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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
CIRCON CORPORATION
(Name of Subject Company)
CIRCON CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, $.01 par value
(Title of Class of Securities)
172736 10 0
(CUSIP Number of Class of Securities)
RICHARD A. AUHLL
President and Chief Executive Officer
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
(805) 685-5100
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of person(s) filing statement)
Copy to:
LARRY W. SONSINI, ESQ.
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
(415) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Circon Corporation, a Delaware
corporation (the "Company" or "Circon"), and the address of the principal
executive offices of the Company is 6500 Hollister Avenue, Santa Barbara,
California 93117. The title and the class of equity securities to which this
statement relates is the Common Stock, par value $.01 per share, of the Company
(the "Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated August 2, 1996 (the "Schedule 14D-1"), filed
with the Securities and Exchange Commission (the "SEC") by USS Acquisition Corp.
(the "Purchaser"), a Delaware corporation and wholly-owned subsidiary of United
States Surgical Corporation, a Delaware corporation ("USS"), relating to an
offer by Purchaser to purchase all outstanding Shares at a price of $18.00 per
Share, net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in the Purchaser's Offer to Purchase and
related Letter of Transmittal (which together constitute the "Offer"). According
to the Schedule 14D-1, the principal executive offices of each of USS and the
Purchaser are located at 150 Glover Avenue, Norwalk, Connecticut 06856.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity filing
this statement, are set forth in Item 1 above.
(b) Certain information regarding contracts, agreements, arrangements or
understandings between the Company and certain of its executive officers,
directors and affiliates is set forth in the Company's Notice for Annual Meeting
of Stockholders and Proxy Statement dated July 12, 1996, relating to its 1996
Annual Meeting of Stockholders (the "Proxy"), under the headings "Board
Compensation," "Remuneration of Officers" "Report of the Compensation Committee"
and "Compensation Committee Interlocks and Insider Participation." A copy of
each such section of the Proxy Statement is filed as Exhibit 1 to this statement
and is incorporated herein by reference. Except as described herein, to the
knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest between the Company or its affiliates and (i)
the Company, its executive officers, directors or affiliates or (ii) Purchaser,
USS or their respective executive officers, directors or affiliates.
Section 145 of Delaware General Corporation Law authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
In accordance with Delaware Law, Article Ninth of the Certificate of
Incorporation of the Company, as amended, eliminates the personal liability of a
directors of the Company and its stockholders for monetary damages for breaches
of fiduciary duty as a director. A copy of Article Ninth is filed as Exhibit 2
to this statement and is incorporated by reference herein. Subject to certain
limitations, Article V of the Bylaws of the Company also provides for
indemnification of officers and directors of the Company. A copy of Article V is
filed as Exhibit 3 to this statement and is incorporated herein by reference. In
addition, the Company has entered into indemnification agreements with its
officers and directors by which the Company provides such persons with the
maximum indemnification allowed under applicable law. These agreements also
resolve certain procedural and substantive matters which are not covered, or are
covered in less detail, in the Company's Certificate of Incorporation. A copy of
the form of such indemnification agreement is filed as Exhibit 4 to this
statement and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) On August 1, 1996, Leon C. Hirsch, President and Chief Executive Officer
of USS, advised Richard A. Auhll, President and Chief Executive Officer of the
Company, that USS was commencing
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ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED)
the Offer the next day. Neither Mr. Auhll, nor any other member of the Company's
senior management or Board of Directors had any other prior notice of the Offer,
nor were they aware of USS's intention to make the Offer.
On August 5, 1996, the Company's Board of Directors (the "Board") convened a
meeting, where the Board, with the assistance of senior management and Wilson
Sonsini Goodrich & Rosati ("WSGR"), reviewed the Company's financial performance
and the Offer, including its terms and conditions. The Board also discussed
potential defensive measures in response to the Offer, including the
implementation of a Stockholders Rights Plan. In addition, the Board decided to
retain Bear, Stearns & Co. Inc. ("Bear Stearns") to serve as financial advisors
to the Company and assist the Board in considering and analyzing the Offer.
On August 8, 1996, the Board convened an additional meeting, where the Board
continued its analysis of the Offer and the implementation of a Stockholders
Rights Plan. The Board also reviewed the Company's financial performance,
business strategy and strategic plan. The Board instructed management and the
Company's financial advisors to continue examining the Company's strategic plan
and to provide the Board with further analyses at the next Board meeting.
On August 13, 1996, the Board held an additional meeting to finalize its
review of the Offer and to make a recommendation in response to the Offer. In
addition, the Board determined that the implementation of a Stockholders Rights
Plan would be in the best interests of the Company and its stockholders. The
Board unanimously approved the Stockholders Rights Plan previously furnished to
the Board and instructed management to implement the Plan.
At the August 13, 1996 meeting, the Board determined that the best means for
providing value to its stockholders is for the Company to continue to pursue its
strategic plan and not to be put up for sale at this time. The Board unanimously
concluded that the Offer is inadequate and not in the best interests of the
Company and its stockholders. In particular, the Board determined that the
Company's strategic plan offers the potential for greater long-term benefits for
the Company's stockholders than the Offer based on, among other things, greater
opportunities for business expansion, revenue and earnings growth, as well as
benefits following the full integration of the business of Cabot Medical
Corporation ("Cabot") into the Company.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS REJECT THE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to stockholders communicating the Board's recommendation
and a form of press release announcing such recommendation are filed as Exhibits
5 and 6 hereto, respectively, and are incorporated herein by reference.
(b) In reaching the conclusions referred to in Item 4(a), the Board of
Directors took into account numerous factors, including but not limited to the
following:
(i) The Board's familiarity with the business, financial condition,
prospects and current business strategy of the Company, the nature of the
business in which the Company operates and the Board's belief that the Offer
does not reflect the long-term values inherent in the Company. In this
regard, the Board particularly considered the following:
- The Company's reputation as a provider of quality products and
services and its position in its industry as a technological
leader and innovator.
- The market share of the Company in the urology and gynecology
markets and new products planned for introduction in the
future.
2
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ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED)
- The expected growth rates of the markets for urological and
gynecological products and the product position of the Company
in such markets.
- The Company's long-term sales plan, including the effects of
products under development and enhancements to current
products.
- The cost savings and growth impact of the Cabot acquisition
which the Company expects to realize, including cost savings
from programs already in process and those that are currently
planned.
- The historical trading price of the Company's Common Stock,
including the Board's belief, based in part on the factors
referred to above, that the trading price for the Company's
Common Stock immediately prior to commencement of the Offer did
not reflect the long-term value inherent in the Company. In
this regard, the Board noted that the Offer represented a 23%
discount from the highest closing price of the Common Stock
during the 12-month period preceding the Offer.
- The risks inherent in achieving the Company's business plan.
(ii) The Company's prospects for future growth and profitability, based
on the Company's strategic plan, the various strategic initiatives which
have been implemented and investments that have been made over the past
several years, including the acquisition of Cabot, and other opportunities
that will be available in the future, the availability in the future of
certain new products and enhancements to current products in various stages
of development, and current conditions in the businesses in which the
Company operates.
