-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CjP0fNv7a7o7+6vyFakGv1PjEuxAc72dJbiVUBL8vNbann3PI+UkW6iiGvAegEjb KOSfMQsCz+J06gnaAWt7sA== 0000912057-96-018005.txt : 19960816 0000912057-96-018005.hdr.sgml : 19960816 ACCESSION NUMBER: 0000912057-96-018005 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960815 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CIRCON CORP CENTRAL INDEX KEY: 0000719727 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 953079904 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-36096 FILM NUMBER: 96615725 BUSINESS ADDRESS: STREET 1: 460 WARD DR CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8059670404 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CIRCON CORP CENTRAL INDEX KEY: 0000719727 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 953079904 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 460 WARD DR CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8059670404 SC 14D9 1 SCHEDULE 14D-9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14D-9 Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 CIRCON CORPORATION (Name of Subject Company) CIRCON CORPORATION (Name of Person(s) Filing Statement) Common Stock, $.01 par value (Title of Class of Securities) 172736 10 0 (CUSIP Number of Class of Securities) RICHARD A. AUHLL President and Chief Executive Officer Circon Corporation 6500 Hollister Avenue Santa Barbara, California 93117 (805) 685-5100 (Name, address and telephone number of person authorized to receive notice and communications on behalf of person(s) filing statement) Copy to: LARRY W. SONSINI, ESQ. Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 (415) 493-9300 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is Circon Corporation, a Delaware corporation (the "Company" or "Circon"), and the address of the principal executive offices of the Company is 6500 Hollister Avenue, Santa Barbara, California 93117. The title and the class of equity securities to which this statement relates is the Common Stock, par value $.01 per share, of the Company (the "Common Stock" or the "Shares"). ITEM 2. TENDER OFFER OF THE BIDDER This statement relates to the tender offer disclosed in a Tender Offer Statement on Schedule 14D-1, dated August 2, 1996 (the "Schedule 14D-1"), filed with the Securities and Exchange Commission (the "SEC") by USS Acquisition Corp. (the "Purchaser"), a Delaware corporation and wholly-owned subsidiary of United States Surgical Corporation, a Delaware corporation ("USS"), relating to an offer by Purchaser to purchase all outstanding Shares at a price of $18.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase and related Letter of Transmittal (which together constitute the "Offer"). According to the Schedule 14D-1, the principal executive offices of each of USS and the Purchaser are located at 150 Glover Avenue, Norwalk, Connecticut 06856. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Company, which is the entity filing this statement, are set forth in Item 1 above. (b) Certain information regarding contracts, agreements, arrangements or understandings between the Company and certain of its executive officers, directors and affiliates is set forth in the Company's Notice for Annual Meeting of Stockholders and Proxy Statement dated July 12, 1996, relating to its 1996 Annual Meeting of Stockholders (the "Proxy"), under the headings "Board Compensation," "Remuneration of Officers" "Report of the Compensation Committee" and "Compensation Committee Interlocks and Insider Participation." A copy of each such section of the Proxy Statement is filed as Exhibit 1 to this statement and is incorporated herein by reference. Except as described herein, to the knowledge of the Company, as of the date hereof, there are no material contracts, agreements, arrangements or understandings, or any actual or potential conflicts of interest between the Company or its affiliates and (i) the Company, its executive officers, directors or affiliates or (ii) Purchaser, USS or their respective executive officers, directors or affiliates. Section 145 of Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). In accordance with Delaware Law, Article Ninth of the Certificate of Incorporation of the Company, as amended, eliminates the personal liability of a directors of the Company and its stockholders for monetary damages for breaches of fiduciary duty as a director. A copy of Article Ninth is filed as Exhibit 2 to this statement and is incorporated by reference herein. Subject to certain limitations, Article V of the Bylaws of the Company also provides for indemnification of officers and directors of the Company. A copy of Article V is filed as Exhibit 3 to this statement and is incorporated herein by reference. In addition, the Company has entered into indemnification agreements with its officers and directors by which the Company provides such persons with the maximum indemnification allowed under applicable law. These agreements also resolve certain procedural and substantive matters which are not covered, or are covered in less detail, in the Company's Certificate of Incorporation. A copy of the form of such indemnification agreement is filed as Exhibit 4 to this statement and is incorporated herein by reference. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) On August 1, 1996, Leon C. Hirsch, President and Chief Executive Officer of USS, advised Richard A. Auhll, President and Chief Executive Officer of the Company, that USS was commencing ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED) the Offer the next day. Neither Mr. Auhll, nor any other member of the Company's senior management or Board of Directors had any other prior notice of the Offer, nor were they aware of USS's intention to make the Offer. On August 5, 1996, the Company's Board of Directors (the "Board") convened a meeting, where the Board, with the assistance of senior management and Wilson Sonsini Goodrich & Rosati ("WSGR"), reviewed the Company's financial performance and the Offer, including its terms and conditions. The Board also discussed potential defensive measures in response to the Offer, including the implementation of a Stockholders Rights Plan. In addition, the Board decided to retain Bear, Stearns & Co. Inc. ("Bear Stearns") to serve as financial advisors to the Company and assist the Board in considering and analyzing the Offer. On August 8, 1996, the Board convened an additional meeting, where the Board continued its analysis of the Offer and the implementation of a Stockholders Rights Plan. The Board also reviewed the Company's financial performance, business strategy and strategic plan. The Board instructed management and the Company's financial advisors to continue examining the Company's strategic plan and to provide the Board with further analyses at the next Board meeting. On August 13, 1996, the Board held an additional meeting to finalize its review of the Offer and to make a recommendation in response to the Offer. In addition, the Board determined that the implementation of a Stockholders Rights Plan would be in the best interests of the Company and its stockholders. The Board unanimously approved the Stockholders Rights Plan previously furnished to the Board and instructed management to implement the Plan. At the August 13, 1996 meeting, the Board determined that the best means for providing value to its stockholders is for the Company to continue to pursue its strategic plan and not to be put up for sale at this time. The Board unanimously concluded that the Offer is inadequate and not in the best interests of the Company and its stockholders. In particular, the Board determined that the Company's strategic plan offers the potential for greater long-term benefits for the Company's stockholders than the Offer based on, among other things, greater opportunities for business expansion, revenue and earnings growth, as well as benefits following the full integration of the business of Cabot Medical Corporation ("Cabot") into the Company. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS REJECT THE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE OFFER. A copy of a letter to stockholders communicating the Board's recommendation and a form of press release announcing such recommendation are filed as Exhibits 5 and 6 hereto, respectively, and are incorporated herein by reference. (b) In reaching the conclusions referred to in Item 4(a), the Board of Directors took into account numerous factors, including but not limited to the following: (i) The Board's familiarity with the business, financial condition, prospects and current business strategy of the Company, the nature of the business in which the Company operates and the Board's belief that the Offer does not reflect the long-term values inherent in the Company. In this regard, the Board particularly considered the following: - The Company's reputation as a provider of quality products and services and its position in its industry as a technological leader and innovator. - The market share of the Company in the urology and gynecology markets and new products planned for introduction in the future. 2 ITEM 4. THE SOLICITATION OR RECOMMENDATION (CONTINUED) - The expected growth rates of the markets for urological and gynecological products and the product position of the Company in such markets. - The Company's long-term sales plan, including the effects of products under development and enhancements to current products. - The cost savings and growth impact of the Cabot acquisition which the Company expects to realize, including cost savings from programs already in process and those that are currently planned. - The historical trading price of the Company's Common Stock, including the Board's belief, based in part on the factors referred to above, that the trading price for the Company's Common Stock immediately prior to commencement of the Offer did not reflect the long-term value inherent in the Company. In this regard, the Board noted that the Offer represented a 23% discount from the highest closing price of the Common Stock during the 12-month period preceding the Offer. - The risks inherent in achieving the Company's business plan. (ii) The Company's prospects for future growth and profitability, based on the Company's strategic plan, the various strategic initiatives which have been implemented and investments that have been made over the past several years, including the acquisition of Cabot, and other opportunities that will be available in the future, the availability in the future of certain new products and enhancements to current products in various stages of development, and current conditions in the businesses in which the Company operates. (iii) The opinion of Bear Stearns to the effect that the consideration offered pursuant to the Offer is inadequate from a financial point of view to the stockholders of the Company (excluding USS and its affiliates). A copy of the written opinion of Bear Stearns which sets forth the assumptions made, matters considered and basis for their review is filed as Exhibit 7 hereto and incorporated herein by reference. (iv) The Board's commitment to protecting the best interests of the Company's stockholders. (v) The disruptive effect of the Offer on the Company's employees, suppliers and customers. (vi) The numerous conditions to which the Offer is subject. The Offer is conditioned upon, among other things, the acquisition of Shares pursuant to the Offer and the proposed merger following the Offer having been approved pursuant to Section 203 of the Delaware General Corporation Law ("Section 203") or the Purchaser being satisfied in its sole discretion that Section 203 is otherwise inapplicable to the acquisition of Shares pursuant to the Offer and the proposed merger. In light of the Board's decision discussed above, the Board has determined to take no action which would render Section 203 so inapplicable. In view of the wide variety of factors considered in connection with its evaluation of the Offer, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its respective determinations. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED (a) Pursuant to a letter agreement dated August 8, 1996 (the "Letter Agreement"), the Company engaged Bear Stearns to perform certain financial and advisory services in connection with the Offer. For such services the Company agreed to pay Bear Stearns a retainer fee of $175,000 as well as a fee of $300,000 for its fairness opinion requested by the Company, and an additional fee of $300,000 for any additional opinion with respect to a transaction that is approved by the Board (the $175,000 and both of the $300,000 fees are credited against the fees described below). If during the term of the 3 ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED (CONTINUED) Letter Agreement the Company sells all or substantially all of its assets to, or an aggregate of 50% or more of the outstanding Common Stock is acquired by, any person or group of persons in one or a series of transactions, then the Company is obligated to pay Bear Stearns an amount equal to 1.0% of the Equity Consideration (as defined below) paid to the Company's stockholders. In addition, upon the occurrence, within one year following the date of termination of the Letter Agreement, of any event described in the foregoing sentence or the execution of an agreement with respect to such an event, if the event or agreement is with a third party who has made an Acquisition Proposal (as defined below) or who has been furnished non-public information by the Company or Bear Stearns, then the Company is obligated to pay Bear Stearns the fee described in the foregoing sentence. If the Company consummates a restructuring or recapitalization, then it shall pay Bear Stearns an additional fee of $1,500,000. If there is no Acquisition Proposal by August 8, 1997 (the "Termination Date"), the Company is obligated to pay Bear Stearns $1,500,000. If there is an Acquisition Proposal at the Termination Date, the Company may extend the Termination Date to August 8, 1998 (the "Extended Date") and remain responsible for paying any fees earned as described herein. Notwithstanding the foregoing, the Company may elect to pay Bear Stearns $1,500,000 regardless of whether there is an Acquisition Proposal at any time prior to the Termination Date or any Extended Date, in which event the Letter Agreement will terminate. The fee described in this paragraph is payable only once and will be deducted from any payments made pursuant to the fourth sentence of this Item 5(a). "Equity Consideration" means the consideration per share of Common Stock paid to the Company's stockholders multiplied by the number of shares of Common Stock outstanding on a fully diluted basis. Equity Consideration will be determined as if any acquisition described above were of 100% of the outstanding shares of Common Stock on a fully diluted basis; provided, however, in the event that the acquisition involves the sale of all or substantially all of the assets of the Company, then the Equity Consideration will equal the sum of (i) the total amount received by the Company upon consummation of the sale; and (ii) the total amount of the Company's indebtedness assumed by or otherwise