Board may amend or withdraw its
recommendation of the Merger. Subject to the right of termination set forth in
Section 7.1(f), except to the extent expressly set forth in this Section 5.4,
nothing shall relieve Cabot from complying with all other terms of this
Agreement.
(e) Cabot will (i) notify Circon immediately if any inquiry or proposal
is made or any information or access is requested in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) immediately
communicate to Circon the terms and conditions of any such Acquisition Proposal
or potential Acquisition Proposal or inquiry and the identity of the offeror or
potential offeror.
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(f) Nothing contained in this Section 5.4 shall prevent Cabot or its
Board of Directors from complying with the provisions of Rule 14e-2(a) and 14d-9
promulgated under the Exchange Act.
5.5 Expenses.
(a) Except as set forth in this Section 5.5, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that Circon and Cabot shall share
equally all fees and expenses, other than attorneys, accountants and financial
advisor's fees, incurred in connection with the printing and filing of the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) If this Agreement is terminated by Circon pursuant to Section
7.1(b)(i), then Cabot shall pay Circon for all of its reasonable out-of-pocket
expenses, including but not limited to attorney's fees, accounting fees,
financial printer expenses, filing fees and fees and expenses of financial
advisors incurred in connection with this Agreement and the Merger ("Out of
Pocket Expenses"), not to exceed $1,000,000. If this Agreement is terminated by
Cabot pursuant to Section 7.1(c)(i) or (iv), then Circon shall pay Cabot's Out-
of-Pocket Expenses, not to exceed $1,000,000, incurred in connection with this
Agreement and the Merger. If (i) Cabot's Board of Directors adversely amends,
withholds or withdraws its recommendation of the Merger or (ii) Cabot's
stockholders do not approve the Merger at Cabot Stockholders' Meeting, then,
provided that Circon is not then in material breach of the terms of this
Agreement, Cabot shall pay Circon's Out-of-Pocket Expenses, not to exceed
$1,000,000 upon written request therefor; provided, however, that any amounts
paid to Circon in the event of clause (i) or (ii) shall reduce, on a
dollar-for-dollar basis, the amount, if any, payable by Cabot to Circon pursuant
to Section 5.6 hereof. If (i) Circon's Board of Directors adversely amends,
withholds or withdraws its recommendation of the Merger or (ii) Circon's
stockholders do not approve the Merger at the Circon Stockholder's Meeting,
then, provided that Cabot is not then in material breach of the terms of this
Agreement, Circon shall pay Cabot's Out-of-Pocket Expenses, not to exceed
$1,000,000 upon written request therefor. Notwithstanding the foregoing, nothing
contained herein shall relieve any party from liability for any breach of this
Agreement.
5.6 Break-Up Fee. If for any reason
(a) the Board of Directors accepts a Superior Proposal or
recommends a Superior Proposal to Cabot's stockholders, or
(b) (i) the Board of Directors of Cabot adversely amends,
withholds or withdraws its recommendation that Cabot's stockholders approve
the Merger, (ii) the stockholders of Cabot fail to approve the Merger prior
to August 31, 1995, or (iii) there are Dissenting Shares representing 5% or
more of the Cabot shares outstanding on the record date for the Cabot
Stockholders Meeting, and, within three months following the occurrence in
clause (i), (ii) or (iii), Cabot merges with another Person, issues stock
representing a 40% or greater voting interest in Cabot to another Person,
transfers more than 50% of its assets to another Person or enters into an
option, agreement or letter of intent to do any of the foregoing or any
other arrangement intended to transfer Cabot or control of Cabot to such
other Person, or the stockholders of Cabot, in response to a tender offer
or exchange offer by any Person tender shares representing a 40% or greater
voting interest in Cabot or give options or rights to any Person to acquire
such shares,
then, provided that Circon shall not have materially breached any of the
representations, warranties, covenants or agreements made on its part such that
either of the conditions set forth in Sections 6.2(a) or 6.2(b) will not be
satisfied, Cabot shall pay to Circon, within five (5) business days following
Circon's written request therefor, the sum of $4 million by wire transfer of
immediately available funds to an account designated by Circon. "Person" means
any individual, corporation, partnership, trust or other entity, and includes
any group of such Persons acting in concert.
5.7 Public Disclosure. Circon and Cabot shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or this Agreement and shall not issue
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any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with the
Nasdaq National Market, and in any event in accordance with the terms of the
Confidentiality Agreements.
5.8 Pooling Accounting. Circon and Cabot shall each use its best efforts
to cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. Each of Circon and Cabot shall use its best
efforts to cause its Affiliates (as defined in Section 5.10) not to take any
action that would adversely affect the ability of Circon to account for the
business combination to be effected by the Merger as a pooling of interests.
5.9 Auditors' Letters. Cabot shall use its best efforts to cause to be
delivered to Circon a letter of KPMG Peat Marwick LLP, independent auditors to
Cabot, dated a date within two business days before the date on which the
Registration Statement becomes effective, and addressed to Circon, in form and
substance reasonably satisfactory to Circon and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement. Circon shall use
its best efforts to be delivered to Cabot a letter of Arthur Andersen LLP,
independent auditors to Circon, dated a date within two business days before the
date on which the Registration Statement becomes effective, and addressed to
Cabot, in form and substance reasonably satisfactory to Cabot and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
5.10 Affiliate Agreements. Set forth respectively in Circon's Schedules
and Cabot's Schedules is a list of those persons who may be deemed to be, in
Circon's or Cabot's reasonable judgment, as the case may be, "affiliates" of
Circon or Cabot, as the case may be, within the meaning of Rule 145 promulgated
under the Securities Act ("Rule 145"). Each such person who may be deemed to be
an "affiliate" of Circon or Cabot within the meaning of Rule 145 is referred to
as an "Affiliate." Each of Circon and Cabot shall provide the other such
information and documents as the other shall reasonably request for purposes of
reviewing such list. Cabot shall use its best efforts to deliver or cause to be
delivered to Circon prior to the Closing Date from each of the Affiliates of
Cabot, an executed Affiliate Agreement in the form attached hereto as Exhibit B
(each, a "Cabot Affiliate Agreement"; collectively, the "Cabot Affiliate
Agreements"). Circon shall use its best efforts to deliver or cause to be
delivered to Cabot prior to the Closing Date from each of the Affiliates of
Circon, an executed Affiliate Agreement in the form attached hereto as Exhibit C
(each a "Circon Affiliate Agreement"; collectively, the "Circon Affiliate
Agreements"). Circon and Merger Sub shall be entitled to place appropriate
legends on the certificates evidencing any Circon Common Stock to be received by
such Affiliates of Cabot pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Circon Common
Stock, consistent with the terms of Cabot Affiliates Agreements.
5.11 FIRPTA. Cabot shall deliver to the Internal Revenue Service a notice
that Cabot Capital Stock is not a "U.S. Real Property Interest" as defined in
and in accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2).
5.12 Legal Requirements. Each of Circon, Merger Sub and Cabot will take
all reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement by any Government Entity and
will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement, and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
public or private third party required to be obtained or made in connection with
the Merger or taking of any action contemplated by this Agreement.
5.13 Blue Sky Laws. Circon shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Circon Common Stock pursuant hereto. Cabot shall
use its best efforts to assist Circon as may be necessary to comply with the
securities and
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blue sky laws of all jurisdictions which are applicable in connection with the
issuance of Circon Common Stock pursuant hereto.
5.14 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall each use reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement (including resolution of any litigation prompted
hereby). Each party hereto, at the reasonable request of another party hereto,
shall execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
5.15 Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Cabot Common Stock (each a "Cabot Stock Option") under Cabot Stock Option Plans,
whether vested or unvested, will be assumed by Circon. Each Cabot Stock Option
so assumed by Circon under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the applicable Cabot Stock Option
Plan immediately prior to the Effective Time, except that (i) such Cabot Stock
Option shall be exercisable (when vested) for that number of whole shares of
Circon Common Stock equal to the product of the number of shares of Cabot Common
Stock that were issuable upon exercise of such Cabot Stock Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Circon Common Stock, and (ii) the per
share exercise price for the shares of Circon Common Stock issuable upon
exercise of such assumed Cabot Stock Option shall be equal to the quotient
determined by dividing the exercise price per share of Cabot Common Stock at
which such Cabot Stock Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) After the Effective Time, Circon or Cabot shall issue to each holder
of an outstanding Cabot Stock Option a document evidencing the foregoing
assumption of such Cabot Stock Option by Circon.
