<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 2000
REGISTRATION NO. 333-92825
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
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MAXXIM MEDICAL GROUP, INC.*
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 3842 59-3597135
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762, (727) 561-2100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
KENNETH W. DAVIDSON, PRESIDENT
MAXXIM MEDICAL GROUP, INC.
10300 49TH STREET NORTH
CLEARWATER, FLORIDA 33762
(727) 561-2100
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
WITH COPIES OF ALL COMMUNICATIONS TO:
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PAUL R. LYNCH, ESQ. MITCHELL S. PRESSER, ESQ.
SHUMAKER, LOOP & KENDRICK, LLP WACHTELL, LIPTON, ROSEN & KATZ
101 EAST KENNEDY BOULEVARD 51 WEST 52ND STREET
SUITE 2800 NEW YORK, NY 10019-6150
TAMPA, FLORIDA 33602 (212) 403-1000
(813) 229-7600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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<PAGE> 2
*TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYEE
INCORPORATION OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION NUMBER NUMBER
- ---- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Maxxim Medical, Inc.(1)............ Texas 3842 76-0291634
Maxxim Medical, Inc.(1)............ Delaware 3842 74-1941367
Maxxim Investment Management,
Inc.(2).......................... Nevada 3842 88-1625987
Fabritek La Romana, Inc.(1)........ Mississippi 3842 64-0574215
</TABLE>
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(1) The address, including zip code, and telephone number, including area code,
of the principal executive offices of these additional registrants is 10300
49th Street North, Clearwater, Florida 33762, (727) 561-2100.
(2) The address, including zip code, and telephone number, including area code,
of the principal executive offices of Maxxim Investment Management, Inc. is
1325 Airmotive Way, Suite 130, Reno, Nevada 89902, (775) 823-3080.
<PAGE> 3
SUBJECT TO COMPLETION
PROSPECTUS
MAXXIM MEDICAL GROUP, INC.
OFFER TO EXCHANGE
ALL SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009 ($144,552,000 AGGREGATE
PRINCIPAL AMOUNT AT MATURITY)
FOR
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009 ($144,552,000 AGGREGATE PRINCIPAL
AMOUNT AT MATURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2000, unless extended.
-------------------------
We do not intend to list the exchange notes on any national securities
exchange, and no public market for the exchange notes is anticipated.
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF
FACTORS THAT YOU SHOULD CONSIDER BEFORE TENDERING YOUR OLD NOTES.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION RELATING TO THESE SECURITIES IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
----
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Additional Information.............. ii
Summary............................. 1
Risk Factors........................ 18
Forward-Looking Statements.......... 31
The Exchange Offer.................. 33
The Recapitalization................ 42
Capitalization...................... 46
Unaudited Pro Forma Financial
Information of Maxxim Group....... 47
Selected Historical Consolidated
Financial Information of Maxxim
Holdings.......................... 57
Management's Discussion and
Analysis of Financial Condition
and
Results of Operations............. 59
Business............................ 70
Management.......................... 90
</TABLE>
<TABLE>
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PAGE
----
<S> <C>
Security Ownership of Certain
Beneficial Owners and
Management........................ 96
Certain Relationships and Related
Party Transactions................ 99
Description of New Credit Facilities
and Other Indebtedness............ 106
Description of the Exchange Notes... 110
Exchange and Registration Rights
Agreement......................... 153
Book-Entry, Delivery and Form....... 156
Certain United States Federal Income
Tax Considerations................ 160
Plan of Distribution................ 161
Available Information............... 162
Experts............................. 163
Validity of the Exchange Notes...... 163
</TABLE>
i
<PAGE> 5
ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about us from documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in this prospectus,
other than exhibits to those documents, by requesting them in writing or by
telephone from us at the following address:
Maxxim Medical Group, Inc.
10300 49th Street North
Clearwater, Florida 33762
Attention: Mary Lugris
Telephone: (727) 561-2100
You will not be charged for any documents that you request. If you would
like to request documents, please do so by , 2000 in order to receive
them before the exchange offer expires on , 2000.
-------------------------
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
ii
<PAGE> 6
SUMMARY
The following summary highlights important information contained elsewhere
in this prospectus. This summary may not contain all of the information that you
should consider before exchanging your old notes for exchange notes, and you
should read this prospectus in its entirety for a complete understanding of the
exchange offer and our business.
INFORMATION ABOUT US
OVERVIEW
We are a leading developer, manufacturer, distributor and marketer of a
broad range of single-use specialty medical products primarily used in the
operating rooms of hospitals and surgery centers. Through our North American and
European sales force of 156 full-time representatives, we sell approximately
23,000 products to approximately 7,000 customers. Our products, and the
percentage they represented of our total net sales for the fiscal year ended
October 31, 1999, include:
- custom procedure trays -- 56.8%;
- gloves for medical examinations and surgical procedures -- 21.0%;
- imaging and critical care products for cardiology and radiology -- 6.9%;
- bio-safety containment products -- 5.9%;
- drapes and gowns -- 4.9%; and
- other single-use specialty medical products -- 4.5%.
We are the second leading supplier of custom procedure trays in the United
States, with approximately 29% of sales of such products in 1998, and we are the
leading supplier of non-latex medical examination gloves to hospitals, surgery
centers and other acute care facilities in the United States, with approximately
35% of sales of such products to such customers for the three months ended March
31, 1999. For the fiscal year ended October 31, 1999, approximately 89.7% of our
total net sales were in North America, substantially all of which were in the
United States, and 10.3% of our total net sales were outside North America,
primarily in Europe. For the fiscal year ended October 31, 1999, our continuing
operations generated net sales of $508.7 million.
Our custom procedure trays are kits containing single-use products used in
surgical and other medical procedures. Hospitals and surgery centers have
increased their use of custom procedure trays in recent years in order to
increase efficiency, reduce inventory levels, protect against product
contamination and allow for easier identification of costs associated with
specific medical procedures.
The gloves we manufacture include non-latex medical examination gloves,
which are manufactured entirely from synthetic materials, as well as non-latex
and latex gloves for use in surgical procedures.
See "Business" for a complete description of our business.
1
<PAGE> 7
INDUSTRY
We compete primarily in the U.S. single-use specialty medical products
industry, which had estimated sales of $5.3 billion in 1998. The industry has
been growing at a compound annual rate of approximately 6.6% since 1993 and is
expected to grow at a compound annual rate of approximately 6.3% through 2003.
The primary customers for single-use specialty medical products are hospitals,
surgery centers, alternate site care providers and physician practices.
CUSTOM PROCEDURE TRAYS. The custom procedure tray portion of the U.S.
single-use specialty medical products industry had estimated sales of $1.1
billion in 1998. This portion of the industry has been growing at a compound
annual rate of approximately 7.2% since 1993 and is expected to grow at a
compound annual rate of approximately 6.3% through 2003.
MEDICAL EXAMINATION AND SURGICAL GLOVES. The medical glove portion of the
U.S. single-use specialty medical products industry had estimated sales of $1.2
billion in 1998. This portion of the industry has been growing at a compound
annual rate of approximately 8.9% since 1993 and is expected to grow at a
compound annual rate of approximately 10.0% through 2003. The medical glove
portion can be divided into latex gloves and non-latex gloves, each of which can
be designed either for medical examinations or surgical procedures. U.S. sales
of medical examination gloves, estimated at $940 million in 1998, are projected
to grow at a compound annual rate of approximately 9.9% through 2003, with the
non-latex category estimated to grow at a compound annual rate of approximately
17.5% through 2003. U.S. sales of surgical procedure gloves, estimated at $223
million in 1998, are projected to grow at a compound annual rate of
approximately 10.1% through 2003, with the non-latex category estimated to grow
at a compound annual rate of approximately 30.9% through 2003.
EUROPEAN INDUSTRY TRENDS. Although we believe the number of surgical
procedures performed in Europe is only slightly less than the number of surgical
procedures performed in the United States, the use of single-use specialty
medical products, including custom procedure trays, currently is not as
prevalent in Europe as it is in the United States. We believe that European
healthcare providers will increase their use of single-use specialty medical
products as demand increases in Europe for products that improve productivity,
help contain healthcare costs and reduce the transmission of infectious
diseases.
See "Business -- Industry" for a more complete description of the
single-use specialty medical products industry, including the products included
in the industry.
INDUSTRY INFORMATION
Unless otherwise indicated, information in this prospectus concerning the
U.S. single-use specialty medical products industry, the custom procedure tray
and medical glove portions of such industry, and the European custom procedure
tray industry is from third party reports. See "Business -- Industry
Information" for a more complete description of such reports. Our general
expectations concerning the U.S. single-use specialty medical products industry
and its components and the European custom procedure tray industry involve risks
and uncertainties and are subject to change based on various factors, including
those discussed under "Risk Factors."
2
<PAGE> 8
THE RECENT RECAPITALIZATION
On November 12, 1999, Maxxim Medical, Inc., a Texas corporation which
currently owns 100% of the stock of Maxxim Medical Group, Inc., completed a
recapitalization. For ease of reference, we refer to Maxxim Medical, Inc. in
this prospectus as Maxxim Holdings and Maxxim Medical Group, Inc. as Maxxim
Group. The transactions involved in the recapitalization included:
- the sale of Circon Corporation, a wholly owned subsidiary of Maxxim
Holdings, to Circon Holdings Corporation in exchange for $208.0 million
in cash and the repayment of $20 million of debt owed by Circon
Corporation to Maxxim Holdings. Circon Holdings is a newly formed Texas
corporation owned by the current shareholders of Maxxim Holdings;
- the contribution of all of Maxxim Holdings' assets and liabilities, other
than those relating to its credit facility prior to the recapitalization,
to Maxxim Group; and
- the merger of Fox Paine Medic Acquisition Corporation with and into
Maxxim Holdings with Maxxim Holdings being the surviving corporation. In
connection with the merger:
- new investors purchased shares of Fox Paine Medic common stock for
$131.8 million in cash prior to the merger, with such shares of Fox
Paine Medic common stock being converted in the merger into shares of
Maxxim Holdings common stock;
- each outstanding share of Maxxim Holdings common stock, other than a
portion of the shares held by 10 existing Maxxim Holdings shareholders
who were employees or directors of Maxxim Holdings, were converted
into the right to receive the merger consideration of $26.00 per share
in cash;
- options to purchase shares of Maxxim Holdings common stock, other than
certain options held by the continuing Maxxim Holdings shareholders,
were canceled in return for a cash payment for each share of Maxxim
Holdings common stock subject to such options equal to the excess of
$26.00 over the exercise price of such options; and
- certain options held by the continuing Maxxim Holdings shareholders
were canceled without payment and replaced with options to purchase
common stock of Circon Holdings.
These transactions required total funding of approximately $799.6 million.
The financing came from the following sources:
- $110.0 million from the issuance by Maxxim Group of the unregistered
senior subordinated discount notes due 2009, which are the subject of
this exchange offer, and associated warrants to purchase Maxxim Holdings
common stock;
- $261.6 million in borrowings by Maxxim Group under new senior secured
credit facilities;
- $50.0 million from the issuance by Maxxim Holdings of senior unsecured
discount notes and warrants to purchase shares of Maxxim Holdings common
stock;
3
<PAGE> 9
- $131.8 million in cash from the purchase by new investors of shares of
Fox Paine Medic common stock, which were converted in the merger into
shares of Maxxim Holdings common stock;
- $13.8 million of shares of Maxxim Holdings common stock retained by the
continuing Maxxim Holdings shareholders following the merger;
- $4.4 million in cash from the sale of additional shares of Maxxim
Holdings common stock to the continuing Maxxim Holdings shareholders who
were part of Maxxim Holdings senior management; and
- $228.0 million in cash from the sale of Circon Corporation to Circon
Holdings and the repayment of debt owed by Circon Corporation to Maxxim
Holdings.
In connection with the recapitalization, the following debt of Maxxim Holdings
was repaid:
- all amounts outstanding under Maxxim Holdings' previous credit facility;
and
- approximately $100.0 million principal amount of outstanding 10 1/2%
senior subordinated notes due 2006.
The transactions involved in the recapitalization were completed on
November 12, 1999. As a result of the recapitalization, Maxxim Holdings and
Circon Holdings are owned approximately 87.8% and 90.7%, respectively, by the
new investors and approximately 12.2% and 9.3%, respectively, by the continuing
Maxxim Holdings shareholders, before giving effect to the exercise of any stock
options or warrants. Assuming the exercise of stock options that were
rolled-over into new stock options and stock options issued under new stock
option incentive programs, the continuing Maxxim Holdings shareholders will own
approximately 26.0% of the outstanding common stock of Maxxim Holdings and
Circon Holdings on a fully-diluted basis. See "The Recapitalization."
We are located at 10300 49th Street North, Clearwater, Florida 33762. Our
telephone number is (727) 561-2100.
4
<PAGE> 10
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On November 12, 1999, we completed a private offering of unregistered
senior subordinated discount notes due 2009. At that time, we entered into an
exchange and registration rights agreement with the purchasers of those notes in
which we agreed to offer to exchange the old notes for registered exchange
notes. We are delivering this prospectus to you as part of that exchange offer.
We agreed to complete the exchange offer within 180 days after the date of
original issuance of the old notes. You are entitled to exchange in the exchange
offer your old notes for exchange notes.
The exchange notes are identical in all material respects to the old notes
except:
- the exchange notes have been registered under the Securities Act; and
- the exchange notes will not bear legends restricting their transfer.
The Exchange Offer........... We are offering to exchange up to $144,552,000
aggregate principal amount at maturity of old
notes for up to $144,552,000 aggregate principal
amount at maturity of exchange notes. You may
exchange old notes only in integral multiples of
$1,000.
Resale....................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the exchange
notes issued pursuant to the exchange offer in
exchange for old notes may be offered for
resale, resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you have not engaged in, do not intend to
engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of the exchange notes; and
- you are not an "affiliate" of us within the
meaning of Rule 405 under the Securities Act.
Each participating broker-dealer that receives
exchange notes for its own account under the
exchange offer in exchange for old notes that
were acquired as a result of market-making or
other trading activity must acknowledge that it
will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of
Distribution."
Any holder of old notes who:
- is our affiliate;
5
<PAGE> 11
- does not acquire exchange notes in the
ordinary course of its business; or
- tenders in the exchange offer with the
intention to participate, or for the purpose
of participating, in a distribution of
exchange notes
cannot rely on the position of the staff of the
SEC stated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the absence
of an exemption, must comply with the
registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the exchange notes.
Expiration of the
Exchange Offer;
Withdrawal of Tender....... The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000 or a later date
and time to which we extend it. We do not
currently intend to extend the expiration of the
exchange offer. You may withdraw your tender of
old notes pursuant to the exchange offer at any
time before expiration of the exchange offer.
Any old notes not accepted for exchange for any
reason will be returned without expense to you
promptly after the expiration or termination of
the exchange offer.
Conditions to the
Exchange Offer............. The exchange offer is subject to customary
conditions, which we may waive. Please read the
section under the caption "The Exchange
Offer -- Conditions" of this prospectus for more
information regarding the conditions to the
exchange offer.
Procedures for Tendering
Outstanding Notes.......... If you wish to participate in the exchange
offer, you must:
- complete, sign and date the accompanying
letter of transmittal, or a copy of the letter
of transmittal, according to the instructions
contained in this prospectus and the letter of
transmittal; and
- mail or otherwise deliver the letter of
transmittal, or a copy of the letter of
transmittal, together with your old notes and
any other required documents, to the exchange
agent at the address set forth on the cover
page of the letter of transmittal.
6
<PAGE> 12
By signing the letter of transmittal, you will
represent to us that, among other things:
- you acquired your old notes in the ordinary
course of your business;
- you have no arrangement or understanding with
any person or entity to participate in a
distribution of the exchange notes;
- if you are a broker-dealer that will receive
exchange notes for your own account in
exchange for old notes that were acquired as a
result of market-making activities, that you
will deliver a prospectus, as required by law,
in connection with any resale of those
exchange notes; and
- you are not an "affiliate," as defined in Rule
405 of the Securities Act, of us or, if you
are an affiliate, that you will comply with
any applicable registration and prospectus
delivery requirements of the Securities Act.
Special Procedures for
Beneficial Owners.......... If you are a beneficial owner of old notes that
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
and you want to tender old notes in the exchange
offer, you should contact the registered holder
promptly and instruct the registered holder to
tender on your behalf. If you wish to tender on
your own behalf, you must, before completing and
executing the letter of transmittal and
delivering your old notes, either make
appropriate arrangements to register ownership
of the old notes in your name or obtain a
properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not
be able to be completed before expiration of the
exchange offer.
Guaranteed Delivery
Procedures................. If you wish to tender your old notes and your
old notes are not immediately available or you
cannot deliver your old notes, the letter of
transmittal or any other documents required by
the letter of transmittal before expiration of
the exchange offer, you must tender your old
notes according to the guaranteed delivery
procedures set forth under the caption "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Effect on Holders of
Outstanding Notes.......... By making the exchange offer and by accepting
for exchange all validly tendered old notes
under the
7
<PAGE> 13
exchange offer, we will have fulfilled a
covenant contained in the registration rights
agreement to offer to exchange the old notes for
registered exchange notes. If you are a holder
of old notes and you do not tender your old
notes in the exchange offer, you will continue
to hold your old notes and will be entitled to
all the rights and subject to all the
limitations applicable to the old notes in the
indenture, except for any rights under the
registration rights agreement that terminate
upon the completion of the exchange offer. Any
trading market for old notes could be adversely
affected if some but not all of the old notes
are tendered and accepted in the exchange offer.
Consequences of Failure
to Exchange................ All untendered old notes will remain subject to
the restrictions on transfer provided for in the
old notes and in the indenture. In general, the
old notes may not be offered or sold, unless
they are first registered under the Securities
Act or offered and sold pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Other than in connection with the exchange
offer, we do not currently anticipate that we
will register the old notes under the Securities
Act.
Federal Income Tax
Considerations............. The exchange of old notes for exchange notes in
the exchange offer will not be a taxable event
for U.S. federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations" for a more detailed description
of the tax consequences of the exchange.
Use of Proceeds.............. We will not receive any cash proceeds from the
issuance of exchange notes pursuant to the
exchange offer.
Exchange Agent............... The Bank of New York is the exchange agent for
the exchange offer. The address and telephone
number of the exchange agent are set forth under
the caption "The Exchange Offer - Exchange
Agent" of this prospectus.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer....................... Maxxim Medical Group, Inc.
Securities Offered........... $144,552,000 aggregate principal amount at
maturity of senior subordinated discount notes
due 2009 ($110,004,072 aggregate initial
accreted value).
Maturity..................... November 15, 2009.
8
<PAGE> 14
Interest Payment Dates....... May 15 and November 15 of each year, commencing
on May 15, 2000.
Yield and Interest........... (i) 11% cash interest on the initial accreted
value ($761.00) of each note with a
principal amount at maturity of $1,000,
equal to $41.86, paid semi-annually May 15
and November 15 of each year, commencing on
May 15, 2000; and
(ii) 1.375% semi-annual accreted interest on the
accreted value, accreting on May 15 and
November 15 of each year, commencing on May
15, 2000.
Original Issue Discount...... Maxxim Group issued the old notes with original
issue discount for U.S. federal income tax
purposes. The exchange notes will bear the same
amount of original issue discount as the old
notes, and the holders of the exchange notes
will be required to include such original issue
discount in gross income for U.S. federal income
tax purposes on a constant yield to maturity
basis, in advance of the receipt of the cash
payments to which such income is attributable.
Optional Redemption.......... On or after November 15, 2004, Maxxim Group may
redeem some or all of the exchange notes at the
redemption prices, expressed as a percentage of
accreted value, listed under the caption
"Description of the Exchange Notes -- Optional
Redemption," together with accrued and unpaid
interest to the date of redemption. Prior to
such date, Maxxim Group may not redeem the
exchange notes, except as described in the
following sentence. At any time prior to
November 15, 2002, Maxxim Group may redeem
exchange notes and old notes representing up to
35% of the original aggregate principal amount
at maturity of the old notes, together with
accrued and unpaid interest to the date of
redemption, with the net cash proceeds of
certain equity offerings at a redemption price
equal to 113 3/4% of the accreted value of the
notes, plus accrued and unpaid interest, so long
as:
- at least 65% of the original aggregate
principal amount at maturity of the old notes
remains outstanding after each such
redemption; and
- any such redemption is made within 90 days of
the consummation of such equity offering.
See "Description of the Exchange
Notes -- Optional Redemption."
