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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED NOVEMBER 3, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM .............................. TO
COMMISSION FILE NUMBER 0-18208
MAXXIM MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0291634
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
104 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 281-240-5588
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------------------------ -----------------------------------------
Common Stock, $.001 par value 6 3/4% New York Stock Exchange
Convertible Subordinated Debentures
due 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the registrant's Common Stock,
$.001 par value, held by non-affiliates of the registrant (including, for this
purpose, shares held by officers, directors or 10% shareholders) as of January
22, 1997, was $102,407,543 based on the closing price on that date on the New
York Stock Exchange. As of January 22, 1997, 8,130,970 shares of the
registrant's Common Stock, $.001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE 1997 ANNUAL
MEETING OF SHAREHOLDERS TO BE FILED PURSUANT TO REGULATION 14A UNDER THE
SECURITIES EXCHANGE ACT OF 1934 ARE INCORPORATED HEREIN BY REFERENCE IN PART
III, ITEMS 10, 11, 12, AND 13.
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ANNUAL REPORT ON FORM 10-K
(FISCAL YEAR ENDED NOVEMBER 3, 1996)
ITEM 1: BUSINESS
OVERVIEW
Maxxim Medical, Inc. (the "Company" or "Maxxim") is a major manufacturer
and developer of a diversified range of specialty medical products and a leading
supplier to hospitals, clinics and outpatient surgery centers of single-use
custom procedure trays. The Company operates three divisions: Case Management,
Argon Medical and Maxxim Medical Europe. The Company's Case Management Division
manufactures, assembles and sells custom procedure trays for a wide variety of
operating room and other medical personnel, complete lines of surgical gloves
and medical exam gloves, infection control apparel for operating room personnel
and patient draping systems. The Company currently controls a 35% market share
in custom procedure trays and a 66% market share in non-latex medical
examination gloves. The Argon Medical division manufactures and markets
guidewires, needles, introducers, catheters, manifolds, transducers, high
pressure syringes and certain other single-use medical and surgical specialty
products, which are used in the Company's procedure trays or are sold
separately. This division also assembles and markets procedure trays for use
primarily in cardiology and radiology procedures. The Company's third division,
Maxxim Medical Europe, serves as the Company's European manufacturer and
distributor of Company products.
HISTORY
Since its inception in 1976, the Company has grown through a series of
acquisitions, development of new or modified products, expanded sales of
existing products and distribution agreements with third parties. As a result,
the Company has a diversified product mix, with no single product constituting
more than 5% of net sales in fiscal 1996. The Company's historical acquisition
strategy has been to make acquisitions that increase the Company's vertical
integration or customer base or include products that complement or expand
existing product lines.
INDUSTRY TRENDS
Management believes that demand for products manufactured and distributed
by the Company has been favorably impacted by the emphasis on less invasive
surgical products, outpatient care and the continuing pressure to utilize
low-cost single-use medical products to improve productivity, contain costs and
reduce the transmission of infectious diseases. Demographic trends, such as the
aging of the population, have also had a favorable effect on the demand for the
Company's products since older people generally require more medical care and
undergo more surgical procedures.
The Company believes that there is an increased emphasis on less invasive
procedures because such procedures generally involve reduced patient trauma and
shorter recovery time. Improvements in medical technology and enhanced awareness
on the part of the public and healthcare professionals of the lower costs and
other benefits of less invasive procedures have resulted in significant
increases in such procedures in recent years. Many of the Company's products are
specifically designed for less invasive procedures. Rising healthcare costs,
ease of set-up and decreased turn-around times, and the shortage of nursing and
other healthcare professionals have also created a need for medical products
that improve healthcare professional productivity and have been principal
factors in the trend towards use of single-use medical products and procedure
trays instead of reusable products. Unlike reusable products, single-use
products such as the Company's specialty medical products, do not require
costly, labor intensive laundering, disinfecting or re-assembling processes. The
risks of transmission of infectious diseases such as AIDS, hepatitis and
tuberculosis, and related concerns about occupational safety of healthcare
professionals, have also contributed to an increased demand for sterile,
single-use products.
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Management also believes that there has been a growing trend by large
customers to concentrate their purchases of medical products with fewer, larger
suppliers, and that the acquisition of Sterile Concepts Holdings, Inc.
("Sterile Concepts") in July 1996 has significantly improved its ability to
capitalize on such a trend. Management believes that this trend will continue to
benefit the Company as it grows and diversifies its product lines.
Although the aggregate number of surgical procedures performed in Europe is
approximately equivalent to the number of surgical procedures performed in the
U.S., the use of single-use products and custom procedure trays in Europe is not
as prevalent as in the U.S. The Company believes that European healthcare
providers will increase their use of disposable products and custom procedure
trays for substantially the same reasons that caused U.S. healthcare providers
to do so. Certain European countries have implemented healthcare price controls
and experienced consolidation of hospitals and shifting of surgical procedures
away from hospitals towards outpatient surgery centers. The Company believes
that these developments will increase the demand among European healthcare
providers for the greater efficiency and productivity associated with the
single-use products of the type it manufactures.
STRATEGIC OBJECTIVES
Since the acquisition of Sterile Concepts, the Company's long-term
strategic objectives are: (i) improve profitability, (ii) reduce long-term
indebtedness, (iii) emphasize the sale of the entire range of the Company's
products to large buying groups and healthcare provider networks, (iv) expand
international operations, (v) pursue strategic acquisitions that promote a
vertical integration strategy, or complement the existing product offering and
increase market share and (vi) increase productivity by maximizing the
utilization of existing facilities.
Management believes that the Company must focus more of its sales effort on
the emerging integrated healthcare networks. Many hospitals are forming
alliances and are increasingly buying their medical products on a national
accounts basis, which favors suppliers who can bundle multiple products. The
Company will place greater emphasis on leveraging the sales force's existing
relationships to sell all of its product lines. The Company believes that the
recent acquisition of Sterile Concepts will facilitate the ability of the
Company to exploit the current trends described above as it now has a much
larger presence in the custom procedure tray market and additional plants in
Virginia, California and Minnesota which expand the Company's geographical
coverage of domestic markets.
Management believes that the international market for disposable medical
products is in an early stage of development. In fiscal 1996 approximately 15.8%
of the Company' s revenues were derived from international sales and exports. In
January 1995, the Company acquired the operations of Medica, and in June 1995,
the Company acquired the glove operation of Becton Dickinson and Company (the
"Glove Operation"). These operations specialize in the manufacture and sale of
medical disposables for hospital operating rooms. Along with the North American
operations located in Honea Path, South Carolina, Los Gatos, California and
Mississauga, Ontario, Canada, the Glove Operation also has a manufacturing
facility in Aalst/Erembodegem, Belgium. All of the Company's European operations
were combined to form Maxxim Medical Europe in the third quarter of fiscal 1995.
An important part of the Company's strategy has been to add or expand
product lines through acquisitions, enabling the Company to develop its primary
business of manufacturing and distributing low-cost single-use medical surgical
products, which are sold individually and as components of the Company's
procedure trays. In addition, acquisitions have enabled the Company to implement
its strategy of becoming a leading supplier of procedure trays in order to
maintain direct customer contact while providing a distribution vehicle for the
Company's disposable medical products. The Company intends to continue to
consider acquisitions of other medical products companies and to continue its
internal product development and enhancement efforts in order to increase the
number of products that can be sold directly or included in its procedure trays.
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The Company has the capacity to increase its manufacturing and assembly
operations for most of its medical specialty products without incurring
significant capital expenditures. Since most of the Company's facilities
currently operate using one or two shifts per day, the Company can efficiently
manufacture additional product by adding shifts. In the Glove Operations,
capacity can shift between glove styles with moderate capital expenditures;
however, significant investment will be required to add to total, non-latex
glove capacity. The acquisition of Sterile Concepts has provided the Company
with a significant vertical integration opportunity. Inclusion of the Company's
products in the expanded base of procedure trays should increase its ability to
improve margins by more fully utilizing existing capacity.
OPERATING DIVISIONS
CASE MANAGEMENT DIVISION
The Case Management division manufactures, assembles and sells custom
procedure trays, complete lines of surgical gloves and hospital exam gloves,
infection control apparel for operating room personnel and patient draping
systems. The Company formed this division in the third quarter of fiscal 1995 by
combining its Sterile Design and Boundary Healthcare divisions with the newly
acquired domestic operations of the Glove Operation. The Company has also
consolidated the Sterile Concepts operations into this division. Case Management
products are marketed principally through its sales force consisting of
approximately 60 independent manufacturer's representatives and approximately 30
direct sales persons throughout the United States and Canada. Division sales
were $274,611,00 in fiscal 1996, or 68.7% of the Company's net sales.
CASE MANAGEMENT DIVISION PRODUCT LINES
CUSTOM TRAYS -- The Company assembles and markets procedure trays for use
in a variety of medical and surgical procedures. Procedure trays are assembled
with single-use products selected by the operating room personnel performing a
certain medical or surgical procedure. Among the types of single-use medical or
surgical products typically included in the procedure trays are gowns, surgical
drapes, electrosurgical accessories, instruments, needles, gloves, syringes,
tubing, sponges, towels and gauze. The Company's ValuQuote system allows Company
sales representatives to meet customers on-site and design cost-effective custom
procedure tray configurations in accordance with individual customer
specifications, from a selection of over 5,000 component parts, which are
manufactured either by the Company or third party vendors. The computer-aided
design of custom tray prototypes helps to ensure that client product and
sequencing needs are met. Assembly of procedure trays is then performed in
facilities located in Temecula, California, Clearwater, Florida, Minnetonka,
Minnesota and Richmond, Virginia. The Company's Encompass program bundles the
customer's choice of procedure-based products and converts into an efficient
disposal system after use.
DRAPES & GOWNS -- The Company manufactures a complete line of single-use,
non-woven infection control apparel for operating room personnel and patient
draping systems. These products offer a wide range of features, such as patented
fluid collection pouches to minimize the risk of transmission of infectious
agents or other waste during medical procedures. The drapings are utilized in
various general and specialty surgical procedures, as components of procedure
trays (including those assembled and distributed by the Company), in a sterile
pack, or as a single product. The Company has modified the design of many of its
products and has developed new products (e.g. bonded sleeves) to accommodate new
medical advances, such as less invasive clinical and outpatient procedures. This
product line provides the Company with opportunities for additional vertical
integration since its products can be included in Argon Medical and Case
Management procedure trays which have been greatly expanded from the acquisition
of Sterile Concepts. The Company manufactures its non-woven products at its
facilities located in Columbus, Mississippi and La Romana in the Dominican
Republic.
GLOVES -- The Case Management division also manufactures and distributes a
complete line of surgical and medical examination gloves. The gloves, which are
sold under brand names such as Tru-Touch, SensiCare, Tradition, Eudermic,
Dextren and Neolon, are manufactured from latex, synthetic rubber
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and various non-latex materials. The Company's non-latex examination gloves
currently enjoy an estimated 66% market share worldwide. The Company believes
that its non-latex examination gloves provide a viable alternative to
traditional latex examination gloves, and the recent concern of healthcare
professionals about purported allergic reactions to latex examination gloves has
increased demand for the Company's non-latex gloves, particularly for the
Company's SensiCare gloves. The Company continues to research and develop new
compounds to improve its non-latex products. The Case Management gloves,
together with the drape and gown products allow the Company to provide
healthcare personnel with infection control apparel from head to foot. The
gloves are manufactured at the Company's facilities in Honea Path, South
Carolina, Los Gatos, California, Mississauga, Canada and Aalst/Erembodegem,
Belgium. The highly mechanized non-labor intensive facilities in California,
Canada and Belgium are currently producing vinyl gloves at full capacity.
OTHER PRODUCTS -- The Company also manufactures a variety of plastic
medical bowls and containers as well as a line of electrosurgery accessory
products which are primarily sold through inclusion in procedure trays.
ARGON MEDICAL DIVISION
The Argon Medical division manufactures single-use specialty vascular and
pressure monitoring products and assembles procedure trays for the cardiology
and interventional radiology markets. The Division's specialty medical products
include single-use guidewires, needles, introducers, catheters, manifolds,
transducers and high pressure syringes. Its products are either utilized in the
Company's procedure trays or are sold separately. The specialty medical products
manufactured by Argon Medical include technologically advanced products which
have been developed by the Division's technical staff. Argon Medical division
products are marketed principally through its sales force of approximately 40
direct sales persons. The Argon Medical division manufactures or assembles the
medical specialty products and procedure trays at the Company's plant in Athens,
Texas. Division sales for fiscal 1996 amounted to $63,614,000, or 15.9% of
Company revenues.
MAXXIM MEDICAL EUROPE DIVISION
Maxxim acquired Medica, which is located in The Netherlands, effective
January 1, 1995. In addition, on June 30, 1995 the Company acquired from Becton
Dickinson the Glove Operation which has a manufacturing facility in Belgium. The
Maxxim Medical Europe division, which was formed in the Company's third fiscal
quarter of 1995, serves as the Company's European distributor of Case
Management, Argon, and Medica products. Medica products consist of various
self-manufactured and assembled single-use hospital supply products and custom
procedure kits for transfusion, infusion and patient monitoring. The European
market for single-use items and custom procedure trays is in a very early stage
of development. In order to maximize the potential of this market, the Company
purchased an established company with existing infrastructure and expertise,
after a two-year search for acquisition candidates. The European operations of
Sterile Concepts were minimal and have been integrated into Maxxim Medical
Europe's existing operations. Maxxim Medical Europe products are marketed
principally through its sales force of approximately 12 direct sales persons in
The Netherlands. Dealers and independent sales representatives are utilized
throughout the rest of Europe. The Company manufactures or assembles the Medica
products sold by Maxxim Medical Europe at the Company's plants in The
Netherlands. Division sales for fiscal 1996 amounted to $53,272,000, or 13.3% of
the Company's net sales.
CUSTOMERS
The Company's products are typically purchased pursuant to purchase orders
or supply agreements in which the purchaser specifies whether such products are
to be supplied through a national distributor or directly by the Company. The
Company derives its custom procedure tray revenues principally through its
supply agreements with hospitals and affiliated outpatient surgery centers. In
response to the trend within the hospital industry toward requiring suppliers to
provide reduced order turnaround time and more frequent deliveries to a greater
number of locations within a hospital, the
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Company distributes custom procedure trays to certain customers pursuant to
agreements with national and regional medical products distributors. Under these
agreements, the customers remain under contract with the Company, but are able
to minimize their on-hand tray inventory by utilizing the more frequent
deliveries that a national or regional distributor can provide. Under the
Company's agreements, distributors carry an average of two months' supply of the
projected inventory requirements for the customers to which they distribute. The
Company records sales upon the shipment of inventory to the distributor, at
which time title passes to the distributor. Prices under supply agreements are
usually guaranteed for a year. The Company views as its ultimate customers the
medical professionals who use its products, rather than the purchasing personnel
for hospitals, clinics, surgery centers and healthcare networks who may make the
purchasing decisions.
