<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9/A
(Amendment No. 1)
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 8. ADDITIONAL INFORMATION TO BE FURNISHED
On September 15, 1997, USS and the Purchaser filed a Notice and Motion
for Preliminary Injunction and certain other documents with the Court of
Chancery of the State of Delaware pursuant to which USS requested that the
Delaware Chancery Court enjoin the Company and certain of its officers and
directors from appointing or otherwise naming Richard Auhll to the Company's
board of directors if Mr. Auhll is not reelected at the Company's next annual
meeting of stockholders. The Company believes that the injunction requested
by USS and the Purchaser has no basis in Delaware law and intends to
vigorously dispute such request. Copies of the Notice and Motion for
Preliminary Injunction as well as the Amended and Supplemental Complaint of
USS and the Purchaser are filed as Exhibit 10 to this Statement.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
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 Notice and Motion for Preliminary Injunction and Amended and
Supplemental Complaint of USS and the Purchaser
</TABLE>
- ------------------------
* Included in copy mailed to stockholders
(F) Previously filed
2
<PAGE>
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.
<TABLE>
<S> <C>
Dated: September 17, 1997 CIRCON CORPORATION
By: /s/ Richard A. Auhll
-------------------------------------------
Richard A. Auhll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
3
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------x
UNITED STATES SURGICAL CORPORATION,
a Delaware Corporation and USS
ACQUISITION CORP., a Delaware
Corporation, Civil Action No. 15223NC
Plaintiffs,
-against-
RICHARD A. AUHLL, R. BRUCE
THOMPSON, HAROLD R. FRANK,
RUDOLF R. SCHULTE, PAUL W.
HARTLOFF, JR., JOHN BLOKKER,
GEORGE A. CLOUTIER and
CIRCON CORPORATION, a Delaware
Corporation,
Defendants.
- --------------------------------------x
NOTICE AND MOTION FOR PRELIMINARY INJUNCTION
--------------------------------------------
TO: Raymond J. DiCamillo
Richards, Layton & Finger
One Rodney Square
Tenth Floor
P.O. Box 551
Wilmington, DE 19801
PLEASE TAKE NOTICE that Plaintiffs United States Surgical
Corporation and USS Acquisition Corp., by their undersigned attorneys, hereby
move for a preliminary injunction:
<PAGE>
(a) enjoining Defendants from appointing or otherwise naming
Richard A. Auhll to the board of directors of Circon Corporation after he has
not been elected by a vote of stockholders at Circon's next annual meeting of
stockholders; and
(b) granting plaintiffs such other and further relief as the Court
shall deem just and proper.
The grounds for the relief requested are set forth in Plaintiffs'
Supplemental and Amended Complaint.
2
<PAGE>
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By /s/ Paul J. Lockwood
-----------------------------------
Edward P. Welch
Paul J. Lockwood
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs
UNITED STATES SURGICAL
CORPORATION and
USS ACQUISITION CORP.
Of Counsel:
Barry H. Garfinkel
George A. Zimmerman
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
919 Third Avenue
New York, NY 10022
(212) 735-3000
Thomas R. Bremer
Scott Spitzer
UNITED STATES
SURGICAL CORPORATION
150 Glover Avenue
Norwalk, CT 06850
(203) 845-1000
DATED: September 15, 1997
3
<PAGE>
IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------
UNITED STATES SURGICAL CORPORATION,
a Delaware Corporation, and USS
ACQUISITION CORP., a Delaware
Corporation, Civil Action No. 15223
Plaintiffs,
-against-
RICHARD A. AUHLL, R. BRUCE
THOMPSON, HAROLD R. FRANK,
RUDOLF R. SCHULTE, PAUL W.
HARTLOFF, JR., JOHN BLOKKER,
GEORGE A. CLOUTIER and
CIRCON CORPORATION, a Delaware
Corporation,
Defendants.
- --------------------------------------
AMENDED AND SUPPLEMENTAL COMPLAINT
----------------------------------
Plaintiffs United States Surgical Corporation and USS Acquisition Corp.
(together, "U.S. Surgical"), for their Amended and Supplemental Complaint, by
their undersigned attorneys, allege, upon knowledge as to themselves and
their own acts, and upon information and belief as to all other matters, as
follows:
SUMMARY OF AMENDED COMPLAINT
----------------------------
1. On August 2, 1996 -- more than one year ago -- U.S. Surgical
commenced an all-cash tender offer (the "Original Offer") to acquire all of
the outstanding shares of Circon Corporation ("Circon") for $18 per share --
an im-
<PAGE>
pressive 83% premium over the average price of Circon's stock for the ten
days immediately preceding August 2. The Original Offer was fully financed
and, therefore, was not conditioned on obtaining financing.
2. The overwhelming majority of Circon's shareholders indicated, in no
uncertain terms, their strong desire to accept the Original Offer. EIGHTY PER
CENT (80%) of the shares not owned by Circon's incumbent management were
tendered into the Original Offer. And despite being bombarded by management's
repeated attempts falsely to denigrate the adequacy of the Offer, this same
overwhelming majority of shareholders have continued to tender their shares
for more than 13 months. This, notwithstanding that U.S. Surgical was forced
to amend the original offering price (such amendments are referred to herein
as the "Offers") to reflect the serious and continuing deterioration of
Circon's business under the misguided tutelage of Richard A. Auhll ("Auhll"),
Circon's Chairman and Chief Executive Officer, and his hand-picked Board of
Directors.
3. Despite this overwhelming show of support, Defendants determined to
prevent stockholders from accepting the Offer -- or any other offer,
regardless of price; and, to that end, erected a formidable barrier of
anti-takeover devices, including several that have never before been
2
<PAGE>
approved by Delaware courts. First, Circon's Board of Directors adopted a
Shareholder Rights Plan (the "Rights Plan") which contains massive dilutive
features that make any offer not blessed by incumbent management
prohibitively expensive. Second, the Board adopted an unusually lucrative
management compensation package ("the Compensation Plan") for the sole
purpose of increasing the price of acquiring control of the company.
4. Third, Defendants intend to rig the election of directors at the
upcoming annual meeting on October 6 in order to ensure that Auhll remains a
director -- EVEN AFTER HE IS VOTED OFF THE BOARD. Thus, Defendants have
announced that in the event Auhll is voted out of office, Defendants intend
to put him right back on the Board either by expanding the size of the Board,
or otherwise creating a vacancy. Thus, unless this Court intervenes,
Defendants will disenfranchise Circon's stockholders and render the upcoming
election a futile exercise in failed shareholder democracy.
5. Fourth, Defendants secretly added two handpicked directors to the
Board and deliberately placed them in the class of directors which will not
be up for re-election this year, so as to deprive stockholders of the
opportunity to oust them at next month's annual meeting. Furthermore, as set
forth below, by virtue of these actions,
3
<PAGE>
Defendants will effectively delay, by at least one year, the ability of
stockholders to elect a new Board majority.
