SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 13D
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13D-2(A)
MAXXIM MEDICAL, INC.
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(Name of Issuer)
COMMON STOCK, $0.001 PAR VALUE
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(Title of Class of Securities)
57777G105
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(CUSIP Number)
SAUL A. FOX
FOX PAINE & COMPANY, LLC
950 TOWER LANE, SUITE 1950
FOSTER CITY, CALIFORNIA 94404
(650) 525-1300
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
JUNE 13, 1999
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(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on following pages)
<PAGE>
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CUSIP NO. 57777G105 13D PAGE 2 OF 12 PAGES
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1 NAME OF REPORTING PERSON
FOX PAINE MEDIC ACQUISITION CORPORATION
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /x/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* OO -- SEE ITEM 3
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
TEXAS
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7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,145,617 (SEE ITEM 5)
EACH
----------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH
----------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,145,617 (SEE ITEM 5)
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,145,617 (SEE ITEM 5)
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.0% (SEE ITEM 5)
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14 TYPE OF PERSON REPORTING*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 57777G105 13D PAGE 3 OF 12 PAGES
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1 NAME OF REPORTING PERSON
FOX PAINE CAPITAL FUND, L.P.
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /x/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* OO -- SEE ITEM 3
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,145,617 (SEE ITEM 5)
EACH
----------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH
----------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,145,617 (SEE ITEM 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,145,617 (SEE ITEM 5)
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.0% (SEE ITEM 5)
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14 TYPE OF PERSON REPORTING*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 57777G105 13D PAGE 4 OF 12 PAGES
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1 NAME OF REPORTING PERSON
FOX PAINE CAPITAL, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /x/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* OO -- SEE ITEM 3
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,145,617 (SEE ITEM 5)
EACH
----------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH
----------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,145,617 (SEE ITEM 5)
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,145,617 (SEE ITEM 5)
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.0% (SEE ITEM 5)
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14 TYPE OF PERSON REPORTING*
HC, OO
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 57777G105 13D PAGE 5 OF 12 PAGES
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- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
FOX PAINE & COMPANY, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /x/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* OO -- SEE ITEM 3
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,145,617 (SEE ITEM 5)
EACH
----------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH
----------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,145,617 (SEE ITEM 5)
- --------------------------------------------- ----------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,145,617 (SEE ITEM 5)
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.0% (SEE ITEM 5)
- --------------------------------------------------------------------------------
14 TYPE OF PERSON REPORTING*
OO
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This Statement relates to shares of common stock, par value
$0.001 per share ("Common Stock"), of Maxxim Medical, Inc., a Texas corporation
("Maxxim"). The principal executive offices of Maxxim are located at 10300 49th
Street North, Clearwater, Florida 33762.
ITEM 2. IDENTITY AND BACKGROUND.
(a), (b), (c) and (f). This statement is filed by (i) Fox
Paine Capital Fund, L.P., a Delaware limited partnership ("FPCF"), (ii) Fox
Paine Capital, LLC, a Delaware limited liability company ("FPC") and the general
partner of FPCF, (iii) Fox Paine Medic Acquisition Corporation, a Texas
corporation ("FPMAC"), a wholly owned subsidiary of FPCF, and (iv) Fox Paine &
Company, LLC, a Delaware limited liability company ("Fox Paine", and together
with FPMAC, FPCF and FPC, the "Fox Paine Entities").
FPMAC was formed on June 9, 1999 solely for the purpose of
engaging in the transactions contemplated by the Merger Agreement, dated as of
June 13, 1999, between FPMAC and Maxxim (the "Merger Agreement"). FPCF is an
investment fund managed by Fox Paine, and FPC is the general partner of FPCF.
FPCF invests equity capital in management-led acquisitions and company expansion
programs and restructurings. The principal business of FPC is being the general
partner of FPCF. The principal business of Fox Paine is managing FPCF. Saul A.
Fox and Dexter W. Paine, III are the sole members of FPC and the managing
members of Fox Paine. The principal executive offices of each of the Fox Paine
Entities are located at 950 Tower Lane, Suite 1950, Foster City, California
94404.
Annex 1, which is incorporated herein by reference, sets forth
with respect to each executive officer, director or managing member of each of
FPMAC, FPC and Fox Paine such person's name, business address and principal
employment, the name and address of any business corporation or other
organization in which such employment is conducted and such person's
citizenship.
(d) and (e) None of the Fox Paine Entities and none of the
persons named in Annex 1 as an executive officer, director or managing member of
any of the Fox Paine Entities has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) during the last five
years; nor has any of said parties been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
FPMAC has entered into individual Voting Agreements (the
"Voting Agreements"), each dated as of June 13, 1999, with each of the following
shareholders of Maxxim, each of whom, other than Davis C. Henley, is a member of
Maxxim's senior executive management or a director of Maxxim: Kenneth W.
Davidson, Peter M. Graham, David L.
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Lamont, Henry T. DeHart, Jack F. Cahill, Alan S. Blazei, Joseph D. Dailey,
Suzanne R. Garon, Ernest J. Henley, and Davis C. Henley (collectively, the
"Rollover Shareholders"). Annex 2 sets forth, to the knowledge of the Fox Paine
Entities, the number of shares of Common Stock held by each of the Rollover
Shareholders and the number of shares subject to options that are exercisable
within 60 days, and Annex 2 is incorporated herein by reference. The shares of
Common Stock to which this statement relates have not been purchased by FPMAC,
and neither FPMAC nor any of the other persons listed in the response to Item 2
has expended any funds in connection with the Voting Agreements.
ITEM 4. PURPOSE OF TRANSACTION.
On June 13, 1999, FPMAC and Maxxim entered into the Merger
Agreement pursuant to which FPCF, together with Rollover Shareholders, will
acquire Maxxim in a recapitalization transaction. In connection with the
acquisition, the existing debt of Maxxim will be refinanced, with Maxxim making
a consent solicitation and tender offer (the "Debt Offer") for all of its
outstanding 10 1/2% Senior Subordinated Notes, due 2006.
Pursuant to the Merger Agreement, at the Effective Time (as
defined in the Merger Agreement), FPMAC will be merged with and into Maxxim,
with Maxxim continuing as the surviving corporation (the "Merger"). Pursuant to
the Merger, each outstanding share of Common Stock (except for certain shares
held by the Rollover Shareholders and those dissenting shareholders who exercise
and perfect their appraisal rights) will be converted into the right to receive
a cash payment of $26.00 without interest. Shares of FPMAC will be converted
into shares of stock of the surviving corporation on a one-for-one basis.
