FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 1998 COMMISSION FILE NO. 0-12025
----------------- -------
CIRCON CORPORATION
- -----------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3079904
- ---------------------------------------------------
(State or other (I.R.S.Employer
jurisdiction of Identification No.)
incorporation
or organization)
6500 Hollister Avenue, Santa Barbara, California 93117-3019
- -------------------------------------------------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code:(805) 685-5100
--------------
Indicate by check mark whether the
registrant (1) has filed all reports
required to be filed by Section 13
or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months
(or for such shorter period that the
registrant was required to file such
reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -------
Number of Common Shares Outstanding at September 30, 1998 13,440,269
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1997 AND SEPTEMBER 30,1998
ASSETS
(In thousands, except per share amounts)
(UNAUDITED)
December31, September 30,
1997 1998
------- --------
CURRENT ASSETS:
Cash and temporary investments $ 3,660 $ 2,710
Marketable securities 1,115 1,153
Accounts receivable, net of allowance of
$1,606 in 1997 and $2,075 in 1998 32,024 30,014
Inventories 38,489 42,529
Prepaid expenses and other assets 3,470 2,419
Deferred income taxes 5,172 3,698
------- -------
Total current assets 83,930 82,523
------- -------
DEFERRED INCOME TAXES 1,289 1,289
PROPERTY, PLANT AND EQUIPMENT, NET 53,503 51,882
OTHER ASSETS, at cost net of accumulated amortization 30,635 28,936
-------- -------
Total assets $ 169,357 $ 164,630
======= ========
The accompanying notes are an integral part of
these consolidated balance sheets.
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30,1998
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
(UNAUDITED)
December 31, September 30,
1997 1998
--------- ---------
CURRENT LIABILITIES:
Curent maturities of long-term obligations $ 390 $ 390
Accounts payable 4,629 4,616
Accrued liabilities 10,892 10,830
Customer deposits 688 730
--------- --------
Total current liabilities 16,599 16,566
--------- --------
NONCURRENT LIABILITIES:
Long-term obligations 48,799 37,799
--------- --------
SHAREHOLDERS' EQUITY:
Preferred stock: $0.01 par value
1,000,000 shares authorized, none
outstanding
Common stock: $0.01 par value
50,000,000 shares authorized
13,280,476 and 13,440,269 issued and outstanding
in 1997 and 1998, respectively 133 134
Additional paid-in capital 105,079 106,615
Cumulative translation adjustment (1,197) (1,865)
Accumulated (deficit) earnings (56) 5,381
------- ---------
Total shareholders' equity 103,959 110,265
------- ---------
Total liabilities and shareholders' equity $ 169,357 $ 164,630
======== ========
The accompanying notes are an integral part of
these consolidated balance sheets.
<TABLE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1997 1998 1997 1998
--------- --------- --------- ---------
NET SALES $ 41,034 $ 38,400 $ 119,882 $ 111,930
Cost of sales 18,777 17,227 54,377 49,532
--------- --------- --------- ---------
GROSS PROFIT 22,257 21,173 65,505 62,398
OPERATING EXPENSES:
Research and development 2,658 2,628 8,185 8,096
Selling, general and administrative 16,552 14,053 50,748 43,780
Reorganization (see note 5) 150 - 150 -
--------- --------- --------- ---------
Total operating expenses 19,360 16,681 59,083 51,876
INCOME FROM OPERATIONS 2,897 4,492 6,422 10,522
Interest income 36 4 217 19
Interest expense (1,065) (686) (2,984) (2,353)
Other income, net 35 26 141 177
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,903 3,836 3,796 8,365
Provision for income taxes 667 1,343 1,329 2,928
--------- --------- --------- ---------
NET INCOME $ 1,236 $ 2,493 $ 2,467 $ 5,437
========= ========= ========= =========
BASIC EARNINGS PER SHARE: $ 0.09 $ 0.19 $ 0.19 $ 0.41
========= ========= ========= =========
DILUTED EARNINGS PER SHARE: $ 0.09 $ 0.18 $ 0.18 $ 0.40
========= ========= ========= =========
Weighted Average Number of Shares of Common
Stock and Equivalents Outstanding
BASIC 13,264 13,433 13,250 13,373
--------- ------- --------- ---------
DILUTED 13,680 13,735 13,641 13,743
--------- ------- --------- ---------
The accompanying notes are an integral part of
these consolidated statements.
</TABLE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended September 30
(In Thousands)
(UNAUDITED) (UNAUDITED)
1997 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,467 $ 5,437
Adjustments to reconcile net
income to cash provided by (used in)
operating activities:
Depreciation and amortization 6,462 6,444
Change in assets and liabilities:
Accounts receivable (5,212) 2,010
Inventories (5,198) (4,040)
Prepaid expenses and other assets 108 2,439
Accounts payable and accrued liabilities (1,031) (75)
Customer deposits 116 42
-------- --------
Net cash provided by (used in) operating activities $ (2,288) $ 12,257
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of noncurrent assets (5,001) (3,076)
--------- --------
Net cash used in investing activities $ (5,001) $ (3,076)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 412 1,537
Borrowing (payments) of long-term obligations 5,100 (11,000)
--------- ---------
Net cash provided by (used in) financing activities $ 5,512 $ (9,463)
--------- ---------
Cumulative translation adjustment (698) (668)
--------- ---------
Net decrease in cash and temporary
cash investments (2,475) (950)
Cash and temporary cash investments, beginning
of period 6,234 3,660
--------- ---------
Cash and temporary cash investments, end of period $ 3,759 $ 2,710
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 2,921 $ 2,210
========= ========
Cash paid (refunded) for income taxes, net $ 38 $ (700)
========= ========
The accompanying notes are an integral part of
these consolidated statements.
CIRCON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
------------------
UNAUDITED
(In thousands except share information)
General
--------
The accompanying consolidated financial statements
include the account of Circon Corporation (the Company) and its
subsidiaries. All significant intercompany transactions and accounts
have been eliminated in consolidation.
