<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 1, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to _______________.
Commision File Number
0-18208
---------------------
MAXXIM MEDICAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 76-0291634
------------------------------ -------------------------------------
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762
- -------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code........................(813) 561-2100
</TABLE>
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 and 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 the number of shares outstanding of each of the registrant's classes of
common stock:
<TABLE>
<S> <C>
Class Outstanding at March 13, 1998
- ----------------------------------- -------------------------------------
COMMON STOCK, $.001 PAR VALUE 14,213,665
</TABLE>
<PAGE> 2
MAXXIM MEDICAL, INC.
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
--------------------- --------
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets as of
February 1, 1998 and November 2, 1997 2
Condensed Consolidated Statements of Operations
for the Three Months Ended February 1, 1998 and
February 2, 1997 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended February 1, 1998 and
February 2, 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. Other Information 11
-----------------
Signatures
- ----------
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
February 1, November 2,
1998 1997
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,322 $ 3,130
Accounts receivable, net of allowances of
$2,922 and $3,181, respectively 75,328 77,209
Inventory, net 81,349 83,184
Prepaid expenses, deferred taxes and other 11,076 11,000
--------- ---------
Total current assets 171,075 174,523
Property and equipment 123,574 122,938
Less: accumulated depreciation (33,725) (31,384)
--------- ---------
89,849 91,554
Goodwill and other intangibles, net 147,787 150,234
Deferred taxes and other assets, net 7,706 7,735
--------- ---------
Total assets $ 416,417 $ 424,046
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,500 $ 12,750
Accounts payable 35,539 32,194
Accrued liabilities 26,215 26,631
Other short-term obligations 2,623 3,133
--------- ---------
Total current liabilities 77,877 74,708
Long-term debt, net of current maturities 65,270 78,550
10 1/2% Senior subordinated notes 100,000 100,000
6 3/4% Convertible subordinated debentures -- 23,352
Other long-term obligations, net of current maturities 2,702 3,300
Deferred taxes 8,565 6,208
--------- ---------
Total liabilities 254,414 286,118
Commitments and contingencies
Shareholders' equity
Preferred Stock, $1.00 par, 20,000,000 shares
authorized, none issued or outstanding -- --
Common Stock, $.001 par value, 40,000,000
shares authorized, 10,170,262 and 8,871,355
shares issued and outstanding, respectively 10 9
Additional paid-in capital 126,456 103,872
Retained earnings 49,001 45,250
Subscriptions receivable (5,200) (5,200)
Cumulative translation adjustment (8,264) (6,003)
--------- ---------
Total shareholders' equity 162,003 137,928
--------- ---------
Total liabilities and shareholders' equity $ 416,417 $ 424,046
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
February 1, February 2,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 128,003 $ 133,401
Cost of sales 94,942 101,165
--------- ---------
Gross profit 33,061 32,236
Operating expenses 22,334 22,517
--------- ---------
Income from operations 10,727 9,719
Interest expense (4,333) (5,541)
Other income (expense), net 164 1,799
--------- ---------
Income before taxes 6,558 5,977
Income taxes 2,807 2,518
--------- ---------
Net income $ 3,751 $ 3,459
========= =========
Basic earnings per share $ 0.38 $ 0.43
========= =========
Diluted earnings per share $ 0.37 $ 0.39
========= =========
Basic weighted average shares outstanding 9,793 8,131
========= =========
Diluted weighted average shares outstanding 10,492 9,835
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
February 1, February 2,
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,751 $ 3,459
Adjustment to reconcile net income to net
cash provided by operating activities:
Deferred income tax expense 789 --
Depreciation and amortization 4,630 4,644
Gain on sale of investment in equity securities -- (1,510)
Change in operating assets and liabilities 1,908 (1,022)
-------- --------
Net cash provided by operations 11,078 5,571
Cash flows from investing activities
Purchase of property and equipment (2,324) (2,943)
Proceeds from available-for-sale securities -- 3,130
Proceeds from sale of building -- 450
-------- --------
Net cash (used in) provided by investing activities (2,324) 637
Cash flows from financing activities
Increase (decrease) in bank overdraft 5,513 (589)
Payments on long-term debt--net (12,530) (6,533)
Payment on debenture redemption (152) --
(Decrease) increase in other obligations (1,338) 301
Other,net 88 --
-------- --------
Net cash used in financing activities (8,419) (6,821)
Effect of foreign currency translation adjustment (143) (263)
-------- --------
Net increase (decrease) in cash and cash equivalents 192 (876)
Cash and cash equivalents at beginning of period 3,130 5,950
-------- --------
Cash and cash equivalents at end of period $ 3,322 $ 5,074
======== ========
Supplemental cash flow disclosures:
Interest paid during the period $ 2,026 $ 2,434
Income taxes paid during the period 826 512
Conversion of 6 3/4% convertible subordinated debentures 22,278 --
Note received from the sale of building -- 350
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements include
the accounts of Maxxim Medical, Inc. and its wholly owned subsidiaries
(collectively, the Company). The Company develops, manufactures and markets
specialty hospital products.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments of a normal recurring nature which, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods presented. All significant intercompany balances and transactions have
been eliminated in consolidation.