9
<PAGE> 15
Change of Control............ If Maxxim Group or Maxxim Holdings experiences a
change of control, you will have the right to
require Maxxim Group to purchase all or a
portion of your exchange notes at a purchase
price in cash equal to 101% of the accreted
value of the exchange notes, plus accrued and
unpaid interest to the date of purchase.
However, Maxxim Group will not be obligated to
purchase exchange notes pursuant to a change of
control offer in the event that it has exercised
its right to redeem all the exchange notes, as
described under "-- Optional Redemption." See
"Description of the Exchange Notes -- Change of
Control."
Guarantees................... The exchange notes are guaranteed on an
unsecured senior subordinated basis by:
- Maxxim Holdings;
- each of Maxxim Group's U.S. subsidiaries;
- each of Maxxim Group's future U.S.
subsidiaries; and
- each of Maxxim Group's present or future
non-U.S. subsidiaries that guarantees any debt
of Maxxim Group, other than the outstanding
$5,000 of 10 1/2% senior subordinated notes
due 2006, or any debt of any U.S. subsidiary
of Maxxim Group.
In certain circumstances, a subsidiary guarantor
may be released from its guarantee. See
"Description of the Exchange
Notes -- Guarantees."
On a pro forma basis, giving effect to the
recapitalization, as of and for the fiscal year
ended October 31, 1999, Maxxim Group's
subsidiaries that will not initially guarantee
the exchange notes had total liabilities,
excluding intercompany liabilities, of $9.8
million and no outstanding preferred stock and
total assets of the non-guarantor subsidiaries
accounted for 18.4% of our assets. For the
fiscal year ended October 31, 1999, the non-
guarantor subsidiaries generated 12.5% of our
total net sales.
Ranking...................... The exchange notes:
- will be unsecured;
- will be subordinated to all of Maxxim Group's
existing and future senior debt;
- will rank equally with all of Maxxim Group's
existing and future senior subordinated debt;
- will rank senior to all of Maxxim Group's
existing and future subordinated debt;
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<PAGE> 16
- will be effectively subordinated to Maxxim
Group's and its subsidiaries' secured debt to
the extent of the value of the assets securing
such indebtedness; and
- will be effectively subordinated to all
liabilities, including trade payables, and
preferred stock of each existing and future
non-guarantor subsidiary.
Similarly, the guarantee of each guarantor:
- will be unsecured;
- will be subordinated to all of such
guarantor's existing and future senior debt;
- will rank equally with all of such guarantor's
existing and future senior subordinated debt;
- will rank senior to all of such guarantor's
future subordinated debt;
- will be effectively subordinated to any
secured debt of such guarantor and its
subsidiaries to the extent of the value of the
assets securing such debt; and
- will be effectively subordinated to all
liabilities, including trade payables, and
preferred stock of each subsidiary of such
guarantor that is a non-guarantor subsidiary.
On a pro forma basis; giving effect to the
recapitalization, as of October 31, 1999:
- Maxxim Group had $261.6 million of senior
debt, excluding unused commitments available
under the new credit facilities, all of which
would have been secured;
- the guarantors had $7.7 million of senior
debt, excluding guarantees of the new credit
facilities, $6.9 million of which was secured;
- Maxxim Group did not have any senior
subordinated debt other than the exchange
notes and $5,000 of 10 1/2% senior
subordinated notes due 2006, and each
guarantor had no senior subordinated debt
other than its guarantees of the exchange
notes and the $5,000 of 10 1/2% senior
subordinated notes due 2006; and
- Maxxim Group and the guarantors had no
subordinated debt.
Restrictive Covenants........ Maxxim Group will issue the exchange notes under
an indenture with The Bank of New York, as the
trustee.
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<PAGE> 17
The indenture will, among other things, restrict
the ability of Maxxim Group and its subsidiaries
to:
- incur additional debt, including in the form
of guarantees;
- pay dividends, make distributions, redeem
equity interests or redeem subordinated debt;
- make certain types of investments;
- sell or issue capital stock of subsidiaries;
- enter into agreements restricting
distributions from subsidiaries;
- sell certain assets or merge or consolidate
with or into other companies; and
- enter into certain transactions with
affiliates.
These covenants will be subject to a number of
important exceptions. For more details, see
"Description of the Exchange
Notes -- Restrictive Covenants."
Absence of Established
Market for the Notes....... The exchange notes are a new issue of securities
and there is no established trading market for
the exchange notes. We do not intend to apply
for the exchange notes to be listed on any
securities exchange or to arrange for quotation
on any automated dealer quotation system. We
cannot assure you that a liquid market will
develop for the exchange notes.
12
<PAGE> 18
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents summary historical consolidated financial
information of Maxxim Holdings and summary unaudited pro forma consolidated
financial information of Maxxim Group. Maxxim Group had no operations or assets
prior to the recapitalization of Maxxim Holdings. As part of the
recapitalization, Maxxim Holdings contributed all of its assets and liabilities,
other than those relating to its credit facility prior to the recapitalization,
to Maxxim Group. Maxxim Holdings has guaranteed the old notes and the new credit
facilities and currently has no substantial operations or assets other than the
capital stock of Maxxim Group.
You should consider the following when reading the summary historical
consolidated financial information:
- The summary historical consolidated financial information set forth below
as of the end of and for fiscal years 1995 and 1996 is derived from
Maxxim Holdings' audited consolidated financial statements and the notes
thereto, which are not included in this prospectus.
- The summary historical consolidated financial information of Maxxim
Holdings set forth below as of the end of and for fiscal years 1997, 1998
and 1999 is derived from Maxxim Holdings' consolidated financial
statements and the notes thereto, which are included elsewhere in this
prospectus.
- The summary historical consolidated financial information of Maxxim
Holdings set forth below for fiscal year 1999 excludes the results of
Circon for the period from the date of its acquisition on January 6,
1999, through the end of fiscal year 1999, as Circon has been included in
discontinued operations for fiscal year 1999. Circon was sold as part of
the recapitalization.
- The fiscal year of Maxxim Holdings ends on the Sunday following the last
Thursday in October.
- The summary unaudited pro forma consolidated financial information of
Maxxim Group set forth below as of and for the fiscal year ended October
31, 1999 is derived from Maxxim Holdings' audited consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
- The unaudited pro forma consolidated statement of operations information
for the fiscal year ended October 31, 1999 gives effect to the
recapitalization as if it had occurred on November 2, 1998.
- The unaudited pro forma consolidated balance sheet information at October
31, 1999 gives effect to the recapitalization as if it had occurred on
that date.
- The summary unaudited pro forma consolidated financial information is for
informational purposes only and does not:
-- purport to represent what the financial position or results of
operations of Maxxim Group would actually have been had the
recapitalization in fact occurred on such dates or to project the
financial position or results of operations of Maxxim Group for any
future period or date;
-- reflect the effect of certain non-recurring statement of operations
charges resulting from the recapitalization; or
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<PAGE> 19
-- reflect certain insignificant acquisitions or divestitures.
The information set forth below is qualified in its entirety by and should
be read in conjunction with:
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations;"
- "Selected Historical Consolidated Financial Information of Maxxim
Holdings;"
- "Unaudited Pro Forma Financial Information of Maxxim Group;"
- the consolidated financial statements of Maxxim Holdings, together with
the notes thereto; and
- the other financial information included elsewhere in this prospectus.
14
<PAGE> 20
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MAXXIM HOLDINGS MAXXIM GROUP
-------------------------------------------------------------------- PRO FORMA
FISCAL YEAR ENDED FISCAL YEAR
-------------------------------------------------------------------- ENDED
OCTOBER 29, NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, OCTOBER 31, OCTOBER 31,
1995 1996 1997 1998 1999 1999
----------- ----------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $265,726 $399,836 $529,552 $522,516 $508,654 $508,654
Cost of sales....................... 186,495 294,164 397,691 381,638 366,778 366,778
-------- -------- -------- -------- -------- --------
Gross profit........................ 79,231 105,672 131,861 140,878 141,876 141,876
Selling, general, and administrative
expenses........................... 60,329 77,980 90,101 94,410 93,694 92,416
Restructure charges and transition
expenses(1)........................ 10,845 -- -- -- 4,637 4,637
-------- -------- -------- -------- -------- --------
Income from operations.............. 8,057 27,692 41,760 46,468 43,545 44,823
Interest expense, net............... 4,088 13,143 22,145 13,420 27,789 42,084
Other income (expense), net......... 1,014 583 2,751 1,042 (555) (555)
-------- -------- -------- -------- -------- --------
Income from continuing operations
before income taxes................ 4,983 15,132 22,366 34,090 15,201 2,184
Income taxes........................ 2,054 6,422 9,485 14,454 7,175 2,098
-------- -------- -------- -------- -------- --------
Income from continuing operations... $ 2,929 $ 8,710 $ 12,881 $ 19,636 $ 8,026 $ 86
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital..................... $ 73,286 $122,086 $ 99,815 $108,918 $348,315 $144,330
Total assets........................ 264,490 465,347 424,046 468,051 711,593 520,934
Total debt.......................... 108,158 267,926 221,085 121,683 361,749 376,263
Total shareholders' equity.......... 116,351 123,556 137,928 272,909 285,117 79,944
OTHER FINANCIAL DATA:
EBITDA(2)........................... $ 29,233 $ 43,268 $ 61,647 $ 66,514 $ 70,899 $ 72,177
EBITDA margin(3).................... 11.0% 10.8% 11.6% 12.7% 13.9% 14.2%
Depreciation and amortization....... $ 9,073 $ 14,682 $ 16,665 $ 18,379 $ 22,526 $ 22,526
Cash interest expense(4)............ 3,928 12,857 21,315 12,399 26,641 36,110
Capital expenditures(5)............. 9,274 10,625 6,829 23,441 25,757 25,757
Expenditures for acquisitions,
net(6)............................. 85,705 112,676 -- 47,363 245,432 (1,635)
Ratio of earnings to fixed
charges(7)......................... 2.2x 2.1x 2.0x 3.3x 1.5x 1.1x
</TABLE>
See Notes to Summary Historical and Unaudited Pro Forma Financial Information.
15
<PAGE> 21
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(1) Non-recurring charges of $10,845 incurred in fiscal year 1995 include
$1,300 for restructuring expenses, $2,200 for facility consolidation
expenses and $7,345 for non-cash asset write-downs. Restructure charges
and transition expenses of $4,637 incurred in fiscal year 1999 include
$2,016 transition expenses for sales force restructuring, comprised
primarily of severance costs and training expenses, and $2,621
restructure charges associated with the closing of one of our glove
plants, comprised primarily of severance costs and benefits. Our
restructuring charges and transition expenses for the pro forma year
ended October 31, 1999 are consistent with the charges noted in fiscal
1999.
(2) EBITDA for any relevant period presented above is defined as income
from continuing operations plus income taxes, interest expense, net,
depreciation and amortization, non-cash stock compensation expense and
nonrecurring charges and transition expenses. EBITDA is not a measure
recognized by generally accepted accounting principles and should not
be considered in isolation or as a substitute for operating income, as
an indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally
accepted accounting principles. EBITDA is presented because management
believes it is a widely accepted financial indicator of a company's
ability to incur and service debt and certain covenants in the
indenture governing the exchange notes and in Maxxim Group's new senior
secured credit facilities will be tied to similar measures.
Non-cash stock compensation expense for Maxxim Holdings was $244, $311,
$471, $625 and $746 for fiscal years 1995, 1996, 1997, 1998 and 1999,
respectively.
Non-cash stock compensation expense for Maxxim Group was $746 for the
pro forma fiscal year ended October 31, 1999.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Cash interest expense is defined as interest expense less amortization
of debt financing costs. Amortization of debt financing costs for
Maxxim Holdings was $160, $286, $830, $1,021 and $1,148 for fiscal
years 1995, 1996, 1997, 1998 and 1999, respectively. Amortization of
debt financing costs, accretion of the discount on the issuance of the
$144,552 aggregate principal amount at maturity of senior subordinated
discount notes due 2009 and accretion of the value of the warrants to
purchase Maxxim Holdings common stock issued with the notes was $2,698,
$3,046 and $230, respectively, for Maxxim Group for the pro forma
fiscal year ended October 31, 1999.
(5) Capital expenditures exclude expenditures for acquisitions, net of
divestitures.
(6) Expenditures for acquisitions, net of divestitures, for Maxxim Holdings
consist of:
- for fiscal year 1995, acquisitions of $85,705 consist of the purchase
of:
-- Medica B.V., our current European operations, for $11,000;
-- Bovie product group for $2,600;
16
<PAGE> 22
-- property and equipment, inventory and other assets relating to
non-sterile products for $1,500; and
-- glove operations for $70,605.
- for fiscal year 1996, net acquisitions of $112,676 consist of:
-- the purchase of Sterile Concepts, Inc. for $118,676; and
-- the sale of Henley Healthcare physical therapy division for
$6,000.
- for fiscal year 1998, acquisitions of $47,363 consist of the purchase
of:
-- Winfield Medical for $31,267; and
-- glove plant assets and assumption of related liabilities for
$16,096.
- for fiscal year 1999, net acquisitions of $245,432 consist of:
-- the purchase of Circon for $247,067; and
-- the sale of non-sterile products for $1,635.
Proceeds from divestitures for Maxxim Group for the pro forma fiscal year
ended October 31, 1999 were 1,635 from the sale of non-sterile products.
There were no acquisitions or divestitures for Maxxim Holdings in fiscal
year 1997.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges by fixed charges. For purposes of computing
the ratio of earnings to fixed charges, earnings consist of earnings from
continuing operations before extraordinary items, income taxes and fixed
charges. Fixed charges consist of interest expense, amortization of deferred
financing costs and the component of rental expense believed by management to be
representative of the interest component of rental expense.
17
<PAGE> 23
RISK FACTORS
OUR SUBSTANTIAL DEBT INCREASES THE RISK THAT WE WILL NOT BE ABLE TO SATISFY OUR
OBLIGATIONS UNDER THE EXCHANGE NOTES.
We have a significant amount of debt, which may impair our ability to pay
the interest and principal due under the exchange notes. Upon completion of the
recapitalization on November 12, 1999, Maxxim Group had outstanding $376.3
million aggregate principal amount of debt and shareholders' equity of $79.9
million. Of the outstanding debt, $261.6 million is senior debt and the
remainder ranks equally with the debt under the exchange notes and old notes.
Upon completion of the recapitalization on November 12, 1999, Maxxim Holdings
had $50.0 million outstanding under the Maxxim Holdings notes in addition to its
guarantees of the old notes and the debt outstanding under Maxxim Group's new
senior credit facilities. The amount due under the Maxxim Holdings notes is also
senior debt.
We and our subsidiaries may incur substantial additional debt in the
future. At November 12, 1999, Maxxim Group had approximately $48.4 of unused
commitments under its new revolving senior credit facility. The indenture does
not prohibit us or our subsidiaries from incurring additional debt, although
there are restrictions on the amounts that can be incurred for various purposes
and generally, which we describe under "Description of the Exchange
Notes -- Restrictive Covenants."
The following table sets forth the aggregate amounts of principal and
interest due on Maxxim Group's obligations during each of the next five fiscal
years. We anticipate that we will pay such amounts using funds earned by the
subsidiaries of Maxxim Group, which will be distributed to Maxxim Group. There
are no payments due under Maxxim Holding's obligations during the next five
fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR PRINCIPAL AND INTEREST PAYMENTS DUE
- ----------- -----------------------------------
(UNAUDITED)
<S> <C>
2000 $30,077,000
2001 45,410,000
2002 47,152,000
2003 47,071,000
2004 48,829,000
</TABLE>
See "Description of New Credit Facilities and Other Indebtedness" for a
description of the new credit facilities and the Maxxim Holdings notes.
IF OUR SUBSIDIARIES ARE UNABLE TO DISTRIBUTE CASH TO US WHEN NEEDED, WE MAY BE
UNABLE TO SATISFY OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
We conduct all of our operations through subsidiaries of Maxxim Group. As a
result, we depend upon dividends or other intercompany transfers of funds from
our subsidiaries for the funds necessary to meet our debt service obligations,
including required payments on the exchange notes and old notes. We only receive
the cash that remains after our subsidiaries satisfy their obligations. If they
are unable to pass on the amount of cash that we need, we will be unable to make
payments to you.
The indenture governing the exchange notes will limit restrictions on the
ability of our subsidiaries to pay dividends or make other distributions, but
these limitations are subject
18
<PAGE> 24
to a number of significant qualifications and exceptions. In addition,
applicable laws and regulations, as well as agreements our subsidiaries enter
with other parties, may restrict the ability of our subsidiaries to pay
dividends or make other distributions.
The claims of creditors of a subsidiary are generally superior in right of
payment to the claims of creditors of the subsidiary's parent company, unless
the claims of the creditors of the parent company are guaranteed by the
subsidiary. Consequently, the exchange notes will be effectively subordinate in
right of payment to the claims of creditors of our subsidiaries that do not
guarantee the exchange notes.
WE MAY HAVE INSUFFICIENT ASSETS TO REPAY ALL AMOUNTS DUE UNDER THE EXCHANGE
NOTES OR TO SATISFY THE GUARANTEES AFTER REPAYING AMOUNTS DUE ON DEBT THAT RANKS
SENIOR TO THE EXCHANGE NOTES AND THE GUARANTEES.
The right to payment on the exchange notes will be subordinate to the
rights of the holders of all of our existing and future senior debt. Similarly,
the guarantees of the exchange notes provided by Maxxim Holdings and each of our
guarantor subsidiaries will be subordinate to all existing and future senior
debt of the applicable guarantor. In the event of a bankruptcy or similar
proceeding with respect to us or any guarantor of the exchange notes, our or the
guarantor's assets will be available to pay obligations on the exchange notes or
the applicable guarantee only after all outstanding senior debt has been paid in
full. As a result, there may not be sufficient assets remaining to make payment
of amounts due on any or all of the exchange notes then outstanding or the
guarantees.
In addition, all payments on the exchange notes and the guarantees of the
exchange notes will be blocked in the event of a payment default on the
designated senior indebtedness described in the indenture governing the exchange
notes and may be blocked for up to 179 days out of 360 days in the event of a
nonpayment default on this designated senior indebtedness.
As of the completion of the recapitalization on November 12, 1999:
- Maxxim Group had $261.6 million of senior debt outstanding;
- Maxxim Holdings had $50.0 million of senior debt outstanding under the
Maxxim Holdings notes in addition to its guarantee of Maxxim Group's
borrowings under its senior credit facility; and
- the guarantor subsidiaries had $7.7 million of senior debt outstanding,
in addition to their guarantees of borrowings under Maxxim Group's senior
credit facility.
BECAUSE THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES WILL BE
UNSECURED, ASSETS SECURING OTHER OF OUR DEBT WILL BE USED TO MAKE PAYMENTS ON
THAT SECURED DEBT BEFORE PAYMENTS ARE MADE ON THE EXCHANGE NOTES.
The exchange notes and the guarantees of the exchange notes will not be
secured by any collateral. Thus, the exchange notes will effectively rank junior
in right of payment to our secured debt, and the guarantees of exchange notes
will effectively rank junior in right of payment to each guarantor's secured
debt to the extent of the value of the assets securing that debt. It is possible
that there would be insufficient assets remaining after repayment in full of all
amounts outstanding under our secured senior credit facility to satisfy in full
all claims of holders of exchange notes.
19
<PAGE> 25
Our senior credit facility is secured by pledges of all of our capital
stock and substantially all of the capital stock of all of our subsidiaries and
liens on substantially all of our assets and the assets of our subsidiaries. If
an event of default occurs under our senior credit facility:
- the lenders can foreclose on the collateral securing the amounts
outstanding under our senior credit facility, regardless of any default
with respect to the exchange notes; and
- the assets constituting the collateral would first be used to repay in
full all amounts outstanding under our senior credit facility.
YOUR ABILITY TO COLLECT FROM OUR GUARANTOR SUBSIDIARIES MAY BE LIMITED UNDER
CERTAIN CIRCUMSTANCES.
Although the guarantees of our subsidiaries provide you with a direct claim
against their assets, creditors of those guarantors may challenge enforcement of
such guarantees in a bankruptcy or reorganization proceeding. Your claims may
also be subject to certain defenses available to guarantors generally. To the
extent that the guarantees are not enforceable, the exchange notes will be
effectively subordinated to all liabilities, including trade payables, of the
guarantors.
OUR SUBSTANTIAL DEBT AND RESTRICTIVE COVENANTS IN OUR CREDIT AGREEMENTS AND DEBT
INSTRUMENTS MAY LIMIT OUR FINANCIAL AND OPERATING FLEXIBILITY AND ADVERSELY
AFFECT OUR ABILITY TO COMPETE, WHICH MAY MAKE IT MORE DIFFICULT FOR US TO MEET
OUR OBLIGATIONS TO YOU IN THE FUTURE.