6. There can be no justification for the Board's adoption of this
unprecedented combination of draconian defensive measures. They clearly were
not adopted to provide management with time to arrange a superior alternative
to the Offers, as confirmed by Circon's failure to undertake any efforts or
negotiations concerning any alternative transactions in the 13 months since
the announcement of the Original Offer. Nor is there any truth to Circon's
public claim that these actions were necessary to protect its so-called
"strategic plan," which Circon claims will some day provide superior value to
the Offers. Rather, the actions complained of herein were designed for the
primary purpose of cementing Auhll's control and domination of a company which
he is determined to continue running as his own.
7. This illicit purpose was confirmed shortly after the adoption of the
Rights Plan and the Compensation Plan. On August 30, 1996, Auhll wrote to all
Circon employees that "[w]e have retained expert financial and legal advisors
to HELP US PREVAIL, NO MATTER WHAT USSC DOES." (Emphasis added) Thus,
Circon's incumbent management had already decided to defeat any offer,
regardless of the adverse consequences to Circon's stockholders; and their
4
<PAGE>
subsequent manipulation of the upcoming election process confirms their
steadfast intention to make good on Auhll's threat.
8. But even if Defendants were animated by a desire to protect their
"strategic plan," history convincingly has discredited that plan as a
failure, and proven that it is far inferior, and therefore must give way, to
Plaintiffs' all cash, premium Offers. The strategic plan, as articulated in
Circon's Schedule 14D-9, consists primarily of the alleged future synergies
and benefits to be derived from Circon's acquisition in August 1995 (the
"Acquisition") of Cabot Medical Corporation ("Cabot"). Circon claimed then,
and claims now, that these future benefits will, at some unspecified date in
the future, surpass the premium cash immediately available under the Offers.
9. Circon has been extolling the virtues of the Acquisition for more
than TWO YEARS, citing precisely the same alleged immediate cost-savings,
synergistic integrations of Circon's and Cabot's sales forces, and steadily
improved financial results that management has touted to justify their
continuing refusal to permit stockholders to accept the U.S Surgical Offers.
However, the actual results of Circon's "strategic plan" have been abysmal.
5
<PAGE>
10. Between the time of the Acquisition and the Original Offer, Circon's
earnings and sales were down substantially; Circon substantially
underperformed relative to its industry peers; and every earnings report
issued during that time was worse then pre-Acquisition earnings and far below
Circon's forecasts -- precisely the OPPOSITE of the results Circon had
publicly projected.
11. Furthermore, following the commencement of the Original Offer,
Circon's performance has continued its downward spiral. For the first 6
months of 1997, Circon's net income and net income per share declined by 50%
as compared to the first six months of 1996 -- which themselves were anemic.
Indeed, by Circon's own admission, over the past 5 year period ended December
31, 1996, a period in which the cumulative performance of the stock of
companies on the NASDAQ Composite Index has INCREASED by 127 per cent, and
the stock of companies within Circon's industry has INCREASED by 21 per cent,
Circon's stock performance has DECREASED by 54 per cent. Yet, while Circon
stockholders have suffered dearly, Auhll and his fellow officers have
thrived, enjoying handsome increases in their compensation over this period.
12. In light of their sad track record, management's tired refrain
concerning the "expected" future
6
<PAGE>
benefits of the Acquisition lacks any real credibility, and is undeserving of
judicial deference. Defendants never had a strategy that they reasonably
could have believed would exceed the value of the U.S. Surgical Offers to
begin with, and certainly cannot maintain such a belief in good faith now. On
the contrary, Defendants have invoked a "strategic plan" in a cynical effort
to avail themselves of a boilerplate defense to which they are not entitled.
In truth, the sole purpose and effect of Circon's defensive actions were to
entrench current management, frustrate the desires of the overwhelming
majority of Circon's shareholders to accept the Offers, and preclude
stockholders from replacing management through the ballot box.
13. Finally, Defendants have included numerous materially false and
misleading statements in their Schedules 14D-9 and proxy statement in clear
violation of their duties of loyalty and candor, all as more fully set forth
below.
14. Accordingly, Plaintiffs bring this Amended and Supplemental
Complaint to (i) enjoin defendants from reappointing Auhll to the Circon
Board after he is voted out of office at the upcoming annual meeting; and (ii)
declare void defendants' appointment of Thompson and Cloutier to the Circon
Board; (iii) enjoin defendants from distributing or
7
<PAGE>
triggering the exercise of any rights pursuant to the Rights Plan, and compel
defendants to amend the Rights Plan to render it inapplicable to the Offers;
and (iv) compel the defendants to terminate the Compensation Plan.
THE PARTIES
15. Plaintiff U.S. Surgical is a Delaware corporation, and is a leading
multinational developer, manufacturer and marketer of innovative surgical
wound closure products designed for use in the field of minimally invasive
surgery. U.S. Surgical is the beneficial owner of 1,959,348 shares, or
approximately 14.8%, of Circon's common stock.
16. Plaintiff USS Acquisition is a Delaware corporation and a
wholly-owned subsidiary of U.S. Surgical. USS Acquisition was incorporated as
a vehicle for the acquisition of Circon.
17. Defendant Circon is a Delaware corporation which designs,
manufactures and markets medical endoscope and electro-surgery systems for
diagnosis and minimally invasive surgery.
18. Defendant Richard A. Auhll is the Chairman of the Board, President,
and Chief Executive Officer of Circon. Auhll also is a member of the
Compensation Committee that recommended adoption of the Compensation Plan to
the Circon Board. For the year ended December 31, 1996, Auhll was paid
8
<PAGE>
a salary of $316,500 -- an increase of 6.2% over his salary for the prior
year, notwithstanding Circon's abysmal performance -- a bonus of $39,274 and
$10,538 in other compensation, including 401K contributions and insurance
premiums paid by Circon on Auhll's behalf. Auhll engineered a leveraged
buyout of Circon in 1977, and took the company public in 1983. Auhll owns 12%
of Circon's outstanding shares of common stock.
19. Defendant R. Bruce Thompson is Chief Financial Officer and an
Executive Vice President of Circon. For the year ended December 31, 1996,
Thompson was paid a salary of $176,000, a bonus of $26,860 and $5,312 in
other compensation, including 401K contributions and insurance premiums paid
by Circon on Thompson's behalf. Thompson was appointed, not elected, to the
Board in June, 1997 -- a fact which was not disclosed to stockholders until
last week. In addition, Defendants appointed Thompson to the class of
directors who are not up for reelection until 1998 in order to ensure that
stockholders could not vote him off the Board at the upcoming annual meeting.
20. Defendant Harold R. Frank ("Frank") is a member of the Circon Board
of Directors and has been since 1984. Frank is a member of the Compensation
Committee that recommended adoption of the Compensation Plan to the Board.
9
<PAGE>
21. Defendant Rudolf R. Schulte ("Schulte") is a member of the Circon
Board of Directors and has been since 1977. Schulte is a member of the
Compensation Committee that recommended adoption of the Compensation Plan to
the Board. Schulte also owns 3% of Circon's outstanding shares of common
stock. Schulte has a long personal and professional relationship with
Thompson who, prior to his joining Circon's board, held various positions at
Heyer-Schulte Corporation, a company founded by Schulte.
