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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9/A
(Amendment No. 2)
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 statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated August 5, 1997 (the "Schedule 14D-1"),
filed with the Securities and Exchange Commission (the "SEC") by United
States Surgical Corporation, a Delaware Corporation ("USS") and USS
Acquisition Corp. (the "Purchaser"), a Delaware corporation and wholly-owned
subsidiary of USS, relating to an offer by Purchaser to purchase all
outstanding shares of Common Stock, par value $0.01 per share ("Shares"), of
Circon Corporation, a Delaware corporation ("Circon" or the "Company") at a
price of $16.50 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").
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) 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.
As a result of the Company's concern about the disruptive effects on the
Company's employees of the tender offer commenced by USS and the Purchaser in
August 1996 (the "Original Offer"), the Company retained the independent
consulting firm of William M. Mercer, Incorporated ("Mercer") to advise the
Board of Directors of the Company (the "Board") and to evaluate the possibility
of implementing an employee retention program. Pursuant to a recommendation from
the Board's Compensation Committee, the Board authorized the Company to
implement three separate plans (collectively, the "Plans") to assist the Company
in retaining skilled employees, including plans for executives, the Company's
sales force, and managers, professionals and key contributors. The purpose of
the Plans is to retain certain key employees of the Company during times of
uncertainty, and to keep such persons focused on their jobs and the business of
the Company during such times so that the Company can continue to execute its
strategic plan. Mercer assisted and advised the Board and its Compensation
Committee in formulating the terms of each Plan. Each Plan is summarized below.
Each of the summaries is qualified in its entirety by reference to the full text
of each of the Plans; a copy of each of the Management Retention Plan, the Sales
Force Retention Plan and the Managers, Professionals and Key Contributors
Retention Plan, is filed as Exhibit 1, 2, and 3, respectively, to this
statement, and is incorporated by reference herein.
MANAGEMENT RETENTION PLAN
The Management Retention Plan (the "Management Plan") provides retention and
severance benefits for designated executive officers, vice presidents and senior
managers of the Company. There are three components to the Management Plan: (i)
retention/severance payments, (ii) post-employment coverage under the Company's
group health and life insurance plans, and (iii) pro-rated annual target bonus
payments.
RETENTION/SEVERANCE PAYMENTS
The total potential retention/severance payment is based on a multiple of
annual target bonus and/or annual base salary, with the level of payment related
to the participant's job level. The multiplier ranges from 75% of annual base
salary up to 250% of annual base salary and annual target bonus.
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ITEM 3. IDENTITY AND BACKGROUND (CONTINUED)
The retention payment component is equal to either one-third of the total
cash payment (for executive officers) or one-sixth of the total cash payment
(for vice-presidents and senior managers). It will be paid ninety days following
a change of control of the Company if the participant has remained employed by
the Company or the acquiring entity through such period. The retention payment
is also triggered if a participant is involuntarily terminated without cause or
is constructively terminated following a change of control but prior to ninety
days following a change of control.
The severance payment component is equal to either two-thirds of the total
cash payment (for executive officers) or five-sixths of the total cash payment
(for vice-presidents and senior managers). It will be paid only if the
participant is involuntarily terminated without cause or is constructively
terminated within twenty-four months (for executive officers and
vice-presidents) or twelve months (for senior managers) following a change of
control.
POST-EMPLOYMENT BENEFITS
In the event of an involuntary termination without cause or constructive
termination within twelve or twenty-four months following a change of control,
the participant (and, if covered prior to the change of control, his or her
dependents) receives continued group health, dental and life insurance coverage.
The Company is required to pay the same percentage of the related insurance
premiums as were paid prior to the change of control. The Company continues to
make these premium payments for a period ranging from nine months to two and
one-half years (depending on the participant's job level), or, if earlier, until
the participant becomes covered under comparable benefit plans of another
employer.
PRORATED ANNUAL TARGET INCENTIVE BONUS
Under the Management Plan, executive officers and vice-presidents (but not
senior managers) are eligible to be paid their prorated annual target bonus for
the year in which the change of control occurs. This payment is in lieu of any
bonus otherwise payable under the annual incentive plan. The proration is made
by multiplying the annual target bonus by a fraction, the numerator of which is
the number of days in the Company's fiscal year that have elapsed prior to the
change of control and the denominator of which is three hundred and sixty-five.
The pro-rated bonus is paid to those executive officers and vice-presidents who
remain employed until the last day of the fiscal year in which the change of
control occurs or who are involuntarily terminated without cause or are
constructively terminated prior to the end of the fiscal year, but following a
change of control.
GOLDEN PARACHUTE EXCISE TAX AND NON-DEDUCTIBILITY
In general, benefits and payments under the Management Plan are subject to
reduction, if, in the opinion of the Company's independent accountants, the
golden parachute excise tax and non-deductibility provisions of the Internal
Revenue Code would otherwise be triggered. In such event, a participant's
benefits will be reduced to the largest amount that would not trigger the golden
parachute excise tax and non-deductibility provisions. In the case of the
Company's chief executive officer, benefits under the Management Plan are only
reduced to avoid triggering the golden parachute excise tax and
non-deductibility provisions if so doing would maximize the after-tax economic
benefit to the chief executive officer, as determined by the Company's
independent accountants.
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SALES FORCE RETENTION PLAN
The Sales Force Retention Plan (the "Sales Force Plan") provides retention
and severance benefits for all territory managers and sales video specialists
who are not on Company probation at the time of a change of control. It provides
for a maximum payment of twice the compensation earned in the last two full
calendar months preceding the change of control. Compensation is defined for
this purpose as travel allowance, bonus and commissions.
The retention payment component is equal to the compensation earned in
the last two full calendar months preceding the change of control. It will be
paid ninety days following a change of control if the participant has
remained employed by the Company or the acquiring entity through such period.
The retention payment is also triggered if a participant is involuntarily
terminated without cause following a change of control but prior to ninety
days following such change of control.
The severance payment component is also equal to the compensation earned in
the last two full calendar months preceding the change of control. It will be
paid only if the participant is involuntarily terminated without cause within
twelve months following a change of control.
MANAGERS, PROFESSIONALS AND KEY CONTRIBUTORS RETENTION PLAN
The Managers, Professionals and Key Contributors Retention Plan (the
"Managers Plan") provides retention and severance benefits for managers,
professionals and key contributors. It provides for a potential cash payment of
a minimum of three months' base salary up to a maximum of one year's base
salary. Between these minimum and maximum limits, the Managers Plan provides for
two weeks' base salary for each full year of employment with the Company (or
with an entity acquired by the Company) up to and including the date of a change
of control.
The retention payment component is equal to one-third of the total potential
cash payment. It will be paid ninety days following a change of control if the
participant has remained employed by the Company or the acquiring entity through
such period. The retention payment is also triggered if a participant is
involuntarily terminated without cause following a change of control but prior
to ninety days following a change of control.
The severance payment component is equal to two-thirds of the total
potential cash payment. It will be paid only if the participant is involuntarily
terminated without cause within twelve months following a change of control.
SEPTEMBER 26, 1997 AMENDMENTS
On September 26, 1997, the Company's Board of Directors adopted
amendments to each of the Plans which restrict the Company's ability to
unilaterally amend any of the Plans in a manner adverse to the interests of
Plan participants. Copies of the amended Management Retention Plan; Sales
force Retention Plan and Managers, Professionals and Key Contributors
Retention Plan are filed as Exhibits 11, 12 and 13, respectively, to this
statement and are incorporated herein by reference.
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In addition, at its September 26, 1997 meeting, the Board approved
amendments to the Company's 1983 Employee Stock Option Plan, 1993 Stock Option
Plan and Cabot Stock Option Plan and the outstanding options under such Plans
to provide as follows:
"Notwithstanding any other provision of this Plan, if an Optionee's
employment terminates at any time within twelve (12) months after a Change of
Control (as such term is defined in the Company's Retention Plans) other than
(i) for "Cause" (as such term is defined in the Company's Retention Plans),
including, but only with respect to participants in the Company's Management
Retention Plan, an "Involuntary Termination" (as such term is defined in the
Company's Management Retention Plan) but not including, with respect to any
other Optionees, any voluntary termination by the Optionee, and not including,
with respect to participants in the Company's Management Retention Plan, any
voluntary termination by the Optionee that does not constitute an "Involuntary
Termination" (as such term is defined in the Company's Management Retention
Plan) or (ii) due to the Optionee's death or Disability, then such Optionee's
outstanding Options hereunder shall become 100% vested and exercisable as of the
date of such termination of employment."
Further, at such meeting, the Board approved amendments to the Company's
1984 Directors Stock Option Plan and 1995 Directors Stock Option Plan and the
outstanding options under such Plans to provide as follows:
"Notwithstanding any other provision of this Plan, if an Optionee's service
as a Director terminates at any time within twelve (12) months after a Change of
Control (as such term is defined in the Company's Retention Plans) other than
(i) for "Cause" (as such term is defined in the Company's Retention Plans),
including, but only with respect to participants in the Company's Management
Retention Plan, an "Involuntary Termination" (as such term is defined in the
Company's Management Retention Plan) but not including, with respect to any
other Optionees, any voluntary termination by the Optionee, and not including,
with respect to participants in the Company's Management Retention Plan, any
voluntary termination by the Optionee that does not constitute an "Involuntary
Termination" (as such term is defined in the Company's Management Retention
Plan) or (ii) due to the Optionee's death or Disability, then such Optionee's
outstanding Options hereunder shall become 100% vested and exercisable as of the
date of such termination of services."