These financial statements should be read in conjunction with the
Company's annual audited financial statements for the year ended November 2,
1997, included in the Company's Annual Report on Form 10-K/A as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made to the fiscal 1997 condensed
consolidated financial statements to conform with the fiscal 1998 presentation.
Note 2 - Summary of Significant Accounting Policies
Fiscal Year.
Commencing in fiscal year 1994 the Company implemented a fiscal year
which ends on the Sunday nearest to the end of the month of October. Normally
each fiscal year will consist of 52 weeks, but every five or six years, the
fiscal year will consist of 53 weeks. For fiscal 1998 the year end date will be
November 1 compared to a 1997 year end date of November 2. Fiscal 1998 will
consist of 52 weeks. The first quarter of fiscal 1998 ended on February 1
compared to the fiscal 1997 first quarter end date of February 2.
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.
Earnings Per Share.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", specifies new measurement, presentation and disclosure requirements for
earnings per share and is required to be applied retroactively upon initial
adoption. The Company has adopted SFAS No. 128 effective with the release of
February 1, 1998 earnings data, and accordingly, has restated herein all
previously reported earnings per share data. Basic earnings per share is based
on the weighted average shares outstanding without any dilutive effects
considered. Diluted earnings per share reflects dilution from all contingently
issuable shares, including options and convertible debt. A reconciliation of
such earnings per share data is as follows:
5
<PAGE> 7
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended February 2, 1998
Per Share
Income Shares Amounts
------ ------ ---------
(In thousands)
<S> <C> <C> <C>
Basic EPS
Net Income $3,751 9,793 $ 0.38
=========
Effect of dilutive securities
Convertible Debt 107 363
Options 336
------ ------
Diluted EPS $3,858 10,492 $ 0.37
====== ====== =========
Three Months Ended February 1, 1997
Per Share
Income Shares Amounts
------ ------ ---------
Basic EPS
Net Income $3,459 8,131 $ 0.43
=========
Effect of dilutive securities
Convertible Debt 341 1,597
Options 107
------ ------
Diluted EPS $3,800 9,835 $ 0.39
====== ====== =========
</TABLE>
Unexercised employee and director stock options to purchase 35,900 and
18,000 shares of Maxxim Medical common stock as of February 2, 1997,
respectively, were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of Maxxim
Medical's common stock during the quarter.
Estimates Involved in Preparing the Condensed Consolidated Financial
Statements.
The Company's interim financial statements are prepared in accordance
with the same accounting policies as those followed at year end. Certain items
in the financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year. Certain of the significant accounting estimates related to the
accompanying statements are stated below.
Inventories.
The amount reflected as inventory as of February 1, 1998 and the
related amount for the cost of sales have been determined using the Company's
normal accounting procedures. In management's opinion, no significant adjustment
would have been required had an actual count of the inventory been made.
Inventory as of February 1, 1998 and November 2, 1997 included the following:
6
<PAGE> 8
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
February 1, November 2,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Raw materials $ 35,510 $ 36,613
Work In progress 8,734 7,227
Finished goods 40,661 43,393
Reserve (3,556) (4,049)
----------- -----------
$ 81,349 $ 83,184
=========== ===========
</TABLE>
Income Taxes.
The Company has calculated current and deferred income tax provisions
for the quarters ended February 1, 1998 and February 1, 1997, based on its best
estimate of the effective income tax rate expected to be applicable for the full
fiscal year.
Note 3 - Sale of Marketable Equity Securities
In the first quarter of fiscal 1997, the Company recorded a one-time
gain from the sale of an investment in marketable equity securities in the
amount of $1,510,000, which is reflected in other income in the financial
statements.
Note 4 - 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.
The Debentures are convertible at the option of the holder into Common Stock at
a conversion price of $18 per share and pay interest every six months commencing
September 1, 1993, through maturity on March 1, 2003.
On October 3, 1997, the Company called for the redemption of
$10,000,000, in principal amount, of the Debentures effective as of November 4,
1997 (the "First Redemption Date"). On the First Redemption Date, the redemption
price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of
$11.81 per $1,000 face amount of the Debentures was paid to the holders of
Debentures called for redemption who did not exercise their right to convert
their Debentures into common stock. On November 12, 1997, the Company called for
the redemption of the remaining outstanding Debentures effective as of December
12, 1997 (the "Second Redemption Date"). On the Second Redemption Date, the
redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued
interest of $18.94 per $1,000 face amount of the Debentures, was paid to the
holders who had not exercised their right to convert their Debentures into
common stock.