Our substantial debt will require us to dedicate a substantial portion of
our cash flow from operations to make payments on our debt. This could
negatively affect our future operating performance by reducing the amount of
cash flow available for other purposes, including:
- funding future working capital;
- funding capital expenditures, including acquisitions;
- funding research and development; and
- funding other operating needs.
This reduction in cash flow may restrict our financial and operating
flexibility. Further, our borrowings under the new credit facilities, are, and
will continue to be, at variable rates of interest, and increases in interest
rates will require a greater portion of our cash flow to be used to make
interest payments.
Additionally, the credit agreement relating to our new senior credit
facility and the indenture restrict our financial and operating flexibility in
various ways and could impair our ability to compete or to achieve our strategic
objectives. If we do not comply with these restrictions, or if we fail to
satisfy the financial ratios and tests under our senior credit facility, the
lenders could accelerate payment of all amounts due them and holders of the
exchange notes may accelerate payments due them. See "Description of New Credit
Facilities and Other Indebtedness" and "Description of the Exchange Notes."
20
<PAGE> 26
The reduction in cash flows and the limitations in our credit agreements
and debt instruments may:
- limit our flexibility in planning for, or reacting to, changes in our
business and in economic conditions;
- limit our ability to borrow additional funds; and
- place us at a competitive disadvantage, because we may have more debt and
less flexibility than certain of our competitors.
If we are unable to generate sufficient cash flow from our operating
activities to make payments on our debt, we may be forced to take certain
actions that we would not otherwise undertake, including:
- delaying or reducing capital expenditures;
- selling assets or operations; and
- attempting to restructure or refinance our debt.
We may, however, be unable to take any of these actions on satisfactory
terms or in a timely manner. Moreover, taking any or all of these actions may
not allow us to service our debt or fund our other requirements in the future.
IF THERE IS A CHANGE OF CONTROL, WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS
TO YOU.
If a "change of control," as defined in the indenture governing the
exchange notes, occurs, each holder of the exchange notes will have the right to
require us to repurchase the holder's exchange notes at a price equal to 101% of
the principal amount of the exchange notes, together with accrued and unpaid
interest, if any, to the date of repurchase. However:
- our senior credit facility will effectively prevent the repurchase of the
exchange notes by us in the event of a change of control, unless all
amounts outstanding under our senior credit facility are repaid in full;
- our failure to repurchase the exchange notes would be a default under the
indenture governing the exchange notes, which would be a default under
our senior credit facility; and
- our failure to repay all amounts outstanding under our senior credit
facility upon a default would be a default under the indenture governing
the exchange notes.
21
<PAGE> 27
IF A BANKRUPTCY CASE IS COMMENCED BEFORE THE EXCHANGE NOTES HAVE FULLY ACCRETED,
YOU MAY NOT BE ABLE TO RECOVER THE PORTION OF THE ORIGINAL ISSUE DISCOUNT THAT
HAS NOT YET ACCRUED.
If a bankruptcy case is commenced by or against us under the U.S.
Bankruptcy Code after the issuance of the exchange notes, the claim of a holder
of exchange notes relating to the principal amount thereof may be limited to an
amount equal to the sum of:
- the initial offering price of the old notes and
- that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any original issue discount that was not accrued as of any such bankruptcy
filing would constitute "unmatured interest."
YOU MAY NOT BE ABLE TO READILY SELL YOUR EXCHANGE NOTES SINCE THERE IS NO
ESTABLISHED TRADING MARKET FOR THE EXCHANGE NOTES AND ANY MARKET THAT DOES
DEVELOP MAY BE ILLIQUID.
We cannot assure you that a liquid market will develop for the exchange
notes, that you will be able to sell your exchange notes at a particular time or
that the prices that you receive when you sell will be favorable. The exchange
notes are a new issue of securities with no established trading market.
Moreover, we do not intend to apply for the exchange notes to be listed on any
securities exchange or to arrange for quotation on any automated dealer
quotation system, and the purchasers of the old notes are not obligated to make
a market for the exchange notes. Holders of exchange notes generally may resell
or otherwise transfer them with no need for further registration.
Future trading prices of the exchange notes will depend on many factors,
including:
- our operating performance and financial condition;
- prevailing interest rates; and
- the market for similar securities.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES, THEY MAY BE DIFFICULT TO RESELL.
If you do not tender your old notes or if we do not accept some of your old
notes, those old notes will continue to be subject to transfer and exchange
restrictions. Accordingly, you may have difficulty selling old notes that are
not exchanged in the exchange offer.
The restrictions on transfer of the old notes arise because we issued the
old notes under an exemption from the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the old notes if they are registered under the Securities Act and
applicable state securities laws, or offered and sold under an exemption from
the Securities Act and applicable state securities laws. If you intend to make
use of an exemption, you must, if requested by us, deliver to us an opinion of
independent counsel, reasonably satisfactory in form and substance to us, that
the exemption is available. We do not intend to register the old notes for sale
under the Securities Act.
22
<PAGE> 28
Based on interpretations of the SEC staff, holders of exchange notes issued
in the exchange offer may offer for resale, resell or otherwise transfer them,
other than holders that are our "affiliates" within the meaning of Rule 405
under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, if the holders acquired
the exchange notes in the ordinary course of the holders' business and the
holders have no arrangement or understanding with respect to the distribution of
the exchange notes to be acquired in the exchange offer. Any holder who tenders
in the exchange offer for the purpose of participating in a distribution of the
exchange notes:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
To the extent that a significant portion of the old notes are tendered and
accepted in the exchange offer, the trading market, if any, for the remaining
old notes would be adversely affected due to a reduction in market liquidity.
IF YOU ARE DEEMED TO HAVE RECEIVED RESTRICTED SECURITIES IN EXCHANGE FOR YOUR
OLD NOTES, YOU COULD FACE SIGNIFICANT TRANSFER RESTRICTIONS IF YOU ATTEMPT TO
RESELL THEM.
Each broker-dealer that receives exchange notes and each holder of old
notes who:
- acquires the exchange notes other than in the ordinary course of its
business;
- is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act; or
- is engaged in, or intends to engage in, a distribution of the exchange
notes,
may receive exchange notes that are "restricted securities" under federal
securities laws. If you receive exchange notes that are restricted securities,
you will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the exchange
notes. See "The Exchange Offer -- Resale of Exchange Notes."
IF WE LOSE OUR ABILITY TO EFFECTIVELY COMPETE OR ARE UNABLE TO KEEP PACE WITH
THE TECHNOLOGICAL CHANGES AFFECTING OUR BUSINESS, OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION WILL SUFFER.
We believe that the barriers to entry in the custom procedure tray business
are fairly low and it would be reasonably easy for medical products companies
currently not in the custom procedure tray business or others to enter the
business. Many manufacturers currently package specialty medical products that
may not technically be "custom procedure trays," but effectively compete with
our custom procedure trays or could be packaged with other products so as to
directly compete with our custom procedure trays. In addition, our end-use
customers could revert to the in-house preparation of a tray containing the same
components that are found in a custom procedure tray. Also, numerous companies
suppling medical procedure trays to niche markets could broaden their product
lines. We cannot assure you that we will be able to continue to compete
23
<PAGE> 29
effectively with our current competitors or any new competitors in the custom
procedure tray portion of our business. See "Business -- Competition -- Custom
Procedure Trays."
Medical glove performance is measured by the degree of tactility and
barrier protection that the glove affords, and, as a result, technology plays a
major role in the development, manufacture and sale of medical gloves. Although
we have patented formulations and manufacturing processes for our most
technologically advanced non-latex gloves, and trade secrets or know-how related
to certain of our other gloves, we cannot assure you that our competitors will
not develop superior gloves or gloves which offer a superior combination of
price and performance. See "Business -- Product Development and Patents; Other
Intellectual Property" and "Business -- Competition -- Medical Gloves."
We pursue a policy of seeking exclusive licenses and/or patent protection
both in the United States and abroad for certain of our technology and/or
manufacturing processes. While no patent covered product sales that constituted
5% or more of our pro forma net sales for fiscal year 1999, obtaining or
maintaining patents and/or exclusive technology licenses on certain of our new
products or products under development may be critical to the success of such
products. If we fail to obtain or maintain such patents and licenses, we could
suffer an adverse effect in our prospects or future operating results.
We also rely on trade secrets and know-how to maintain our competitive
position and to protect significant portions of our technology and/or
manufacturing processes. It is our practice to enter into confidentiality
agreements with key employees and consultants. We cannot assure you, however,
that these measures will prevent the unauthorized disclosure or use of our trade
secrets and know-how, or that others may not independently develop similar trade
secrets or know-how or obtain access to our trade secrets, know-how or other
technology.
Although we pursue product research and development efforts, we cannot
assure you that technological change will not render one or more of our present
or proposed products obsolete. See "Business -- Product Development and Patents;
Other Intellectual Property."
IF WE ARE UNABLE TO COMPLY WITH THE NUMEROUS AND EVOLVING STATE, FEDERAL AND
FOREIGN REGULATIONS TO WHICH WE ARE SUBJECT, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION WILL SUFFER.
In the United States, most of our products are subject to regulation as
medical devices by the U.S. Food and Drug Administration ("FDA") under the U.S.
Food, Drug and Cosmetic Act and regulations thereunder (collectively, the
"FDCA"). Although we believe we have obtained all necessary clearances from the
FDA for the manufacture and sale of all the products that we currently sell, any
products developed in the future are likely to require FDA approval before they
can be sold in the United States. There is no guarantee that the FDA will
approve or will not challenge the sale of any new products. We anticipate that
all of the products that we are currently developing will qualify for receipt of
FDA marketing approval on an expedited basis. However, if we develop products
that do not qualify, we will be required to obtain FDA approval through a more
complex and time consuming application process. The FDA may not act favorably or
quickly in its review of our applications, or we may encounter significant
difficulties and costs or be required to perform additional testing or collect
additional data in our effort to obtain FDA approval, all of which could delay
or preclude the sale of new products in the United States. In addition, the FDA
may place significant limitations upon the intended use of our
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products as a condition to approval. The FDA can also deny or withdraw
applications due to our failure to comply with regulatory requirements or as a
result of the occurrence of unforeseen problems following approval. If we fail
to obtain FDA approval of new products we develop, we may suffer material
adverse effects in our business, financial condition or results of operations as
a result of any limitations imposed by the FDA on new product use.
In addition, we must comply with rigorous regulatory requirements
applicable to medical devices. If we fail to comply with applicable FDA medical
device regulatory requirements, we could be subject, among other things, to:
- warning letters;
- additional product labeling requirements;
- fines, injunctions or civil penalties;
- repairs, replacements, refunds, recalls or seizures of products;
- total or partial suspension of production;
- the FDA's refusal to grant future expedited approvals;
- withdrawals or suspensions of current product applications; and
- criminal prosecution.
Any of these actions, in combination or alone, could have a material
adverse effect on our business, financial condition or results of operations.
In addition, many of the states in which we do business or in which our
products are sold impose licensing, labeling or certification requirements that
are in addition to those imposed by the FDA. To date, we have not experienced
difficulty in complying with these requirements; however, we cannot assure you
that one or more states will not impose additional regulations or requirements
that have a material adverse effect on our ability to sell our products. See
"Business -- Government Regulation -- Domestic Regulation."
The products we manufacture and sell in Europe are subject to the European
Community regulations for medical devices. The European Community has a
registration process that includes registration of manufacturing facilities and
product certification. In addition, we are subject to regulation by national
governments and supranational agencies as well as by local agencies affecting,
among other things:
<TABLE>
<S> <C>
- product standards; - packaging - tariff regulations; - duties; and
requirements; - labeling - tax requirements.
requirements; - import
restrictions;
</TABLE>
To date, we have not experienced difficulty in complying with these
regulations. We cannot guarantee that we will be successful in obtaining
European certifications for new facilities or products, or that we will be able
to maintain our existing certifications for facilities or products in the
future, and we cannot assure you that one or more countries or agencies will not
impose additional regulations or requirements that could have a material adverse
effect on our ability to sell our products. See "Business -- Government
Regulation -- International Regulation."
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We are also subject to various federal and state laws pertaining to
healthcare fraud and abuse, including anti-kickback laws and physician
self-referral laws. If we violate these laws, we may be subject to criminal
and/or civil sanctions, including, in some instances, imprisonment and exclusion
from participation in U.S. federal and state healthcare programs. We believe
that our operations are in material compliance with such laws; however, because
of the far-reaching nature of these laws, we or certain of our sales
representatives may be required to alter one or more of our or their practices
to be in compliance with these laws. In addition, we cannot assure you that the
occurrence of one or more violations of these laws would not result in a
material adverse effect on our business, financial condition or results of
operations. If there is a change in law, regulation or administrative or
judicial interpretations, we may have to change our business practices, which
could have a material adverse effect on our business, financial condition or
results of operations.
IF WE CANNOT ADEQUATELY RESPOND TO COST CONTAINMENT EFFORTS AND OTHER
SIGNIFICANT TRENDS AFFECTING HEALTHCARE PROVIDERS AND HEALTHCARE BUYING GROUPS,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL SUFFER.
Our future success depends in part upon our ability to enter into
additional arrangements with buying groups comprised of hospitals, surgery
centers and other healthcare providers. If we fail to enter into new contracts
with buying groups in the future or to achieve high sales volumes under our
contracts, we could suffer material adverse effects in our business, financial
condition or results of operations. In recent years, hospitals, surgery centers
and other healthcare providers in both the public and private sectors have begun
to coordinate their purchases of medical products through buying groups in order
to obtain price concessions and control costs, including the prices of products
such as those we sell. A majority of our U.S. hospital and surgery center
customers are members of buying groups. Because these contracts with buying
groups involve price concessions from us, it is important that these contracts
result in high sales volumes from members of the buying groups in order to
offset the negative impact of lower per unit prices at lower margins. Although
buying groups strongly encourage their members to purchase products under these
contracts, compliance by different members of the buying groups may vary.
Accordingly, we cannot assure you that there will be high sales volumes under
these contracts.
Cost containment pressures within the healthcare industry have also
resulted in significant consolidation of healthcare providers. Acquisitions of
our significant customers or buying groups with which we have contracts have
resulted in, and in the future could result in, the loss of such customer or
contract, thereby negatively impacting our business, financial condition or
results of operations. In addition, the consolidation of healthcare providers
often results in renegotiation of terms and in the granting of price
concessions. Many of our customer relationships and buying group contracts are
terminable by the customer with little or no penalty. Many buying groups are
able to leverage their size and purchasing power when negotiating prices. We
have reduced prices as a result of this trend, which reduction could have a
material adverse effect on our business, financial condition or results of
operations. As buying groups increase in size, each relationship represents a
greater concentration of market share and the adverse consequences of losing a
single relationship increase considerably.
We believe that it is likely that efforts by governmental and private
payors to contain costs through managed care and other efforts and to reform
healthcare systems will continue and that such efforts may have an adverse
effect on the pricing and demand for
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our products. We cannot assure you that current or future reform initiatives
will not have a material adverse effect on our business, financial condition or
results of operations. In addition, we expect healthcare reform and managed care
to continue to develop in our primary international markets, which we expect
will result in further downward pressure in product pricing. We cannot predict
the timing and the effects of healthcare reform and the development of managed
care in international markets. See "Business -- Industry" and
"Business -- Sales, Marketing and Distribution."
IF OUR ACQUISITION STRATEGY FAILS TO ACHIEVE THE ANTICIPATED RESULTS, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY SUFFER.
Part of our business strategy is to acquire companies and product groups
that expand or complement our existing product groups, increase vertical
integration or enlarge our customer base. We cannot predict whether or when any
prospective acquisition candidates will become available or the likelihood of
transactions being completed should any negotiations commence. Our ability to
finance acquisitions is constrained by our high degree of leverage following the
recapitalization. The new credit facilities and the indenture significantly
limit our ability to make acquisitions and to incur debt in connection with
acquisitions. In addition:
- our acquisition strategy may not yield anticipated benefits, such as
improvements in gross margin from greater vertical integration of our
custom procedure trays or enlargement of our customer base;
- we may have difficulty integrating the operations, systems and management
of acquired companies;
- our acquisition strategy may divert management's attention from other
business concerns;
- we may be unable to maintain uniform standards, controls, procedures and
policies; and
- we may lose key employees or customers of acquired companies.
IF WE ARE FOUND TO BE LIABLE FOR ANY CLAIMS BROUGHT AGAINST US BY THIRD PARTIES,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY SUFFER.
We are currently, and from time to time, subject to claims and lawsuits
arising in the ordinary course of business, including those relating to product
liability, safety and health and employment matters. In some of such actions,
plaintiffs request punitive or other damages or nonmonetary relief, which may
not be covered by insurance, and which could, in the case of nonmonetary relief,
if granted, materially affect the conduct of our business. Although we maintain
insurance that we believe to be reasonable and appropriate, the amount and scope
of any coverage may be inadequate to protect us in the event of a substantial
adverse judgment. In management's opinion, the various asserted claims and
litigation in which we are currently involved are not reasonably likely to have
a material adverse effect on our business, results of operations or financial
condition. However, we can not assure you as to the ultimate outcome with
respect to such claims and litigation. See "Business -- Legal Proceedings."
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IF WE ARE HELD TO BE IN VIOLATION OF CURRENT OR FUTURE ENVIRONMENTAL, HEALTH AND
SAFETY LAWS AND REGULATIONS, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION MAY SUFFER.
Our facilities and operations are subject to federal, state and local
environmental and occupational health and safety requirements of the United
States and foreign countries, including those relating to discharges of
substances to the air, water and land, the handling, storage and disposal of
wastes and the cleanup of properties affected by pollutants. We believe we are
currently in substantial compliance with such requirements, and we do not
currently anticipate any material adverse effect on our business, financial
condition or results of operations as a result of such environmental, health or
safety requirements. In the future, federal, state, local or foreign governments
could enact new or more stringent requirements concerning environmental, health
and safety matters that could affect our operations. Also, in the future,
contamination may be found to exist at our current or former facilities or
off-site locations where we have sent wastes. We could be held liable for such
newly discovered contamination. Changes in environmental, health and safety
requirements or liabilities from newly discovered contamination could have a
material effect on our business, financial condition or results of operations.
IF WE LOSE OUR KEY PERSONNEL ON WHICH WE DEPEND, OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION MAY SUFFER.
Our success depends to a significant extent upon the efforts and abilities
of our senior management team, including Mr. Davidson, our Chairman of the
Board, President and Chief Executive Officer, and our other executive officers.
We do not carry key man life insurance on any of our executive officers. The
loss of the services of Mr. Davidson or one or more of these senior executives
could adversely affect our ability to effectively manage our overall operations
or successfully execute current or future business strategies, including
identifying and completing acquisitions. Eight members of our senior management
team own approximately 8.2% of the outstanding common equity of Maxxim Holdings,
before giving effect to the exercise of any stock options or warrants. Assuming
the exercise of their stock options, they will own approximately 22.8% of the
outstanding common equity of Maxxim Holdings on a fully-diluted basis. In
addition, each member of senior management entered into a five-year employment
agreement with Maxxim Holdings in November 1999 in connection with the
recapitalization. Nevertheless, we cannot assure you that one or more members of
senior management will not leave our employment. In addition, we believe that
failure to attract and retain additional qualified personnel could adversely
affect our operations and future success. See "Security Ownership of Certain
Beneficial Owners and Management," "Certain Relationships and Related Party
Transactions -- Treatment of Continuing Shares and Options," "Certain
Relationships and Related Party Transactions -- Employment Agreements," and
"Certain Relationships and Related Party Transactions -- New Management Equity
Incentive Plans."
OUR MANAGEMENT AND DIRECTORS ARE SUBJECT TO CONFLICTS OF INTEREST WHICH MAY
AFFECT OUR ABILITY TO SATISFY OUR OBLIGATIONS TO YOU.
As a result of the recapitalization, Maxxim Holdings and Maxxim Group, on
the one hand, and Circon Holdings and Circon, on the other hand, are separate
companies, separately capitalized and separately pursuing their respective
business strategies. However, the same group of individuals serve as the
directors, and Mr. Davidson serves as the Chairman of the Board of Directors,
President and Chief Executive Officer, of each of the
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<PAGE> 34
companies. In addition, other members of our senior management team are required
under the services agreement with Circon Holdings and Circon to spend a
considerable amount of time and effort on managing the business and affairs of
Circon and some of them have been, and others may in the future be, named as
senior officers of Circon Holdings and Circon. Mr. Davidson and such other
members of our senior management team who are officers of Circon Holdings and
Circon receive, in addition to the compensation and incentives received from us,
compensation and incentives from Circon Holdings or Circon that is dependent
upon the performance of Circon.