INDEMNITY AND LIMITATION OF LIABILITY
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 4
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 5 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 6 to this
statement and is incorporated herein by reference.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
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Exhibit 1(F) Management Retention Plan
Exhibit 2(F) Sales Force Retention Plan
Exhibit 3(F) Managers, Professionals and Key Contributors Retention Plan
Exhibit 4(F) Article Ninth of Certificate of Incorporation, as amended
Exhibit 5(F) Article V of the Bylaws
Exhibit 6(F) Form of Indemnification Agreement
Exhibit 7*(F) Letter to Stockholders regarding Board's Recommendation
Exhibit 8(F) Press Release Announcing Board's Recommendation
Exhibit 9(F) Opinion of Bear, Stearns & Co. Inc.
Exhibit 10(F) Notice and Motion for Preliminary Injunction and Amended and
Supplemental Complaint of USS and the Purchaser
Exhibit 11 Amended Management Retention Plan
Exhibit 12 Amended Sales Force Retention Plan
Exhibit 13 Amended Managers, Professionals and Key Contributors
Retention Plan
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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: September 30, 1997 CIRCON CORPORATION
By: /s/ Richard A. Auhll
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Richard A. Auhll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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CIRCON CORPORATION
MANAGEMENT RETENTION PLAN
AMENDED AS OF SEPTEMBER 26, 1997
Introduction
It is expected that Circon Corporation (the "Company") from time to time
will consider the possibility of an acquisition by another company or other
change of control. The Board of Directors of the Company (the "Board")
recognizes that such consideration can be a distraction to key employees and can
cause such employees to consider alternative employment opportunities. The
Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of these employees, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its
stockholders to provide these employees with an incentive to continue their
employment and to motivate these employees to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
The Board believes that it is imperative to provide these employees with
(i) certain retention benefits payable upon remaining in the employ of the
Company for a specified period following a Change of Control, and (ii) certain
severance benefits upon termination of employment following a Change of Control.
These benefits provide these employees with enhanced financial security and
provide efficient incentive and encouragement to these employees to remain with
the Company notwithstanding the possibility or occurrence of a Change of
Control.
Accordingly, the following plan has been developed and adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
1. ESTABLISHMENT OF PLAN. As of the Effective Date, the Company hereby
establishes a management retention plan to be known as the "Management Retention
Plan" (the "Plan"), as set forth in this document. The purposes of the Plan are
as set forth in the Introduction.
2. APPLICABILITY OF PLAN. Subject to the terms of this Plan, the
benefits provided by this Plan shall be available to those Employees of the
Company who, on or after the Effective Date, receive a Notice of Participation.
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3. CONTRACTUAL RIGHT TO BENEFITS. Subject to the terms of this Plan,
this Plan and the Notice of Participation establishes and vests in each
Participant a contractual right to the benefits to which he or she is entitled
pursuant to the terms thereof, enforceable by the Participant against the
Company.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the term is capitalized.
(a) ANNUAL COMPENSATION. "Annual Compensation" shall mean an amount
equal to the sum of (i) the Participant's Company annual base salary as in
effect immediately preceding the Change of Control, and if so specified in the
Participant's Notice of Participation, (ii) the Participant's 100% Target Bonus
amount for the Company's fiscal year in which the Change of Control occurs.
(b) CAUSE. "Cause" shall mean (i) any act of personal dishonesty
taken by the Participant in connection with his responsibilities as an Employee
and intended to result in substantial personal enrichment of the Participant,
(ii) the Participant's conviction of a felony, (iii) a willful act by the
Participant which constitutes gross misconduct and which is injurious to the
Company, or (iv) continued substantial violations by the Participant of the
Participant's employment duties which are demonstrably willful and deliberate on
the Participant's part after there has been delivered to the Participant a
written demand for performance from the Company which specifically sets forth
the factual basis for the Company's belief that the Participant has not
substantially performed his duties.
(c) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall
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not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
(iii) The consummation of 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 fifty percent (50%) 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
(iv) the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets.
(d) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) COMPANY. "Company" shall mean Circon Corporation, any subsidiary
corporations, any successor entities as provided in Article IX hereof, and any
parent or subsidiaries of such successor entities.
(f) DISABILITY. "Disability" shall mean that the Participant has
been unable to perform his duties as an Employee as the result of incapacity due
to physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Participant or the
Participant's legal representative (such agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Participant's employment. In the event that the Participant
resumes the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(g) EFFECTIVE DATE. "Effective Date" shall mean the date the Plan is
approved by the Board.
(h) EMPLOYEE. "Employee" shall mean an individual employed by the
Company.
(i) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(j) HEALTH CARE CONTINUATION PERIOD. "Health Care Continuation
Period" shall mean the period set forth in a Participant's Notice of
Participation.
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(k) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean
(i) without the Participant's express written consent, the significant reduction
of the Participant's duties or responsibilities relative to the Participant's
duties or responsibilities in effect immediately prior to such reduction;
provided, however, that a reduction in duties or responsibilities solely by
virtue of the Company being acquired and made part of a larger entity (as, for
example, when the Chief Financial Officer of Circon remains as such following a
Change of Control and is not made the Chief Financial Officer of the acquiring
corporation) shall not constitute an "Involuntary Termination;" (ii) a reduction
by the Company in the annual base salary or in the maximum dollar amount of
potential annual cash bonuses relative to the annual base salary and maximum
dollar amount of potential annual cash bonuses as in effect immediately prior to
such reduction; (iii) a material reduction by the Company in the kind or level
of employee benefits to which the Participant is entitled immediately prior to
such reduction with the result that the Participant's overall benefits package
is significantly reduced; (iv) the relocation of the Participant to a facility
or a location more than 35 miles from the Participant's then present location,
without the Participant's express written consent; (v) any purported termination
of the Participant by the Company which is not effected for Disability or for
Cause; or (vi) the failure of the Company to obtain the assumption of this
agreement by any successors contemplated in Article IX below.
(l) NOTICE OF PARTICIPATION. "Notice of Participation" shall mean an
individualized written notice of participation in the Plan from an authorized
Employee of the Company.
(m) PARTICIPANT. "Participant" shall mean an individual who meets
the eligibility requirements of Article III.
(n) PLAN. "Plan" shall mean this Circon Corporation Management
Retention Plan.
(o) PRO-RATED BONUS AMOUNT. "Pro-Rated Bonus Amount" shall mean,
with respect to each Participant designated as eligible to receive such a
payment in their Notice of Participation, 100% of such Participant's Target
Bonus as in effect for the fiscal year in which the Change of Control occurs,
pro-rated by multiplying such bonus amount by a fraction, the numerator of which
shall be the number of days prior to occurrence of the Change of Control during
such fiscal year, and the denominator of which shall be three-hundred and
sixty-five.
(p) RETENTION PAYMENT. "Retention Payment" shall mean the payment of
retention compensation as provided in Article VI hereof.
(q) RETENTION PAYMENT PERCENTAGE. "Retention Payment Percentage"
shall mean, for each Participant, the Retention Payment Percentage set forth in
such Participant's Notice of Participation.
(r) SEVERANCE PAYMENT. "Severance Payment" shall mean the payment of
severance compensation as provided in Article IV hereof.
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(s) SEVERANCE PAYMENT PERCENTAGE. "Severance Payment Percentage"
shall mean, for each Participant, the Severance Payment Percentage set forth in
such Participant's Notice of Participation.
(t) SEVERANCE WINDOW PERIOD. "Severance Window Period" means the
period, not to exceed twenty-four (24) months, set forth in a Participant's
Notice of Participation.
(u) TARGET BONUS. "Target Bonus" shall mean the target incentive
bonus award relating to the achievement of the Participant's target specified
under the Company's formal annual incentive bonus plan.
ARTICLE III
ELIGIBILITY
Each Employee who is designated by the Board and who signs and timely
returns to the Company a Notice of Participation shall be a Participant in the
Plan. A Participant shall cease to be a Participant in the Plan when he or she
ceases to be an Employee, unless such Participant is entitled to benefits
hereunder. A Participant entitled to benefits hereunder shall remain a
Participant in the Plan until the full amount of the benefits have been
delivered to the Participant.
ARTICLE IV
SEVERANCE BENEFITS
1. RIGHT TO SEVERANCE BENEFITS.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If a Participant's
employment terminates at any time within the Participant's Severance Window
Period after a Change of Control, then, subject to Article VII hereof, the
Participant shall be entitled to receive severance benefits as follows:
(i) SEVERANCE PAY UPON INVOLUNTARY TERMINATION WITHIN
NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the Participant's employment is
terminated as a result of Involuntary Termination other than for Cause within
ninety (90) days following a Change of Control, then the Participant shall be
entitled to receive a Severance Payment which equals (i) the product obtained by
multiplying the Participant's Severance Payment Percentage times the
Participant's Annual Compensation, plus (ii) the product obtained by multiplying
the Retention Payment Percentage times the Participant's Annual Compensation,
plus (iii) if and only if (A) the Participant's Notice of Participation
designates him or her as eligible to receive a Pro-Rated Bonus Amount, and (B)
no Pro-Rated Bonus Amount has been paid to such Participant pursuant to Article
V, the Pro-Rated Bonus Amount.