transferred to the purchaser. "Acquisition Proposal" means (i) any tender or exchange offer which if consummated would result in any person beneficially owning 50% or more of the Company's securities ("Tender Offer"), or (ii) any publicly proposed or publicly disclosed proposal or offer relating to (A) any direct or indirect acquisition or purchase of 50% or more of either the Company's securities or the assets of the Company, (B) any Tender Offer or (C) any merger, consolidation or business combination involving the Company or (iii) any "solicitation" of "proxies" (as such terms are defined in Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended) with respect to the voting of, or granting of a consent with respect to, any capital stock of the Company. Pursuant to the Letter Agreement, the Company agreed to indemnify Bear Stearns against all liability resulting from the performance of Bear Stearns' duties under such agreement, except for liability resulting from the gross negligence or willful misconduct of Bear Stearns. The Company has also agreed to reimburse Bear Stearns periodically for their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of their attorneys arising in connection with any matter referred to in the Letter Agreement. The Letter Agreement may be terminated at any time by either party thereto, in which event Bear Stearns will be entitled to any compensation earned by it up to the date of the termination or completion, including the reimbursement of all reasonable expenses incurred by Bear Stearns. (b) As a result of the Company's concern about the disruptive effects of the Offer on the Company's officers and other employees, the Company has retained the consulting firm of William M. Mercer, Incorporated to advise the Board and to evaluate the possibility of implementing an employee retention program. 4 ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED (CONTINUED) The Company also has retained The Abernathy/MacGregor Group Inc. as a public relations advisor in connection with the Offer and has retained Corporate Investor Communications, Inc. to assist the Company in connection with communications with stockholders and to provide other services in connection with the Offer. The Company will pay The Abernathy/MacGregor Group Inc. and Corporate Investor Communications, Inc. reasonable and customary fees for their services, reimburse them for their reasonable expenses and provide customary indemnities. Except as described above, neither the Company nor any person acting on its behalf has retained any other person to make solicitations or recommendations to security holders on its behalf concerning the Offer. ITEM 6. PRESENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) To the Company's knowledge, no transaction in the Shares has been effected during the past 60 days by the Company or any executive officer, director, affiliate or subsidiary of the Company. (b) To the Company's knowledge, none of the Company's executive officers, directors, affiliates and subsidiaries presently intends to tender Shares which are held of record or beneficially owned by them pursuant to the Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) No negotiation is underway or is being undertaken by the Company in response to the Offer which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. Notwithstanding the foregoing, the Board may in the future engage in negotiations in response to the Offer that could have one of the effects specified in the preceding paragraph and it has determined that disclosure with respect to the parties to, and the possible terms of, any transactions or proposals of the type referred to in the preceding paragraph might jeopardize any discussions or negotiations that the Company may conduct. Accordingly, the Board has instructed management not to disclose the possible terms of any such transactions or proposals, or the parties thereto, unless and until an agreement in principle relating thereto has been reached or, upon the advice of counsel, as may otherwise be required by law. (b) Stockholders Rights Plan. At the direction of the Board, the Company declared a dividend distribution of one Right for each outstanding share of Common Stock, to stockholders of record on August 26, 1996, pursuant to the Preferred Shares Rights Agreement, dated August 14, 1996 (the "Rights Agreement"). A summary of the Rights Agreement is filed as Exhibit 8 to this statement, is incorporated herein by reference and a copy is attached hereto as Annex A. Other than as set forth above, there is no transaction, board resolution, agreement in principle or signed contract in response to the tender offer, which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED Not Applicable. 5 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS Exhibit 1 The "Board Compensation," "Remuneration of Officers," "Report of the Compensation Committee" and "Compensation Committee Interlocks and Insider Participation" sections of the Proxy Exhibit 2 Article Ninth of Certificate of Incorporation, as amended Exhibit 3 Article V of the Bylaws Exhibit 4 Form of Indemnification Agreement Exhibit 5* Letter to Stockholders regarding Board's Recommendation Exhibit 6 Press Release Announcing Board's Recommendation Exhibit 7 Opinion of Bear, Stearns & Co. Inc. Exhibit 8* Summary of Stockholders Rights Plan Exhibit 9 Press Release of the Company dated August 5, 1996
- ------------------------ * Included in copy mailed to stockholders 6 SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 14, 1996 CIRCON CORPORATION By: /s/ Richard A. Auhll Richard A. Auhll PRESIDENT AND CHIEF EXECUTIVE OFFICER
7 ANNEX A SUMMARY OF STOCKHOLDERS RIGHTS PLAN UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE PREFERRED SHARES RIGHTS AGREEMENT, DATED AS OF AUGUST 14, 1996 (THE "RIGHTS AGREEMENT"), BETWEEN CIRCON CORPORATION AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS RIGHTS AGENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS --------------------------------------------------------------- Distribution and Transfer of Rights; Rights Certificate: The Board of Directors has declared a dividend of one Right for each share of Circon Common Stock outstanding as of August 26, 1996. Prior to the Distribution Date referred to below, the Rights will be evidenced by and trade with the certificates for the Common Stock. After the Distribution Date, Circon Corporation (the "COMPANY") will mail Rights certificates to the Company's stockholders and the Rights will become transferable apart from the Common Stock. Distribution Date: Rights will separate from the Common Stock and become exercisable following the (a) tenth day (or such later date as may be determined by a majority of the Directors not affiliated with the acquiring person or group (the "CONTINUING DIRECTORS")) after a person or group acquires beneficial ownership of 15% or more of the Company's Common Stock or (b) the tenth business day (or such later date as may be determined by the Continuing Directors) after a person or group announces a tender or exchange offer, the consummation of which would result in ownership by a person or group of 15% or more of the Company's Common Stock, provided that with respect to the tender offer by USS Acquisition Corp., a wholly-owned subsidiary of United States Surgical Corporation for all outstanding shares of Common Stock of the Company as set forth in the Schedule 14D-1 filed with the Securities and Exchange Commission on or about August 2, 1996, the Rights will separate and become exercisable only at such date as is determined by action of a majority of the Continuing Directors.