(iii) The opinion of Bear Stearns to the effect that the consideration
offered pursuant to the Offer is inadequate from a financial point of view
to the stockholders of the Company (excluding USS and its affiliates). A
copy of the written opinion of Bear Stearns which sets forth the assumptions
made, matters considered and basis for their review is filed as Exhibit 7
hereto and incorporated herein by reference.
(iv) The Board's commitment to protecting the best interests of the
Company's stockholders.
(v) The disruptive effect of the Offer on the Company's employees,
suppliers and customers.
(vi) The numerous conditions to which the Offer is subject.
The Offer is conditioned upon, among other things, the acquisition of Shares
pursuant to the Offer and the proposed merger following the Offer having been
approved pursuant to Section 203 of the Delaware General Corporation Law
("Section 203") or the Purchaser being satisfied in its sole discretion that
Section 203 is otherwise inapplicable to the acquisition of Shares pursuant to
the Offer and the proposed merger. In light of the Board's decision discussed
above, the Board has determined to take no action which would render Section 203
so inapplicable.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its respective determinations.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
(a) Pursuant to a letter agreement dated August 8, 1996 (the "Letter
Agreement"), the Company engaged Bear Stearns to perform certain financial and
advisory services in connection with the Offer. For such services the Company
agreed to pay Bear Stearns a retainer fee of $175,000 as well as a fee of
$300,000 for its fairness opinion requested by the Company, and an additional
fee of $300,000 for any additional opinion with respect to a transaction that is
approved by the Board (the $175,000 and both of the $300,000 fees are credited
against the fees described below). If during the term of the
3
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED (CONTINUED)
Letter Agreement the Company sells all or substantially all of its assets to, or
an aggregate of 50% or more of the outstanding Common Stock is acquired by, any
person or group of persons in one or a series of transactions, then the Company
is obligated to pay Bear Stearns an amount equal to 1.0% of the Equity
Consideration (as defined below) paid to the Company's stockholders. In
addition, upon the occurrence, within one year following the date of termination
of the Letter Agreement, of any event described in the foregoing sentence or the
execution of an agreement with respect to such an event, if the event or
agreement is with a third party who has made an Acquisition Proposal (as defined
below) or who has been furnished non-public information by the Company or Bear
Stearns, then the Company is obligated to pay Bear Stearns the fee described in
the foregoing sentence.
If the Company consummates a restructuring or recapitalization, then it
shall pay Bear Stearns an additional fee of $1,500,000. If there is no
Acquisition Proposal by August 8, 1997 (the "Termination Date"), the Company is
obligated to pay Bear Stearns $1,500,000. If there is an Acquisition Proposal at
the Termination Date, the Company may extend the Termination Date to August 8,
1998 (the "Extended Date") and remain responsible for paying any fees earned as
described herein. Notwithstanding the foregoing, the Company may elect to pay
Bear Stearns $1,500,000 regardless of whether there is an Acquisition Proposal
at any time prior to the Termination Date or any Extended Date, in which event
the Letter Agreement will terminate. The fee described in this paragraph is
payable only once and will be deducted from any payments made pursuant to the
fourth sentence of this Item 5(a).
"Equity Consideration" means the consideration per share of Common Stock
paid to the Company's stockholders multiplied by the number of shares of Common
Stock outstanding on a fully diluted basis. Equity Consideration will be
determined as if any acquisition described above were of 100% of the outstanding
shares of Common Stock on a fully diluted basis; provided, however, in the event
that the acquisition involves the sale of all or substantially all of the assets
of the Company, then the Equity Consideration will equal the sum of (i) the
total amount received by the Company upon consummation of the sale; and (ii) the
total amount of the Company's indebtedness assumed by or otherwise transferred
to the purchaser.
"Acquisition Proposal" means (i) any tender or exchange offer which if
consummated would result in any person beneficially owning 50% or more of the
Company's securities ("Tender Offer"), or (ii) any publicly proposed or publicly
disclosed proposal or offer relating to (A) any direct or indirect acquisition
or purchase of 50% or more of either the Company's securities or the assets of
the Company, (B) any Tender Offer or (C) any merger, consolidation or business
combination involving the Company or (iii) any "solicitation" of "proxies" (as
such terms are defined in Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended) with respect to the voting of, or granting of
a consent with respect to, any capital stock of the Company.
Pursuant to the Letter Agreement, the Company agreed to indemnify Bear
Stearns against all liability resulting from the performance of Bear Stearns'
duties under such agreement, except for liability resulting from the gross
negligence or willful misconduct of Bear Stearns. The Company has also agreed to
reimburse Bear Stearns periodically for their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of their attorneys arising in
connection with any matter referred to in the Letter Agreement.
The Letter Agreement may be terminated at any time by either party thereto,
in which event Bear Stearns will be entitled to any compensation earned by it up
to the date of the termination or completion, including the reimbursement of all
reasonable expenses incurred by Bear Stearns.
(b) As a result of the Company's concern about the disruptive effects of the
Offer on the Company's officers and other employees, the Company has retained
the consulting firm of William M. Mercer, Incorporated to advise the Board and
to evaluate the possibility of implementing an employee retention program.
4
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED (CONTINUED)
The Company also has retained The Abernathy/MacGregor Group Inc. as a public
relations advisor in connection with the Offer and has retained Corporate
Investor Communications, Inc. to assist the Company in connection with
communications with stockholders and to provide other services in connection
with the Offer. The Company will pay The Abernathy/MacGregor Group Inc. and
Corporate Investor Communications, Inc. reasonable and customary fees for their
services, reimburse them for their reasonable expenses and provide customary
indemnities.
Except as described above, neither the Company nor any person acting on its
behalf has retained any other person to make solicitations or recommendations to
security holders on its behalf concerning the Offer.
ITEM 6. PRESENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the Company's knowledge, no transaction in the Shares has been
effected during the past 60 days by the Company or any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the Company's knowledge, none of the Company's executive officers,
directors, affiliates and subsidiaries presently intends to tender Shares which
are held of record or beneficially owned by them pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) No negotiation is underway or is being undertaken by the Company in
response to the Offer which relates to or would result in (1) an extraordinary
transaction, such as a merger or reorganization, involving the Company or any of
its subsidiaries; (2) a purchase, sale or transfer of a material amount of
assets by the Company or any of its subsidiaries; (3) a tender offer for or
other acquisition of securities by or of the Company; or (4) any material change
in the present capitalization or dividend policy of the Company.
Notwithstanding the foregoing, the Board may in the future engage in
negotiations in response to the Offer that could have one of the effects
specified in the preceding paragraph and it has determined that disclosure with
respect to the parties to, and the possible terms of, any transactions or
proposals of the type referred to in the preceding paragraph might jeopardize
any discussions or negotiations that the Company may conduct. Accordingly, the
Board has instructed management not to disclose the possible terms of any such
transactions or proposals, or the parties thereto, unless and until an agreement
in principle relating thereto has been reached or, upon the advice of counsel,
as may otherwise be required by law.
(b) Stockholders Rights Plan.
At the direction of the Board, the Company declared a dividend distribution
of one Right for each outstanding share of Common Stock, to stockholders of
record on August 26, 1996, pursuant to the Preferred Shares Rights Agreement,
dated August 14, 1996 (the "Rights Agreement"). A summary of the Rights
Agreement is filed as Exhibit 8 to this statement, is incorporated herein by
reference and a copy is attached hereto as Annex A.
