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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9/A
(Amendment No. 3)
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) 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), and such termination is other than (i) for
"Cause" (as such term is defined in the Company's Retention Plans), 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) and such termination is other than (i) for "Cause" (as such term is
defined in the Company's Retention Plans), (ii) due to the Optionee's death
or Disability, or (iii) due to any voluntary termination by the Optionee, 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(F) Amended Management Retention Plan
Exhibit 12(F) Amended Sales Force Retention Plan
Exhibit 13(F) 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: October 2, 1997 CIRCON CORPORATION
By: /s/ Richard A. Auhll
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Richard A. Auhll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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