A-1
SUMMARY OF RIGHTS --------------------------------------------------------------- Preferred Stock Purchasable Upon Exercise of Rights: After the Distribution Date, each Right will entitle the holder to purchase, for $70.00, a fraction of a share of the Company's Preferred Stock with economic terms similar to that of one share of the Company's Common Stock. Flip-In: If an acquiror obtains 15% or more of the Company's Common Stock, thereby becoming an "ACQUIRING PERSON", THEN each Right (other than Rights owned by an Acquiring Person or its affiliates) will entitle the holder thereof to purchase, for the exercise price, a number of shares of the Company's Common Stock having a then current market value of twice the exercise price. Flip-Over: If, after an acquiror obtains 15% or more of the Company's Common Stock, (a) the Company merges into another entity, (b) an acquiring entity merges into the Company or (c) the Company sells more than 50% of the Company's assets or earning power, THEN each Right (other than Rights owned by an Acquiring Person or its affiliates) will entitle the holder thereof to purchase, for the exercise price, a number of shares of Common Stock of the person engaging in the transaction having a then current market value of twice the exercise price. Exchange Provision: At any time after an event triggering the flip-in or flip-over rights and prior to the acquisition by the Acquiring Person of 50% or more of the outstanding Common Stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by the Acquiring Person or its affiliates), in whole or in part, at an exchange ratio of one Common Share per Right (subject to adjustment). Redemption of the Rights: Rights will be redeemable at the Company's option for $0.01 per Right at any time on or prior to the tenth day (or such later date as may be determined by a majority of the Continuing Directors) after public announcement that a person has acquired beneficial ownership of 15% or more of the Company's Common Stock (the "SHARES ACQUISITION DATE"). Expiration of the Rights: The Rights expire on the earliest of (a) August 14, 2006 or (b) exchange or redemption of the Rights as described above.
A-2
SUMMARY OF RIGHTS --------------------------------------------------------------- Amendment of Terms of Rights: The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the Rights holders on or prior to the date when an acquiror obtains 15% or more of the Company's Common Stock; thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the Rights holders in order to cure any ambiguities or to make changes which do not adversely affect the interests of Rights holders (other than the Acquiring Person). Voting Rights: Rights will not have any voting rights. Anti-Dilution Provisions: Rights will have the benefit of certain customary anti-dilution provisions. Taxes: The Rights distribution should not be taxable for federal income tax purposes. However, following an event which renders the Rights exercisable or upon redemption of the Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholders Rights Plan only and is qualified in its entirety by reference to the detailed terms of the Rights Agreement dated as of August 14, 1996 between the Company and the Rights Agent, which are incorporated herein by reference. A-3 EX-1 2 EXHIBIT 1 EXHIBIT 1 BOARD COMPENSATION Directors, other than officers of the Company, receive a retainer fee of $2,500 annually for service on the Board, including service on any Board Committees. These directors also receive a fee of $500 for each Board and committee meeting attended and reimbursement for expenses incurred in connection with attendance at Board and committee meetings. In 1995, the shareholders approved the adoption of the 1995 Directors Stock Option Plan (the "1995 Plan") to replace the 1984 Directors Stock Option Plan (the "1984 Plan") which expired in 1994. The 1995 Plan is substantially similar to the 1984 plan. Under the 1995 Plan, options for up to 200,000 shares of common stock may be granted to directors who are not officers of the Company, for a price not less than 85% of the fair market value of the common stock on the date of grant. The vesting schedule for the options granted is determined by a committee of directors at the time of the option grant. The maximum option term is ten years. If the optionee ceases to be a director for any reason, any options granted which have not been exercised will be canceled. No options were granted to directors in 1995. -1- REMUNERATION OF OFFICERS COMPENSATION TABLES SUMMARY COMPENSATION TABLE. The following table sets forth three years of compensation history for the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company as of the last completed fiscal year:
Annual Compensation (1) Long-Term Compensation ---------------------------------- ---------------------------------- Awards Payouts ---------------------- ---------- Other Securities Annual Restricted Underlying LTIP All Other Name and Compen- Stock Options Payouts Compen- Principal Position Year Salary ($) Bonus ($) sation ($) ($) (#) ($) sation ($) - --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------ R. Auhll 1995 $298,000 $130,239 - - - - $10,408 (2) President and Chairman 1994 $237,930 $107,475 - - - - $10,210 of the Board 1993 $231,000 $24,000 - - 40,000 - $8,839 R.B. Thompson 1995 $166,000 $60,940 - - - - $4,192 (3) Executive Vice President 1994 $140,080 $52,202 - - 20,000 - $3,977 Chief Financial Officer 1993 $136,000 $12,000 - - - - $3,729 F. D'Amelio 1995 $169,000 $58,000 - - - - $3,672 (4) Vice President 1994 $143,000 $48,310 - - 23,750 - $3,303 Chief Manufacturing 1993 $125,000 $9,000 - - 4,879 - $2,398 Officer W. Berci 1995 $154,000 $45,500 - - - - $3,283 (5) Vice President 1994 $132,000 $36,073 - - 20,000 - $2,567 Marketing and Sales 1993 $128,000 $15,000 - - - - $2,560 D. Zielinski 1995 $141,916 $52,276 - - - - $4,279 (6) Vice President 1994 $136,000 $51,790 - - 23,750 - $3,559 ACMI Division 1993 $120,500 $20,038 - - - - $3,328 General Manager
(1) Includes amounts earned in fiscal year, whether or not deferred. (2) Reflects $4,620 Company match of employee contributions to 401(k) plan and $5,788 premium on life insurance paid by the Company. (3) Reflects $3,176 Company match of employee contributions to 401(k) plan and $1,016 premium on life insurance paid by the Company. (4) Reflects $3,162 Company match of employee contributions to 401(k) plan and $510 premium on life insurance paid by the Company. (5) Reflects $2,769 Company match of employee contributions to 401(k) plan and $514 premium on life insurance paid by the Company. (6) Reflects $1,819 Company match of employee contributions to 401(k) plan and $2,460 premium on life insurance paid by the Company. -2- OPTION GRANTS IN LAST FISCAL YEAR. None of the executive officers named in the Summary Compensation Table above received a grant of stock options during the year ended December 31, 1995. The Company has never granted stock appreciation rights (SARs). AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES. The following table sets forth, for each of the executive officers named in the Summary Compensation Table above, each exercise of stock options during the year ended December 31, 1995 and the year-end value of unexercised options:
Number of Securities Value of Unexercised Underlying Unexercised Options In-the-Money Options Shares at Fiscal Year End 1995 at Fiscal Year End 1995 Acquired on Value ------------------------------ ---------------------------------- Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable (2) Unexercisable (2) - ----------------- ----------- -------------- ------------- -------------- --------------- ----------------- R. Auhll n/a n/a 20,000 (3) 20,000 $200,000 (3) $200,000 R.B. Thompson n/a n/a 2,857 17,143 $31,427 $188,573 F. D'Amelio n/a n/a 20,257 27,372 $309,433 $308,857 W. Berci 16,000 $256,125 14,057 17,143 $213,427 $188,573 D. Zielinski n/a n/a 3,393 20,357 $37,323 $223,927