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EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
is Involuntarily Terminated other than for Cause as of July 1, 1997.
Participant's Annual Compensation is $150,000. The Severance Payment
Percentage set forth in the Participant's Notice of Participation is 100%.
The Retention Payment Percentage set forth in the Participant's Notice of
Participation is 50%. Participant's Notice of Participation designates him
as eligible to receive a Pro-Rated Bonus Amount. Participant's Notice of
Participation designates a twelve-month Severance Window Period. The
Company's fiscal year is the calendar year and therefore no Pro-Rated Bonus
Amount has been paid pursuant to Article V of the Plan. The Participant's
100% Target Bonus is $30,000. The Participant is entitled to a Severance
Payment equal to (i) 100% x $150,000, plus (ii) 50% x $150,000, plus (iii)
(166/365) x $30,000 = $238,644.
(ii) SEVERANCE PAY UPON INVOLUNTARY TERMINATION ON OR
AFTER NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the Participant's
employment is terminated as a result of Involuntary Termination other than for
Cause on or after ninety (90) days following a Change of Control, then the
Participant shall be entitled to receive a Severance Payment which equals (i)
the product obtained by multiplying the Participant's Severance Payment
Percentage times the Participant's Annual Compensation, plus (ii) if and only if
(A) the Participant's Notice of Participation designates him or her as eligible
to receive a Pro-Rated Bonus Amount, and (B) no Pro-Rated Bonus Amount has been
paid to such Participant pursuant to Article V, the Pro-Rated Bonus Amount.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
is Involuntarily Terminated Other than for Cause as of October 1, 1997.
Participant's Annual Compensation is $150,000. The Severance Payment
Percentage set forth in the Participant's Notice of Participation is 100%.
Participant's Notice of Participation designates him as eligible to receive
a Pro-Rated Bonus Amount. Participant's Notice of Participation designates
a twelve-month Severance Window Period. The Company's fiscal year is the
calendar year and therefore no Pro-Rated Bonus Amount has been paid
pursuant to Article V of the Plan. The Participant's 100% Target Bonus is
$30,000. The Participant is entitled to a Severance Payment equal to (i)
100% x $150,000, plus (ii) (166/365) x $30,000 = $163,644.
(iii) CONTINUED EMPLOYEE BENEFITS UPON INVOLUNTARY
TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Participant's employment is
terminated as a result of Involuntary Termination other than for Cause, then the
Participant shall receive health, dental and life insurance coverage at the same
level of coverage as was provided to such Participant immediately prior to the
Change of Control, with the same percentage of the premiums for such insurance
coverage paid for by the Company as was paid for by the Company on behalf of
such Participant immediately prior to the Change of Control (together with the
benefits provided pursuant to the following sentence, the "Company-Paid
Coverage"). If such coverage included the Participant's dependents immediately
prior to the Change of Control, then such dependents shall also be covered under
the same terms as set forth in the preceding sentence. Company-Paid Coverage
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shall continue until the earlier of (i) the Health Care Continuation Period, or
(ii) the date that the Participant and his or her covered dependents become
covered under another employer's health, dental and life insurance plans
providing comparable benefits and levels of coverage. For purposes of Title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Participant and his or her covered dependents shall be
the date upon which Company-Paid Coverage terminates. Company-Paid Coverage
shall be provided under either, at the Company's discretion, (i) the Company's
plans, or (ii) no less favorable plans or arrangements secured by the Company.
(iv) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Participant's employment terminates by reason of the Participant's voluntary
resignation (and is not an Involuntary Termination), or if the Participant is
terminated for Cause, then the Participant shall not be entitled to receive
severance benefits except for those (if any) as may then be established under
the Company's then existing severance and benefits plans and policies at the
time of such termination other than under this Plan.
(v) DISABILITY; DEATH. If the Company terminates the
Participant's employment as a result of the Participant's Disability, or such
Participant's employment is terminated due to the death of the Participant, then
the Participant shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death; provided, however, that Participant shall still be eligible
to receive a Retention Payment pursuant to the terms of Article VI.
(b) TERMINATION APART FROM CHANGE OF CONTROL. In the event that a
Participant's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twenty-four (24)-month period
following a Change of Control, then the Participant shall be entitled to receive
severance benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination other
than this Plan.
2. TIMING OF SEVERANCE PAYMENTS. Any Severance Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the Participant's termination date.
ARTICLE V
PRO-RATED BONUS AMOUNT PAYMENTS
1. RIGHT TO PRO-RATED BONUS AMOUNT PAYMENTS. If a Participant (i) is
designated as eligible to receive a Pro-Rated Bonus Amount in his or her Notice
of Participation, and (ii) remains employed by the Company through the last day
of Circon Corporation's fiscal year in which a
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<PAGE>
Change of Control occurs, then, subject to Article VII hereof, the Participant
shall be entitled to receive the Pro-Rated Bonus Amount.
EXAMPLE: Participant's Notice of Participation designates him as eligible
to receive a Pro-Rated Bonus Payment Amount. The Company's fiscal year is
the calendar year. A Change of Control is consummated on June 15, 1997.
Participant remains employed with the Company through December 31, 1997.
Participant's 100% Target Bonus is $30,000. The Participant is entitled
to a Pro-Rated Bonus Amount payment equal to (166/365) x $30,000 = $13,644.
2. TIMING OF PRO-RATED BONUS AMOUNT PAYMENTS. Any Pro-Rated Bonus Amount
to which a Participant is entitled shall be paid by the Company in a lump sum
within ten (10) business days after the last day of Circon Corporation's fiscal
year in which a Change of Control occurs.
3. PRO-RATED BONUS AMOUNT PAYMENTS IN LIEU OF TARGET BONUS OTHERWISE
PAYABLE. The payment of any Pro-Rated Bonus Amount under this Article V or as
part of a Severance Payment under Article IV shall replace in its entirety and
be in lieu of any payment to the Participant under the Company's annual
incentive bonus plan for the year in which a Change of Control occurs, except
for any payments under bonus plans adopted by the Company following a Change of
Control.
ARTICLE VI
RETENTION PAYMENTS
1. RIGHT TO RETENTION PAYMENTS. If (i) a Participant remains employed by
the Company for ninety (90) days after a Change of Control, (ii) a Participant's
employment with the Company is terminated due to the death or Disability of the
Participant following a Change of Control but prior to ninety days after a
Change of Control, then, subject to Article VII hereof, the Participant shall be
entitled to receive a Retention Payment equal to the product obtained by
multiplying the Participant's Retention Payment Percentage times the
Participant's Annual Compensation.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
remains employed with the Company for ninety (90) days following the Change
of Control. Participant's Annual Compensation is $150,000. The Retention
Payment Percentage set forth in the Participant's Notice of Participation
is 50%. The Participant is entitled to a Retention Payment equal to 50% x
$150,000 = $75,000.
2. TIMING OF RETENTION PAYMENTS. Any Retention Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the ninetieth (90th) day after a Change of Control.
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ARTICLE VII
GOLDEN PARACHUTE EXCISE TAX AND NON-DEDUCTIBILITY LIMITATIONS
Except if specifically otherwise set forth in a Participant's Notice of
Participation, in the event that the benefits under this Plan, when aggregated
with any other payments or benefits received by a Participant, would
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code and (ii) but for this Article VII, would be subject to the excise tax
imposed by Section 4999 of the Code, then the Participant's Plan benefits shall
be reduced to such lesser amount or degree as would result in no portion of such
benefits being subject to excise tax under Section 4999 of the Code. Unless the
Company and the Participant otherwise agree in writing, any determination
required under this Article VII shall be made in writing by the same firm of
independent public accountants who were employed by the Company immediately
prior to the Change of Control (the "Accountants"), whose determination shall be
conclusive and binding upon the Participant and the Company for all purposes.
For purposes of making the calculations required by this Article VII, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Participant shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Article VII. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Article VII.
ARTICLE VIII
EMPLOYMENT STATUS; WITHHOLDING
1. EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant or the Company any obligation to retain
the Participant as an Employee, to change the status of the Participant's
employment, or to change the Company's policies regarding termination of
employment. The Participant's employment is and shall continue to be at-will,
as defined under applicable law. If the Participant's employment with the
Company or a successor entity terminates for any reason, including (without
limitation) any termination prior to a Change of Control, the Participant shall
not be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Plan, or as may otherwise be available in accordance
with the Company's established employee plans and practices or other agreements
with the Company at the time of termination.
2. TAXATION OF PLAN PAYMENTS. All amounts paid pursuant to this Plan
shall be subject to regular payroll and withholding taxes.
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<PAGE>
ARTICLE IX
SUCCESSORS TO COMPANY AND PARTICIPANTS
1. COMPANY'S SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Plan and agree expressly to perform the
obligations under this Plan by executing a written agreement. For all purposes
under this Plan, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection or which becomes bound by the terms of this Plan by
operation of law.