Other than as set forth above, there is no transaction, board resolution,
agreement in principle or signed contract in response to the tender offer, which
relates to or would result in (1) an extraordinary transaction, such as a merger
or reorganization, involving the Company or any of its subsidiaries; (2) a
purchase, sale or transfer of a material amount of assets by the Company or any
of its subsidiaries; (3) a tender offer for or other acquisition of securities
by or of the Company; or (4) any material change in the present capitalization
or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Not Applicable.
5
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
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Exhibit 1 The "Board Compensation," "Remuneration of Officers," "Report of the
Compensation Committee" and "Compensation Committee Interlocks and
Insider Participation" sections of the Proxy
Exhibit 2 Article Ninth of Certificate of Incorporation, as amended
Exhibit 3 Article V of the Bylaws
Exhibit 4 Form of Indemnification Agreement
Exhibit 5* Letter to Stockholders regarding Board's Recommendation
Exhibit 6 Press Release Announcing Board's Recommendation
Exhibit 7 Opinion of Bear, Stearns & Co. Inc.
Exhibit 8* Summary of Stockholders Rights Plan
Exhibit 9 Press Release of the Company dated August 5, 1996
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* Included in copy mailed to stockholders
6
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
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<S> <C>
Dated: August 14, 1996 CIRCON CORPORATION
By: /s/ Richard A. Auhll
Richard A. Auhll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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7
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ANNEX A
SUMMARY OF
STOCKHOLDERS RIGHTS PLAN
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
PREFERRED SHARES RIGHTS AGREEMENT, DATED AS OF AUGUST 14, 1996
(THE "RIGHTS AGREEMENT"), BETWEEN CIRCON CORPORATION AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS RIGHTS AGENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
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SUMMARY OF RIGHTS
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Distribution and
Transfer of Rights;
Rights Certificate: The Board of Directors has declared a dividend of one Right for
each share of Circon Common Stock outstanding as of August 26,
1996. Prior to the Distribution Date referred to below, the
Rights will be evidenced by and trade with the certificates
for the Common Stock. After the Distribution Date, Circon
Corporation (the "COMPANY") will mail Rights certificates to
the Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
exercisable following the (a) tenth day (or such later date as
may be determined by a majority of the Directors not
affiliated with the acquiring person or group (the "CONTINUING
DIRECTORS")) after a person or group acquires beneficial
ownership of 15% or more of the Company's Common Stock or (b)
the tenth business day (or such later date as may be
determined by the Continuing Directors) after a person or
group announces a tender or exchange offer, the consummation
of which would result in ownership by a person or group of 15%
or more of the Company's Common Stock, provided that with
respect to the tender offer by USS Acquisition Corp., a
wholly-owned subsidiary of United States Surgical Corporation
for all outstanding shares of Common Stock of the Company as
set forth in the Schedule 14D-1 filed with the Securities and
Exchange Commission on or about August 2, 1996, the Rights
will separate and become exercisable only at such date as is
determined by action of a majority of the Continuing
Directors.
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A-1
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SUMMARY OF RIGHTS
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Preferred Stock
Purchasable Upon
Exercise of Rights: After the Distribution Date, each Right will entitle the holder
to purchase, for $70.00, a fraction of a share of the
Company's Preferred Stock with economic terms similar to that
of one share of the Company's Common Stock.
Flip-In: If an acquiror obtains 15% or more of the Company's Common
Stock, thereby becoming an "ACQUIRING PERSON", THEN each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to purchase, for
the exercise price, a number of shares of the Company's Common
Stock having a then current market value of twice the exercise
price.
Flip-Over: If, after an acquiror obtains 15% or more of the Company's
Common Stock, (a) the Company merges into another entity, (b)
an acquiring entity merges into the Company or (c) the Company
sells more than 50% of the Company's assets or earning power,
THEN each Right (other than Rights owned by an Acquiring
Person or its affiliates) will entitle the holder thereof to
purchase, for the exercise price, a number of shares of Common
Stock of the person engaging in the transaction having a then
current market value of twice the exercise price.
Exchange Provision: At any time after an event triggering the flip-in or flip-over
rights and prior to the acquisition by the Acquiring Person of
50% or more of the outstanding Common Stock, the Board of
Directors of the Company may exchange the Rights (other than
Rights owned by the Acquiring Person or its affiliates), in
whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).
Redemption of
the Rights: Rights will be redeemable at the Company's option for $0.01 per
Right at any time on or prior to the tenth day (or such later
date as may be determined by a majority of the Continuing
Directors) after public announcement that a person has
acquired beneficial ownership of 15% or more of the Company's
Common Stock (the "SHARES ACQUISITION DATE").
Expiration of
the Rights: The Rights expire on the earliest of (a) August 14, 2006 or (b)
exchange or redemption of the Rights as described above.
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A-2
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SUMMARY OF RIGHTS
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Amendment of
Terms of Rights: The terms of the Rights and the Rights Agreement may be amended
in any respect without the consent of the Rights holders on or
prior to the date when an acquiror obtains 15% or more of the
Company's Common Stock; thereafter, the terms of the Rights
and the Rights Agreement may be amended without the consent of
the Rights holders in order to cure any ambiguities or to make
changes which do not adversely affect the interests of Rights
holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution
Provisions: Rights will have the benefit of certain customary anti-dilution
provisions.
Taxes: The Rights distribution should not be taxable for federal
income tax purposes. However, following an event which renders
the Rights exercisable or upon redemption of the Rights,
stockholders may recognize taxable income.
</TABLE>
The foregoing is a summary of certain principal terms of the Stockholders
Rights Plan only and is qualified in its entirety by reference to the detailed
terms of the Rights Agreement dated as of August 14, 1996 between the Company
and the Rights Agent, which are incorporated herein by reference.
A-3
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EXHIBIT 1
BOARD COMPENSATION
Directors, other than officers of the Company, receive a retainer fee of
$2,500 annually for service on the Board, including service on any Board
Committees. These directors also receive a fee of $500 for each Board and
committee meeting attended and reimbursement for expenses incurred in connection
with attendance at Board and committee meetings.
In 1995, the shareholders approved the adoption of the 1995 Directors Stock
Option Plan (the "1995 Plan") to replace the 1984 Directors Stock Option Plan
(the "1984 Plan") which expired in 1994. The 1995 Plan is substantially similar
to the 1984 plan. Under the 1995 Plan, options for up to 200,000 shares of
common stock may be granted to directors who are not officers of the Company,
for a price not less than 85% of the fair market value of the common stock on
the date of grant. The vesting schedule for the options granted is determined
by a committee of directors at the time of the option grant. The maximum option
term is ten years. If the optionee ceases to be a director for any reason, any
options granted which have not been exercised will be canceled. No options were
granted to directors in 1995.