As of the February 1, 1998, $28,381,000 of the debentures had converted
into 1,576,614 shares of the Company's common stock and debt issuance costs of
$867,000 related to these converted debentures were written off to additional
paid-in capital. During the conversion, $152,000 in principal amount was paid to
debenture holders who presented their certificates for redemption. As of
February 1, 1998, $217,000 in principal amount remains due and payable and is
held in trust by the trustee. Holders may surrender their certificates for
payment within two years of the respective redemption dates after which the
funds revert back to the Company.
7
<PAGE> 9
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 5 - Management Stock Purchase Plan
On May 23, 1997 the Company issued 400,000 shares of common stock
pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the
closing stock price on April 30, 1997. The stock was issued in exchange for an
aggregate of $5.2 million in non-interest bearing, full recourse promissory
notes due May 23, 2000 from the participating managers. These notes have been
recorded as subscriptions receivable and are included in the shareholders'
equity section of the balance sheet. Payment of these notes also is secured by
the pledge of the 400,000 shares of common stock. Net compensation costs
associated with these shares is not significant.
Note 6 - Subsequent Event
In March 1998, the Company completed an offering of 4,025,000 shares of
its common stock at a price to the public of $24.00 per share, including 525,000
shares pursuant to the underwriters' exercise of the overallotment option. After
deducting offering costs and commissions, the Company received net proceeds of
approximately $91,500,000. The Company will use approximately $20,000,000 to
expand glove production capacity and the balance to repay certain outstanding
bank debt.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and related Notes appearing
elsewhere in this report.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth, for the periods indicated, the
percentage which selected items in the Condensed Consolidated Statements of
Operations bear to net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
------------------------------
Three Months Ended
------------------------------
February 1, February 2,
1998 1997
------------- --------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 74.2% 75.8%
----------- ------------
Gross profit 25.8% 24.2%
Operating expenses 17.4% 16.9%
----------- ------------
Income from operations 8.4% 7.3%
Interest expense (3.4%) (4.1%)
Other income (expense), net 0.1% 1.3%
----------- ------------
Income before taxes 5.1% 4.5%
Income taxes 2.2% 1.9%
----------- ------------
Net income 2.9% 2.6%
=========== ============
</TABLE>
Net sales - Net Sales for the first fiscal quarter of 1998 decreased
4.0% to $128,003,000 from $133,401,000 reported for the first fiscal quarter of
1997. This decrease is primarily due to the planned cessation of certain low
margin custom procedure trays.
Gross profit - In the first quarter of fiscal 1998 the Company's gross
profit increased to $33,061,000, compared to $32,236,000 reported in the first
quarter of last year. The Company's gross profit rate increased to 25.8% in the
first quarter of fiscal 1998 from 24.2% in the first quarter of fiscal 1997. The
increase in both dollars and rate are primarily attributable to the improved
gross profit in the Company's custom procedure trays.
Operating expenses - Operating expenses for the first quarter were
$22,334,000 or 17.4% of net sales for fiscal 1998 compared to $22,517,000 or
16.9% of net sales for fiscal 1997. The increase in operating expense as a
percentage of net sales is primarily attributable to increases in administrative
fees paid on contracts with group purchasing organizations and the effect of
lower net sales as discussed above.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
Income from operations - Income from operations increased to
$10,727,000, or 8.4% of net sales, in the first quarter of fiscal 1998 from
$9,719,000, or 7.3% of net sales, in the comparable period of the prior fiscal
year. This is an increase of 10.4% over the prior fiscal period.
Interest expense - The Company's interest expense decreased from
$5,541,000 in the first quarter of fiscal 1997 to $4,333,000 in the first
quarter of fiscal 1998. The decrease in interest expense for the quarter is
primarily related to the conversion of the Company's remaining 6 3/4% debentures
in the first quarter of fiscal 1998 and the lower bank debt balance in fiscal
1998 versus the prior year.
Other income - A one-time gain of $1,510,000 from the sale of
investment securities was included in other income for the first quarter of
fiscal 1997.
Income taxes - The Company's effective tax rate for the quarter ended
February 1, 1998 and February 2, 1997 was 42.8% and 42.1%, respectively and is
higher than the statutory rate primarily due to non-deductible goodwill from
acquisitions.
Net income - As a result of the foregoing, net income for the first
quarter of fiscal 1998 was $3,751,000 versus $3,459,000 for fiscal 1997.
Excluding the one-time gain from the sale of marketable equity securities net
income increased by 51.4%. Diluted earnings per share was $0.37 compared to
$0.39 for the same period last year. Excluding the one-time gain diluted
earnings per share was $0.37 versus $0.29 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On February 1, 1998 the Company had cash and cash equivalents of
$3,322,000, working capital of $93,198,000, long-term liabilities of
$176,537,000 and shareholders' equity of $162,003,000. For the three months
ended February 1, 1998 net cash provided by operations was $11,078,000 versus
$5,571,000 for the three months ended February 2, 1997.
During the first quarter of fiscal 1998, the Company repaid $12,530,000
of bank debt resulting in a term loan balance of $78,000,000 and a revolver
balance of $770,000. As a result of debt repayments, the Company had $74,230,000
of available credit under its revolver facility on February 1, 1998.