2. PARTICIPANT'S SUCCESSORS. All rights of the Participant hereunder
shall inure to the benefit of, and be enforceable by, the Participant's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
ARTICLE X
DURATION, AMENDMENT AND TERMINATION
1. DURATION. This Plan shall terminate on August 20, 1998 unless (i)
extended by the Board, or (ii) a Change of Control occurs prior to August 20,
1998. If a Change of Control occurs prior to August 20, 1998, then this Plan
shall terminate upon the earlier of (i) the date that all obligations of the
Company or successor entities hereunder have been satisfied, or (ii) twenty-four
(24) months after a Change of Control, unless sooner terminated as provided in
this Article X. A termination of this Plan pursuant to the preceding sentences
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits earned by a
Participant prior to the termination of this Plan.
2. AMENDMENT AND TERMINATION. Except with respect to amendments that are
not adverse to Participants, the Plan is not subject any to amendment, change,
substitution, deletion, revocation or termination (other than according to the
terms of the Plan) in any respect whatsoever.
ARTICLE XI
PLAN ADMINISTRATION
1. APPEAL. A Participant or former Participant who disagrees with their
allotment of benefits under this Plan may file a written appeal with the
designated Human Resources representative. Any claim relating to this Plan
shall be subject to this appeal process. The written appeal must be filed
within sixty (60) days of the Participant's termination date.
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<PAGE>
The appeal must state the reasons the Participant or former Participant
believes he or she is entitled to different benefits under the Plan. The
designated Human Resources representative shall review the claim. If the claim
is wholly or partially denied, the designated Human Resources representative
shall provide the Participant or former Participant a written notice of the
denial, specifying the reasons the claim was denied. Such notice shall be
provided within ninety (90) days of receiving the written appeal.
If the claim is denied, in whole or in part, the Participant may request a
review of the denial at any time within ninety (90) days following the date the
Participant received written notice of the denial of his or her claim. For
purposes of this subsection, any action required or authorized to be taken by
the Participant may be taken by a representative authorized in writing by the
Participant to represent him or her. The designated Human Resources
representative shall afford the Participant a full and fair review of the
decision denying the claim and, if so requested, shall:
(a) Permit the Participant to review any documents that are pertinent
to the claim;
(b) Permit the Participant to submit to the designated Human
Resources representative issues and comments in writing; and
(c) The decision on review by the designated Human Resources
representative shall be in writing and shall be issued within 60 days following
receipt of the request for review. The decision on review shall include
specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the designated Human Resources
representative is based.
2. ARBITRATION. If the appeal of a Participant or former Participant is
denied, or if the outcome of said appeal is unsatisfactory to the Participant or
former Participant, the sole remedy hereunder shall be arbitration as set forth
below. Any dispute or controversy arising under or in connection with the Plan
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association then in effect, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of his or her job with the Company. In consideration
for the Participant's or former Participant's waiver of their right to litigate
any such dispute or controversy in a court of law, and notwithstanding any
contrary provisions of California law regarding allocation of attorney fees,
costs and expenses in arbitration proceedings, the Company agrees to pay, on a
monthly basis, the reasonable attorney fees, costs and expenses (with such
reasonableness determined by the arbitrator) incurred in good faith by the
Participant or former Participant in connection with any such arbitration
regardless of the outcome of the arbitration. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. If the Participant or
former Participant is the prevailing party or recovers any damages in such
arbitration, he or she shall be entitled to receive, in addition thereto,
pre-judgment and post-judgment interest. Punitive damages shall not be awarded.
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<PAGE>
ARTICLE XII
NOTICE
1. GENERAL. Notices and all other communications contemplated by this
Plan shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Participant, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its General Counsel.
2. NOTICE OF TERMINATION BY THE COMPANY. Any termination by the Company
of the Participant's employment with the Company at any time within twenty-four
(24) months following a Change of Control shall be communicated by a notice of
termination to the Participant at least five (5) days prior to the date of such
termination (or at least thirty (30) days prior to the date of a termination by
reason of the Participant's Disability). Such notice shall indicate the
specific termination provision or provisions in this Plan relied upon (if any),
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision or provisions so indicated,
and shall specify the termination date.
3. NOTICE BY THE PARTICIPANT OF INVOLUNTARY TERMINATION BY THE COMPANY.
In the event that the Participant determines that an Involuntary Termination has
occurred at any time within twenty-four (24) months following a Change of
Control, the Participant shall give written notice that such Involuntary
Termination has occurred. Such notice shall be delivered by the Participant to
the Company within ninety (90) days following the date on which such Involuntary
Termination occurred, shall indicate the specific provision or provisions in
this Plan upon which the Participant relied to make such determination and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for such determination. The failure by the Participant to include in the
notice any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Participant hereunder or preclude
the Participant from asserting such fact or circumstance in enforcing his or her
rights hereunder.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
1. NO DUTY TO MITIGATE. The Participant shall not be required to
mitigate the amount of any payment contemplated by this Plan, nor shall any such
payment be reduced by any earnings that the Participant may receive from any
other source.
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<PAGE>
2. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Plan shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and effect.
3. NO ASSIGNMENT OF BENEFITS. The rights of any person to payments or
benefits under this Plan shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection shall be void.
4. TAX WITHHOLDING. All payments made pursuant to this Plan will be
subject to withholding of applicable income and employment taxes.
5. ASSIGNMENT BY COMPANY. The Company may assign its rights under this
Plan to an affiliate, and an affiliate may assign its rights under this Plan to
another affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of assignment; provided, further, that the
Company shall guarantee all benefits payable hereunder. In the case of any such
assignment, the term "Company" when used in this Plan shall mean the corporation
that actually employs the Participant.
ARTICLE XIV
ERISA REQUIRED INFORMATION
1. PLAN SPONSOR. The Plan sponsor and administrator is:
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
(805) 685-5100
2. DESIGNATED AGENT. Designated agent for service of process:
General Counsel
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
3. PLAN RECORDS. Plan records are kept on a fiscal year basis.
4. PLAN FUNDING. The Plan is funded from the Company's general assets.
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CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION [LEVEL I]
TO: Richard A. Auhll
DATE:
The Board of Directors of the Company has designated you as a Participant
in the Circon Corporation Management Retention Plan (the "Plan"), a copy of
which is attached hereto. The terms and conditions of your participation in the
Plan are as set forth in the Plan and herein. The variables relating to your
Plan participation are as follows:
100% TARGET BONUS AMOUNT INCLUDED IN DEFINITION OF ANNUAL COMPENSATION - Yes
SEVERANCE WINDOW PERIOD - Twenty-four months
SEVERANCE PAYMENT PERCENTAGE - 167%
HEALTH CARE CONTINUATION PERIOD - Two and one-half years
RETENTION PAYMENT PERCENTAGE - 83%
PRO-RATED BONUS AMOUNT ELIGIBILITY - Yes
GOLDEN PARACHUTE EXCISE TAX TREATMENT -
Instead of the limitation set forth in Article VII of the Plan, the
following provisions shall apply:
In the event that the benefits provided for in the Plan, when aggregated
with any other payments or benefits received by you, would (i) constitute
"parachute payments" within the meaning of Section 280G of the Code, and (ii)
would be subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), then your Plan benefits shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by you
on an after-tax basis, of the greatest amount of benefits, notwithstanding that
all or some portion of such benefits may be taxable under Section 4999 of the
Code. Unless the Company and you otherwise agree in writing, any determination
required under this paragraph shall be made in writing by the same firm of
<PAGE>
independent public accountants who were employed by the Company immediately
prior to the Change of Control (the "Accountants") whose determination shall be
conclusive and binding upon you and the Company for all purposes. For purposes
of making the calculations required by this paragraph, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and you shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this paragraph. The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this paragraph.
If you agree to participate in the Plan on these terms and conditions,
please acknowledge your acceptance by signing below. Please return the signed
copy of this Notice of Participation within ten (10) days of the date set forth
above to:
Bruce Thompson
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
Your failure to timely remit this signed Notice of Participation will result in
your removal from the Plan. Please retain a copy of this Notice of
Participation, along with the Plan, for your records.
Date: Signature:
----------------- --------------------------
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<PAGE>
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION [LEVEL II]
TO: [NAME OF PARTICIPANT]
DATE:
The Board of Directors of the Company has designated you as a Participant
in the Circon Corporation Management Retention Plan (the "Plan"), a copy of
which is attached hereto. The terms and conditions of your participation in the
Plan are as set forth in the Plan and herein. The variables relating to your
Plan participation are as follows:
100% TARGET BONUS AMOUNT INCLUDED IN DEFINITION OF ANNUAL COMPENSATION - Yes
SEVERANCE WINDOW PERIOD - Twenty-four months
SEVERANCE PAYMENT PERCENTAGE - 133%
HEALTH CARE CONTINUATION PERIOD - Two Years
RETENTION PAYMENT PERCENTAGE - 67%
PRO-RATED BONUS AMOUNT ELIGIBILITY - Yes
If you agree to participate in the Plan on these terms and conditions,
please acknowledge your acceptance by signing below. Please return the signed
copy of this Notice of Participation within ten (10) days of the date set forth
above to:
Bruce Thompson
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
Your failure to timely remit this signed Notice of Participation will result in
your removal from the Plan. Please retain a copy of this Notice of
Participation, along with the Plan, for your records. Should you have any
questions regarding this Notice of Participation or the Plan, please do not
hesitate to contact Bruce Thompson at 805-961-1650.