No individual customer or affiliated group of customer accounts has
accounted for more than five percent of the Company's net sales in any
particular year through the fiscal year ended November 3, 1996. Nevertheless,
the Company estimates that in fiscal 1996, 1995 and 1994 a substantial portion
of its products are actually sold to Owens & Minor, Inc. ("Owens & Minor"), a
diversified distribution company. Although Owens & Minor may be deemed in a
technical sense to be a major purchaser of the Company's products, to the best
of the Company's knowledge, Owens & Minor serves exclusively as a distributor
and does not purchase for its own account. Rather, Owens & Minor's purchases
result from purchase orders or supply agreements between the Company and the
ultimate customer, which Company sales personnel have solicited or executed. The
Company therefore does not believe it is appropriate to categorize Owens & Minor
as an actual customer.
PRODUCT DEVELOPMENT AND PATENTS
The Company is continually conducting research and developing new products
utilizing a team approach that involves its engineering, manufacturing and
marketing resources. Although the Company has developed a number of its own
products, most of its research and development efforts have historically been
directed towards product improvement and enhancement of previously developed or
acquired products. Company research and development expenses were approximately
$5,124,000, $3,777,000 and $2,366,000 in fiscal 1996, 1995 and 1994,
respectively.
The Company actively pursues a policy of seeking patent protection both in
the U.S. and abroad for its proprietary technology. There can be no assurance
that the Company's patents will not be invalidated or that any issued patent
will provide protection that has commercial significance. Litigation may be
necessary to protect the Company's patent position. Such litigation may be
costly and time consuming, and there can be no assurance that the Company will
be successful in such litigation. Since no single patent covers product sales
that constituted 5% or more of net sales of the Company in fiscal 1996, the
Company does not believe that the invalidation of any patents owned by or
licensed to the Company would have a material adverse effect on it or its
business prospects. While the protection of patents is important to the
Company's business, management does not believe any one patent is essential to
the success of the Company.
The Company also relies on trade secrets and continuing technological
advancement to maintain its competitive position. It is the practice of the
Company to enter into confidentiality agreements with key employees and
consultants. There can be no assurance, however, that these measures will
prevent the unauthorized disclosure or use of the Company's trade secrets and
know-how or that others may not independently develop similar trade secrets or
know-how or obtain access to the Company's trade secrets, know-how or
proprietary technology.
DISTRIBUTION AND MARKETING
Management believes that its approach to marketing supports the desires of
its customers to identify with individual account managers who are supported by
product specialists. The Company believes that maintenance of these product
specialists enables it to provide better customer service and to maintain
specialized expertise in each product line. The Company sales representatives
typically attempt to establish and maintain direct contact with operating room
personnel or other medical
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professionals that directly utilize the Company's procedure trays and specialty
products. As medical product purchases are typically made on a centralized basis
by hospital purchasing departments, and increasingly by healthcare networks,
sales representatives must also maintain relationships with purchasing
department personnel. The Company has approximately 130 direct salespeople and
independent manufacturer's representatives representing its products
domestically.
Pursuant to the distribution agreements for custom procedure trays, the
distributors provide inventory and shipping history data to the Company on a
weekly basis, and are responsible for the physical care of the product and the
timely rotation of stock. Stock rotation is necessary to ensure delivery of
custom procedure trays to customers on a timely basis and to ensure that trays
containing components having a limited shelf life are delivered prior to
expiration of the shelf life. Losses resulting from a distributor's failure to
rotate stock properly are borne by the distributor. Distributors are able to
ship products to the Company's customers on a regular, even daily, delivery
schedule, thereby satisfying customer demands for a continuous, uninterrupted
supply of product.
The Company has controlled or contract distribution centers in the
following states: Arizona, California, Colorado, Florida, Georgia, Illinois,
Indiana, Kansas, Maryland, Michigan, Minnesota, New Jersey, Pennsylvania, Texas
and Virginia, and in Canada in Mississuagua, Ontario.
The Company significantly increased its European distribution and marketing
as a result of the Medica and Glove Operation acquisitions and resulting
formation of the Company's Maxxim Medical Europe division. Maxxim Medical Europe
also markets and distributes the Company's Case Management and Argon products
through independent dealers and direct sales representatives. In Europe the
Company has established distribution centers in The Netherlands and Belgium.
MANUFACTURING AND ENGINEERING
The Company's products are manufactured and/or assembled from a variety of
component parts and materials, all of which are expected to continue to be
readily available at reasonable costs from a variety of manufacturers and
suppliers. Most of the medical and surgical specialty products included in the
Company's procedure trays are purchased from other domestic or foreign
manufacturers. The Company's glove manufacturing facilities are highly
mechanized, unlike most of the Company's operations which are labor intensive.
For products other than gloves, most Company manufacturing operations currently
operate using one or two shifts per day, so the Company has capacity to produce
additional product by adding additional shifts. The Company's three exam glove
manufacturing facilities operate almost continuously at full capacity.
BACKLOG
It is the Company's policy and practice to maintain an inventory of at
least 30 to 45 days of finished products or component parts and materials and to
ship products within a few days of receipt of a product order. As a result, the
Company had no significant backlog of unshipped orders at November 3, 1996.
Management believes that such policy is typical of industry practice.
COMPETITION
In general, The Company's products compete with the products of numerous
major companies in the business of developing, manufacturing, distributing and
marketing medical specialty products. Some of these competitors have greater
financial or other resources than the Company. The Company believes that the
principal competitive factors in each of its markets are product features and
benefits, customer service and pricing. The Company does not typically provide
the least expensive products available in the markets in which it competes.
Instead, the Company emphasizes overall value through a combination of
competitive pricing, product quality and customer service.
The Company's Argon Medical and Case Management division each compete with
numerous major companies, including among others, Allegiance Corporation, Baxter
Healthcare Corp. and
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Johnson & Johnson and divisions or subsidiaries thereof. Maxxim Medical Europe's
primary competition includes Baxter Healthcare Corp., Johnson & Johnson,
Molnycke, Inc. and other local distributors of U.S. manufactured products, as
well as foreign competitors.
EFFECTS OF HEALTHCARE REFORM
The recent government focus on healthcare reform and on the escalating cost
of medical care has increased pressures on all participants in the healthcare
industry to reduce the costs of products and services. The Company does not
believe that the continuation of these trends will have a significant effect on
the Company's results of operations or financial condition; however, the Company
believes that healthcare legislation may have some beneficial effect on its
business by increasing the availability of healthcare, emphasizing less invasive
surgery and increasing the need for efficiency by healthcare personnel.
GOVERNMENT REGULATION
DOMESTIC:
Most of the products being developed, manufactured and sold by the Company
(and products likely to be researched, developed or marketed in the future) are
subject to regulation as medical devices by the Food and Drug Administration
("FDA"). The FDA regulates the development, production, distribution and
promotion of medical devices in the U.S. Various states and foreign countries in
which the Company's products are being sold or may be sold in the future may
impose additional regulatory requirements.
Pursuant to the FDA Act, a medical device is ultimately classified as
either a Class I, Class II or Class III device. Class I devices are subject only
to general controls that are applicable to all devices. Such controls include
regulations regarding FDA inspections of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class II
devices must meet general performance standards established by the FDA. Class
III devices require the most stringent pre-market approval by the FDA before
they can be marketed and must adhere to such standards once on the market. Such
pre-market approval can involve extensive testing to prove safety and efficacy
of the devices. Most of the Company's products are Class II devices. FDA
marketing approval of these devices is obtained under Section 510(k) of the FDA
Act, which provides for FDA approval on an expedited basis for product that can
be shown to be substantially equivalent to devices in commerce prior to May 1976
(the month and year of enactment of the FDA Act). Most of the Company's
remaining products are Class I devices.
At present, most of the Company's products and manufacturing facilities are
subject to pervasive and continuing regulation by the FDA. All phases of the
manufacturing and distribution process are governed by FDA regulation. Products
must be produced in registered establishments and be manufactured in accordance
with "Good Manufacturing Practices," as such term is defined under the FDA
Act. In addition, all such devices must be periodically listed with the FDA.
Labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. The export of devices is
also subject to regulation in certain instances.
The mandatory Medical Device Reporting ("MDR") regulation obligates the
Company to provide information to the FDA on injuries alleged to have been
associated with the use of a product or in connection with certain product
failures which could cause injury. If as a result of FDA inspections, MDR
reports or other information, the FDA believes that the Company is not in
compliance with the law, the FDA can institute proceedings to detain or seize
products, enjoin future violations, impose product labeling restrictions or
enforce product recalls or withdrawals from the market.
In addition to the foregoing, numerous other federal, state and local
agencies, such as environmental, fire hazard control, working condition and
other similar regulators, have jurisdiction to take actions that could have a
material adverse effect upon the Company's ability to do business. Compliance
with federal, state and local provisions that have been enacted or adopted
regulating the
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discharge of materials into the environments, or otherwise relating to the
protection of the environment, including in particular the stringent regulation
of the use of ethylene oxide in the sterilization process, have not had, and are
not anticipated to have, any material effect upon the capital expenditures,
earnings or competitive position of the Company or any of its subsidiaries.
INTERNATIONAL:
The products manufactured and sold by the Company in Europe are subject to
the European Community regulations for medical devices. The European Community
has a registration process which includes registration of manufacturing
facilities ("ISO certification") and product certification ("CE Mark"). The
ISO certification requires that there be functioning quality systems at each
facility, and following an acceptable certification inspection, the facility
receives an ISO certification number. The CE Mark certification applies to the
products or product types which meet the European requirements for those
products. Following CE Mark certification, the CE symbol is printed on the
product label to show the customer that the product complies with the
requirements of the European market. The European Community has imposed a
deadline of June, 1998 after which products without a CE Mark may not be sold in
Europe.
The Company obtained ISO registration and CE Mark certification for its
facilities and products in Europe. In North America, the Company has begun the
process of European compliance by starting a certification plan with a Notified
Body and contracting ISO certification and CE Mark registration for those
facilities and products which are exported to European markets. The facility in
Richmond, Virginia has already received ISO certification.
Similar to the domestic regulatory bodies, Europe has numerous government
and local agencies which have jurisdiction to take actions that could have a
material adverse effect upon the Company's ability to conduct business in
Europe. European governmental and local agencies have enacted or adopted
regulations which concern the discharge of materials into the environment, or
otherwise relating to the protection of the environment, which have not had, and
are not anticipated to have, any material effect upon the capital expenditures,
earnings or competitive position of the Company or any of its subsidiaries.
ENVIRONMENTAL
The Company is subject to a variety of environmental laws, rules and
regulations, as are other companies in the same or similar business. The Company
believes that it is in substantial compliance with such laws, rules and
regulations; however, these laws, rules and regulations change from time to
time, and such changes may affect the ongoing business and operations of the
Company. From time to time, the Company has received, and in the future may
receive, requests from environmental regulatory authorities to provide
information or to conduct investigative or remediation activities with respect
to its facilities. None of these requests, if made, is expected by management to
have a material adverse effect on the Company's business.
EMPLOYEES
At November 3, 1996, the Company had approximately 3,150 full-time domestic
employees and 1,360 foreign employees. None of the Company's domestic employees
is represented by a union. Management believes that its relations with its
employees are satisfactory.
SALES OF HENLEY HEALTHCARE DIVISION
Effective May 1, 1996, the Company sold certain assets related to the
Henley Healthcare division operations to Lasermedics, Inc. of Missouri City,
Texas, for approximately $13,000,000 which consisted of approximately $6,000,000
in cash and a $7,000,000 convertible note. The assets consisted primarily of
receivables, inventory, furniture and equipment, two manufacturing facilities
located in Sugar Land and Belton, Texas, and intangible assets related to the
Henley Healthcare product lines. The assets were used by the Company to
manufacture and sell various types of products for the physical medicine,
rehabilitation and pain management markets. No gain or loss was recorded on this
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transaction. The Company sold its Henley Healthcare division because the
Company's business over the last several years has increasingly been focused on
its Case Management, Argon and Maxxim Medical Europe Divisions (such Divisions
constituting 93% of sales in fiscal 1995). There was virtually no overlap
between the Henley Healthcare products and the Company's other business.
Therefore, such products required separate and substantially different sales
organizations. In addition, the business of the Henley Healthcare division had
become increasingly competitive with margins regularly declining for the past
several years. As a result, the division required an inordinate amount of
management resources compared to its revenue contribution to the Company. For
the foregoing reasons, the Company felt it was advisable to divest itself of
Henley Healthcare and increase its focus on its core procedure tray and
specialty medical products business. Division sales for fiscal 1996 through the
date of divestiture amounted to $8,339,000 or 2.1% of the Company's net sales.
ITEM 2: PROPERTIES
The Company's principal executive and administrative offices are located in
the Company's Sugar Land, Texas facility. The following table sets forth
information with respect to the Company's principal facilities.
<TABLE>
<CAPTION>
OWNED OR BUILDING AREA
LOCATION PRINCIPAL DIVISION LEASED FACILITY (SQUARE FEET)
- --------------------------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
Sugar Land, Texas Headquarters Leased 15,000
Athens, Texas Argon Owned 186,000
Decatur, Alabama Case Management Leased 75,000
Los Gatos, California Case Management Owned 79,000
Temecula, California Case Management Leased 147,000
Mississuagua, Ontario, Canada Case Management Owned 111,000
La Romana, Dominican Republic Case Management Leased 64,000
Clearwater, Florida Case Management Owned 147,000
Minnetonka, Minnesota Case Management Leased 63,000
Columbus, Mississippi Case Management Owned 135,000
Honea Path, South Carolina Case Management Owned 87,000
Sugar Land, Texas Case Management Owned 40,000
Richmond, Virginia Case Management Leased 200,000
Aalst/Erembodegem, Belgium Maxxim Medical Europe Owned 140,000
Ommen, The Netherlands Maxxim Medical Europe Owned 20,000
s'Hertogenbosch, The Netherlands Maxxim Medical Europe Leased 36,000
</TABLE>
The Company operates regional distribution centers in California, Florida,
Pennsylvania, Texas and Virginia. Maxxim also maintains contract warehousing
arrangements in Arizona, Colorado, Georgia, Illinois, Indiana, Kansas, Maryland,
Michigan, Minnesota and New Jersey.
Management believes that the Company's facilities, whether leased or owned,
are adequate to meet its current needs and should continue to be adequate for
the foreseeable future.
ITEM 3: LEGAL PROCEEDINGS
The Company has been named as a defendant in various lawsuits arising in
the ordinary course of business. Management believes that the ultimate
resolution of such litigation will not have a material adverse impact on the
Company's results of operations or financial position (see Note 5 of Notes to
Consolidated Financial Statements).
9
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of the
Company through the solicitation of proxies or otherwise during the fourth
quarter of the fiscal year ended November 3, 1996.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since December 22, 1993 the Company's Common Stock has traded on the New
York Stock Exchange under the symbol "MAM." The following table sets forth the
high and low sale prices on the New York Stock Exchange for the Common Stock for
the periods indicated:
HIGH LOW
----- ----
FISCAL YEAR ENDED OCTOBER 29, 1995:
First Quarter................... $15 1/4 $11 1/2
Second Quarter.................. 15 1/8 13
Third Quarter................... 14 1/8 12 1/4
Fourth Quarter.................. 17 12 1/4
FISCAL YEAR ENDED NOVEMBER 3, 1996:
First Quarter................... 20 1/4 13 3/8
Second Quarter.................. 19 3/4 17 3/8
Third Quarter................... 19 15
Fourth Quarter.................. 17 1/2 12 3/4
As of January 22, 1997, there were 216 holders of record of the Company's
Common Stock.