As a result of the recapitalization, officers and directors of Maxxim
Holdings own approximately 5.3% of the outstanding common equity of Circon
Holdings before giving effect to the exercise of any stock options or warrants.
Assuming the exercise of their stock options, they will own approximately 22.8%
of the outstanding common equity of Circon Holdings on a fully-diluted basis. We
cannot assure you that the members of our senior management team will have
sufficient time to conduct our business and affairs as they currently are
proposed to be conducted or that the amount of time the members of our senior
management team spend on the management of the business and affairs of Circon
will not have a material adverse effect on our business, financial condition or
results of operations.
The new credit facilities obligate Maxxim Holdings and Maxxim Group to
maintain separate books and records and separate financial statements for Maxxim
Holdings and Maxxim Group, on the one hand, and Circon Holdings and Circon, on
the other, and to observe a number of other corporate formalities intended to
ensure that Maxxim Holdings and Maxxim Group, on the one hand, and Circon
Holdings and Circon, on the other, are managed as separate companies. We cannot
assure you that these provisions will not be amended, removed or waived in the
future. The indenture does not contain any such requirements. See
"Management -- Executive Officers and Directors," "New Credit Facilities and
Other Indebtedness -- New Credit Facilities."
In addition, our directors and members of our senior management team may
have conflicts of interest as a result of their dual roles. Our directors and
officers owe us a duty of good faith and fair dealing under applicable state law
and are required to act in our best interests and the best interest of our
shareholders. Such directors and members of our senior management team who are
also officers of Circon Holdings and Circon owe a similar duty to them and their
shareholders. Other than these legal requirements, there will be no agreements
or arrangements in place to address such potential conflicts of interest or to
address the allocation of corporate opportunities between Maxxim Group and
Circon. We cannot assure you that any directors or members of our senior
management team involved in any such conflict of interest will act in the best
interests of Maxxim Group or that any corporate opportunity that could benefit
both Maxxim Group and Circon will be allocated to Maxxim Group. In addition, we
cannot assure you that any such conflict of interest or failure to allocate such
corporate opportunity to Maxxim Group would not have a material adverse effect
on Maxxim Group's business, financial condition or results of operations.
YOUR INTERESTS AS A HOLDER OF THE EXCHANGE NOTES MAY CONFLICT WITH THOSE OF OUR
CONTROLLING SHAREHOLDER.
As a result of the recapitalization, Fox Paine and its affiliates
beneficially own approximately 84.1% of the outstanding common equity of Maxxim
Holdings and have the
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<PAGE> 35
ability to appoint a majority of the members of Maxxim Holdings' board of
directors. Accordingly, Fox Paine has the ability to control our policies and
operations and has the ability to appoint new management and approve any action
requiring shareholder approval, including adopting amendments to our certificate
of incorporation and approving mergers or sales of substantially all of our
assets. We cannot assure you that the interests of Fox Paine will not conflict
with your interests. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Party Transactions --
Shareholders Agreement."
IF WE ARE UNABLE TO EFFECTIVELY MANAGE THE RISK RELATED TO OUR INTERNATIONAL
SALES AND OPERATIONS, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION MAY SUFFER.
Net sales outside of North America accounted for approximately 10.3% of our
total net sales for fiscal year 1999, with approximately 8.8% of those sales
within the European Community. It is our objective to increase international
sales in the future as we believe there are growth opportunities abroad,
particularly in Europe. Generally we generate net sales and expenses in the
local currency where our products are sold and thus are not currently subject to
significant currency exchange risk. In the future, it is possible that a greater
portion of our net sales outside of North America may not be denominated in the
same local currency as the related expenses and thus we may be subject to
currency exchange risks.
With respect to international sales, we are subject to translation
adjustment risk, as an increase in the strength of the U.S. dollar could
decrease our reported net sales and margins in respect of such sales to the
extent we are unable or determine not to increase local currency prices. We are
also subject to other risks inherent in international operations including:
- political and economic conditions;
- foreign regulatory requirements;
- exposure to different legal requirements and standards;
- potential difficulties in protecting intellectual property;
- import and export restrictions;
- increased costs of transportation or shipping;
- labor disputes;
- difficulties in collecting accounts receivable;
- longer collection periods; and
- potentially adverse tax consequences.
As we continue to attempt to expand our international business, our success
will be dependent, in part, on our ability to anticipate and effectively manage
these and other risks. We cannot assure you, however, that we will be successful
in anticipating and managing these and other risks.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, in
particular, the statements about our plans, strategies and prospects under
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." These statements are based on our current
plans and expectations relating to, among other things, growth in the future and
future success under various strategies, and, as such, these forward-looking
statements involve uncertainty and risk. The forward-looking statements are not
guarantees of future performance, and actual results may differ materially from
those contemplated by such forward-looking statements. Important factors, some
of which may be beyond our control, that could cause actual results to differ
materially from management's expectations are disclosed in this prospectus,
including under "Risk Factors." We caution you not to place undue reliance on
these forward-looking statements. All forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this prospectus. These forward-looking
statements are based on assumptions about Maxxim Group and Maxxim Holdings,
including, among other things, that:
- our increased leverage and debt service obligations described in this
prospectus will not have an adverse effect on our operations and
finances;
- there will not be adverse developments in, or changes to, the laws and
regulations governing our business, particularly regulations promulgated
by the U.S. Food and Drug Administration;
- there will not be adverse developments in the international markets in
which we operate, and we will be successful in anticipating and managing
the risks associated with our international operations;
- products in development will be introduced successfully and on schedule;
- we will make acquisitions which contribute to profitability, and the
integration of such acquisitions will not disrupt our operations;
- we will be able to respond effectively to cost containment efforts and
other significant trends affecting healthcare providers and healthcare
buying groups;
- demand for our products will follow recent growth trends;
- our senior management's obligation to manage Circon Corporation, a former
subsidiary that is commonly owned and managed, as well as Maxxim Group,
will not prove unduly burdensome or adversely divert management attention
away from Maxxim Group;
- our competitors will not introduce new products that will substantially
reduce our sales position in our most significant product groups;
- any product liability claims or other litigation to which we are now
subject or to which we may become subject in the future will not result
in materially adverse judgments against us; and
- we will be successful in retaining employees who are integral to the
operation of our business.
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In the event any of the above assumptions does not prove to be correct,
actual results could differ materially from the expectations expressed in the
forward-looking statements. Except to the extent required under the federal
securities laws, we do not intend to update or otherwise revise forward-looking
statements to reflect circumstances arising after the date of the preparation of
the forward-looking statements. The safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 does not apply
to the disclosure in this prospectus.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with the
initial purchasers of the old notes in which we agreed to file a registration
statement relating to an offer to exchange the old notes for exchange notes. We
also agreed to try to cause the exchange offer to be completed within 180 days
following the original issuance of the old notes. The old notes were issued on
November 12, 1999.
Under the circumstances set forth below, we will try to cause the SEC to
declare effective a shelf registration statement for the resale of the old notes
and keep the registration statement effective for up to two years after the
original issue of the old notes. These circumstances include:
- if any changes in law, SEC rules or regulations or applicable
interpretations by the staff of the SEC do not permit us to complete the
exchange offer;
- if any old notes validly tendered in the exchange offer are not exchanged
for exchange notes within 180 days after the original issuance of the old
notes;
- if any initial purchaser of the old notes requests such a registration
statement within 20 days of completion of the exchange offer for any old
notes that were not eligible to be exchanged for exchange notes in the
exchange offer;
- if any holder of the old notes is not permitted by any law or applicable
interpretations by the staff of the SEC to participate in the exchange
offer;
- if any holder of old notes that participates in the exchange offer and
does not receive fully tradeable exchange notes requests such a
registration statement within 20 days of completion of the exchange
offer; or
- if we elect to file a shelf registration statement with respect to the
resale of the old notes.
If we fail to comply with our obligations under the registration rights
agreement, we may be required to pay specified damages to holders of the old
notes. Please read the section captioned "Exchange and Registration Rights
Agreement" for more details regarding the registration rights agreement.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no-action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may be offered for resale, resold
and otherwise transferred by any exchange note holder without compliance with
the registration and prospectus delivery provisions of the Securities Act, if:
- the holder is not our "affiliate" within the meaning of Rule 405 under
the Securities Act;
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in a distribution of the
exchange notes.
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Any holder of the old notes using the exchange offer to participate in a
distribution of exchange notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from us,
but not as a result of market-making activities or other trading activities.
Consequently, the holder must comply with the registration and prospectus
delivery requirements of the Securities Act in the absence of an exemption from
such requirements.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes that were acquired as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired by such broker-dealer
as result of market-making activities or other trading activities. The letter of
transmittal states that by acknowledging and delivering a prospectus, a
broker-dealer will not be considered to admit that is an "underwriter" within
the meaning of the Securities Act of 1933. We have agreed that for a period of
90 days after the consummation of the exchange offer, we will make this
prospectus available to broker-dealers of use in connection with any such
resale. See "Plan of Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, resale other retransfer of exchange notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of it would not be in compliance with the securities or
blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions set forth in this prospectus and in the
letter of transmittal, we will accept for exchange any old notes properly
tendered and not withdrawn before expiration of the exchange offer. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of old notes surrendered under the exchange offer. Old notes
may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be identical to the form and
terms of the old notes in all material respects, except the exchange notes:
- will be registered under the Securities Act; and
- will not bear legends restricting their transfer.
The exchange notes will represent the same debt as the old notes. The
exchange notes and the old notes will be governed by the same indenture and both
series will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of the Exchange
Notes" below.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $144.6 million aggregate principal
amount at maturity of the old notes are outstanding. This prospectus and the
letter of transmittal are being sent to all registered holders of old notes.
There will be no fixed record date for determining registered holders of old
notes entitled to participate in the exchange offer.
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<PAGE> 40
The exchange offer will comply with the provisions of the registration
rights agreement, the Securities Act and the Securities Exchange Act and the
rules and regulations of the SEC. Old notes that are not tendered for exchange
in the exchange offer will remain outstanding and continue to accrue and accrete
interest. The holders of the old notes will be entitled to the rights and
benefits that they currently have under the indenture.
We will accept for exchange properly tendered old notes by giving oral or
written notice of their acceptance to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purposes of receiving the
exchange notes from us and delivering the exchange notes to holders. We
expressly reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any old notes not previously accepted for exchange, upon the
occurrence of any of the conditions specified below under the caption
"-- Conditions."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees with respect to the exchange of old notes. We
will pay all charges and expenses, other than certain transfer taxes described
under the caption "-- Fees and Expenses" below, in connection with the exchange
offer.
EXPIRATION OF THE EXCHANGE OFFER; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 2000, unless we decide to extend it.
If we extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We will notify the registered holders of old
notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date of the exchange
offer.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CONDITIONS
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any old notes, and we
may terminate the exchange offer as provided in this prospectus before accepting
any old notes for exchange if in our reasonable judgment:
- the exchange notes to be received will not be tradeable by the holder
without restriction under the Securities Act, the Securities Exchange Act
and without material restrictions under the blue sky or securities laws
of substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to restrict the
exchange offer.
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In addition, we will not be obligated to accept for exchange the old notes
of any holder that does not make to us:
- the representations described under "-- Resale of Exchange Notes,"
"-- Procedures for Tendering" and "Plan of Distribution"; and
- any other representations that may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay accepting any old notes by giving oral or written notice of an extension
to their holders. During an extension, all old notes previously tendered will
remain subject to the exchange offer, and we may accept them for exchange. We
will return any old notes that we do not accept for exchange for any reason
without expense to their tendering holders promptly after the expiration or
termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any old notes not previously accepted for exchange,
if any of the conditions specified above occur. We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the old notes as promptly as practicable.
These conditions are solely for our benefit and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any time or at various times. If we fail at any time to
exercise any of these rights, that failure will not constitute a waiver of that
right. Each of these rights is an ongoing right that we may assert at any time
or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue exchange notes in exchange for any old notes, if at that time a
stop order is threatened or in effect regarding to the registration statement of
which this prospectus constitutes a part or the qualification of the indenture
under the Trust Indenture Act.
PROCEDURES FOR TENDERING
Only a holder of record of old notes may tender old notes in the exchange
offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the
instructions in the letter of transmittal require it; and
- mail or deliver by telecopy the letter of transmittal to the exchange
agent prior to the expiration date.
In addition, either:
- the exchange agent must receive old notes along with the letter of
transmittal; or
- the holder must comply with the guaranteed delivery procedures described
below.
36
<PAGE> 42
To participate in the exchange offer, the letter of transmittal and other
required documents must be delivered to the exchange agent at the address set
forth below under "-- Exchange Agent" before expiration of the exchange offer.
The tender by a holder that is not withdrawn before expiration of the
exchange offer will constitute an agreement between that holder and us for the
exchange of the old notes tendered subject to the terms and conditions set forth
in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION AND
RISK. RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE EXPIRATION OF THE EXCHANGE OFFER.
HOLDERS SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO HANDLE THE EXCHANGE OF OLD NOTES FOR THEM.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its old notes, either:
- make appropriate arrangements to register ownership of the old notes in
the owner's name; or
- obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the U.S.
or another "eligible institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act, unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed or
accompanied by a properly completed bond power. The bond power must be signed by
the registered holder as the registered holder's name appears on the old notes
and an eligible institution must guarantee the signature on the bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should indicate such capacity when signing. Unless we waive this
requirement, they should also submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
37
<PAGE> 43
We will determine all questions as to the validity, form, eligibility
(including time of receipt), acceptance of tendered old notes and withdrawal of
tendered old notes. Our determination will be final and binding. We reserve the
absolute right to reject any old notes not properly tendered or any old notes
the acceptance of which would, in the opinion of our counsel, be unlawful. We
also reserve the right to waive any defects or irregularities in the tender of
any particular old notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within the time that we
determine. Although we intend to notify holders of defects or irregularities
with respect to tenders of old notes, neither we, the exchange agent nor any
other person will incur any liability for failing to give notification. Tenders
of old notes will not be effective until any defects or irregularities have been
cured or waived. Any old notes received by the exchange agent that are not
properly tendered and as to which those defects or irregularities have not been
cured or waived will be returned by the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue exchange notes for old notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- the old notes; and
- a properly completed letter of transmittal and all other required
documents.
By signing the letter of transmittal, you will represent to us that, among
other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the exchange notes;
- if you are not a broker-dealer, that you are not engaged in and do not
intend to engage in the distribution of the exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, that you will
deliver a prospectus, as required by law, in connection with any resale
of those exchange notes (see "Plan of Distribution"); and
- you are not an "affiliate," as defined in Rule 405 of the Securities Act,
of us or, if you are an affiliate, you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act.
38
<PAGE> 44
GUARANTEED DELIVERY PROCEDURES
If you want to tender your old notes but they are not immediately available
or you cannot deliver your old notes, the letter of transmittal or any other
required documents to the exchange agent before expiration of the exchange
offer, you may tender if:
- the tender is made through an eligible institution;
- before expiration of the exchange offer, the exchange agent receives from
the eligible institution a properly completed notice of guaranteed
delivery, by telecopy, mail or hand delivery:
-- setting forth the name and address of the holder and the private
placement numbers and the principal amount of old notes tendered;
-- stating that the tender is being made by guaranteed delivery; and
-- guaranteeing that, within three New York Stock Exchange trading days
after expiration of the exchange offer, the letter of transmittal or
copy thereof together with the old notes and any other documents
required by the letter of transmittal will be delivered by the
eligible institution to the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal or copy thereof, as well as all tendered old notes in proper
form for transfer and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after
expiration of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time before expiration of the exchange offer.
For a withdrawal to be effective, the exchange agent must receive a written
notice, which may be by telegram, telex, telecopy or letter, of withdrawal at
one of the addresses set forth below under "-- Exchange Agent."
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the principal amount of
the old notes to be withdrawn; and
- where old notes have been transmitted, specify the name in which the old
notes were registered if it is different from that of the withdrawing
holder.
39
<PAGE> 45
If old notes have been delivered or otherwise identified to the exchange
agent, then, prior to the release of those old notes, the withdrawing holder
must also submit:
- the private placement numbers of the particular old notes to be
withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination shall
be final and binding on all parties. We will deem any old notes so withdrawn not
to have been tendered for exchange for purposes of the exchange offer. We will
return any old notes that have been tendered for exchange but that are not
exchanged for any reason to their holder without cost to the holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may re-tender properly withdrawn old notes by following one of the
procedures described under "-- Procedures for Tendering" above at any time on or
before expiration of the exchange offer.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street, 101 Barclay Street, Ground Level
Floor 7 East Corporate Trust Services Window
New York, New York 10286 New York, New York 10286
Attention: Ayikwei Aryeetey Attention: Ayikwei Aryeetey
Reorganization Reorganization
Section Section
</TABLE>
By Telecopy (for Eligible Institutions Only):
The Bank of New York
(212) 815-6339
To Confirm by Telephone or for Information Call: (212) 815-3687
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SHOWN ABOVE OR
TRANSMISSION VIA TELECOPY OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders of old notes. The principal
solicitation is being made by mail; however, we may make additional
solicitations by telegraph, telephone or in person by our officers and regular
employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the
40
<PAGE> 46
exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for its services and reimburse it for its related reasonable
out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$245,000. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees; and
- printing and mailing costs.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes, whether imposed on the registered holder or any other
person, if:
- notes for principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be issued in the name of, any person other
than the registered holder of old notes tendered;
- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the old notes, as reflected in our accounting records on the
date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. Any expenses incurred
in the exchange offer will be recorded as deferred financing costs and amortized
over the life of the exchange notes.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. We urge you to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. However, we have no present plans to acquire any old notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
41
<PAGE> 47
THE RECAPITALIZATION
On June 13, 1999, Maxxim Holdings entered into a merger agreement with Fox
Paine Medic Acquisition Corporation, a Texas corporation newly formed by Fox
Paine Capital Fund, L.P., providing for the recapitalization of Maxxim Holdings.
The transactions contemplated by the merger agreement included:
- the sale of Circon Corporation, a wholly owned subsidiary of Maxxim
Holdings, to Circon Holdings Corporation in exchange for $208.0 million
in cash and the repayment of $20 million of debt owed by Circon
Corporation to Maxxim Holdings. Circon Holdings is a newly formed Texas
corporation owned by the shareholders of Maxxim Holdings. See "Security
Ownership of Certain Beneficial Owners and Management;"
- the contribution of all of Maxxim Holdings' assets and liabilities, other
than those relating to its credit facility prior to the recapitalization,
to Maxxim Group; and
- the merger of Fox Paine Medic with and into Maxxim Holdings with Maxxim
Holdings being the surviving corporation. In connection with the merger:
-- new investors purchased shares of Fox Paine Medic common stock for
$131.8 million in cash prior to the merger, with such shares of Fox
Paine Medic common stock being converted in the merger into shares of
Maxxim Holdings common stock. See "Security Ownership of Certain
Beneficial Owners and Management;"
-- each outstanding share of Maxxim Holdings common stock, other than a
portion of the shares held by ten existing Maxxim Holdings
shareholders who were employees or directors of Maxxim Holdings or
its subsidiaries, were converted into the right to receive the merger
consideration of $26.00 per share in cash;
-- options to purchase shares of Maxxim Holdings common stock, other
than certain options held by the continuing Maxxim Holdings
shareholders, were canceled in return for a cash payment for each
share of Maxxim Holdings common stock subject to such options equal
to the excess of $26.00 over the exercise price of such options; and
-- certain options held by the continuing Maxxim Holdings shareholders
were canceled without payment and replaced with options to purchase
common stock of Circon Holdings. See "Certain Relationships and
Related Party Transactions -- Treatment of Continuing Shares and
Options."
These transactions required total funding of approximately $799.6 million.