Date: Signature:
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<PAGE>
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION [LEVEL III]
TO: [NAME OF PARTICIPANT]
DATE:
The Board of Directors of the Company has designated you as a Participant
in the Circon Corporation Management Retention Plan (the "Plan"), a copy of
which is attached hereto. The terms and conditions of your participation in the
Plan are as set forth in the Plan and herein. The variables relating to your
Plan participation are as follows:
100% TARGET BONUS AMOUNT INCLUDED IN DEFINITION OF ANNUAL COMPENSATION - Yes
SEVERANCE WINDOW PERIOD - Twenty-four months
SEVERANCE PAYMENT PERCENTAGE - 125%
HEALTH CARE CONTINUATION PERIOD - One and one-half years
RETENTION PAYMENT PERCENTAGE - 25%
PRO-RATED BONUS AMOUNT ELIGIBILITY - Yes
If you agree to participate in the Plan on these terms and conditions,
please acknowledge your acceptance by signing below. Please return the signed
copy of this Notice of Participation within ten (10) days of the date set forth
above to:
Bruce Thompson
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
Your failure to timely remit this signed Notice of Participation will result in
your removal from the Plan. Please retain a copy of this Notice of
Participation, along with the Plan, for your records. Should you have any
questions regarding this Notice of Participation or the Plan, please do not
hesitate to contact Bruce Thompson at 805-961-1650.
Date: Signature:
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<PAGE>
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION [LEVEL IV]
TO: [NAME OF PARTICIPANT]
DATE:
The Board of Directors of the Company has designated you as a Participant
in the Circon Corporation Management Retention Plan (the "Plan"), a copy of
which is attached hereto. The terms and conditions of your participation in the
Plan are as set forth in the Plan. The initially capitalized terms used in this
Notice are formally defined in the Plan, so you should look in the Plan for
their precise meaning. The variables relating to your Plan participation are as
follows:
100% TARGET BONUS AMOUNT INCLUDED IN DEFINITION OF ANNUAL COMPENSATION - No
SEVERANCE WINDOW PERIOD - Twelve months
SEVERANCE PAYMENT PERCENTAGE - 62.5%
HEALTH CARE CONTINUATION PERIOD - Nine months
RETENTION PAYMENT PERCENTAGE - 12.5%
PRO-RATED BONUS AMOUNT ELIGIBILITY - No
SUMMARY OF BENEFITS
There are two components to your Plan benefits: (i) retention/severance
payments, and (ii) post-employment coverage under the Company's group health and
life insurance plans.
RETENTION/SEVERANCE PAYMENTS
The total potential retention/severance payment is based on 75% of your
annual base salary.
The retention payment component is equal to one-sixth of the total cash
payment. It will be earned ninety days following a change of control of the
Company if you have remained employed by the Company or the acquiring entity.
The retention payment is also triggered if you are involuntarily terminated
without cause or are constructively terminated (all as defined in the Plan)
following a change of control but prior to ninety days following a change of
control.
The severance payment component is equal to five-sixths of the total cash
payment (for vice-presidents and senior managers). It will be paid only if you
are involuntarily terminated without cause or are constructively terminated
(again, as defined in the Plan) within twelve months following a change of
control.
<PAGE>
POST-EMPLOYMENT BENEFITS
In the event of an involuntary termination without cause or constructive
termination (as defined in the Plan) within twelve months following a change of
control, you (and, if covered prior to the change of control, your dependents)
will receive continued group health, dental and life insurance coverage. The
Company is required to pay the same percentage of the related insurance premiums
as were paid prior to the change of control. The Company continues to make
these premium payments for a period of nine months, or, if earlier, until you
become covered under comparable benefit plans of another employer.
This Notice is just intended to summarize the Plan provisions and to set
forth the variables relating to your participation, not to change the provisions
of the Plan. The specific terms and conditions of your participation in the
Plan are set forth in the attached Plan.
If you agree to participate in the Plan on these terms and conditions,
please acknowledge your acceptance by signing below. Please return the signed
copy of this Notice of Participation within ten (10) days of the date set forth
above to:
Bruce Thompson
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
Your failure to timely remit this signed Notice of Participation will result in
your removal from the Plan. Please retain a copy of this Notice of
Participation, along with the Plan, for your records. Should you have any
questions regarding this Notice of Participation or the Plan, please do not
hesitate to contact Bruce Thompson at 805-961-1650.
Date: Signature:
----------------- --------------------------
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CIRCON CORPORATION
SALES FORCE RETENTION PLAN
AMENDED AS OF SEPTEMBER 26, 1997
Introduction
It is expected that Circon Corporation (the "Company") from time to time
will consider the possibility of an acquisition by another company or other
change of control. The Board of Directors of the Company (the "Board")
recognizes that such consideration can be a distraction to key sales employees
and can cause such employees to consider alternative employment opportunities.
The Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of these employees, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its
stockholders to provide these employees with an incentive to continue their
employment and to motivate these employees to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
The Board believes that it is imperative to provide these employees with
(i) certain retention benefits payable upon remaining in the employ of the
Company for a specified period following a Change of Control, and (ii) certain
severance benefits upon termination of employment following a Change of Control.
These benefits provide these employees with enhanced financial security and
provide efficient incentive and encouragement to these employees to remain with
the Company notwithstanding the possibility or occurrence of a Change of
Control.
Accordingly, the following plan has been developed and adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
1. ESTABLISHMENT OF PLAN. As of the Effective Date, the Company hereby
establishes a sales force retention plan to be known as the "Sales Force
Retention Plan" (the "Plan"), as set forth in this document. The purposes of
the Plan are as set forth in the Introduction.
2. APPLICABILITY OF PLAN. Subject to the terms of this Plan, the
benefits provided by this Plan shall be available to Participants.
3. CONTRACTUAL RIGHT TO BENEFITS. Subject to the terms of this Plan,
this Plan establishes and vests in each Participant a contractual right to the
benefits to which he or she is entitled pursuant to the terms thereof,
enforceable by the Participant against the Company.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the term is capitalized.
(a) CAUSE. "Cause" shall mean (i) any act of personal dishonesty
taken by the Participant in connection with his responsibilities as an Employee
and intended to result in substantial personal enrichment of the Participant,
(ii) the Participant's conviction of a felony, (iii) a willful act by the
Participant which constitutes gross misconduct and which is injurious to the
Company, or (iv) continued substantial violations by the Participant of the
Participant's employment duties which are demonstrably willful and deliberate on
the Participant's part after there has been delivered to the Participant a
written demand for performance from the Company which specifically sets forth
the factual basis for the Company's belief that the Participant has not
substantially performed his duties.
(b) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) The consummation of 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 fifty
percent (50%) 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
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<PAGE>
(iv) the consummation of the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) COMPANY. "Company" shall mean Circon Corporation, any subsidiary
corporations, any successor entities as provided in Article VII hereof, and any
parent or subsidiaries of such successor entities.
(d) DISABILITY. "Disability" shall mean that the Participant has
been unable to perform his duties as an Employee as the result of incapacity due
to physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Participant or the
Participant's legal representative (such agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Participant's employment. In the event that the Participant
resumes the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(e) EFFECTIVE DATE. "Effective Date" shall mean the date the Plan is
approved by the Board.
(f) EMPLOYEE. "Employee" shall mean an individual employed by the
Company.
(g) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(h) MONTHLY COMPENSATION. "Monthly Compensation" shall mean the
amount of travel allowance, pro-rated bonus (including 100% of amounts required
to be held in a suspense account until year-end) and compensation earned by a
Participant in a specified calendar month.
(i) PARTICIPANT. "Participant" shall mean an individual who meets
the eligibility requirements of Article III.
(j) PLAN. "Plan" shall mean this Circon Corporation Sales Force
Retention Plan.
(k) RETENTION PAYMENT. "Retention Payment" shall mean the payment of
retention compensation as provided in Article V hereof.
(l) SEVERANCE PAYMENT. "Severance Payment" shall mean the payment of
severance compensation as provided in Article IV hereof.
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ARTICLE III
ELIGIBILITY
Each Employee who is designated by the Board and who is a sales
territory manager or a sales video specialist of the Company who is not on
Company probation at the time of a Change of Control shall be a Participant in
the Plan. A Participant shall cease to be a Participant in the Plan when he or
she ceases to be an Employee, unless such Participant is entitled to benefits
hereunder. A Participant entitled to benefits hereunder shall remain a
Participant in the Plan until the full amount of the benefits have been
delivered to the Participant.
ARTICLE IV
SEVERANCE BENEFITS
1. RIGHT TO SEVERANCE BENEFITS.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If a Participant's
employment terminates at any time within twelve (12) months after a Change of
Control, then the Participant shall be entitled to receive severance benefits as
follows:
(i) SEVERANCE PAY UPON TERMINATION BY COMPANY OTHER THAN
FOR CAUSE WITHIN NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the
Participant's employment is terminated by the Company other than for Cause
within ninety (90) days following a Change of Control, then the Participant
shall be entitled to receive a Severance Payment equal to the sum of (i) his or
her Monthly Compensation for the last two full calendar months immediately
preceding the Change of Control, and (ii) his or her Retention Payment.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
is terminated by the Company other than for Cause as of July 1, 1997.