22. Defendant Paul W. Hartloff, Jr. ("Hartloff") is a member of the
Circon Board of Directors and has been since 1991. Hartloff also served as
Circon's Secretary from 1977 to 1988.
23. Defendant John F. Blokker ("Blokker") is a member of the Circon
Board of Directors and has been since 1991.
24. Additional Defendant George A. Cloutier was appointed, not elected,
to the Circon Board by Circon in April, 1997. In addition, Defendants
appointed Cloutier to the class of directors who are not up for re-election
until 1998 in order to ensure that stockholders could not vote him off the
Board at the upcoming annual meeting.
25. The Circon directors, by reason of their management positions
and/or their representation on Circon's
10
<PAGE>
Board of Directors, are liable as direct participants in, and as aiders and
abettors of, the wrongs complained of herein in that they direct the actions
taken by Circon, and control the contents of Circon's public statements and
press releases.
FACTUAL BACKGROUND
------------------
CIRCON'S LONG HISTORY OF INACCURATELY
ASSESSING THE ACQUISITION
26. On April 25, 1995, Circon's management announced that it intended to
acquire Cabot. From that day forward, Circon's management issued numerous
public pronouncements proclaiming the synergies and benefits that were
expected to be achieved in short order following consummation of the
Acquisition.
27. For example, the July 20, 1995 Circon and Cabot Joint Registration
Statement and Prospectus ("Prospectus") seeking stockholder approval of the
Acquisition, stated as follows:
JOINT REASONS FOR THE MERGER
* * *
SALES FORCE
The Circon and Cabot managements believe that the effective
doubling of the U.S. direct sales force as a result of the Merger can
permit significantly greater market penetration. Moreover, the broader
product line should potentially enable the
11
<PAGE>
combined sales force to increase sales to existing accounts.
SYNERGIES AND COST SAVINGS
In addition to the potential synergies from broadening the product
line, better utilization of the U.S. direct sales force, and pooling the
complementary technological strengths of the two companies, the
managements of Circon and Cabot anticipate significant cost savings can
be realized from taking actions such as the elimination of duplicate
trade show and marketing expenses, consolidation of certain
administrative and finance functions, and rationalization of the use of
some facilities.
28. On August 31, 1995, Piper Jaffray, after obtaining key financial
information directly from Circon, issued a report forecasting the following
third and fourth quarter 1995 revenues, which turned out to be substantially
higher than actual results:
3rd Qtr. 4th Qtr. 1995 Year
------------- ------------- ------------
Revenues $43.8 million $46.5 million $171 million
29. Circon's management joined in disseminating bullish forecasts. For
example, on September 20, 1995, R. Bruce Thompson, Circon's Chief Financial
Officer, gave the following interview, broadcast on the DOW JONES INVESTOR
NETWORK, in which he forecast earnings per share for 1995 of "70 to 75
cents" -- a figure which, as set forth below, turned out to be MORE THAN
TWICE the actual results:
12
<PAGE>
Turner: Where do you see the cost savings specifically coming from this
merger?
Thompson: Well, as I mentioned earlier, clearly in the marketing and
sales efforts, this duplication of several hundred medical
meetings a year that can be eliminated is a, is a major aspect
of the cost savings. . . . SO, I THINK THERE ARE SEVERAL
MILLION DOLLARS THAT CAN, CAN VERY QUICKLY AND EASILY BE
ELIMINATED. (Emphasis added)
* * *
Turner: Can you give us an idea of your earnings outlook for 1995?
Thompson: WELL, 1995, BEFORE THE ACQUISITION, WE WERE LOOKING FOR SALES
GROWTH IN THE, IN THE 15 PERCENT OR SO RANGE AND WE WERE
LOOKING FOR EARNINGS PER SHARE OF APPROXIMATELY 70 TO 75
CENTS, and I think even with the, if you ignore the one-time
charges that will be associated with the acquisition of Cabot,
I THINK OVERALL WE WILL STILL BE IN THAT RANGE. (Emphasis added)
30. On September 20, 1995, Piper Jaffray issued a report on Circon after
having consulted with Circon management, which stated, among other things,
"We expect a steady increase in the productivity of the 150 person direct sales
force in the U.S. over the next two to three quarters" -- a view fully
endorsed by Circon.
31. Finally, after reporting its third quarter 1995 results, Circon
executives spoke with securities analysts and told them, among other things,
that they antici-
13
<PAGE>
pated strong fourth quarter 1995 revenues of over $45 million and earnings
per share exceeding $.25 per share.
CIRCON FAILS TO ACHIEVE THE PREDICTED
BENEFITS OF THE ACQUISITION.
32. On February 1, 1996, Circon reported its fourth quarter results.
Circon's actual performance was dramatically worse than what had been
publicly forecast only a few months before, and down from previous results
for the comparable period. Specifically, sales were only $38.6 million -- far
short of the $46.5 million forecast, and down from the $41.6 million of
combined Circon/Cabot sales for the comparable period the prior year; and
earnings per share were only $.08 -- a sharp decline from Circon's public
forecast only months before of earnings per share exceeding $.25.
33. Circon's financial results for the full year 1995 were equally
disappointing. Sales totalled $160.4 million -- roughly $20 million LESS than
Thompson had publicly forecast in September; and earnings per share
(exclusive of the one time costs of the Acquisition) were $.33 -- LESS THAN
ONE-HALF of the forecast level of $.70 - $.75.
34. Circon's downward spiral continued through 1996. Sales for the
quarter ended June 30, 1996 were $37.06 million, down 11.4% from 1995 second
quarter sales of $41.83
14
<PAGE>
million; and earnings per share dropped to $.03 from their already
disappointing $.08 level for the fourth quarter of 1995.
35. Circon was forced to concede that these poor results were due in
large part to the disappointingly poor productivity of the combined
Circon/Cabot U.S. sales force -- the precise synergy from the Acquisition
which Circon had been trumpeting since April 1995. Moreover, Circon's
previously unreserved optimism was replaced by their public confession,
following on the heels of announcing the company's June 1996 quarterly
performance, that:
The productivity of the combined US Direct sales force has been below
expectations. . . . There can be no assurance that integration
[of product offerings and sales forces] will be accomplished
successfully or achieve the expected synergies. . . . Failure to
effectively accomplish the integration of the two companies could have a
material adverse effect on Circon's results of operations and financial
condition.
(Exhibit A) This, in stark contrast to Circon's previous assurances that
"[t]he integration is well underway." Notably, Circon failed to disclose any of
the above negative facts in its Schedule 14D-9 disclosures to stockholders,
in which it continued to trumpet the expected synergies and benefits of the
Acquisition as the primary reason for opposing the Offer and installing the
Rights Plan.
15
<PAGE>
36. The market reflected Circon's continuing poor post-Acquisition
performance in the valuation of Circon's stock, which fell to $8.75 per share
in mid-July 1996 from its $23.50 per share trading price in mid-December
1995.
U.S. SURGICAL COMMENCES ITS INITIAL TENDER OFFER.