The consolidated financial statements included herein
have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
It is suggested that these consolidated financial statements be read
in conjunction with the statements and notes thereto included in the
Company's annual report for the year ended December 31, 1997.
The Company does not believe any recently issued
accounting standards will have a material impact on its financial
condition or its results of operations.
(1) USSC Tender Offer
-----------------
On September 16, 1998, United States Surgical Corporation
("USSC") allowed its $16.50 per share tender offer to expire.
Tyco International Corporation completed its acquisition of
USSC on October 2, 1998.
(2) Inventories
-----------
Inventories include costs of materials, labor and
manufacturing overhead and are priced at the lower of cost
(first-in, first-out) or market. Inventories at December 31,
1997 and September 30, 1998 consist of thefollowing:
1997 1998
-------- --------
Raw materials $ 8,559 $ 9,226
Work in process 18,309 19,389
Finished goods 11,621 13,914
--------- --------
$ 38,489 $ 42,529
========= ========
(3) Long-Term Obligations
--------------------
Long-term obligations as of December 31,
1997 and September 30, 1998 consist of the following:
1997 1998
-------- --------
Revolving credit facility $ 46,000 $ 35,000
Industrial development authority
bonds due December 2, 2006 3,165 3,165
Other 24 24
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49,189 38,189
Less: current maturities (390) (390)
--------- ---------
$ 48,799 $ 37,799
========= =========
The Company has a five year $75,000 reducing revolving
credit facility (the "Credit Facility") with a syndicate of banks which
provides for direct borrowings and a maximum of $5,000 in letters
of credit. The line of availability under the credit facility is reduced
by $3,000 every six months and is $60,000 at September 30, 1998.
The Company has the option to borrow money based upon (i) the
higher of the prime rate or an adjusted federal funds rate or (ii) an
adjusted Eurodollar rate. The unused portion of the Credit Facility
has a commitment fee which ranges from .1875% to .375%. The
Credit Facility, which expires August 1, 2001, contains certain
restrictive financial covenants and is secured by substantially
all of the assets of the Company.
The Company has a letter of credit in the amount of
approximately $3,307 as of September 30, 1998 underlying
$3,165 of tax exempt Industrial Development Authority Bonds
(the "Bonds") issued in December 1991 with a 15 year maturity
requiring monthly interest payments and annual principal payments.
The letter of credit has a renewable 5 year term and carries an
annual fee of 1% of the outstanding bond principal amount. The
bonds are subject to weekly repricing at an interest rate based on
the remarketing agents' professional judgment and prevailing
market conditions at the time. The Bonds and the letter of credit
facility are collateralized by the Company's two Langhorne,
Pennsylvania facilities. These facilities had a net carrying value
of $4,361 as of September 30, 1998.
Future principal maturities of the long term obligations
are as follows:
1998 390
1999 405
2000 430
2001 35,450
2002 475
Thereafter 1,039
--------
$ 38,189
========
(4) Comprehensive Income
--------------------
Components of other comprehensive income for the
Company consist of foreign currency items and the
amounts for the nine month period ended September 30,
1998 and accumulated to date are $668 and $1,865,
respectively.
(5) Reorganization
--------------
During the 3rd quarter of 1997, the Company
undertook a cost reduction/income enhancement program
to improve operating margins in the second half of 1997
and 1998. As part of this program, the Company eliminated
certain domestic sales territories and realigned others.
In the 3rd quarter of 1997, the Company recorded a
$150 charge for the payment of employee severance,
the majority of which was paid in the 4th quarter of 1997.
(6) Litigation
----------
See Discussion of Legal Proceedings in Part II, Item 1.
ITEM 2. Management's Discussion and Analysis of
Operations and Financial Condition
Three Months Ended September 30, 1998
Compared to Three Months Ended September 30, 1997
Sales
-----
Third quarter sales were $38.4 million compared to $41.0
million for the 1997 quarter. Total domestic sales were $33.8
million compared to last year's $35.4 million. Sales by the U.S.
sales force totaled $30.7 million in the current year, compared
to the prior year's $32.4 million. International and other sales
were $4.6 million compared to the same 1997 period of $5.7
million.
Sales by the U.S. sales force were 8% and 6% above
the first and second quarter of 1998, but 5% below the third
quarter Sales have been adversely affected by
increased sales force turnover in the first half of 1998 which
the Company attributes to the recently ended hostile takeover
attempts by U.S. Surgical and the resulting uncertanties
related to the possible sale of the Company. The Company
is addressing the matter by continuing efforts to stabilize the
U.S. sales force, including the hiring of an experienced Vice
President of Domestic Sales from Johnson & Johnson and by
offering new product releases.
International sales are down 19.3%, due to a 40% drop
in sales through international dealers which have been
discouraged by the prospect of a takeover. In an effort to
reduce the amount of Circon products in their inventories,
the international dealers have cut back their purchases.
Gross Profit
------------
Gross profit as a percentage of sales increased from
54.2 % last year to 55.1 % for the current period. This
improvement is the result of sales mix and reduced
manufacturing overhead coupled with manufacturing
efficiency gains. Gross profit decreased from $22.3
million in 1997 to $21.2 million in the third quarter of
1998 due to lower sales.
Operating Expenses
------------------
Third quarter operating expenses of $16.7 million
were down $2.7 million or 13.8% compared to the prior
year third quarter of $19.4 million. Third quarter operating
expenses were 43.4% of sales, down from 47.2% in 1997.
This was due to the cost reduction programs instituted
over the past year.
Sales and marketing expenses have been cut 15.9%
by reducing convention expenses, tighter controls over
field inventory/samples and other cost saving actions.
General and administrative expenses are down 12.8%
due to the consolidation of international facilities, reduced
amortization expenses and other reductions.
Research and development expenditures of $2.6 million
were level with last year.