On October 3, 1997, the Company called for redemption of $10,000,000 in
principal amount of its $28,750,000 debentures effective as of November 4, 1997.
On November 12, 1997, the Company called for the redemption of the remaining
outstanding principal amount of Debentures effective as of December 12, 1997.
$28,381,000 of the debentures converted into 1,576,614 shares of common stock as
a result of the redemptions. The balance of $369,000 was paid to the trustee for
distribution to debenture holders upon surrender of their certificates.
In March 1998, the Company completed an offering of 4,025,000 shares of
its common stock at a price to the public of $24.00 per share, including 525,000
shares pursuant to the underwriters' exercise of the overallotment option. After
deducting offering costs and commissions, the Company received net proceeds of
approximately $91,500,000.
The Company believes that its present cash balances together with
internally generated cash flows, the net proceeds from the March 1998 common
stock offering and borrowings under its existing credit facility will be
sufficient to meet its future working capital requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the registrant at this time.
10
<PAGE> 12
PART II. OTHER INFORMATION
Items 1, 2, 3 and 4 for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
Item 5. OTHER INFORMATION
<TABLE>
<CAPTION>
Restatement of Earnings Per Share Data
November 2, November 3, October 29, October 30, October 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
As Previously Reported
- ----------------------
Primary earnings per share $ 1.51 $ 1.05 $ 0.36 $ 1.05 $ 0.94
Fully diluted earnings per share $ 1.40 $ 1.01 $ 0.36 $ 1.00 $ 0.91
As Restated for SFAS No. 128, "Earnings per Share"
Basic earnings per share $ 1.55 $ 1.08 $ 0.36 $ 1.10 $ 0.94
Diluted earnings per share $ 1.42 $ 1.02 $ 0.36 $ 1.05 $ 0.92
</TABLE>
The Company has restated all previous earnings per share data to comply
with Statement of Financial Accounting Standards No. 128 "Earnings per Share,"
which became effective on a retroactive basis with the issuance of February 1,
1998 earnings data.
Item 6. EXHIBITS AND REPORTS
Exhibit 10.1* - 1998 Non-Employee Directors' Stock Option Plan
10.2* - 1997 Employment Agreement between Registrant and
Kenneth W. Davidson dated November 1, 1997
27 - Financial Data Schedule (for SEC use only)
- -------------
* Compensatory plan or agreement.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXXIM MEDICAL, INC.
Date: 3/17/98 By: /s/ Kenneth W. Davidson
----------------------------- -------------------------------------
Kenneth W. Davidson
Chairman of the Board, President &
Chief Executive Officer
Date: 3/17/98 By: /s/ Peter M. Graham
----------------------------- -------------------------------------
Peter M. Graham
Executive Vice President,
Chief Operating Officer & Secretary
12
<PAGE> 1
Exhibit 10.1
MAXXIM MEDICAL, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
THIS 1998 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 this 11th day of February,
1998 (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 40,000
shares. This total number of shares shall be subject to appropriate and
automatic increase or decrease under Section 11 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 11.
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.
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.
<PAGE> 2
5. Options Shares. On the Adoption Date, the Company shall grant
to each director an option to purchase 5,000 shares of Common Stock, subject to
the provisions of Section 16 hereof. 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 5,000 shares of Common Stock.
6. Price. The purchase price per share of Common Stock
purchasable under options granted pursuant to this Plan on the Adoption Date
shall be Nineteen and 02/100 Dollars ($19.02). The purchase price per share of
Common Stock purchasable under options granted pursuant to this Plan after the
Adoption Date 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. 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 11 of this Plan.
7. Exercise Period. All shares of Common Stock purchasable under
any option granted under this Plan will be purchasable after the first
anniversary of the first annual meeting of the shareholders of the Company held
after the grant of such option, provided that if the option is granted on the
date of an annual shareholders' meeting, such shares will be purchasable after
the next annual shareholders' meeting, and further provided that the director
holding such option must have served 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 may be exercised by
the director within one (1) year after the date of such termination,
but in no event later than the Expiration Date.
(b) If the director 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
may be exercised by the director at any time before 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
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<PAGE> 3
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 may be exercised by a legatee or legatees of
the director under his will, or by his personal representatives or
distributees, at any time before 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 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
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<PAGE> 4
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 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.
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<PAGE> 5
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 for approval at the 1998 Annual Meeting of
Shareholders and shall be approved by the affirmative vote of a majority of the
outstanding shares of Common Stock of the Company voted at the Meeting, in
person or by proxy, provided that the total vote cast on the proposal to adopt
the Plan (including abstentions) represents more than 50% of the total number
of shares of Common Stock outstanding on the record date set for the Meeting.
In the event that the Plan is not so approved, the Plan and all options
previously granted thereunder shall automatically terminate.