37. On August 2, 1996, U.S. Surgical commenced the Original Offer -- a
fully financed all-cash tender offer for all of the shares of Circon common
stock for $18 per share. The Original Offer represented a premium of $7.50,
or 83% above the average price of Circon's shares during the 10 days before
the Offer was commenced. Pursuant to the terms of the Original Offer, as soon
as practicable following its consummation, U.S. Surgical would have
consummated a merger in which all non-tendered shares would be acquired for
the same cash consideration of $18 per share.
38. Circon's shareholders overwhelmingly endorsed the Original Offer.
Eighty per cent (80%) of the shares not owned by Circon management tendered
into the Original Offer; but were prevented from accepting the Offer due to
the actions of Circon's Board, as set forth below.
CIRCON'S BOARD ADOPTS THE RIGHTS PLAN.
39. On August 14, 1996, Circon's Board of Directors adopted the Rights
Plan. Pursuant to the Rights Plan, Circon's Board of Directors declared a
dividend of one
16
<PAGE>
preferred stock purchase right per share of common stock (a "Right"), payable
to each of Circon's stockholders of record as of August 26, 1996. Each Right
entitles the registered holder thereof to purchase from Circon, following the
Distribution Date (as defined), one one-thousandth of a share of Circon's
Series A Preferred Stock at an exercise price of $70. Furthermore, following
the occurrence of certain other events, including the acquisition of 15% or
more of Circon's common stock, each holder of a Right will be able to
exercise that Right and purchase common stock of Circon (or the surviving
company in the event of a merger) at half price. Because any current acquiror
of 15% or more of Circon's common stock would not be entitled to exercise
Rights in its possession, the dilutive effect of the Rights Plan, if
implemented, on the value of such acquiror's common stock is overwhelming;
and, as a result of this prohibitive economic consequence, the Rights Plan
effectively precludes the Offers and proposed merger.
CIRCON'S PURPORTED JUSTIFICATION FOR THE RIGHTS PLAN.
40. On August 14, 1996, Circon filed a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") with the Securities and
Exchange Commission, which stated the recommendation of the Circon Board of
Directors that the Circon stockholders should reject the
17
<PAGE>
Original Offer. Subsequently, Circon issued amended Schedules 14D-9 in
response to the subsequent U.S. Surgical Offers, each time continuing to
recommend that Circon stockholders reject the Offers. The Schedules 14D-9 set
forth the following basis for that recommendation:
At the August 13, 1996 meeting, the Board determined that the best means
for providing value to its stockholders is for the Company to CONTINUE
TO PURSUE ITS STRATEGIC PLAN and not to be put up for sale at this time.
The Board unanimously concluded that the Offer is inadequate and not in
the best interests of the Company and its stockholders. In particular,
THE BOARD DETERMINED THAT THE COMPANY'S STRATEGIC PLAN OFFERS THE
POTENTIAL FOR GREATER LONG-TERM BENEFITS FOR THE COMPANY'S STOCKHOLDERS
THAN THE OFFER based on, among other things, greater opportunities for
business expansion, revenue and earnings growth, AS WELL AS BENEFITS
FOLLOWING THE FULL INTEGRATION OF THE BUSINESS OF CABOT MEDICAL
CORPORATION ("CABOT") INTO THE COMPANY. (Emphasis added)
A copy of the Circon Schedule 14D-9 is attached as Exhibit B.
41. In addition, the Circon Schedule 14D-9 disclosed that Circon is not
engaged in, and is not undertaking, negotiations on any alternative
transactions to the Offer that might benefit Circon's stockholders. Instead,
Circon's now firmly entrenched management determined to compel its
stockholders to stick with management's strategic plan -- the same plan which
caused the value of Circon's shares to decline by over 60% between December
1995 and July
18
<PAGE>
1996, and which is continuing to result in declining financial performance.
THE "REAL" REASON BEHIND THE RIGHTS PLAN.
42. On or about August 30, 1996, Circon disseminated a letter signed by
Auhll (the "Auhll Letter") to all Circon employees, and publicly filed the
Letter as an amendment to the Circon Schedule 14D-9. A copy of the Auhll
Letter is attached hereto as Exhibit C. After assuring employees that the
Offer "has very little chance of success due to our defensive positions,"
Auhll showed his and his Board's true colors by declaring that: "We have
retained expert financial and legal advisors TO HELP US PREVAIL, NO MATTER
WHAT USSC DOES." (Exh. C at 1, 3) (emphasis added). Circon's determination,
in advance, to defeat any future offer without first engaging in the careful
analysis of such offer which directors are duty-bound to perform under
Delaware law, convincingly disproves Circon's purported justification for the
Rights Plan. In truth, the adoption of, and refusal to redeem, the Rights
Plan was an act of entrenchment, pure and simple.
THE CIRCON COMPENSATION PLAN
43. To add to its anti-takeover arsenal, on August 25, 1996, the Circon
Board adopted three new "compensation" plans: the Circon Management Retention
Plan, the
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<PAGE>
Circon Sales Force Retention Plan and the Circon Managers, Professionals and
Key Contributors Retention Plan (collectively, the "Compensation Plan").
The stated purpose of the Compensation Plan was to incentivize employees and
assuage the "disruptive effects of the Offer" or any other potential change
of control of Circon. (Exh. D at 2) In truth, the Compensation Plan has
nothing to do with incentivizing Circon's work force -- it was implemented
solely to ensure that Circon's incumbent management will not be replaced.
44. Under the Compensation Plan, 300 employees -- including Circon's
senior executives, sales force, managers and other "professionals" and "key
contributors" -- would be entitled to receive additional payments ranging
from 75% of annual base pay (for management employees) to 250% of combined
annual base salary and target bonus in the event of a change in control.
These payments would not be limited to key employees who are terminated, or
whose responsibilities are diminished, following a change in control. Rather,
employees who remain employed 90 days or more following a change of control
will receive between one-sixth and one-half of their total payments -- even
if their employment is not adversely affected at all by the control change.
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45. Moreover, the current Circon Board -- and only the current Circon
Board -- is free unilaterally to amend or terminate the Compensation Plan, or
to remove any of its designated employees from participating therein.
Obviously, a benefits plan that can be eliminated at any time provides no
true incentive for Circon's employees to remain with the company, and does
nothing to assuage any fears concerning continued employment in the event of
a change in control. Rather, the only purpose and effect of such a plan is to
substantially increase the acquisition expense to a potential acquiror -- an
expense that would come directly out of the pockets of Circon stockholders,
who otherwise would receive such funds as payments for their shares -- and
thereby further entrench Circon's current management.
46. The Circon Board also was grossly negligent in adopting the
Compensation Plan. Among other things, the Board failed to ascertain the cost
of the Compensation Plan, and therefore could not, and did not, have an
adequate basis to weigh the relative costs and benefits, if any, to the
company of adopting this highly unusual program.
CIRCON'S DECLINE CONTINUES.
47. Circon's "strategic plan" has continued to be a resounding failure;
and the downward trend has been re-
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markably consistent following the adoption of the Rights Plan and
Compensation Plan. Circon's third quarter performance for 1996, after
adjusting for non-recurring items, was below the third quarter for 1995:
revenues were down 8.9%, gross profits were down 9.1% and operating income
was down 53.4%.