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings to finance the expansion of its business
and, therefore, does not expect to pay any cash dividends in the foreseeable
future. Any determination as to the payment of cash dividends will depend upon
the Company's earnings, general financial condition, capital needs and other
factors deemed pertinent by the Board of Directors, as well as any limitations
imposed by lenders under credit facilities. The Company's present credit
facility prohibits payment of dividends.
10
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data is derived
from the financial statements of the Company. Information for the fiscal years
1996, 1995, 1994 and 1993 have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. Information for fiscal year 1992 was
derived from financial statements audited by Arthur Andersen LLP, independent
public accountants. The information in the table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Report and previous Reports.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 399,836 $ 265,726 $ 191,382 $ 129,740 $ 74,525
Cost of sales............................... 294,455 186,495 129,569 85,247 44,372
----------- ----------- ----------- ----------- ---------
Gross profit................................ 105,381 79,231 61,813 44,493 30,153
Operating expenses.......................... 76,825 59,493 48,349 35,606 24,300
Nonrecurring charges........................ -- 10,845 -- -- --
----------- ----------- ----------- ----------- ---------
Income from operations...................... 28,556 8,893 13,464 8,887 5,853
Interest expense............................ (13,143) (4,088) (2,059) (1,476) (999)
Other income (expense), net................. (951) 28 418 708 468
----------- ----------- ----------- ----------- ---------
Income before income taxes.................. 14,462 4,833 11,823 8,119 5,322
Income taxes................................ 5,752 1,904 4,138 2,582 1,860
Change in accounting for income taxes....... -- -- 380 -- --
----------- ----------- ----------- ----------- ---------
Net income.................................. 8,710 2,929 8,065 5,537 3,462
=========== =========== =========== =========== =========
Primary earnings per share(1), (3).......... $ 1.05 $ 0.36 $ 1.05 $ 0.94 $ 0.75
=========== =========== =========== =========== =========
Fully diluted earnings
per share(1), (3)........................ $ 1.01 $ 0.36 $ 1.00 $ 0.91 $ 0.75
=========== =========== =========== =========== =========
Weighted average shares
outstanding(1)........................... 8,264 8,159 7,326 5,890 4,638
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................. $ 118,120 $ 73,286 $ 82,886 $ 52,722 $ 43,755
Total assets................................ 467,441 264,490 165,416 114,040 70,560
Long-term liabilities(2):
Bank debt and other................... 122,714 67,412 1,181 2,086 2,339
Convertible debentures................ 28,750 28,750 28,750 28,750 --
Senior notes.......................... 100,000 -- -- -- --
Shareholders' equity........................ 123,556 116,351 111,470 68,458 58,954
</TABLE>
- ------------
(1) For information concerning calculation of earnings per share, see Note 1 of
the Notes to Consolidated Financial Statements.
(2) Excludes current maturities of long-term debt.
(3) Fiscal 1994 primary and fully diluted earnings per share exclude a $.05 and
$.04 adjustment, respectively, to reflect the change in accounting for
income taxes.
11
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maxxim develops, manufactures and distributes a diversified group of
specialty medical products. The Company has grown significantly during the last
five years. Net sales increased from $74,525,000 in fiscal 1992 to $399,836,000
in 1996, a compound annual growth rate of 52%. This growth resulted primarily
from acquisitions of established businesses or product lines. Maxxim Medical,
Inc., a Delaware subsidiary of Maxxim, operates the Company's three divisions:
Case Management, Argon Medical, and Maxxim Medical Europe. Set forth below is a
brief description of the most significant acquisitions made by the Company since
1991. (See Note 2 of the Notes to Consolidated Financial Statements).
STERILE CONCEPTS. In July 1996, the Company acquired the outstanding
common stock of Sterile Concepts for $110,500,000, excluding acquisition costs
of approximately $8,600,000 paid in the current fiscal year and $465,000 of cash
acquired with the acquisition, through completion of a tender offer. In
addition, the Company repaid approximately $34,200,000 of existing Sterile
Concepts debt on the closing date. Sterile Concepts assembles, packages and
distributes sterile custom procedure trays for hospitals, outpatient surgery
centers and medical clinics. As a result of the acquisition, the Company's Case
Management division became the second largest producer of custom procedure trays
in the United States and holds an approximate 35% market share in this product
segment.
GLOVE OPERATIONS. In June 1995, the Company acquired the Glove Operations
from Becton Dickinson for approximately $70,600,000 cash. The gloves, which are
sold under various brand names such as Tru-Touch, SensiCare, Tradition,
Eudermic, Dextren and Neolon, and include latex and nonlatex surgical and
examination versions. Since being acquired the North American operations have
been included in the Case Management division and the European operations have
been a part of Maxxim Medical Europe. This acquisition gave the Company an
approximate 66% worldwide market share in non-latex medical examination gloves.
MEDICA. In January 1995, the Company purchased Medica B.V., a Netherlands
corporation, for approximately $11,000,000 in cash. Medica's operations included
manufacturing, fabricating, distributing and selling various types of disposable
medical supplies in Europe, principally in The Netherlands and Belgium. Since
July 1995, the Medica products have been sold in Europe through the Maxxim
Medical Europe division.
STERILE DESIGN. In July 1993, Maxxim acquired the custom procedure tray
operations of Sterile Design from a division of Johnson & Johnson for
approximately $25,000,000 in cash. As a result of this asset acquisition, which
is now included in the Case Management division, the Company became the third
largest provider of sterile custom procedure trays in the United States.
BOUNDARY. In December 1992, the Company acquired Boundary Healthcare
Products Corp. and assets of affiliated companies for $9,000,000 in cash and
approximately 484,000 shares of common stock. Boundary products consist of
infection control apparel for operating room and other medical personnel and
disposable, non-woven patient draping systems. Boundary products are now a part
of the Case Management division and are sold individually or as components of
custom procedure trays.
ARGON. In July 1991, Maxxim purchased the Argon Medical operations of
Edward Weck Incorporated, a subsidiary of Bristol-Myers Squibb Company, for
$13,400,000 in cash and a $1,800,000 promissory note. Argon manufactures and
markets disposable medical specialty products and assembles procedural trays
principally for the cardiology and radiology markets. Since its acquisition,
Argon has been a separate operating division of the Company.
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes thereto and other
detailed information appearing elsewhere herein.
12
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial information for the periods
indicated as a percentage of net sales and sets forth the percentage dollar
increase (decrease) of such items from period to period.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
FROM PRIOR PERIOD
FISCAL YEAR ENDED --------------------
------------------------------- 1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 50.5% 38.9%
Gross profit........................... 26.4 29.8 32.3 33.0 28.2
Marketing and selling expenses......... 13.0 15.6 17.5 25.0 23.5
General and administrative expenses.... 6.3 6.8 7.7 38.7 22.0
Nonrecurring charges................... -- 4.1 -- n/a n/a
Income from operations................. 7.1 3.3 7.0 221.1 (33.9)
Interest expense....................... 3.3 1.5 1.1 221.5 98.5
Other income, net...................... 0.2 -- 0.2 n/a (93.3)
Income before income taxes............. 3.6 1.8 6.2 199.2 (59.1)
Income taxes........................... 1.4 0.7 2.2 202.1 (54.0)
Income before accounting change........ 2.2 1.1 4.0 197.4 (61.9)
Accounting change...................... -- -- 0.2 n/a n/a
Net income............................. 2.2 1.1 4.2 197.4 (63.7)
</TABLE>
FISCAL 1996 COMPARED TO 1995
NET SALES -- Net sales for fiscal 1996 were $399,836,000, a 50.5% increase
over the $265,726,000 reported for fiscal 1995. The Case Management division had
sales of $274,611,000 for fiscal 1996 versus sales of $168,295,000 for fiscal
1995. This increase is primarily due to a full year of sales for the Glove
Operations (acquired in June 1995) and three months of sales from the Sterile
Concepts acquisition (see Note 2 of the Notes to Consolidated Financial
Statements). The Argon division had sales of $63,614,000 in fiscal 1996, 15.7%
higher than the $54,991,000 recorded in fiscal 1995. Sales increased in almost
all product lines with the largest increase coming from pressure monitoring
kits, a product line which was expanded in February of 1995. Maxxim Medical
Europe's fiscal 1996 sales of $53,272,000 are 125.3% higher than the $23,649,000
recorded for fiscal 1995. This increase is primarily attributable to the
European operations of the Glove Operation acquisition which was acquired in
June 1995. The Henley Healthcare division was sold in April 1996 and had sales
of $8,339,000 in fiscal 1996 versus a full year sales figure of $18,791,000 for
fiscal 1995.
GROSS PROFIT -- The Company's gross profit was $105,381,000 for fiscal
1996, a 33.0% increase over the $79,231,000 reported for fiscal 1995. The gross
profit margin declined to 26.4% in fiscal 1996 from 29.8% in fiscal 1995
primarily due to the acquisition of Sterile Concepts (which had a gross margin
of 19.1% in fiscal 1996) and continued pricing pressure on procedure trays for
most of the year.
OPERATING EXPENSES -- Marketing and selling expenses increased from
$41,430,000 in fiscal 1995 to $51,781,000 in fiscal 1996, however, as a
percentage of net sales these expenses dropped from 15.6% to 13.0% in the same
periods. General and administrative expenses increased from $18,063,000 in
fiscal 1995 to $25,044,000 in fiscal 1996, but once again, as a percentage of
net sales, these expenses dropped from 6.8% to 6.3% for the respective periods.
The Company estimates that operating expenses for fiscal 1996 include
approximately $1,640,000 of one-time or redundant expenses as a result of the
acquisition of Sterile Concepts.
INCOME FROM OPERATIONS -- Income from operations increased to $28,556,000
in fiscal 1996, from $8,893,000 in fiscal 1995. Excluding the nonrecurring
charge in fiscal 1995 and the one-time expenses
13
<PAGE>
in fiscal 1996 mentioned above, income from operations increased from
$19,738,000 or 7.4% of sales in fiscal 1995 to approximately $30,196,000 or 7.6%
of sales in fiscal 1996.
INTEREST EXPENSE -- The Company's interest expense increased to $13,143,000
in fiscal 1996 from $4,088,000 in fiscal 1995. The increase in interest expense
is the direct result of the new debt facilities created to finance the
acquisition of Sterile Concepts. Interest expense for fiscal 1996 also includes
nonrecurring financing fees of approximately $1,900,000 related to bridge
financing established in connection with the acquisition.
INCOME TAXES -- Maxxim's effective income tax rate was 39.8% in fiscal 1996
and 39.4% in fiscal 1995. The Company's effective rate is higher than the
statutory rate as a result of increased nondeductible amortization expenses
resulting from goodwill recorded from recent acquisitions.
NET INCOME -- As a result of the foregoing, fiscal 1996 net income was
$8,710,000 as compared to fiscal 1995 net income of $2,929,000. Fully diluted
earnings per share were $1.01 and $.36 for fiscal years 1996 and 1995
respectively, and the weighted average shares were 8,264,000 and 8,159,000 for
the two fiscal years respectively.
FISCAL 1995 COMPARED TO 1994
NET SALES -- Net sales for fiscal 1995 were $265,726,000, a 38.9% increase
over the $191,382,000 reported for fiscal 1994. Formed in June 1995, the Case
Management division had sales of $168,295,000 for fiscal 1995 compared to sales
of $130,357,000 for fiscal 1994. The increase is primarily due to new product
introductions and the Bovie and Glove Operation acquisitions (see Note 2 of the
Notes to Consolidated Financial Statements). The Argon Medical division's fiscal
1995 sales of $54,991,000 are 32.2% higher than the $41,610,000 recorded for
fiscal 1994. This increase is primarily attributable to the introduction of the
manifold and introducer products and an expanded line of pressure monitoring
kits. In its first year, Maxxim Medical Europe recorded $23,649,000 of sales
during fiscal 1995. In the Henley Healthcare division, sales decreased 3.2% to
$18,791,000 in fiscal 1995 from $19,415,000 in fiscal 1994. The Company believes
the country's general economic climate, together with concern over levels of
reimbursement for physical therapy under prospective healthcare reform
proposals, softened demand for the higher cost clinical equipment products of
the Henley Healthcare division.
GROSS PROFIT -- The Company's gross profit was $79,231,000 for fiscal 1995,
a 28.2% increase over the $61,813,000 for fiscal 1994. As anticipated, the gross
profit margin declined to 29.8% in fiscal 1995 from 32.3% in fiscal 1994,
primarily due to increased price pressure on procedure trays and the Company's
continued increased product mix of lower-margin hospital products. In 1995,
hospital product sales accounted for 92.9% of total sales compared to 1994
hospital product sales of 89.9%.
MARKETING AND SELLING EXPENSES -- Marketing and selling expenses increased
to $41,430,000 in fiscal 1995, versus $33,547,000 in fiscal 1994, although as a
percentage of sales marketing and selling expenses decreased to 15.6% from
17.5%, respectively. The increase in marketing and selling expenses is directly
attributable to the increased sales level of the Company. The decreased
marketing and selling expenses, as a percentage of sales, is primarily
attributable to leveraging the expenses against incremental sales increases and
the reduced expenses achieved as a result of the restructuring (see Note 12 of
the Notes to Consolidated Financial Statements).
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased to $18,063,000 in fiscal 1995 from $14,802,000 in fiscal 1994, while
as a percent of sales it decreased to 6.8% from 7.7%, respectively. Similar to
marketing and selling expenses the decrease, as a percentage of sales, is
primarily attributable to achieving economies of scale associated with the
Company's higher sales level.
NONRECURRING CHARGES -- During the third quarter of fiscal 1995 the Company
recorded a nonrecurring charge of $10,845,000. This charge, which consists of
restructuring expenses, facility
14
<PAGE>
consolidation expenses and intangible asset write-downs, had an $0.80 per share
impact on fiscal 1995 fully diluted earnings (see Note 12 of the Notes to
Consolidated Financial Statements).
INCOME FROM OPERATIONS -- Income from operations decreased to $8,893,000 in
fiscal 1995, from $13,464,000 in fiscal 1994. The decrease is attributable to
the nonrecurring charge. Excluding the nonrecurring charge income from
operations increased to $19,738,000, a 46.6% increase over fiscal 1994.
INTEREST EXPENSE -- The Company's interest expense increased to $4,088,000
in fiscal 1995 from $2,059,000 in fiscal 1994. This increase is the result of
the Company borrowing $75,000,000 to purchase the Glove Operation during the
Company's third quarter (see Note 3 of the Notes to Consolidated Financial
Statements).
INCOME TAXES -- The effective income tax rate for fiscal 1995 increased to
39.4% from 35.0% in fiscal 1994. This increase is primarily due to the Company
experiencing increased nondeductible amortization expenses (see Note 6 of the
Notes to Consolidated Financial Statements).
CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING FOR INCOME TAXES -- During
1994, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." The cumulative
effect of $380,000 is reported as a one-time benefit during fiscal 1994 (see
Notes 1 and 6 of the Notes to the Consolidated Financial Statements).