17. Termination Of Plan. Unless terminated earlier, this Plan
shall terminate effective the date of the 2002 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> 6
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 1998 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 Five
Thousand (5,000) 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 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 after the first anniversary of the first annual
meeting of the shareholders of the Company held after the grant of such option,
provided that if the option is granted on the date of an annual shareholders'
meeting, such shares will be purchasable after the next annual shareholders'
meeting (the "Vesting Date"), and provided further that such vesting is
expressly conditioned upon the Optionee having served as a director of the
Company at all times from the
<PAGE> 7
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.
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
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<PAGE> 8
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
that 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 11 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 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
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<PAGE> 9
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 postage fully prepaid, addressed to the
respective parties hereto as follows:
If to the Company: 10300 49th Street North
Clearwater, Florida 33762
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
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<PAGE> 10
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 may be exercised by
the director within one (1) year after the date of such termination,
but in no event later than 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
may be exercised by the Optionee at any time before 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 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 may 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 before 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. Shareholder Approval. The Option granted pursuant to this
Agreement is subject to the approval of the Plan by the shareholders of the
Corporation at the 1998 Annual Meeting of Shareholders, as set forth in the
Plan. In the event that the Plan is not so approved, this Agreement shall
automatically terminate and the Optionee shall have no further rights
hereunder.
15. 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.
16. Governing Law. This Agreement shall be governed by the laws of
the State of Texas, and the laws of the United States applicable in Texas.
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<PAGE> 11
17. 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.
18. 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.
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:
------------------------------------
Optionee
------------------------------------
Spouse of Optionee
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, made effective as of the 1st day of
November, 1997, between Maxxim Medical, Inc., a Texas corporation (the
"Company"), and Kenneth W. Davidson (the "Executive").
W I T N E S S E T H
The Executive is presently employed by the Company as Chairman of the
Board, President and Chief Executive Officer of the Company.
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company during the
past years has been substantial. The Board desires to provide for the continued
employment of the Executive and to make certain changes in the Executive's
employment arrangements with the Company, which changes the Board has determined
will reinforce and encourage the Executive's continued attention and dedication
to the business of the Company as the leader of the Company's management team.
The Board recognizes that the foregoing are in the best interests of the Company
and its shareholders. The Executive is willing to commit himself to continue to
serve the Company, on the terms and conditions herein provided.
To effect the foregoing, the Company and the Executive desire to enter
into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the promises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive,
and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth therein.
2. TERM
The employment of the Executive by the Company as provided in
Section 1 will commence on the effective date hereof and end on October
31, 2000, unless further extended or sooner terminated as hereinafter
provided. On October 31, 2000 and on the last day of October of each
year thereafter, the term of the Executive's employment shall be
automatically extended one (1) additional year unless, at least six
months' prior to such last day of October, the Company shall have
delivered to the Executive or the Executive shall have delivered to the
Company written notice that the term of the Executive's employment
hereunder will not be extended.
Page 1 of 12
<PAGE> 2
3. POSITION AND DUTIES
The Executive shall serve as Chairman of the Board of
Directors, Chief Executive Officer and President of the Company and
shall have such responsibilities and authority as may from time to time
be assigned to the Executive by the Board provided that his duties at
the date hereof shall not be subject to any significant diminution or
change without the Executive's consent. The Executive shall devote
substantially all his working time and efforts to the business and
affairs of the Company.
4. PLACE OF PERFORMANCE
In connection with the Executive's employment by the Company,
the Executive shall be based at such office or offices of the Company
as the needs of the Company's business dictate.
5. COMPENSATION AND RELATED MATTERS
(a) Compensation Committee. The Compensation Committee of the
Board of Directors shall be maintained and a majority of the members of
such committee who are not officers or employees of the Company shall
be empowered to take any action required to be taken by the
Compensation Committee hereunder (or if there only be one such outside
member of the Compensation Committee, such person shall be so
empowered).
(b) Salary. During the period of the Executive's employment
hereunder, the Company shall pay to the Executive a salary at a rate of
$350,000 per annum, in accordance with the current payroll policies of
the Company. This salary may be increased by the Board of Directors
upon the recommendation of the Compensation Committee from time to time
in accordance with normal business practices of the Company and, if so
increased, shall not thereafter during the term of this Agreement be
decreased. Compensation of the Executive by salary payments shall not
be deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of the Company.
The salary payments (including any increased salary payments) hereunder
shall not in any way limit or reduce any other obligation of the
Company hereunder, and no other compensation, benefit or payment
hereunder shall in any way limit or reduce the obligation of the
Company to pay the Executive's salary hereunder.
(c) Bonus.The Board shall after the date hereof in
consultation with the Executive formulate and adopt a bonus plan for
the Executive which shall provide for the Board and the Executive to
jointly develop annual performance goals for the Company for each
fiscal year of the Company during the term of Executive's employment
hereunder (commencing with the fiscal year ended in calendar 1998). If
such performance goals are fully met, the Executive will be entitled to
receive, within 90 days of the end of each such fiscal year, an annual
bonus of not less than one-half of his annual salary provided for in
Paragraph 5(b).