(1) Excess of market price over exercise price, on the date of exercise. (2) Excess of $20.25 (market price at year end) over exercise price. (3) Mr. Auhll also holds warrants to purchase 100,000 shares which were fully exercisable at year end. The value of these warrants, computed as in note (2), was $1,564,000. The warrants were issued in 1990 in connection with Mr. Auhll's guarantee of certain indebtedness of the Company and not in connection with his performance of services to the Company. REPORT OF THE COMPENSATION COMMITTEE COMPENSATION PRINCIPLES The compensation policies of the Company for all employees, including executive officers, are guided by the following principles: - Attract, retain and motivate well qualified employees who contribute to the long-term success of the Company. - Encourage the development and achievement of objectives that enhance long-term shareholder value. - Relate compensation to the overall success of the Company which includes providing sales growth coupled with sound financial performance, quality products and services for customers, and fostering an environment which enables employees to achieve objectives. EXECUTIVE COMPENSATION PRACTICES The Company's executive compensation program consists primarily of cash and equity based elements. Salary and annual awards, if warranted, under the Management Incentive Compensation Program ("MICP") comprise the cash elements. Grants of stock options under the Company's employee stock option plans and participation in the Company's employee stock purchase plan comprise the equity based elements. The Company also provides health and welfare benefits to the named officers through programs that are generally available to all employees. In addition, all Company officers are entitled to have life insurance up to four times their annual base salary. -3- CASH COMPONENTS It is the Company's intent to provide a compensation program that can attract, motivate and retain high performance executives who are critical to the long-term success of the Company. Salary levels and MICP target levels are established annually for executive officers by the Compensation Committee, after a review of compensation surveys for the medical/dental equipment and supply industry. For 1995, the survey group consisted of 324 publicly traded companies whose principal business was the manufacture or distribution of medical/dental equipment and supplies. Of these companies, 140 are included in the NASDAQ index covering medical stocks (see "Stock Performance Graph"). Salaries for executive officers are established by evaluating the responsibilities of the position held and the experience of the individual and by reference to the competitive marketplace for executive talent. The MICP plan provides for annual awards which are paid after the end of the fiscal year, based on the achievement of pre-established annual increases in specific objectives. The overall MICP program typically has many objectives. The 1995 MICP plan had 125 objectives. For every participant, a target payout is established for each objective and the weighting or value is assigned to each component. Each MICP participant has a unique set of objectives which constitute his or her specific MICP program. There are also one or two subjective elements in each participant's program. An individual objective has a pre-established minimum performance level before any payment will occur and a maximum performance level where further payment ceases. The range of payouts for each objective is from zero to 200% of a target amount. The Compensation Committee establishes goals for overall growth in sales, gross profit, operating and net income on a Company wide basis and reviews the complete MICP program each year. Using these Company wide goals as guidelines, targets are then determined for other business units, and other subsets of sales, gross profit and operating income. In years where there is a significant change in the overall business, or in an individual's responsibility, the MICP targets are modified to make the performance measurements meaningful. Awards are prorated for participation for less than one year. Employees with other commission or bonus arrangements are generally excluded from participation in the MICP plan. The MICP plan may be modified from time to time, or discontinued at the discretion of the Compensation Committee. During 1995, executive officers had six to twelve objectives in their MICP program with each objective having a weight of two to forty-nine percent of their total program. The weight of the objectives varied widely among the group depending on the responsibilities of the individual. For 1995, actual payouts for the individual MICP programs averaged 101% of target. Employees, including executive officers, who participate in the 401(k) plan may receive a Company matching contribution of up to a maximum of 1 1/2% of their salary per year. EQUITY BASED COMPONENTS The Company utilizes equity based compensation in the form of stock options and a 20% matching program for stock purchases under a stock purchase plan for its employees to focus employees and management on creating and enhancing long term shareholder value. The actual value of such equity based compensation correlates directly to the Company's stock price performance. Stock options are an essential element of the Company's compensation program. This component is intended to provide a long term incentive for employees to stay with the Company and to motivate them to work toward appreciation in the price of the Company stock over time. Three hundred fifty- three employees (or approximately 29% of all employees) participate in the various employee stock option plans. Stock options are currently outstanding under the 1979 Employee Stock Option Plan, the 1983 Employee Stock Option Plan, which expired in 1989 and 1993 respectively, the 1993 Stock Option Plan (the"1993 Plan") and the Cabot Stock Option Plan (the "Cabot Plan"). In determining the number of shares subject to options being granted to executive officers, the Compensation Committee considers survey data on options granted to executives with comparable positions at comparable companies, the number of shares subject to options previously granted to the executive, the number of unvested shares subject to outstanding options held by the executive (which is an indicator of the retention value of the outstanding options) and an evaluation of the executive's individual performance. There were no options granted to executive officers in 1995. In the 1979, 1983 and 1993 Employee Stock Option Plans, options generally become exercisable cumulatively or "vest" at an annual rate of 14.3% of the total shares granted for seven years commencing one year from the date of grant. All outstanding stock options were granted at the "market price" as of the date of grant. Correspondingly, options in the Cabot Plan generally become exercisable over a three year vesting period. The 1979, 1983, 1993 and Cabot Plans provide for full vesting of options in the event there is a change in control of the Company. -4- 1995 CHIEF EXECUTIVE COMPENSATION Mr. Auhll, in his capacity as Chairman of the Board, Chief Executive Officer and President participates in substantially the same compensation programs as the other named officers. The Compensation Committee has based Mr. Auhll's total compensation, including compensation derived from the MICP plan at a level it believes is competitive with comparably sized medical companies, based on survey data. Circon's sales put the Company in the 75th percentile of the companies surveyed. After considering all factors, particularly the added scope of responsibility associated with the Cabot merger and Mr. Auhll's compensation relative to comparably sized medical companies, the committee approved a $298,000 salary for 1995, an increase of 25.2% over his $237,930 salary for the prior year. Mr. Auhll's target bonus for 1995 MICP program was set at $112,000. Mr. Auhll's MICP program consisted of nine objectives covering sales growth, operating performance and financial ratios, each having a weight of two to forty-nine percent of his total program. Mr. Auhll's bonus program had payouts for individual factors that range from 0% to 200% of the target values for 1995. This resulted in an actual payout of $130,239 or 116% of his target bonus. Mr. Auhll's base salary