Income/EPS
----------
As a result of the factors discussed above, operating
income for the 3rd quarter 1998 of $4.5 million was up
55.1% over prior year's $2.9 million. Operating income
grew to 11.7% of sales in 3rd quarter 1998 versus 7.1%
in the same period of 1997. Income before taxes of $3.8
million in 3rd quarter 1998 compared to $1.9 million in the
same period of 1997, was up 101.6% and net income of
$2.5 million for the 3rd quarter 1998, increased 101.7%
over prior year's $1.2 million. Basic EPS was $0.19,
compared to last year's $0.09.
Nine Months Ended September 30, 1998
Compared to Nine Months Ended September 30, 1997
Sales
-----
Nine months sales totaled $111.9 milliom compared to
$119.9 million for the same period in 1997. Total domestic
sales year-to-date 1998 were $97.7 million compared to $100.2
million. Sales by the U.S. sales force year-to-date 1998 were
$88.2 million and international and other totaled $14.2 million
compared to $91.2 million and $19.7 million, respectively,
for the same period. Sales have been adversely affected by
increased sales force turnover in the first half of 1998 which
the Company attributes to the recently ended hostile takeover
attempts by U.S. Surgical and the resulting uncertainties
related to the possible sale of the Company.
Gross Profit
------------
Gross profit as a percentage of sales for the nine months of
1998 was 55.7% of sales, up from 54.6% for the first nine
months. This increase was due to sales mix and
reduced manufacturing overhead coupled with manufacturing
efficiency gains.
Operating Expenses
-----------------
Total operating expenses for the year-to-date period in
1998 of $51.9 million were down 12.2% compared to prior
year's $59.1 million.
Sales and marketing expenses have been cut 14.4%
from last year. This was due to a combination of reduced
sales meeting and convention expenditures, tighter controls
over field inventory/samples and other cost saving factors.
General and administrative expenses are down 11.7% for the
first nine months due to the consolidation of international
facilities and reduced patent amortization and reductions in
other expenses.
Research and development expenditures of $8.1
million have remained level with last year.
Income/EPS
----------
Operating income for the first nine months of 1998 reached
$10.5 million compared to $6.4 million for 1997 due to the
factors discussed above. Income before taxes for the nine
months of 1998 were $8.4 million and net income for the nine
months of 1998 was $5.4 million, both increased 120.4% over
prior year's $3.8 million and $2.5 million, respectively. Basic
EPS for the first nine months of 1998 of $0.41 compares very
favorably with $0.19 for 1997.
Liquidity and Capital resources
------------------------------
Circon's financial position remains strong with working
capital of $66.0 million. Circon's current ratio is 5.0:1.
For the first nine months, total borrowings decreased
by $11.0 million as cash from operations was used to pay
down debt.
Accounts Receivable decreased $2.0 million due to
strong accounts receivable collections and lower first nine
months 1998 sales compared to first nine months of 1997.
Inventory increased $4.0 million largely related to an
increase of new products.
Circon has a $75.0 million secured reducing revolving
credit line with a syndicate of banks. The credit line reduces
by $3.0 million every six months and credit availability on the
line totaled $60.0 million at September 30, 1998. There is
currently $35.0 million outstanding (See Footnote 3).
The Company believes that cah flow from operations,
existing cash, marketable securities and available cash from
bank credit facilities are adequate to fund the Company's
existing operations for the foreseeable future.
Year 2000 Compliance
--------------------
Circon Corporation has nearly completed the process of
replacing its entire internal management information system with
new software and hardware which is year 2000 compliant. The
majority of the expenses on this project have already been
incurred and total $1.7 million. The project is expected to be
fully implemented by February 1999. Software provided and
operated by third parties is currently under evaluation to assure
Year 2000 Compliance.
In addition, Circon's Manufacturing and Research and
Development staffs are in the process of reviewing all
manufacturing processes, manufactured products and secondary
compliance issues with significant vendors related to the year
2000 issue. To date, all manufactured products have been verified
to be Year 2000 compliant. The manufacturing process and
outside vendors reviews are on-going.
At the present time, the Company has not identified any
compliance issues that cannot be resolved within the required
time frames or will have a material impact on the Company's
business or financial results.
Forward Looking Statements
See Item 5 regarding forward looking statements in Part II and certain
important cautionary statements.
PART II
Item 1. Legal Proceedings.
On May 28, 1996, two purported stockholders of the Company, Bart
Milano and Elizabeth Heaven, commenced an action in the Superior Court of the
State of California for the County of Santa Barbara, Case No. 213476,
purportedly on behalf of themselves and all others who purchased the Company's
common stock between May 2, 1995 and February 1, 1996, against the Company,
Richard A. Auhll, Rudolf R. Schulte, Harold R. Frank, John F. Blokker, Paul
W. Hartloff, Jr., R. Bruce Thompson, Jon D. St. Clair, Frederick A. Miller,
David P. Zielinski, Winton L. Berci, Jurgen Zobel, Trevor Murdoch and Warren
G. Wood. That complaint alleged that defendants violated Sections 11 and 15 of
the Federal Securities Act of 1933, as amended. Sections 25400-02 and 25500-02
of the California Corporations Code, and Sections 1709-10 of the California
civil Code, by disseminating allegedly false and misleading statements
relating to Circon's acquisiton of Cabot Medical Corp. by merger and to the
combined companies' future financial performance. In general the complaint
alleged that defendants knew that synergies from the merger would not be
achieved, but misrepresented to the public that they would be achieved,
in order to obtain approval for the merger so they would be executives of a
much larger corporation. This alleged conduct allegedly had the effect of
inflating the Company's stock price. On July 29, 1996, defendants filed
demurrers to the complaint on the gound that plaintiffs allegations
fail to state facts sufficient to constitute a cause of action. On or
about August 6, 1996, plaintiffs served their response to defendants'
demurrers, stating their intention to file an amended complaint prior to the
hearing on defendants' demurrers. On September 20, 1996, plaintiffs voluntarily
dismissed Rudolf R. Schulte, Harold R. Frank, John F. Blokker and Paul W.