48. Due to Circon's lackluster results in the third quarter of 1996,
U.S. Surgical reduced its offer to $17 per share on December 16, 1996 (the
"$17 Offer") in order to reflect the deterioration in Circon's business.
Despite this price reduction, the $17 Offer represented a price to earnings
ratio of 100 times the trailing 12 months earnings, compared to the industry
average price to earnings ratio of 16 times. Thus, the $17 Offer continued to
represent a robust premium to Circon shareholders.
49. In a December 18, 1996 letter to Circon's stockholders, Leon C.
Hirsch, the Chairman of U.S. Surgical, explained that, in order for Circon's
"strategic plan" to deliver value in excess of the $17 Offer, Circon would
need to undergo an unprecedented sea-change in its historic performance:
Assuming an industry average price/earnings ratio of 16 times, Circon
management will need to deliver earnings per share (EPS) of $1.22 one
year from now in order to equal the present value of today's $17 offer.
To do this, Circon would need to im-
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prove operating margins to over 20% (vs. 6.1% today) at current sales
levels, or increase sales to $500 million (an increase of 225% over the
latest twelve months) at today's margins. Alternatively, if Circon
improved both its sales and margins, Circon would, for example, still need
to increase revenues by over 50% and more than double margins to over 13%
to achieve EPS of $1.22 or achieve a combination of what USS believes are
other equally improbable improvements. (Exhibit E)
50. Notably, Circon has never disputed this analysis; and has not even
approached, let alone achieved, this dramatic turn-around. Nevertheless,
Circon continued to raise its discredited "strategic plan" as a shield behind
which to justify its continuing refusal to redeem the Rights Plan and
permit stockholders to accept the $17 Offer.
51. Circon's stockholders resoundingly rejected management's
recommendation. Indeed, stockholders responded to the $17 Offer with the same
enthusiasm as they demonstrated for the Original Offer, as seventy-nine
percent (79%) of the shares not owned by Circon management were tendered into
the $17 Offer. Nevertheless, Circon's stockholders were prevented from
receiving this premium price as a result of Defendants' continuing refusal to
redeem the Rights Plan.
52. Circon's dismal performance did not improve in 1997. Circon's first
quarter of 1997 was well below the first quarter of 1996 after adjustment for
non-recurring
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items: revenues were down 4%, gross profit down 3% and operating income down
44%.
U.S. SURGICAL COMMENCES THE LIMITED TENDER OFFER.
53. On or about June 16, 1997, U.S. Surgical amended the $17 Offer to
reduce the number of shares being tendered for to 973,174 shares of Circon
stock, and to reduce the tender price to $14.50 per share (the "Limited
Tender Offer"). The Limited Tender Offer was intended to raise U.S.
Surgical's ownership of Circon shares to approximately 14.9%, the maximum
number of shares that U.S. Surgical can own without triggering the Rights
Plan. The Limited Tender Offer disclosed, among other things, that U.S.
Surgical intended to commence a cash tender offer for all of the remaining
shares of Circon stock for $16.50 per share after the Limited Tender Offer
was completed.
54. Circon's management again recommended that the stockholders not
tender into the Limited Tender Offer. Nevertheless, the Limited Tender Offer
was an overwhelming success, and was oversubscribed by approximately 400
percent. Pursuant to the terms of the Limited Tender Offer, on July 14, 1997,
U.S. Surgical purchased 973,174 shares for $14.50, thus increasing its
ownership to approximately 14.9 percent of Circon's shares.
U.S. SURGICAL COMMENCES THE OFFER
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55. On August 5, 1997 U.S. Surgical commenced the Offer, which is an
all cash for all shares tender offer at a price of $16.50 per share. At the
time it was first announced in June, the $16.50 offering price represented a
price to earnings ratio of 180 times earnings of the trailing 12 months,
compared to the industry average of 16 times. It is notable that Circon's
poor performance had deteriorated so badly that the $16.50 price represents a
HIGHER price to earnings ratio than did the previous $17 offering price.
Nevertheless, Defendants again recommended that stockholders reject the
Offer, and again refused to redeem the Rights Plan, continuing to trumpet the
now totally discredited "strategic plan" as the basis for continuing to
deprive stockholders of the opportunity to receive a premium for their shares.
DEFENDANTS PACK THE BOARD AND SKEW THE UPCOMING ELECTION.
56. On July 28, 1997 U.S. Surgical announced its intention to nominate
two individuals for election as directors for the two Board seats up for
election at the 1997 annual meeting. U.S. Surgical also announced that it
will propose for stockholder approval a non-binding resolution urging the
Circon Board to arrange for a prompt sale of the company to the highest
bidder.
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57. Not content with frustrating the desire of the overwhelming
majority of the stockholders to tender their shares, Defendants embarked upon
a scheme to skew the electoral process in order to disenfranchise
stockholders of their right to elect their directors, and ensure that
incumbent management, namely Auhll, will remain on the Board -- EVEN AFTER HE
IS DEFEATED IN THE UPCOMING ELECTION.
58. To that end, Defendants have announced that in the event that Auhll,
the present Chairman and CEO, is voted off the Board at the upcoming
election, the Circon Board "may" create a vacancy on the Board -- either by
expanding the Board by one or by causing an incumbent director to resign --
and appoint Auhll right back on the Board to fill the newly-created vacancy.
This, notwithstanding that Auhll will have been rejected by the holders of
over 67% of the shares voted at the Annual Meeting (the vote required to
reject Auhll under cumulative voting).
59. Thus, unless enjoined, Defendants intend to hold a sham election on
October 6; disregard the results of the vote; and put back on the Board the
very individual whom shareholders will have overwhelmingly voted off the
Board, and who has been the primary architect of the ill-conceived strategy
that has prevented stockholders from obtaining a premium for more than a year.
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60. Furthermore, this is only the tip of the entrenchment iceberg.
Defendants also unilaterally expanded the number of sitting directors by
appointing two new directors, Defendants Thompson and Cloutier, to the Board
in 1997. The appointment of Thompson was not even publicly announced until
Circon issued its Proxy Statement two days ago. Furthermore, Thompson and
Cloutier were placed in a Board class which is not up for election at this
year's annual meeting, thereby ensuring that management's hand-picked
appointees would be immune from being voted out of office by Circon's
stockholders until at least late 1998 or, more likely 1999.
61. By virtue of the foregoing, Defendants unilaterally have increased
the time it will take to elect a new majority of the Circon Board by at least
another year. Specifically, the Circon Board serves in staggered terms with
one of three classes of directors up for re-election each year. At the time
of the Original Offer, Circon had five directors -- two in Class I, one in
Class II and two in Class III. Under this structure, it would have taken the
stockholders of Circon two annual meetings to replace a majority of the Board.