<PAGE> 3
If such performance goals are not fully met for any fiscal year, the
Executive will be entitled to receive an annual bonus in an amount to
be determined by the Board, in its discretion.
(d) Loans to Executive. At such time or times as the Executive
shall request by letter to the Compensation Committee in the form of
Exhibit A (with all blanks appropriately completed), the Company shall
be obligated to make the Executive a loan or loans of up to an
aggregate of $400,000 (such amount to include all amounts previously
loaned under any prior employment agreement between the Company and the
Executive and each such loan being individually referred to as a "Loan"
and such loans being collectively referred to as the "Loans"), the
principal purpose of which shall be to enable the Executive to pay
federal income taxes associated with the exercise of stock options
exercisable by him. Each Loan shall be evidenced by a promissory note
executed by the Executive in the form of Exhibit B (with all blanks
appropriately completed). Each Loan shall be non-interest bearing,
unsecured and repayable in ten equal installments of principal, which
installments shall be payable on the third through the twelfth
anniversary of such Loan.
(e) Expenses. During the term of this Agreement, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in performing services hereunder,
including all expenses of travel and living expenses while away from
home on business or at the request of or in the service of the Company,
provided that such expenses are reasonable in amount and incurred and
accounted for in accordance with the policies and procedures presently
established by the Company and in accordance with applicable IRS
regulations.
(f) Other Benefits. The Company shall maintain in full force
and effect, and the Executive shall be entitled to continue to
participate in, all of its employee benefit plans and arrangements in
effect on the date hereof in which the Executive participates, or plans
or arrangements providing the Executive with at least equivalent
benefits thereunder, including, but not limited to, stock option plans
and 401(k) plans. The Company shall not make any changes in such plans
or arrangements which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program
applicable to all employees of the Company entitled to participate
therein and does not result in a proportionately greater reduction in
the rights of or benefits to the Executive as compared with any other
executive of the Company, unless required by law. The Executive shall
be entitled to participate in or receive benefits under any employee
benefit plan or arrangement made available by the Company in the future
to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall administration
of such plans and arrangement presently in effect or made available in
the future. Any payments or benefits payable to the Executive hereunder
in respect of any calendar year during which the Executive is employed
by the Company for less than the entire year shall, unless otherwise
provided in the applicable plan or arrangement, be prorated in
accordance with the number of days in such calendar year during which
he is so employed.
Page 3 of 12
<PAGE> 4
(i) Vacations. The Executive shall be entitled to the number
of vacation days in each calendar year, and to compensation in respect
of earned but unused vacation days, determined in accordance with the
Company's vacation plan. The Executive shall also be entitled to all
paid holidays given by the Company to its executives.
(j) Services Furnished. The Company shall furnish the
Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to the Executive's
position and adequate for the performance of his duties as set forth in
Section 3 hereof.
6. OFFICES
The Executive agrees to serve without additional compensation,
if elected or appointed thereto, as a director of the Company and any
of its subsidiaries and in one or more executive offices of any of the
Company's subsidiaries.
7. COMPETITION
The Employee agrees that during the term hereof he shall not,
directly or indirectly, for his own account or for the account of
others (i) engage, within any market area served by the Company, as
principal, agent, trustee or through the agency of any corporation,
partnership, association or agency, in any business which is a
Competitor, as hereinafter defined, or (ii) own more than five percent
(5%) of the outstanding capital stock, or be a partner or member of any
partnership which is a Competitor, or otherwise a direct or indirect
owner, or employee, of any Competitor. A business will be deemed to be
a "Competitor" if its business involves the development, manufacture,
distribution or marketing of any hospital or medical products of the
type developed, manufactured, distributed or marketed by the Company at
any time during the term of this Agreement. The Executive further
agrees that during the term hereof, he will not, either directly or
indirectly, through any person, firm, association or corporation with
which he is now or may hereafter become associated, cause or induce any
present or future employee of the Company to leave the employ of the
Company to accept employment with the Executive or with any Competitor.
The phrase "during the term hereof", as it is used in this Section
shall mean the effective date hereof until the earlier of (i) October
31, 2000, or (ii) the expiration of two (2) years from the date on
which this Agreement is terminated for any reason other than
termination by the Executive for Good Reason (as describe in Section
8(d)). The parties understand and agree that if the restrictions placed
upon the Executive relating to time, geographical area or scope of
activity are deemed more extensive than is necessary to protect the
good will or other business interest of the Company under the laws of
the State of Florida, then the parties hereby agree to amend the terms
hereof to such time, geographical areas and scope of activity and alter
the degree and extent of such provision by the minimal amount of
amendment or alteration necessary to bring such provisions within the
ambit of enforceability of such provisions in accordance with the laws
of the State of Florida.
Page 4 of 12
<PAGE> 5
8. TERMINATION
The Executive's employment hereunder may be terminated without
any breach of this Agreement only under the following circumstances:
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. The Company may terminate the Executive's
employment hereunder if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent
from his duties hereunder on a full-time basis for the entire period of
four consecutive months, and shall not have returned to the performance
of his duties hereunder within thirty (30) days after the Company gives
the Executive written Notice of Termination (which may occur before or
after the end of such four-month period).