Hartloff, Jr. from the action, without prejudice. On September 30, 1996,
plaintiffs, joined by a third purported stockholder of the Company, Adam
zetter, filed a first amended complaint against the remaining defendants.
Plaintiffs' amended complaint is substantially similar to the original
complaint, but adds a new purported cause of action under the unfair
business practices provisions of the California Business & Professions Code,
Sections 17200, et seq. and 17500, et seq. Like the original complaint, the
amended complaint seeks compensatory and/or punitive damages, attorneys fees
and costs, and any other relief (including injunctive relief) deemed proper.
On December 2, 1996, defendants filed demurrers to the amended complaint again
on the grounds that plaintiffs' allegations fail to state facts sufficient to
contitute a cause of action. On april 17, 1997, a hearing was held regard-
ing the defendants demurrers to the first amended complaint. By order dated
May 28, 1997, the Surerior Court overruled the defendant's demurrers to the
amended complaint. The parties are now engaged in discovery proceedings.
The Company believes plaintiffs' allegations to be without merit and intends
to vigorously defend the lawsuit.
On August 15, 1996, an action captioned Steiner v. Auhll, et al.,
No. 15165 was filed in the Court of Chancery of the State of Delaware. Shortly
thereafter, three substantially similar actions were filed by three other
individuals claiming to be stockholders of Circon. All four actions allege
that Circon and certain of its officers and directors breached their
fiduciary duties to circon's stockholders by taking steps to resist the hostile
tender offer by U.S. Surgical Corporation announced on August 2, 1996.
All four of these actions purport to be brought as class actions on behalf of
all Circon stockholders. On August 16, 1996, a separate action captioned
Krim v. Circon Corp., et al., No. 153767, was filed in the Superior Court
of California in Santa Barbara. The plaintiff in that action also claims to
be a Circon stockholder and purports to bring his claim as a class action. On
September 27, 1996, that action was stayed by the Court in favor of the actions
pending in Delaware; the Court also encouraged the plaintiff to refile his
action in Delaware. On or about August 30, 1996, the Chancery Court
consolidated the four Delaware complaints into a single action, and plaintiffs
field an amended complaint. The Company and its officers and directors filed an
answer to the amended complaint on November 12, 1996. On July 15, 1998,
plantiffs agreed to postpone further action in the case until after Circon
holds its annual meeting later in the year. The Company believes plaintiffs'
allegations to be without merit and intends to vigorously defend the lawsuits
in the event that plaintiffs continue to pursue the matter.
On September 17, 1996, an action captioned U.S. Surgical Corporation
v. Auhll, et al., No. 15223NC was filed in the Court of Chancery of the State
of Delaware. The complaint in this action also alleges that Circon and certain
of its officers and directors breached their fiduciary duties to Circon's stock-
holders by taking steps to resist U.S. Surgical's hostile tender offer. The
Company and its officers and directors filed an answer to the complaint on
November 12, 1996. On or about October 28, 1997, U.S. Surgical filed an
amended and Supplemental Complaint (the "Amended Complaint"). The Amended
Complaint repeats the allegations in U.S. Surgical's September 17, 1996
complaint and adds new allegations regarding the supposed breaches of
fiduciary duties by certain officers and directors of Circon since the filing
of the September 17, 1996 complaint. On July 15, 1998, U.S. Surgical agreed
to postpone the lawsuit until after Circon holds its annual meeting later in
the year. On November 3, 1998, U.S. Surgical agreed to dismiss the lawsuit
with prejudice. No further action is expected in this case.
Item 5.
Additional Cautionary Statements
- --------------------------------
No Assurance of Cost Savings or Revenue/Earnings Growth as provided
in the Company's Strategic Plan.
Circon has implemented the intitial phases of a comprehensive
strategic plan to maximize value for shareholders that includes cost cutting and
revenue/earnings growth components. Implementation and achievement of the
strategic plan is critical to the success of the Company and the achievement
of its corporate goals. Although the strategic plan has already begun to yield
positive results, there can be no assurance that this trend will continue. The
failure of the Company to achieve cost and expense reductions in accordance with
the strategic plan, or the occurrence of unforeseen expenses, could adversely
affect the Company's ability to achieve the goals set forth in the strategic
plan. Cost cutting measures include the elimination of certain personnel, the
decision to not fill several open positions, the reduction in quantities of
samples provided to the sales force, and the reduction of salaries for certain
senior executives. There can be no assurance that such cost cutting will not
have an adverse effect on the Company's operations. The sales force has
gone through a significant reorganization since the merger with Cabot Medical
in 1995 and has not yet demonstrated the productivity required to achieve the
goals of the strategic plan. In addition, the strategic plan provides for
revenues/earnings growth which is contingent in large part on the success
of both the sales force and the Company's new products, some of which have
not yet been introduced to the marketplace. The failure of the sales force
to achieve targeted results or of the Company's new products to be accepted in
the market may have a material adverse effect on the Company's financial results
and its ability to meet the goals established in the strategic plan.
Disruptive Effect of Hostile Tender Offer
On August 2, 1996, a subsidiary of United States Surgical Corporation
("USSC") initiated an unsolicited offer to purchase all outstanding shares of
the Company's Common Stock. This tender offer has had, and may continue to
have, various adverse effects on the Company's business and results of
operations, including the increased susceptibility of key employees of the
Company to employment offers by other companies, the risk of negative reactions
among distributors, suppliers or customers to the prospect of such a change in
control of the Company, the distraction of management and other key employees
and the fees and other expenses of financial, legal and other advisors to
the Company in responding to the tender offer and related law suits.