falls 9% above and his bonus falls 31% below the 75th percentile compared to the CEOs in the survey group. COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m) Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly-held corporations for compensation exceeding $1 million paid to certain of the Company's executive officers. In 1995, the performance-based compensation paid to the Company's executive officers did not exceed the $1 million limit per officer. It is the Compensation Committee's intention to review the Company's compensation policies and regulate compensation levels in order to comply with the statute and avoid non-deductible compensation payments. Respectfully submitted, Richard A. Auhll Harold R. Frank Rudolf R. Schulte COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Directors Auhll, Frank and Schulte comprise the Compensation Committee. Mr. Auhll also serves as President and Chief Executive Officer of the Company. Mr. Auhll participates in discussions regarding compensation for executive officers, except discussions regarding the Chief Executive Officer. As a member of the Compensation Committee, Mr. Auhll is ineligible to receive stock option grants under the Company's stock option plans. No other member of the Compensation Committee is a former or current officer or employee of the Company or any of its subsidiaries. Furthermore, there are no compensation committee interlocks between Circon and other entities involving the Company's executive officers and board members. -5- EX-2 3 EXHIBIT 2 EXHIBIT 2 ARTICLE NINTH OF THE COMPANY'S CERTIFICATE OR INCORPORATION, AS AMENDED NINTH: To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Certificate of Incorporation inconsistent with this Article NINTH, nor the adoption of any provision of Article NINTH, shall eliminate or reduce the effect of this cause of action, suit or claim that, but for this Article NINTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. EX-3 4 EXHIBIT 3 EXHIBIT 3 ARTICLE V OF THE COMPANY'S BYLAWS ARTICLE V COMPENSATION; INDEMNIFICATION 5.1 DIRECTORS' FEES AND EXPENSES 5.1.1 COMPENSATION. Directors and committee members may receive such compensation, if any, for their services, and may be reimbursed for expenses incurred by them on behalf of the Corporation, in the manner and to the extent provided in resolutions duly adopted by the Board of Directors. 5.1.2. OFFICER COMPENSATION. This Section 5.1 shall not preclude any director from also serving as an officer, employee or agent of the Corporation and receiving compensation from the Corporation for such services. 5.2 COMPENSATION OF OFFICERS The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors or by the Chairman of the Board, subject to any rights of the officer pursuant to any employment contract between that officer and the Corporation. 5.3 INDEMNIFICATION OF AGENTS 5.3.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director, officer or employee of the Corporation of is or was serving at their request of the Corporation as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation in the fullest extent authorized by Delaware Law, as the name exists or may hereafter by amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted as such person under applicable law, this Bylaw or any agreement with the Corporation; reasonably incurred or suggested by such person in connection therewith and such indemnification shall continue as to person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors and the Corporation shall indemnify and such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only of such action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Such right shall be a contract right, shall attach even if such indemnification would otherwise be discretionary under Delaware Law, and shall include the right to be paid, by the Corporation, expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director of officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. 5.3.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 5.3.1 is not paid in full by the Corporation within twenty (20) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses, incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which makes it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has med the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. 5.3.3 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person in Section 5.3.1 and 5.3.2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise. 5.3.4 INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than those provided for in this Article V. -2- 5.3.5 INSURANCE. The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 5.3.6 EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article V by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. -3- EX-4 5 EXHIBIT 4 EXHIBIT 4 CIRCON CORPORATION FORM OF INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of _____________ by and between Circon Corporation, a Delaware corporation (the "Company"), and _______________ ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law; WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. CERTAIN DEFINITIONS. (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve 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 80% 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 the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to Circon Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Circon Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. -2- (e) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (f) "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) "Section" refers to a section of this Agreement unless otherwise indicated. (k) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. INDEMNIFICATION. -3- (a) INDEMNIFICATION OF EXPENSES. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. (b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying Indemnitee; PROVIDED, HOWEVER, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. (c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING EFFECT. If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law -4- and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. EXPENSE ADVANCES. (a) OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Company, the Company shall make Expense Advances to Indemnitee. (b) FORM OF UNDERTAKING. Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon. (c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES. (a) TIMING OF PAYMENTS. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than forty-five (45) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than twenty (20) business days after such written demand by Indemnitee is presented to the Company. -5- (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of NOLO CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) NOTICE TO INSURERS. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has -6- been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. (b) NONEXCLUSIVITY. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. 7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. -7- Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. LIABILITY INSURANCE. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. EXCEPTIONS. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: (a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(a) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law. (b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. (c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that -8- each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. (d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(d) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated said statute. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having -9- jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. 18. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. -10- 20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. Circon Corporation By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- Address: Circon Corporation 6500 Hollister Ave. Santa Barbara, California 93117 AGREED TO AND ACCEPTED -------------------------------------- -------------------------------------- -11- EX-5 6 EXHIBIT 5 EXHIBIT 5 CIRCON CORPORATION 6500 HOLLISTER AVENUE SANTA BARBARA, CALIFORNIA 93117 August 15, 1996 TO THE STOCKHOLDERS OF CIRCON CORPORATION Dear Stockholder: As you may be aware, an unsolicited tender offer (the "Offer") for all of the Common Stock of Circon Corporation (the "Company") at $18 per share was commenced on August 2, 1996, by United States Surgical Corporation ("USS") through its wholly-owned subsidiary, USS Acquisition Corp. Your Board of Directors has carefully considered the Offer and has determined that it is not in the best interest of the Company and its stockholders. YOUR BOARD RECOMMENDS THAT YOU AND ALL OTHER STOCKHOLDERS REJECT THE USS OFFER. The Board determined that the Company should continue to pursue its strategic plan and that the Company is not for sale at this time. In particular, the Board determined that the Company's strategic plan offers the potential for greater long-term benefits for the Company's stockholders than the Offer based on, among other things, greater opportunities for business expansion, revenue and earnings growth, as well as benefits following the full integration of the business of Cabot Medical Corporation into the Company. In reaching its conclusion, your Board of Directors took into account a number of factors, including the Board's belief that the tender offer does not reflect the long-term values inherent in the Company. The Board also considered the Company's prospects for future growth and profitability, the numerous conditions to which the Offer is subject and the disruptive effect the consummation of the Offer could have on the Company's employees, suppliers and customers. In addition, the Board considered the opinion of Bear Stearns, the Company's financial advisor, that the consideration offered pursuant to the Offer is inadequate. Enclosed for your information is a copy of your Company's Schedule 14D-9 which contains information concerning your Board's recommendation against the Offer and which has been filed today with the Securities and Exchange Commission. In addition, your Board of Directors has decided to implement a Stockholders Rights Plan and has declared a dividend distribution of Preferred Shares Purchase Rights to stockholders of record on August 26, 1996. The Board has concluded that implementation of the Rights Plan is in the best interests of the Company and its stockholders. A summary of the Rights Plan is included with the Schedule 14D-9. In rejecting the Offer and implementing the Rights Plan, we have exercised our continued confidence in the Company's future and our determination that you, our stockholders, be given every opportunity to participate fully in that future. We will keep you informed as these matters develop. Very truly yours, Richard A. Auhll CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-6 7 EXHIBIT 6 EXHIBIT 6 FOR IMMEDIATE RELEASE: CIRCON BOARD REJECTS U.S. SURGICAL TENDER OFFER, ADOPTS STOCKHOLDERS RIGHTS PLAN Santa Barbara, California (August 15, 1996) - Circon Corporation (NASDAQ-NMS:CCON) today announced that its Board of Directors recommended unanimously that Circon stockholders reject a tender offer by United States Surgical Corporation ("USS"), through its wholly-owned subsidiary, USS Acquisition Corp. for Circon shares. The Circon Board determined that Circon should continue to pursue its strategic plan and that Circon is not for sale at this time. Circon stated that the USS offer does not reflect the long-term values inherent in the company and in the opinion of Bear Stearns, Circon's financial advisor, the consideration offered is inadequate. "Execution of our strategic plan will generate superior value for our stockholders; we have no need to sell the company in order to realize that value," said Richard A. Auhll, Chairman of the Board and President of Circon, as well as a principal stockholder. "We find that USS's offer is entirely inadequate. As we broaden our product line, assimilate our Cabot acquisition, and implement cost-savings programs, we see potential for substantial growth in sales, profits and stockholder value. We understand USS's desire to capture that potential for itself, and to take advantage of recent weakness in the price of our stock. But this is neither an opportune time nor an adequate price for the liquidation of our, and our fellow stockholders', investment in Circon." Circon also announced that its Board has adopted a Stockholders Rights Plan. Pursuant to the Plan, Circon has declared a dividend distribution of Preferred Shares Purchase Rights to stockholders of record on August 26, 1996. Under certain circumstances, the Rights will become exercisable if a person tenders for or acquires 15% or more of Circon's Common Stock. With respect to the tender offer by USS, the Rights are not currently exercisable but may become exercisable at a date determined by the Board of Directors. If the 15% threshold is crossed, the Rights will entitle other stockholders to purchase Common Stock of Circon, or in certain circumstances, stock of the 15% acquiror, at a discount to market prices. Circon is the leading U.S. supplier of products for minimally invasive urological and gynecological surgery, including such hardware products as endoscopes and video systems, and such disposable products as urological stents, laparoscopic suction-irrigation devices, and a wide variety of gynecological products. ### CONTACTS: AT CIRCON: IN NEW YORK: Judy Wilkinson Daniel Katcher Abernathy MacGregor Group Abernathy MacGregor Group (805) 685-5100 (212) 371-5999 EX-7 8 EXHIBIT 7 EXHIBIT 7 [LETTERHEAD] August 13, 1996 Circon Corporation 6500 Holister Avenue Santa Barbara, CA 93117-3019 Attention: Mr. Richard A. Auhll Chairman, President and Chief Executive Officer Ladies and Gentlemen: We understand the USS Acquisition Corp., a wholly owned subsidiary of United States Surgical Corporation (together, "U.S. Surgical"), has commenced a tender offer (the "U.S. Surgical Tender Offer") to acquire all of the outstanding shares of common stock (the "Shares") of Circon Corporation ("Circon" or the "Company") for $18.00 net per share in cash, as more fully described in U.S. Surgical's Schedule 14D-1 and related Offer to Purchase dated August 2, 1996 (collectively, the "U.S. Surgical Tender Offer Documents"). We understand that Circon plans to file its Schedule 14D-9 in response to the U.S. Surgical Tender Offer on or about August 15, 1996 in substantially the form which has been furnished to us. You have asked for our opinion as to whether the consideration to be offered for the Shares pursuant to the U.S. Surgical Tender Offer is adequate, from a financial point of view, to the shareholders of Circon (excluding U.S. Surgical and its affiliates). In the course of performing our review and analyses for rendering this opinion, we have: 1. reviewed the U.S. Surgical Tender Offer Documents and Circon's Schedule 14D-9 in substantially the form expected to be filed on or about August 15, 1996; 2. reviewed Circon's Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended December 31, 1993 through 1995, and its Quarterly Reports on Form 10-Q for the periods ended March 31, 1996 and ended June 30, 1996; 3. reviewed certain operating and financial information, including projections, provided to us by management relating to Circon's businesses and prospects; 4. met with certain members of Circon's senior management to discuss the Company's operations, historical financial performance (including, among other things, the factors underlying the Company's financial performance during the past three quarters), financial condition and future prospects; Circon Corporation August 13, 1996 Page 2 5. reviewed the historical prices, valuation multiples and trading volume of the Shares; 6. reviewed the terms of selected precedent mergers and acquisitions of companies which we deemed generally comparable to Circon; 7. performed discounted cash flow analyses on the projections furnished to us by Circon; 8. reviewed publicly available financial data, stock market performance data and valuation multiples of companies which we deemed generally comparable to Circon; and 9. conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In the course of our review, we have relied upon and assumed the accuracy and completeness of the financial and other information provided to us by Circon. With respect to Circon's projected financial results, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of Circon as to the Company's expected future performance. We have not assumed any responsibility for the information or projections provided to us and we have further relied upon the assurances of the senior management of Circon that it is unaware of any facts that would make the information or projections provided to us incomplete or misleading. In arriving at our opinion, we have not performed, nor have we been furnished with, any independent appraisal of the assets or liabilities of Circon. Our opinion is necessarily based on economic, market and other conditions, and the information made available to us, as of the date hereof. It is understood that this letter is for the information of the Board of Directors of the Company and does not constitute a recommendation to any holder of Shares as to whether to tender shares pursuant to the U.S. Surgical Tender Offer. This letter may not be used for any other purpose, or be reproduced, disseminated, quoted or referred to at any time, in whole or in part, without our prior written consent; provided, however, that this letter may be included in its entirety in the Schedule 14D-9 to be distributed to the holders of the Shares in connection with the U.S. Surgical Tender Offer. Based on the foregoing, it is our opinion that the consideration to be offered for the Shares pursuant to the U.S. Surgical Tender Offer is inadequate, from a financial point of view, to the shareholders of Circon (excluding U.S. Surgical and its affiliates). Very truly yours, BEAR, STEARNS & CO. INC. By: /s/ Jim Ferency ------------------------- Senior Managing Director EX-8 9 EXHIBIT 8 EXHIBIT 8 SUMMARY OF STOCKHOLDERS RIGHTS PLAN UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE PREFERRED SHARES RIGHTS AGREEMENT, DATED AS OF AUGUST 14, 1996 (THE "RIGHTS AGREEMENT"), BETWEEN CIRCON CORPORATION AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS RIGHTS AGENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS --------------------------------------------------------------- Distribution and Transfer of Rights; Rights Certificate: The Board of Directors has declared a dividend of one Right for each share of Circon Common Stock outstanding as of August 26, 1996. Prior to the Distribution Date referred to below, the Rights will be evidenced by and trade with the certificates for the Common Stock. After the Distribution Date, Circon Corporation (the "COMPANY") will mail Rights certificates to the Company's stockholders and the Rights will become transferable apart from the Common Stock. Distribution Date: Rights will separate from the Common Stock and become exercisable following the (a) tenth day (or such later date as may be determined by a majority of the Directors not affiliated with the acquiring person or group (the "CONTINUING DIRECTORS")) after a person or group acquires beneficial ownership of 15% or more of the Company's Common Stock or (b) the tenth business day (or such later date as may be determined by the Continuing Directors) after a person or group announces a tender or exchange offer, the consummation of which would result in ownership by a person or group of 15% or more of the Company's Common Stock, provided that with respect to the tender offer by USS Acquisition Corp., a wholly-owned subsidiary of United States Surgical Corporation for all outstanding shares of Common Stock of the Company as set forth in the Schedule 14D-1 filed with the Securities and Exchange Commission on or about August 2, 1996, the Rights will separate and become exercisable only at such date as is determined by action of a majority of the Continuing Directors.
SUMMARY OF RIGHTS --------------------------------------------------------------- Preferred Stock Purchasable Upon Exercise of Rights: After the Distribution Date, each Right will entitle the holder to purchase, for $70.00, a fraction of a share of the Company's Preferred Stock with economic terms similar to that of one share of the Company's Common Stock. Flip-In: If an acquiror obtains 15% or more of the Company's Common Stock, thereby becoming an "ACQUIRING PERSON", THEN each Right (other than Rights owned by an Acquiring Person or its affiliates) will entitle the holder thereof to purchase, for the exercise price, a number of shares of the Company's Common Stock having a then current market value of twice the exercise price. Flip-Over: If, after an acquiror obtains 15% or more of the Company's Common Stock, (a) the Company merges into another entity, (b) an acquiring entity merges into the Company or (c) the Company sells more than 50% of the Company's assets or earning power, THEN each Right (other than Rights owned by an Acquiring Person or its affiliates) will entitle the holder thereof to purchase, for the exercise price, a number of shares of Common Stock of the person engaging in the transaction having a then current market value of twice the exercise price. Exchange Provision: At any time after an event triggering the flip-in or flip-over rights and prior to the acquisition by the Acquiring Person of 50% or more of the outstanding Common Stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by the Acquiring Person or its affiliates), in whole or in part, at an exchange ratio of one Common Share per Right (subject to adjustment). Redemption of the Rights: Rights will be redeemable at the Company's option for $0.01 per Right at any time on or prior to the tenth day (or such later date as may be determined by a majority of the Continuing Directors) after public announcement that a person has acquired beneficial ownership of 15% or more of the Company's Common Stock (the "SHARES ACQUISITION DATE"). Expiration of the Rights: The Rights expire on the earliest of (a) August 14, 2006 or (b) exchange or redemption of the Rights as described above.
2
SUMMARY OF RIGHTS --------------------------------------------------------------- Amendment of Terms of Rights: The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the Rights holders on or prior to the date when an acquiror obtains 15% or more of the Company's Common Stock; thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the Rights holders in order to cure any ambiguities or to make changes which do not adversely affect the interests of Rights holders (other than the Acquiring Person). Voting Rights: Rights will not have any voting rights. Anti-Dilution Provisions: Rights will have the benefit of certain customary anti-dilution provisions. Taxes: The Rights distribution should not be taxable for federal income tax purposes. However, following an event which renders the Rights exercisable or upon redemption of the Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholders Rights Plan only and is qualified in its entirety by reference to the detailed terms of the Rights Agreement dated as of August 14, 1996 between the Company and the Rights Agent, which are incorporated herein by reference. 3 EX-9 10 EXHIBIT 9 EXHIBIT 9 CIRCON CORPORATION BOARD URGES STOCKHOLDERS TO DEFER DECISION ON TENDER OFFER Circon Corporation, Santa Barbara, California (NASDAQ-NMS:CCON) - August 5, 1996 - Richard A. Auhll, Chairman and President, today announced that Circon's Board of Directors is currently conferring with its financial and legal advisors with respect to the unsolicited tender offer by U.S. Surgical Corporation. Circon will respond to the offer in due course in accordance with its obligations under the securities laws, at which point it will make its recommendation to its stockholders and state its reasons for such recommendation. Circon requests that its stockholders defer making a determination whether to accept or reject U.S. Surgical's tender offer until they have been advised of Circon's position with respect to the offer. Contact: R. Bruce Thompson Executive Vice President Chief Financial Officer (805) 685-5100 -----END PRIVACY-ENHANCED MESSAGE-----