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment
hereunder upon (A) the willful and continued failure by the Executive
to substantially perform his duties hereunder (other than any such
failure resulting from the Executive's incapacity due to physical or
mental illness) or regular failure to follow the specific directives of
the Board, after demand for substantial performance that specifically
identifies the manner in which the Company believes the Executive has
not substantially performed his duties is delivered by the Company, or
(B) the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise. For
purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted
to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without (i) reasonable notice to the
Executive setting forth the reasons for the Company's intention to
terminate for Cause, (ii) an opportunity for the Executive, together
with his counsel, to be heard before the Board, and (iii) delivery to
the Executive of a Notice of Termination as defined in subsection (e)
hereof, from the Board finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth above in clause
(A) or (B) of the preceding sentence and specifying the particulars
thereof in detail.
(d) Terminating by the Executive. The Executive may terminate
his employment hereunder (i) for Good Reason or (ii) if his health
shall become impaired to an extent that makes his continued performance
of his duties hereunder hazardous to his physical or mental health or
his life, provided that the Executive shall have furnished the Company
with a written statement from a qualified doctor to such effect and,
provided further that, at the Company's request, the Executive shall
submit to an examination by a doctor selected by the Company and such
doctor shall have concurred in the conclusion contained in the written
statement furnished by the Executive.
Page 5 of 12
<PAGE> 6
For purposes of this Agreement, "Good Reason" shall mean (A) a
Change in Control of the Company (as defined in the Termination
Agreement between the Company and the Executive dated as of January 31,
1997, hereafter the "Termination Agreement"), (B) a failure by the
Company to comply with any material provision of this Agreement which
has not been cured within ten (10) days, or other reasonable time if it
is not possible to cure the same in such ten days, after notice of such
noncompliance has been given by the Executive to the Company, or (C)
any purported termination of the Executive's employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (e) hereof (and for purposes of this
Agreement, no such purported termination shall be effective).
(e) Any termination of the Executive's employment by the
Company or by the Executive (other than termination pursuant to
subsection (a) above) shall be communicated by Written Notice of
Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if
the Executive's employment is terminated pursuant to subsection (b)
above, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period), (iii)
if the Executive's employment is terminated pursuant to subsection (c)
above, the date specified in the Notice of Termination, and (iv) if the
Executive's employment is terminated for any other reason, the date on
which a Notice of Termination is given; provided that if within thirty
(30) days after any Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute
exists concerning the termination and it is ultimately determined that
the Executive has prevailed in such dispute, the Date of Termination
shall be the date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY
(a) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental
illness ("disability period"), the Executive shall continue to receive
his full salary and bonus at the rate then in effect for such period
until his employment is terminated pursuant to Section 8(b) hereof and
for a period of twenty-four months thereafter, provided that payments
so made to the Executive shall be reduced by the
Page 6 of 12
<PAGE> 7
sum of the amounts of any payments by reason of disability insurance
procured by the Company for the benefit of the Executive.
(b) If the Executive's employment is terminated by his death,
the Company shall pay to the Executive's spouse, or if he leaves no
spouse, to his estate, commencing on the next succeeding day which is
the fifteenth day or last day of the month, as the case may be, and
semimonthly thereafter on the fifteenth and last days of each month,
the Executives full salary and bonus at the rate in effect at the time
of his death until a total of twenty-four months' salary and Minimum
Bonus have been paid.
(c) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive his full salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given and the Company shall have no further obligations
to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall
terminate the Executive's employment other than pursuant to Section
8(b) or 8(c) hereof (it being understood that a purported termination
pursuant to Section 8(b) or 8(c) hereof which is disputed and finally
determined not to have been proper shall be a termination by the
Company in breach of this Agreement) or (B) the Executive shall
terminate his employment for Good Reason, then
(i) the Company shall pay the Executive his full
salary and bonus through the Date of Termination at the rate
in effect at the time Notice of Termination is given;
(ii) in lieu of any further salary and bonus
payments to the Executive for periods subsequent to the Date
of Termination and, in addition to any amounts set forth in
(i), the Company shall pay as severance pay to the Executive
the Executive's annual salary and Minimum Bonus for such
subsequent periods, such payment to be made in lump sum on or
before the fifth day following the Date of Termination;
provided, however, that in the event that upon or by reason of
such termination for Good Cause the Executive is entitled to
the payments set forth in Section 6(a) of the Termination
Agreement, the Executive shall be paid such amounts under
Section 6(a) of the Termination Agreement and shall not be
entitled to any severance pay under this Subsection
9(f)(ii)(the intention of the parties being that under no
circumstances shall the Executive be entitled to payments
under both Section 6(a) of the Termination Agreement and this
Subsection 9(f)(ii)); and
(iii) if termination of the Executive's employment
arises out of a breach by the Company of this Agreement, the
Company shall pay all other damages to which the Executive may
be entitled as a result of such breach, including damages for
any and all loss of benefits to the Executive under the
Company's benefit plans which the Executive would have
received if the Company had not breached this Agreement and
had the Executive's employment continued for the full term
provided in Section 2
Page 7 of 12
<PAGE> 8
hereof and including all reasonable legal fees and expenses
incurred by him as a result of such termination.