On October 6, 1997, two individuals who were nominated by USSC to serve
on the Circon Board were elected by the shareholders of the Corporation. A
precatory resolution sponsored by USSC calling for the Board of circon to
arrange for the prompt sale of the Company was also approved by the share-
holders. In addition, USSC filed a lawsuit in the State of Delaware which,
among other things, seek to force the Board to redeem the shareholder Rights
Plan and have the Employee Retention Plans nullified. No assurance can be
given that these actions will not exacerbate one or more of the potential
adverse effects mentioned above.
Increasing competition and Risk Obsolescence from Technological
Advances
The markets in which Circon's products compete are characterized by
continuing technical innovation and increasing competition. Some surgical
procedures which utilize the Company's products could potentially be replaced or
reduced in importance by alternative medical procedures or new drugs which may
adversely affect Circon's business.
Government Regulation
The process of obtaining and maintaining required regulatory approvals
is lengthy, expensive and uncertain. Although Circon has not experienced any
substantial regulatory delays to date, there is no assurance that delays will
not occur in the future, which could have a significant adverse effect on
Circon's ability to introduce new products on a timely basis. Regulatory
agencies periodically inspect Circon's manufacturing facilities to ascertain
compliance with "good manufacturing practices" and can subject approved
products to additional testing and surveillance programs. Failure to comply
with applicable regulatory requirements can, among other things, result in
fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal penalties. While the Company believes it is
currently in compliance, if Circon fails to comply with regulatory require-
ments, it could have an adverse effect on Circon's results of operations and
financial condition.
Uncertainties within the Healthcare Markets
Political, economic and regulatory influences are subjecting the
healthcare industry in the United States to rapid, continuing and fundamental
change. Although Congress has not passed comprehensive healthcare reform
legislation to date, Circon anticipates that congress, state legislatures and
private sector will continue to review and assess alternative healthcare
delivery and payment systems. Responding to increased costs and to pressure
from the government and from insurance companies to reduce patient charges,
healthcare providers (including customers of Circon) have demanded, and in
many cases received, reduced prices on medical devices. These customers are
expected to continue to demand lower prices in the future. Circon cannot
predict what impact the adoption of any federal or state healthcare reform
measures, private sector reform or market forces may have on its business.
However, pricing pressure is expected to continue to adversely affect profit
margins.
Product Liability Risk
Circon's products involve a risk of product liability. Although
Circon maintains product liability insurance at coverage levels which it
believes are adequate, there is no assurance that, if the Company were to
incur substantial liability for product liability claims, insurance would
provide adequate coverage against such liability.
New Products
Circon's growth depends in part on its ability to introduce new and
innovative products that meet the needs of medical professionals. Although
Circon has historically been successful at bringing new products to market,
there can be no assurance that Circon will be able to continue to introduce
new and innovative products or that the new products that Circon introduces, or
has introduced, will be widely accepted by the marketplace. For example,
there can be no assurance that Circon will be successful with its market
launch of the products to be used with the new Transvaginal Hydrolaparoscopy
(THL) procedure. The failure of the Company to continue to introduce new
products or gain wide spread acceptance of a new product, like the products
to be used with the THL procedure, could adversely affect the Company's
operations.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
c. Exhibit Index
10.8. Form of Employee Retention Plan for certain officers and
other key employees, as amended.
CIRCON CORPORATION
MANAGEMENT RETENTION PLAN
Effective August 27, 1996
Amended September 26, 1997
and August 28, 1998
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 either until a Change
of Control or for a specified period following a Change of
Control, (ii) certain severance benefits upon termination of
employment following a Change of Control, and (iii) for specified
employees, certain payments in exchange for promises not to
compete with or solicit Company customers or employees for a
one-year period upon a 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.
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, and (iii) with respect to Area Sales Managers
and Regional Sales Managers, all monthly or quarterly incentive
compensation earned and actually paid during the Company's
fiscal year in which the Change of Control occurs, annualized.
(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 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.
(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.
(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
Following a Change of Control. If the Participant's employment
is terminated as a result of Involuntary Termination other than
for Cause within the Participant's Severance Window Period,
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 the Participant
has not already received a Retention Payment under
Article VI below, 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.
EXAMPLE I: A Change of Control is consummated on
June 15, 1997. Participant is Involuntarily Terminated
other than for Cause as of July 1, 1997.
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% and has not yet been paid.
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
EXAMPLE II: 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%. The Retention Payment was paid to Participant on
the date of the Change of Control. 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.
(ii) 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
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.
(iii) 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.
(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 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 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.
(a) Level I & II Participants. If a Participant is specified
as a Level I or II Participant in his or her Notice of Participation,
and Participant remains employed through the date upon which a
Change of Control occurs 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 through the date of 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.
(b) Level III & IV Participants. If a Participant is specified
as a Level III or IV Participant in his or her Notice of Participation,
and (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, 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 Level I or Level II Participant is entitled shall be paid
by the Company in a lump sum upon the date of a Change of
Control. Any Retention Payment to which a Level III or Level
IV 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 VII
NON-COMPETITION AND NON-SOLICITATION AGREEMENTS
If a Participant is specified as a Level I or II Participant in
his or her Notice of Participation, then he or she may elect,
within 60 days following August 28, 1998, to enter into a
Non-Competition and Non-Solicitation Agreement on the terms
and conditions and for such consideration as is set forth in
Exhibit A to such Participants' Notices of Participation.
ARTICLE VIII
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 IX
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 X
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 XI
DURATION, AMENDMENT AND TERMINATION
1. Duration. This Plan shall terminate on August 20, 1999
unless (i) extended by the Board, or (ii) a Change of Control
occurs prior to August 20, 1999. If a Change of Control occurs
prior to August 20, 1999, 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. 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 or Termination. Except with respect to
amendments that are not adverse to Participants, the Plan is
not subject to any amendment, change, substitution, deletion,
revocation or termination in any respect whatsoever prior to the
Plan's expiration.