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REMUNERATION OF OFFICERS
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE. The following table sets forth three years of
compensation history for the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company as of the last
completed fiscal year:
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<CAPTION>
Annual Compensation (1) Long-Term Compensation
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Awards Payouts
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Other Securities
Annual Restricted Underlying LTIP All Other
Name and Compen- Stock Options Payouts Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($) (#) ($) sation ($)
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
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R. Auhll 1995 $298,000 $130,239 - - - - $10,408 (2)
President and Chairman 1994 $237,930 $107,475 - - - - $10,210
of the Board 1993 $231,000 $24,000 - - 40,000 - $8,839
R.B. Thompson 1995 $166,000 $60,940 - - - - $4,192 (3)
Executive Vice President 1994 $140,080 $52,202 - - 20,000 - $3,977
Chief Financial Officer 1993 $136,000 $12,000 - - - - $3,729
F. D'Amelio 1995 $169,000 $58,000 - - - - $3,672 (4)
Vice President 1994 $143,000 $48,310 - - 23,750 - $3,303
Chief Manufacturing 1993 $125,000 $9,000 - - 4,879 - $2,398
Officer
W. Berci 1995 $154,000 $45,500 - - - - $3,283 (5)
Vice President 1994 $132,000 $36,073 - - 20,000 - $2,567
Marketing and Sales 1993 $128,000 $15,000 - - - - $2,560
D. Zielinski 1995 $141,916 $52,276 - - - - $4,279 (6)
Vice President 1994 $136,000 $51,790 - - 23,750 - $3,559
ACMI Division 1993 $120,500 $20,038 - - - - $3,328
General Manager
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(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) Reflects $4,620 Company match of employee contributions to 401(k) plan and
$5,788 premium on life insurance paid by the Company.
(3) Reflects $3,176 Company match of employee contributions to 401(k) plan and
$1,016 premium on life insurance paid by the Company.
(4) Reflects $3,162 Company match of employee contributions to 401(k) plan and
$510 premium on life insurance paid by the Company.
(5) Reflects $2,769 Company match of employee contributions to 401(k) plan and
$514 premium on life insurance paid by the Company.
(6) Reflects $1,819 Company match of employee contributions to 401(k) plan and
$2,460 premium on life insurance paid by the Company.
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OPTION GRANTS IN LAST FISCAL YEAR. None of the executive officers named in
the Summary Compensation Table above received a grant of stock options during
the year ended December 31, 1995. The Company has never granted stock
appreciation rights (SARs).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES.
The following table sets forth, for each of the executive officers named in the
Summary Compensation Table above, each exercise of stock options during the year
ended December 31, 1995 and the year-end value of unexercised options:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
Shares at Fiscal Year End 1995 at Fiscal Year End 1995
Acquired on Value ------------------------------ ----------------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable (2) Unexercisable (2)
- ----------------- ----------- -------------- ------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
R. Auhll n/a n/a 20,000 (3) 20,000 $200,000 (3) $200,000
R.B. Thompson n/a n/a 2,857 17,143 $31,427 $188,573
F. D'Amelio n/a n/a 20,257 27,372 $309,433 $308,857
W. Berci 16,000 $256,125 14,057 17,143 $213,427 $188,573
D. Zielinski n/a n/a 3,393 20,357 $37,323 $223,927
</TABLE>
(1) Excess of market price over exercise price, on the date of exercise.
(2) Excess of $20.25 (market price at year end) over exercise price.
(3) Mr. Auhll also holds warrants to purchase 100,000 shares which were fully
exercisable at year end. The value of these warrants, computed as in
note (2), was $1,564,000. The warrants were issued in 1990 in connection
with Mr. Auhll's guarantee of certain indebtedness of the Company and not in
connection with his performance of services to the Company.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PRINCIPLES
The compensation policies of the Company for all employees, including
executive officers, are guided by the following principles:
- Attract, retain and motivate well qualified employees who contribute
to the long-term success of the Company.
- Encourage the development and achievement of objectives that enhance
long-term shareholder value.
- Relate compensation to the overall success of the Company which
includes providing sales growth coupled with sound financial
performance, quality products and services for customers, and
fostering an environment which enables employees to achieve
objectives.
EXECUTIVE COMPENSATION PRACTICES
The Company's executive compensation program consists primarily of cash and
equity based elements. Salary and annual awards, if warranted, under the
Management Incentive Compensation Program ("MICP") comprise the cash elements.
Grants of stock options under the Company's employee stock option plans and
participation in the Company's employee stock purchase plan comprise the equity
based elements. The Company also provides health and welfare benefits to the
named officers through programs that are generally available to all employees.
In addition, all Company officers are entitled to have life insurance up to four
times their annual base salary.
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<PAGE>
CASH COMPONENTS
It is the Company's intent to provide a compensation program that can
attract, motivate and retain high performance executives who are critical to the
long-term success of the Company. Salary levels and MICP target levels are
established annually for executive officers by the Compensation Committee, after
a review of compensation surveys for the medical/dental equipment and supply
industry. For 1995, the survey group consisted of 324 publicly traded companies
whose principal business was the manufacture or distribution of medical/dental
equipment and supplies. Of these companies, 140 are included in the NASDAQ
index covering medical stocks (see "Stock Performance Graph"). Salaries for
executive officers are established by evaluating the responsibilities of the
position held and the experience of the individual and by reference to the
competitive marketplace for executive talent.
The MICP plan provides for annual awards which are paid after the end of
the fiscal year, based on the achievement of pre-established annual increases in
specific objectives. The overall MICP program typically has many objectives.
The 1995 MICP plan had 125 objectives. For every participant, a target payout
is established for each objective and the weighting or value is assigned to each
component. Each MICP participant has a unique set of objectives which
constitute his or her specific MICP program. There are also one or two
subjective elements in each participant's program. An individual objective has
a pre-established minimum performance level before any payment will occur and a
maximum performance level where further payment ceases. The range of payouts
for each objective is from zero to 200% of a target amount. The Compensation
Committee establishes goals for overall growth in sales, gross profit, operating
and net income on a Company wide basis and reviews the complete MICP program
each year. Using these Company wide goals as guidelines, targets are then
determined for other business units, and other subsets of sales, gross profit
and operating income. In years where there is a significant change in the
overall business, or in an individual's responsibility, the MICP targets are
modified to make the performance measurements meaningful. Awards are prorated
for participation for less than one year. Employees with other commission or
bonus arrangements are generally excluded from participation in the MICP plan.
The MICP plan may be modified from time to time, or discontinued at the
discretion of the Compensation Committee. During 1995, executive officers had
six to twelve objectives in their MICP program with each objective having a
weight of two to forty-nine percent of their total program. The weight of the
objectives varied widely among the group depending on the responsibilities of
the individual. For 1995, actual payouts for the individual MICP programs
averaged 101% of target.
Employees, including executive officers, who participate in the 401(k) plan
may receive a Company matching contribution of up to a maximum of 1 1/2% of
their salary per year.
EQUITY BASED COMPONENTS
The Company utilizes equity based compensation in the form of stock options
and a 20% matching program for stock purchases under a stock purchase plan for
its employees to focus employees and management on creating and enhancing long
term shareholder value. The actual value of such equity based compensation
correlates directly to the Company's stock price performance.
Stock options are an essential element of the Company's compensation
program. This component is intended to provide a long term incentive for
employees to stay with the Company and to motivate them to work toward
appreciation in the price of the Company stock over time. Three hundred fifty-
three employees (or approximately 29% of all employees) participate in the
various employee stock option plans. Stock options are currently outstanding
under the 1979 Employee Stock Option Plan, the 1983 Employee Stock Option Plan,
which expired in 1989 and 1993 respectively, the 1993 Stock Option Plan
(the"1993 Plan") and the Cabot Stock Option Plan (the "Cabot Plan").