Certain shares held by the Rollovers Shareholders will be retained, and the
proceeds received in the Merger by the Rollover Shareholders in respect of
certain other shares held by them will be used to purchase a proportionate
interest in the company that will acquire Circon Corporation (as described
below). Completion of the proposed transactions is subject to certain
conditions, including shareholder approval, regulatory approvals, the
availability of financing under existing equity and debt financing commitments
and other customary closing conditions. The Merger Agreement contemplates that
unless otherwise requested by FPMAC prior to the Effective Time, immediately
prior to the Merger, Maxxim will sell to an affiliate of the Fox Paine Entities
all of the outstanding capital stock of Circon Corporation ("Circon"), an
indirect wholly-owned subsidiary of Maxxim (the "Circon Sale"). The Circon Sale
will not affect the consideration to be paid to holders of Common Stock in the
Merger.
Upon consummation of the Merger, the Common Stock will be
delisted from trading on The New York Stock Exchange, Inc., on which it
currently trades under the symbol "MAM" and will become eligible for termination
of registration under the Securities Exchange Act of 1934, as amended (the
"Act").
Upon consummation of the Merger, the directors of FPMAC
immediately prior to the Merger will be the directors of the surviving
corporation in the Merger until their respective successors are duly elected or
appointed and qualified. It is currently contemplated that the Rollover
Investors will appoint three directors and the Fox Paine Entities will appoint
four. The
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<PAGE>
officers of Maxxim immediately prior to the Merger are expected to continue as
officers of the surviving corporation in the Merger until their respective
successors are duly elected or appointed and qualified. The articles of
incorporation of Maxxim in effect immediately prior to the Merger will be the
articles of incorporation of the surviving corporation in the Merger until
amended in accordance with its terms and applicable law. The bylaws of FPMAC in
effect immediately prior to the Merger will be the bylaws of the surviving
corporation in the Merger until amended in accordance with its terms and
applicable law.
In connection with the Merger Agreement, on June 13, 1999,
FPMAC entered into the Voting Agreements. Pursuant to the Voting Agreements,
during the period (the "Agreement Period") beginning on June 13, 1999 and ending
on the earlier of (i) the Effective Time (as defined in the Merger Agreement) or
(y) the termination of the Merger Agreement in accordance with its terms, each
Rollover Shareholder has agreed to vote such Rollover Shareholder's shares of
Common Stock (the "Subject Shares") to approve the Merger Agreement and the
transactions contemplated by the Merger Agreement at any meeting of shareholders
or at any adjournment thereof or in any other circumstances. Each Rollover
Shareholder has agreed that during the Agreement Period, at any meeting of
Maxxim shareholders or in any other circumstances upon which the Rollover
Shareholder's vote, consent or other approval is sought, the Rollover
Shareholder shall vote such Rollover Shareholder's Subject Shares against any
action or agreement that would interfere with the Debt Offer, the Merger or any
other transaction contemplated by the Merger Agreement including, (A) the
adoption by Maxxim of a proposal regarding (1) the acquisition of Maxxim by
merger, tender offer or otherwise by any person or group, other than FPMAC or
any designee thereof (a "Third Party"), or any other merger, business
combination or similar transaction with any Third Party; (2) the acquisition by
a Third Party of 5% or more of the assets of Maxxim and its subsidiaries, taken
as a whole; (3) the acquisition by a Third Party of 5% or more of the
outstanding shares of Common Stock or any other class of equity or voting
securities of Maxxim; (4) the repurchase by Maxxim or any of its subsidiaries of
5% or more of the outstanding shares of Common Stock or (5) any other Competing
Transaction (as defined in the Merger Agreement); (B) any amendment of Maxxim's
certificate of incorporation or by-laws or other proposal or transaction
involving Maxxim or any of its subsidiaries, which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent or nullify the
Debt Offer, the Merger, the Merger Agreement or any of the transactions
contemplated by the Merger Agreement or change in any manner the voting rights
of any class of Maxxim's capital stock; (C) any change in the control of Maxxim
or its board of directors, other than as contemplated by the Merger Agreement;
(D) any material change in the present capitalization or dividend policy of
Maxxim other than as contemplated by the Merger Agreement; or (E) any other
material change in Maxxim's corporate structure or business other than as
contemplated by the Merger Agreement.
Each Rollover Shareholder has agreed that during the Agreement
Period, such Rollover Shareholder will not sell, transfer, assign or otherwise
dispose of any such Rollover Shareholder's Subject Shares or enter into any
voting arrangement or understanding with respect to such Rollover Shareholder's
Subject Shares.
-8-
<PAGE>
Each Rollover Shareholder has agreed that, during the
Agreement Period, such Rollover Shareholder will not and will not permit such
Rollover Shareholder's representatives to solicit, initiate, encourage or
facilitate or furnish or disclose non-public information in furtherance of, any
inquiries or the making of any proposal with respect to a Competing Transaction
(as defined in the Merger Agreement) or enter into any agreement, arrangement or
understanding requiring or causing Maxxim to abandon, terminate or fail to
consummate any of the transactions contemplated by the Merger Agreement.
However, the foregoing restrictions will not (i) prevent any Rollover
Shareholder who is a director or officer of the Maxxim from taking any action
consistent with his or her fiduciary duties to Maxxim and its shareholders or as
may be provided by the Merger Agreement, or (ii) if the Rollover Shareholder is
an officer of Maxxim, prohibit such officer from participating in Permitted
Discussions (as defined in the Merger Agreement) with any third party at any
time during which Maxxim is permitted to engage (and is so engaging) in such
discussions with such third party pursuant to Section 5.4(a) of the Merger
Agreement.
The Voting Agreements will terminate upon the termination of
the Agreement Period.
To the knowledge of the Fox Paine Entities, the Rollover
Shareholders collectively exercise voting power with respect to approximately
8.0% (including shares subject to options exercisable in the next 60 days) of
the outstanding shares of Common Stock.
In connection with the Merger Agreement, on June 13, 1999,
FPMAC entered into an Investor Participation Agreement, dated as of June 13,
1999, with the Rollover Investors (the "IPA"). The IPA, which will have effect
only if the Merger is completed, among other things (i) provides for the
retention by the Rollover Shareholders of their equity interest in Maxxim, (ii)
provides for the purchase by the Rollover Shareholders of equity interests in
Circon after the Circon Sale, and (iii) sets forth the terms for employment,
compensation and equity incentive compensation for certain of the Rollover
Shareholders. The obligations of the Rollover Shareholders under the IPA are
several, and not joint and several.