The financing came from the following sources:
- $110.0 million from the issuance by Maxxim Group of the unregistered
senior subordinated discount notes due 2009, which are the subject of
this exchange offer, and associated warrants to purchase Maxxim Holdings
common stock;
- $261.6 million in borrowings by Maxxim Group under new senior secured
credit facilities, consisting of $260.0 million under three new term loan
facilities and $1.6 million drawn under a new $50.0 million revolving
credit facility. See "Description of New Credit Facilities and Other
Indebtedness -- New Credit Facilities;"
42
<PAGE> 48
- $50.0 million from the issuance by Maxxim Holdings of senior unsecured
discount notes and warrants to purchase shares of Maxxim Holdings common
stock to GS Mezzanine Partners, L.P., an investment fund managed by
affiliates of Goldman, Sachs & Co., and certain of its affiliated
investment funds. See "Description of New Credit Facilities and Other
Indebtedness -- Maxxim Holdings Notes;"
- $131.8 million in cash from the purchase by new investors of shares of
Fox Paine Medic common stock, which were converted in the merger into
shares of Maxxim Holdings common stock;
- $13.8 million shares of Maxxim Holdings common stock retained by the
continuing Maxxim Holdings shareholders following the merger;
- $4.4 million in cash from the sale of additional shares of Maxxim
Holdings common stock to the continuing Maxxim Holdings shareholders who
were part of Maxxim Holdings senior management; and
- $228.0 million in cash from the sale of Circon Corporation to Circon
Holdings and the repayment of debt owed by Circon Corporation to Maxxim
Holdings.
In connection with the recapitalization, the following debt of Maxxim Holdings
was repaid:
- all amounts outstanding under Maxxim Holdings' previous credit facility;
and
- approximately $100.0 million principal amount of outstanding 10 1/2%
senior subordinated notes due 2006.
The 10 1/2% senior subordinated notes due 2006 were purchased pursuant to
the terms of a tender offer by Maxxim Holdings. Completion of the
recapitalization would have violated some of the covenants contained in the
indenture governing the notes. As part of the tender offer, Maxxim Holdings
solicited consents from holders of the notes to amendments to the terms of the
notes and the governing indenture in order to eliminate substantially all of the
restrictive covenants contained in the indenture. Holders of more than 99.9% of
the principal amount of the notes consented to the amendments and tendered their
notes. Maxxim Holdings' obligations under the indenture governing the remaining
$5,000 of the notes have been assumed by Maxxim Group, and the amended notes
have become the obligations of Maxxim Group and will rank equally with the
exchange notes. Maxxim Holdings remains liable, along with Maxxim Group, for
payments of principal, premium and interest on the remaining $5,000 of the notes
and each of the subsidiaries of Maxxim Group has guaranteed the notes on a
senior subordinated basis.
All of the debt of Maxxim Holdings and Maxxim Group outstanding immediately
prior to the completion of the recapitalization was repaid in connection with
the recapitalization, except for the $5,000 of the 10 1/2% senior subordinated
notes due 2006 and $7.7 million in the aggregate of capital leases, industrial
revenue bonds and certain other long term obligations of Maxxim Group. See
"Description of New Credit Facilities and Other Indebtedness -- Capital Leases,
Industrial Revenue Bonds and Other Long-Term Obligations."
The transactions involved in the recapitalization were consummated on
November 12, 1999. As a result of the recapitalization, Maxxim Holdings and
Circon Holdings are owned approximately 87.8% and 90.7%, respectively, by the
new investors and approximately 12.2% and 9.3%, respectively, by the continuing
Maxxim Holdings shareholders, before giving effect to the exercise of any stock
options or warrants. Assuming the exercise of
43
<PAGE> 49
stock options that were rolled-over into new stock options and stock options
issued under new stock option incentive programs, the continuing Maxxim Holdings
shareholders will own approximately 26.0% of the outstanding common stock of
Maxxim Holdings and Circon Holdings on a fully-diluted basis. See "Security
Ownership of Certain Beneficial Owners and Management."
OTHER AGREEMENTS
In connection with the recapitalization:
- the continuing Maxxim Holdings shareholders and the new investors entered
into a shareholders agreement. See "Certain Relationships and Related
Party Transactions -- Shareholders Agreement."
- Maxxim Holdings, Maxxim Group, Circon Holdings and Circon entered into a
services agreement. See "Certain Relationships and Related Party
Transactions -- Services Agreement."
SOURCES AND USES
The following table sets forth the approximate sources and uses of funds in
connection with the recapitalization of Maxxim Holdings:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
New credit facilities(1).................................. $261.6
Old notes and warrants.................................... 110.0
Maxxim Holdings notes and warrants(2)..................... 50.0
Investor equity contribution.............................. 131.8
Management equity investment(3)........................... 18.2
Cash from Circon sale and repayment of Circon debt........ 228.0
------
Total sources.......................................... $799.6
======
USES:
Cash consideration(4)..................................... $368.6
Repayment of previous credit facility(5).................. 252.8
Purchase of 10 1/2% senior subordinated notes due 2006.... 100.0
Rollover equity........................................... 13.8
Transaction fees and expenses(6).......................... 52.2
Working capital........................................... 12.2
------
Total uses............................................. $799.6
======
</TABLE>
- -------------------------
(1) Represents borrowings under the new credit facilities made at the closing of
the recapitalization, consisting of $80.0 million under the tranche A term
loan, $90.0 million under the tranche B term loan, $90.0 million under the
tranche C term loan and $1.6 million under the revolving credit facility.
Upon completion of the recapitalization, we had $48.4 million of additional
borrowing capacity under the revolving credit facility. See "The
Recapitalization -- Financing for the Recapitalization" and "Description of
New Credit Facilities and Other Indebtedness -- New Credit Facilities."
(2) See "Description of New Credit Facilities and Other Indebtedness -- Maxxim
Holdings Notes."
44
<PAGE> 50
(3) Represents $13.8 million of common stock retained by the ten continuing
Maxxim Holdings shareholders and $4.4 million of option proceeds invested by
the eight senior management shareholders in shares of Maxxim Holdings common
stock. See "The Recapitalization" and "Certain Relationships and Related
Party Transactions -- Treatment of Continuing Shares and Options."
(4) Consists of $357.5 million of cash paid to Maxxim Holdings shareholders in
the merger, net of the repayment of certain outstanding loans to employees,
and $11.1 million of cash paid for outstanding options to purchase Maxxim
Holdings common stock. See "Certain Relationships and Related Party
Transactions -- Treatment of Continuing Shares and Options."
(5) Represents the amount outstanding under Maxxim Holdings' previous credit
facility at November 12, 1999.
(6) Transaction fees and expenses include, among other things:
- the premium, consent fees and other fees and expenses paid in connection
with the tender offer for Maxxim Holdings' outstanding 10 1/2% senior
subordinated notes due 2006;
- the discount takedown fee payable to the purchasers of the old notes and
other expenses related to the offering of the old notes; and
- fees and expenses associated with the recapitalization, the new credit
facilities and the Maxxim Holdings notes.
45
<PAGE> 51
CAPITALIZATION
The following table sets forth Maxxim Group's unaudited capitalization as
of October 31, 1999, on a pro forma basis giving effect to the transactions
involved in the recapitalization as if they had been completed on such date. The
information in the following table should be read in conjunction with "Unaudited
Pro Forma Financial Information of Maxxim Group," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the consolidated
financial statements of Maxxim Holdings and the notes thereto included elsewhere
in this prospectus.
PRO FORMA CAPITALIZATION OF MAXXIM GROUP
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Total debt (including current portion):
New credit facilities (1)................................ $261,600
Other long-term obligations (2).......................... 7,749
10 1/2% senior subordinated notes due 2006............... 5
Senior subordinated discount notes due 2009.............. 106,909
--------
Total debt............................................ 376,263
Total shareholder's equity................................. 79,944
--------
Total capitalization.................................. $456,207
========
</TABLE>
- -------------------------
(1) Represents borrowings under the new credit facilities made at the closing of
the recapitalization, consisting of $80 million under the tranche A term
loan, $90.0 million under the tranche B term loan, $90.0 million under the
tranche C term loan and $1.6 million under the revolving credit facility.
Upon consummation of the recapitalization, we had $48.4 million of borrowing
capacity under the revolving credit facility. See "The
Recapitalization -- Financing for the Recapitalization" and "Description of
New Credit Facilities and Other Indebtedness -- New Credit Facilities."
(2) Includes approximately $2.4 million of industrial revenue bonds, $4.5
million of capital leases and $0.9 million of other long-term obligations.
See "Description of New Credit Facilities and Other Indebtedness -- Capital
Leases, Industrial Revenue Bonds and Other Long-Term Obligations."
After giving effect to the recapitalization as if it had been consummated
on October 31, 1999, Maxxim Holdings would have had aggregate outstanding
long-term indebtedness of $50.0 million under the Maxxim Holdings notes, in
addition to its guarantees of the obligations of Maxxim Group under the old
notes and the new credit facilities, and shareholders' equity equal to
approximately $39.8 million.
46
<PAGE> 52
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF MAXXIM GROUP
The following unaudited pro forma financial information of Maxxim Group,
including its subsidiaries on a consolidated basis, has been prepared based on
the historical consolidated financial statements of Maxxim Holdings included
elsewhere in this prospectus, adjusted to give pro forma effect to the
recapitalization. Certain acquisitions and divestitures consummated during the
periods presented have not been reflected in the unaudited pro forma
consolidated financial information as they were considered immaterial to the
operations of Maxxim Group. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For a description of the
recapitalization, see "The Recapitalization."
As part of the recapitalization, Maxxim Holdings contributed all of its
assets and liabilities, other than those relating to its credit facility prior
to the recapitalization, to Maxxim Group. As a result of the recapitalization,
Maxxim Holdings is a guarantor of the old notes and the new credit facilities
and has no substantial operations or assets other than the capital stock of
Maxxim Group. As a result, the consolidated financial position and results of
operations of Maxxim Holdings are substantially the same as those of Maxxim
Group, except as described in footnote (b) to the Unaudited Pro Forma
Consolidated Balance Sheet and footnote (b) to the Unaudited Pro Forma
Consolidated Statements of Operations.
You should consider the following when reading the unaudited pro forma
financial information:
- the Unaudited Pro Forma Consolidated Balance Sheet at October 31, 1999
gives effect to the recapitalization as if it had occurred on that date;
- the Unaudited Pro Forma Consolidated Statement of Operations for fiscal
year 1999 gives effect to the recapitalization as if it had occurred on
November 2, 1998; and
- the recapitalization is being accounted for as a recapitalization and
therefore has no impact on the historical basis of the assets and
liabilities as reflected in the consolidated financial statements.
The unaudited pro forma adjustments, which are based upon available
information and upon certain assumptions that management believes are
reasonable, are described in the accompanying notes. The unaudited pro forma
consolidated financial information is for informational purposes only and does
not:
- purport to represent what the financial position or results of operations
of Maxxim Group would actually have been had the recapitalization in fact
occurred on the dates assumed or the financial position or results of
operations of Maxxim Group for any future period or date;
- reflect the effect of certain non-recurring statement of operations
charges expected to result from the recapitalization, as described in the
footnotes hereto; or
- reflect certain insignificant acquisitions and divestitures.
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<PAGE> 53
The unaudited pro forma consolidated financial information should be read
in conjunction with:
- the "Selected Historical Consolidated Financial Information of Maxxim
Holdings;"
- the consolidated financial statements of Maxxim Holdings, together with
the notes thereto;
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations;" and
- the other financial information included elsewhere in this prospectus.
48
<PAGE> 54
MAXXIM MEDICAL GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<CAPTION>
MAXXIM PRO FORMA
GROUP ADJUSTMENTS FOR THE
MAXXIM PRO FORMA ------------------------ MAXXIM
HOLDINGS AFTER ASSET CIRCON OTHER GROUP
HISTORICAL DROP DOWN(A)(B) SALE(C) TRANSACTIONS PRO FORMA
---------- --------------- --------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............ $ 4,040 $ 4,040 $ 228,000 $ (217,255)(d) $ 14,785
Accounts receivable,
net.................... 61,323 61,323 -- 61,323
Employee receivables..... -- 4,498 (1,918) 1,000(e) 3,580
Inventory, net........... 97,811 97,811 -- -- 97,811
Net current deferred tax
asset.................. 9,189 9,189 -- 6,599(f) 15,788
Prepaid expenses and
other.................. 6,597 6,597 -- -- 6,597
Net assets held for
sale................... 224,909 224,909 (224,909) -- --
-------- -------- --------- ----------- ----------
Total current assets... 403,869 408,367 1,173 (209,656) 199,884
Property and equipment,
net.................... 139,306 139,306 -- -- 139,306
Goodwill, net............ 142,459 142,459 -- -- 142,459
Other assets, net........ 25,959 20,916 -- 18,369(f) 39,285
-------- -------- --------- ----------- ----------
Total assets........... $711,593 $711,048 $ 1,173 $ (191,287) $ 520,934
======== ======== ========= =========== ==========
CURRENT LIABILITIES:
Current maturities of
long-term debt......... $ 430 $ 430 $ -- $ -- $ 430
Current maturities of
capital lease
obligations............ 473 473 -- -- 473
Current maturities of
other long-term
obligations............ 546 546 -- -- 546
Accounts payable......... 31,826 31,826 -- -- 31,826
Accrued liabilities...... 22,279 22,279 -- -- 22,279
-------- -------- --------- ----------- ----------
Total current
liabilities.......... 55,554 55,554 -- -- 55,554
Long term debt, net of
current maturities..... 255,940 1,940 -- 261,600(g) 263,540
10 1/2% senior
subordinated notes..... 100,000 100,000 -- (99,995)(h) 5
Notes offered hereby..... -- -- -- 106,909(i) 106,909
Capital lease
obligations, net of
current maturities..... 4,000 4,000 -- -- 4,000
Other long-term
obligations, net of
current maturities..... 360 360 -- -- 360
Net non-current deferred
tax liability.......... 10,622 10,622 -- -- 10,622
-------- -------- --------- ----------- ----------
Total liabilities...... 426,476 172,476 -- 268,514 440,990
Commitments and
contingencies
SHAREHOLDERS' EQUITY:
Preferred stock.......... -- -- -- -- --
Common stock............. 14 1 -- -- 1
Additional paid in
capital................ 220,230 547,448 -- (434,969)(j) 112,479
Retained earnings
(accumulated
deficit)............... 78,950 -- 354 (24,832)(f) (24,478)
Subscriptions
receivable............. (5,200) -- -- -- --
Accumulated other
comprehensive loss..... (8,877) (8,877) 819 -- (8,058)
-------- -------- --------- ----------- ----------
Total shareholders'
equity............... 285,117 538,572 1,173 (459,801) 79,944
-------- -------- --------- ----------- ----------
Total liabilities and
shareholders'
equity............... $711,593 $711,048 $ 1,173 $ (191,287) $ 520,934
======== ======== ========= =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
49
<PAGE> 55
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the pro forma consolidated financial position of Maxxim Group
after giving effect to the contribution by Maxxim Holdings to Maxxim Group
as part of the recapitalization of all of Maxxim Holdings' assets and
liabilities, other than $254,000 of liabilities under its previous credit
facility and $5,043 of capitalized financing costs related to its previous
credit facility. The previous credit facility was repaid and terminated in
connection with the recapitalization. The asset dropdown reflects the net
equity contributed to Maxxim Group of $538,572.
(b) As a result of the recapitalization, the consolidated financial position
and results of operations of Maxxim Holdings are substantially the same as
those of Maxxim Group, except that Maxxim Holdings has:
- outstanding $98,500 aggregate principal amount at maturity ($50,000
aggregate accreted value outstanding at November 12, 1999) of Maxxim
Holdings notes, which are obligations of Maxxim Holdings and not Maxxim
Group with $3,746 allocated as fair value of the warrants issued to the
purchasers of the Maxxim Holdings notes;
- $2,400 of capitalized financing costs related to the Maxxim Holdings
notes; and
- deferred tax assets totaling $6,315 for the write-off of financing costs
related to Maxxim Holdings' previous credit facility not contributed to
Maxxim Group and non-cash compensation expense recorded by Maxxim
Holdings for the cash-out of employees' and certain management investors'
options.
(c) Reflects the receipt of $228,000 cash proceeds from:
- the sale of Circon to Circon Holdings; and
- the repayment of intercompany indebtedness owed by Circon to Maxxim
Holdings upon the closing of the recapitalization.
In connection with the Circon sale, a gain of $354, calculated as the
purchase price paid by Circon Holdings for Circon's capital stock less the
carrying value of Circon's net assets has been reflected as an adjustment
to retained earnings. This gain has not been reflected in the pro forma
statements of operations and was recorded upon closing of the
recapitalization.
50
<PAGE> 56
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET -- (CONTINUED)
(d) Reflects the following:
<TABLE>
<S> <C>
SOURCES OF CASH
New credit facilities -- see note (g)............... $ 261,600
Sale of senior subordinated discount notes due 2009
and warrants -- see note (i)...................... 110,000
USES OF CASH
Repayment of 10 1/2% senior subordinated notes due
2006 -- see note (h).............................. (99,995)
Dividends to Maxxim Holdings -- see note (j)........ (438,060)
Management tax loans................................ (1,000)
Transaction fees and expenses of Maxxim Group -- see
note (f).......................................... (49,800)
---------
$(217,255)
=========
</TABLE>
(e) Reflects loans agreed to be issued to certain members of management to pay
income taxes on options exercised in connection with the recapitalization.
(f) Reflects the following fees and expenses:
<TABLE>
<CAPTION>
OTHER RETAINED
ASSETS, NET DEFERRED TAXES EARNINGS TOTAL
----------- -------------- --------- -------
<S> <C> <C> <C> <C>
Capitalized financing
costs.............. $20,426 $ -- $ -- $20,426
Tender premium and
consent payment on
10 1/2% senior
subordinated notes
due 2006........... -- 4,368 6,832 11,200
Key executive
bonuses............ -- 1,429 2,234 3,663
Other fees and
expenses........... -- -- 14,511 14,511
Write-off of
unamortized
financing fees on
10 1/2% senior
subordinated notes
due 2006
refinanced......... (2,057) 802 1,255 --
------- ------ ------- -------
$18,369 $6,599 $24,832 $49,800
======= ====== ======= =======
</TABLE>
Total estimated transaction fees and expenses are $52,200, consisting of:
- $2,400 of expenses incurred by Maxxim Holdings related to the issuance of
$98,500 aggregate principal amount at maturity of Maxxim Holdings notes;
- $20,426 of capitalized fees and expenses related to the issuance of the
old notes and related warrants and the new credit facilities; and
51
<PAGE> 57
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET -- (CONTINUED)
- $29,374 of other fees and expenses, $24,832 of which was charged against
shareholders' equity following the recapitalization.
Such other fees and expenses consist of:
- $11,200 related to the tender premium and consent payment for the
repayment of the 10 1/2% senior subordinated notes due 2006, which was
reflected as a charge to retained earnings of $6,832, net of a tax
benefit of $4,368, and charged to operations following the
recapitalization;
- $3,663 for the estimated bonus expense associated with the key executive
special bonuses paid in connection with the merger, which was reflected
as a charge to retained earnings of $2,234, net of a tax benefit of
$1,429, and charged to operations following the recapitalization; and
- $14,511 for other fees and expenses relating to the recapitalization
consisting of:
-- professional and advisory fees and expenses; and
-- other fees and expenses such as printing and filing fees.
No tax benefit has been provided for the $14,511 of other fees and
expenses, as such expenses are not deductible for tax purposes.
The $2,057 write-off relates to unamortized financing fees on the 10 1/2%
senior subordinated notes due 2006 refinanced, net of a tax benefit of
$802. This adjustment has not been reflected in the pro forma statement of
operations and was charged to operations following the recapitalization.
(g) Reflects the incurrence of debt under the new credit facilities.
(h) Reflects the purchase in the debt tender offer of $99,995 of the $100,000
outstanding 10 1/2% senior subordinated notes due 2006.
(i) Reflects the issuance of the old notes. The old notes have a face value of
$144,552 and are recorded net of a $34,552 discount. The discount will be
accreted over 10 years, the life of the old notes. Sold together with each
old note was a warrant to purchase 0.8226 shares of Maxxim Holdings common
stock, for a total of 144,552 warrants. Each warrant is valued at $21.38,
for a total warrant value of $3,091. The value allocated to the warrants
will be amortized over the life of the old notes, or exchange notes if old
notes are exchanged for exchange notes. Since Maxxim Holdings has issued
these warrants in connection with Maxxim Group's issuance of the old notes,
the value of the warrants is reflected in Maxxim Group's additional paid in
capital. See note (j) below.