In determining the number of shares subject to options being granted to
executive officers, the Compensation Committee considers survey data on options
granted to executives with comparable positions at comparable companies, the
number of shares subject to options previously granted to the executive, the
number of unvested shares subject to outstanding options held by the executive
(which is an indicator of the retention value of the outstanding options) and an
evaluation of the executive's individual performance. There were no options
granted to executive officers in 1995.
In the 1979, 1983 and 1993 Employee Stock Option Plans, options generally
become exercisable cumulatively or "vest" at an annual rate of 14.3% of the
total shares granted for seven years commencing one year from the date of grant.
All outstanding stock options were granted at the "market price" as of the date
of grant. Correspondingly, options in the Cabot Plan generally become
exercisable over a three year vesting period. The 1979, 1983, 1993 and Cabot
Plans provide for full vesting of options in the event there is a change in
control of the Company.
-4-
<PAGE>
1995 CHIEF EXECUTIVE COMPENSATION
Mr. Auhll, in his capacity as Chairman of the Board, Chief Executive
Officer and President participates in substantially the same compensation
programs as the other named officers. The Compensation Committee has based
Mr. Auhll's total compensation, including compensation derived from the MICP
plan at a level it believes is competitive with comparably sized medical
companies, based on survey data. Circon's sales put the Company in the 75th
percentile of the companies surveyed.
After considering all factors, particularly the added scope of
responsibility associated with the Cabot merger and Mr. Auhll's compensation
relative to comparably sized medical companies, the committee approved a
$298,000 salary for 1995, an increase of 25.2% over his $237,930 salary for the
prior year. Mr. Auhll's target bonus for 1995 MICP program was set at $112,000.
Mr. Auhll's MICP program consisted of nine objectives covering sales growth,
operating performance and financial ratios, each having a weight of two to
forty-nine percent of his total program. Mr. Auhll's bonus program had payouts
for individual factors that range from 0% to 200% of the target values for 1995.
This resulted in an actual payout of $130,239 or 116% of his target bonus.
Mr. Auhll's base salary falls 9% above and his bonus falls 31% below the 75th
percentile compared to the CEOs in the survey group.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly-held corporations for compensation
exceeding $1 million paid to certain of the Company's executive officers. In
1995, the performance-based compensation paid to the Company's executive
officers did not exceed the $1 million limit per officer. It is the
Compensation Committee's intention to review the Company's compensation policies
and regulate compensation levels in order to comply with the statute and avoid
non-deductible compensation payments.
Respectfully submitted,
Richard A. Auhll
Harold R. Frank
Rudolf R. Schulte
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Auhll, Frank and Schulte comprise the Compensation Committee.
Mr. Auhll also serves as President and Chief Executive Officer of the Company.
Mr. Auhll participates in discussions regarding compensation for executive
officers, except discussions regarding the Chief Executive Officer. As a member
of the Compensation Committee, Mr. Auhll is ineligible to receive stock option
grants under the Company's stock option plans.
No other member of the Compensation Committee is a former or current
officer or employee of the Company or any of its subsidiaries. Furthermore,
there are no compensation committee interlocks between Circon and other entities
involving the Company's executive officers and board members.
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<PAGE>
EXHIBIT 2
ARTICLE NINTH OF THE COMPANY'S CERTIFICATE
OR INCORPORATION, AS AMENDED
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Certificate of Incorporation
inconsistent with this Article NINTH, nor the adoption of any provision of
Article NINTH, shall eliminate or reduce the effect of this cause of action,
suit or claim that, but for this Article NINTH, would accrue or arise, prior
to such amendment, repeal or adoption of an inconsistent provision.
<PAGE>
EXHIBIT 3
ARTICLE V OF THE COMPANY'S BYLAWS
ARTICLE V
COMPENSATION; INDEMNIFICATION
5.1 DIRECTORS' FEES AND EXPENSES
5.1.1 COMPENSATION. Directors and committee members may
receive such compensation, if any, for their services, and may be reimbursed
for expenses incurred by them on behalf of the Corporation, in the manner and
to the extent provided in resolutions duly adopted by the Board of Directors.
5.1.2. OFFICER COMPENSATION. This Section 5.1 shall not
preclude any director from also serving as an officer, employee or agent of
the Corporation and receiving compensation from the Corporation for such
services.
5.2 COMPENSATION OF OFFICERS
The compensation of the officers of the Corporation shall be fixed
from time to time by the Board of Directors or by the Chairman of the Board,
subject to any rights of the officer pursuant to any employment contract
between that officer and the Corporation.
5.3 INDEMNIFICATION OF AGENTS
5.3.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding"), by reason of the
fact that he or she or a person of whom he or she is the legal
representative, is or was a director, officer or employee of the Corporation
of is or was serving at their request of the Corporation as a director,
officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation in the fullest extent
authorized by Delaware Law, as the name exists or may hereafter by amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide prior to such amendment) against
all expenses, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties, amounts paid or to be paid in
settlement and amounts expended in seeking indemnification granted as such
person under applicable law, this Bylaw or any agreement with the
Corporation; reasonably incurred or suggested by such person in connection
therewith and such indemnification shall continue as to person who has ceased
to be a director, officer or employee and shall inure to the benefit of his
or her heirs, executors and
<PAGE>
the Corporation shall indemnify and such person seeking indemnity in
connection with an action, suit or proceeding (or part thereof) initiated by
such person only of such action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. Such right shall be
a contract right, shall attach even if such indemnification would otherwise
be discretionary under Delaware Law, and shall include the right to be paid,
by the Corporation, expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that if the Delaware
General Corporation Law then so requires, the payment of such expenses
incurred by a director or officer of the Corporation in his or her capacity
as a director or officer (and not in any other capacity in which service was
or is rendered by such person while a director of officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Section or
otherwise.
5.3.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 5.3.1 is not paid in full by the Corporation within twenty (20) days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in
bad faith, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses, incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which makes it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has med the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
5.3.3 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person in Section 5.3.1 and 5.3.2 shall not be exclusive of any other right
which such persons may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
5.3.4 INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than those provided for in this
Article V.
-2-
<PAGE>
5.3.5 INSURANCE. The Corporation shall maintain insurance to
the extent reasonably available, at its expense, to protect itself and any
such director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
5.3.6 EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article V by the stockholders and the
directors of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time
of such amendment, repeal or modification.