62. However, by packing the Board with two additional hand-picked
directors in Class II, and expanding the
27
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Board and re-appointing Auhll as a director even if he is voted out next
month (he will have to be placed either in Class I or Class III), Defendants
will improperly have lengthened this time frame. I.E., at next year's annual
meeting, three Class II directors will be up for election. Due to cumulative
voting, U.S. Surgical's nominees will have to obtain more than 75% of the
vote in order to win all three seats. As Circon's incumbent management
beneficially owns 16% of the shares, and it is a certainty that less than
100% of the outstanding shares are ever voted in elections, it will be a
virtual mathematical impossibility for U.S. Surgical's third nominee to win a
Board seat. In that event, at best, the Board will be split 4-4, and
stockholders will have to wait yet one more year in order to elect a majority
of the Board. Moreover, absent injunctive relief, Defendants' "musical
chairs" entrenchment scheme can continue each year, with management simply
expanding the size of the Board and packing the vacancies, thus forestalling
indefinitely the right of stockholders to effectuate a change of control
through the ballot box.
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COUNT ONE
[For Breach of Fiduciary Duty]
63. Plaintiffs repeat each of the foregoing allegations as if fully set
forth herein.
64. The Defendants owe Circon stockholders the highest fiduciary duties
of due care and loyalty. In this connection, Defendants are obligated to
ensure that the election process is conducted with scrupulous fairness and
without any advantage being conferred upon any candidate or slate.
Furthermore, absent compelling circumstances, Defendants are prohibited from
taking any action to impede or impair the effective exercise of the corporate
franchise.
65. Defendants have breached these obligations for the unlawful purpose
of disenfranchising stockholders and preventing them from exercising their
right to vote incumbent management off the Board. Specifically, Defendants
have improperly rigged the election by (i) determining to reappoint Auhll to
the Board if the stockholders vote not to re-elect him as a director at the
October 6, 1997 annual meeting; (ii) appointing two additional directors to
the class of directors that will not face election until next year's annual
meeting of stockholders, which probably will not be held until 1999, in order
to prevent shareholders from voting them off the Board at the upcoming election;
and
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(iii) unfairly lengthening the time it will take the stockholders of Circon
to elect a majority of the Board. Defendants have no compelling justification
for these actions.
66. Defendants' action were primarily intended to, and will have the
effect of, coercing stockholders not to vote for U.S. Surgical's nominees.
Specifically, stockholders who otherwise would vote for these nominees in
order to oust Auhll from the Board will not do so, because they know that
Defendants will simply put Auhll back on the Board after the election.
Alternatively, such stockholders will vote for Circon's slate, believing that
Auhll's continuing as a director is a foregone conclusion regardless of how
they vote. Furthermore, even if stockholders vote for U.S. Surgical's
nominees, and oust Auhll from the Board, they will be disenfranchised by
Defendants' reappointment of Auhll after he is defeated at the ballot box.
67. Plaintiffs and Circon's stockholders have no adequate remedy at law.
COUNT TWO
[For Breach of the Duty of Disclosure]
68. Plaintiffs repeat each of the foregoing allegations as if fully set
forth herein.
69. The Defendants owe to all Circon stockholders a duty of disclosure
to disclose fully and truthfully all
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material facts relating to the election of directors. The duty of disclosure
is intended to ensure that fiduciaries provide stockholders with all the
information necessary for each stockholder to make a fully informed vote.
70. Defendants have concluded that in an uncoerced vote, Circon's
stockholders would reject Defendants' slate of directors and elect U.S.
Surgical's nominees as a first step in facilitating the sale of the company
to the highest bidder. In order to avoid this result, and in violation of
their duties of disclosure and loyalty, Defendants authorized the filing and
dissemination of the Circon Proxy Statement, which is false and misleading in
several material respects and which unfairly and falsely disparages U.S.
Surgical and its nominees. Specifically, the Circon Proxy Statement:
(i) fails to disclose the Circon Board's recent board packing activities.
While the Proxy Statement identifies the two newly appointed directors as
directors serving since 1997, it does not disclose (a) that one of the new
directors could have been placed in the class of directors who will be up for
election this year; or (b) the reasons why the Circon Board appointed these
individuals so as to preclude stockholders from voting them out of office at
the upcoming election.
(ii) states that the Circon Board "may" re-appoint Auhll to the Board if
the stockholders turn him out of office, but does not disclose (a) that in
fact, the Board already has determined to do just that; or alternatively (b)
the criteria the Circon Board will consider in making the decision to
re-appoint Auhll and (c) the criteria the Board will use to determine
whether to
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create a new vacancy for Auhll by expanding the Board or causing an
incumbent director to resign.
(iii) misleadingly states that U.S. Surgical has agreed to indemnify the
U.S. Surgical nominees for "certain liabilities they may incur in the course
of discharging their duties as directors of Circon." That statement omits
material facts that render it false and misleading. Defendants fail to
disclose that U.S. Surgical has only agreed to provide its nominees, if
elected, with precisely the same indemnification as Circon provides to its
own nominees and directors in the event Circon refuses to provide such
indemnification to U.S. Surgical nominees after they are elected. Such
indemnification does not include indemnification for breach of the duty of
loyalty. Circon's reference to indemnification for "certain liabilities"
creates the false impression that U.S. Surgical has agreed to indemnify the
nominees for breaches of the duty of loyalty, particularly in light of
Circon's suggestion that as a result of the indemnification the nominees may
have a conflict of interest.
(iv) falsely states that the U.S. Surgical nominees may have a conflict
of interest once elected to the Circon Board, primarily because, according to
Circon, these nominees would be beholden to U.S. Surgical as a result of
having previously been given shares of Circon stock by U.S. Surgical. Yet,
Circon also states that Circon has decided to award Circon shares to its own
incumbent directors, including its nominees, in order to ensure that these
directors' interests are aligned with, and do not conflict with, the interest
of Circon stockholders. The Proxy Statement fails to disclose how the same
fact -- I.E., providing nominees with Circon shares -- can align the
interests of its own nominees with stockholders, yet cause U.S. Surgical's
nominees to have a conflict with those stockholders.
(v) falsely states that U.S. Surgical Nominees may be beholden to U.S.
Surgical, rather than to Circon stockholders, because the U.S. Surgical
Nominees have received $100,000 in compensation in the form of Circon stock
and other benefits from U.S. Surgical, but fails to disclose that this
compensation is not contingent on any actions taken by such nominees after
they are elected to the Board.
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71. The material false and misleading statements referred to above
constitute a violation of the fiduciary duties of disclosure and loyalty, and
were intended to skew the election in favor of Circon's nominees.
72. Plaintiffs and Circon's stockholders have no adequate remedy at law.
COUNT THREE
-----------
[Ultra Vires Acts]
73. Plaintiffs repeat and reallege each and every foregoing allegation
as if fully set forth herein.
74. Circon's certificate of incorporation provides that directors "whose
term expires at such annual shareholders' meeting shall be elected for a
three year term." Section 141(d) of the Delaware General Corporation Law
likewise requires a director to be elected by the stockholders at least every
three years. The Directors' intention to appoint Auhll to the Board after he
is denied re-election for a new term violates the Certificate of
Incorporation and 8 DEL. C. Section 141(d) because Auhll will have served a
six year term without election at a shareholders meeting.