ARTICLE XII
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 or the
date that Company breaches its obligations hereunder as
the case may be.
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.
ARTICLE XIII
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 Participan 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 XIV
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.
ARTICLE XV
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.
EXHIBIT A
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION - LEVEL I
This Exhibit A to the Circon Corporation Management
Plan Level I Notice of Participation (the "Agreement") is made and
entered into this _____ day of __________, 1998, by and between
Circon Corporation and Richard A. Auhll ("Participant").
WHEREAS, it is in the best interests of the Company and
any successor thereto to restrict Participant from engaging in
certain activities which may be competitive with the business of
the Company following the Participant's termination from the
Company; and
WHEREAS, for good and valuable consideration, Participant is
willing to accept and agree to be bound by certain restriction and
protective covenants as set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. This Subsection sets forth the definitions of
certain capitalized terms used in this Agreement. Capitalized terms not
otherwise defined shall have the meaning assigned to such term in the
Circon Management Retention Plan (the "Management Retention Plan").
(a) "Competing Business" shall mean Karl Storz Endoscopy-
America, Inc., Richard Wolf Medical Instruments Corporation or
Olympus America, Inc.
(b) "Competitive Position" shall mean (a) the Participant's
direct or indirect equity ownership (excluding ownership of less
than one (1%) percent of the outstanding common stock) or control
of any portion of any Competing Business; or (b) any employment,
consulting, partnership, advisory, directorship, agency, promotional,
independent contractor or other service provision arrangement
between the Participant and any Competing Business.
(c) "Covenant Period" shall mean the period of time from the
date of this Agreement to the date that is twelve (12) months after the
effective date of any termination of the Participant that occurs within
the Participant's Severance Window Period.
(d) "Customers" shall mean actual customers, clients,
referral sources or managed care organizations or actively sought
prospective custothe Company during the two (2) years
prior to the effective date of the termination.
2. Limitation on Competition. In consideration of the Covenant
Payments payable by the Company to the Participant under this Agreement,
the Participant agrees that during the Covenant Period, the Participant
will not, without the prior written consent of the Company, anywhere
within the United States, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action
in conjunction with or in furtherance of a Competitive Position (other
than action to reject an unsolicited offer of a Competitive Position).
3. Limitation on Soliciting Customers. In consideration of the
Covenant Payments payable by the Company to the Participant under
this Agreement, the Participant agrees that during the Covenant Period,
the Participant will not, without the prior written consent of the Company,
alone or in conjunction with any other party, solicit, divert or appropriate
or attempt to solicit, divert or appropriate on behalf of a Competing
Business any Customer with which the Participant had any direct
contact on behalf of the Company.
4. Limitation on Soliciting Personnel or Other Parties. In
consideration of the Covenant Payments payable to the Company to the
Participant under this Agreement and in consideration of Participant
entering into an amendment of his Notice of Participation of even
date herewith reducing the amounts payable pursuant to the
Retention and Severance Payment Percentages thereunder, the Participant
hereby agrees that he will not, without the prior written consent
of the Company, alone or in conjunction with any other party, solicit or
attempt to solicit any employee, consultant, contractor, independent broker or
other personnel of the Company to terminate, alter or lessen that
party's affiliation with the Company or to violate the terms of any agreement
or understanding between such employee, consultant, contractor or
other person and the Company, provided, however, that this
restriction shall not prevent Participant from retaining an employee,
consultant or contractor of the Company who independently responds to
advertisement for employment generally circulated to the public.
5. Covenant Payments. In consideration for entering into and
abiding by this Agreement, the Company agrees to pay Participant
during the Covenant Period, in twelve monthly substantially equal
installments, an amount equal in the aggregate to 83.33% of the
Participant's Annual Compensation.
6. Sole Remedy for Breach. The parties hereto agree that the
sole remedy available to the Company for Participant's breach of any
of Sections 2, 3, or 4 hereof shall be the forfeiture of any Covenant
Payments not yet paid to Participant. Injunctive or other equitable
relief shall not be available to the Company as a remedy for Participant's
breach of this Agreement.
7. Acknowledgment. The parties acknowledge and agree
that the covenants of the Participant in Sections 2, 3 and 4 hereof
are and shall be treated under law, as "ancillary to the sale of the
Company's businesThe parties acknowledge and agree that the
protective Covenants are reasonable as to time, scope and territory
given the Company's need to protect its trade secrets and confidential
business information and given the substantial payments and benefits
to which the Participant is entitled hereunder and in connection with
the Management Retention Plan.
8. Severability. If any term or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a duly
authorized court of competent jurisdiction, then the remainder of
this Agreement or the application of such term or provision in
circumstances other than those as to which it is so declared illegal or
unenforceable, shall not be affected thereby, each term and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law and the illegal or unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision.
9. Successors. This Agreement shall be binding upon and
inure to the benefit of, and shall be enforceable by Participant and
the Company, their respective heirs, executors, administrators and
assigns. In the event the Company is merged, consolidated,
liquidated by a parent corporation, or otherwise combined into
one or more corporations, the provisions of this Agreement shall
be binding upon and inure to the benefit of the parent corporation
or the corporation resulting from such merger or to which the
assets shall be sold or transferred, which corporation from and after
the date of such merger, consolidation, sale or transfer shall be
deemed to be the Company for purposes of this Agreement. In the
event of any other assignment of this Agreement by the Company,
by operation of law or otherwise, the Company shall remain
primarily liable for its obligations hereunder. This Agreement
shall not be assignable by Participant.
10. Entire Agreement. This Agreement, the Management
Retention Plan, and the Notice of Participation represent the entire
agreement of the parties with respect to the subject matter hereof,
and supersede in their entirety all prior agreements. This agreement
may only be amended by means of a written agreement by and between
the parties hereto.
IN WITNESS WHEREOF, the parties have executed this
Agreement and caused it to be effective as of the day and year
first written above.