(c) It is the intention of the parties that Cabot Stock Options assumed
by Circon qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent Cabot Stock Options qualified
as incentive stock options immediately prior to the Effective Time.
5.16 Registration of Circon Shares Issuable Upon Exercise of Cabot Stock
Options. Circon agrees to file a registration statement on Form S-8 for the
shares of Circon Common Stock issuable with respect to assumed Cabot Stock
Options and with respect to the Employee Stock Purchase Plan no later than the
Closing Date.
5.17 Tax-Free Reorganization. Circon and Cabot shall each use all
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368 of the Code.
5.18 NMS Listing. Circon agrees to apply for listing on the Nasdaq
National Market the shares of Circon Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.19 Board Representation. Promptly following the Effective Time of the
Merger, the Board of Directors of Circon shall take appropriate action to cause
Warren Wood (or if he is unavailable to serve, a person who is currently a
member of the Board of Directors of Cabot and who is acceptable to Circon) to be
appointed as a Class II director of Circon and to be appointed as an Officer of
Circon for a period of 30 days commencing contemporaneously with the appointment
as a Circon director, so that under the terms of the Circon Certificate of
Incorporation his term as a director will expire at the 1996 annual meeting of
Circon stockholders.
5.20 Compliance with Indenture. Circon and Cabot shall provide in a
timely manner all notices to holders of the Cabot Notes required by the
Indenture in connection with the Merger, and Circon shall enter into any
supplemental indenture or undertaking required by the Indenture. Cabot shall not
enter into any
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amendment, modification or supplement to the Indenture, or waive any rights
thereunder, without the prior written consent of Circon.
5.21 Indemnification of Directors and Officers.
(a) The Certificate of Incorporation and By-Laws of Merger Sub shall
contain the provisions with respect to indemnification set forth in the
Certificate of Incorporation and By-Laws of Cabot on the date of this Agreement,
which provisions shall not be amended, repealed, or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at any time prior to the
Effective Time were directors or officers of Cabot in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by Law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers and
directors of Cabot (collectively, the "Indemnified Parties") against all losses,
expenses, claims, damages, liabilities or amounts that are paid in settlement
of, with the approval of Circon and the Surviving Corporation (which approval
shall not unreasonably be withheld), or otherwise in connection with any claim,
action, suit, proceeding or investigation (a "Claim"), based in whole or in part
on the fact that such person is or was a director or officer of Cabot and
arising out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), in each case to the full extent permitted under the State Law (and
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under the
State Law, upon receipt from the Indemnified Party to whom expenses are advanced
of the undertaking to repay such advances contemplated by Section 14A:3-5(6) of
the State Law). Circon shall guarantee the Surviving Corporation's obligations
pursuant to this Section 5.21(b).
(c) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time (i) the Indemnified Parties may retain Cabot's
regularly engaged independent legal counsel, or other independent legal counsel
satisfactory to them provided that such other counsel shall be reasonably
acceptable to Circon and the Surviving Corporation, (ii) the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received and (iii) the
Surviving Corporation will use its reasonable best efforts to assist in the
vigorous defense of any such matter, provided that the Surviving Corporation
shall not be liable for any settlement of any Claim affected without its written
consent, which consent shall not be unreasonably withheld. Any Indemnified Party
wishing to claim indemnification under this Section 5.21, upon learning of any
such Claim, shall notify the Surviving Corporation (although the failure so to
notify the Surviving Corporation shall not relieve the Surviving Corporation
from any liability which the Surviving Corporation may have under this Section
5.21 except to the extent such failure prejudices the Surviving Corporation),
and shall deliver to the Surviving Corporation the undertaking contemplated by
Section 14A:3-5(6) of the State Law. The Indemnified Parties as a group may
retain one law firm (in addition to local counsel) to represent them with
respect to each such matter unless there is, under applicable standards of
professional conduct (as determined by counsel to the Indemnified Parties), a
conflict on any significant issue between the positions of any two or more
Indemnified Parties, in which event, such additional counsel as may be required
may be retained by the Indemnified Parties.
(d) For a period of six years after the Effective Time, Circon shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Cabot (provided that Circon may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous with respect to
claims arising from facts or events which occurred before the Effective Time).
(e) This Section 5.21 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on Circon and the Surviving Corporation and
their respective successors and assigns.
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5.22 Commitment Letters. Circon shall use reasonable efforts (and Cabot
and Circon shall cooperate with one another in this regard) to obtain and
deliver to Cabot by May 15, 1995 legally binding commitment letters to provide
loans to Circon, solely for the purpose of prepaying any Cabot Notes the holders
of which exercise the right under the Indenture to require Cabot or Circon to
prepay the Cabot Notes by reason of the occurrence of the Merger, in an
aggregate amount equal to $50,000,000 (less the principal amount of any Cabot
Notes which cannot be required to be prepaid notwithstanding the exercise of the
prepayment right with respect to other Cabot Notes). Such commitment letters
(the "Commitment Letters") shall be from lending institutions reasonably
acceptable to Cabot and shall be valid and binding obligations of the lenders,
subject to no conditions except those concerning which Circon certifies to Cabot
that it is not aware of any circumstances that would result in a failure to meet
such conditions. If Circon fails to obtain such Commitment Letters meeting the
requirements of the foregoing sentence by May 15, 1995 (the "Commitment Letter
Event"), Cabot shall have the right to terminate this Agreement at any time
prior to May 20, 1995.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote under applicable law of the
stockholders of each of Cabot and Circon.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement, shall have been initiated or threatened in writing by the SEC.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(d) Tax Opinions. Circon and Cabot shall each have received
substantially identical written opinions from their counsel, Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, and Stradley, Ronon, Stevens &
Young, respectively, in form and substance reasonably satisfactory to them, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(e) Opinion of Accountants. Each of the parties to this Agreement shall
have received letters from Arthur Andersen LLP and KPMG Peat Marwick LLP
regarding those firms' concurrence with Circon management's and Cabot
management's conclusions, respectively, as to the appropriateness of pooling of
interests accounting for the Merger under Accounting Principles Board Opinion
No. 16 if closed and consummated in accordance with this Agreement.
(f) Nasdaq Listing. The shares of Circon Common Stock issuable to
stockholders of Cabot pursuant to this Agreement and such other shares required
to be reserved for issuance in connection with the Merger shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(g) Employment and Consulting Agreements. Employment and Consulting
Agreements between Cabot and, respectively, Warren Wood, Marvin Sharfstein and
Harry Brener shall have been executed by each of the parties thereto containing
such terms and conditions as are acceptable to each of them and to Circon.
6.2 Additional Conditions to Obligations of Cabot. The obligations of
Cabot to consummate this Agreement and effect the transactions contemplated
hereby shall be subject to the satisfaction at or prior to
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the Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by Cabot:
(a) Representations and Warranties. The representations and warranties
of Circon and Merger Sub contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Circon; and Cabot shall have received a certificate to such effect
signed on behalf of Circon by the President and Chief Financial Officer of
Circon;
(b) Agreements and Covenants. Circon and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and Cabot shall have received a certificate to such
effect signed by the President and Chief Financial Officer of Circon;
(c) Legal Opinion. Cabot shall have received a legal opinion from
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to Circon,
in substantially the form attached hereto as Exhibit D.
(d) Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any material adverse change in the business, assets,
results of operations or financial condition of Circon and its subsidiaries
taken as a whole.
(e) Affiliate Agreements. Each of the persons identified by Circon
pursuant to Section 5.10 hereof as being an Affiliate of Circon shall have
delivered to Cabot an executed Circon Affiliate Agreement which shall be in full
force and effect.
(f) Fairness Opinion. Cabot shall have received from Smith Barney Inc.
a written opinion, dated within two days of the date of the Proxy Statement, to
the effect that the Exchange Ratio is fair to the holders of Common Stock of
Cabot from a financial point of view.