52
<PAGE> 58
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET -- (CONTINUED)
(j) Represents the $3,091 value allocated to the warrants issued with the old
notes (see note (i) above), and the estimated dividends to Maxxim Holdings
from its subsidiaries to finance a portion of the recapitalization as
follows:
<TABLE>
<S> <C>
USES REQUIRED BY MAXXIM HOLDINGS:
Repayment of previous credit facility................ $254,000
Financing costs on Maxxim Holdings notes............. 2,400
Merger consideration................................. 356,722
Option consideration................................. 11,148
--------
$624,270
--------
LESS:
MAXXIM HOLDINGS SOURCES:
Maxxim Holdings notes and warrants................... $ 50,000
Investor equity contribution......................... 131,800
Management investors' option proceeds invested....... 4,410
--------
$186,210
========
Dividends to Maxxim Holdings......................... $438,060
========
</TABLE>
53
<PAGE> 59
MAXXIM MEDICAL GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS FOR THE
------------------------------
MAXXIM HOLDINGS ASSET MAXXIM GROUP
HISTORICAL(A) DROPDOWN(B) TRANSACTIONS PRO FORMA
--------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales.................. $508,654 $ -- $ -- $508,654
Cost of sales.............. 366,778 -- -- 366,778
-------- -------- -------- --------
Gross profit.......... 141,876 -- -- 141,876
Selling and marketing
expenses................. 71,070 -- (1,278)(c) 69,792
General and administrative
expenses................. 22,624 -- -- 22,624
Restructure charge and
transition expenses...... 4,637 -- -- 4,637
-------- -------- -------- --------
Income from
operations.......... 43,545 -- 1,278 44,823
Interest expense, net...... 27,789 (17,236)(d) 31,531(e) 42,084
Other expense, net......... (555) -- -- (555)
-------- -------- -------- --------
Income from continuing
operations before income
taxes.................... 15,201 17,236 (30,253) 2,184
Income taxes............... 7,175 6,722(f) (11,799)(f) 2,098
-------- -------- -------- --------
Income from continuing
operations.......... $ 8,026 $ 10,514 $(18,454) $ 86
======== ======== ======== ========
Basic and diluted earnings
per share................ $ 86.00
========
Weighted average shares
outstanding.............. 1,000
========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
54
<PAGE> 60
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Excludes the results of Circon for the period from the date of acquisition,
January 6, 1999, to the end of fiscal year 1999, October 31, 1999, as
Circon has been accounted for as discontinued operations at October 31,
1999. Circon was sold as part of the recapitalization.
(b) As a result of the recapitalization, the consolidated financial position
and results of operations of Maxxim Holdings are substantially the same as
those of Maxxim Group, except that Maxxim Holdings has:
- outstanding $98,500 aggregate principal amount at maturity ($50,000
aggregate accreted value outstanding at November 12, 1999) of Maxxim
Holdings notes which are obligations of Maxxim Holdings and not Maxxim
Group with $3,746 allocated as fair value of the warrants issued to the
purchasers of the Maxxim Holdings notes;
- $2,400 of capitalized financing costs related to the Maxxim Holdings
notes; and
- deferred tax assets totaling $6,315 for the write-off of financing costs
related to Maxxim Holdings' previous credit facility not contributed to
Maxxim Group and non-cash compensation expense recorded by Maxxim
Holdings for the cash-out of employees' and certain management investors'
options.
(c) Adjustment reflects the following:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
OCTOBER 1,
1999
-----------
<S> <C>
Fox Paine advisory fee(1)........................ $ 722
Management services fee(2)....................... (2,000)
-------
$(1,278)
=======
</TABLE>
(1) Reflects the management advisory fee that would have been charged to
Maxxim Group by Fox Paine during such periods. See "Certain
Relationships and Related Party Transactions -- Services Agreement."
(2) Reflects the fee that would have been paid by Circon to Maxxim Group
under the services agreement for management services provided to Circon
by Maxxim Group during such periods. See "Certain Relationships and
Related Party Transactions -- Services Agreement."
(d) Reflects the interest expense, including amortization of financing fees, on
Maxxim Holdings' previous credit facility not contributed to Maxxim Group
in connection with the asset dropdown. In connection with the
recapitalization, Maxxim Holdings contributed all of its assets and
liabilities, other than $254,000 of liabilities under its previous credit
facility and $5,043 of debt financing costs related to its previous credit
55
<PAGE> 61
MAXXIM MEDICAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)
facility, to Maxxim Group. The previous credit facility was repaid and
terminated in connection with the recapitalization.
(e) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31, 1999
-----------------
<S> <C>
FINANCING INCURRED WITH THE RECAPITALIZATION:
Revolving credit facility ($1,600 at 8.75%).... $ 140
Revolving credit facility commitment fee(1).... 242
Tranche A term loan ($80,000 at 8.75%)......... 7,000
Tranche B term loan ($90,000 at 9.25%)......... 8,325
Tranche C term loan ($90,000 at 9.5%).......... 8,550
Senior subordinated discount notes due 2009
($110,000 at 11%)............................ 12,100
Amortization of financing costs resulting from
the recapitalization ($20,426 amortized
between 6 to 10 years)....................... 2,698
Accretion of note discount..................... 3,046
Accretion of warrants.......................... 230
-------
$42,331
Less: Historical interest expense related to
the 10 1/2% senior subordinated notes due
2006......................................... 10,800
-------
Pro forma adjustment........................... $31,531
=======
</TABLE>
-----------------------
(1) The $50,000 revolving credit facility bears a commitment fee equal
to 50 basis points times the undrawn portion of the facility.
The effect of a 0.25% change in the annual interest rate of the revolving
credit facility, tranche A term loan, tranche B term loan and tranche C
term loan would change pro forma interest expense by $654 for the year
ended October 31, 1999.
(f) Adjustments to reflect the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 39%.
56
<PAGE> 62
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
OF MAXXIM HOLDINGS
The following table sets forth selected historical consolidated financial
information of Maxxim Holdings as of the end of and for fiscal years 1995, 1996,
1997, 1998 and 1999. The fiscal year of Maxxim Holdings ends on the Sunday
following the last Thursday in October.
You should consider the following when reading the selected historical
consolidated financial information:
- The historical consolidated financial information as of the end of and
for fiscal years 1995 and 1996 has been derived from Maxxim Holdings'
audited consolidated financial statements and the notes thereto, which
are not included in this prospectus.
- The historical consolidated financial information as of the end of and
for fiscal years 1997, 1998 and 1999 has been derived from Maxxim
Holdings' consolidated financial statements and the notes thereto, which
are included elsewhere in this prospectus.
- Results for the fiscal year ended November 1, 1998 include the results of
Winfield Medical for the period from June 26, 1998, the date of the
Winfield Medical acquisition, to November 1, 1998.
- The results of Circon for the period from the date of its acquisition on
January 6, 1999, through the end of fiscal 1999, have been included in
discontinued operations for fiscal year 1999. Circon was sold as part of
the recapitalization.
- During the periods reported, there have been other acquisitions and
divestitures which have impacted the reported results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
The information set forth below is qualified in its entirety by and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of Maxxim Holdings and the notes thereto included elsewhere in this prospectus.
57
<PAGE> 63
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF MAXXIM HOLDINGS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
OCTOBER 29, NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, OCTOBER 31,
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................................... $ 265,726 $ 399,836 $529,552 $522,516 $ 508,654
Cost of sales................................ 186,495 294,164 397,691 381,638 366,778
--------- --------- -------- -------- ---------
Gross profit................................. 79,231 105,672 131,861 140,878 141,876
Selling, general, and administrative
expenses................................... 60,329 77,980 90,101 94,410 93,694
Restructure charges and transition
expenses(1)................................ 10,845 -- -- -- 4,637
--------- --------- -------- -------- ---------
Income from operations....................... 8,057 27,692 41,760 46,468 43,545
Interest expense, net........................ 4,088 13,143 22,145 13,420 27,789
Other income (expense), net.................. 1,014 583 2,751 1,042 (555)
--------- --------- -------- -------- ---------
Income from continuing operations before
income taxes............................... 4,983 15,132 22,366 34,090 15,201
Income taxes................................. 2,054 6,422 9,485 14,454 7,175
--------- --------- -------- -------- ---------
Income from continuing operations............ 2,929 8,710 12,881 19,636 8,026
--------- --------- -------- -------- ---------
Income from discontinued operations, net of
tax(2)..................................... -- -- -- -- 6,038
--------- --------- -------- -------- ---------
Net income................................... $ 2,929 $ 8,710 $ 12,881 $ 19,636 $ 14,064
========= ========= ======== ======== =========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.............................. $ 73,286 $ 122,086 $ 99,815 $108,918 $ 348,315
Total assets................................. 264,490 465,347 424,046 468,051 711,593
Total debt................................... 108,158 267,926 221,085 121,683 361,749
Total shareholders' equity................... 116,351 123,556 137,928 272,909 285,117
OTHER FINANCIAL DATA:
Net cash provided by operating activities.... 3,295 357 49,577 55,542 42,340
Net cash used in investing activities........ (106,879) (124,921) (3,199) (67,954) (271,791)
Net cash provided by (used in) financing..... 75,782 125,484 (48,807) 13,371 229,470
Depreciation and amortization................ 9,073 14,682 16,665 18,379 22,526
Capital expenditures(3)...................... 9,274 10,625 6,829 23,441 25,645
Ratio of earnings to fixed charges(4)........ 2.2x 2.1x 2.0x 3.3x 1.5x
</TABLE>
- -------------------------
(1) Non-recurring charges of $10,845 incurred in fiscal year 1995 include $1,300
for restructuring expenses, $2,200 for facility consolidation expenses and
$7,345 for non-cash asset write-downs. Restructure charges and transition
expenses of $4,637 incurred in fiscal year 1999 include $2,016 transition
expenses for sales force restructuring, comprised primarily of severance
costs and training expenses, and $2,621 restructure charges associated with
the closing of one of our glove plants, comprised primarily of severance
costs and benefits.
(2) Discontinued operations include the results of Circon for the period from
the date of its acquisition, January 6, 1999, to October 31, 1999.
(3) Capital expenditures exclude expenditures for acquisitions, net of
divestitures.
(4) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges by fixed charges. For purposes of
computing the ratio of earnings to fixed charges, earnings available for
fixed charges consist of earnings from continuing operations before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, amortization of deferred financing costs and the
component of rental expense believed by management to be representative of
the interest component of rental expense.
58
<PAGE> 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As part of the recapitalization, Maxxim Holdings contributed all of its
assets and liabilities, other than those relating to Maxxim Holdings' previous
credit facility, to Maxxim Group. Maxxim Group did not have any operations or
assets prior to the asset dropdown. As a result of the recapitalization, Maxxim
Holdings has guaranteed the old notes, any exchange notes and Maxxim Group's new
secured senior credit facilities and has no material assets or operations other
than its ownership of all of Maxxim Group's capital stock. References to "we,"
"our" and "us" in the discussion below refer to Maxxim Holdings and its
subsidiaries.
The following discussion and analysis of Maxxim Holdings' financial
condition and results of operations covers only periods prior to the
recapitalization. Accordingly, the discussion and analysis of historical periods
does not reflect the significant impact that the recapitalization had on Maxxim
Holdings and Maxxim Group, including significantly increased leverage and
liquidity requirements. See "Risk Factors" and "-- Liquidity and Capital
Resources."
You should read the following discussion in conjunction with Maxxim
Holdings' historical consolidated financial statements and the related notes and
the pro forma and other financial information included elsewhere in this
prospectus.
RECENT ACQUISITIONS AND DIVESTITURES
Since 1986, we have completed 21 acquisitions, including Circon. We have
pursued acquisitions that have expanded or complemented existing product groups,
increased vertical integration or enlarged our customer base. Our most recent
acquisitions and divestitures are as follows:
CIRCON. In January 1999, we acquired Circon for $260.0 million,
including the repayment of $32.5 million of Circon debt and certain fees
and expenses incurred in connection with the acquisition. We obtained all
funds required in connection with the acquisition through borrowings under
our previous credit facility. Circon is a producer of endoscope systems,
urology endoscopes, gynecology endoscopes, gynecology sterilization
products, suction/irrigation products and premium urology stents. Circon
was sold to Circon Holdings on November 12, 1999, after the end of fiscal
year 1999, as part of the recapitalization. Circon was sold in exchange for
$208.0 million in cash and the repayment of $20 million of debt owed by
Circon to Maxxim Holdings. Maxxim Holdings will record a gain of $354,000
on the sale in the first quarter of fiscal year 2000.
GLOVE PLANT. In September 1998, we purchased a glove manufacturing
plant for approximately $16.1 million, funded from cash on hand. The plant
is located in Eaton, Ohio and produces non-latex examination gloves used
primarily in hospitals and surgery centers. The acquisition provided us
with additional glove-manufacturing capacity and an experienced work force.
WINFIELD MEDICAL. In June 1998, we acquired Winfield Medical for
approximately $31.3 million, funded from cash on hand and the assumption of
approximately $5.3 million of capital lease obligations. Winfield Medical
was a developer,
59
<PAGE> 65
manufacturer and distributor of single-use specialty medical products,
primarily bio-safety containment products.
STERILE CONCEPTS. In July 1996, we acquired Sterile Concepts for
approximately $110.0 million in cash, net of cash on hand at Sterile
Concepts, excluding acquisition costs of approximately $8.6 million paid in
fiscal year 1996. We funded the cash purchase price, repayment of
approximately $34.2 million of Sterile Concepts' debt and refinancing of
approximately $72.7 million of our then-existing debt through approximately
$121.0 million of borrowings under our previous credit facility and the net
proceeds of $97.0 million from the issuance of $100.0 million principal
amount of 10 1/2% senior subordinated notes due 2006. Sterile Concepts
assembled, packaged and distributed custom procedure trays for hospitals,
outpatient surgery centers and medical clinics. The acquisition of Sterile
Concepts increased our custom procedure tray business by over 200%, thereby
significantly expanding vertical integration opportunities in custom
procedure trays. As a result of the acquisition, we became the second
leading supplier of custom procedure trays in the United States.
We have also divested companies or product lines in recent years which
did not support our focus as a leading developer, manufacturer, distributor
and marketer of single-use specialty medical products. Significant
divestitures are as follows:
NON-STERILE PRODUCTS. In December 1998, we sold certain assets and
liabilities associated with our non-sterile products to CareLine, Inc. for
approximately $3.1 million, which consisted of approximately $1.2 million
in cash and a $1.9 million promissory note. We recorded a loss of $112,000
on the sale. This product group contributed net sales of $13.8 million,
$11.8 million and $2.2 million in fiscal years 1997, 1998 and 1999,
respectively.
HENLEY HEALTHCARE. In May 1996, we sold certain assets related to our
Henley Healthcare division operations to Henley Healthcare, Inc., formerly
Lasermedics Inc., for approximately $13.0 million, which consisted of
approximately $6.0 million in cash and a $7.0 million convertible note. The
assets were sold for net book value, and therefore no gain or loss was
recorded on the sale. In fiscal year 1998, we converted $4.0 million of the
convertible note into 2,000,000 shares of the purchaser's common stock.
After to this conversion, we sold 975,000 shares during fiscal year 1998 in
various private transactions. The assets sold in this divestiture were used
by the Henley Healthcare division to manufacture and sell various types of
physical medicine, rehabilitation and pain management products.
VERTICAL INTEGRATION
Our ability to vertically integrate the products we manufacture into our
custom procedure trays greatly affects our profitability because
self-manufactured products typically generate higher gross margins than those
generated by components purchased from third parties. Most of the items included
in our custom procedure trays, based on the cost of materials, are currently
purchased from third parties. Since the acquisition of Sterile Concepts in July
1996, we have increased over time the percentage of self-manufactured content in
our custom procedure trays. We intend to further increase the percentage of
self-manufactured products in our custom procedure trays through an on-going
marketing effort designed to encourage hospitals and surgery centers to select
products that we manufacture when selecting the components of the custom
procedure trays we sell.
60
<PAGE> 66
HEALTH CARE REFORM; BUYING GROUPS
In recent years, widespread efforts have been made in both the public and
private sectors to control healthcare costs, including the prices of products
such as those we sell, in the United States and abroad. One result of this focus
on cost containment has been a growing trend for hospitals and surgery centers
and other healthcare providers to coordinate their purchases of medical products
through buying groups in order to obtain price concessions and control costs. In
response to this trend, we have entered into contracts with many buying groups
making available to their members specified products at agreed upon prices. A
majority of our U.S. hospital and surgery center customers are members of buying
groups. We believe that our ability to enter into more of such arrangements will
be important to our future success. However, there can be no assurance that we
will be able to obtain new contracts from major buying groups. In addition,
because these contracts with buying groups involve price concessions from us, it
is important that these contracts result in high sales volumes from members of
the buying groups in order to offset the negative impact of lower per unit
prices at lower margins. Although buying groups strongly encourage their members
to purchase products under these contracts, compliance by different members of
the buying groups may vary. Accordingly, there can be no assurance that there
will be high sales volumes under these contracts. Our failure to enter into new
contracts with buying groups in the future or to achieve high sales volumes
under our contracts could have a material adverse effect on our business,
financial condition or results of operations.
We also believe that it is likely that efforts by governmental and private
payors to contain costs through managed care and other efforts and to reform
health systems will continue and that such efforts may have an adverse effect on
the pricing and demand for our products. There can be no assurance that current
or future reform initiatives will not have a material adverse effect on our
business, financial condition or results or operations. See "Business --
Industry" and "Business -- Sales, Marketing and Distribution."
INTERNATIONAL SALES
For the fiscal year ended October 31, 1999, approximately 10.3% of our net
sales were to customers outside North America, primarily in Europe. One of our
growth strategies is to increase the percentage of our sales of products to
international markets, primarily in Europe.
In international markets, where the movement towards healthcare reform and
the development of managed care are generally less advanced than in the United
States, we have experienced downward pressure on product pricing and other
effects of healthcare reform similar to those we have experienced in the United
States. We expect that continued development of healthcare reform and managed
care in our primary international markets will result in further downward
pressure on product prices.
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<PAGE> 67
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our statement of
operations line items and the percentage of net sales that each amount
represents. You should read the information below in conjunction with
"Summary -- Summary Historical and Pro Forma Financial Information," "Selected
Historical Consolidated Financial Information of Maxxim Holdings," the
historical consolidated financial statements of Maxxim Holdings and the
accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
NOVEMBER 2, 1997 NOVEMBER 1, 1998 OCTOBER 31, 1999
--------------------- --------------------- ---------------------
FINANCIAL % OF FINANCIAL % OF FINANCIAL % OF
RESULTS NET SALES RESULTS NET SALES RESULTS NET SALES
--------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $529.6 100.0% $522.5 100.0% $508.7 100.0%
Cost of sales........... 397.7 75.1 381.6 73.0 366.8 72.1
------ ----- ------ ----- ------ -----
Gross profit............ 131.9 24.9 140.9 27.0 141.9 27.9
Selling, general and
administrative
expenses.............. 90.1 17.0 94.4 18.1 93.7 18.4
Restructure charges and
transaction
expenses.............. -- -- -- -- 4.6 0.9
------ ----- ------ ----- ------ -----
Income from
operations......... 41.8 7.9 46.5 8.9 43.6 8.6
Interest expense, net... 22.1 4.2 13.4 2.6 27.8 5.5
Other income (expense),
net................... 2.7 0.5 1.0 0.2 (.6) (.1)
------ ----- ------ ----- ------ -----
Income from continuing
operations before
income taxes....... 22.4 4.2 34.1 6.5 15.2 3.0
Income taxes............ 9.5 1.8 14.5 2.8 7.2 1.4
------ ----- ------ ----- ------ -----
Income from continuing
operations............ 12.9 2.4 19.6 3.7 8.0 1.6
Income from discontinued
operations, net of
tax................... -- -- -- -- 6.1 1.2
------ ----- ------ ----- ------ -----
Net income............ $ 12.9 2.4% $ 19.6 3.7% $ 14.1 2.8%
====== ===== ====== ===== ====== =====
</TABLE>
FISCAL YEAR ENDED OCTOBER 31, 1999 COMPARED TO FISCAL YEAR ENDED NOVEMBER 1,
1998
NET SALES -- Net sales for fiscal year 1999 were $508.7 million compared to
$522.5 million for fiscal year 1998. The 2.7% decline in sales in fiscal year
1999 over fiscal year 1998 is primarily the result of the following factors: a
decline in custom procedure tray sales from $307.8 million in fiscal year 1998
to $289.0 million in fiscal year 1999; a slight decline in medical glove sales
from $109.8 million in fiscal year 1998 to $106.8 million in fiscal year 1999;
and a decline in sales from our non-sterile tray business from $11.8 million in
fiscal year 1998 to $2.2 million in fiscal year 1999, due to the sale of this
product line in the first quarter of fiscal year 1999; offset by an increase in
sales of bio-safety products from $11.0 million in
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<PAGE> 68
fiscal year 1998 to $29.9 million in fiscal year 1999, as a result of a full
year of operations of the Winfield Medical business following its acquisition in
June 1998.
