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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9/A
(Amendment No. 8)
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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This Amendment No. 8 supplements the Schedule 14D-9 of Circon Corporation, a
Delaware corporation (the "Company"), filed with the Securities and Exchange
Commission ("SEC") on August 15, 1996, and as subsequently amended, relating to
a Tender Offer Statement on Schedule 14D-1, dated August 2, 1996 (the "Schedule
14D-1"), filed with 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 the ("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.
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 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:
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ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED)
- 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.
- 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.
On August 30, 1996, USS announced that the expiration of the Offer had been
extended to September 30, 1996. That day, the Company issued a press release
relating to USS's announcement. A
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ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED)
copy of this press release is filed as Exhibit 20 to this statement. Also on
that day, the Company circulated a letter to its employees regarding the Offer,
a copy of which is filed as Exhibit 21 to this statement.
On October 1, 1996, USS announced that the expiration of the Offer had been
extended to December 13, 1996. On October 2, 1996, the Company issued a press
release relating to USS's announcement. A copy of this press release is filed as
Exhibit 24 to this statement.
On October 25, 1996, the Company sent a letter to its stockholders regarding
the Offer and the Company's financial results for the third quarter of 1996. A
copy of this letter is filed as Exhibit 25 to this statement.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
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Exhibit 1(F) The "Board Compensation," "Remuneration of Officers," "Report of the
Compensation Committee" and "Compensation Committee Interlocks and
Insider Participation" sections of the Proxy
Exhibit 2(F) Article Ninth of Certificate of Incorporation, as amended
Exhibit 3(F) Article V of the Bylaws
Exhibit 4(F) Form of Indemnification Agreement
Exhibit 5*(F) Letter to Stockholders regarding Board's Recommendation
Exhibit 6(F) Press Release Announcing Board's Recommendation
Exhibit 7(F) Opinion of Bear, Stearns & Co. Inc.
Exhibit 8*(F) Summary of Stockholders Rights Plan
Exhibit 9(F) Press Release of the Company dated August 5, 1996
Exhibit 10(F) Letter to Employees Regarding the Offer
Exhibit 11(F) Complaint of William Steiner against the Company, its Directors and
certain of its officers, filed on or about August 15, 1996
Exhibit 12(F) Complaint of Charles Miller against the Company, its Directors and
certain of its officers, filed on or about August 15, 1996
Exhibit 13(F) Complaint of F. Richard Manson against the Company, its Directors
and certain of its officers, filed on or about August 15, 1996
Exhibit 14(F) Press Release of the Company dated August 19, 1996
Exhibit 15(F) Management Retention Plan
Exhibit 16(F) Sales Force Retention Plan
Exhibit 17(F) Managers, Professionals and Key Contributors Retention Plan
Exhibit 18(F) Press Release of the Company dated August 27, 1996
Exhibit 19(F) Letter to Employees Regarding the Retention Plans
Exhibit 20(F) Press Release of the Company dated August 30, 1996
Exhibit 21(F) Letter to Employees Regarding the Offer
Exhibit 22(F) Complaint of USS against the Company and its Directors, filed on or
about September 17, 1996
Exhibit 23(F) Press Release of the Company dated September 18, 1996
Exhibit 24(F) Press Release of the Company dated October 2, 1996
Exhibit 25 Letter to Stockholders regarding the Offer and the Company's
financial results for the third quarter of 1996
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* Included in copy mailed to stockholders
(F) Previously filed
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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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Dated: October 25, 1996 CIRCON CORPORATION
By: /s/ Richard A. Auhll
Richard A. Auhll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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EXHIBIT 25
October 25,1996
Fellow Circon Shareholder:
I am writing to update you on recent developments at Circon and to let
you know that we are proceeding with our strategic plan to build value for
Circon shareholders.
POSITIVE FINANCIAL RESULTS
This morning we reported our financial results for the third quarter of
1996. Sales for the U.S. sales force in the third quarter were $30 million,
up 5% from the second quarter 1996 and the highest of any quarter since the
merger with Cabot in August of 1995. Total sales for the third quarter were
$38.4, up 3.5% from the previous quarter but down 9% from the all time high
third quarter in 1995.
Operating income for the third quarter was $2.4 million, up 145% from
the second quarter. Earnings per share from operations, excluding certain
unusual non-recurring charges related to the hostile tender offer, were
$0.07 for the third quarter compared to break-even earnings from operations
for the second quarter.
We are very pleased with the sequential growth of our sales on a quarter
to quarter basis and believe this is indicative of an improving trend.
Management is focused on the goal of continuing this growth into the fourth
quarter and 1997.
THE RE-ORIENTATION OF OUR SALES FORCE IS PROCEEDING
The merger of Circon and Cabot created the opportunity for each member
of our combined sales force to sell more products to fewer customers in a
smaller territory and thereby, over time, to become significantly more
productive. This required a substantial and time-consuming reorganization and
retraining of our sales force. Sales declined during the post-merger period,
but now are increasing. We have focused on our sales force issues and
developed strategies to get back on track. With our positive third quarter
results, we are now seeing the early signs of recovery as the sales force
becomes better oriented to its new environment.
NEW PRODUCTS AND NEW MARKETS
Research and development has always been a priority at Circon. We intend
to remain at the forefront of technological development for minimally
invasive surgery. Third quarter R&D expenditures were up 11% over 1995 and
were 8% of sales. In the next several months, we will be introducing an
ultrasonic lithotripter, a urodynamic system (OM-4), a microlaparoscopy system,
a flexible ureteroscope, a small-diameter (2.4 mm) diagnostic hysteroscope,
and a number of other new or improved endoscopes, laparoscopes, light
sources, instruments and disposable products.