(g) Financing to Retire Cabot Notes. Circon shall have received and
delivered to Cabot the Commitment Letters, which shall meet the requirements of
Section 5.22, except that they may be obtained after May 15, 1995 and prior to
the Closing.
6.3 Additional Conditions to the Obligations of Circon and Merger
Sub. The obligations of Circon and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Circon:
(a) Representations and Warranties. The representations and warranties
of Cabot contained in this Agreement shall be true and correct in all material
respects on and as of the Effective Time, except for changes contemplated by
this Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably would
be expected to have a Material Adverse Effect on Cabot or Circon; and Circon and
Merger Sub shall have received a certificate to such effect signed on behalf of
Cabot by the President and Chief Financial Officer of Cabot;
(b) Agreements and Covenants. Cabot shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and the Circon and Merger Sub shall have received a certificate to such
effect signed by the President and Chief Financial Officer of Cabot;
(c) Legal Opinion. Circon shall have received a legal opinion from
Stradley, Ronon, Stevens & Young, legal counsel to Cabot, addressing the matters
set forth in Exhibit E to Circon' reasonable satisfaction.
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(d) Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any material adverse change in the business, assets,
results of operations or financial condition of Cabot and its subsidiaries taken
as a whole; provided, however, that any negative impact on Cabot's financial
condition or results of operations due to Lost Indian Orders (as defined in
Section 2.6) shall not be deemed to be a material adverse change.
(e) Affiliate Agreements. Each of the persons identified by Cabot
pursuant to Section 5.10 hereof as being an Affiliate of Cabot shall have
delivered to Circon an executed Company Affiliate Agreement which shall be in
full force and effect.
(f) Fairness Opinion. Circon shall have received from Bear, Stearns &
Co. a written opinion, dated within two days of the date of the Proxy Statement,
confirming the opinion referred to in Section 3.20.
(g) Financing to Retire Cabot Notes. Circon shall have obtained the
Commitment Letters, which (i) shall be subject to no conditions precedent except
that the loan proceeds be used for such purpose and other normal and customary
conditions for transactions of this type (and any other conditions that Circon
may in its discretion agree to) and (ii) shall provide for such terms, including
interest rate and maturity dates, as Circon may in its discretion agree to.
(h) Employment and Consulting Agreements. The Employment and Consulting
Agreements, dated the date of this Agreement, between Cabot and, respectively,
Warren Wood and Marvin Sharfstein shall remain in full force and effect as of
the Closing Date.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Cabot and Circon;
(b) by Circon if:
(i) there has been a material breach of any representation,
warranty, covenant or agreement, contained in this Agreement on the part of
Cabot and such breach has not been cured within ten business days after written
notice to Cabot (provided, that Circon is not in material breach of the terms of
this Agreement; and provided further, that no cure period shall be required for
a breach which by its nature cannot be cured) such that the conditions set forth
in Section 6.3(a) or Section 6.3(b), as the case may be, will not be satisfied,
or
(ii) the Board of Directors of Cabot adversely amends, withholds
or withdraws its recommendation of the Merger (provided that Circon is not in
material breach of the terms of this Agreement);
(c) by Cabot if:
(i) there has been a material breach of any representation,
warranty, covenant or agreement, contained in this Agreement on the part of
Circon or Merger Sub and such breach has not been cured within ten business days
after written notice to Circon (provided, that Cabot is not in material breach
of the terms of this Agreement; and provided further, that no cure period shall
be required for a breach which by its nature cannot be cured) such that the
conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be,
will not be satisfied,
(ii) the Board of Directors of Circon adversely amends, withholds
or withdraws its recommendation of the Merger (provided Cabot is not in material
breach of the terms of this Agreement),
(iii) the Commitment Letter Event (as defined in Section 5.22)
shall have occurred and Cabot gives Circon notice of termination pursuant to
this clause (iii) prior to May 20, 1995, or
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(iv) Circon shall not have obtained the Commitment Letters prior
to the Cabot Stockholders Meeting and Cabot shall have given Circon notice of
termination pursuant to this clause (iv) no later than two business days after
the date of the Cabot Stockholders Meeting;
(d) by any party hereto if: (i) there shall be a final, non-appealable
order of a federal or state court in effect preventing consummation of the
Merger; (ii) there shall be any final action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity which would make consummation of the Merger
illegal or which would prohibit Circon's ownership or operation of all or a
material portion of the business of Cabot, or compel Circon to dispose of or
hold separate all or a material portion of the business or assets of Cabot or
Circon as a result of the Merger; (iii) Cabot's stockholders do not approve the
Merger and this Agreement by September 30, 1995 (provided that Cabot may not
terminate in these circumstances if it is in material breach of the terms of
this Agreement); (iv) Cabot's stockholders approve the Merger and this
Agreement, but there are Dissenting Shares representing 5% or more of the Cabot
shares outstanding on the record date for the Cabot Stockholders' Meeting; or
(v) Circon's stockholders do not approve the Merger and this Agreement by
September 30, 1995 (provided that Circon may not terminate in these
circumstances if it is in material breach of the terms of this Agreement);
(e) by any party hereto if the Merger shall not have been consummated by
October 31, 1995 provided, that the right to terminate this Agreement under this
Section 7.1(e) shall not be available to any party whose willful failure to
fulfill any material obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
(f) by any party hereto if the Board of Directors of Cabot accepts or
approves a Superior Proposal, or recommends a Superior Proposal to the
stockholders of Cabot.
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section
7.1, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of Circon, Merger Sub, Cabot or their respective
officers, directors, stockholders or affiliates, except to the extent that such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, and, provided that the provisions of Sections 5.3, 5.5, and 5.6 and
Article VIII of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
(b) Any termination of this Agreement by Cabot pursuant to Section
7.1(f) hereof shall be of no force or effect unless prior to such termination
Cabot shall have paid to Circon the sum of $4 million as prescribed by Section
5.6.
7.3 Notice of Termination. Subject to Section 7.2(b), any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
7.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of Cabot, Circon and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Circon or Merger Sub, to:
Circon Corporation
6500 Hollister Avenue
Santa Barbara, CA 93117
Attention: President
Telecopy No.: (805) 968-8174
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Robert B. Jack
Telecopy No.: (415) 493-6811
(b) if to Cabot, to:
Cabot Medical Corporation
2150 Cabot Boulevard West
Langhorne, PA 19047
Attention: Chief Executive Officer
Telecopy No.: (215) 750-0161
with a copy to:
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103-7098
Attention: James M. Papada, III
Telecopy No.: (215) 564-8120
8.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limiting the generality of the foregoing." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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8.5 Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein, including Cabot Schedules and the Circon Schedules (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreements shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically set forth in Section 5.18.
8.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the State of Delaware, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of Delaware for such persons and waives and covenants not
to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the parties.
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IN WITNESS WHEREOF, Circon, Merger Sub, Cabot have caused this Agreement to
be signed by themselves or their duly authorized respective officers, all as of
the date first written above.
<TABLE>
<S> <C>
CABOT MEDICAL CORPORATION CIRCON CORPORATION
By: /s/ WARREN G. WOOD By: /s/ RICHARD A. AUHLL
- --------------------------------------------- ---------------------------------------------
Name: Warren G. Wood Name: Richard A. Auhll
----------------------------------
------------------------------------------
Title: Chairman, CEO Title: CEO
-----------------------------------
-------------------------------------------
CIRCON SUB CORP.
By: /s/ RICHARD A. AUHLL
---------------------------------------------
Name: Richard A. Auhll
----------------------------------
Title: CEO
-----------------------------------
</TABLE>
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EXHIBIT A
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of
April 25, 1995, between Circon Corporation, a Delaware corporation ("Circon"),
and the undersigned Stockholder ("Stockholder") of Cabot Medical Corporation, a
New Jersey corporation ("Cabot"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Merger
Agreement (as defined below).
RECITALS
A. Concurrently with delivery of this Agreement, Circon, Cabot and Circon
Sub Corp, a New Jersey corporation and a wholly owned subsidiary of Circon
("Merger Sub"), are entering into an Agreement and Plan of Reorganization (the
"Merger Agreement") which provides for the merger (the "Merger") of Merger Sub
with and into Cabot, which will become a wholly-owned subsidiary of Circon.