A copy of the Merger Agreement, the form of the Voting
Agreements, and the Investor Participation Agreement are attached hereto as
Exhibits 1, 2 and 3, respectively, and are incorporated herein by reference, and
the description herein of such agreements are qualified in their respective
entireties by reference to such agreements.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) and (b) 1,126,417 shares of Common Stock, and any shares
of Common Stock as to which any Rollover Shareholder acquires beneficial
ownership during the term of his or her Voting Agreement, are subject to the
Voting Agreements. The Rollover Shareholders collectively hold options
exercisable in the next 60 days with respect to 19,200 shares of Common Stock.
The 19,200 shares subject to such options, together with the 1,126,417 shares
referred to above, total 1,145,617 shares of Common Stock beneficially owned,
and represent approximately 8.0% of the outstanding shares of Common Stock,
based on the number of shares of Common Stock outstanding as of June 9, 1999, as
represented to FPMAC by Maxxim in the Merger Agreement. FPMAC may be deemed, for
purposes of Rule 13d-3 promulgated under the Act, to share with
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<PAGE>
the respective Rollover Shareholders party to the Voting Agreements the power to
vote or dispose of the shares of Common Stock subject to the Voting Agreements.
However, FPMAC (i) is not entitled to any rights as a stockholder of Maxxim as
to such shares, and (ii) disclaims beneficial ownership of all of such shares.
As the sole stockholder of FPMAC, FPCF may be deemed, for purposes of Rule 13d-3
under the Act, to beneficially own indirectly the subject shares of Common Stock
that may be deemed to be owned beneficially by FPMAC. As the general partner of
FPCF, FPC may be deemed, for purposes of Rule 13d-3 under the Act, to
beneficially own indirectly the subject shares of Common Stock that may be
deemed to be beneficially owned by FPCF. Fox Paine has the power, by virtue of
certain agreements, to manage the affairs of FPCF, and therefore Fox Paine may
be deemed, for purposes of Rule 13d-3 under the Act, to beneficially own
indirectly the subject shares of Common Stock that may be deemed to be
beneficially owned by FPCF or FPC. FPCF, FPC and Fox Paine disclaim beneficial
ownership of any such shares of Common Stock.
(c) Except as set forth in this Item 5, to the best knowledge
and belief of the Fox Paine Entities, no transactions involving Common Stock
have been effected during the past 60 days by any Fox Paine Entity, or by any of
their respective directors, executive officers or controlling persons.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
The information set forth or incorporated by reference in
Items 3 through 5 is hereby incorporated herein by reference.
A copy of the Merger Agreement, the form of the Voting
Agreements, and the Investor Participation Agreement are attached hereto as
Exhibits 1, 2 and 3, respectively, and are incorporated herein by reference, and
the description herein of such agreements are qualified in their respective
entireties by reference to such agreements.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed as part of this Schedule 13D:
Exhibit 1 - Agreement and Plan of Merger, dated as of June 13, 1999, between Fox
Paine Medic Acquisition Corporation and Maxxim Medical, Inc.
(incorporated by reference to Exhibit 2.1 of Maxxim Medical, Inc.'s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 16, 1999).
Exhibit 2 - Form of individual Voting Agreement, dated as of June 13, 1999, by
and between Fox Paine Medic Acquisition Corporation and each of 10
shareholders of Maxxim Medical, Inc.
Exhibit 3 - Investor Participation Agreement, dated as of June 13, 1999, by and
among Fox Paine Medic Acquisition Corporation and 10 shareholders of
Maxxim Medical, Inc., in their individual capacities.
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of the undersigned's knowledge
and belief, the undersigned certify that the information set forth in this
statement is true, complete, and correct.
FOX PAINE MEDIC ACQUISITION CORPORATION
By: /s/ Saul A. Fox
--------------------------------------
Name: Saul A. Fox
Title: Chief Executive Officer
FOX PAINE CAPITAL FUND, L.P.
By: Fox Paine Capital, LLC,
its general partner
By: /s/ Saul A. Fox
---------------------------------
Name: Saul A. Fox
Title: Member
FOX PAINE CAPITAL, LLC
By: /s/ Saul A. Fox
--------------------------------------
Name: Saul A. Fox
Title: Member
FOX PAINE & COMPANY, LLC
By: /s/ Saul A. Fox
--------------------------------------
Name: Saul A. Fox
Title: Member
June 23, 1999
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
Exhibit 1- Agreement and Plan of Merger, dated as of
June 13, 1999, between Fox Paine Medic Acquisition
Corporation and Maxxim Medical, Inc. (incorporated
by reference to Exhibit 2.1 of Maxxim Medical,
Inc.'s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 16, 1999).
Exhibit 2- Form of individual Voting Agreement, dated as of
June 13, 1999, by and between Fox Paine Medic
Acquisition Corporation and each of 10 shareholders
of Maxxim Medical, Inc.
Exhibit 3- Investor Participation Agreement, dated as of
June 13, 1999, by and among Fox Paine Medic
Acquisition Corporation and 10 shareholders of Maxxim
Medical, Inc., in their individual capacities.
<PAGE>
ANNEX 1
(Capitalized terms used in this Annex 1 and not otherwise
defined have the meanings ascribed to them in the Schedule
13D to which this Annex 1 is attached)
Saul A. Fox is (1) a Director and the President and Chief
Executive Officer of FPMAC, (2) a managing member of FPC, and (3) a managing
member of Fox Paine.
W. Dexter Paine, III is (1) a Director and the Vice President
and Secretary of FPMAC, (2) a managing member of FPC, and (3) a managing member
of Fox Paine.
Jason B. Hurwitz is a Director and the Treasurer of FPMAC.
Each of the persons listed above is a citizen of the United
States and is principally employed by Fox Paine & Company, LLC. The address of
Fox Paine & Company, LLC is 950 Tower Lane, Suite 1950, Foster City, California
94404.