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<PAGE>
EXHIBIT 4
CIRCON CORPORATION
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_____________ by and between Circon Corporation, a Delaware corporation (the
"Company"), and _______________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and
its related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of
such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severely limited; and
WHEREAS, the Company and Indemnitee desire to continue to have in place
the additional protection provided by an indemnification agreement and to
provide indemnification and advancement of expenses to the Indemnitee to the
maximum extent permitted by Delaware law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. CERTAIN DEFINITIONS.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such
capacity or a corporation
<PAGE>
owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board
of Directors of the Company and any new director whose election by the Board
of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of (in one transaction or a series of related transactions) all or
substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Circon Corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger to which Circon
Corporation (or any of its wholly owned subsidiaries) is a party which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that
if Indemnitee is or was a director, officer, employee, agent or fiduciary of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, agent or fiduciary
of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, Indemnitee shall stand in the same position under
the provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
-2-
<PAGE>
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties
and amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), actually and
reasonably incurred, of any Claim and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt
of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant
to Section 3 of Expenses in advance of the settlement of or final judgement
in any action, suit, proceeding or alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other indemnitees under
similar indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on Indemnitee with respect to an employee benefit plan; and references to
"serving at the request of the Company" shall include any service as a
director, officer, employee, agent or fiduciary of the Company which imposes
duties on, or involves services by, such director, officer, employee, agent
or fiduciary with respect to an employee benefit plan, its participants or
its beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder
and under applicable law, which may include a member or members of the
Company's Board of Directors, Independent Legal Counsel or any other person
or body not a party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. INDEMNIFICATION.
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<PAGE>
(a) INDEMNIFICATION OF EXPENSES. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to
the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, any Claim (whether by reason of
or arising in part out of a Covered Event), including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses.
(b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a
written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder
under applicable law, (i) the Company shall have no further obligation under
Section 2(a) to make any payments to Indemnitee not made prior to such
determination by such Reviewing Party, and (ii) the Company shall be entitled
to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company)
for all Expenses theretofore paid in indemnifying Indemnitee; PROVIDED,
HOWEVER, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee is entitled to be indemnified hereunder under applicable law,
any determination made by any Reviewing Party that Indemnitee is not entitled
to be indemnified hereunder under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expenses
theretofore paid in indemnifying Indemnitee until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for any Expenses shall be unsecured and no interest
shall be charged thereon.
(c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING
EFFECT. If any Reviewing Party determines that Indemnitee substantively is
not entitled to be indemnified hereunder in whole or in part under applicable
law, Indemnitee shall have the right to commence litigation seeking an
initial determination by the court or challenging any such determination by
such Reviewing Party or any aspect thereof, including the legal or factual
bases therefor, and, subject to the provisions of Section 15, the Company
hereby consents to service of process and to appear in any such proceeding.
Absent such litigation, any determination by any Reviewing Party shall be
conclusive and binding on the Company and Indemnitee.
(d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has
not been a Change in Control, any Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), any Reviewing Party with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnification of
Expenses under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect, or
under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee
as to whether and to what extent Indemnitee would be entitled to be
indemnified hereunder under applicable law
-4-
<PAGE>
and the Company agrees to abide by such opinion. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to this Agreement or its engagement pursuant hereto. Notwithstanding any
other provision of this Agreement, the Company shall not be required to pay
Expenses of more than one Independent Legal Counsel in connection with all
matters concerning a single Indemnitee, and such Independent Legal Counsel
shall be the Independent Legal Counsel for any or all other Indemnitees
unless (i) the Company otherwise determines or (ii) any Indemnitee shall
provide a written statement setting forth in detail a reasonable objection to
such Independent Legal Counsel representing other Indemnitees.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. EXPENSE ADVANCES.
(a) OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts
if it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified therefor by the Company, the Company shall make Expense
Advances to Indemnitee.
(b) FORM OF UNDERTAKING. Any written undertaking by the
Indemnitee to repay any Expense Advances hereunder shall be unsecured and no
interest shall be charged thereon.
(c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has
made written demand to the Company in accordance with this Agreement, all
Expenses included in such Expense Advance that are certified by affidavit of
Indemnitee's counsel as being reasonable shall be presumed conclusively to be
reasonable.
4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES.
(a) TIMING OF PAYMENTS. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee
pursuant to this Agreement shall be made to the fullest extent permitted by
law as soon as practicable after written demand by Indemnitee therefor is
presented to the Company, but in no event later than forty-five (45) business
days after such written demand by Indemnitee is presented to the Company,
except in the case of Expense Advances, which shall be made no later than
twenty (20) business days after such written demand by Indemnitee is
presented to the Company.
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<PAGE>
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company
notice in writing as soon as practicable of any Claim made against Indemnitee
for which indemnification will or could be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by this Agreement or applicable law. In addition, neither the
failure of any Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by any Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to
the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under this Agreement or
applicable law, shall be a defense to Indemnitee's claim or create a
presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief. In connection with any determination by
any Reviewing Party or otherwise as to whether the Indemnitee is entitled to
be indemnified hereunder, the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such Claim in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense
Advances with respect to the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee (which approval shall not be unreasonably
withheld) upon the delivery to Indemnitee of written notice of the Company's
election to do so. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to Indemnitee under this Agreement for any fees or
expenses of separate counsel subsequently employed by or on behalf of
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's separate counsel in any such
Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has
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<PAGE>
been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded
by such change. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, employee, agent or fiduciary, such
change, to the extent not otherwise required by such law, statute or rule to
be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section
10(a) hereof.
(b) NONEXCLUSIVITY. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any
rights to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of
Delaware, or otherwise. The indemnification and the payment of Expense
Advances provided under this Agreement shall continue as to Indemnitee for
any action taken or not taken while serving in an indemnified capacity even
though subsequent thereto Indemnitee may have ceased to serve in such
capacity.
6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable
hereunder.
7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public
policy may prohibit the Company from indemnifying its directors, officers,
employees, agents or fiduciaries under this Agreement or otherwise.
-7-
<PAGE>
Indemnitee understands and acknowledges that the Company has undertaken or
may be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
9. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are provided to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
10. EXCEPTIONS. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or
applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set
forth in this Section 10(a) regarding the Company's obligation to provide
indemnification, Indemnitee shall be entitled under Section 3 to receive
Expense Advances hereunder with respect to any such Claim unless and until a
court having jurisdiction over the Claim shall have made a final judicial
determination (as to which all rights of appeal therefrom have been exhausted
or lapsed) that Indemnitee has engaged in acts, omissions or transactions for
which Indemnitee is prohibited from receiving indemnification under this
Agreement or applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or
crossclaim, except (i) with respect to actions or proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Covered Events, (ii) in specific cases if the Board of Directors has approved
the initiation or bringing of such Claim, or (iii) as otherwise required
under Section 145 of the Delaware General Corporation Law, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification or insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that
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<PAGE>
each of the material assertions made by the Indemnitee as a basis for such
action was not made in good faith or was frivolous, or (ii) by or in the name
of the Company to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute; PROVIDED,
HOWEVER, that notwithstanding any limitation set forth in this Section 10(d)
regarding the Company's obligation to provide indemnification, Indemnitee
shall be entitled under Section 3 to receive Expense Advances hereunder with
respect to any such Claim unless and until a court having jurisdiction over
the Claim shall have made a final judicial determination (as to which all
rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has
violated said statute.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a director, officer, employee, agent or fiduciary (as
applicable) of the Company or of any other enterprise at the Company's
request.
13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR
INTERPRETATION. In the event that any action is instituted by Indemnitee
under this Agreement or under any liability insurance policies maintained by
the Company to enforce or interpret any of the terms hereof or thereof,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee with respect to such action (including without limitation
attorneys' fees), regardless of whether Indemnitee is ultimately successful
in such action, unless as a part of such action a court having jurisdiction
over such action makes a final judicial determination (as to which all rights
of appeal therefrom have been exhausted or lapsed) that each of the material
assertions made by Indemnitee as a basis for such action was not made in good
faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action.