Pursuant to the Merger, shares of Common Stock of Cabot will be converted into
the right to receive shares of Circon Common Stock on the basis described in the
Merger Agreement.
B. The Stockholder is the record holder and beneficial owner, as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of such number of shares of the outstanding Common Stock of
Cabot as is indicated on the final page of this Agreement (the "Shares").
C. As an inducement to Circon to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement, pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Cabot acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below), except as
otherwise permitted hereby, and to vote the Shares and any other such shares of
capital stock of Cabot so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree as
follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Stockholder agrees not to transfer,
sell, exchange, pledge (except to Cabot to secure indebtedness existing on the
date of this Agreement) or otherwise dispose of or encumber any of the Shares or
any New Shares (as defined in Section 1.2 below), or to make any offer or
agreement relating thereto, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Merger shall become effective in accordance with the terms
and provisions of the Merger Agreement and (ii) such date and time as the Merger
Agreement shall be terminated pursuant to Article VII thereof.
1.2 Additional Purchases. Stockholder agrees that any shares of
capital stock of Cabot that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership (whether by option exercise
or otherwise) after the execution of this Agreement and prior to the Expiration
Date ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the Stockholders of
Cabot called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the Stockholders
of Cabot with respect to any of the following, Stockholder shall vote, and give
consent with respect to, the Shares and any New Shares: (i) in favor of approval
of the Merger Agreement and the Merger and (ii) against approval of any proposal
made in opposition to or competition with consummation of the Merger and against
any merger, consolidation, sale of assets, issuance of Cabot shares,
reorganization or recapitalization, with any party other than with Circon and
its affiliates and against any liquidation or winding up of Cabot (each of the
foregoing is hereinafter referred to as an "Opposing Proposal"). Stockholder has
not taken and agrees not to take any actions contrary to Stockholder's
obligations under this Agreement. This Agreement is intended to bind Stockholder
as a shareholder of Cabot only with respect to the specific matters set forth
herein and shall not prohibit Stockholder from acting in accordance with his or
her fiduciary duties, if applicable, as an officer or director of Cabot.
<PAGE> 131
3. Irrevocable Proxy. Stockholder hereby irrevocably appoints the
Chairman of the Board of Circon and the Chief Financial Officer of Circon, and
each of them, as the sole and exclusive attorneys and proxies of Stockholder,
with full power of substitution and resubstitution, to vote, and give consent
with respect to, the Shares and the New Shares to the same extent as Stockholder
has agreed to vote and to give consent as provided in Section 2 of this
Agreement. Such attorneys and proxies shall exercise the powers conferred by
this Section 3 only if they determine, in their discretion, that Stockholder has
failed, or is expected by them to fail, to fully satisfy Stockholder's
obligations under Section 2, in which event Cabot is hereby irrevocably directed
by Stockholder to permit the exercise of this proxy, notwithstanding any actual
or attempted vote of or consent given with respect to the Shares and/or the New
Shares by Stockholder. This proxy revokes any and all prior proxies given by
Stockholder inconsistent with the terms hereof. This proxy shall expire at the
Expiration Date and in any event no later than one year after the date of this
Agreement.
4. Representations, Warranties and Covenants of the
Stockholder. Stockholder hereby represents, warrants and covenants to Circon as
follows:
4.1 Ownership of Shares. Stockholder (i) is the beneficial owner of
the Shares, which at the date hereof and at all times up until the Expiration
Date will be free and clear of any liens, claims, options, charges or other
encumbrances (except pledges to Cabot to secure existing indebtedness); (ii)
does not beneficially own any shares of capital stock of Cabot other than the
Shares; (iii) is not a party to any agreement, contract, commitment, or
understanding (other than this Agreement) which affects or relates to the voting
or giving of written consents with respect to the Shares or Stockholder's
continued beneficial ownership of the Shares; and (iv) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
4.2 No Proxy Solicitations. Stockholder will not, and will not permit
any entity under Stockholder's control to: (i) solicit proxies or become a
"participant" in a "solicitation" (as such terms are defined in Regulation 14A
under the Exchange Act) with respect to an Opposing Proposal or otherwise
encourage or assist any party in taking or planning any action that would
compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the Merger
Agreement; (ii) initiate a Stockholders' vote or action by consent of Cabot
Stockholders with respect to an Opposing Proposal; or (iii) become a member of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with respect
to any voting securities of Cabot with respect to an Opposing Proposal.
5. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Circon or Stockholder, as the case may be, to carry out
the intent of this Agreement.
6. Consent and Waiver. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date, and in no event after one year from the date of this Agreement.
8. Miscellaneous.
8.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the Stockholder may be assigned (except by
operation of law) by the Stockholder without prior written consent of Circon.
2
<PAGE> 132
8.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the party against whom enforcement is sought.
8.4 Specific Performance; Injunctive Relief; Forum. The parties hereto
acknowledge that Circon will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreement of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Circon upon any such violation, Circon
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Circon at law
or in equity. The prevailing party in any such proceeding shall be entitled to
recover costs, including attorneys' fees, from the other party.
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given when
delivered in person, by cable, telegram or telex, or when sent by mail
(registered or certified mail, postage prepaid, return receipt requested) or by
overnight carrier (prepaid) to the respective parties as follows:
<TABLE>
<S> <C>
If to Circon: Circon Corporation
6500 Hollister Avenue
Santa Barbara, CA 93117
Attn: Richard A. Auhll
With a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Robert Jack, Esq.
Telephone: (415) 493-9300
Fax:
(415) 493-6811
If to
Stockholder: At the address shown below the Stockholder's name on the
signature page hereto
With a copy to: Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103
Attn: James Papada, Esq.
Telephone: (215) 564-8000
Fax:
(215) 564-8120
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
8.6 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of New Jersey,
without reference to any rules of conflict of laws
8.7 Entire Agreement. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
8.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
3
<PAGE> 133
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
CIRCON CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER:
By:
--------------------------------------
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Shares beneficially owned:
----------------------------------------------------------------------- shares
of Common Stock
4
<PAGE> 134
EXHIBIT B
CABOT AFFILIATE AGREEMENT
CABOT AFFILIATE AGREEMENT ("Agreement") dated April 25, 1995, between
Circon Corporation, a Delaware corporation ("Circon") and the undersigned
stockholder ("Stockholder") of Cabot Medical Corporation, a New Jersey
corporation ("Cabot").
WHEREAS, Circon and Cabot propose to enter into an Agreement and Plan of
Reorganization ("Merger Agreement") pursuant to which a subsidiary of Circon
will merge into Cabot ("Merger"), and Cabot will become a subsidiary of Circon;
WHEREAS, pursuant to the Merger, at the Effective Time (as defined in the
Merger Agreement) outstanding shares of Cabot Common Stock, including shares
owned by Stockholder, will be converted into the right to receive shares of
Common Stock of Circon;
WHEREAS, it will be a condition to effectiveness of the Merger that (i) the
attorneys for each of Cabot and Circon will have delivered written opinions that
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986 as amended (the "Code"), and (ii) the
independent accounting firms that audit the annual financial statements of Cabot
and Circon will have delivered their written concurrences to the effect that the
Merger will be accounted for as a pooling of interests;
WHEREAS, the execution and delivery of this Agreement by Stockholder is a
material inducement to Circon to enter into the Merger Agreement;
WHEREAS, Stockholder has been advised that Stockholder may be deemed to be
an "affiliate" of Cabot, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") and
(ii) in the Commission's Accounting Series Releases 130 and 135, as amended,
although nothing contained herein shall be construed as an admission by
Stockholder that Stockholder is in fact an affiliate of Cabot.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. Acknowledgements by Stockholder. Stockholder acknowledges and
understands that the representations, warranties and covenants by Stockholder
set forth herein will be relied upon by Circon, Cabot, and their respective
stockholders, counsel and accounting firms, and that substantial losses and
damages may be incurred by these persons if Stockholder's representations,
warranties or covenants are breached. Stockholder has carefully read this
Agreement and the Merger Agreement and has discussed the requirements of this
Agreement with his professional advisors, who are qualified to advise him with
regard to such matters.