<PAGE>
ANNEX 2
SHARE OWNERSHIP OF
THE ROLLOVER SHAREHOLDERS
A B C
- -------------------- ----------------- -------------- --------------------------
Shares deemed to be
Shares beneficially owned through
Percentage (1) Beneficially the ownership of options
Name Owned(2) exercisable within 60 days
- -------------------- ----------------- -------------- --------------------------
Kenneth W. Davidson 1.7% 241,368 5,000
Peter M. Graham 0.5% 70,500 4,000
David L. Lamont 0.4% 57,250 3,000
Alan S. Blazei 0.3% 41,150 3,000
Henry T. DeHart 0.3% 39,900 3,000
Joseph D. Dailey 0.2% 28,300 1,000
Jack F. Cahill 0.3% 44,000 200
Suzanne R. Garon 0.0% 7,000 0
Ernest Henley 2.3% 321,949 -
Davis Henley 1.9% 275,000 -
- -----------------------
(1) Does not include shares which may be acquired through the exercise of vested
stock options.
(2) Excludes shares referenced in column "C".
FORM OF
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of June 13,
1999, is made by and between Fox Paine Medic Acquisition Corporation, a Texas
corporation ("Purchaser"), and the undersigned shareholder (the "Shareholder")
of Maxxim Medical, Inc., a Texas corporation ("Maxxim" or the "Company").
WHEREAS, concurrently herewith, Purchaser and the Company are
entering into an Agreement and Plan of Merger, of even date herewith (the
"Merger Agreement"), which provides that, among other things, upon the terms and
subject to the conditions thereof, (a) Purchaser will be merged (the "Merger")
with and into the Company, with the Company as the surviving corporation, and
(b) each outstanding share of common stock, $0.001 par value, of the Company
(together with the associated Preferred Share Purchase Rights issued pursuant to
the Rights Agreement, dated as of July 10, 1997, by and between the Company and
Harris Trust and Savings Bank as rights agent, the "Company Common Stock") shall
(except for certain shares of Company Common Stock referred to in Sections
1.8(a), 1.8(b) and 1.8(c) of the Merger Agreement, and except for any Dissenting
Shares (as defined in the Merger Agreement)) be converted into the right to
receive $26.00 in cash.
WHEREAS, the Shareholder beneficially owns a number of shares of
Company Common Stock and a number of options to purchase shares of Company
Common Stock, in each case as set forth on the signature page to this Agreement;
and
WHEREAS, as a condition to its willingness to enter into the
Merger Agreement, Purchaser has requested and required that the Shareholder
enter into this Agreement;
NOW, THEREFORE, to induce Purchaser to enter into, and in
consideration of its entering into, the Merger Agreement, and in consideration
of the promises and the representations, warranties and agreements contained
herein, the parties hereto agree as follows:
1. Representations and Warranties of the Shareholder. The
Shareholder hereby represents and warrants to Purchaser that, as of the date
hereof:
(a) Authority; No Conflicts. The Shareholder has the necessary
legal capacity, power and authority to execute and deliver this Agreement, to
perform the Shareholder's obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by and on behalf of the Shareholder, and, assuming due authorization,
execution and delivery by Purchaser,
<PAGE>
constitutes a legal, valid and binding obligation of the Shareholder,
enforceable in accordance with its terms, subject to bankruptcy, fraudulent
conveyance, insolvency, moratorium or other similar laws affecting the rights of
creditors generally.
(b) The Subject Shares. The Shareholder is the beneficial owner of
(i) a number of shares of Company Common Stock (such shares, together with any
other shares of Company Common Stock of the Company of which the Shareholder has
or acquires beneficial ownership after the date hereof and during the term of
this Agreement, whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution or otherwise, being collectively referred to
herein as the "Subject Shares") and (ii) a number of options to purchase shares
of Company Common Stock (such options, together with any other options, warrants
or rights to purchase shares of Company Common Stock, or other securities
convertible into or exchangeable for shares of Company Common Stock of which the
Shareholder has or acquires beneficial ownership after the date hereof and
during the term of this Agreement, whether by means of grant, purchase,
dividend, distribution or otherwise, being collectively referred to herein as
the "Subject Options") in each case, as of the date of this Agreement, as are
set forth on the signature page to this Agreement. Except as set forth on
Schedule 1 hereto: (i) the Shareholder has, and throughout the term of this
Agreement will have, good and marketable title to such Subject Shares and
Subject Options free and clear of all encumbrances and liens; (ii) other than
the Subject Shares and Subject Options indicated on the signature page to this
Agreement, the Shareholder does not beneficially own any shares of capital stock
of the Company or securities convertible into or exchangeable for shares of
capital stock of the Company; and (iii) the Shareholder has the sole right and
power to vote and dispose of the Subject Shares and Subject Options, and none of
the Subject Shares or Subject Options is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting or transfer
(other than the provisions of the Securities Act of 1933, as amended) of such
Subject Shares or Subject Options, except as contemplated by this Agreement.
2. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to the Shareholder that Purchaser is a Texas
corporation, and is duly organized, validly existing and in good standing under
the laws of the State of Texas. Purchaser has the necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by and on behalf of Purchaser,
and, assuming due execution and delivery by the Shareholder, constitutes a
legal, valid and binding obligation of Purchaser enforceable in accordance with
its terms, subject to bankruptcy, fraudulent conveyance, insolvency, moratorium
or other similar laws affecting the rights of creditors generally.
-2-
<PAGE>
3. Covenants of the Shareholder. The Shareholder agrees as
follows:
(a) Voting in Favor of the Merger and/or the Circon Sale. At any
meeting of shareholders of the Company called to vote upon the Merger, the
Merger Agreement or any transaction contemplated thereby (including the Circon
Sale (as defined in the Merger Agreement)), or at any adjournment thereof or in
any other circumstances (including, without limitation, a solicitation of
written consents or proxies) upon which a vote or other approval with respect to
the Merger, the Merger Agreement or any of the other transactions contemplated
thereby (including the Circon Sale (as defined therein)) is sought, the
Shareholder shall vote the Subject Shares in favor of the Merger Agreement, the
approval of the terms thereof, the Merger and all other transactions
contemplated by the Merger Agreement (including the Circon Sale).