(e) If the Executive shall terminate his employment under
clause (ii) of Section 8(d) hereof, the Company shall pay the Executive
his full salary through the Date of Termination at the rate in effect
at the time of Notice of Termination is given.
(f) If the Executive's employment is terminated by the Company
without Cause and under circumstances not otherwise specifically
provided for under any of the other provisions of this Section
9(a)-(e), then the Company shall continue to pay to the Executive for a
period through the then scheduled termination of this Agreement and
shall pay the Executive an additional amount of twenty four months'
salary and Minimum Bonus.
(g) Unless the Executive is terminated under the provisions of
Subsections 8(a), (b) or (c) or the Executive terminates his employment
otherwise than under Subsection 8(d)(i) hereof, the Company shall
maintain in full force and effect, for the continued benefit of the
Executive for the greater of the number of years (including partial
years) remaining in the term of employment hereunder or two (2) years,
all employee benefit plans and programs in which the Executive was
entitled to participate immediately prior to the Date of Termination
provided that the Executive's continued participation is possible under
the general terms and provisions of such plans and programs and is in
accordance with law. In the event that the Executive's participation in
any such plan or program is barred, the Company shall arrange to
provide the Executive with benefits substantially similar to those
which the Executive would otherwise have been entitled to receive under
such plans and programs for which his continued participation is barred
if the provision of such benefits are in accordance with applicable
law.
11. SUCCESSORS; BINDING AGREEMENT
This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee,
to the Executive's estate.
12. NOTICE
For the purposes of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States registered mail, return
receipt requested, postage prepaid, addressed as follows:
Page 8 of 12
<PAGE> 9
If to the Executive: Kenneth W. Davidson
10300 49th Street North
Clearwater, Florida 33762
If to the Company: Maxxim Medical, Inc.
10300 49th Street North
Clearwater, Florida 33762
Attn: Chairman of Compensation
Committee of the Board of
Directors
or to such other address as any party may have furnished to the others
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
13. MISCELLANEOUS
Effective November 1, 1997, this Agreement revokes and
rescinds all prior employment agreements with the Executive, including
the employment agreement dated effective as of November 1, 1994, as
amended. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such other officer as may be
specifically designated by the Board. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Florida.
14. VALIDITY
The validity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
15. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
Page 9 of 12
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
COMPANY:
Maxxim Medical, Inc.
Attest: By: /s/ Richard O. Martin
--------------------------------
Name: Richard O. Martin, PhD.
By: /s/ Alan S. Blazei Title: Member of Compensation
----------------------------- Committee of Board
EXECUTIVE:
/s/ Kenneth W. Davidson
----------------------------------
KENNETH W. DAVIDSON
Page 10 of 12
<PAGE> 11
EXHIBIT A
[Letterhead of Kenneth W. Davidson]
[date]
Maxxim Medical, Inc.
10300 49th Street North
Clearwater, Florida 33762
Attn. Compensation Committee of
The Board of Directors
Re: Request for Loan
Dear Sirs:
The undersigned hereby requests pursuant to Section 5(c) of the
Employment Agreement dated effective as of November 1, 1997 by and between the
Company and the undersigned an immediate Loan (as defined therein) in the
aggregate amount of $400,000. The undersigned hereby certifies that at least two
thirds of the proceeds thereof are to be utilized to pay federal income taxes
associated with the exercise of Company stock options held by the undersigned
which the undersigned has exercised or intents to exercise, and that upon the
funding of such Loan, the aggregate Loans (as defined) granted by the Company to
the undersigned will not exceed $400,000.
VERY TRULY YOURS,
-------------------
KENNETH W. DAVIDSON
Page 11 of 12
<PAGE> 12
EXHIBIT B
PROMISSORY NOTE
$____________ __________,Florida [Date]
FOR VALUE RECEIVED, after date, without grace, in the manner, on the
dates, and in the amounts so herein stipulated, the undersigned, promises to pay
to the order of MAXXIM MEDICAL, INC. at Clearwater, Florida________________
DOLLARS ($_________) in lawful money of the United States of America, which
shall be legal tender, in payment of all debts and dues, public and private,
at the time of payment.
The note is payable in ten equal annual installments of principal, the
first of which shall be payable commencing on the third anniversary of this
note, and the remainder of which shall be payable on each successive anniversary
thereafter. No interest shall accrue or be payable on the unpaid principal
amount of the note, except as specifically set forth below in the event of
default hereon.
-------------------------
KENNETH W. DAVIDSON
Page 12 of 12
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