2. Compliance with Rule 145 and the Act.
(a) Stockholder has been advised that (i) the issuance of shares of
Circon Common Stock in connection with the Merger will be registered under the
Securities Act of 1933 as amended (the "Act") on a Registration Statement on
Form S-4, (ii) Stockholder may be deemed to be an affiliate of Cabot, (iii) no
sale, transfer or other disposition by Stockholder of Circon Common Stock will
be registered under the Act. Stockholder accordingly agrees not to sell,
transfer or otherwise dispose of Circon Common Stock issued to Stockholder in
the Merger unless (i) such sale, transfer or other disposition is made in
conformity with the requirements of Rule 145(d) promulgated under the Act, or
(ii) Stockholder delivers to Circon a written opinion of counsel, reasonably
acceptable to Circon in form and substance, that such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
<PAGE> 135
(b) Circon will give stop transfer instructions to its transfer agent
with respect to the Circon Common Stock received by Stockholder pursuant to the
Merger and there will be placed on the certificates representing such Common
Stock, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 applies and may only be
transferred in conformity with Rule 145(d) or in accordance with
a written opinion of counsel, reasonably acceptable to the
issuer in form and substance, that such transfer is exempt from
registration under the Securities Act of 1933."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) if Stockholder delivers to Circon (i)
satisfactory written evidence that the shares have been sold in compliance with
Rule 145 (in which case, the substitute certificate will be issued in the name
of the transferee), or (ii) an opinion of counsel, in form and substance
reasonably satisfactory to Circon, to the effect that public sale of the shares
by the holder thereof is no longer subject to Rule 145.
3. Covenants Related to Pooling of Interests. During the period beginning
from the date hereof and ending on the second day after the day that Circon
publicly announces financial results covering at least 30 days of combined
operations of Circon and Cabot, Stockholder will not sell, exchange, transfer,
pledge, make any gift or otherwise dispose of or grant any option, establish any
"short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) intended or having the effect,
directly or indirectly, to reduce his risk relative to the shares of Circon
Common Stock received by Stockholder in connection with the Merger. Circon may,
at its discretion, cause a restrictive legend to the foregoing effect to be
placed on Circon Common Stock certificates issued to Stockholder in the Merger
and place a stock transfer notice consistent with the foregoing with its
transfer agent with respect to the certificates.
4. Representations, Warranties and Covenants Related to Tax Effects of the
Merger.
(a) Stockholder is the beneficial owner of the number of shares of Cabot
Common Stock set forth in Appendix A hereto (the "Cabot Securities") and, except
as otherwise set forth in Appendix A, (i) has held the Cabot Securities at all
times since January 1, 1995, and (ii) did not acquire any of the Cabot
Securities in contemplation of the Merger;
(b) Except as otherwise set forth in Appendix A hereto, Stockholder has
not engaged in a Sale (as defined below) of any shares of Cabot Common Stock
(including the Cabot Securities) (i) at any time since January 1, 1995 or (ii)
in contemplation of the Merger;
(c) Stockholder has no plan or intention (a "Plan") to engage in a sale,
exchange, transfer, distribution (including a distribution by a partnership to
its partners or by a corporation to its stockholders), redemption or reduction
in any way of the undersigned's risk of ownership by short sale or otherwise, or
other disposition, directly or indirectly (such actions being collectively
referred to herein as a "Sale") of more than 50% of the shares of Circon Common
Stock to be received by Stockholder in the Merger. For purposes of the preceding
sentence, shares of Cabot Common Stock (or the portion thereof) (i) with respect
to which Stockholder will receive consideration in the Merger other than Circon
Common Stock (including, without limitation, cash to be received in lieu of
fractional shares of Circon Common Stock) and/or (ii) with respect to which a
Sale (A) occurred after January 1, 1995 or otherwise in contemplation of the
Merger or (B) will occur prior to the Merger, shall be considered shares of
Cabot Common Stock exchanged for Circon Common Stock in the Merger and then
disposed of pursuant to a Plan;
(d) The undersigned will not exercise dissenters' rights in connection
with the Merger;
(e) The undersigned is not aware of, or participating in, any Plan on
the part of the stockholders of Cabot to engage in a Sale or Sales of the Circon
Common Stock to be received in the Merger such that the aggregate fair market
value, as of the Effective Date of the Merger, of the shares subject to such
Sales would exceed 50% of the aggregate fair market value of all shares of
outstanding Cabot Common Stock immediately prior to the Merger. For purposes of
the preceding sentence, shares of Cabot Common Stock (or the portion thereof)
(i) with respect to which a Cabot stockholder receives consideration in the
Merger other than Circon
2
<PAGE> 136
Common Stock (including, without limitation, cash received pursuant to
the exercise of dissenters' rights or in lieu of fractional shares of Circon
Common Stock) or (ii) with respect to which a Sale occurs prior to and in
contemplation of the Merger, shall be considered shares of outstanding Cabot
Common Stock exchanged for Circon Common Stock in the Merger and then disposed
of pursuant to a Plan.
(f) Except to the extent written notification to the contrary is
received by Circon from Stockholder prior to the Merger, the representations
contained herein shall be true and correct at all times from the date hereof
through the date on which the Merger occurs.
(g) Stockholder understands that Cabot, Circon and their respective
stockholders, as well as legal counsel to Cabot and Circon (in connection with
rendering their opinions that the Merger will be a "reorganization" within the
meaning of Section 368(a) of the Code) will be relying on (a) the truth and
accuracy of the representations contained herein and (b) Stockholder's
performance of the obligations set forth herein.
(h) Except for the Cabot Securities and options to purchase Cabot Common
Stock set forth in Appendix A hereto, Stockholder does not beneficially own any
shares of Cabot Common Stock or any other equity securities of Cabot or any
options, warrants or other rights to acquire any equity securities of Cabot.
5. Miscellaneous.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of California.
(d) If a court of competent jurisdiction determines that any provision
of this Agreement is not enforceable or enforceable only if limited in time
and/or scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement signed
by both parties.
Executed as of the date shown on the first page of this Agreement.
<TABLE>
<S> <C>
CIRCON CORPORATION STOCKHOLDER
By
Executive Officer Signature
</TABLE>
3
<PAGE> 137
APPENDIX A
Stockholder:
- --------------------------------------------------------------------------------
Total Number of shares of Cabot Common Stock owned on the date hereof:
- -------------------------------
Total Number of shares of Cabot Common Stock owned on January 1, 1995:
Total Number of shares of Cabot Common Stock disposed of in a Sale (i) after
January 1, 1995 or (ii) otherwise in contemplation of the Merger (including
dates and nature of dispositions):
- ----------------
- --------------------------------------------------------------------------------
Total Number of shares of Cabot Common Stock acquired (i) after January 1, 1995
or (ii) otherwise in contemplation of the Merger (including dates and nature of
acquisitions):
- ----------------------------------
- --------------------------------------------------------------------------------
Total Number of options to purchase Cabot Common Stock owned on the date hereof
(including the dates of grant, vesting, exercise prices and expiration
dates):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
<PAGE> 138
EXHIBIT C
CIRCON AFFILIATE AGREEMENT
CIRCON AFFILIATE AGREEMENT ("Agreement") dated April 25, 1995, between
Circon Corporation, a Delaware corporation ("Circon") and the undersigned
stockholder ("Stockholder") of Circon.
WHEREAS, Circon and Cabot Medical Corporation ("Cabot") propose to enter
into an Agreement and Plan of Reorganization ("Merger Agreement") pursuant to
which a subsidiary of Circon will merge into Cabot ("Merger"), and Cabot will
become a subsidiary of Circon;
WHEREAS, it will be a condition to effectiveness of the Merger that the
independent accounting firms that audit the annual financial statements of Cabot
and Circon will have delivered their written concurrences to the effect that the
Merger will be accounted for as a pooling of interests;
WHEREAS, the execution and delivery of this Agreement by Stockholder is a
material inducement to Circon to enter into the Merger Agreement;
WHEREAS, Stockholder has been advised that Stockholder may be deemed to be
an "affiliate" of Circon, as the term "affiliate" is used in Accounting Series
Releases 130 and 135, as amended, although nothing contained herein shall be
construed as an admission by Stockholder that Stockholder is in fact an
affiliate of Circon.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. Acknowledgements by Stockholder. Stockholder acknowledges and
understands that the representations, warranties and covenants by Stockholder
set forth herein will be relied upon by Circon, Cabot, and their respective
stockholders, counsel and accounting firms, and that substantial losses and
damages may be incurred by these persons if Stockholder's representations,
warranties or covenants are breached. Stockholder has carefully read this
Agreement and the Merger Agreement and has discussed the requirements of this
Agreement with his professional advisors, who are qualified to advise him with
regard to such matters.