(b) Voting Against Competing Transactions. At any meeting of
shareholders of the Company or at any adjournment thereof or in any other
circumstances upon which the Shareholder's vote, consent or other approval as a
shareholder is sought (including, without limitation, a solicitation of written
consents or proxies), the Shareholder shall vote the Subject Shares against any
action or agreement that would interfere with the Debt Offer, the Merger or any
other transaction contemplated by the Merger Agreement (including the Circon
Sale), including, but not limited to, (A) the adoption by the Company of a
proposal regarding (1) the acquisition of the Company by merger, tender offer or
otherwise by any person or group, other than Purchaser or any designee thereof
(a "Third Party"), or any other merger, business combination or similar
transaction with any Third Party; (2) the acquisition by a Third Party of 5% or
more of the assets of the Company and its subsidiaries, taken as a whole; (3)
the acquisition by a Third Party of 5% or more of the outstanding shares of
Company Common Stock or any other class of equity or voting securities of the
Company; (4) the repurchase by the Company or any of its subsidiaries of 5% or
more of the outstanding shares of Company Common Stock or (5) any other
Competing Transaction (as defined in the Merger Agreement); (B) any amendment of
the Company's certificate of incorporation or by-laws or other proposal or
transaction involving the Company or any of its subsidiaries, which amendment or
other proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Debt Offer, the Merger, the Merger Agreement or any of the
transactions contemplated by the Merger Agreement (including the Circon Sale) or
change in any manner the voting rights of any class of the Company's capital
stock; (C) any change in the control of the Company or its board of directors,
other than as contemplated by the Merger Agreement; (D) any material change in
the present capitalization or dividend policy of the Company other than as
contemplated by the Merger Agreement; or (E) any other material change in the
Company's corporate structure or business other than as contemplated by the
Merger Agreement. The Shareholder further agrees not to commit or agree to take
any action in his or her capacity as a shareholder that is inconsistent with the
foregoing.
-3-
<PAGE>
(c) Merger Agreement. The Shareholder acknowledges that such
Shareholder has read the Merger Agreement, including the exhibits thereto, and
has had an opportunity to consult with such Shareholder's counsel concerning the
same, and the Shareholder accepts and agrees to the terms and conditions of the
Merger Agreement that relate to the treatment of the Subject Shares (including
as provided in Section 1.8(b)) and the Subject Options, and the Shareholder
hereby irrevocably waives any claim that the Merger Agreement, the Merger or any
other transaction contemplated by the Merger Agreement (including the Circon
Sale) violates any right of the Shareholder under the Texas Business Corporation
Act, any fiduciary obligation owed by the Company or any of its directors or
officers to the Shareholder, or any obligation owed by the Company to the
Shareholder pursuant to any agreement between the Company and the Shareholder or
pursuant to any employee benefit plan or stock option or similar plan of the
Company in which the Shareholder participates.
(d) Transfer Restrictions. In addition to its obligations under
Section 3(a) of this Agreement, the Shareholder further agrees not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of or hypothecate
(including by gift or by contribution or distribution to any trust or similar
instrument or to any beneficiaries of such Shareholder (collectively,
"Transfer")), or enter into any contract, option or other arrangement or
understanding with respect to the Transfer of, any of the Subject Shares or
Subject Options for the term of this Agreement, (ii) other than with respect to
this Agreement, enter into any voting arrangement or understanding with respect
to the Subject Shares, whether by proxy, voting agreement or otherwise, or (iii)
take any action that would reasonably be expected to make any of its
representations or warranties contained herein untrue or incorrect or could have
the effect of preventing or disabling such Shareholder from performing any of
its obligations hereunder. Anything in this Section 3(d) to the contrary
notwithstanding, nothing in the foregoing shall prohibit or prevent the
Shareholder from complying with any of the Shareholder's obligations in respect
of the Circon Sale provided for in the Merger Agreement or any document executed
by the Shareholder and Purchaser in connection therewith.
(e) Appraisal Rights. Each Shareholder hereby irrevocably waives
any and all rights that he may have as to appraisal, dissent or any similar or
related matter with respect to the Merger, the Merger Agreement or any
transaction contemplated thereby, including, without limitation, any rights
otherwise available to such Shareholder pursuant to Section 5.11 of the Texas
Business Corporation Act.
(f) No Solicitation. The Shareholder agrees that, during the term
of this Agreement, he shall not, and shall not authorize or permit any of such
Shareholder's representatives, agents, affiliates or other persons, directly or
indirectly, to solicit, initiate, encourage or facilitate, or furnish or
disclose non-public information in furtherance of, any inquiries or the making
of any proposal with respect to any recapitalization, merger, consolidation or
other business combination involving the Company, or acquisition of
-4-
<PAGE>
any capital stock (other than upon exercise of Stock Options (as defined in the
Merger Agreement) which are outstanding as of the date hereof) or any material
portion of the assets (except for acquisition of assets in the ordinary course
of business consistent with past practice) of the Company and its Subsidiaries
(as defined in the Merger Agreement), or any combination of the foregoing (a
"Competing Transaction"), or negotiate, explore or otherwise engage in
discussions with any person (other than Purchaser, persons controlling
Purchaser, or their respective directors, officers, employees, agents and
representatives) with respect to any Competing Transaction or enter into any
agreement, arrangement or understanding requiring or causing the Company to
abandon, terminate or fail to consummate any of the transactions contemplated by
the Merger Agreement. Anything herein to the contrary notwithstanding, nothing
in this Agreement shall (i) prevent any director or officer of the Company from
taking any action consistent with his or her fiduciary duties to the Company and
its shareholders or as may be provided by the Merger Agreement, or (ii) if
Shareholder is an officer of the Company, prohibit such Shareholder from
participating in Permitted Discussions with any third party at any time during
which the Company is permitted to engage (and is so engaging) in such
discussions with such third party pursuant to Section 5.4(a) of the Merger
Agreement.
4. Stop Transfer Order. The Shareholder hereby authorizes and
requests the Company's counsel to notify the Company's transfer agent that
during the terms of this Agreement there is a stop transfer order with respect
to all of the Subject Shares and that this Agreement places limits on the voting
of the Subject Shares.
5. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other party, except that Purchaser may
assign, in its sole discretion and without the consent of the Shareholder, any
or all of its rights, interests and obligations hereunder to any affiliate of
Purchaser. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
permitted assigns and their respective successors, heirs, agents,
representatives, trust beneficiaries, attorneys, affiliates and associates and
all of their respective predecessors, successors, permitted assigns, heirs,
executors and administrators.
6. Termination. This Agreement shall terminate, and no party shall
have any rights or obligations hereunder and this Agreement shall become null
and void and have no further legal effect immediately following the earlier to
occur of (x) the Effective Time (as defined in the Merger Agreement) or (y) the
termination of the Merger Agreement in accordance with its terms. Nothing in
this Section shall relieve any party of liability for breach of this Agreement.
-5-
<PAGE>
7. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (if confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested),
(i) if to the Purchaser, in accordance with Section 8.4(a) of the Merger
Agreement, and (ii) if to the Shareholder, to the Shareholder's attention c/o of
the Company at the address or facsimile number set forth in Section 8.4(b) of
the Merger Agreement.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
each party need not sign the same counterpart.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
regard to the conflicts of law principles thereof.