COMPANY
-------------------------
PARTICIPANT
--------------------------
Richard A. Auhll
EXHIBIT A
NON-COMPETITION AND NON-SOLICIAGREEMENT AGREEMENT
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF PARTICIPATION - LEVEL II
This Exhibit A to the Circon Corporation Management Retention
Plan Level II Notice of Participation (the "Agreement") is made and
entered into this _____ day of __________, 1998, by and betwe
Circon Corporation and _______________________ ("Participant")
WHEREAS, it is in the best interests of the Company and any
successor thereto to restrict Participant from engaging in certain
activities which may be competitive with the business of the Company
following the Participant's termination from the Company; and
WHEREAS, for good and valuable consideration, Participant
is willing to accept and agree to be bound by certain restriction and
protective covenants as set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. This Section sets forth the definitions of certain
capitalized terms used in this Agreement. Capitalized terms not
otherwise defined shall have the meaning assigned to such term in the
Circon Management Retention Plan (the "Management Retention Plan
(the "Management Retention Plan")
(a) "Competing Business" shall mean Karl Storz Endoscopy-
America, Inc., Richard Wolf Medical Instruments Corporation or
Olympus America, Inc.
(b) "Competitive Position"(a) the Participant's
direct or indirect equity ownership (excluding ownership of less than
one (1%) percent of the outstanding common stock) or control
any portion of any Competing Business; or (b) any employment,
consulting, partnership, advisory, directorship, agency, prom
independent contractor or other service provision arrangement
between the Participant and any Competing Business.
(c) "Covenant Period shall mean the period of time from the
date of this Agreement to the date that is twelve (12) months
effective date of any termination of the Participant that occurs
within the Participant's Severance Window Period.
(d) "Customers" shall mean actual customers, clients,
referral sources or managed care organizations or actively so
prospective customers of the Company during the two (2) years prior
to the effective date of the termination.
2. Limitation on Competition. In consideration of the Covenant
Payments payable by the Company to the Participant under this Agreement,
the Participant agrees that during the Covenant Period, the Participant
will not, without the prior written consent of the Company, anywhere
within the United States, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than
action to reject an unsolicited offer of a Competitive Position).
3. Limitation on Soliciting Customers. In consideration of the
Covenant Payments payable by the Company to the Participant under
this Agreement, the Participant agrees that during the Covenant Period,
the Participant will not, without the prior written consent of the
Company, alone or in conjunction with any other party, solicit, divert
or appropriate or attempt to solicit, divert or appropriate on behalf
of a Competing Business any Customer with which the Participant
had any direct contact on behalf of the Company.
4. Limitation on Soliciting Personel or Other Parties. In
consideration of the Covenant Payments payable to the Company to
the Participant under this Agreement, the Participant hereby agrees
that he will not, without the prior written consent of the Company,
alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor, independent broker
or other personnel of the Company to terminate, alter or lessen
that party's affiliation with the Company or to violate the terms of
any agreement or understanding between such employee, consultant,
contractor or other person and the Company, provided, however, that
this restriction shall not prevent Participant from retaining an employee,
consultant or contractor of the Company who independently responds
to advertisement for employment generally circulated to the public.
5. Covenant Payments. In consideration for entering into
and abiding by this Agreement, the Company agrees to pay Participant
during the Covenant Period, in twelve monthly substantially equal
installments, an amount equal in the aggregate to one-half of the
Participant's Annual Compensation.
6. Sole Remedy for Breach. The parties hereto agree that the
sole remedy available to the Company for Participant's breach of any
of Sections 2, 3, or 4 hereof shall be the forfeiture of any Covenant
Payments not yet paid to Participant. Injunctive or other equitable
relief shall not be available to the Company as a remedy for
Participant's breach of this Agreement.
7. Acknowledgment. The parties acknowledge and agree
that the covenants of the Participant in Sections 2,3 and 4 hereof
are and shall be treated under law, as "ancillary to the sale of the
Company's business." The parties acknowledge and agree that the
protective Covenants are reasonable as to time, scope and territory
given the Company's need to protect its trade secrets and
confidential business information and given the substantial payments
and benefits to which the Participant is entitled hereunder and in
connection with the Management Retention Plan.
8. Severability. If any term or provision of this
Agreement shall to any extent be declared illegal or unenforceable by a duly
authorized court of competent jurisdiction, then the remainder of this
Agreement or the application of such term or provision in circumstances
other than those as to which it is so declared illegal or unenforceable
shall not be affected thereby, each term and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law and the illegal or unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision.
9. Successors. This Agreement shall be binding upon and
inure to the benefit of, and shall be enforceable by Participant and
the Company, their respective heirs, executors, administrators and
assigns. In the event the Company is merged, consolidated, liquidated
by a parent corporation, or otherwise combined into one or more
corporations, the provisions of this Agreement shall be binding upon
and inure to the benefit of the parent corporation or the corporation
resulting from such merger or to which the assets shall be sold or
transferred, which corporation from and after the date of such
merger, consolidation, sale or transfer shall be deemed to be the
Company for purposes of this Agreement. In the event of any
other assignment of this Agreement by the Company, by operation
of law or otherwise, the Company shall remain primarily liable
for its obligations hereunder. This Agreement shall not be
assignable by Participant.
10. Entire Agreement. This Agreement, the Management
Retention Plan, and the Notice of Participation represent the
agreement of the parties with respect to the subject matter hereof,
and supersede in their entirety all prior agreements. This agreement
may only be amended by means of a written agreement by and
between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this
Agreement and caused it to be effective as of the day and year
first written above.