Participant's Monthly Compensation for April 1997 is $7,000. Participant's
Monthly Compensation for May 1997 is $8,000. The Participant is entitled
to a Severance Payment of $30,000.
(ii) SEVERANCE PAY UPON TERMINATION BY COMPANY OTHER THAN
FOR CAUSE ON OR AFTER NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the
Participant's employment is terminated by the Company other than for Cause on or
after ninety (90) days following a Change of Control, then the Participant shall
be entitled to receive a Severance Payment equal to his or her Monthly
Compensation for the last two full calendar months immediately preceding the
Change of Control.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
is terminated by the Company other than for Cause as of October 1, 1997.
Participant's
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Monthly Compensation for April 1997 is $7,000. Participant's Monthly
Compensation for May 1997 is $8,000. The Participant is entitled to a
Severance Payment of $15,000.
(iii) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Participant's employment terminates by reason of the Participant's voluntary
resignation, or if the Participant is terminated by the Company for Cause, then
the Participant shall not be entitled to receive severance benefits except for
those (if any) as may then be established under the Company's then existing
severance and benefits plans and policies at the time of such termination other
than under this Plan.
(iv) DISABILITY; DEATH. If the Company terminates the
Participant's employment as a result of the Participant's Disability, or such
Participant's employment is terminated due to the death of the Participant, then
the Participant shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death; provided, however, that Participant shall still be eligible
to receive a Retention Payment pursuant to the terms of Article V.
(b) TERMINATION APART FROM CHANGE OF CONTROL. In the event that a
Participant's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Participant shall be entitled to receive
severance benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination other
than this Plan.
2. TIMING OF SEVERANCE PAYMENTS. Any Severance Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the Participant's termination date.
ARTICLE V
RETENTION PAYMENTS
1. RIGHT TO RETENTION PAYMENTS. If (i) a Participant remains employed by
the Company for ninety (90) days after a Change of Control, or (ii) a
Participant's employment with the Company is terminated due to the death or
Disability of the Participant following a Change of Control but prior to ninety
days after a Change of Control, then the Participant shall be entitled to
receive a Retention Payment equal to his or her Monthly Compensation for the
last two full calendar months immediately preceding the Change of Control.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
remains employed with the Company for ninety (90) days following the Change
of Control. Participant's Monthly Compensation for April 1997 is
$7,000. Participant's Monthly
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<PAGE>
Compensation for May 1997 is $8,000. The Participant is entitled to a
Retention Payment equal to $15,000.
2. TIMING OF RETENTION PAYMENTS. Any Retention Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the ninetieth (90th) day after a Change of Control.
ARTICLE VI
EMPLOYMENT STATUS; WITHHOLDING
1. EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant or the Company any obligation to retain
the Participant as an Employee, to change the status of the Participant's
employment, or to change the Company's policies regarding termination of
employment. The Participant's employment is and shall continue to be at-will,
as defined under applicable law. If the Participant's employment with the
Company or a successor entity terminates for any reason, including (without
limitation) any termination prior to a Change of Control, the Participant shall
not be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Plan, or as may otherwise be available in accordance
with the Company's established employee plans and practices or other agreements
with the Company at the time of termination.
2. TAXATION OF PLAN PAYMENTS. All amounts paid pursuant to this Plan
shall be subject to regular payroll and withholding taxes.
ARTICLE VII
SUCCESSORS TO COMPANY AND PARTICIPANTS
1. COMPANY'S SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Plan and agree expressly to perform the
obligations under this Plan by executing a written agreement. For all purposes
under this Plan, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection or which becomes bound by the terms of this Plan by
operation of law.
2. PARTICIPANT'S SUCCESSORS. All rights of the Participant hereunder
shall inure to the benefit of, and be enforceable by, the Participant's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
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ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
1. DURATION. This Plan shall terminate on August 20, 1998 unless (i)
extended by the Board, or (ii) a Change of Control occurs prior to August 20,
1998. If a Change of Control occurs prior to August 20, 1998, then this Plan
shall terminate upon the earlier of (i) the date that all obligations of the
Company or successor entities hereunder have been satisfied, or (ii) twelve (12)
months after a Change of Control, unless sooner terminated as provided in this
Article VIII. A termination of this Plan pursuant to the preceding sentences
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits earned by a
Participant prior to the termination of this Plan.
2. AMENDMENT AND TERMINATION. Except with respect to amendments that are
not adverse to Participants, the Plan is not subject any to amendment, change,
substitution, deletion, revocation or termination (other than according to the
terms of the Plan) in any respect whatsoever.
ARTICLE IX
PLAN ADMINISTRATION
1. APPEAL. A Participant or former Participant who disagrees with their
allotment of benefits under this Plan may file a written appeal with the
designated Human Resources representative. Any claim relating to this Plan
shall be subject to this appeal process. The written appeal must be filed
within sixty (60) days of the Participant's termination date.
The appeal must state the reasons the Participant or former Participant
believes he or she is entitled to different benefits under the Plan. The
designated Human Resources representative shall review the claim. If the claim
is wholly or partially denied, the designated Human Resources representative
shall provide the Participant or former Participant a written notice of the
denial, specifying the reasons the claim was denied. Such notice shall be
provided within ninety (90) days of receiving the written appeal.
If the claim is denied, in whole or in part, the Participant may request a
review of the denial at any time within ninety (90) days following the date the
Participant received written notice of the denial of his or her claim. For
purposes of this subsection, any action required or authorized to be taken by
the Participant may be taken by a representative authorized in writing by the
Participant to represent him or her. The designated Human Resources
representative shall afford the Participant a full and fair review of the
decision denying the claim and, if so requested, shall:
(a) Permit the Participant to review any documents that are pertinent
to the claim;
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(b) Permit the Participant to submit to the designated Human
Resources representative issues and comments in writing; and
(c) The decision on review by the designated Human Resources
representative shall be in writing and shall be issued within 60 days following
receipt of the request for review. The decision on review shall include
specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the designated Human Resources
representative is based.
2. ARBITRATION. If the appeal of a Participant or former Participant is
denied, or if the outcome of said appeal is unsatisfactory to the Participant or
former Participant, the sole remedy hereunder shall be arbitration as set forth
below. Any dispute or controversy arising under or in connection with the Plan
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association then in effect, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of his or her job with the Company. In consideration
for the Participant's or former Participant's waiver of their right to litigate
any such dispute or controversy in a court of law, and notwithstanding any
contrary provisions of California law regarding allocation of attorney fees,
costs and expenses in arbitration proceedings, the Company agrees to pay, on a
monthly basis, the reasonable attorney fees, costs and expenses (with such
reasonableness determined by the arbitrator) incurred in good faith by the
Participant or former Participant in connection with any such arbitration
regardless of the outcome of the arbitration. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. If the Participant or
former Participant is the prevailing party or recovers any damages in such
arbitration, he or she shall be entitled to receive, in addition thereto,
pre-judgment and post-judgment interest. Punitive damages shall not be awarded.
ARTICLE X
NOTICE
1. GENERAL. Notices and all other communications contemplated by this
Plan shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Participant, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its General Counsel.
2. NOTICE OF TERMINATION BY THE COMPANY. Any termination by the Company
of the Participant's employment with the Company at any time within twelve (12)
months following a Change of Control shall be communicated by a notice of
termination to the Participant at least five (5) days prior to the date of such
termination (or at least thirty (30) days prior to the date of a
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termination by reason of the Participant's Disability). Such notice shall
indicate the specific termination provision or provisions in this Plan relied
upon (if any), shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision or provisions so
indicated, and shall specify the termination date.
ARTICLE XI
MISCELLANEOUS PROVISIONS
1. NO DUTY TO MITIGATE. The Participant shall not be required to
mitigate the amount of any payment contemplated by this Plan, nor shall any such
payment be reduced by any earnings that the Participant may receive from any
other source.
2. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Plan shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and effect.
3. NO ASSIGNMENT OF BENEFITS. The rights of any person to payments or
benefits under this Plan shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection shall be void.
4. TAX WITHHOLDING. All payments made pursuant to this Plan will be
subject to withholding of applicable income and employment taxes.
5. ASSIGNMENT BY COMPANY. The Company may assign its rights under this
Plan to an affiliate, and an affiliate may assign its rights under this Plan to
another affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of assignment; provided, further, that the
Company shall guarantee all benefits payable hereunder. In the case of any such
assignment, the term "Company" when used in this Plan shall mean the corporation
that actually employs the Participant.
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ARTICLE XII
ERISA REQUIRED INFORMATION
1. PLAN SPONSOR. The Plan sponsor and administrator is:
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
(805) 685-5100
2. DESIGNATED AGENT. Designated agent for service of process:
General Counsel
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
3. PLAN RECORDS. Plan records are kept on a fiscal year basis.
4. PLAN FUNDING. The Plan is funded from the Company's general assets.
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CIRCON CORPORATION
SALES FORCE RETENTION PLAN
NOTICE OF PARTICIPATION
TO: [NAME OF PARTICIPANT]
DATE: August 27, 1996
You are eligible to participate in the Circon Corporation Sales Force
Retention Plan (the "Plan"), a copy of which is attached. Please note that the
initially capitalized terms used in this Notice are formally defined in the
Plan, so you should look in the Plan for their precise meaning.