GROSS PROFIT -- Gross profit increased to $141.9 million for fiscal year
1999 from $140.9 million reported in fiscal year 1998. The corresponding gross
profit margin rose to 27.9% in fiscal year 1999 from 27.0% in fiscal year 1998.
This improvement was primarily due to improved margins on custom procedure
trays, bio-safety products and vascular system sales. Gross profit margins of
the medical glove product line declined slightly year over year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased slightly to $93.7 million in fiscal year 1999
from $94.4 million in fiscal year 1998. As a percentage of net sales, these
expenses were 18.4% and 18.1% of net sales in fiscal years 1999 and 1998,
respectively. Marketing and selling expenses increased $5.2 million in fiscal
year 1999 compared to fiscal year 1998 due to the inclusion of Winfield Medical
selling expenses throughout fiscal 1999, following its acquisition in June 1998,
and an increase in the administrative fees which are payable to buying groups
under our buying group contracts. General and administrative expenses decreased
$5.9 million in fiscal year 1999 compared to fiscal year 1998 primarily due to
the reduction of administrative costs relating to the Winfield Medical business
and other efficiency improvements and cost reductions.
RESTRUCTURE CHARGES AND TRANSITION EXPENSES -- Restructure charges and
transition expenses for fiscal year 1999 were $4.6 million. In the first quarter
of fiscal year 1999, we recorded transition expenses of $2.0 million related to
the restructuring of our sales force. In the fourth quarter of fiscal year 1999,
we recorded restructure charges of $2.6 million related to the closing of one of
our glove plants.
INCOME FROM OPERATIONS -- Income from operations for fiscal year 1999 was
$43.6 million or 8.6% of net sales, compared to $46.5 million or 8.9% of net
sales in the comparable period of the prior fiscal year. This is a decrease of
6.2% over the prior fiscal year.
INTEREST EXPENSE -- Interest expense for fiscal year 1999 was $27.8 million
compared to $13.4 million for fiscal year 1998. Our debt level increased $260.0
million in fiscal 1999 due to the acquisition of Circon in January 1999. The
increased interest expense is a function of this increased debt level.
INCOME TAXES -- Our effective tax rate for fiscal year 1999 was 47.4% and
42.4% for fiscal year 1998. The tax rate was higher than the statutory rate
primarily due to nondeductible amortization of goodwill resulting from
acquisitions.
INCOME FROM CONTINUING OPERATIONS -- Income from continuing operations was
$8.0 million and $19.6 million for fiscal years 1999 and 1998, respectively, due
to the factors discussed above.
DISCONTINUED OPERATIONS -- In connection with the recapitalization, all of
the outstanding stock of Circon was sold to Circon Holdings in exchange for
$208.0 million in cash and the repayment of $20 million of debt owed by Circon
to us and, accordingly, Circon's operations have been reflected as discontinued
operations in our consolidated statement of operations for fiscal year 1999.
NET INCOME -- Net income reported for fiscal years 1999 and 1998 was $14.1
million and $19.6 million, respectively, due to the factors discussed above.
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FISCAL YEAR ENDED NOVEMBER 1, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 2,
1997
NET SALES -- Net sales for fiscal year 1998 were $522.5 million, compared
to $529.6 million reported for fiscal year 1997. The 1.3% decrease is primarily
attributable to the planned cessation of low margin custom procedure tray
business during fiscal year 1998. The decrease in custom procedure tray sales
was partially offset by the addition of bio-safety containment products in the
third and fourth quarters following the Winfield Medical acquisition in June
1998 and an increase in glove sales throughout the year. The increase in glove
sales during the year was primarily due to changes in product mix and the
acquisition of our Eaton, Ohio glove plant in the fourth quarter of fiscal year
1998.
GROSS PROFIT -- Gross profit increased to $140.9 million in fiscal year
1998 from $131.9 million reported in fiscal year 1997. The corresponding gross
profit margin rose to 27.0% in fiscal year 1998 from 24.9% in fiscal year 1997.
Gross profit dollar and gross margin rate increases were primarily due to our
fiscal year 1998 focus on product profitability. The 2.1 percentage point gross
profit margin year-over-year improvement resulted from the planned cessation of
low margin custom procedure tray business, greater vertical integration of
self-manufactured components in custom procedure trays, increased glove
manufacturing efficiency, a shift to sales of higher margin gloves and the
addition of higher margin bio-safety containment products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Marketing and selling
expenses increased to $65.8 million in fiscal year 1998 from $62.6 million in
fiscal year 1997. As a percentage of net sales, these expenses were 12.6% and
11.8% in fiscal years 1998 and 1997, respectively. This increase in both total
dollars and percent of net sales was the result of an increase in the
administrative fees which are payable to buying groups under our buying group
contracts, lower net sales in fiscal year 1998, and higher selling costs
associated with bio-safety containment products. General and administrative
expenses increased modestly from $27.5 million in fiscal year 1997 to $28.6
million in fiscal year 1998, and were 5.5% of net sales in fiscal year 1998 and
5.2% of net sales in fiscal year 1997. The increase in general and
administrative expenses is primarily attributable to the Winfield Medical
acquisition in June 1998.
INCOME FROM OPERATIONS -- Income from operations increased 11.3% to $46.5
million in fiscal year 1998, from $41.8 million in fiscal year 1997. As a
percentage of sales, income from operations increased 1.0 percentage points in
fiscal year 1998 to 8.9%, from 7.9% in fiscal year 1997.
INTEREST EXPENSE -- Interest expense decreased to $13.4 million in fiscal
year 1998 from $22.1 million in fiscal year 1997. The reduction in interest
expense was due to the repayment of outstanding borrowings under our previous
credit facility using the proceeds of our secondary common stock offering
completed in March 1998.
INCOME TAXES -- Our effective income tax rate was 42.4% in both fiscal year
1998 and fiscal year 1997. Our effective tax rate was higher than the statutory
rate primarily as a result of nondeductible amortization resulting from goodwill
recorded in past acquisitions.
NET INCOME -- As a result of the foregoing, fiscal year 1998 net income
increased 52.4% to $19.6 million, compared to fiscal year 1997 net income of
$12.9 million.
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LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Net cash provided by operating activities was $49.6 million, $55.5 million
and $42.2 million in fiscal years 1997, 1998 and 1999, respectively. The $13.2
million decrease in cash provided by operating activities from fiscal year 1998
to fiscal year 1999 was primarily due to a decrease in net income and an
increase in inventory period over period. The increase of $5.9 million in fiscal
year 1998 compared to fiscal year 1997 was primarily due to an increase in net
income, partially offset by an increase in inventory period over period.
Cash flows used in investing activities were $3.2 million, $68.0 million
and $271.8 million in fiscal years 1997, 1998 and 1999, respectively. The
acquisition of Circon used $247.1 million of investing sources in fiscal year
1999. Capital expenditures totaled $25.6 million in fiscal year 1999 due
primarily to our investment in glove manufacturing capacity expansion. The
Winfield Medical acquisition used $31.3 million of investing sources in fiscal
year 1998. Capital expenditures totaled $23.4 million in fiscal year 1998 and
were used primarily to increase glove manufacturing capacity. Additionally, we
invested $16.1 million for the purchase of glove plant assets in fiscal year
1998. Fiscal year 1997 investing activities were primarily related to capital
expenditures offset by proceeds from the sale of investment securities.
Cash flows (used in) provided by financing activities were $(48.8) million,
$13.4 million and $229.5 million in fiscal years 1997, 1998 and 1999,
respectively. We entered into a new credit facility in connection with the
acquisition of Circon in January 1999. Net borrowings under the revolving credit
facility totaled $55.2 million and net borrowings under the term loan totaled
$185.0 million during fiscal year 1999. In March 1998, we completed an offering
of 4,025,000 shares of common stock at a price to the public of $24.00 per
share. After deducting offering costs and commissions, we received net proceeds
of approximately $91.4 million. We used the proceeds to repay amounts due under
our previous credit facility. In fiscal year 1997, we used $48.3 million to
repay amounts due under such credit facility and to reduce overdrafts.
At October 31, 1999, our balance sheet included net goodwill of $142.5
million. The majority of this balance represents goodwill from the acquisitions
of Winfield Medical and Sterile Concepts. We acquired Winfield Medical in June
1998. Unamortized goodwill from the Winfield Medical acquisition totaled $22.7
million at October 31, 1999, which represents 15.9% of net goodwill as of that
date. In July 1996, we acquired Sterile Concepts. Unamortized goodwill from the
Sterile Concepts acquisition totaled $107.8 million at October 31, 1999, and
represented 75.6% of net goodwill as of that date. The remaining $12.0 million
of unamortized goodwill at October 31, 1999, relates to various other
acquisitions made between 1992 and 1999. All components of goodwill are being
amortized on a straight line basis over the applicable useful life. Useful lives
have been estimated at 30 years for Winfield Medical, 40 years for Sterile
Concepts and 5 to 20 years for the remaining goodwill components. Total goodwill
amortization expense for fiscal years 1999 and 1998 was $4.6 million and $4.4
million, respectively. Management believes that there is no persuasive evidence
that any material portion of this intangible asset will dissipate over a period
shorter than the determined useful life.
EFFECTS OF THE RECAPITALIZATION
As a result of the recapitalization, interest payments on the old notes,
senior debt service under the new credit facilities, working capital and capital
expenditures represent
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<PAGE> 71
Maxxim Group's significant liquidity requirements. Future, but as yet
unidentified, acquisition opportunities may also represent potentially
significant liquidity requirements.
The new credit facilities are provided by a syndicate of banks and other
institutions led by The Chase Manhattan Bank, as administrative agent and
collateral agent, and Chase Securities Inc., as arranger. The new credit
facilities provide for:
- a $50.0 million revolving credit facility, which will terminate six years
from the date of the initial borrowings under the new credit facilities;
- a fully drawn $80.0 million tranche A term loan with a maturity of six
years;
- a fully drawn $90.0 million tranche B term loan with a maturity of
seven-and-one-half years; and
- a fully drawn $90.0 million tranche C term loan with a maturity of
eight-and-one-half years.
The revolving credit facility is available for general corporate purposes,
including working capital and capital expenditures, and includes sublimits of
$25.0 million and $10.0 million, respectively, for letters of credit and
swingline loans. Upon the closing of the recapitalization, Maxxim Group had
$48.4 million of unused borrowing capacity under the revolving credit facility.
For a description of the amortization and interest rates with respect to the new
credit facilities, see "Description of New Credit Facilities and Other
Indebtedness -- New Credit Facilities."
The new credit facilities impose certain restrictions on Maxxim Holdings
and its subsidiaries, including Maxxim Group, and the indenture imposes certain
restrictions on Maxxim Group and its subsidiaries, including restrictions on
their ability to incur additional indebtedness, issue preferred stock, pay
dividends and make certain distributions, make investments, sell assets, create
liens, enter into certain transactions with affiliates and engage in certain
other activities. In addition, the new credit facilities require Maxxim Group to
maintain certain financial ratios. The new credit facilities and the guarantees
thereunder are secured by substantially all of the assets of Maxxim Group and
the guarantors of the new credit facilities, including real and personal
property, inventory, accounts receivable and other intangibles, in each case
subject to certain limited exceptions, and by the capital stock of Maxxim Group
held by Maxxim Holdings. See "Description of New Credit Facilities and Other
Indebtedness -- New Credit Facilities." See "Unaudited Pro Forma Financial
Information of the Company."
Maxxim Holdings and Maxxim Group incurred fees and expenses of
approximately $52.2 million in connection with the recapitalization. In
addition, Maxxim Holdings and Maxxim Group substantially increased their
indebtedness upon consummation of the recapitalization. If the recapitalization
had been completed on October 31, 1999, Maxxim Group's pro forma outstanding
indebtedness would have totaled $376.3 million and Maxxim Holdings' consolidated
pro forma outstanding indebtedness would have totaled $422.6 million, compared
to actual historical outstanding indebtedness of Maxxim Holdings at such date of
$361.7 million. As a result of the new credit facilities and the old notes,
together with any exchange notes exchanged for old notes, Maxxim Group's
liquidity requirements will be significantly increased relative to Maxxim
Holdings' historical requirements, primarily due to increased interest expense
obligations and, commencing on October 31, 2000, principal payment obligations
under the new credit facilities. See "Risk Factors -- Holdings and the Company
will have a substantial amount of debt that they
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may not be able to service." See "Unaudited Pro Forma Financial Information of
the Company."
We estimate that capital expenditures for fiscal year 2000 will be $11.0
million.
Maxxim Group's ability to satisfy its debt obligations and to pay principal
and interest on debt, including the old notes and any exchange notes, fund
working capital and make anticipated capital expenditures, will depend on its
subsidiaries future performance, which is subject to general economic, financial
and other factors, some of which are beyond its control. Management believes
that based on current levels of operations and anticipated growth, cash flow
from operations, together with borrowings under the revolving credit facility,
will be adequate for the foreseeable future to make required payments of
principal and interest on Maxxim Group's debt, including the old notes and any
exchange notes, to fund working capital, and to make expected capital
expenditures. There can be no assurance, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be
available under the revolving credit facility in an amount sufficient to enable
Maxxim Group to service its debt, including the old notes and any exchange
notes, or to fund other liquidity needs. See "Risk Factors."
BACKLOG
It is our policy and practice to maintain an inventory of finished products
or component parts and materials sufficient to ship products within a few days
of receipt of a product order. As a result, we had no significant backlog of
unshipped orders at October 31, 1999. Management believes that such policy and
practice are typical of industry practice.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks. Market risk is the potential loss arising
from adverse changes in market prices, interest rates and foreign currency
exchange rates. We do not enter into derivative or other financial instruments
for trading or speculative purposes.
INTEREST RATE RISK -- We are subject to market risk exposure related to
changes in interest rates on the new credit facilities. Interest on borrowings
under the new credit facilities are at a fixed percentage point spread from
either (1) the greater of prime, base CD or federal funds rates or (2) LIBOR. We
are able to, at its option, fix the interest rate for LIBOR for periods ranging
from one to six months. The interest rate on all outstanding obligations under
the new credit facilities are currently set off of one month LIBOR. We are
obligated to enter into within 120 days of the closing of the new credit
facilities, and maintain for at least three years, one or more interest rate
protection agreements in order to fix or limit our interest costs with respect
to at least 50% of the outstanding term loans under the new credit facilities.
FOREIGN CURRENCY EXCHANGE RATE RISK -- Generally we generate net sales and
expenses in the local currency where our products are sold and thus are not
currently subject to significant currency exchange risk. In the future, it is
possible that a greater portion of our net sales outside of North America may
not be denominated in the same local currency as the related expenses and thus
we may be subject to currency exchange risks in connection therewith.
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INTANGIBLE ASSET RISK -- Our balance sheet includes intangible assets. We
assess the recoverability of intangible assets by determining whether the
amortization of the asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of asset impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting our average cost of
funds. We do not believe that any impairment of goodwill exists.
INFLATION
We believe that inflation has not had a material effect on our results of
operations for the past three years. Historically, we believe that we have been
able to minimize the effect of inflation by increasing the selling prices of our
products, improving our manufacturing efficiency and increasing our employee
productivity.
YEAR 2000
The year 2000 problem relates to computer systems that are designed using
two digits, rather than four, to represent a given year. Therefore, such systems
may recognize "00" as the year 1900 rather than the year 2000, possibly
resulting in major system failures or miscalculations and causing disruptions in
our operations.
We rely on electronic information systems technology to operate our
business. We continuously seek to improve these systems in order to provide
better serve to customers and to support our growth objectives. We have worked
to resolve the potential impact of the year 2000 issue with regard to our
systems, suppliers and customers. We have experienced no significant problems as
a result of the changeover of the date from 1999 to 2000. Based on the
information currently available, however, we cannot conclude that a failure of
third parties to achieve year 2000 compliance or an unanticipated pervasive
failure of our systems would not adversely affect us in the future.
We have established a three-phased approach to address year 2000 issues,
including embedded technology utilized in our facilities and equipment. The
three phases included in our approach are: (1) identification, (2) compliance
and (3) validation. Internally, we have substantially completed, with the aid of
outside consultants, the identification and compliance phases and will continue
completing the validation phase as appropriate. The validation phase consists
primarily of monitoring and testing of new software and all other components and
interfaces that were implemented or upgraded as part of the software
installation or as a result of other identified year 2000 deficiencies.
Externally, we formally communicated with significant suppliers, customers and
other third parties to assess their year 2000 readiness. We are currently
working with all of our significant external parties in the validation phase,
which includes the monitoring and testing of significant interfaces with those
external parties, among other things.
The total incremental direct and indirect costs of our year 2000 project
are estimated to be approximately $1.5 million, including approximately $1.1
million incurred through October 31, 1999. The estimated costs of the year 2000
project are not expected to have a material impact on our business, operations
or financial condition in future periods. The anticipated impact and the total
costs of the year 2000 project are based on management's best estimates and
information currently available.
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NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), was issued by the
FASB in June 1998. SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. SFAS No. 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. We will adopt SFAS No. 133 beginning in the first quarter of fiscal
year 2001.
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BUSINESS
OVERVIEW
We are a leading developer, manufacturer, distributor and marketer of a
broad range of single-use specialty medical products primarily used in the
operating rooms of hospitals and surgery centers. Through our North American and
European sales force of approximately 155 full-time representatives, we sell
approximately 23,000 products to approximately 7,000 customers. Our products,
and the percentage they represented of our total net sales for the fiscal year
ended October 31, 1999, include:
- custom procedure trays -- 56.8%;
- gloves for medical examinations and surgical procedures -- 21.0%;
- imaging and critical care products for cardiology and radiology -- 6.9%;
- bio-safety containment products -- 5.9%;
- drapes and gowns -- 4.9%; and
- other single-use specialty medical products -- 4.5%.
We are the second leading supplier of custom procedure trays in the United
States, with approximately 29% of sales of such products in 1998, and we are the
leading supplier of non-latex medical examination gloves to hospitals, surgery
centers and other acute care facilities in the United States, with approximately
35% of sales of such products to such customers for the three months ended March
31, 1999. For the fiscal year ended October 31, 1999, approximately 89.7% of our
net sales were in North America, substantially all of which were in the United
States, and 10.3% of our net sales were outside the United States, primarily in
Europe. For the fiscal year ended October 31, 1999, our continuing operations
generated net sales of $508.7 million.
Our custom procedure trays are kits containing single-use products used in
surgical and other medical procedures, including:
- - surgical drapes and gowns
- - needles
- - syringes
- - pressure syringes
- - scalpels
- - tubing
- - skin markers
- - bowls
- - bulb syringes
- - cotton towels
- - towel clamps
- - other non-powered instruments
We currently assemble approximately 4,000 different custom procedure trays,
primarily for hospitals and surgery centers. We design these custom procedure
trays in accordance with the specific preferences of individual end users that
select components from a list of approximately 9,000 components manufactured by
us or other third party manufacturers. Hospitals and surgery centers have
increased their use of custom procedure trays in recent years in order to
increase efficiency, reduce inventory levels, protect against product
contamination and allow for easier identification of costs associated with
specific medical procedures.
The gloves we manufacture include non-latex medical examination gloves,
which are manufactured entirely from synthetic materials, as well as non-latex
and latex gloves for use in surgical procedures. A June 1997 report published by
the National Institute for
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Occupational Safety and Health heightened the awareness and concern of
healthcare professionals about allergic reactions from exposure to latex and
has, we believe, contributed to non-latex gloves becoming the fastest growing
portion of medical glove sales. To capitalize on this expanding business, we
have increased our glove capacity from 2.2 billion to 3.5 billion non-latex
gloves per year by investing approximately $36.0 million since the beginning of
fiscal year 1998 in additional plant capacity, including two new
state-of-the-art production lines. We believe our increased capacity and high
product quality position us to grow in the expanding non-latex medical glove
business.
Hospitals and surgery centers are the primary end-use customers of our
products. Our North American sales force, consisting of approximately 140
full-time representatives, maintains close, direct relationships with the
healthcare professionals and administrators who make the purchasing decisions
for these customers. In addition, a majority of our U.S. hospital and surgery
center customers are members of buying groups. See "-- Industry" for a
description of buying groups. Our nationwide customer service and distribution
capabilities, broad product offerings and sophisticated supply management
systems, combined with the efforts of our 10 national account managers, have
enabled us to develop close relationships with a number of buying groups,
including the six largest buying groups, as ranked by number of member
hospitals:
- Premier Research Worldwide Ltd.
- AmeriNet, Inc.
- Novation, LLC
- MHA/MedEcon
- Mid-Atlantic Group Network of Shared Services Inc.