NET INCOME -- As a result of the foregoing, fiscal 1995 net income was
$2,929,000 compared to fiscal 1994 income, before the FAS 109 accounting change
of $7,685,000. Excluding the fiscal 1995 nonrecurring charge and the fiscal 1994
FAS 109 accounting change, net income increased to $10,005,000 in fiscal 1995,
or 30.2% over fiscal 1994. Fully diluted earnings per share, excluding the 1995
nonrecurring charge and excluding the 1994 FAS 109 accounting change, increased
16.0% to $1.16 in fiscal 1995 versus $1.00 in fiscal 1994. This increase is
despite the weighted average number of shares increase to 8,159,000 in fiscal
1995 from 7,326,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At November 3, 1996 the Company had cash and cash equivalents of
$8,044,000, working capital of $118,120,000, long-term liabilities of
$251,464,000 and shareholders' equity of $123,556,000. Cash flow from operations
was $5,674,000 in fiscal 1996 versus $4,302,000 in fiscal 1995.
During the second quarter of fiscal 1996 the Company received approximately
$6,000,000 in cash from the sale of certain assets of the Henley Healthcare
division. In accordance with the terms of the Company's credit facility
$5,600,000 of these proceeds were used to retire a portion of the Company's term
loan.
On July 30, 1996 the Company completed a private placement offering of
$100,000,000, 10.5% Senior Subordinated Notes, from which net proceeds of
approximately $97,000,000 were received by the Company. In addition, pursuant to
the terms of an amended Credit Agreement with its primary lender dated July 30,
1996, the Company established a $90,000,000 term loan and a $75,000,000
revolving line of credit. On August 4, 1996 the term loan was fully drawn and
approximately $32,300,000 was borrowed on the revolver.
Also on July 30, 1996 the Company used approximately $110,500,000 in cash,
excluding acquisition costs of approximately $8,600,000 paid in the current
fiscal year and $465,000 of cash acquired with the acquisition, to complete a
tender offer to the shareholders of Sterile Concepts, approximately $34,200,000
in cash to repay the outstanding debt of Sterile Concepts, and approximately
$72,700,000 in cash to repay outstanding debt of the Company's previous credit
agreement with its primary lender. On November 3, 1996 the outstanding balance
on the term loan and the revolver was $88,500,000 and $40,090,000, respectively,
resulting in approximately $35,000,000 of availability on the revolver at fiscal
year end.
15
<PAGE>
The Company believes that its present cash balances together with
internally generated cash flows and borrowings under its existing credit
facility will be sufficient to meet its future working capital requirements.
INFLATION
The Company believes inflation has not had a material effect on its results
of operations for the past three years. Historically, the Company believes it
has been able to minimize the effect of inflation by increasing the selling
prices of its products, improving its manufacturing efficiency and increasing
its employee productivity.
FORWARD-LOOKING STATEMENTS
Statements, either written or oral, which express the Company's expectation
for the future with respect to financial performance or operating strategies can
be identified as forward-looking statements. These statements are made to
provide the public with management's assessment of the Company's business.
Caution must be taken to consider these statements in light of the following
factors: the Company assumes that products in development will be introduced
successfully and on schedule; the Company will make acquisitions which
contribute to profitability; key distributors will make purchases at the same
level as their sales; demand for the Company's products will follow recent
growth trends; competitors will not introduce new products which will
substantially reduce Maxxim's market share in its most significant product
lines; and the Company will continue to manufacture high quality products at
competitive costs and maintain or increase product pricing. In the event any of
the above factors do not occur as management anticipates, actual results could
differ materially from the expectations expressed in the forward-looking
statements.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding the impact of new accounting pronouncements on the
results of operations, financial position or cash flows is set forth in Note 1
of the Notes to Consolidated Financial Statements under the caption "New
Accounting Pronouncements."
16
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 3, 1996 AND OCTOBER 29, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......... $ 8,044 $ 5,074
Accounts receivable, net of
allowances for doubtful accounts
of $4,092 and $2,054,
respectively..................... 86,207 51,276
Inventory.......................... 95,087 64,649
Prepaid expenses, deferred taxes
and other........................ 15,386 4,264
----------- -----------
Total current assets......... 204,724 125,263
----------- -----------
Property and equipment.................. 123,077 112,134
Less: accumulated depreciation..... (24,562) (16,580)
----------- -----------
98,515 95,554
Goodwill, and other intangibles, net of
accumulated amortization of $7,664 and
$4,428, respectively.................. 156,046 41,536
Deferred taxes and other assets, net.... 8,156 2,137
----------- -----------
Total assets................. $ 467,441 $ 264,490
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................. $ 7,500 $ 11,250
Accounts payable................... 30,084 21,805
Accrued liabilities................ 45,375 18,176
Other short-term obligations....... 3,645 746
----------- -----------
Total current liabilities.... 86,604 51,977
Long-term debt, net of current
maturities............................ 121,090 65,737
10 1/2% Senior subordinated notes....... 100,000 --
6 3/4% Convertible subordinated
debentures............................ 28,750 28,750
Other long-term obligations, net of
current maturities.................... 1,624 1,675
Deferred taxes.......................... 5,817 --
----------- -----------
Total liabilities............ 343,885 148,139
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value,
20,000,000 shares authorized,
none issued or outstanding...... -- --
Common stock, $.001 par value,
40,000,000 shares authorized,
8,128,827 and 8,087,647 shares
issued and outstanding,
respectively..................... 8 8
Additional paid-in capital......... 92,445 91,677
Unrealized gain on
investments -- net of tax........ 259 --
Retained earnings.................. 32,369 23,659
Cumulative translation
adjustment......................... (1,525) 1,007
----------- -----------
Total shareholders' equity... 123,556 116,351
----------- -----------
Total liabilities and
shareholders' equity....... $ 467,441 $ 264,490
=========== ===========
See accompanying notes to Consolidated Financial Statements.
17
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1996 1995 1994
----------- ----------- -----------
Net sales............................ $ 399,836 $ 265,726 $ 191,382
Cost of sales........................ 294,455 186,495 129,569
----------- ----------- -----------
Gross profit......................... 105,381 79,231 61,813
----------- ----------- -----------
Operating expenses
Marketing and selling........... 51,781 41,430 33,547
General and administrative...... 25,044 18,063 14,802
Nonrecurring charges............ -- 10,845 --
----------- ----------- -----------
76,825 70,338 48,349
----------- ----------- -----------
Income from operations............... 28,556 8,893 13,464
Interest expense..................... (13,143) (4,088) (2,059)
Other income (expense), net.......... (951) 28 418
----------- ----------- -----------
Income before income taxes........... 14,462 4,833 11,823
Income taxes......................... 5,752 1,904 4,138
----------- ----------- -----------
Income, before the cumulative effect
of the change in accounting for
income taxes....................... 8,710 2,929 7,685
Cumulative effect of the change in
accounting for
income taxes....................... -- -- 380
----------- ----------- -----------
Net income........................... $ 8,710 $ 2,929 $ 8,065
=========== =========== ===========
Primary earnings per share:
Before the cumulative effect of the
change in accounting for income
taxes.............................. $ 1.05 $ 0.36 $ 1.05
Cumulative effect of the change in
accounting for income taxes........ -- -- 0.05
----------- ----------- -----------
After the cumulative effect of the
change in accounting for income
taxes.............................. $ 1.05 $ 0.36 $ 1.10
=========== =========== ===========
Fully diluted earnings per share:
Before the cumulative effect of the
change in accounting for income
taxes.............................. $ 1.01 $ 0.36 $ 1.00
Cumulative effect of the change in
accounting for income taxes........ -- -- 0.04
----------- ----------- -----------
After the cumulative effect of the
change in accounting for income
taxes.............................. $ 1.01 $ 0.36 $ 1.04
=========== =========== ===========
See accompanying notes to Consolidated Financial Statements.
18
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE UNREALIZED
------------------ PAID-IN RETAINED TRANSLATION GAIN ON
SHARES PAR VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENTS TOTAL
------ --------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1993......... 5,889 $ 6 $ 55,787 $12,665 $ -- $ -- $ 68,458
Stock issued in connection with
acquisition (see note 2)........... 16 -- 182 -- -- -- 182
Public offering net proceeds......... 2,116 2 34,676 -- -- -- 34,678
Stock option compensation............ -- -- 83 -- -- -- 83
Stock options exercised.............. 1 -- 4 -- -- -- 4
Net income........................... -- -- -- 8,065 -- -- 8,065
------ --------- ---------- --------- ---------- ----------- ----------
Balances at October 31, 1994......... 8,022 8 90,732 20,730 -- -- 111,470
Stock issued in connection with the
purchase of assets (see note 2).... 25 -- 360 -- -- -- 360
Stock option compensation............ -- -- 244 -- -- -- 244
Stock options exercised, including
federal income tax benefit of
$130............................... 41 -- 341 -- -- -- 341
Net income........................... -- -- -- 2,929 -- -- 2,929
Translation adjustment............... -- -- -- -- 1,007 -- 1,007
------ --------- ---------- --------- ---------- ----------- ----------
Balances at October 31, 1995......... 8,088 8 91,677 23,659 1,007 -- 116,351
Stock option compensation............ -- -- 311 -- -- -- 311
Stock options exercised, including
federal income tax benefit of
$123............................... 41 -- 417 -- -- -- 417
Payment received on employee loan.... -- -- 40 -- -- -- 40
Unrealized gain on investment
securities -- net of tax (see note
1)................................. -- -- -- -- -- 259 259
Net income........................... -- -- -- 8,710 -- -- 8,710
Translation adjustment............... -- -- -- -- (2,532) -- (2,532)
------ --------- ---------- --------- ---------- ----------- ----------
Balances at November 3, 1996......... 8,129 $ 8 $ 92,445 $32,369 $ (1,525) $ 259 $ 123,556
====== ========= ========== ========= ========== =========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
19
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
(IN THOUSANDS)
1996 1995 1994
--------- -------- --------
Cash flows from operating activities:
Net income......................... $ 8,710 $ 2,929 $ 8,065
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Decrease (increase) in deferred
income tax benefit............ 1,383 (1,251) (1,009)
Depreciation and amortization... 14,968 9,233 7,290
Compensation expense for
outstanding stock options..... 311 244 83
Nonrecurring write off of
intangibles and estimated
restructuring reserve........ -- 9,380 --
Changes in current assets and
liabilities, net of effects
of asset acquisitions and
dispositions and business
combinations:
Increase in accounts receivable,
net........................... (8,793) (14,618) (4,164)
(Increase) decrease in
inventory, net................ (9,447) (7,288) 802
(Increase) decrease in prepaid
expenses and other............ (279) (291) 272
Increase (decrease) in accounts
payable....................... (1,626) 3,030 (1,803)
Increase in accrued
liabilities................... 447 2,934 3,886
--------- -------- --------
Net cash provided by operating
activities......................... 5,674 4,302 13,422
--------- -------- --------
Cash flows from investing activities:
Proceeds from the sale of Henley
assets.......................... 6,000 -- --
Purchase of Sterile Concepts, net
of cash acquired................ (118,676) -- --
Purchase of Medica................. -- (11,000) --
Purchase of Bovie electrosurgery
product line.................... -- (2,600) --
Purchase of property and equipment,
inventory and other assets,
net of stock issued valued at
$360............................ -- (1,500) --
Purchase of Glove Operations....... -- (70,605) --
Purchase of Southwest Medical...... -- -- (3,800)
Investment in available-for-sale
securities...................... (1,620) -- --
Purchase of property, equipment and
other assets,
net of asset acquisitions and
business combinations........... (10,625) (21,174) (12,100)
--------- -------- --------
Net cash used in investing
activities......................... (124,921) (106,879) (15,900)
--------- -------- --------
Cash flows from financing activities:
Increase in long-term borrowings
and other obligations........... 236,812 95,100 1,000
Payments on long-term borrowings
and other obligations........... (185,946) (20,852) (6,725)
Proceeds from issuance of 10 1/2%
Notes........................... 100,000 -- --
Debt fees incurred on the issuance
of the 10 1/2% Notes............ (3,000) -- --
Payments on Sterile Concepts
debt............................ (34,247) -- --
Net proceeds from public
offering........................ -- -- 34,678
Increase in negative
book cash balance............... 8,185 1,163 2,577
Other, net......................... 457 371 4
--------- -------- --------
Net cash provided by financing
activities......................... 122,261 75,782 31,534
--------- -------- --------
Effect of foreign currency
translation adjustment............. (44) -- --
--------- -------- --------
Net (decrease) increase in cash and
cash equivalents................... 2,970 (26,795) 29,056
Cash and cash equivalents at
beginning of year.................. 5,074 31,869 2,813
--------- -------- --------
Cash and cash equivalents at end of
year............................... $ 8,044 $ 5,074 $ 31,869
========= ======== ========
Supplemental Cash Flow Disclosure:
Interest paid during the year...... $ 9,090 $ 3,161 $ 2,025
Income taxes paid during the
year............................ 5,336 3,100 3,050
Noncash investing and financing
activities:
Convertible note received from
the sale of Henley assets..... $ 7,000 $ -- $ --
Unrealized gain on investment... 259 -- --
Sterile Concepts acquisition
related fees and expenses
accrued but unpaid at
November 3, 1996.............. 10,590 -- --
See accompanying notes to Consolidated Financial Statements.
20
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Maxxim Medical, Inc., ("Maxxim"), a Texas corporation, and its
subsidiaries (collectively, "the Company") develops, manufactures, and markets
specialty hospital products.
BASIS OF PRESENTATION
Certain reclassifications have been made to the fiscal 1995 consolidated
financial statements to conform with the fiscal 1996 presentation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Maxxim and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND FINANCIAL INSTRUMENTS
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less. The reported value of all financial
instruments approximates market value due to their short maturities.
MARKETABLE SECURITIES
The Company considers its marketable securities available-for-sale as
defined in Statement of Financial Accounting Standards No. 115. In adjusting the
Company's investments to fair value an unrealized gain of $259,000, net of tax,
was recognized at November 3, 1996. This unrealized gain is presented in the
equity section of the Consolidated Balance Sheet.
CONCENTRATION OF CREDIT RISK
Credit receivables have a concentration of credit risk in the hospital and
healthcare sectors. The Company performs continuing credit evaluations of its
customers and generally does not require collateral; however, in certain
circumstances, the Company may require letters of credit from its customers.
Historically, the Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any geographic
area.
INVENTORY
Inventory is priced at the lower of cost or market. In determining market
value, allowances for excess and obsolete items are provided. Cost is determined
using the average cost method.
Inventory as of November 3, 1996 and October 29, 1995, included the
following:
1996 1995
--------- ---------
(IN THOUSANDS)
Raw materials........................ $ 40,239 $ 24,335
Work in Progress..................... 8,232 7,037
Finished goods....................... 46,616 33,277
--------- ---------
$ 95,087 $ 64,649
========= =========
As of November 3, 1996 and October 19, 1995, approximately $82,000 and
$2,445,000, respectively, of the Company's inventory was on consignment.
21
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
The costs of ordinary maintenance and repairs are expensed, while renewals
and betterments are capitalized.
Depreciation on property and equipment is computed for financial reporting
purposes using the straight-line method over the estimated useful lives of the
assets. As of November 3, 1996 and
October 29, 1995 property and equipment included the following:
USEFUL
LIFE 1996 1995
---------- ----------- -----------
(IN THOUSANDS)
Land................................. $ 9,490 $ 7,133
Buildings and improvements........... 5-25 years 45,522 42,271
Machinery and equipment.............. 2-20 years 64,699 60,528
Furniture and fixtures............... 3-5 years 3,366 2,202
Accumulated depreciation............. (24,562) (16,580)
----------- -----------
$ 98,515 $ 95,554
=========== ===========
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires a change from the deferred method of accounting for
income taxes under APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
As required, on November 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the fiscal 1994 consolidated statement of operations (see note
6).