COMPANY
------------------------
PARTICIPANT
------------------------
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
AMENDED NOTICE OF PARTICIPATION (LEVEL I)
TO: [Name of Participant]
Amended as of: August 28, 1998
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% of Target Bonus Included in Definition of Annual Compensation - Yes
Pro-Rated Bonus Amount Eligibility - Yes
Severance Window Period - Twenty-four months
Health Care Continuation Period - Two and one-half years
Retention Payment Perce 83.33% Paid at Change of Control
Severance Payment Perce 83.33% Paid Upon Termination
not for Cause (within 2 years
of Change of Control)
Non-Compete Agreement Percentage 83.34%Paid in 12 monthly
equal installments
TOTAL: 250.00% of Annual Compensation
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
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 Section 280G and 4999 of the Code. The Company
and you shall furnish to the Accountants such information and
documents as the Accountants may reasonably incur in connection
with any calculations contemplated by this paragraph.
EXAMPLE: A Change of Control is consummated November 30,
1998 You remain employed with the Company through the date
of the Change of Control and until June 30, 1999, when you are
terminated involuntarily without Cause. The Accountants have
determined that payments to you will not trigger the Excise Tax.
If your Annual Compensation were $250,000 including a 100%
Target Bonus of $50,000:
Payments Made:
Retention Payment = $250,000 x 0.833 = $208,33 Paid November 30, 1998
Severance Payment = $250,000 x 0.833 = $208,333 Paid June 30, 1998
Total Non-Compete
Payment = $250,000 x 0.833 =$*208,333.33
TOTAL: = $625,0000.00
*Paid in 12 monthly installments of $17,361.11
beginning June 30, 1999 and ending May 30, 2000
because you did not breach sectition 2, 3 or 4
of the Non-compete and Non-solicitation Agreement
attached hereto as Exhibit A.
Pro-Rated Target Bonus:For Change of Control November 30, 1998
Pro-Rated Bonus Amount = $50,000 x (334/365) - $45,755 Paid January 14, 1999.
*All payments are subject to tax withholding.
You also receive Company Paid Medical Coverage for 2.5 years
as specified in the 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 Amended Notice of
Participation within ten (10) days of the receipt of this document
to:
R. Bruce Thompson
Circon Corporation
6500 Hollister Avenue
Santa Barbara, CA 93117
Your failure to timely remit this signed Amended Notice of Participation
will result in your removal from the Plan. Please retain a copy of this
Amended Notice of Participation, along with the Plan, for your records.
This Amended Notice of Participation supersedes in its entirety
Notice of Participation.
Date: Signature:
----------------- -------------------
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
AMENDED NOTICE OF PARTICIPATION [LEVEL II]
TO: [Name of Participant]
Amended as of : August 28, 1998
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
Non-Compete Agreement Percentage - 50% Paid in 12 monthly installments
EXAMPLE: A Change of Control is consummated on
June 15, 1999. You remain employed with the Company through
the date of the Change of Control and until June 16, 1999, when
you are terminated involuntarily without Cause. The Accountants
have determined that payments to you will not trigger the Excise
Tax. Your Annual Compensation is $150,000, including a 100%
Target Bonus of $30,000. On June 15, 1999, you will be paid a
Retention Payment equal to 67% x $150,000 = $100,500. Within
ten business days following June 16, 1999, you will be paid a
Severance Payment equal to (i) 133% x 150,000 = $199,500, plus
(ii) (167/365) x $30,000 = $13,726, for a total Severance Payment
of $213,226. Because you do not breach Sections 2, 3 or 4
Non-Competition and Non-Solicitation Agreement attached hereto
as Exhibit A, you will be paid (50% x $150,000) divided by 12 =
$6,250 on July 16, 1999 and on the sixteenth of each month thereafter
up until and including June 16, 2000. All payments are subject to tax
withholding. You also receive Company-Paid Coverage as specified
in the 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
receipt of the document 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:______________________
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF [LEVEL III]
To: [Name of Participant]
Date:
The Board of Directors of the Company has designated you 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 Annuall
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
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
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:_________________
CIRCON CORPORATION MANAGEMENT RETENTION PLAN
NOTICE OF [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
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 Percentag - 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.
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 Compay 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
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:_________________
CIRCON CORPORATION
SALES FORCE RETENTION PLAN
Effective August 27, 1996
Amended September 26, 1997
Introduction
As a valued member of Circon Corporation's (the "Company
sales force, you have been designated as a participant in Circon's Sales
Force Retention Plan. The Retention Plan includes certain financial
guarantees and provisions having the objective of easing any anxiety
or concern regarding the unlikely and remote possibility of a change
in control of Circon. The Board of Directors of the Company
(the "Board") recognizes that such concerns 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.
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 occur
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
nder 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 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 threaten
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.
(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
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 a
acceptability not to be unreasonably withheld). Termination result
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
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.
ARTICLE III
ELIGIBILITY
Each Employee who is designated by the Board and who is
sales territory manager or a sales video specialist of the Company
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
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
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,
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 on October 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 $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
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 plan
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
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 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 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.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
1. Duration. This Plan shall terminate on August 20, 1999
unless (i) extended by the Board, or (ii) a Change of Control occurs
prior to August 20, 1999. If a Change of Control occurs prior to
August 20, 1999, 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 to any amendment,
change, substitution, deletion, revocation or termination in any respect
whatsoever prior to the Plan's expiration.
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;
(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 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.
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 Comany's general assets.
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.
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 interest 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.
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 Section 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 occuring
within a two-year period, as a result of which fewer than
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
(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 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.
(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.
(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.
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'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 Particant
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.
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,
1999 unless (i) extended by the Board, or (ii) a Change of Control
occurs prior to August 20, 1999. If a Change of Control occurs prior
to August 20, 1999, 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. 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 to any amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever prior to the Plan's expiration.
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;
(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 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.
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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly autorized
CIRCON CORPORATION
Registrant
November 13, 1998 /s/George Cloutier
- ----------------- ------------------
Date GEORGE CLOUTIER
Chief Executive Officer
November 13, 1998 /s/R. Bruce Thompson
- ----------------- --------------------
Date R. BRUCE THOMPSON
Executive Vice President
Chief Financial Officer
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