2. Covenants Related to Pooling of Interests. During the period beginning
from the date hereof and ending on the second day after the day that Circon
publicly announces financial results covering at least 30 days of combined
operations of Circon and Cabot, Stockholder will not sell, exchange, transfer,
pledge, make any gift or otherwise dispose of or grant any option, establish any
"short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) intended or having the effect,
directly or indirectly, to reduce his risk relative to any shares of Circon
Common Stock. Circon may, at its discretion, place a stock transfer notice
consistent with the foregoing with its transfer agent with respect to
Stockholder's shares.
3. Beneficial Ownership of Stock. Except for the Circon Common Stock and
options to purchase Circon Common Stock set forth in Appendix A hereto,
Stockholder does not beneficially own any shares of Circon Common Stock or any
other equity securities of Circon or any options, warrants or other rights to
acquire any equity securities of Circon.
4. Miscellaneous.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of California.
<PAGE> 139
(d) If a court of competent jurisdiction determines that any provision
of this Agreement is not enforceable or enforceable only if limited in time
and/or scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement signed
by both parties.
Executed as of the date shown on the first page of this Agreement.
<TABLE>
<S> <C>
CIRCON CORPORATION STOCKHOLDER
By
Executive Officer Signature
</TABLE>
2
<PAGE> 140
APPENDIX A
Stockholder:
Total Number of shares of Circon Common Stock owned on the date
hereof:
- ------------------------------------
Total Number of options to purchase Circon Common Stock owned on the date hereof
(including the dates of grant, vesting, exercise prices and expiration dates):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 141
EXHIBIT D
, 1995
Cabot Medical Corporation
2150 Cabot Boulevard West
Langhorne, PA 19047
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Reorganization by and among
Circon Corporation, a Delaware corporation ("Parent"), Circon Sub Corp., a New
Jersey corporation and a wholly-owned subsidiary of Parent ("Sub"), and Cabot
Medical Corporation, a New Jersey corporation (the "Company"), dated as of July
10, 1995 (the "Merger Agreement"). The Merger Agreement provides for the
acquisition of the Company by Parent (the "Merger") pursuant to a merger of Sub
with the Company on the terms and conditions set forth in the Merger Agreement.
This opinion is rendered to you pursuant to Section 6.2(c) of the Merger
Agreement, and all capitalized terms used herein have the meanings defined for
them in the Merger Agreement unless otherwise defined herein.
We have acted as counsel for Parent in connection with the negotiation of
the Merger Agreement and the effectuation of the Merger. As such counsel, we
have made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purposes of rendering this opinion. In addition,
we have examined originals or copies of documents, corporate records and other
writings that we consider relevant for the purposes of this opinion. In such
examination, we have assumed the genuineness of all signatures on original
documents, the conformity to original documents of all copies submitted to us
and the due execution and delivery of all documents by any party other than the
Company where due execution and delivery are a prerequisite to the effectiveness
thereof.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other suitable remedies;
(b) We express no opinion as to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally;
(c) We are members of the Bar of the State of California and we are not
expressing any opinion as to any matter relating to laws of any jurisdiction
other than the laws of the United States of America, the laws of the State of
California and the Delaware General Corporation Law.
Based upon and subject to the foregoing, we are of the opinion that:
1. Each of Parent and Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and New Jersey,
respectively.
2. The shares of capital stock of Parent to be issued in connection with
the Merger are duly authorized, and when issued pursuant to the Merger
Agreement, will be validly issued, fully paid and nonassessable.
3. Each of Parent and Sub has the requisite corporate power and authority
to execute and deliver the Merger Agreement, to perform its obligations
thereunder and to consummate the transactions contemplated thereby. The
execution and delivery of the Merger Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action on the part
of Parent and Sub and no other corporate proceedings on the part of Parent or
Sub are necessary to authorize the Merger Agreement or to consummate the
transactions so contemplated.
4. The Registration Statement has been declared effective and no stop order
with respect to the Registration Statement is in effect nor, to the best of
counsel's knowledge, are there any proceedings by or before any governmental
entity seeking such stop order.
<PAGE> 142
Cabot Medical Corporation
, 1995
Page 2
This opinion is solely for your benefit and is not to be made available to
or relied upon by any other person without our express prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE> 143
EXHIBIT E
, 1995
Circon Corporation
6500 Hollister Avenue
Santa Barbara, CA 93117
Ladies and Gentlemen:
We are acting as counsel to Cabot Medical Corporation, a New Jersey
corporation (the "Company"), in connection with the Agreement and Plan of
Reorganization (the "Merger Agreement"), dated as of July 10, 1995, among Circon
Corporation, a Delaware corporation ("Parent"), Circon Sub Corp., a New Jersey
corporation and a wholly-owned subsidiary of Parent ("Sub"), and the Company,
providing for the merger (the "Merger") of Sub with and into the Company.
We are furnishing you with this opinion pursuant to Section 6.3(c) of the
Merger Agreement. Unless otherwise defined, capitalized terms used herein have
the meanings assigned to them in the Merger Agreement.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey.
2. All of the outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and nonassessable.
3. The Company has the requisite corporate power and authority to execute
and deliver the Merger Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Merger Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize the Merger
Agreement or to consummate the transactions so contemplated.
4. Assuming that all necessary corporate action in respect of the Merger
has been duly and validly taken by Parent and Sub, upon the consummation of the
transactions contemplated by the Merger Agreement and the filing by Sub and the
Company with the Secretary of State of the State of New Jersey of Articles of
Merger in accordance with the New Jersey Business Corporation Law, the Merger
will have been validly effected in accordance with the New Jersey Business
Corporation Law.
We are furnishing this opinion to you solely for your benefit in connection
with the Merger pursuant to the Merger Agreement. This opinion may not be relied
upon by you for any other purpose or by any other person or entity for any
purpose without our prior written consent.
Very truly yours,
<PAGE> 144
ANNEX B
SECTIONS 14A:11-1 THROUGH 14A:11-11
OF THE NEW JERSEY BUSINESS CORPORATION ACT
SEC. 14A:11-1. RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions
(a) Any plan of merger or consolidation to which the corporation is a
party, provided that, unless the certificate of incorporation otherwise
provides
(i) a shareholder shall not have the right to dissent from any plan
of merger or consolidation with respect to shares
(A) of a class or series which is listed on a national
securities exchange or is held of record by not less than 1,000
holders on the record date fixed to determine the shareholders
entitled to vote upon the plan of merger or consolidation; or
(B) for which, pursuant to the plan of merger or consolidation,
he will receive (x) cash, (y) shares, obligations or other securities
which, upon consummation of the merger or consolidation, will either
be listed on a national securities exchange or held of record by not
less than 1,000 holders, or (z) cash and such securities;
(ii) a shareholder of a surviving corporation shall not have the
right to dissent from a plan of merger, if the merger did not require
for its approval the vote of such shareholders as provided in section
14A:10-5.1 or in subsections 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4); or
(b) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation not in the usual or
regular course of business as conducted by such corporation, provided that,
unless the certificate of incorporation otherwise provides, the shareholder
shall not have the right to dissent
(i) with respect to shares of a class or series which, at the
record date fixed to determine the shareholders entitled to vote upon
such transaction, is listed on a national securities exchange or is held
of record by not less than 1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of the
corporation which provides for distribution of substantially all of its
net assets to shareholders in accordance with their respective interests
within one year after the date of such transaction, where such
transaction is wholly for
(A) cash; or
(B) shares, obligations or other securities which, upon
consummation of the plan of dissolution will either be listed on a
national securities exchange or held of record by not less than 1,000
holders; or
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having
jurisdiction.