GOODWILL AND INTANGIBLES
Goodwill represents the excess of the aggregate price paid by the Company
in business combinations accounted for as purchases over the fair market value
of the tangible and identifiable intangible net assets acquired. Goodwill is
being amortized on a straight-line basis from 10 to 40 years. Other intangible
assets are being amortized on a straight-line basis for periods ranging from 3
to 15 years. The Company assesses the recoverability of intangible assets by
determining whether amortization of the asset balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of asset impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment to customers, pursuant to
customer orders. The Company grants rebates to certain of its customers. These
sales and related receivables are recorded net of the expected rebate.
22
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common shares
and common stock equivalents outstanding for each year. For purposes of this
calculation, outstanding stock options are considered common stock equivalents
using the treasury stock method. The weighted average number of shares utilized
in the earnings per share calculation was 8,263,840, 8,159,206 and 7,325,546 for
fiscal 1996, 1995 and 1994, respectively. On a fully diluted basis, both net
income available to common shareholders and shares outstanding are adjusted to
assume the conversion of the convertible subordinated debentures from the date
of issue.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
52 WEEK FISCAL YEAR
Commencing in fiscal year 1994, the Company has implemented a fiscal year
which ends on the Sunday nearest to the end of the month of October.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Assets and liabilities of foreign subsidiaries have been translated into
United States dollars at the applicable rates of exchange in effect at the end
of the period reported. Revenues and expenses have been translated at the
applicable weighted average rates of exchange in effect during the period
reported. Translation adjustments are reflected as a separate component of
stockholders equity. Any transaction gains and losses are included in net
income.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1997, the Company will adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events indicate the carrying amount
of an asset may not be recoverable. Management believes the adoption of this
standard will not materially affect reported earnings, financial conditions or
cash flows.
In October 1995 the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which is effective for fiscal years
beginning after December 15, 1995, allows companies either to continue to
measure compensation based on the method prescribed by Accounting Principles
Board Opinion No. 25 ("APB No. 25") or adopt a "fair value" method of accounting
for all employee stock-based compensation. The Company has elected to continue
utilizing the accounting for stock issued to employees prescribed by APB. No.
25. Therefore, the required adoption of SFAS No. 123 will have no impact on the
financial position or results of operations of the Company.
(2) BUSINESS COMBINATIONS, SIGNIFICANT ASSET ACQUISITIONS
AND DISPOSITIONS
ASSET ACQUISITIONS
On June 30, 1995, the Company entered into various agreements of Purchase
and Sale of Assets with Becton Dickinson and Company and affiliates to purchase,
for approximately $70,600,000 in cash, after various post-closing adjustments,
assets pertaining to the worldwide glove business of
23
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Becton Dickinson ("Glove Operation"). The assets acquired consist primarily of
inventory, equipment, manufacturing facilities in Honea Path, South Carolina,
Los Gatos, California, Mississauga, Ontario, Canada and Erembodegem, Belgium,
and certain intangible assets. The Company financed the purchase price and
ancillary working capital with borrowings from its principal bank lender under
an amended credit facility. The transaction was accounted for as an asset
purchase with the purchase price and direct acquisition costs allocated based on
the fair value of assets acquired and liabilities assumed. No goodwill was
recorded in connection with this transaction.
On June 1, 1995, the Company acquired the Bovie line of electrosurgical
products from MDT Corporation. The purchase price was approximately $2,600,000,
subject to certain inventory and other adjustments. The Bovie product lines
include electrosurgical generators and related disposable products and supplies.
The transaction was accounted for as an asset purchase with the purchase price
and direct acquisition costs allocated based on the fair value of assets
acquired and liabilities assumed. Goodwill of approximately $1,300,000 was
recorded in connection with this transaction. The Company used funds on hand to
finance the purchase.
BUSINESS COMBINATIONS
On July 30, 1996, the Company successfully completed a tender offer (the
"Tender Offer") for Sterile Concepts. As of completion of a merger of Sterile
Concepts and Maxxim in September of 1996, all of the outstanding stock of
Sterile Concepts was purchased for approximately $110,500,000, excluding
acquisition costs of approximately $8,600,000 paid in the current fiscal year
and $465,000 of cash acquired with the acquisition. The Company also refinanced
existing Maxxim debt of approximately $72,700,000 contemporaneously with and
repaid approximately $34,200,000 of Sterile Concepts debt shortly after the
consummation of the Tender Offer. Funding to complete the acquisition and debt
repayment was derived from approximately $121,000,000 of borrowings under a
$165,000,000 amended credit facility with its primary lender and the net
proceeds of $97,000,000 from the offering of $100,000,000 of 10 1/2% Senior
Subordinated Notes (See Note 3). The assets acquired in the Sterile Concepts
acquisition consist primarily of accounts receivable, inventory, furniture and
equipment and leased assembly and other facilities in Richmond, Virginia,
Temecula, California and Minnetonka, Minnesota. Sterile Concepts assembles,
packages and sterilizes custom procedure trays for hospitals, outpatient surgery
centers and medical clinics. In the fourth quarter of fiscal 1996 Sterile
Concepts was integrated into the already existing custom procedure tray assembly
and packaging operations of the Case Management division. The acquisition was
accounted for by the purchase method of accounting and approximately
$116,000,000 of goodwill was recorded with the transaction.
Effective January 1, 1995, the Company purchased all of the issued and
outstanding common stock of Medica B.V., a Netherlands corporation and certain
assets of S.A. DPC N.V., a Belgian corporation (collectively, "Medica"). The
assets acquired in the Medica acquisition consist primarily of receivables,
inventory, furniture and equipment, the disposable medical supplies
manufacturing facility situated on a tract of land located in Ommen, The
Netherlands, and certain intangible assets. Such assets were used by Medica in
connection with its business of manufacturing, fabricating, distributing and
selling various types of disposable medical supplies, principally in the
Netherlands and Belgium. The purchase price of Medica and the execution of a
non-competition agreement by the seller, Internatio-Meuller N.V., a Netherlands
corporation, consisted of $11,000,000 in cash. The acquisition has been
accounted for as a purchase with the purchase price and direct acquisition costs
allocated based on fair value of assets acquired and liabilities assumed.
Goodwill of approximately $5,600,000 was recorded in connection with this
transaction.
On July 1, 1994, the Company acquired all of the Preferred and Common Stock
of Southwest Medical Packaging, Inc. ("Southwest"), a Texas Corporation. The
purchase price consisted of
24
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,800,000 in cash, the assumption of Southwest's debt and an Agreement whereby
the former Southwest owners could receive an additional $250,000 upon Southwest
meeting certain defined performance levels. At November 3, 1996 $150,000 of the
$250,000 had been paid to the former Southwest owners. In addition, certain
former owners of Southwest executed a non-competition agreement whereby
approximately $676,000 would be paid to the former owners over a five year
period. The acquisition has been accounted for as a purchase. Goodwill of
approximately $5,200,000 was recorded in connection with this transaction.
Southwest was engaged principally in the business of assembling and selling
sterile and non-sterile procedure trays to hospitals primarily in Texas,
Oklahoma and Louisiana.
ASSET DISPOSITIONS
Effective May 1, 1996, the Company sold certain assets related to the
Henley Healthcare division operations to Lasermedics, Inc. of Missouri City,
Texas for approximately $13,000,000 which consisted of approximately $6,000,000
in cash and a $7,000,000 convertible note. The assets, which were sold at net
book value, consisted primarily of receivables, inventory, furniture and
equipment, two manufacturing facilities located in Sugar Land and Belton, Texas,
and intangible assets related to the Henley product lines. The assets were used
by the Henley division to manufacture and sell various types of products for the
physical medicine, rehabilitation and pain management markets.
SUMMARY PRO FORMA RESULTS
The following unaudited pro forma summary results of operations assume the
acquisition of Sterile Concepts occurred on October 31, 1994. The summary
results of operations also give effect to the acquisition by the Company of the
Glove Operations, the divestiture by the Company of the Henley Healthcare
division and the acquisitions by Sterile Concepts of Associated Medical Products
and Medical Design Concepts, as if the acquisitions and the divestiture occurred
on October 31, 1994. The following results of operations are presented (in
thousands, except per share amounts):
1996 1995
----------- -----------
Revenues............................. $ 534,635 $ 502,349
Net income........................... 5,865 1,480
Primary earnings per share........... $ .71 $ .18
The adjustments to the accounts include (a) the additional amortization
expense associated with debt financing costs, (b) the additional amortization
expense associated with goodwill acquired, (c) the federal income tax adjustment
(d) the additional interest expense incurred to make the acquisitions, at the
beginning of the Company' s fiscal year and (e) the elimination of salaries,
benefits and related costs of redundant personnel in the combined operations.
The pro forma information does not purport to be indicative of results of
operations or financial position which would have occurred had the acquisitions
or divestiture been consummated on the dates indicated, or which may be expected
to occur in the future by reason of such acquisition or divestiture.
25
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) DEBT
LONG-TERM DEBT
The following summarizes the Company's long-term debt at November 3, 1996
and October 29, 1995:
1996 1995
----------- -----------
(IN THOUSANDS)
Revolving line of credit............. $ 40,090 $ 4,800
Term loan............................ 88,500 72,187
Less -- Current maturities........... (7,500) (11,250)
----------- -----------
$ 121,090 $ 65,737
=========== ===========
CREDIT FACILITY
On July 30, 1996, the Company entered into a Second Amended and Restated
Credit Agreement ("Credit Agreement") with NationsBank of Texas, N.A.
("Nations"). This new Credit Agreement replaced the Company's previous credit
facility. The Credit Agreement provided for a term loan of $90,000,000 and a
$75,000,000 revolving line of credit. At closing, the term loan was fully drawn
and approximately $31,000,000 of the revolver was used in conjunction with
proceeds from the 10 1/2% Senior Subordinated Notes to finance the Sterile
Concepts acquisition (See Note 2). Both loans mature on July 30, 2002, with the
term loan requiring repayment in twenty four quarterly installments commencing
October 31, 1996. Both loans bear interest, payable quarterly on the Interest
Period as defined in the Credit Agreement. The interest rate is prime or, for
LIBOR advances, the LIBOR rate plus a margin, ranging from 1.0% to 2.50%,
indexed according to a defined financial ratio. At November 3, 1996 the unused
portion of the revolver was approximately $35,000,000. The credit facilities are
unsecured and require the Company to maintain certain customary financial and
operating ratios.
INTEREST RATE SWAP AGREEMENT
During the first quarter of fiscal 1996, the Company entered into an
interest rate swap agreement with its primary lender in order to reduce the
impact of changes in variable interest rates on consolidated results of
operations and future cash outflows for interest. The agreement converts the
non-indexed part of the interest rate to a fixed rate of 5.4%. At November 3,
1996, the amount of the swap was $58,000,000 and expires on March 31, 2000. In
fiscal 1996, the Company's financial position or results of operations were not
materially impacted by the swap agreement.
10 1/2% SENIOR SUBORDINATED NOTES
In July 1996, the Company issued $100,000,000 of 10 1/2% Senior
Subordinated Notes ("Notes"). The Notes mature on August 1, 2006 unless
previously redeemed. Interest on the Notes is payable semi-annually on February
1 and August 1, commencing on February 1, 1997.
26
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notes will not be redeemable at the Company's option prior to August 1,
2001. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE
- ------------------------------------- ----------
August 1, 2001....................... 105.25%
August 1, 2002....................... 103.50%
August 1, 2003....................... 101.75%
August 1, 2004 and thereafter........ 100.00%
Net proceeds from the offering of approximately $97,000,000 were used in
conjunction with proceeds from the new credit facility to finance the Sterile
Concepts acquisition (See Note 2).
6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES
In March 1993, the Company issued $28,750,000 in principal amount of 6 3/4%
Convertible Subordinated Debentures (the "Debentures") due March 1, 2003,
(including $3,750,000 in principal amount of Debentures issued pursuant to the
underwriters' exercise of the over allotment option). The Debentures, which are
convertible at the option of the holder into Common Stock at a conversion price
of $18 per share, pay interest every six months commencing September 1, 1993
through maturity on March 1, 2003.
The Debentures were not redeemable at the option of the Company prior to
March 1, 1996. After such date, the Debentures are redeemable, as a whole or in
part, at the option of the Company at any time, on at least 30 but not more than
60 days' notice to each holder of Debentures to be redeemed at the following
prices (expressed as percentages of the principal amount), together with accrued
interest to the date fixed for redemption.
If redeemed during the 12-month period beginning March 1 in the year
indicated, the redemption price shall be:
YEAR PERCENTAGE
- ------------------------------------- ----------
1996................................. 105.00%
1997................................. 104.17
1998................................. 103.33
1999................................. 102.50
2000................................. 101.67
2001................................. 100.83
2002................................. 100.00
The net proceeds of the offering, were approximately $27,149,000, after
deducting offering costs and commissions.
OTHER LONG-TERM OBLIGATIONS
In March 1994, the Company purchased research and development machinery and
equipment, patent rights and intellectual property for approximately $1,150,000
in cash and a future obligation totaling $1,000,000. Pursuant to the purchase
agreement, commencing May 1, 1994 and continuing each three month period through
February 28, 1999, the Company is required to make minimum payments of $50,000.
27
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum principal payments on long-term debt and other obligations
are as follows (in thousands):
FISCAL YEARS
- ------------------------------------
1997.............................. $ 11,145
1998.............................. 13,421
1999.............................. 15,992
2000.............................. 17,500
2001.............................. 18,625
Thereafter........................ 185,926
-----------
$ 262,609
===========
(4) RELATED-PARTY TRANSACTIONS
Under the terms of the Chief Executive Officer's ("CEO") employment
agreement, he borrowed $400,000, repayable in 10 equal installments on the third
through the twelfth anniversary of the loan commencing on October 29, 1996. The
CEO made his first payment of $40,000 in fiscal 1996. As a result of this
payment $360,000 was outstanding as of November 3, 1996, which is reflected in
the accompanying Consolidated Statement of Shareholders' Equity.
(5) COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under various operating leases. Rent expense under
these operating leases for fiscal years 1996, 1995 and 1994 were approximately
$1,215,000, $1,164,000 and $998,000, respectively. Minimum future rental
payments are as follows (in thousands):
FISCAL YEARS
- -----------------------------------------
1997................................... $ 2,995
1998................................... 2,633
1999................................... 2,492
2000................................... 1,228
2001................................... 987
Thereafter............................. 4,882
---------
$ 15,217
=========
CLAIMS AND LITIGATION
On May 9, 1994, an out of court settlement was reached between the Company
and Futurmed Intervention, Inc., a Texas corporation ("Futuremed"), Angiomed
Aktengesellschaft, a German corporation (Angiomed) and a number of individual
defendants. Pursuant to the terms of the agreement, Futurmed will pay the
Company $4,150,000, which is guaranteed by Angiomed. The defendants also agreed
to certain covenants regarding supply of certain products, non-competition and
28
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other matters. Of the settlement amount, $1,150,000, was paid to the Company by
Futurmed at the time of the settlement with $3,000,000 to be paid in five equal
annual installments of $600,000 which began June 1, 1995 and will continue
through June 1, 1999. The remaining $1,800,000 of future payments are secured by
an irrevocable letter of credit in favor of the Company. The proceeds received
at settlement were used to offset legal expenses incurred and to establish a
reserve for defective, excess and obsolete inventory previously purchased from
Angiomed. Installment proceeds are being recorded as non-operating income.