In the event of an action instituted by or in the name of the Company under
this Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee in defense of such action (including without limitation costs and
expenses incurred with respect to Indemnitee's counterclaims and cross-claims
made in such action), unless as a part of such action a court having
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<PAGE>
jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each
of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and signed for by the party addressed, on the date of
such delivery, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Court of Chancery of the State of Delaware in and for New Castle
County, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the
provisions of this Agreement (including without limitation each portion of
this Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of
Delaware without regard to principles of conflicts of laws.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
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<PAGE>
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
Circon Corporation
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address: Circon Corporation
6500 Hollister Ave.
Santa Barbara, California 93117
AGREED TO AND ACCEPTED
--------------------------------------
--------------------------------------
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<PAGE>
EXHIBIT 5
CIRCON CORPORATION
6500 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
August 15, 1996
TO THE STOCKHOLDERS OF
CIRCON CORPORATION
Dear Stockholder:
As you may be aware, an unsolicited tender offer (the "Offer") for all of
the Common Stock of Circon Corporation (the "Company") at $18 per share was
commenced on August 2, 1996, by United States Surgical Corporation ("USS")
through its wholly-owned subsidiary, USS Acquisition Corp. Your Board of
Directors has carefully considered the Offer and has determined that it is not
in the best interest of the Company and its stockholders. YOUR BOARD RECOMMENDS
THAT YOU AND ALL OTHER STOCKHOLDERS REJECT THE USS OFFER.
The Board determined that the Company should continue to pursue its
strategic plan and that the Company is not for sale at this time. In particular,
the Board determined that the Company's strategic plan offers the potential for
greater long-term benefits for the Company's stockholders than the Offer based
on, among other things, greater opportunities for business expansion, revenue
and earnings growth, as well as benefits following the full integration of the
business of Cabot Medical Corporation into the Company.
In reaching its conclusion, your Board of Directors took into account a
number of factors, including the Board's belief that the tender offer does not
reflect the long-term values inherent in the Company. The Board also considered
the Company's prospects for future growth and profitability, the numerous
conditions to which the Offer is subject and the disruptive effect the
consummation of the Offer could have on the Company's employees, suppliers and
customers. In addition, the Board considered the opinion of Bear Stearns, the
Company's financial advisor, that the consideration offered pursuant to the
Offer is inadequate.
Enclosed for your information is a copy of your Company's Schedule 14D-9
which contains information concerning your Board's recommendation against the
Offer and which has been filed today with the Securities and Exchange
Commission.
In addition, your Board of Directors has decided to implement a Stockholders
Rights Plan and has declared a dividend distribution of Preferred Shares
Purchase Rights to stockholders of record on August 26, 1996. The Board has
concluded that implementation of the Rights Plan is in the best interests of the
Company and its stockholders. A summary of the Rights Plan is included with the
Schedule 14D-9.
In rejecting the Offer and implementing the Rights Plan, we have exercised
our continued confidence in the Company's future and our determination that you,
our stockholders, be given every opportunity to participate fully in that
future.
We will keep you informed as these matters develop.
Very truly yours,
Richard A. Auhll
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 6
FOR IMMEDIATE RELEASE:
CIRCON BOARD REJECTS U.S. SURGICAL TENDER OFFER,
ADOPTS STOCKHOLDERS RIGHTS PLAN
Santa Barbara, California (August 15, 1996) - Circon Corporation
(NASDAQ-NMS:CCON) today announced that its Board of Directors recommended
unanimously that Circon stockholders reject a tender offer by United States
Surgical Corporation ("USS"), through its wholly-owned subsidiary, USS
Acquisition Corp. for Circon shares.
The Circon Board determined that Circon should continue to pursue its
strategic plan and that Circon is not for sale at this time. Circon stated
that the USS offer does not reflect the long-term values inherent in the
company and in the opinion of Bear Stearns, Circon's financial advisor, the
consideration offered is inadequate.
"Execution of our strategic plan will generate superior value for our
stockholders; we have no need to sell the company in order to realize that
value," said Richard A. Auhll, Chairman of the Board and President of Circon,
as well as a principal stockholder. "We find that USS's offer is entirely
inadequate. As we broaden our product line, assimilate our Cabot acquisition,
and implement cost-savings programs, we see potential for substantial growth
in sales, profits and stockholder value. We understand USS's desire to
capture that potential for itself, and to take advantage of recent weakness
in the price of our stock. But this is neither an opportune time nor an
adequate price for the liquidation of our, and our fellow stockholders',
investment in Circon."
Circon also announced that its Board has adopted a Stockholders Rights
Plan. Pursuant to the Plan, Circon has declared a dividend distribution of
Preferred Shares Purchase Rights to stockholders of record on August 26,
1996. Under certain circumstances, the Rights will become exercisable if a
person tenders for or acquires 15% or more of Circon's Common Stock. With
respect to the tender offer by USS, the Rights are not currently exercisable
but may become exercisable at a date determined by the Board of Directors. If
the 15% threshold is crossed, the Rights will entitle other stockholders to
purchase Common Stock of Circon, or in certain circumstances, stock of the
15% acquiror, at a discount to market prices.
Circon is the leading U.S. supplier of products for minimally invasive
urological and gynecological surgery, including such hardware products as
endoscopes and video systems, and such disposable products as urological
stents, laparoscopic suction-irrigation devices, and a wide variety of
gynecological products.
###
CONTACTS:
AT CIRCON: IN NEW YORK:
Judy Wilkinson Daniel Katcher
Abernathy MacGregor Group Abernathy MacGregor Group
(805) 685-5100 (212) 371-5999
<PAGE>
EXHIBIT 7
[LETTERHEAD]
August 13, 1996
Circon Corporation
6500 Holister Avenue
Santa Barbara, CA 93117-3019
Attention: Mr. Richard A. Auhll
Chairman, President and Chief Executive Officer
Ladies and Gentlemen:
We understand the USS Acquisition Corp., a wholly owned subsidiary of United
States Surgical Corporation (together, "U.S. Surgical"), has commenced a
tender offer (the "U.S. Surgical Tender Offer") to acquire all of the
outstanding shares of common stock (the "Shares") of Circon Corporation
("Circon" or the "Company") for $18.00 net per share in cash, as more fully
described in U.S. Surgical's Schedule 14D-1 and related Offer to Purchase
dated August 2, 1996 (collectively, the "U.S. Surgical Tender Offer
Documents"). We understand that Circon plans to file its Schedule 14D-9 in
response to the U.S. Surgical Tender Offer on or about August 15, 1996 in
substantially the form which has been furnished to us.
You have asked for our opinion as to whether the consideration to be offered
for the Shares pursuant to the U.S. Surgical Tender Offer is adequate, from a
financial point of view, to the shareholders of Circon (excluding U.S.
Surgical and its affiliates).