(2) Any shareholder of a domestic corporation shall have the right to
dissent with respect to any shares owned by him which are to be acquired
pursuant to section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares owned
beneficially by him and with respect to which a right of dissent exists. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner with respect to which the right of
dissent exists.
(4) A corporation may provide in its certificate of incorporation that
holders of all its shares, or of a particular class or series thereof, shall
have the right to dissent from specified corporate actions in addition to
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those enumerated in subsection 14A:11-1(1), in which case the exercise of such
right of dissent shall be governed by the provisions of this Chapter.
SEC. 14A:11-2. NOTICE OF DISSENT; DEMAND FOR PAYMENT; ENDORSEMENT OF
CERTIFICATES.
(1) Whenever a vote is to be taken, either at a meeting of shareholders or
upon written consents in lieu of a meeting pursuant to section 14A:5-6, upon a
proposed corporate action from which a shareholder may dissent under section
14A:11-1, any shareholder electing to dissent from such action shall file with
the corporation before the taking of the vote of the shareholders on such
corporate action, or within the time specified in paragraph 14A:5-6(2)(b) or
14A:5-6(2)(c), as the case may be, if no meeting of shareholders is to be held,
a written notice of such dissent stating that he intends to demand payment for
his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes
effect, the corporation, or, in the case of a merger or consolidation, the
surviving or new corporation, shall give written notice of the effective date of
such corporate action, by certified mail to each shareholder who filed written
notice of dissent pursuant to subsection 14A:11-2(1), except any who voted for
or consented in writing to the proposed action.
(3) Within 20 days after the mailing of such notice, any shareholder to
whom the corporation was required to give such notice and who has filed a
written notice of dissent pursuant to this section may make written demand on
the corporation, or, in the case of a merger or consolidation, on the surviving
or new corporation, for the payment of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to section 14A:10-5.1
or subsection 14A:10-7(4) and shareholder approval is not required under
subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who has the right to
dissent pursuant to section 14A:11-1 may, not later than 20 days after a copy or
summary of the plan of such merger and the statement required by subsection
14A:10-5.1(2) is mailed to such shareholder, make written demand on the
corporation or on the surviving corporation, for the payment of the fair value
of his shares.
(5) Whenever all the shares, or all the shares of a class or series, are to
be acquired by another corporation pursuant to section 14A:10-9, a shareholder
of the corporation whose shares are to be acquired may, not later than 20 days
after the mailing of notice by the acquiring corporation pursuant to paragraph
14A:10-9(3)(b), make written demand on the acquiring corporation for the payment
of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant
to this section, the shareholder shall submit the certificate or certificates
representing his shares to the corporation upon which such demand has been made
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making a demand for payment of the
fair value thereof.
(7) Every notice or other communication required to be given or made by a
corporation to any shareholder pursuant to this Chapter shall inform such
shareholder of all dates prior to which action must be taken by such shareholder
in order to perfect his rights as a dissenting shareholder under this Chapter.
SEC. 14A:11-3. "DISSENTING SHAREHOLDER" DEFINED; DATE FOR DETERMINATION OF FAIR
VALUE.
(1) A shareholder who has made demand for the payment of his shares in the
manner prescribed by subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) is
hereafter in this Chapter referred to as a "dissenting shareholder."
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(2) Upon making such demand, the dissenting shareholder shall cease to have
any of the rights of a shareholder except the right to be paid the fair value of
his shares and any other rights of a dissenting shareholder under this Chapter.
(3) "Fair value" as used in this Chapter shall be determined
(a) As of the day prior to the day of the meeting of shareholders at
which the proposed action was approved or as of the day prior to the day
specified by the corporation for the tabulation of consents to such action
if no meeting of shareholders was held; or
(b) In the case of a merger pursuant to section 14A:10-5.1 or
subsection 14A:10-7(4) in which shareholder approval is not required, as of
the day prior to the day on which the board of directors approved the plan
of merger; or
(c) In the case of an acquisition of all the shares or all the shares
of a class or series by another corporation pursuant to section 14A:10-9,
as of the day prior to the day on which the board of directors of the
acquiring corporation authorized the acquisition, or, if a shareholder vote
was taken pursuant to section 14A:10-12, as of the day provided in
paragraph 14A:11-3(3)(a).
In all cases, "fair value" shall exclude any appreciation or depreciation
resulting from the proposed action.
SEC. 14A:11-4. TERMINATION OF RIGHT OF SHAREHOLDER TO BE PAID THE FAIR VALUE OF
HIS SHARES.
(1) The right of a dissenting shareholder to be paid the fair value of his
shares under this Chapter shall cease if
(a) he has failed to present his certificates for notation as provided
by subsection 14A:11-2(6), unless a court having jurisdiction, for good and
sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of
the corporation;
(c) the fair value of the shares is not agreed upon as provided in
this Chapter and no action for the determination of fair value by the
Superior Court is commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not entitled
to payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
(f) a court having jurisdiction permanently enjoins or sets aside the
corporate action.
(2) In any case provided for in subsection 14A:11-4(1), the rights of the
dissenting shareholder as a shareholder shall be reinstated as of the date of
the making of a demand for payment pursuant to subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has
taken place during the interim period. In such event, he shall be entitled to
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution, or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the board, the fair value thereof in cash as of the time of
such expiration or completion.
SEC. 14A:11-5. RIGHTS OF DISSENTING SHAREHOLDER.
(1) A dissenting shareholder may not withdraw his demand for payment of the
fair value of his shares without the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in subsection 14A:11-4(2) and except that
this subsection shall not exclude the right of such dissenting shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is ultra vires, unlawful or fraudulent as to such
dissenting shareholder.
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SEC. 14A:11-6. DETERMINATION OF FAIR VALUE BY AGREEMENT.
(1) Not later than 10 days after the expiration of the period within which
shareholders may make written demand to be paid the fair value of their shares,
the corporation upon which such demand has been made pursuant to subsections
14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) shall mail to each dissenting
shareholder the balance sheet and the surplus statement of the corporation whose
shares he holds, as of the latest available date which shall not be earlier than
12 months prior to the making of such offer and a profit and loss statement or
statements for not less than a 12-month period ended on the date of such balance
sheet or, if the corporation was not in existence for such 12-month period, for
the portion thereof during which it was in existence. The corporation may
accompany such mailing with a written offer to pay each dissenting shareholder
for his shares at a specified price deemed by such corporation to be the fair
value thereof. Such offer shall be made at the same price per share to all
dissenting shareholders of the same class, or, if divided into series, of the
same series.
(2) If, not later than 30 days after the expiration of the 10-day period
limited by subsection 14A:11-6(1), the fair value of the shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made upon surrender of the certificate or certificates representing such
shares.
SEC. 14A:11-7. PROCEDURE ON FAILURE TO AGREE UPON FAIR VALUE; COMMENCEMENT OF
ACTION TO DETERMINE FAIR VALUE.
(1) If the fair value of the shares is not agreed upon within the 30-day
period limited by subsection 14A:11-6(2), the dissenting shareholder may serve
upon the corporation upon which such demand has been made pursuant to
subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a written demand that it
commence an action in the Superior Court for the determination of the fair value
of the shares. Such demand shall be served not later than 30 days after the
expiration of the 30-day period so limited and such action shall be commenced by
the corporation not later than 30 days after receipt by the corporation of such
demand, but nothing herein shall prevent the corporation from commencing such
action at any earlier time.
(2) If a corporation fails to commence the action as provided in subsection
14A:11-7(1), a dissenting shareholder may do so in the name of the corporation,
not later than 60 days after the expiration of the time limited by subsection
14A:11-7(1) in which the corporation may commence such an action.
SEC. 14A:11-8. ACTION TO DETERMINE FAIR VALUE; JURISDICTION OF COURT;
APPOINTMENT OF APPRAISER.
In any action to determine the fair value of shares pursuant to this
Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in the
action in a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who
have agreed with the corporation upon the price to be paid for their
shares, shall be made parties thereto as an action against their shares
quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall
have such power and authority as shall be specified in the order of his
appointment; and
(d) The court shall render judgment against the corporation and in
favor of each shareholder who is a party to the action for the amount of
the fair value of his shares.
SEC. 14A:11-9. JUDGMENT IN ACTION TO DETERMINE FAIR VALUE.