In March 1996 the Company was served with various lawsuits alleging various
adverse reactions to the latex used in certain of the medical gloves alleged to
have been manufactured by the Company or the prior owner of the assets relating
to the Company's Glove Operations acquired in June 1995. The Company believes
that most, if not all, of such claims relate to gloves produced and sold prior
to June 1995, and that such prior owner will be obligated to indemnify the
Company with respect to most, if not all, of these liabilities. The Company is
aware that there have been an increasing number of lawsuits brought against
latex glove manufacturers with respect to such allergic reactions. The Company,
like its competitors, has continued to manufacture and sell latex gloves
subsequent to acquisition of the Glove Operations. Therefore, it is anticipated
that there may in the future be claims brought against the Company with respect
to latex gloves manufactured by the Company.
In the ordinary course of business, the Company has been named in various
lawsuits. While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes, based on consultation with legal counsel, that the ultimate
resolution of these matters and the matters specifically discussed above, will
not have a material adverse impact on the Company's financial position or
results of operations.
PRODUCT LIABILITY
The Company currently has product liability insurance which it believes to
be adequate for its business. The Company's existing policy expires October 31,
1997.
(6) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 as of November 1,
1993. The cumulative effect of this change in accounting for income taxes of
$380,000 was determined as of November 1, 1993 and is reported separately in the
consolidated statement of earnings for fiscal 1994. The components of the
provision for federal income taxes are as follows:
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
Year ended November 3, 1996.......... $ 2,400 $ 3,352 $5,752
Year ended October 29, 1995.......... $ 3,155 $ (1,251) $1,904
Year ended October 30, 1994.......... $ 4,269 $ (131) $4,138
29
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differed from the amounts computed by applying the
statutory U.S. federal income tax rate as a result of the following:
1996 1995 1994
------- -------- -----
Statutory rate....................... 35% 35% 35%
Amortization of goodwill............. 3 6 4
Dividends received deductions........ -- -- (2)
Tax-exempt interest income........... -- (1) (3)
Surtax exemption..................... -- (1) (1)
Other, net........................... 2 -- 2
------- --- -----
Effective rate....................... 40% 39% 35%
======= === =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at November 3,
1996 and October 29, 1995 are presented below:
1996 1995
--------- ---------
(IN THOUSANDS)
Current deferred:
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful
accounts........................ $ 2,125 $ 611
Inventory, principally due to
reserve for obsolescence and
costs inventoried for tax
purposes........................ 4,603 2,313
Net operating loss carryforwards... 2,390 76
Accruals and provisions not
currently deductible............ 4,315 615
--------- ---------
13,433 3,615
Deferred tax liabilities:
Tax over book depreciation......... (792) (618)
Note receivable related to
installment sales............... (201) --
Other.............................. (294) (289)
--------- ---------
$ 12,146 $ 2,708
========= =========
Noncurrent deferred:
Deferred tax assets:
Net operating loss carryforwards... 534 610
Book over tax amortization......... 602 927
--------- ---------
1,136 1,537
Deferred tax liabilities:
Tax over book amortization......... (4,400) --
Differences between book and tax
basis of property and
equipment....................... (2,553) (1,317)
--------- ---------
(5,817) 220
--------- ---------
Total net deferred tax asset......... $ 6,329 $ 2,928
========= =========
30
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There is no valuation allowance as of fiscal year ended November 3, 1996.
It is the opinion of management that future operations will more likely than not
generate taxable income to realize the deferred tax assets.
At November 3, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $7,595,000 which are available to
offset future federal taxable income, if any, through 2010.
(7) ACCRUED LIABILITIES
Included in accrued liabilities as of November 3, 1996 and October 29, 1995
are the following:
1996 1995
--------- ---------
(IN THOUSANDS)
Negative book cash balance........... $ 11,925 $ 3,740
Health insurance and benefit
accrual............................ 5,554 3,844
Accrued taxes payable................ 4,951 3,166
Fees payable to hospital buying
groups............................. 4,822 --
Accrued payroll and commissions...... 4,760 4,661
Accrued interest payable............. 3,627 1,243
Deferred tax liability............... -- 907
Other................................ 9,736 615
--------- ---------
$ 45,375 $ 18,176
========= =========
(8) GOODWILL AND INTANGIBLES
Included in goodwill and intangibles as of November 3, 1996 and October 29,
1995 are the following:
1996 1995
----------- ---------
(IN THOUSANDS)
Goodwill............................. $ 131,161 $ 17,175
Patents.............................. 14,787 16,995
Offering costs....................... 4,006 1,195
Non-compete agreements............... 3,985 5,101
Other intangibles.................... 2,107 1,070
----------- ---------
$ 156,046 $ 41,536
=========== =========
31
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTION AGREEMENTS
Commencing with November 1, 1988, it has been the practice of the board of
directors on or around November 1 of each year to grant stock options to certain
employees of the Company. The Company has also granted options to its
non-employee directors from time to time. The shares purchasable by employees
under such stock option agreements (subject to continued employment with the
Company) vest over five years. Set forth below is certain information regarding
such issuances, exercises and cancellations of options in each of the indicated
fiscal years:
AVERAGE
EXERCISE
SHARES PRICE
--------- --------------
Balance at October 30, 1994.......... 205,000
Fiscal 1995:
Granted............................ 426,000 $ 10.73
Exercised.......................... (41,000) 4.14 - 12.96
Canceled........................... (8,700) 4.14 - 15.40
---------
Balance at October 29, 1995.......... 581,300
Fiscal 1996:
Granted............................ 275,000 $ 11.48
Exercised.......................... (41,180) 4.14 - 15.40
Canceled........................... (21,420) 4.14 - 15.40
---------
Balance at November 3, 1996.......... 793,700
=========
At November 3, 1996, options to purchase 326,260 shares, exercisable at an
average price of $11.87, were vested.
(10) SAVINGS PLAN
The Company has a 401(k) savings plan which permits participants to
contribute up to 15 percent of their base compensation (as defined) each year.
The Company will match at least 25 percent of a participants contribution up to
a maximum of 6 percent of gross pay. The Company's matching percentage may be
adjusted as Company profitability dictates.
(11) PUBLIC OFFERING OF COMMON STOCK
On March 4, 1994 the Company completed an offering of 2,000,000 shares of
its common stock at a price to the public of $17.50 per share. Pursuant to the
underwriters' exercise of the over allotment option an additional 116,300 shares
were sold by the Company on March 16, 1994. After deducting offering costs and
commissions the Company received net proceeds of approximately $34,700,000.
(12) NONRECURRING CHARGES
In the third quarter of fiscal 1995, the Company made a decision to form
its Case Management division by combining the Boundary and Sterile Design
divisions with the newly acquired Glove Operations and Bovie product line.
As a result of this decision, the Company incurred approximately
$10,800,000 (pre-tax) nonrecurring charges comprised primarily of restructuring
expenses (approximately $1,300,000), facility consolidation expenses
(approximately $2,200,000) and non-cash asset write-downs (approximately
$7,300,000).
32
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
--------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED NOVEMBER 3, 1996
Net sales......................... $ 86,600 $ 90,859 $ 84,128 $ 138,249
Gross profit...................... 25,234 25,511 22,311 32,325
Net Income........................ 2,726 2,951 2,952 81
Primary earnings per share........ 0.33 0.35 0.36 0.01
Fully diluted earnings per share.. 0.31 0.33 0.33 0.01
YEAR ENDED OCTOBER 29, 1995
Net sales......................... $ 54,367 $ 62,511 $ 65,670 $ 83,178
Gross profit...................... 17,115 19,256 19,573 23,287
Net Income........................ 2,254 2,526 (4,778) 2,927
Primary earnings per share........ 0.28 0.31 (0.59) 0.36
Fully diluted earnings per share.. 0.26 0.29 (0.59) 0.33
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Maxxim Medical, Inc.:
We have audited the consolidated financial statements of Maxxim Medical,
Inc. and subsidiaries as listed in Item 14 a) 1. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in 14 a) 2. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Maxxim
Medical, Inc. and subsidiaries as of November 3, 1996, and October 29, 1995, and
the results of their operations and their cash flows for the fifty-two week
periods ended November 3, 1996, October 29, 1995, and October 30, 1994 in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective November 1,
1993 to adopt the provisions of the Financial Accounting Standards Boards
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Houston, Texas
January 16, 1997
34
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information is furnished under the captions "Directors and executive
officers of the registrant" and "Compliance with Section 16(a) of the Exchange
Act" in the Company's definitive proxy statement, which is incorporated herein
by reference.
The following table sets forth certain information with respect to the
executive officers of the Company. Executive officers are elected by the Board
of Directors to hold office until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ------------------------------------- --- ------------------------------------------
<S> <C> <C>
Kenneth W. Davidson.................. 49 Chairman of the Board, President and Chief
Executive Officer
Peter M. Graham...................... 50 Treasurer, Executive Vice President and
Chief Operating Officer
David L. Lamont...................... 50 Vice President, Group Vice President
Alan S. Blazei....................... 41 Vice President, Controller
Thomas O. Craig...................... 48 Vice President, Executive Vice
President -- International Sales and
Marketing
Joseph D. Dailey..................... 48 Vice President -- Information Services
Henry T. DeHart...................... 50 Vice President, Executive Vice President
Operations, Case Management
Jack F. Cahill....................... 47 Vice President, Executive Vice President
Sales and Marketing, Case Management
</TABLE>
KENNETH W. DAVIDSON has served as a director since 1982 and as Chairman of
the Board of Directors, Chief Executive Officer and President of the Company
since November 1986. Prior to that time, Mr. Davidson was the Corporate Director
of Business Development at Intermedics Incorporated ("Intermedics"), which is
principally a manufacturer of implantable medical devices such as pacemakers and
is also a principal shareholder of the Company.
PETER M. GRAHAM has served the Company as Executive Vice President since
January 1986, Treasurer of the Company since April 1987, and as Chief Operating
Officer since January 1987.
DAVID L. LAMONT has been Vice President of the Company since March 1988 and
Group Vice President since July 1993. From January 1992 to July 1993 Mr. Lamont
was President, Argon Medical division.
ALAN S. BLAZEI was elected as an executive officer of the Company in
December 1990 with the title of Vice President, Controller.
THOMAS O. CRAIG was elected as an executive officer of the Company in
September 1991. From January 1992 through the present he has served as Executive
Vice President-International Sales and Marketing.
JOSEPH D. DAILEY was elected as an executive officer of the Company with
the title Vice President-Information Services in August 1994. From January 1991
until such election he had been Director of Information Services at Maxxim.
35
<PAGE>
HENRY T. DEHART was elected as Vice President in November 1993. From June
1995 through the present he has served as Executive Vice President Operations,
Case Management. From December 1992 through July 1995 he served as President of
the Boundary Healthcare division. Prior to that time he was Chief Operating
Officer of Boundary Healthcare Products Corp. for more than five years.
JACK F. CAHILL was elected as Vice President in May 1995. From June 1995
through the present he has served as Executive Vice President Sales and
Marketing, Case Management. From May 1994 through June 1995 he served as
President of the Sterile Design division. From July 1993 to May 1994 he served
as Executive Vice President, Sterile Design. For over five years prior to July
1993 he worked for Johnson & Johnson Medical, Inc. serving in various
capacities, the latest of which being Business Director.
ITEM 11: EXECUTIVE COMPENSATION
Information concerning management remuneration is furnished under the
caption "Election of Directors -- Executive Compensation and Other
Information," "-- Director Compensation" and "Approval of 1996 Non-Employee
Directors' Stock Option Plan" in the Company's definitive proxy statement,
which is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership" contained in
Registrant's definitive proxy statement is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election Of Directors -- Certain
Transactions" and "Employment Contracts" contained in Registrant's definitive
proxy statement is incorporated herein by reference.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets of the Company as of November 3, 1996 and October 29,
1995............................................................................. 17
Consolidated Statements of Operations of the Company for the years ended November
3, 1996, and October 29, 1995 and October 30, 1994............................... 18
Consolidated Statements of Shareholders' Equity of the Company for the years ended
November 3, 1996, October 29, 1995 and October 30, 1994.......................... 19
Consolidated Statements of Cash Flows of the Company for the years ended November
3, 1996, October 29, 1995, and October 30, 1994.................................. 20
Notes to Consolidated Statements of the Company.................................... 21
Independent Auditors Report on Consolidated Financial Statements of the Company.... 34
</TABLE>
(2) The following consolidated financial statement schedule of Maxxim
Medical, Inc. is included in Item 16(b) together with the related report of
independent public accountants:
Schedule II -- Valuation and Qualifying Accounts and Allowances
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or information
required is included in the combined financial statements and, therefore, have
been omitted.
36
<PAGE>
(b) Reports on Form 8-K
The registrant filed a Form 8-K dated August 14, 1996 covering Item 2.
Acquisition or Disposition of Assets with respect to the successful
completion of a tender offer to the shareholders of Sterile Concepts.
Amendment No. 1 to the previously mentioned 8-K dated October 11, 1996
covering Item 7. Financial Statements and Exhibits.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3.1(a) -- Restated Articles of Incorporation of
the Company -- Exhibit No. 3.1 to the
Registration Statement on Form S-1 of
Registrant, Registration No.
33-32630, filed with the Commission
on December 19, 1989 and incorporated
herein by reference.
3.1(b) -- Articles of Amendment to Articles of
Incorporation -- Exhibit No. 3.1(b)
to the Registration Statement on Form
S-1 of Registrant, Registration No.
33-57800, filed with the Commission
on February 2, 1993 and incorporated
herein by reference.
3.2 -- Bylaws of the Registrant -- Exhibit
No. 3.2 to the Registration Statement
on Form S-1 of Registrant,
Registration No. 33-32630, filed with
the Commission on December 19, 1989
and incorporated herein by reference.
3.3 -- Certificate and Agreement of Merger
and Articles of Merger with attached
Plan and Agreement of Merger of the
Registrant and Henley Holding
Company -- Exhibit No. 3.3 to the
Registration Statement on Form S-1 of
Registrant, Registration No.
33-32630, filed with the Commission
on December 19, 1989 and incorporated
herein by reference.
4.1 -- Specimen Common Stock
Certificate -- Exhibit No. 4.1 to the
Registration Statement on Form S-1 of
Registrant, Registration No.
33-57800, filed with the Commission
on February 2, 1993 and incorporated
herein by reference.
4.2 -- Indenture dated March 18, 1993
between the Registrant and Trustee,
for 6 3/4% Convertible Subordinated
Debentures due 2003 -- Exhibit No.
4.2 to the Registration Statement on
Form S-1 of Registrant, Registration
No. 33-57800, filed with the
Commission on February 2, 1993 and
incorporated herein by reference.
4.3 -- Specimen Debenture -- Exhibit No. 4.3
to the Registration Statement on Form
S-1 of Registrant, Registration No.
33-57800, filed with the Commission
on February 2, 1993 and incorporated
herein by reference.