8. Enforcement. The parties agree that if any of the provisions of
this Agreement are not performed in accordance with their specific terms or are
otherwise breached, the parties would suffer irreparable harm that monetary
compensation would be inadequate to remedy. It is accordingly agreed that the
parties shall be entitled to an injunction or other forms of equitable relief to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to
which they are entitled at law or in equity.
-6-
<PAGE>
IN WITNESS WHEREOF, Purchaser and the Shareholder have each
executed this Agreement as of the date first written above.
FOX PAINE MEDIC ACQUISITION
CORPORATION
By:________________________________
Name:
Title:
SHAREHOLDER:
-----------------------------------
Print Name:
Number of shares of Company Common Stock beneficially owned by the Shareholder
as of the date hereof:
----------------------
Number of shares of Company Common Stock subject to options to purchase shares
of Company Common Stock held by the Shareholder as of the date hereof:
----------------------
[Signature Page to Voting Agreement]
INVESTOR PARTICIPATION AGREEMENT
THIS INVESTOR PARTICIPATION AGREEMENT (this "Agreement"), dated
June 13, 1999, is made by and among Fox Paine Medic Acquisition Corporation, a
Texas corporation ("Purchaser") and the undersigned individuals, whose names are
set forth on the signature page below (collectively, the "Investors" and,
together with Purchaser, the "Parties"), acting in their individual capacities
(other than Kenneth W. Davidson, who is acting in his individual capacity and as
general partner of Davidson Management International Limited Partnership).
WHEREAS, concurrently herewith, Purchaser and Maxxim Medical,
Inc., a Texas corporation (the "Company"), are entering into an Agreement and
Plan of Merger, of even date herewith (the "Merger Agreement"), providing for a
recapitalization transaction that will result in Purchaser and the Investors
owning substantially all of the outstanding capital stock of the Company, as
more fully set forth therein;
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
1. Parties to be Bound by Attached Term Sheet. The Parties, and
each of them, severally agree to all of the terms and conditions set forth in
the term sheet attached hereto as Annex A and the attachments thereto (the "Term
Sheet") and the stock and option treatment provided therein, and, unless and
until definitive documentation incorporating the terms set forth in the Term
Sheet has been executed and delivered, each of the Parties agrees that the Term
Sheet constitutes a binding agreement among the Parties, enforceable against
each such Party in accordance with its terms.
2. Execution of Definitive Documentation. Each Party agrees to
negotiate in good faith and use all reasonable efforts to prepare, execute and
deliver definitive agreements and other instruments implementing the terms set
forth in the Term Sheet on reasonable and customary terms; provided, however,
that no failure or delay in the delivery and execution of such definitive
agreements or instruments shall affect the validity, enforceability or binding
nature of the Term Sheet. Without limiting the foregoing, Purchaser agrees that
after Closing the Company will prepare, adopt and effectuate any employee
benefit plans, including stock option plans, and including issuing options to
purchase shares of its capital stock pursuant to such plans, as may be necessary
to effectuate the purposes and intent of the Term Sheet.
3. Merger Agreement. Each Investor hereby acknowledges that such
Investor has read the Merger Agreement and has had an opportunity to consult
with such Investor's counsel concerning the same, and the Investor accepts and
agrees to the terms and conditions of the Merger Agreement that relate to the
treatment of such Investor's shares of Company common stock (including as
provided in Section 1.8(b)) and such Investor's options to purchase shares of
Common Stock (including as provided in Section 1.10), and the Investor hereby
irrevocably waives any claim that the Merger Agreement, the Merger or any other
transaction contemplated by the Merger Agreement (including the Circon Sale (as
defined therein)) violates any right of the Investor under the Texas Business
Corporation Act, any fiduciary obligation owed by the
<PAGE>
Company or any of its directors or officers to the Investor, or any obligation
owed by the Company to the Investor pursuant to any agreement between the
Company and the Investor or pursuant to any employee benefit plan or stock
option or similar plan of the Company in which the Investor participates.
4. Miscellaneous. The Parties hereto agree as follows:
a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by all of the Parties hereto; provided that any
Party may waive or amend any right of such Party hereunder.
b) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the Parties and delivered to the other Parties, it being understood
that each Party need not sign the same counterpart.
c) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
regard to the conflicts of law principles thereof.
d) Termination. In the event the Merger Agreement is
terminated in accordance with its terms prior to the occurrence of the Effective
Time, this Agreement shall terminate, and no party shall have any rights or
obligations hereunder and this Agreement shall become null and void and have no
further legal effect immediately following the termination of the Merger
Agreement in accordance with its terms. Nothing in this Section shall relieve
any party of liability for breach of this Agreement.
e) Obligations Several. The obligations of the Investors
hereunder shall be several and not joint and several.
-2-
<PAGE>
IN WITNESS WHEREOF, Purchaser, the Company, and each of the
Investors has executed this Agreement as of the date first written above.
FOX PAINE MEDIC ACQUISITION CORPORATION
By: /s/ Saul A. Fox
--------------------------------
Name: Saul A. Fox
Title: Chief Executive Officer
(Investor Signatures appear on following page)
[Signature Page 1 of 2 to Investor Participation Agreement]
<PAGE>
INVESTORS:
/s/ Kenneth W. Davidson
------------------------------------
Name: Kenneth W. Davidson, in his individual
capacity and as general partner of
Davidson Management International
Limited Partnership
/s/ Peter M. Graham
-------------------------------------------------
Name: Peter M. Graham
/s/ David L. Lamont
-------------------------------------------------
Name: David L. Lamont
/s/ Henry T. DeHart
-------------------------------------------------
Name: Henry T. DeHart
/s/ Jack F. Cahill
-------------------------------------------------
Name: Jack F. Cahill
/s/ Alan Blazei
-------------------------------------------------
Name: Alan Blazei
/s/ Joseph Dailey
-------------------------------------------------
Name: Joseph Dailey
/s/ Suzanne Garon
-------------------------------------------------
Name: Suzanne Garon
/s/ Ernest J. Henley
-------------------------------------------------
Name: Ernest J. Henley
/s/ Davis C. Henley
-------------------------------------------------
Name: Davis C. Henley
[Signature Page 2 of 2 to Investor Participation Agreement]
<PAGE>
ANNEX A
PROJECT MEDIC
MANAGEMENT/DIRECTOR EQUITY INVESTMENT AND STOCK AND COMPENSATION TERM SHEET
This term sheet sets forth the principal terms and conditions under which the
executive management team (the "Management Investors") and Ernest J. Henley and
Davis C. Henley (the "Other Investors", and together with the Management
Investors, the "Rollover Investors") of Maxxim Medical, Inc. ("Medic" or the
"Company") are to retain an equity interest in Medic and Circon Corporation
("Citron") upon the recapitalization of the Company and related transactions
(the "Recapitalization") by the investment funds managed by Fox Paine & Company,
LLC ("Fox Paine") and the Rollover Investors. It also sets forth the principal
terms and conditions of the ongoing stock and compensation arrangements.