The Plan provides retention and severance benefits for all sales territory
managers and sales video specialists who are not on probation at the time of a
Change of Control. It provides for a maximum payment of twice the compensation
earned in the last two full calendar months preceding the Change of Control.
Compensation is defined for this purpose as travel allowance, pro-rated bonus
(including 100% of amounts required to be held in a suspense account until
year-end) and commissions.
The retention payment component is equal to the compensation that you
earned in the last two full calendar months preceding the change of control.
You will earn this payment ninety days following a change of control if you are
eligible and remain employed by the Company. This retention payment is also
triggered if a you are eligible and are involuntarily terminated without cause
following a change of control but prior to ninety days following such change of
control.
The severance payment component is also equal to the compensation earned in
the last two full calendar months preceding the change of control. It will be
paid only if you are eligible and are involuntarily terminated without cause
within twelve months following a change of control.
This Notice is just intended to summarize the Plan provisions, not to
change the provisions of the Plan or your participation in the Plan. The
specific terms and conditions of your participation in the Plan are set forth in
the attached Plan.
Please retain a copy of this Notice of Participation, along with the Plan,
for your records. Should you have any questions regarding this Notice of
Participation or the Plan, please do not hesitate to contact Bruce Thompson at
805-961-1650.
<PAGE>
CIRCON CORPORATION
MANAGERS, PROFESSIONALS & KEY CONTRIBUTORS RETENTION PLAN
AMENDED AS OF SEPTEMBER 26, 1997
Introduction
It is expected that Circon Corporation (the "Company") from time to time
will consider the possibility of an acquisition by another company or other
change of control. The Board of Directors of the Company (the "Board")
recognizes that such consideration can be a distraction to key employees and can
cause such employees to consider alternative employment opportunities. The
Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of these employees, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its
stockholders to provide these employees with an incentive to continue their
employment and to motivate these employees to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
The Board believes that it is imperative to provide these employees with
(i) certain retention benefits payable upon remaining in the employ of the
Company for a specified period following a Change of Control, and (ii) certain
severance benefits upon termination of employment following a Change of Control.
These benefits provide these employees with enhanced financial security and
provide efficient incentive and encouragement to these employees to remain with
the Company notwithstanding the possibility or occurrence of a Change of
Control.
Accordingly, the following plan has been developed and adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
1. ESTABLISHMENT OF PLAN. As of the Effective Date, the Company hereby
establishes a retention plan to be known as the Managers, Professionals & Key
Contributors Retention Plan (the "Plan"), as set forth in this document. The
purposes of the Plan are as set forth in the Introduction.
2. APPLICABILITY OF PLAN. Subject to the terms of this Plan, the
benefits provided by this Plan shall be available to those Employees of the
Company who, on or after the Effective Date, receive a Notice of Participation.
<PAGE>
3. CONTRACTUAL RIGHT TO BENEFITS. Subject to the terms of this Plan,
this Plan establishes and vests in each Participant a contractual right to the
benefits to which he or she is entitled pursuant to the terms thereof,
enforceable by the Participant against the Company.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the term is capitalized.
(a) BASE SALARY. "Base Salary" shall mean the Participant's base
salary from the Company as in effect immediately prior to a Change of Control.
(b) CAUSE. "Cause" shall mean (i) any act of personal dishonesty
taken by the Participant in connection with his responsibilities as an Employee
and intended to result in substantial personal enrichment of the Participant,
(ii) the Participant's conviction of a felony, (iii) a willful act by the
Participant which constitutes gross misconduct and which is injurious to the
Company, or (iv) continued substantial violations by the Participant of the
Participant's employment duties which are demonstrably willful and deliberate on
the Participant's part after there has been delivered to the Participant a
written demand for performance from the Company which specifically sets forth
the factual basis for the Company's belief that the Participant has not
substantially performed his duties.
(c) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing [50%] or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
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(iii) The consummation of 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 fifty
percent (50%) 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
(iv) the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets.
(d) COMPANY. "Company" shall mean Circon Corporation, any subsidiary
corporations, any successor entities as provided in Article VII hereof, and any
parent or subsidiaries of such successor entities.
(e) DISABILITY. "Disability" shall mean that the Participant has
been unable to perform his duties as an Employee as the result of incapacity due
to physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Participant or the
Participant's legal representative (such agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Participant's employment. In the event that the Participant
resumes the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(f) EFFECTIVE DATE. "Effective Date" shall mean the date the Plan is
approved by the Board.
(g) EMPLOYEE. "Employee" shall mean an individual employed by the
Company.
(h) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(i) NOTICE OF PARTICIPATION. "Notice of Participation" shall mean an
individualized written notice of participation in the Plan from an authorized
Employee of the Company.
(j) PARTICIPANT. "Participant" shall mean an individual who meets
the eligibility requirements of Article III.
(k) PLAN. "Plan" shall mean this Circon Corporation Management
Retention Plan.
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(l) RETENTION PAYMENT. "Retention Payment" shall mean the payment of
retention compensation as provided in Article V hereof.
(m) SEVERANCE PAYMENT. "Severance Payment" shall mean the payment of
severance compensation as provided in Article IV hereof.
ARTICLE III
ELIGIBILITY
Each Employee who is designated by the Board and who receives a Notice
of Participation shall be a Participant in the Plan. A Participant shall cease
to be a Participant in the Plan when he or she ceases to be an Employee, unless
such Participant is entitled to benefits hereunder. A Participant entitled to
benefits hereunder shall remain a Participant in the Plan until the full amount
of the benefits have been delivered to the Participant.
ARTICLE IV
SEVERANCE BENEFITS
1. RIGHT TO SEVERANCE BENEFITS.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If a Participant's
employment terminates at any time within twelve (12) months after a Change of
Control, then the Participant shall be entitled to receive severance benefits as
follows:
(i) SEVERANCE PAY UPON TERMINATION BY COMPANY OTHER THAN FOR
CAUSE WITHIN NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the Participant's
employment is terminated by the Company other than for Cause within ninety (90)
days following a Change of Control, then the Participant shall be entitled to
receive a Severance Payment equal to the sum of (i) two weeks' of his or her
Base Salary multiplied by 66.67% for each full year of service with the Company
or an entity acquired by the Company as of the date of the Change of Control,
and (ii) his or her Retention Payment, subject to a minimum Severance Payment
equal to three months' Base Salary and a maximum Severance Payment equal to one
year's Base Salary.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
is terminated by the Company other than for Cause as of July 1, 1997.
Participant had worked three and three-quarters years with Circon as of the
date of the Change of Control. Participant's Base Salary is $1,000 per
week ($52,000 per year). The Participant's Severance Payment would be
($2,000 x 66.67% x 3) + ($2,000 x 33.33% x 3) = $6,000. However, this
amount is less than three months' Base Salary, which equals $13,000.
Therefore the Participant is entitled to a Severance Payment of $13,000.
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(ii) SEVERANCE PAY UPON TERMINATION BY COMPANY OTHER THAN FOR
CAUSE ON OR AFTER NINETY DAYS FOLLOWING A CHANGE OF CONTROL. If the
Participant's employment is terminated by the Company other than for Cause on or
after ninety (90) days following a Change of Control, then the Participant shall
be entitled to receive a Severance Payment equal to two weeks' of his or her
Base Salary multiplied by 66.67% for each full year of service with the Company
or an entity acquired by the Company as of the date of the Change of Control
(with a minimum Severance Payment equal to two months' Base Salary and a maximum
Severance Payment equal to eight months' Base Salary).
EXAMPLE: A Change of Control is consummated on June 15, 1997.
Participant is terminated by the Company other than for Cause as of October
1, 1997. Participant had worked three and three-quarters years with Circon
prior to the date of the Change of Control. Participant's Base Salary is
$1,000 per week ($52,000 per year). The Participant's Severance Payment
would be ($2,000 x 66.67% x 3) = $4,000.20. However, this amount is less
than two months' Base Salary, which equals $8,666.67 Therefore the
Participant is entitled to a Severance Payment of $8,666.67.
(iii) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Participant's employment terminates by reason of the Participant's voluntary
resignation, or if the Participant is terminated by the Company for Cause, then
the Participant shall not be entitled to receive severance benefits except for
those (if any) as may then be established under the Company's then existing
severance and benefits plans and policies at the time of such termination other
than under this Plan.
(iv) DISABILITY; DEATH. If the Company terminates the
Participant's employment as a result of the Participant's Disability, or such
Participant's employment is terminated due to the death of the Participant, then
the Participant shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death; provided, however, that Participant shall still be eligible
to receive a Retention Payment pursuant to the terms of Article V.
(b) TERMINATION APART FROM CHANGE OF CONTROL. In the event that a
Participant's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Participant shall be entitled to receive
severance benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination other
than this Plan.
2. TIMING OF SEVERANCE PAYMENTS. Any Severance Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the Participant's termination date.