4.4 -- Indenture dated July 30, 1996, by and
among Maxxim, as Issuer, Maxxim-
Delaware, Purchaser, Fabritek La
Romana, Inc., Maxxim Medical Canada
Limited, Medica B.V. and Medica Inc.,
Maxxim Medical Canada Limited, Medica
B.V. and Medica Hospital Supplies,
N.V., as Guarantors and First Union
National Bank of North Carolina, as
Trustee -- Exhibit No. 4 to the Form
8-K of Registrant, filed with the
Commission on August 14, 1996 and
incorporated herein by reference.
10.1 -- Consulting Agreement dated November
1, 1989, between the registrant and
Ernest J. Henley -- Exhibit No. 10.13
to the Registration Statement on Form
S-1 of Registrant, Registration No.
33-32630, filed with the Commission
on December 19, 1989 and incorporated
herein by reference.
10.2 -- Employment Agreement dated effective
November 1, 1994, between Kenneth W.
Davidson and the Registrant --Exhibit
No. 10.2 to the Annual Report of Form
10-K of Registrant, for the fiscal
year ended October 30, 1994, filed
with the Commission on January 26,
1995 and incorporated herein by
reference.
10.3 -- Form of Amended and Restated Stock
Option Agreement dated November 1,
1990, between the Registrant and
various officers of the
Registrant -- Exhibit
37
<PAGE>
No. 10.12 to the Registration
Statement on Form S-1 of Registrant,
Registration No. 33-44536, filed with
the Commission on December 16, 1991
and incorpo-
rated herein by reference.
10.4 -- Form of Stock Option Agreement dated
effective November 1, 1990, between
the Registrant and various officers
of the Registrant -- Exhibit No.
10.11 to the Registration Statement
on Form S-1 of Registrant,
Registration No. 33-44536, filed with
the Commission on December 16, 1991
and incorporated herein by reference.
10.5 -- Form of Non-Employee Director Stock
Option Agreement dated effective
February 28, 1991, between the
Registrant and the non-employee
directors of the Registrant --Exhibit
No. 10.14 to the Registration
Statement on Form S-1 of Registrant,
Registration No. 33-44536, filed with
the Commission on
December 16, 1991 and incorporated
herein by reference.
10.6 -- Form of Stock Option Agreement dated
effective November 1, 1991, between
the Registrant and various officers
of the Registrant -- Exhibit No.
10.15 to the Registration Statement
on Form S-1 of Registrant,
Registration No. 33-44536, filed with
the Commission on December 16, 1991
and incorporated herein by reference.
10.7 -- 1992 Employee Stock Option
Plan -- Exhibit No. 10.13 to the
Annual Report of Form 10-K of
Registrant, for the fiscal year ended
October 31, 1992 filed with the
Commission on January 29, 1993 and
incorporated herein by reference.
10.8 -- 1993 Non-Employee Director Stock
Option Plan -- Exhibit No. 10.14 to
the Registration Statement on Form
S-1 of Registrant, Registration No.
33-57800, filed with the Commission
on February 2, 1993 and incorporated
herein by reference.
10.9 -- 1994 Non-Employee Director Stock
Option Plan -- Exhibit No. 10.11 to
the Annual Report of Form 10-K of
Registrant, for the fiscal year ended
October 31, 1993 filed with the
Commission on January 28, 1994 and
incorporated herein by reference.
10.10 -- Form of 1995 Employee Stock Option
Plan -- Exhibit No. 10.10 to the
Annual Report of Form 10-K of
Registrant, for the fiscal year ended
October 30, 1994, filed with the
Commission on January 26, 1995 and
incorporated herein by reference.
10.11 -- Form of 1995 Non-Employee Directors'
Stock Option Plan -- Exhibit No.
10.11 to the Annual Report of Form
10-K of Registrant, for the fiscal
year ended October 30, 1994, filed
with the Commission on January 26,
1995 and incorporated herein by
reference.
10.12 -- Form of 1996 Non-Employee Directors'
Stock Option Plan -- Filed herewith.
10.13(a) -- Agreement of Purchase and Sale of
Assets, dated June 30, 1995, by and
among Purchaser and Becton, Dickinson
and Company and Becton Dickinson
Vascular Access Inc -- Exhibit No.
2.1 to the Current Report of Form 8-K
of Registrant, dated June 30, 1995,
filed with the Commission on July 14,
1995 and incorpo-
rated herein by reference.
10.13(b) -- Agreement of Purchase and Sale of
Assets, dated June 30, 1995, by and
among Maxxim Medical Canada Limited
and Becton Dickinson Canada
Inc -- Exhibit No. 2.2 to the Current
Report of Form 8-K of Registrant,
dated June 30, 1995, filed with the
Commission on July 14, 1995 and
incorporated herein by reference.
10.13(c) -- Agreement of Purchase and Sale of
Assets, dated June 30, 1995, by and
among N.V. Medica Hospital Supplies
and N.V. Becton Dickinson Benelux
S.A -- Exhibit No. 2.3 to the Current
Report of Form 8-K of Registrant,
dated June 30, 1995, filed with the
Commission on July 14, 1995 and
incorporated herein by
38
<PAGE>
reference.
10.14(a) -- Purchase Agreement dated July 18,
1996 between Maxxim and Initial Pur-
chasers relating to the Old
Notes -- Exhibit No. 3 to the Form
8-K of Registrant, filed with the
Commission on August 14, 1996 and
incorporated herein by reference.
10.14(b) -- Agreement and Plan of Merger dated as
of June 10, 1996, by and among
Maxxim-Delaware, Maxxim Acquisition
and Sterile Concepts -- Exhibit (d)
to the Schedule 14D-1 of Registrant,
Maxxim-Delaware, and Purchaser, filed
with the Commission on June 14, 1996
and incorporated herein by reference.
10.15 -- Second Amended and Restated Credit
Agreement, dated July 30, 1996, by
and among Maxxim, NationsBank of
Texas, N.A. and the banks named
therein -- Exhibit No. 2 to the Form
8-K of Registrant, filed with the
Commission on August 14, 1996 and
incorporated herein by reference.
22.1 -- Subsidiaries of the Registrant
24.1 -- Consent of KPMG Peat Marwick LLP
27.1 -- Financial Data Schedule
39
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: January 22, 1997 MAXXIM MEDICAL, INC.
By: /s/ KENNETH W. DAVIDSON
KENNETH W. DAVIDSON
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, AS AMENDED,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
JANUARY 22, 1997.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------------- ---------------------------------------------------------
<S> <C>
/s/KENNETH W. DAVIDSON Chairman of the Board, President and Chief Executive
(KENNETH W. DAVIDSON) Officer (principal executive officer)
/s/PETER M. GRAHAM Executive Vice President, Treasurer and Chief Operating
(PETER M. GRAHAM) Officer (principal financial officer)
/s/ALAN S. BLAZEI Vice President -- Controller (principal
(ALAN S. BLAZEI) accounting officer)
/s/ERNEST J. HENLEY, PH.D. Director
(ERNEST J. HENLEY, PH.D.)
Director
(PETER G. DORFLINGER)
/s/MARTIN GRABOIS, M.D. Director
(MARTIN GRABOIS, M.D.)
Director
(RICHARD O. MARTIN, PH.D.)
Director
(HENK R. WAFELMAN, ING.)
/s/DONALD R. DePRIEST Director
(DONALD R. DEPRIEST)
</TABLE>
40
<PAGE>
SCHEDULE II
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE
FISCAL YEARS ENDED 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OPERATING AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ------------------------------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
1996: Allowance for uncollectible
accounts receivable $ 2,054 $ 3,266 $(1,228) $ 4,092
=========== =========== =========== ========
1995: Allowance for uncollectible
accounts receivable $ 1,629 $ 2,566 $(2,141) $ 2,054
=========== =========== =========== ========
1994: Allowance for uncollectible
accounts receivable $ 1,529 $ 2,441 $(2,341) $ 1,629
=========== =========== =========== ========
</TABLE>
The notes to the consolidated financial statements
of Maxxim Medical, Inc., and subsidiaries
are an integral part of this schedule.
EXHIBIT 10.12
MAXXIM MEDICAL, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
THIS 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN (this "Plan") is
adopted by the Board of Directors (the "Board of Directors") of MAXXIM MEDICAL,
INC., a Texas corporation (the "Company"), effective the 15th day of March, 1996
(the "Adoption Date").
W I T N E S S E T H:
WHEREAS, the Company believes that allowing certain non-employee
directors of the Company to obtain shares of common stock, $.001 par value
("Common Stock"), of the Company by granting stock options as hereinafter
provided is beneficial to the initial and continued success of the Company;
NOW, THEREFORE, the Company agrees to provide for the granting of stock
options to the non-employee directors of the Company, subject to the following
conditions and provisions:
1. PURPOSE. The purpose of this Plan is to secure for the Company and
its stockholders the benefits that flow from providing its non-employee
directors with the incentive inherent in common stock ownership. The Company
recognizes that stock option plan may allow the Company to attract and retain
qualified and competent persons for service as members of the Company's Board of
Directors because of the opportunity offered to acquire a proprietary interest
in the business of the Company.
2. AMOUNT OF STOCK. The total number of shares of Common Stock to be
subject to options granted pursuant to this Plan shall not exceed 30,000 shares.
This total number of shares shall be subject to appropriate and automatic
increase or decrease under Section 10 of this Plan (without the need for further
action on the part of the Board of Directors of the Company), in the event of a
stock dividend, or upon a subdivision, split-up, combination or reclassification
of, the shares purchasable under such options, as contemplated in Section 10.
3. ELIGIBILITY AND PARTICIPATION. Options may be granted pursuant to
this Plan only to non-employee directors of the Company (such non-employee
directors being hereinafter sometimes called "directors"). Directors who are
employees of the Company or a parent or a subsidiary of the Company shall not be
eligible to participate in this Plan. The holder of any option granted pursuant
to this Plan shall not have any of the rights of a shareholder with respect to
the shares covered by the option until one or more certificates for such shares
shall be delivered to him upon the due exercise of the option.
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4. OPTION AGREEMENT. The terms and provisions of each option granted
under this Plan shall be as set forth in a Non- Employee Director Stock Option
Agreement (hereinafter called an "Option Agreement"), between the Company and
the director receiving such option in form and content substantially similar to
the Option Agreement attached hereto as EXHIBIT A.
5. OPTIONS SHARES. On the date of the 1996 Annual Meeting of
Shareholders of the Company, the Company shall grant to each director elected at
such meeting an option to purchase 3,000 shares of Common Stock. In addition, on
the date that any new director is elected at an Annual Meeting of the
Shareholders of the Company during the term of this Plan, the Company shall
grant to each such new director an option to purchase 3,000 shares of Common
Stock.
6. PRICE. The purchase price per share of Common Stock purchasable under
options granted pursuant to this Plan shall be eighty-five percent (85%) of the
opening price per share of the Common Stock on the New York Stock Exchange, or
such other exchange as the Common Stock may then be traded, on the day such
options are granted; provided that the purchase price per share of Common Stock
purchasable under options granted on the date of the 1996 Annual Meeting of
Shareholders of the Company shall be Eleven and 48/100 Dollars ($11.48). The
full purchase price of shares purchased shall be paid upon exercise of the
option. The purchase price per share shall be subject to adjustment under
Section 10 of this Plan.
7. EXERCISE PERIOD. All shares of Common Stock purchasable under any
option granted under this Plan will be purchasable on the earlier of January 12
and the date of the Annual Meeting of Shareholders in the year following the
grant of such option; provided that the director granted such option must have
serve as a director of the Company at all times from the date of grant.
8. OPTION PERIOD. The period of time within which options granted
pursuant to this Plan must be exercised shall be a period of three (3) years
after such option first becomes exercisable. The actual expiration date stated
in an Option Agreement is hereinafter called the "Expiration Date".
9. TERMINATION. Each Option Agreement will provide that:
(a) If the director for any reason whatsoever, other than death
or permanent and total disability, as defined in (b) below, ceases to be
a director of the Company, the option must be exercised by the director
within one (1) year after the date of such termination, if such
termination date is prior to the Expiration Date.
(b) If the director becomes permanently and totally
disabled, as hereinafter defined, while serving as a director
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of the Company, the option will automatically become exercisable in full
and must be exercised by the director at any time within one (1) year
after the date of disability or the Expiration Date, whichever is
earlier.
"Permanently and totally disabled" means being unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. In the absence of
any specific requirements for this determination, the decision of the
Board of Directors of the Company, as aided by any physicians designated
by the Board of Directors shall be conclusive and the Board of Directors
shall send written notice to the director of the determination that he
has become permanently and totally disabled.
(c) In the event that the director dies while serving as a
director of the Company, the option will automatically become
exercisable in full and must be exercised by a legatee or legatees of
the director under his will, or by his personal representatives or
distributees, at any time within one (1) year after the date of death or
the Expiration Date, whichever is earlier.
Nothing in (a), (b) or (c) shall extend the time for exercising
any option granted pursuant to this Plan beyond the Expiration Date.
10. ASSIGNABILITY. Each Option Agreement shall provide that the option
granted thereby shall not be transferable or assignable by the director in any
form or fashion, and that the option may be exercised only by the director
during his lifetime, or as otherwise expressly set forth in EXHIBIT A hereto.
11. CHANGES IN CAPITAL STRUCTURE. Each option granted pursuant to this
Plan shall provide that if the option shall, subject to Section 12, be exercised
subsequent to any share dividend, stock split, reverse stock split, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
reorganization, or liquidation occurring after the date of the grant of the
option, as a result of which shares of any class have been issued in respect of
outstanding Common Stock or Common Stock has been changed into the same or a
different number of shares of the same or another class or classes, then the
director or directors so exercising the option shall receive, for the aggregate
price paid upon such exercise, the aggregate number and class of shares that, if
Common Stock (as authorized at the date of the grant of the option) had been
purchased at the date of the grant of the option for the same aggregate price
(on the basis of the price per share set forth in Section 6 hereof) and had not
been
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<PAGE>
disposed of, such director or directors would be holding, at the time of such
exercise, as a result of such purchase and all such share dividends, stock split
reverse stock split, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, reorganizations, or liquidations; provided,
however, that no fractional share shall be issued upon any such exercise, and
the aggregate price paid shall be appropriately reduced on account of any
fractional share not issued.
12. CHANGE IN CONTROL. Notwithstanding anything in this Plan to the
contrary, in the event of a Change in Control (as defined below), the
unexercised options outstanding under this Plan will automatically become
exercisable in full as of the effective date of such Change in Control. In the
event of a dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, any
outstanding options hereunder may be terminated by the Company as of the
effective date of such dissolution, liquidation, merger or consolidation by
giving notice to each holder thereof of its intention to do so not less than ten
(10) days preceding such effective date and permitting the exercise until such
effective date, or the Expiration Date if earlier, of all of such outstanding
options. Notwithstanding the preceding sentence, if the Company is not the
surviving corporation as a result of the Company being reorganized or merged or
consolidated with another corporation while unexercised options are outstanding
under this Plan, the surviving corporation may assume the unexercised options
outstanding under this Plan or substitute new options in the surviving
corporation for the outstanding options; provided, however, that the excess of
the aggregate fair market value of the securities subject to the options
immediately after the substitution or assumption over the aggregate option price
of such shares is not less than the excess of the aggregate fair market value of
the Common Stock subject to the outstanding option immediately before such
substitution or assumption over the aggregate option price of such Common Stock.