RECAPITALIZATION PRICE: $26 per share.
ROLLOVER INVESTORS: The names, share ownership, vested options, and
unvested options of each Rollover Investor are
summarized in Exhibit A. Exhibit B provides
additional detail concerning the split-up of
Citron from Medic and its effect on shares and
options held by the Rollover Investors. If, in
order to facilitate the Recapitalization, Fox
Paine reallocates its relative equity
contributions between Medic and Citron, the
Rollover Investors agree that their respective
equity in Medic and Citron will also be equitably
adjusted in order to preserve the proportionate
ownership between the Rollover Investors and Fox
Paine currently reflected in Exhibits A and B.
SHARE OWNERSHIP AND ROLLOVER: The Rollover Investors collectively own 927,318
shares of Medic common stock (excluding shares
owned by the Other Investors not being rolled
over) (see Exhibit A). Each Rollover Investor will
retain the number of shares in Medic and acquire
with the proceeds of the cashout of Medic shares
in the Merger the number of shares in Citron in
each case as set forth in Annex III to Exhibit B.
VESTED AND UNVESTED OPTIONS: The Management Investors collectively hold options
to purchase 1,084,200 shares of Medic common stock
(see Exhibit A). Upon the consummation of the
transaction, the Management Investors will receive
a cash payment in respect of 635,864 options (both
vested or unvested) equal to the difference
between the Recapitalization Price and the
exercise price of each such option (less
applicable withholding taxes) on the same basis as
other Medic option holders are being cashed out in
the transaction (options at various purchase
prices to be cashed out proportionately). The
after-tax cash proceeds from the cancellation of
the 635,864 Medic options will be required to be
reinvested in Medic common stock at the
Recapitalization Price (the "Medic Additional
Shares"). Each Management Investor will receive a
new option in respect of the number of shares of
Medic common stock set forth on Annex III to
Exhibit B at an exercise price equal to the
Recapitalization Price (the aggregate being
635,864 less the Medic
1
<PAGE>
Additional Shares purchased pursuant to the prior
sentence). The remaining 448,336 options in Medic
held by the Management Investors will be canceled
and each Management Investor will also receive new
options in respect of a number of shares of Citron
equal to such canceled option shares and with an
exercise price equal to the Recapitalization
Price. In addition, the Management Investors will
be entitled to receive a cash bonus payment of
approximately $5.4 million in the aggregate as
provided for in item 3 of the "Option Rollover
Mechanics" section of Exhibit B hereto. New
options will be fully vested and permit cashless
exercise with "mature" shares (payment of the
exercise price with previously owned shares).
CITRON TAX LOAN: In connection with the Citron share rollover from
Medic shares, tax loans will be extended to the
Rollover Investors in an amount sufficient to
cover the taxes due on the Medic shares sold to
rollover into the Citron rollover shares. Interest
on the loans will be imputed at the minimum
allowable rate and will be "bonused" and
grossed-up for the tax on any bonus amounts. The
Citron tax loans will be mandatorily repayable
from the after-tax proceeds of the sale of Citron
shares (and not required to be repaid from the
proceeds of the sale of Medic shares), and shall
not accelerate on termination of employment.
EXISTING MANAGEMENT In May 1997, the Company issued 400,000 shares
PROMISSORY NOTES: of common stock pursuant to a Senior Management
Stock Purchase Plan at $13.00 per share. The stock
was issued in exchange for an aggregate of
$4,498,000 currently outstanding principal amount
in non-interest bearing, full recourse promissory
notes (the "Management Promissory Notes") due May
23, 2000 from the participating managers who are
Management Investors. The Management Promissory
Notes will remain outstanding after the
Recapitalization and be extended until the tenth
anniversary of the closing (except that (x)
Management Promissory Notes from any employee who
is not a Management Investor will be required to be
repaid by the employee in connection with the
cash-out of his or her options provided for in the
Merger Agreement and (y) the Management Investors
will be required to prepay the Notes with the
after-tax proceeds of any sales of stock or options
made after the Effective Time). The 50% profit
recovery provision currently in place shall be
amended out of the documents. The Management
Promissory Notes will not accelerate on termination
of employment. The Management Promissory Notes and
related security arrangements will be split pro
rata between Medic and Citron.
NEW MANAGEMENT EQUITY The Company and Citron each will provide a New
INCENTIVE PLAN: Management Equity Incentive Plan (the "New
Incentive Plan") which will grant to the Management
Investors, as of the Effective Time, options (the
"Option Pool") to purchase up to 10% of the common
equity of the Company and Citron (in each case on a
fully diluted basis) at a
2
<PAGE>
strike price equal to the Recapitalization Price.
The New Incentive Plan will generally provide for a
ten year option term and will permit cashless
exercise with "mature" shares (payment of the
exercise price with previously owned shares).
EBITDA Targets will be adjusted equitably to
reflect acquisitions and dispositions. The Option
Pool will consist of (x) half performance-based
options ("Pool A Options") that vest according to
the schedule below and (y) half time-based options
that vest in equal increments on each of the first
through fifth anniversaries of the closing (the
"Time Based Options").