In the course of performing our review and analyses for rendering this
opinion, we have:
1. reviewed the U.S. Surgical Tender Offer Documents and Circon's
Schedule 14D-9 in substantially the form expected to be filed on or
about August 15, 1996;
2. reviewed Circon's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1993 through 1995, and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996
and ended June 30, 1996;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Circon's
businesses and prospects;
4. met with certain members of Circon's senior management to discuss the
Company's operations, historical financial performance (including,
among other things, the factors underlying the Company's financial
performance during the past three quarters), financial condition and
future prospects;
<PAGE>
Circon Corporation
August 13, 1996
Page 2
5. reviewed the historical prices, valuation multiples and trading volume
of the Shares;
6. reviewed the terms of selected precedent mergers and acquisitions of
companies which we deemed generally comparable to Circon;
7. performed discounted cash flow analyses on the projections furnished
to us by Circon;
8. reviewed publicly available financial data, stock market performance
data and valuation multiples of companies which we deemed generally
comparable to 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.
With respect to Circon'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 senior management of Circon as to
the Company's expected future performance. We have not assumed any
responsibility for the information or projections provided to us and we have
further relied upon the assurances of the senior management of Circon that it
is 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, nor have we been furnished with, any independent appraisal of
the assets or liabilities of Circon. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to
us, as of the date hereof.
It is understood that this letter is for the information of the Board of
Directors of the Company and does not constitute a recommendation to any
holder of Shares as to whether to tender shares pursuant to the U.S.
Surgical Tender Offer. This letter may not be used for any other purpose, or
be reproduced, disseminated, quoted or referred to at any time, in whole or
in part, without our prior written consent; provided, however, that this
letter may be included in its entirety in the Schedule 14D-9 to be
distributed to the holders of the Shares in connection with the U.S. Surgical
Tender Offer.
Based on the foregoing, it is our opinion that the consideration to be
offered for the Shares pursuant to the U.S. Surgical Tender Offer is
inadequate, from a financial point of view, to the shareholders of Circon
(excluding U.S. Surgical and its affiliates).
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Jim Ferency
-------------------------
Senior Managing Director
<PAGE>
EXHIBIT 8
SUMMARY OF
STOCKHOLDERS RIGHTS PLAN
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
PREFERRED SHARES RIGHTS AGREEMENT, DATED AS OF AUGUST 14, 1996
(THE "RIGHTS AGREEMENT"), BETWEEN CIRCON CORPORATION AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS RIGHTS AGENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
<TABLE>
<CAPTION>
SUMMARY OF RIGHTS
---------------------------------------------------------------
<S> <C>
Distribution and
Transfer of Rights;
Rights Certificate: The Board of Directors has declared a dividend of one Right for
each share of Circon Common Stock outstanding as of August 26,
1996. Prior to the Distribution Date referred to below, the
Rights will be evidenced by and trade with the certificates
for the Common Stock. After the Distribution Date, Circon
Corporation (the "COMPANY") will mail Rights certificates to
the Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
exercisable following the (a) tenth day (or such later date as
may be determined by a majority of the Directors not
affiliated with the acquiring person or group (the "CONTINUING
DIRECTORS")) after a person or group acquires beneficial
ownership of 15% or more of the Company's Common Stock or (b)
the tenth business day (or such later date as may be
determined by the Continuing Directors) after a person or
group announces a tender or exchange offer, the consummation
of which would result in ownership by a person or group of 15%
or more of the Company's Common Stock, provided that with
respect to the tender offer by USS Acquisition Corp., a
wholly-owned subsidiary of United States Surgical Corporation
for all outstanding shares of Common Stock of the Company as
set forth in the Schedule 14D-1 filed with the Securities and
Exchange Commission on or about August 2, 1996, the Rights
will separate and become exercisable only at such date as is
determined by action of a majority of the Continuing
Directors.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF RIGHTS
---------------------------------------------------------------
<S> <C>
Preferred Stock
Purchasable Upon
Exercise of Rights: After the Distribution Date, each Right will entitle the holder
to purchase, for $70.00, a fraction of a share of the
Company's Preferred Stock with economic terms similar to that
of one share of the Company's Common Stock.
Flip-In: If an acquiror obtains 15% or more of the Company's Common
Stock, thereby becoming an "ACQUIRING PERSON", THEN each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to purchase, for
the exercise price, a number of shares of the Company's Common
Stock having a then current market value of twice the exercise
price.
Flip-Over: If, after an acquiror obtains 15% or more of the Company's
Common Stock, (a) the Company merges into another entity, (b)
an acquiring entity merges into the Company or (c) the Company
sells more than 50% of the Company's assets or earning power,
THEN each Right (other than Rights owned by an Acquiring
Person or its affiliates) will entitle the holder thereof to
purchase, for the exercise price, a number of shares of Common
Stock of the person engaging in the transaction having a then
current market value of twice the exercise price.
Exchange Provision: At any time after an event triggering the flip-in or flip-over
rights and prior to the acquisition by the Acquiring Person of
50% or more of the outstanding Common Stock, the Board of
Directors of the Company may exchange the Rights (other than
Rights owned by the Acquiring Person or its affiliates), in
whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).
Redemption of
the Rights: Rights will be redeemable at the Company's option for $0.01 per
Right at any time on or prior to the tenth day (or such later
date as may be determined by a majority of the Continuing
Directors) after public announcement that a person has
acquired beneficial ownership of 15% or more of the Company's
Common Stock (the "SHARES ACQUISITION DATE").
Expiration of
the Rights: The Rights expire on the earliest of (a) August 14, 2006 or (b)
exchange or redemption of the Rights as described above.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF RIGHTS
---------------------------------------------------------------
<S> <C>
Amendment of
Terms of Rights: The terms of the Rights and the Rights Agreement may be amended
in any respect without the consent of the Rights holders on or
prior to the date when an acquiror obtains 15% or more of the
Company's Common Stock; thereafter, the terms of the Rights
and the Rights Agreement may be amended without the consent of
the Rights holders in order to cure any ambiguities or to make
changes which do not adversely affect the interests of Rights
holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution
Provisions: Rights will have the benefit of certain customary anti-dilution
provisions.
Taxes: The Rights distribution should not be taxable for federal
income tax purposes. However, following an event which renders
the Rights exercisable or upon redemption of the Rights,
stockholders may recognize taxable income.
</TABLE>
The foregoing is a summary of certain principal terms of the Stockholders
Rights Plan only and is qualified in its entirety by reference to the detailed
terms of the Rights Agreement dated as of August 14, 1996 between the Company
and the Rights Agent, which are incorporated herein by reference.
3
<PAGE>
EXHIBIT 9
CIRCON CORPORATION BOARD URGES STOCKHOLDERS
TO DEFER DECISION ON TENDER OFFER
Circon Corporation, Santa Barbara, California (NASDAQ-NMS:CCON) - August 5,
1996 - Richard A. Auhll, Chairman and President, today announced that Circon's
Board of Directors is currently conferring with its financial and legal advisors
with respect to the unsolicited tender offer by U.S. Surgical Corporation.
Circon will respond to the offer in due course in accordance with its
obligations under the securities laws, at which point it will make its
recommendation to its stockholders and state its reasons for such
recommendation. Circon requests that its stockholders defer making a
determination whether to accept or reject U.S. Surgical's tender offer until
they have been advised of Circon's position with respect to the offer.
Contact: R. Bruce Thompson
Executive Vice President
Chief Financial Officer
(805) 685-5100