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ARTICLE V
RETENTION PAYMENTS
1. RIGHT TO RETENTION PAYMENTS. If (i) a Participant remains employed by
the Company for ninety (90) days after a Change of Control, or (ii) a
Participant's employment with the Company is terminated due to the death or
Disability of the Participant following a Change of Control but prior to ninety
days after a Change of Control, then the Participant shall be entitled to
receive a Retention Payment equal to two weeks' of his or her Base Salary
multiplied by 33.33% for each full year of service with the Company or an entity
acquired by the Company as of the date of the Change of Control, with a minimum
Retention Payment equal to one months' Base Salary and a maximum Retention
Payment equal to four months' Base Salary.
EXAMPLE: A Change of Control is consummated on June 15, 1997. Participant
remains employed with the Company for ninety (90) days following the Change
of Control. Participant's Base Salary is $1,000 per week ($52,000 per
year). The Participant's Retention Payment would be ($2,000 x 33.33% x 3)
= $1999.80. However, this amount is less than one months' Base Salary,
which equals $4,333.33 Therefore the Participant is entitled to a
Retention Payment of $4333.33.
2. TIMING OF RETENTION PAYMENTS. Any Retention Payment to which a
Participant is entitled shall be paid by the Company in a lump sum within ten
(10) business days after the ninetieth (90th) day after a Change of Control.
ARTICLE VI
EMPLOYMENT STATUS; WITHHOLDING
1. EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant or the Company any obligation to retain
the Participant as an Employee, to change the status of the Participant's
employment, or to change the Company's policies regarding termination of
employment. The Participant's employment is and shall continue to be at-will,
as defined under applicable law. If the Participant's employment with the
Company or a successor entity terminates for any reason, including (without
limitation) any termination prior to a Change of Control, the Participant shall
not be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Plan, or as may otherwise be available in accordance
with the Company's established employee plans and practices or other agreements
with the Company at the time of termination.
2. TAXATION OF PLAN PAYMENTS. All amounts paid pursuant to this Plan
shall be subject to regular payroll and withholding taxes.
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ARTICLE VII
SUCCESSORS TO COMPANY AND PARTICIPANTS
1. COMPANY'S SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Plan and agree expressly to perform the
obligations under this Plan by executing a written agreement. For all purposes
under this Plan, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection or which becomes bound by the terms of this Plan by
operation of law.
2. PARTICIPANT'S SUCCESSORS. All rights of the Participant hereunder
shall inure to the benefit of, and be enforceable by, the Participant's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
1. DURATION. This Plan shall terminate on August 20, 1998 unless (i)
extended by the Board, or (ii) a Change of Control occurs prior to August 20,
1998. If a Change of Control occurs prior to August 20, 1998, then this Plan
shall terminate upon the earlier of (i) the date that all obligations of the
Company or successor entities hereunder have been satisfied, or (ii) twelve (12)
months after a Change of Control, unless sooner terminated as provided in this
Article VIII. A termination of this Plan pursuant to the preceding sentences
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits earned by a
Participant prior to the termination of this Plan.
2. AMENDMENT AND TERMINATION. Except with respect to amendments that are
not adverse to Participants, the Plan is not subject any to amendment, change,
substitution, deletion, revocation or termination (other than according to the
terms of the Plan) in any respect whatsoever.
ARTICLE IX
PLAN ADMINISTRATION
1. APPEAL. A Participant or former Participant who disagrees with their
allotment of benefits under this Plan may file a written appeal with the
designated Human Resources representative. Any claim relating to this Plan
shall be subject to this appeal process. The written appeal must be filed
within sixty (60) days of the Participant's termination date.
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The appeal must state the reasons the Participant or former Participant
believes he or she is entitled to different benefits under the Plan. The
designated Human Resources representative shall review the claim. If the claim
is wholly or partially denied, the designated Human Resources representative
shall provide the Participant or former Participant a written notice of the
denial, specifying the reasons the claim was denied. Such notice shall be
provided within ninety (90) days of receiving the written appeal.
If the claim is denied, in whole or in part, the Participant may request a
review of the denial at any time within ninety (90) days following the date the
Participant received written notice of the denial of his or her claim. For
purposes of this subsection, any action required or authorized to be taken by
the Participant may be taken by a representative authorized in writing by the
Participant to represent him or her. The designated Human Resources
representative shall afford the Participant a full and fair review of the
decision denying the claim and, if so requested, shall:
(a) Permit the Participant to review any documents that are pertinent
to the claim;
(b) Permit the Participant to submit to the designated Human
Resources representative issues and comments in writing; and
(c) The decision on review by the designated Human Resources
representative shall be in writing and shall be issued within 60 days following
receipt of the request for review. The decision on review shall include
specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the designated Human Resources
representative is based.
2. ARBITRATION. If the appeal of a Participant or former Participant is
denied, or if the outcome of said appeal is unsatisfactory to the Participant or
former Participant, the sole remedy hereunder shall be arbitration as set forth
below. Any dispute or controversy arising under or in connection with the Plan
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association then in effect, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of his or her job with the Company. In consideration
for the Participant's or former Participant's waiver of their right to litigate
any such dispute or controversy in a court of law, and notwithstanding any
contrary provisions of California law regarding allocation of attorney fees,
costs and expenses in arbitration proceedings, the Company agrees to pay, on a
monthly basis, the reasonable attorney fees, costs and expenses (with such
reasonableness determined by the arbitrator) incurred in good faith by the
Participant or former Participant in connection with any such arbitration
regardless of the outcome of the arbitration. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. If the Participant or
former Participant is the prevailing party or recovers any damages in such
arbitration, he or she shall be entitled to receive, in addition thereto,
pre-judgment and post-judgment interest. Punitive damages shall not be awarded.
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ARTICLE X
NOTICE
1. GENERAL. Notices and all other communications contemplated by this
Plan shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Participant, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its General Counsel.
2. NOTICE OF TERMINATION BY THE COMPANY. Any termination by the Company
of the Participant's employment with the Company at any time within twelve (12)
months following a Change of Control shall be communicated by a notice of
termination to the Participant at least five (5) days prior to the date of such
termination (or at least thirty (30) days prior to the date of a termination by
reason of the Participant's Disability). Such notice shall indicate the
specific termination provision or provisions in this Plan relied upon (if any),
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision or provisions so indicated,
and shall specify the termination date.
ARTICLE XI
MISCELLANEOUS PROVISIONS
1. NO DUTY TO MITIGATE. The Participant shall not be required to
mitigate the amount of any payment contemplated by this Plan, nor shall any such
payment be reduced by any earnings that the Participant may receive from any
other source.
2. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Plan shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and effect.
3. NO ASSIGNMENT OF BENEFITS. The rights of any person to payments or
benefits under this Plan shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection shall be void.
4. TAX WITHHOLDING. All payments made pursuant to this Plan will be
subject to withholding of applicable income and employment taxes.
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5. ASSIGNMENT BY COMPANY. The Company may assign its rights under this
Plan to an affiliate, and an affiliate may assign its rights under this Plan to
another affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of assignment; provided, further, that the
Company shall guarantee all benefits payable hereunder. In the case of any such
assignment, the term "Company" when used in this Plan shall mean the corporation
that actually employs the Participant.
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ARTICLE XII
ERISA REQUIRED INFORMATION
1. PLAN SPONSOR. The Plan sponsor and administrator is:
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
(805) 685-5100
2. DESIGNATED AGENT. Designated agent for service of process:
General Counsel
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
3. PLAN RECORDS. Plan records are kept on a fiscal year basis.
4. PLAN FUNDING. The Plan is funded from the Company's general assets.
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CIRCON CORPORATION
MANAGERS, PROFESSIONALS & KEY CONTRIBUTORS RETENTION PLAN
NOTICE OF PARTICIPATION
TO: [NAME OF PARTICIPANT]
DATE: August 27, 1996
The Board of Directors of the Company has designated you as a Participant
in the Circon Corporation Managers, Professionals & Key Contributors Retention
Plan (the "Plan"), a copy of which is attached. The initially capitalized terms
used in this Notice are formally defined in the Plan, so you should look in the
Plan for their precise meaning.
The Plan provides you with retention and severance payments in the event of
a Change of Control of the Company. It provides for a potential cash payment of
a minimum of three months' base salary up to a maximum of one year's base
salary. Subject to these minimum and maximum limits, the Plan provides for two
weeks' base salary for each full year you have been employed with the Company
(or with an entity acquired by the Company) up to and including the date of a
Change of Control.
The retention payment component equals one-third of the total potential
cash payment. It will be paid to you if ninety days following a Change of
Control you have remained employed by the Company or the acquirer. The
retention payment is also triggered if you are involuntarily terminated without
Cause after a Change of Control but prior to 90 days following a Change of
Control.
The severance payment component equals two-thirds of the total potential
cash payment. It will be paid to you only if you are involuntarily terminated
without Cause within twelve months following a Change of Control.
This Notice is just intended to summarize the Plan provisions, not to
change the provisions of the Plan or your participation in the Plan. The
specific terms and conditions of your participation in the Plan are set forth in
the attached Plan.
Please retain a copy of this Notice of Participation, along with the Plan,
for your records. Should you have any questions regarding this Notice of
Participation or the Plan, please do not hesitate to contact Bruce Thompson at
805-961-1650.