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75. For the foregoing reasons, the intended appointment of Auhll to the
Circon Board is ULTRA VIRES and void.
76. Plaintiffs and Circon's stockholders have no adequate remedy at law.
COUNT FOUR
----------
[Petition Pursuant to Section 225]
77. Plaintiffs repeat and reallege each and every foregoing allegation
as if fully set forth herein.
78. pursuant to 8 DEL. C. Section 225, any stockholder may petition this
Court for a determination of the persons who are entitled to serve as
directors of a Delaware corporation.
79. As alleged herein, Defendants Cloutier and Thompson were not elected
to the board of directors by the stockholders of Circon, were not validly
appointed, and therefore are not entitled to hold office as directors. Their
purported appointment as directors of Circon was a breach of fiduciary duty
and that action is void (or will become void upon the order of this Court).
80. Furthermore, if Auhll is not re-elected by the stockholders of
Circon and is thereafter appointed to the Board of Directors by the other
Defendants, he will not be a validly elected or appointed member of the Board
of
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Directors. For the reasons alleged above, the Defendants' appointment of
Auhll to the Board will be a breach of their fiduciary duty and that action
will be void (or will become void upon the order of this Court).
81. Plaintiffs and Circon's stockholders have no adequate remedy at law.
COUNT FIVE
----------
[For Breach of Fiduciary Duty]
82. Plaintiffs repeat each of the foregoing allegations as if fully set
forth herein.
83. The Defendants were and are obligated to consider the Offers, and
all reasonable acquisition proposals, in a timely fashion and on an informed
basis, and must be guided by the single principle of the best interests of
the corporation, its stockholders and other relevant constituencies. They may
not place management's own self-interests and personal considerations ahead
of the interests of Circon stockholders.
84. The Defendants rejected the Offer, adopted the Rights Plan, and
have failed to redeem the Rights Plan, for the sole or primary purpose of
perpetuating Auhll's and incumbent management's control of Circon and their
continued enjoyment of the perquisites of such continuing control, all to the
detriment of Circon and its stockholders.
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85. In addition, the Defendants have already decided, in advance, to
defeat any future unfriendly offer, regardless of price or any other factor,
and regardless of the adverse consequences such decision will have upon
Circon's stockholders. The Defendants made this decision without undertaking
the careful review and analysis of the particular offer, which review is
mandated of directors under Delaware law.
86. As a result of the foregoing, the Defendants have breached their
fiduciary duties of loyalty and care to Circon's stockholders.
87. Plaintiffs have no adequate remedy at law.
COUNT SIX
[For Breach of Fiduciary Duty]
88. Plaintiffs repeat each of the foregoing allegations as if fully set
forth herein.
89. The Compensation Plan was adopted for the sole or primary purpose of
entrenching current Circon management, regardless of the effect on Circon
stockholders, and serves no legitimate justification. Furthermore, the
Compensation Plan is unreasonable in relation to any purported threat posed,
and was not adopted in good faith and after reasonable investigation.
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90. In addition, the Compensation Plan impermissibly interferes with
the stockholders' right to elect directors capable of fully exercising their
fiduciary duties and directorial powers, in that it prevents any duly-elected
Board, other than the incumbent Board or its hand-picked successors, from
terminating the Compensation Plan -- even if such Board concludes that
termination would serve the best interests of Circon and its shareholders.
91. The Defendants also were grossly negligent in adopting the
Compensation Plan in that, among other things, they failed to ascertain the
cost to the company of adopting the Plan, and therefore did not, and could
not, undertake a responsible cost-benefits analysis before hastily adopting
this unique compensation package.
92. As a result of the foregoing, the Director Defendants have breached
their fiduciary duties of care and loyalty under Delaware law.
93. Plaintiffs have no adequate remedy at law.
COUNT SEVEN
[For Breach of the Duty of Candor]
94. Plaintiffs repeat each of the foregoing allegations as if fully set
forth herein.
95. The Defendants owe to all Circon stockholders a duty of candor to
disclose fully and truthfully all mate-
37
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rial facts relating to the Board's opposition to the Offer. The duty of
candor is intended to ensure that fiduciaries not deny their CESTUI QUE TRUST
information necessary for them to make informed decisions as to the trust,
including investment decisions.
96. The Circon Schedule 14D-9 and the amendments thereto contain
materially false and misleading statements and omit material information,
including the following:
(i) The Schedule 14D-9 discloses management's belief that the
long-term values of the strategic plan exceed the Offer, without
disclosing the Company's previous inability to achieve the expected
benefits and synergies from the Acquisition, which is the centerpiece of
this strategic plan; the fact that the integration of the Cabot/Circon
operations, to date, has fallen well short of expectations; and that;
based on the continuing downward trend of their business, management is
concerned about their ability ever to achieve the highly publicized
expected synergies and benefits from the Acquisition.
(ii) The Auhll Letter (Exh. C at 1) unequivocally states that
Circon's "strategic plan . . . will reward stockholders with greater
value than they can obtain through tendering their shares in this offer,"
without disclosing the facts set forth in (i) above, and the numerous
uncertainties inherent in the strategic plan.
(iii) Circon failed to disclose that the Compensation Plan
unlawfully discriminates against, and limits the ability of, duly
elected future directors of Circon to exercise their fiduciary duties,
by providing that only the current Board or its hand-picked successors
can amend, modify or eliminate the Compensation Plans. The Circon Board
also falsely stated that the "Plan is designed to help Circon retain its
employees . . ." (Exh. C at 2) without disclosing that incumbent
management unilaterally can terminate the plan or any
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designated employee's right to participate therein at any time.
97. The failure to provide the requisite material information in a
truthful manner disables stockholders from accurately assessing Circon
management's bias and from making informed decisions with respect to their
investment in Circon. As a result, the Defendants have breached their duty of
candor to Circon stockholders.
98. Plaintiffs and Circon's stockholders have no adequate remedy at law.
COUNT EIGHT
-----------
[For Breach of Fiduciary Duty]
99. Plaintiffs repeat and reallege each and every foregoing allegation
as if fully set forth herein.
100. The Offer is not "front-end loaded" or coercive in any other way.
It represents a substantial premium over the market price of Circon shares,
and offers full and fair value to all Circon stockholders. The Offer complies
with all applicable laws and other obligations -- including, without
limitation, the securities laws, the antitrust laws, and all other legal
obligations to which plaintiffs are subject -- and poses no threat to the
interests of Circon's stockholders or to Circon's corporate policy or
effectiveness.
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101. Under these circumstances, the sole purpose and effect of Circon's
anti-takeover devices is to force management's strategic plan upon Circon's
stockholders, and to prevent stockholders from deciding for themselves
whether or not to accept the Offer. Accordingly, these anti-takeover devices
are coercive and preclusive, and are not proportionate, nor within the range
of reasonable responses, to the Offer or any alleged threat posed by the
Offer.
102. The Defendants' actions in adopting these anti-takeover responses
to the Offer constituted a breach of their fiduciary duties of care and
loyalty to Circon's stockholders. Accordingly, Circon's use of such measures
should be enjoined by this Court.