<TABLE>
<CAPTION>
<S> <C>
VESTING SCHEDULE FOR POOL A COMPANY OPTIONS
----------------------------------------------------------------------------------
FISCAL EBITDA % OF OPTION POOL VESTING THROUGH ACHIEVEMENT
YEAR TARGET OF EBITDA TARGET
1999 $80.9 20%
2000 $84.3 20%
2001 $88.5 20%
2002 $92.9 20%
2003 $97.6 20%
VESTING SCHEDULE FOR POOL A CITRON OPTIONS
----------------------------------------------------------------------------------
FISCAL EBITDA % OF OPTION POOL VESTING THROUGH ACHIEVEMENT
YEAR TARGET OF EBITDA TARGET
1999 $24.6 20%
2000 $37.4 20%
2001 $38.9 20%
2002 $40.5 20%
2003 $42.1 20%
</TABLE>
Pool A Options that do not vest will become "Pool B
Options" and will vest at the earliest of: (i) the
next fiscal year in which the EBITDA Target is
achieved, (ii) Fox Paine's realization of its
investment in the Company or Citron, as the case
may be, provided that such realization yields an
IRR to Fox Paine of at least 30.0% after giving
effect to the vesting and exercise of the Pool B
Options pursuant to this clause (ii), or (iii) the
ninth anniversary of the date of grant. For the
purposes of the Pool B Options, a primary initial
public offering of the Company's or Citron's stock,
as the case may be (an "Initial Public Offering"),
shall not constitute a realization of Fox Paine's
investment in the Company or Citron, respectively.
The Time Based Options and the Pool A Options will
also vest and be exercisable, regardless of the
passage of time, upon Fox Paine's realization of an
IRR of at least 30.0%.
ALLOCATION OF OPTION POOL: The total Option Pool will be granted to the
Management Investors, based on the recommendation
of Kenneth W. Davidson for approval by the
Compensation Committee of the Board of Directors.
3
<PAGE>
TERMINATION OF NEW INCENTIVE Stock options granted under the New Incentive
PLAN OPTIONS: Plans that are unvested as of the date of a
Management Investor's termination of employment
with the Company, Citron and/or their respective
subsidiaries for any reason will be forfeited upon
the date of termination. Stock options (under old
and new plans) that are vested as of the date of
termination may be exercised for one year following
the termination of employment. Vested stock options
that are not exercised within one year of the date
of termination will be forfeited.
BONUSES: The Management Investors will receive aggregate
bonus compensation, as specified in Exhibit C.
EXISTING SEVERANCE Existing employment agreements and severance
AGREEMENTS/NEW EMPLOYMENT agreements for the Management Investors will be
AGREEMENTS: terminated without payment and superseded by new
employment agreements that will become
effective upon the consummation of the transaction.
The material terms of the new agreements are set
forth on Exhibit D.
TAG-ALONG RIGHT: If, at any time prior to an Initial Public
Offering, Fox Paine or a Rollover Investor (as the
case may be) accepts a third party offer to sell
any or all of its common stock in either company
(other than to a permitted transferee), Fox Paine
and each other Rollover Investor (as the case may
be) will be able to participate on a proportionate
basis, based on ownership, at the same price and on
the same terms in the sale of shares of such
company.
DRAG-ALONG RIGHTS: Prior to an Initial Public Offering, if Fox Paine
sells at least 50% of its common stock in either
company in a bona fide arm's length transaction or
series of related transactions, Fox Paine may
require the Rollover Investors to sell a
proportional number (on an as-converted basis) of
their shares of common stock in that same company
in the same transaction (at the same price and on
the same terms, with appropriate adjustments for
warrants or options).
REGISTRATION RIGHTS: After an Initial Public Offering, the Rollover
Investors will have one demand in Citron and two in
Medic, and Fox Paine will have five in each. All
such parties will have full piggybacks in each
other's demands, with no relative priority as to
cutbacks; cutbacks will be proportional based on
ownership among the parties, no matter who
initiated the demand. Fox Paine and Rollover
Investors will also have customary "piggyback"
registration rights. Expenses, in both demands and
piggybacks, to be borne by Medic or Citron, as the
case may be. Other customary registration rights
provisions will apply, including holdbacks,
indemnification and contribution provisions. If Fox
Paine is permitted to sell secondary shares in an
Initial Public Offering, the Rollover Investors
will get a proportionate opportunity.
4
<PAGE>
RIGHT OF FIRST OFFER: Fox Paine and the Rollover Investors will have
reciprocal proportional rights of first offer
(seller to propose minimum sale price) on transfers
of shares (acceptance must be all shares offered or
none as to the group), other than transfers to
customary permitted transferees (including with
respect to Fox Paine, its investors and affiliates,
and including with respect to Rollover Investors,
family members and trusts for them), prior to an
Initial Public Offering. Permitted transferees step
into shoes of transferor for transfer restriction
and registration rights provisions.
LIQUIDITY UPON DEATH OR Citron Shares: The Management Investors will have
DISABILITY AND CERTAIN the right to "put" all of their Citron shares to
TERMINATIONS: Citron at fair market value, upon death or
disability or termination of employment for Good
Reason, or by the companies without Cause (each as
defined in the Employment Agreement).
Medic Shares: The Management Investors will have
the right to "put" their shares of Medic which were
acquired upon the exercise of stock options
(provided that the shares have been held for at
least six months), less the number of shares used
to exercise in cashless exercises, but including
the Medic Additional Shares (the governing
objective being to preserve recapitalization
accounting) to Medic at fair market value, upon
death or disability or termination of employment
for Good Reason or by the companies without Cause.
Notwithstanding the above, the put rights described
above will be subject to each company's available
cash flow, debt restrictions and any legal
restrictions on distributions of cash from the
relevant company. In the event the payments with
respect to put rights are not satisfied in whole or
in part immediately, the payments will be a
continuing obligation of the relevant company and
such rights will be satisfied before the payment of
any dividends or distributions to shareholders. Any
unpaid amounts upon exercise of a put right will
accrue interest at applicable "afr" rate. The put
rights terminate upon an Initial Public Offering.
CALL RIGHT: Prior to an Initial Public Offering, Citron will
have call rights at fair market value with respect
to Citron stock only, upon a termination of
employment by the companies for Cause or by the
Management Investor voluntarily (without Good
Reason).
5
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BOARD OF DIRECTORS: Each Company's Board of Directors will initially
consist of Kenneth W. Davidson (Chairman), Ernest
J. Henley, Ph.D. and one other member to be
appointed by the Rollover Investors and four
members designated by Fox Paine (not limiting Fox
Paine or the companies' rights to add additional
directors). The right to appoint Board members will
terminate upon an Initial Public Offering or
significant reduction in ownership percentage.
While Ken Davidson is CEO or Chairman of the Board,
all three Rollover Investor representatives will be
designated by him; thereafter, by plurality vote of
shares held by the Rollover Investors.
INDEMNITY: Following the consummation of the transaction, the
Board of Directors of each Company will adopt a
customary mandatory indemnification and expense
advancement policy for officers, subject to any
limitations imposed by applicable law.
6
[Exhibits A, B, C and D and the annexes thereto are omitted]