(1) A judgment for the payment of the fair value of shares shall be payable
upon surrender to the corporation of the certificate or certificates
representing such shares.
(2) The judgment shall include an allowance for interest at such rate as
the court finds to be equitable, from the date of the dissenting shareholder's
demand for payment under subsections 14A:11-2(3),
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<PAGE> 148
14A:11-2(4) or 14A:11-2(5) to the day of payment. If the court finds that the
refusal of any dissenting shareholder to accept any offer of payment, made by
the corporation under section 14A:11-6, was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
SEC. 14A:11-10. COSTS AND EXPENSES OF ACTION.
The costs and expenses of bringing an action pursuant to section 14A:11-8
shall be determined by the court and shall be apportioned and assessed as the
court may find equitable upon the parties or any of them. Such expenses shall
include reasonable compensation for and reasonable expenses of the appraiser, if
any, but shall exclude the fees and expenses of counsel for and experts employed
by any party; but if the court finds that the offer of payment made by the
corporation under section 14A:11-6 was not made in good faith, or if no such
offer was made, the court in its discretion may award to any dissenting
shareholder who is a party to the action reasonable fees and expenses of his
counsel and of any experts employed by the dissenting shareholder.
SEC. 14A: 11-11. DISPOSITION OF SHARES ACQUIRED BY CORPORATION.
(1) The shares of a dissenting shareholder in a transaction described in
paragraph 14A:11-1(1)(b) and the shares of a dissenting shareholder of the
surviving corporation in a merger shall become reacquired by the corporation
which issued them upon the payment of the fair value of shares. Such shares
shall be canceled if reacquired out of stated capital or if the plan of merger
so requires; otherwise they shall become treasury shares.
(2) In a merger or consolidation, if the surviving or new corporation pays
out of surplus the fair value of the shares of dissenting shareholders of the
merged or constituent corporation, the shares of the surviving or new
corporation into which such shares would have been converted under the plan of
merger or consolidation shall become treasury shares of such corporation, unless
the plan shall provide otherwise.
(3) In an acquisition of shares pursuant to section 14A:10-9, the shares of
a dissenting shareholder shall become the property of the acquiring corporation
upon the payment by the acquiring corporation of the fair value of such shares.
Such payment may be made, with the consent of the acquiring corporation, by the
corporation which issued the shares, in which case the shares so paid for shall
become reacquired by the corporation which issued them and shall be canceled.
5
<PAGE> 149
ANNEX C
July 20,1995
The Board of Directors
Cabot Medical Corporation
2021 Cabot Boulevard
Langhorne, Pennsylvania 19047
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock of Cabot Medical Corporation
("Cabot") of the consideration to be received by such stockholders pursuant to
the terms and subject to the conditions set forth in the Agreement and Plan of
Reorganization, dated as of April 25, 1995, as amended (the "Merger Agreement"),
by and among Circon Corporation ("Circon"), Circon Sub Corp., a wholly owned
subsidiary of Circon ("Merger Sub"), and Cabot. As more fully described in the
Merger Agreement, (i) Merger Sub will be merged with and into Cabot (the
"Merger") and (ii) each outstanding share of the common stock, no par value, of
Cabot (the "Cabot Common Stock") will be converted into the right to receive
0.415 (the "Exchange Ratio") of a share of the common stock, par value $0.01 per
share, of Circon (the "Circon Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and the
Prospectus and Joint Proxy Statement to be distributed to stockholders of Circon
an Cabot in connection with the Merger, and held discussions with certain senior
officers, directors and other representatives and advisors of Cabot and certain
senior officers and other representatives and advisors of Circon concerning the
businesses, operations and prospects of Cabot and Circon. We examined certain
publicly available business and financial information relating to Cabot and
Circon as well as certain financial forecasts and other data for Cabot and
Circon which were provided to us by the respective managements of Cabot and
Circon, including information relating to certain strategic implications and
operational benefits anticipated from the Merger. We reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of the
Cabot Common Stock and the Circon Common Stock; the respective companies'
historical and projected earnings; and the capitalization and financial
condition of Cabot and Circon. We also considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected which we considered comparable to the Merger and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered comparable to those
of Cabot and Circon. We also evaluated the potential pro forma financial impact
of the Merger on Circon. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information
provided to or otherwise reviewed by or discussed with us, we have been advised
by the managements of Cabot and Circon that such forecasts and other information
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of Cabot and Circon as to
the future financial performance of Cabot and Circon and the strategic
implications and operational benefits anticipated from the Merger. We also
assumed, with your consent, that the Merger will be treated as a pooling of
interests in accordance with generally accepted accounting principles and as a
tax-free reorganization for federal income tax purposes. Our opinion, as set
forth herein, relates to the relative values of Cabot and Circon. We are not
expressing any opinion as to what the value of the Circon Common Stock actually
will be when issued to Cabot stockholders pursuant to the Merger or the price at
which the Circon Common Stock will trade subsequent to the Merger. We have not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Cabot or Circon nor have we made any
<PAGE> 150
The Board of Directors
Cabot Medical Corporation
July 20, 1995
Page 2
physical inspection of the properties or assets of Cabot or Circon. In
connection with our engagement, we approached, and held discussions with,
certain third parties to solicit indications of interest in a possible
acquisition of Cabot. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to
Cabot in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we and our affiliates may actively trade the securities
of Cabot and Circon for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We have in the past provided certain financial advisory and investment banking
services to Cabot unrelated to the proposed Merger, for which services we have
received compensation.
Our advisory services and the opinion expressed herein are provided solely
for the use of the Board of Directors of Cabot in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of Cabot Common Stock.
Very truly yours,
SMITH BARNEY INC.
<PAGE> 151
ANNEX D
July 20, 1995
Board of Directors
Circon Corporation
6500 Hollister Avenue
Santa Barbara, CA 93117
Dear Sirs:
We understand that Circon Corporation ("Circon") and Cabot Medical
Corporation ("Cabot") have entered into an Agreement and Plan of Reorganization
dated April 25, 1995, as amended (the "Agreement") pursuant to which Cabot would
merge with a wholly-owned subsidiary of Circon and each current share of common
stock of Cabot would be converted into 0.415 shares of common stock of Circon in
a stock-for-stock exchange (the "Transaction"). You have provided us with the
Proxy Statement/Prospectus, which includes the Agreement in substantially the
form to be sent to the shareholders of Circon and Cabot (the "Proxy Statement").
We further understand that the Transaction will be accounted for as a pooling of
interests.
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the shareholders of Circon.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Cabot's Annual Reports to Shareholders and its Annual
Reports on Form 10-K for the fiscal years ended on or about October
31, 1991 through 1994, and its Quarterly Reports on Form 10-Q for the
periods ended January 28, and April 29, 1995;
3. reviewed Circon's Annual Reports to Shareholders and its Annual
Reports on Form 10-K for the years ended December 31, 1991 through
1994, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1995;
4. reviewed certain operating and financial information, including
projections, provided to us by the management of Cabot and Circon
relating to their respective businesses and prospects;
5. met with certain members of Cabot's and Circon's senior management to
discuss their respective operations, historical financial statements
and future prospects, and their views of the benefits and other
implications of the Transaction;
6. reviewed the historical stock prices and trading volumes of the
common shares of Cabot and Circon;
7. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Cabot and Circon;
<PAGE> 152
Board of Directors
Circon Corporation
July 20, 1995
Page 2
8. reviewed the terms of recent combinations of companies which we
deemed generally comparable to Cabot and Circon; and
9. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by Circon
and Cabot. With respect to Circon's and Cabot's projected financial results, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of Circon
and Cabot as to the expected future performance of Circon and Cabot,
respectively. We have not assumed any responsibility for the information or
projections provided to us and we have further relied upon the assurances of the
managements of Circon and Cabot that they are unaware of any facts that would
make the information or projections provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets of Circon and Cabot. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof.
Based on the foregoing, it is our view that the Transaction is fair, from a
financial point of view, to the shareholders of Circon.
We have acted as financial advisor to Circon in connection with the
Transaction and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Transaction.
Very truly yours,
BEAR, STEARNS & CO., INC.
By:
Managing Director