I am enclosing a gynecology new product leaflet, distributed at the
recent American Association of Gynecological Laparoscopy meeting in Chicago,
where our products were well received.
Many other new and innovative products are in our pipeline for
introduction in the latter part of next year. Technological leadership is
central to our future growth and profitability, and we have high hopes for
our new products.
We also continue to add new customers and expand our direct sales
efforts. We recently concluded a multi-year agreement to supply endoscopic
equipment to Tenet Healthcare. Tenet is the second largest proprietary
healthcare company in the U.S. with 342 hospitals and acute care facilities.
Last month we established a subsidiary and a direct sales force in France to
help grow our international sales.
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WE ARE CONTINUING TO MANAGE OUR COSTS
Cost savings not only contribute directly to the bottom line, they help
us to be price-competitive in the very cost-conscious healthcare marketplace.
We are committed to continual re-evaluation of all aspects of our cost
structure. This month, we will complete the closure of our Langhorne,
Pennsylvania, facility, which will generate significant savings in 1997 and
beyond. We also expect to benefit in 1997 from several other cost reduction
initiatives many of which are already underway.
THE BOARD UNANIMOUSLY REJECTED THE OFFER IN FAVOR OF THE COMPANY'S PLAN
As you are aware, in August the Board of Directors of Circon unanimously
rejected U.S. Surgical's unsolicited offer and urged shareholders not to
tender their shares. The Board recognized that U.S. Surgical is trying to
take advantage of a dip in Circon's stock price to capture the value and
potential of Circon for themselves. After thoroughly studying the offer and
consulting with advisors, the Board determined that the best means for
providing value to Circon shareholders is to pursue its strategic plan and
not to put the Company up for sale.
Since that time, U.S. Surgical has twice extended its offer, and
commenced litigation in an effort to force us to sell them the Company for a
price that is clearly inadequate. We are not intimidated by their tactics and
are confident the court will side with us on these issues.
We sent you a Solicitation/Recommendation Statement (Schedule 14D-9)
in August which describes the considerations that went into the Board of
Director's decision to reject the offer. If you did not receive this, or would
like another copy, please call Nancy Leonard at (805)685-5100.
I urge you to carefully consider the 14D-9 and the following factors:
- The major market share held by Circon in the urology and gynecology
markets and the significant growth rates that an independent market
research group is predicting for those markets in the years ahead.
- The cost savings and growth impact of the Cabot merger which
the Company expects to realize from programs already in progress and
planned for the coming year.
- The demonstrated ability of Circon's management team to generate
value through strategic acquisitions like the Cabot merger. For
example, in 1986 Circon acquired ACMI, a struggling company nearly
five times Circon's size, and proceeded to achieve major synergies
and stock price appreciation for its shareholders.
- The historical trading price of the Company stock. The offer of
$18.00 per share is actually a 23% discount from the highest closing
price of the stock during the nine month period preceding the offer.
- The investment banking firm of Bear Stearns, experts in these
matters, concluded that the financial consideration offered by
U.S. Surgical is inadequate from a financial point of view to the
Circon shareholders.
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CIRCON'S STRATEGIC VALUE
In addition, the Board recognizes the unique strategic position of
Circon. Circon is one of the few companies in the world designing,
manufacturing, and marketing high performance endoscopic systems to multiple
medical specialties on a global basis. Through an unrelenting dedication to
building the best quality products available, Circon, according to
independent market reports, has captured the largest share of the U.S.
urology endoscope market and established itself as a leading supplier of
advanced gynecology products in the U.S. and abroad.
The addition of the Cabot product line allows us immediate penetration
of the urological stent, laparoscopic suction-irrigation and related markets.
Circon has the largest urology/gynecology sales force in the U.S. and a
sizable installed base that provide a solid platform for us to expand
existing product lines and enter new markets.
DO NOT BE MISLED BY U.S. SURGICAL
U.S. Surgical still only owns 1,000,100 shares or roughly 7.9% of Circon.
By comparison, I am the largest Circon shareholder owning roughly 11% of the
Company. U.S. Surgical has not actually purchased the "tendered shares" and
can withdraw its offer prior to acceptance and payment of the shares at any
time.
In addition, we never said that we would reap the benefits of the Cabot
merger overnight as U.S. Surgical has suggested. Mergers take time. The
good news is that the hardest part is behind us and we are now poised to
capitalize on the synergies and other opportunities available to us as a
result of the merger and the implementation of our strategic plan. If the
Board accepted this offer, Circon shareholders would be "cashed-out" and
deprived of this value.
IN CONCLUSION
Circon has a strategic plan that is working. Our prospects remain
excellent as we evolve into a more powerful and efficient organization. Our
Board has concluded that our shareholders will benefit far more from the
realization of our plan than if we accept U.S. Surgical's opportunistic
offer. Judge for yourself. Review the fundamentals underlying our strategic
plan that appear on the first four pages of our 1995 Annual Report and keep a
close eye on our quarterly financial reports.
I appreciate the support we have received from our shareholders and
urge those others of you who have tendered shares to U.S. Surgical to consider
withdrawing the shares. By rejecting the opportunistic offer of U.S. Surgical,
we have the best chance of truly maximizing the value of an investment in
Circon. Give the Circon team time to finish the job it began last year. I
think you will be glad that you did.
Sincerely,
CIRCON CORPORATION
RICHARD A. AUHLL
President
Chairman of the Board
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