103. Plaintiffs do not have an adequate remedy at law.
COUNT NINE
----------
[Injunctive Relief]
104. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth herein.
105. Section 203 of the Delaware General Corporation Law, entitled
"Business Combinations With Interested Stockholders," applies to any Delaware
corporation that has not opted out of the statute's coverage. Circon has not
opted out of the statute's coverage.
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106. Section 203 was designed to impede coercive and inadequate tender
offers. Section 203 provides that if a person acquires 15% or more of a
corporation's voting stock (thereby becoming an "interested stockholder"),
such interested stockholder may not engage in a "business combination" with
the corporation (defined to include a merger or consolidation) for three
years after the interested stockholder becomes such, unless: (i) prior to the
15% acquisition, the corporation's board of directors has approved either the
acquisition or the business combination, (ii) the interested stockholder
acquires 85% of the corporation's voting stock (excluding stock owned by (a)
persons who are directors and also officers and (b) certain employee stock
plans) in the same transaction in which it crosses the 15% threshold, or
(iii) on or subsequent to such time of the 15% acquisition, the business
combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of the corporation's
stockholders, and not by written consent, by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
107. The Offer in this case is a fully financed, all cash offer,
available to all Circon stockholders for all outstanding shares. The Offer is
not "front-end loaded" or
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otherwise coercive in nature, is at a substantial premium, and presents a
full and fair value to Circon stockholders. Furthermore, the Offer poses no
threat to the interests of Circon's stockholders or to Circon's corporate
policy and effectiveness.
108. Under Section 203 of the Delaware General Corporation Law, the
Defendants can render this section inapplicable to the Offer by approving the
Offer. As a result of the facts alleged herein, the Defendants' failure to
approve the Offer, and to take any other steps necessary to render Section
203 inapplicable, constitutes a breach of fiduciary duty to Circon's
stockholders.
109. Plaintiffs do not have an adequate remedy at law.
IRREPARABLE INJURY
------------------
110. Unless preliminary and permanent injunctive relief is granted,
Plaintiffs and Circon's stockholders will be irreparably harmed in at least
the following respects:
(a) The election process at the upcoming annual meeting will be
irreparably tainted. Stockholders who would otherwise vote for U.S.
Surgical's nominees in order to defeat Auhll's re-election will believe that
there is no reason to vote, because even if they vote overwhelmingly to kick
Auhll of [sic] the Board, Defendants will put him back on
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the Board after the election. Other stockholders who would otherwise vote for
U.S. Surgical's nominees in order to defeat Auhll's re-election nevertheless
will vote for Circon on the belief that the result is a foregone conclusion
- -- I.E., Auhll will remain a director regardless of the outcome of the vote.
Still other stockholders who otherwise would vote for U.S. Surgical's
nominees will not do so because such a vote will be a vote for three
directors -- the U.S. Surgical Nominees and Auhll.
(b) Circon's shareholders will be disenfranchised by being deprived of
their fundamental right to vote directors off the Board.
(c) The cumulative effect of the Defendants' manipulating Board seats to
prevent indefinitely a change in the majority of the Board, making false and
misleading statements to stockholders, and refusing to redeem the Rights
Plan, will be to preclude U.S. Surgical from acquiring control of Circon
through the Offer or through the electoral process.
(d) Circon's stockholders will lose their unique opportunity to obtain
an impressive premium for their investment; and U.S. Surgical will be
deprived of realizing the benefits of a unique business opportunity.
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(e) Circon's stockholders will be deprived of the full and accurate
information to which they are entitled in connection with their decision to
vote at the upcoming election of directors.
(f) Circon's stockholders will be discouraged from tendering their
shares to Plaintiffs because of the misinformation caused by Defendants'
false, misleading and omissive statements.
WHEREFORE, Plaintiffs respectfully request that this Court enter an
order:
a. preliminarily and permanently enjoining Defendants from
electing or appointing Auhll to the Circon Board of Directors after Auhll is
voted off the Board Circon [sic] at the October 6, 1997 annual meeting;
b. declaring void the purported election or appointment of
Cloutier and Thompson to the Board of Directors of Circon;
c. enjoining the Circon Board from expanding the number of
directors while U.S. Surgical's Offer is open;
d. requiring that appropriate corrective disclosure be made in
order to cure all of the materially false and misleading statements and
omissions made by Circon and the Director Defendants in connection with the
Proxy
44
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contest, the annual meeting of stockholders, or the election of directors;
e. preliminarily and permanently enjoining Circon's directors,
officers, successors, agents, servants, subsidiaries, employees and
attorneys, and all persons acting in concert or participating with them, from
taking any steps to impede or frustrate the ability of Circon's stockholders
to consider and make their own determination as to whether to accept the
terms of the Offer, or taking any other action to thwart or interfere with
the Offer;
f. preliminarily and permanently enjoining Circon's Board of
Directors from triggering the distribution of the Rights associated with the
Rights Plan;
g. compelling Circon's Board of Directors to redeem the Rights
associated with the Rights Plan or to amend the Rights Plan so as to make the
Rights inapplicable to the Offer and preliminarily and permanently enjoining
Circon, its directors, officers, successors, agents, servants, subsidiaries,
employees and attorneys, and all persons acting in concert or participating
with them, from taking any action to implement, distribute or recognize any
rights or powers with respect to said Rights (other than to redeem the
Rights), and from taking any actions pursuant to the Rights Plan that would
dilute or interfere with U.S.
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Surgical's voting rights or in any other way discriminate against U.S.
Surgical in the exercise of its rights with respect to its Circon stock;
h. compelling Circon's Board of Directors to approve the Offer for
the purposes of Section 203, and preliminarily and permanently enjoining
Circon, its directors, officers, successors, agents, servants, subsidiaries,
employees and attorneys, and all persons acting in concert or participating
with them, from taking any actions to enforce or apply Section 203 that would
interfere with the commencement, continuation or consummation of Circon's
Offer;
i. compelling Circon's Board of Directors to terminate the
Compensation Plan, and preliminarily and permanently enjoining defendants,
and their agents, servants, attorneys, assigns, successors, and all persons
in active concert or participation with them from modifying the compensation
structure in place before the Offer was commenced;
j. requiring that appropriate corrective disclosure be made in
order to cure all of the materially false and misleading statements and
omissions made by Circon and the Defendants in their Schedules 14D-9 in
connection with the purchase or sale of Circon stock;
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k. awarding plaintiffs their costs and disbursements, including
attorneys' fees, incurred in this action; and
l. granting plaintiffs such other and further relief as the Court
shall deem just and proper.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By
-------------------------------------
Edward P. Welch
Paul J. Lockwood
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs
UNITED STATES SURGICAL
CORPORATION and
USS ACQUISITION CORP.
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Of Counsel:
Barry H. Garfinkel
George A. Zimmerman
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
919 Third Avenue
New York, NY 10022
(212) 735-3000
Thomas R. Bremer
Scott Spitzer
UNITED STATES
SURGICAL CORPORATION
150 Glover Avenue
Norwalk, CT 06850
(203) 845-1000
DATED: September 15, 1997
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