The existence of this Plan or of options granted hereunder shall not in any way
prevent any Change in Control transaction and no holder of options granted under
this Plan shall have the right to prevent any such transaction.
"Change in Control" of the Company means and shall be deemed to have
occurred if and when (i) any "person" (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities; (ii)
individuals who were members of the Board of Directors of the Company
immediately prior to a meeting of the shareholders of the Company involving a
contest for the election of directors do not constitute a majority of the Board
of Directors following such election; (iii) the shareholders of the Company
approve the dissolution or liquidation
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of the Company; (iv) the shareholders of the Company approve an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more entities
which are not subsidiaries of the Company, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former shareholders of the Company (excluding from the term
"former shareholders" a shareholder who is, or as a result of the transaction in
question becomes, an "affiliate", as that term is used in the Securities
Exchange Act of 1934 and the Rules promulgated thereunder, of any party to such
merger, consolidation or reorganization); or (v) the shareholders of the Company
approve the sale of substantially all of the Company's business and/or assets to
a person or entity which is not a subsidiary of the Company.
13. REGISTRATION RIGHTS. The directors shall have no registration rights
with respect to the shares of Common Stock issuable upon exercise of the options
granted under this Plan.
14. SALE OF STOCK AFTER EXERCISE OF OPTION. Any director exercising any
option under the terms of this Plan will be required to agree that, unless the
shares obtained as a result of such exercise have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or may otherwise be
sold pursuant to an available exemption from such registration under the
Securities Act, such director will not dispose of any such shares thereafter
without the prior approval of the Company.
Unless the Company files a registration statement with respect to the
shares issuable under the Plan, the Company shall require that a legend be
placed on any share certificates issued through the exercise of any option
granted under this Plan with respect to the foregoing restrictions. Such legend
shall be placed either on the front or back of such share certificates and shall
note that the shares are governed by this Plan.
This Plan shall be kept at the registered office of the Company and
shall be available for inspection by any appropriate party.
15. AMENDMENT OF THE PLAN. The Board of Directors may from time to time
alter, amend, suspend or discontinue this Plan and make rules for its
administration; provided, however, that the Plan may not be amended more than
once every six (6) months, other than to conform to changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
16. SHAREHOLDER APPROVAL. This Plan will be submitted to the
shareholders of the Corporation (the "Shareholders") for approval and shall be
approved by a majority vote or by written consent of a majority of the
Shareholders.
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17. TERMINATION OF PLAN. Unless terminated earlier, this Plan shall
terminate effective the date of the 2001 Annual Meeting of Shareholders. Any
option outstanding under this Plan at the time of the termination of this Plan
shall remain in effect until such option shall have been exercised or the
Expiration Date thereof occurs, whichever is earlier.
18. EXHIBITS. EXHIBIT A (attached) is hereby incorporated into this Plan
by reference.
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<PAGE>
EXHIBIT "A"
MAXXIM MEDICAL, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
THIS NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this "Agreement"),
effective as of , 199 (the Effective Date"), by and between MAXXIM MEDICAL,
INC., a Texas corporation (the "Company"), and , an individual residing in (the
"Optionee");
W I T N E S S E T H:
WHEREAS, the Optionee is a member of the Board of Directors of the
Company but is neither an employee nor an executive officer of the Company on
the effective date hereof; and
WHEREAS, in consideration of the Optionee's past service to the Company
and to provide the Optionee with additional incentive to remain as a director of
the Company, the Company has agreed to grant the Optionee options to purchase
shares of common stock, $.001 par value ("Common Stock"), of the Company; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Company intends to carry out
the purposes set forth in the 1996 Non-Employee Directors' Stock Option Plan of
the Company (the "Plan") adopted by the Board of Directors of the Company (the
"Board of Directors"); and
WHEREAS, the Company and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee the option
(the "Option") to purchase all or any part of an aggregate of Three Thousand
(3,000) shares of Common Stock (such shares, as increased or decreased in
accordance with Section 8 hereof, being referred to herein as the "Option
Shares") for a purchase price of Eleven and 48/100 Dollars ($11.48) per share
(the "Exercise Price"), upon the additional terms and conditions hereinafter set
forth.
2. AVAILABILITY OF OPTION SHARES AND TERM OF OPTION. The Option shall be
fully exercisable as of the earlier of (i) January 12, 1997, or (ii) the date of
the next Annual Meeting of Shareholders (such earlier date being hereinafter
referred to as the "Vesting Date"), such vesting expressly conditioned upon the
<PAGE>
Optionee having served as a director of the Company at all times from the date
of grant up to the date preceding the Vesting Date. The Option shall expire and
terminate as to any Option Shares not purchased by the Optionee on or prior to
the expiration of three years from the Vesting Date (the "Expiration Date"),
subject to earlier termination as set forth in Section 13.
3. METHOD OF EXERCISING THE OPTION. Subject to the limitations contained
in Section 2, the Option shall be exercised by the Optionee delivering to the
Company, on or prior to the Expiration Date or the date of any earlier
termination pursuant to Section 13 (i) written notice from the Optionee stating
that the Optionee is exercising the Option, and specifying the number of Option
Shares that the Optionee desires to purchase ("Notice"), and (ii) a check
payable to the order of the Company in an amount equal to the then current
Exercise Price multiplied by the number of Option Shares that the Optionee has
indicated he desires to purchase in the Notice (the "Payment"). The Option may
be exercised as to all, or any whole number, of the Option Shares exercisable as
of the date of the Notice. The failure of the Optionee to exercise the Option as
to all of the Option Shares available for exercise as of the date of the Notice
shall not be deemed to be a waiver or forfeiture of the Optionee's right to
later exercise the Option as to any Option Shares not previously purchased. For
purposes of Section 2 hereof, the exercise of the Option to purchase the Option
Shares specified in the Notice shall be deemed to have taken place on the date
that Notice and Payment are actually received by the Company in accordance with
this Section 3.
4. TRANSFERABILITY OF OPTION. The Option shall be exercisable (i) during
the Optionee's lifetime only by the Optionee, or his guardian or legal
representative, or (ii) in the event of his death, by his heirs or legatees in
accordance with his will or the laws of descent and distribution (but only to
the extent the Option would be exercisable by the Optionee under Section 2 or as
set forth in Section 13), and shall not otherwise be transferable or assignable,
in whole or in part.
5. PAYMENT OF TAXES UPON EXERCISE. The Optionee understands and
acknowledges that under currently applicable law, the Optionee may be required
to include in his taxable income, at the time of exercise of the Option, the
amount by which the value of the Option Shares purchased (the "Exercise Shares")
exceeds the Exercise Price paid. The Optionee hereby authorizes the Company to
withhold Exercise Shares of a value equivalent to the amount of tax required to
be withheld by the Company out of any taxable income derived by the Optionee
upon exercise of the Option; provided, however, that the Optionee may, in the
alternative, in order to satisfy such withholding requirement, deliver to the
Company cash or other shares of Common Stock owned by the Optionee.
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6. INVESTMENT REPRESENTATION/SECURITIES LAW REQUIREMENTS. The Optionee
represents that the Option Shares available for purchase by the Optionee under
this Agreement will be acquired only for investment and not with a view toward
resale or distribution. The Optionee agrees and understands that the Option
Shares may be restricted securities as defined in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and, in such case,
may not be sold, assigned or transferred, unless the sale, assignment or
transfer of such shares is registered under the Securities Act and applicable
blue sky laws, as now in effect or hereafter amended or under applicable
exemptions therefrom. In the case of any sale under such an exemption, the
Company will require an opinion of counsel in form and substance satisfactory to
the Company from counsel acceptable to the Company such registrations are not
required. The Optionee further understands and agrees that, unless issued
pursuant to an effective registration statement under the Securities Act, the
following legend shall be set forth on each certificate representing Option
Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the blue sky laws
of any state, and may not be sold, assigned or transferred except upon
such registration or upon receipt by the Company of an opinion of
counsel in form and substance satisfactory to the Company from counsel
acceptable to the Company that such registrations are not required for
such sale, assignment or transfer."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Company of a stock certificate to the Optionee for such shares. Except as
otherwise provided in Section 10 hereof, the Optionee shall not be entitled to
any dividends, cash or otherwise, or any adjustment of the Exercise Price of any
of the Option Shares for such dividends, if the record date therefor is prior to
the date of issuance of such stock certificate. Upon valid exercise of the
Option by the Optionee, the Company agrees to cause a valid stock certificate
for the number of Option Shares then purchased to be issued and delivered to the
Optionee within seven (7) business days.
8. CORPORATE PROCEEDINGS OF THE COMPANY. Notwithstanding anything in
this Agreement to the contrary, in the event of a Change in Control (as defined
in the Plan), the Option will automatically become exercisable in full as of the
effective date of such Change in Control. In the event of a dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation, the Option may be terminated by the Company as of
the effective date of such dissolution, liquidation, merger or consolidation by
giving notice to Optionee of its intention to do so not less than ten (10) days
preceding such effective date and permitting the exercise until
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<PAGE>
such effective date, or the Expiration Date if earlier, of the Option.
Notwithstanding the preceding sentence, if the Company is not the surviving
corporation as a result of the Company being reorganized or merged or
consolidated with another corporation while the Option is outstanding, the
surviving corporation may assume the Option or substitute a new option in the
surviving corporation for the Option; provided, however, that the excess of the
aggregate fair market value of the securities subject to the options immediately
after the substitution or assumption over the aggregate option price of such
shares is not less than the excess of the aggregate fair market value of the
Option Shares immediately before such substitution or assumption over the
Exercise Price of Option Shares. The existence of the Option shall not in any
way prevent any Change of Control transaction and Optionee shall have no right
to prevent any such transaction.
If the Option shall be exercised subsequent to any share dividend, stock
split, reverse stock split, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, reorganization, or liquidation occurring
after the Effective Date, as a result of which shares of any class have been
issued in respect of outstanding Common Stock or Common Stock has been changed
into the same or a different number of shares of the same or another class or
classes without payment of consideration therefor, then the Optionee shall
receive, for the Exercise Price paid upon such exercise, the aggregate number
and class of shares that, if the Option Shares had been purchased at the
Effective Date and had not been disposed of, the Optionee would be holding, at
the time of such exercise, as a result of such purchase and all such share
dividends, stock split reverse stock split, split-ups, recapitalizations,
mergers, consolidations, combinations or exchanges of shares, reorganizations,
or liquidations; provided, however, that no fractional share shall be issued
upon any such exercise, and the Exercise Price shall be appropriately reduced on
account of any fractional share not issued.
The issuance by the Company of shares of stock of any class of
securities convertible into shares of stock of any class, including Common
Stock, or the issuance by the Company of Common Stock, for cash, property or
services rendered, either upon direct sale or upon the exercise of rights,
options, or warrants to subscribe therefor, or the conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of shares of Common Stock then subject to the
Option.
9. NOTICES. All notices, demands and other communications required or
permitted hereunder, shall be deemed to have been properly given or delivered
when delivered personally or sent by certified or registered mail, return
receipt requested with all
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<PAGE>
postage fully prepaid, addressed to the respective parties hereto
as follows:
If to the Company: 104 Industrial Blvd.
Sugar Land, Texas 77478
Attn: President
If to Optionee:
Any party hereto may change the above designated address by notice to
the other party hereto of such new address given in accordance with this
Section 9.
10. JOINDER OF SPOUSE. The Optionee's spouse is fully aware of,
understands and fully consents and agrees to the provisions of this Agreement
and its binding effect upon any interest, community or otherwise, she may have
in any of the Option Shares or this Agreement, and she hereby evidences such
awareness, understanding, consent and agreement by execution of this Agreement.
11. FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, the Company shall not be required to issue any fractional shares, and
to the extent that the terms hereof would otherwise require such issuance of
fractional shares, the number of shares actually issued shall be rounded down to
the nearest whole share.
12. TRANSFERABILITY; BINDING EFFECT. The Option shall be exercisable
only by the persons described in Section 4. Subject to the foregoing, all
covenants, terms, agreements and conditions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the Company and the
Optionee and their respective heirs, executors, administrators, successors and
assigns.
13. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death
or permanent and total disability, as defined in (b) below, ceases to be
a director of the Company, the option must be exercised by the director
within one (1) year after the date of such termination, if such
termination date is prior to the Expiration Date.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while serving as a director of the Company, the
Option will automatically become exercisable in full and must be
exercised by the Optionee at any time within one (1) year after the date
of disability or the Expiration Date, whichever is earlier.
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"Permanently and totally disabled" means being unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. In the absence of
any specific requirements for this determination, the decision of the
Company, as aided by any physicians designated by the Company shall be
conclusive and the Company shall send written notice to the Optionee of
the determination that the Optionee has become permanently and totally
disabled.
(c) In the event that the Optionee dies while serving as a
director of the Company, the option will automatically become
exercisable in full and must be exercised by a legatee or legatees of
the Optionee under the Optionee's will, or by the Optionee's personal
representatives or distributees, at any time within one (1) year after
the date of death or the Expiration Date, whichever is earlier, and if
not so exercised, the Option shall thereupon terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising
the Option granted pursuant to this Agreement beyond the Expiration Date.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and the Optionee and their respective heirs,
executors, administrators, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by the laws of
Texas, and the laws of the United States applicable in Texas.
16. CAPTIONS. The Section headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
the Agreement.
17. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above, to be effective as of the Effective Date.
COMPANY:
MAXXIM MEDICAL, INC.,
a Texas corporation
By:
Kenneth W. Davidson, President
OPTIONEE:
---------------------------------
---------------------------------
Spouse of Optionee
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EXHIBIT 22.1
Subsidiaries of the Registrant
Maxxim Medical, Inc. - Delaware Corp.
Fabritek La Romana, Inc.
Maxxim Medical Canada Limited
Medica B.V. and Medica, Inc.
Medica B.V. and Medica Hospital Supplies, N.V.
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the Registration Statement
(Form S-8) of Maxxim Medical, Inc. and subsidiaries of our report dated January
16, 1997, relating to the consolidated balance sheets of Maxxim Medical, Inc.
and subsidiaries as of November 3, 1996 and October 29, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows and
related schedule for the fifty-two week periods ended November 3, 1996, October
29, 1995 and October 30, 1994, which report appears in the November 3, 1996
annual report on Form 10-K of Maxxim Medical, Inc. and subsidiaries.
KPMG PEAT MARWICK LLP
February 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PART VIII ON FORM 10-K FOR THE YEAR ENDED NOVEMBER 3, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-03-1996
<PERIOD-END> NOV-03-1996
<CASH> 8,044
<SECURITIES> 0
<RECEIVABLES> 90,299
<ALLOWANCES> 4,029
<INVENTORY> 95,087
<CURRENT-ASSETS> 204,724
<PP&E> 123,077
<DEPRECIATION> 24,562
<TOTAL-ASSETS> 467,441
<CURRENT-LIABILITIES> 86,604
<BONDS> 128,750
0
0
<COMMON> 92,453
<OTHER-SE> 31,103
<TOTAL-LIABILITY-AND-EQUITY> 467,441
<SALES> 399,836
<TOTAL-REVENUES> 399,836
<CGS> 294,455
<TOTAL-COSTS> 76,825
<OTHER-EXPENSES> 951
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<INTEREST-EXPENSE> 13,143
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<INCOME-TAX> 5,752
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<EPS-DILUTED> 1.01
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