- Health Services Corporation of America
Buying groups typically enter into contracts with various suppliers that
provide that the suppliers will make available specified products at agreed-upon
prices to members of the buying groups. Buying groups strongly encourage their
members to purchase these products, although compliance by different buying
group members may vary. Our sales efforts at the hospital and surgery center
level, which are strengthened by the use of our proprietary DataStat(TM) and
ValuQuote(TM) systems, increase demand for our products among our end-use
customers, including those that make purchases under buying group contracts.
Led by our Chairman, President and Chief Executive Officer, Kenneth W.
Davidson, and a team of senior managers who average approximately 18 years of
experience in the medical products industry, we have grown through strategic
acquisitions as well as through the development of new products. Our strategy
has been to acquire companies and develop products that expand or complement
existing product groups, increase vertical integration or enlarge our customer
base. Since Mr. Davidson's arrival in 1986, we have completed 20 acquisitions,
excluding Circon, which, when combined with internal growth, have generated a
compound annual growth rate through October 31, 1999 of 43.5% in net sales,
excluding Circon.
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INDUSTRY
We compete primarily in the U.S. single-use specialty medical products
industry, which had estimated sales of $5.3 billion in 1998. The industry has
been growing at a compound annual rate of approximately 6.6% since 1993 and is
expected to grow at a compound annual rate of approximately 6.3% through 2003.
The products included in the U.S. single-use specialty medical products industry
are:
- latex and non-latex medical gloves
- custom procedure trays
- drapes
- gowns
- shoe covers
- face masks
- non-powered instruments
- headgear
- needles
- syringes
- tubing
- prepackaged needle kits and trays
We sell all such products. The primary customers for single-use specialty
medical products are hospitals, surgery centers, alternate site care providers
and physician practices.
We believe several trends have had and will continue to have an impact on
the single-use specialty medical products industry. First, we expect the
projected aging of the population to increase demand for such products because
older people tend to undergo more surgical procedures. Second, we expect efforts
to reduce the transmission of infectious diseases and to address the
occupational safety of healthcare professionals to favorably impact demand for
single-use specialty medical products. Finally, in recent years, widespread
efforts have been made in both the public and private sectors to control
healthcare costs in the United States and abroad. Among other implications, this
has led to a growing trend in the United States for hospitals and surgery
centers to consolidate and/or to join buying groups, which are groups of
independent hospitals and surgery centers that coordinate their purchasing and
supply requirements on a regional or national basis in order to obtain price
concessions and contain costs. We believe this trend favors suppliers, like us,
that are able to serve national contracts with:
- a broad product line;
- sophisticated supply management processes;
- high brand name recognition with member hospitals and other end use
customers and;
- nationwide customer service and distribution capabilities.
CUSTOM PROCEDURE TRAYS. The custom procedure tray portion of the U.S.
single-use specialty medical products industry had estimated sales of $1.1
billion in 1998. This portion of the industry has been growing at a compound
annual rate of approximately 7.2% since 1993 and is expected to grow at a
compound annual rate of approximately 6.3% through 2003. Custom procedure trays
were used in approximately 65% of all surgical procedures in the United States
in 1998. We believe several factors will contribute to continued growth in
demand for custom procedure trays in the United States, including:
- continued growth in the number of overall surgical procedures;
- growth in the number of more complex surgical procedures for which custom
procedure trays are used; and
- growing demand for products that improve productivity and contain costs.
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MEDICAL EXAMINATION AND SURGICAL GLOVES. The medical glove portion of the
U.S. single-use specialty medical products industry had estimated sales of $1.2
billion in 1998. This portion of the industry has been growing at a compound
annual rate of approximately 8.9% since 1993 and is expected to grow at a
compound annual rate of approximately 10.0% through 2003. The medical glove
portion can be divided into latex gloves and non-latex gloves, each of which can
be designed either for medical examinations or surgical procedures. U.S. sales
of medical examination gloves, estimated at $940 million in 1998, are projected
to grow at a compound annual rate of approximately 9.9% through 2003, with the
non-latex category estimated to grow at a compound annual rate of approximately
17.5% through 2003. U.S. sales of surgical procedure gloves, estimated at $223
million in 1998, are projected to grow at a compound annual rate of
approximately 10.1% through 2003, with the non-latex category estimated to grow
at a compound annual rate of approximately 30.9% through 2003. A greater
emphasis on protecting healthcare professionals from the transmission of
infectious diseases is expected to help drive growth in sales of both latex and
non-latex gloves. A June 1997 report published by the National Institute for
Occupational Safety and Health heightened the awareness and concern of
healthcare professionals about allergic reactions from exposure to latex and
has, we believe, contributed to non-latex gloves becoming the fastest growing
portion of medical glove sales.
EUROPEAN INDUSTRY TRENDS. Although we believe the number of surgical
procedures performed in Europe is only slightly less than the number of surgical
procedures performed in the United States, the use of single-use specialty
medical products, including custom procedure trays, currently is not as
prevalent in Europe as it is in the United States. Custom procedure trays were
used in approximately 8% of all surgical procedures in Europe in 1998 versus
approximately 65% in the United States during such time. We believe that
European healthcare providers will increase their use of single-use specialty
medical products, including custom procedure trays, as demand increases in
Europe for products that improve productivity, help contain healthcare costs and
reduce the transmission of infectious diseases.
INDUSTRY INFORMATION
Unless otherwise indicated, and except as provided in the following
sentence, information in this prospectus concerning the U.S. single-use
specialty medical products industry and the custom procedure tray and medical
glove portions of such industry and the European custom procedure tray industry,
including, but not limited to, information as to historical sales, historical
growth rates, projected growth rates and our position in the custom procedure
tray portion of the U.S. single-use specialty medical products industry, is
based on a report dated September 7, 1999, that was prepared in connection with
the sale of the old notes by Frost & Sullivan, a market research firm.
Information regarding our percentage of total sales of non-latex medical
examination gloves to hospitals, surgery centers and other acute care facilities
in the United States is based on reports prepared by IMS Health Incorporated, a
supplier of market research data to the pharmaceutical and healthcare
industries. We have not independently verified any of the information in the
Frost & Sullivan or IMS reports. Information presented in this prospectus based
on the Frost & Sullivan and IMS reports is based on estimates, but is, we
believe, generally indicative of such industries' size and our positions within
such industries or their components. Our general expectations concerning the
U.S. single-use specialty medical products industry and its components and the
European custom procedure tray industry
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involve risks and uncertainties and are subject to change based on various
factors, including those discussed under "Risk Factors."
BUSINESS STRATEGY
Our key business objectives are to enhance growth, profitability and our
position as an industry leader through the following key strategic initiatives:
EMPHASIZE RELATIONSHIPS WITH BUYING GROUPS. We believe that the trend
among buying groups to concentrate their supply contracting with fewer,
larger suppliers favors suppliers, like us, that offer the ability to serve
national contracts with a broad product line, sophisticated supply
management processes, high brand name recognition with buying group members
and nationwide customer service and distribution capabilities. We intend to
leverage our strengths in these areas and our existing relationships in
order to:
- increase the number of buying groups with which we do business;
- increase the number of our products approved by each buying group for
purchase by its members; and
- increase sales of approved products to the members of each buying
group.
SEEK GREATER VERTICAL INTEGRATION. Our profitability is greatly
affected by our ability to vertically integrate the products we manufacture
into our custom procedure trays. Most of the items included in our custom
procedure trays, based on the cost of materials, are purchased from third
parties. We intend to increase the percentage of our products integrated
into our custom procedure trays through an aggressive marketing effort
designed to encourage hospitals and surgery centers to select products we
manufacture when selecting the components of the custom procedure trays we
sell.
CONTINUE GROWTH THROUGH STRATEGIC ACQUISITIONS AND PRODUCT
DEVELOPMENT. An important focus of our overall strategy is to:
- acquire companies and product groups that expand or complement our
existing product groups, increase vertical integration or enlarge
our customer base; and
- continue our internal product development and enhancement efforts in
order to maintain a leadership position in the medical glove
business and to increase the number of products we manufacture that
either can be sold directly or can be included in our custom
procedure trays.
We have successfully used acquisitions to build Maxxim Group into a
leading single-use specialty medical products company and we intend to
continue to grow through additional select acquisitions. Since 1986, we
have successfully completed 20 acquisitions, excluding Circon, which, when
combined with internal growth, have generated compound annual growth rates
through October 31, 1999 of 43.5% in net sales, excluding Circon. We
believe that we have an attractive platform from which to grow for the
following reasons:
- our strong relationships with buying groups and approximately 7,000
end-use customers;
- our North American and European sales force of approximately 155
full-time representatives;
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- our senior management team's experience and track record of
integrating acquisitions; and
- our custom procedure tray business, which creates margin-improvement
opportunities from the vertical integration of newly acquired or
developed products that can be included in our trays.
EXPAND EUROPEAN PRESENCE. We plan to increase our penetration of the
expanding European single-use specialty medical products business by using
our current European operations as a platform for growth and by leveraging
the expertise we have developed from our U.S. experience in the
manufacture, assembly, marketing and distribution of these products. We
believe that European healthcare providers will increase their use of
single-use specialty medical products, including custom procedure trays, as
demand increases in Europe for products that improve productivity, help
contain healthcare costs and reduce the transmission of infectious
diseases. We first introduced products in Europe in January of 1995 through
the acquisition of our Medica subsidiary. For the fiscal year ended October
31, 1999, our net sales into Europe were $44.9 million, or 8.8% of our
total net sales.
PRODUCTS
CUSTOM PROCEDURE TRAYS. Our custom procedure trays are kits containing
single-use products used in surgical and other medical procedures, including:
- - surgical drapes
- - gowns
- - needles
- - syringes
- - pressure syringes
- - bulb syringes
- - scalpels
- - tubing
- - skin markers
- - bowls
- - cotton towels
- - towel clamps
- - other non-powered instruments
We currently assemble approximately 4,000 different custom procedure trays.
We design these custom procedure trays in accordance with the specific
preferences of individual end users that select components from a list of
approximately 9,000 component parts manufactured by us and third party
manufacturers. For a description of the components that we manufacture and those
that we purchase from third party manufacturers, see "-- Manufacturing."
The price of custom procedure trays ranges from $5 to $1,200 depending on
the complexity of the procedure, with a weighted average selling price of
approximately $50 per tray for the fiscal year ended October 31, 1999. For the
fiscal year ended October 31, 1999, our net sales from custom procedure trays
were $289.0 million, representing 56.8% of our total net sales.
By using our custom procedure trays, customers receive the following
benefits:
- productivity increases, by reducing the amount of preparation and
turnaround time required for surgical procedures;
- improved supply management, by access to approximately 9,000 single-use
specialty medical components for use in procedures without the need to
maintain a significant inventory of these products;
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- cost savings, by reducing the commitment of capital and personnel needed
in the administration, inventory management and sterilization of a large
number of reusable medical supplies for surgical and other medical
procedures; and
- cost information and reporting on a procedure-specific basis, which is
important for determining a hospital's or surgery center's cost per
procedure.
Our custom procedure trays are also components in our EnCompass(SM)
Integrated Product Packaging system, which is an innovative system that packages
most of the single-use sterile and non-sterile components used in a surgical
procedure, together with the custom procedure tray, into a single modular
container. We specifically design and label these containers to meet inventory
and operating room set-up, turnaround and disposal needs of hospitals and
surgery centers.
In addition, our custom procedure tray sales are supported by our
proprietary DataStat(TM) software system, which reviews various surgical
procedures, tracks components used in each procedure and records surgery time
and operating delays, and ValueQuote(TM) software system, which allows account
managers to search our component database for cost-effective component parts
that meet the sequencing needs of each customer.
GLOVES. We manufacture gloves for medical examinations and surgical
procedures. Our gloves, which are sold under brand names such as:
- - Tru-Touch(TM)
- - SensiCare(TM)
- - Sensicare PF(R)
- - Tradition(TM)
- - Eudermic(TM)
- - Integron(TM)
- - Neolon(TM)
Our gloves are manufactured from synthetic rubber, various non-latex
materials or latex and are offered lightly powdered or powder-free. For the
fiscal year ended October 31, 1999, sales of non-latex medical examination
gloves, latex surgical gloves and non-latex surgical gloves accounted for 87.8%,
10.2% and 2.0% of our total glove net sales, respectively. We believe that our
non-latex medical gloves provide a viable alternative to traditional latex
gloves. A June 1997 report published by the National Institute for Occupational
Safety and Health heightened the awareness and concern of healthcare
professionals about allergic reactions from exposure to latex and has, we
believe, contributed to non-latex gloves becoming the fastest growing portion of
medical glove sales. In addition, we expect that the increasing concern of
healthcare professionals regarding allergic reactions to, or the mess caused by,
the powder commonly used as a lubricant will increase demand for our powder-free
glove products.
Our most technologically advanced non-latex gloves are manufactured using a
combination of trade secrets and patented formulations and manufacturing
processes that we believe provide us with technological and performance
advantages over our competitors in these product areas. These advantages include
greater tactility and barrier protection for the user. In order to maintain our
advantage, we continue to research and develop new compounds to improve our
non-latex products and powder-free products. For the fiscal year ended October
31, 1999, our net sales from gloves were $106.8 million, excluding immaterial
net sales of gloves sold as part of our custom procedure trays, representing
21.0% of our total net sales.
VASCULAR SYSTEMS PRODUCTS. This product group includes products relating
to coronary and peripheral diagnostic and interventional procedures, including
products used in radiology, as well as products used in critical care
procedures. Our core products in this
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category include catheters, guidewires, introducers and fluid management
systems. We sell vascular systems products primarily on a standalone basis
rather than as part of our custom procedure trays. For the fiscal year ended
October 31, 1999, our standalone net sales from vascular systems products were
$35.3 million, representing 6.9% of our total sales.
BIO-SAFETY CONTAINMENT PRODUCTS. Bio-safety containment products, such as
plastic boxes and bags, are used to dispose of sharp medical instruments and
biological waste. We primarily sell our bio-safety containment products on a
standalone basis rather than as part of our custom procedure trays. For the
fiscal year ended October 31, 1999, standalone net sales from bio-safety
containment products totaled $29.9 million, representing 5.9% of our total net
sales.
DRAPES AND GOWNS. Our drapes and gowns product group includes single-use,
non-woven infection control apparel for operating room personnel and patient
draping systems such as:
- - drapes
- - gowns
- - face masks
- - headgear
- - shoe coverings
We manufacture drapes and gowns for our custom procedure trays as well as
for sale on a standalone basis. We sell our drapes and gowns products under the
Boundary(R) brand name. For the fiscal year ended October 31, 1999, our
standalone net sales from drapes and gowns were $24.9 million, representing 4.9%
of our total net sales.
OTHER PRODUCTS. Our other products include a variety of single-use medical
bowls and special purpose containers, as well as our Medica(TM) products, which
include various self-manufactured and assembled single-use specialty medical
products such as:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- - scrub brushes - custom procedure kits for transfusions,
- - swabbing sticks infusions and patient monitoring
</TABLE>
We primarily sell these products on a standalone basis rather than as part
of our custom procedure trays. For the fiscal year ended October 31, 1999, our
standalone net sales from these products were $22.8 million, representing
approximately 4.5% of our total net sales.
PRODUCT DEVELOPMENT AND PATENTS; OTHER INTELLECTUAL PROPERTY
Although we have developed a number of our own products, most of our
research and development efforts have historically been directed towards product
improvement and enhancement of previously developed or acquired products, with
an emphasis on medical gloves. We bring a team approach to research and
development that involves the cooperative effort of our engineering,
manufacturing and marketing resources, including 68 dedicated research and
development employees. By working closely with our sales force, our research and
development teams get up-to-date feedback and information from the hospitals,
surgery centers and healthcare professionals that use our products. Our research
and development expenses were $5.2 million, $5.6 million and $6.1 million in
fiscal years 1997, 1998 and 1999, respectively.
We pursue a policy of seeking exclusive licenses and/or patent protection
both in the United States and abroad for certain of our technology and/or
manufacturing processes. While no patent covered product sales that constituted
5% or more of our total net sales for the fiscal year ended October 31, 1999,
obtaining or maintaining patents and/or
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exclusive technology licenses on certain of our new products or products under
development, including for our SensiCare(TM) brand gloves, may be critical to
the success of such products. The failure to obtain or maintain such patents and
licenses could have an adverse effect on our prospects or future operating
results.
We also rely on trade secrets and know-how to maintain our competitive
position and to protect significant portions of our technology and/or
manufacturing processes, including our DataStat(TM) and ValuQuote(TM) software
systems and our EnCompass(SM) Integrated Product Packaging System. It is our
practice to enter into confidentiality agreements with key employees and
consultants. There can be no assurance, however, that these measures will
prevent the unauthorized disclosure or use of our trade secrets and know-how or
that others may not independently develop similar trade secrets or know-how or
obtain access to our trade secrets, know-how or proprietary technology.
Maxxim Medical(TM) is a registered trademark of our company. Other
important registered and common law trademarks, service marks and copyrights of
our company include:
- - Argon(TM)
- - Argon BiCath(R)
- - Boundary(R)
- - DataStat(TM)
- - EnCompass(SM)
- - Eudermic(TM)
- - Integra(TM)
- - Medica(TM)
- - Neolon(TM)
- - SensiCare(R)
- - SensiCare PF(R)
- - Tradition(TM)
- - Tru-Touch(R)
- - ValuQuote(TM)
MANUFACTURING
Our products are manufactured and/or assembled from a variety of component
parts and materials. The products included in our custom procedure trays are
finished products, all of which we expect to continue to be readily available at
reasonable costs from a variety of manufacturers and suppliers, including, where
applicable, our manufacturing facilities. We assemble our custom procedure trays
at our plants in California, Florida, Texas and Virginia in the United States
and Ommen in The Netherlands. Each custom procedure tray is assembled to the
exact specifications of the end-use customer using a procedure in which
employees are provided with exact directions as to which components to include
and how to assemble them on the custom procedure tray. The products we purchase
from third-party vendors for inclusion in our custom procedure trays include:
- - drapes and gowns
- - bowls
- - tubing
- - syringes
- - pressure syringes
- - bulb syringes
- - towel clamps
- - scalpels
- - cotton towels
- - skin markers
Of these products, we manufacture a portion of the following that we use as
components in our custom procedure trays:
- - drapes and gowns
- - bowls
- - tubing
- - syringes
- - pressure syringes
- - towel clamps
Currently, most of the items included in our custom procedure trays, based
on the cost of materials, are purchased from third parties. No single
third-party manufacturer is material to our custom procedure tray sales.
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We also manufacture approximately 95% of the gloves we sell. The primary
raw materials used to manufacture our medical gloves are synthetic resins,
polymers and latex. All of the gloves that we manufacture are manufactured at
our facilities in Ohio and South Carolina in the United States and Canada and
Belgium. Our glove manufacturing facilities are highly automated, unlike most of
our other operations, which are labor intensive. We manufacture our gloves
utilizing two different processes. The primary process is a high-speed
continuous line that transports a single line of glove molds through dipping,
curing, automatic glove stripping and automatic packaging. The secondary and
less widely used process is a medium-speed process that transports a batch of
multiple side-by-side molds through dipping, curing, automatic glove stripping
and automatic packaging. Process logic controllers and sensors control both
processes and allow on-line real-time manufacturing and quality adjustments.
From the summer of 1997 through the spring of 1999, we were unable to meet
demand for our non-latex medical examination gloves due to manufacturing
capacity constraints. As a result, during that time period, our share of U.S.
sales of non-latex medical examination gloves to hospitals, surgery centers and
acute care centers declined from approximately 55% in 1997 to approximately 35%
for the three months ended March 31, 1999, although our total net sales of such
products remained approximately constant. To remedy our capacity limitations, we
have spent $36 million since the beginning of fiscal year 1998 in additional
plant capacity, including two new state-of-the-art production lines. As a
result, we have increased our capacity from 2.2 billion to 3.5 billion non-latex
gloves per year.
All of the imaging and critical care products that we manufacture are
manufactured at our facility in Texas. All of the bio-safety containment
products that we manufacture are manufactured at our facilities in California
and West Virginia. All of the drapes and gowns that we manufacture are
manufactured at our facilities in Mississippi and the Dominican Republic. The
products that we describe as our other products are manufactured at our
facilities in Texas and The Netherlands. For products other than gloves, we
currently operate our manufacturing facilities using one or two shifts per day
and, as a result, we have the capacity to produce more of such products by
adding additional shifts.
SALES, MARKETING AND DISTRIBUTION
Through our North American and European sales force of approximately 155
full-time sales representatives, we sell approximately 23,000 products,
including approximately 4,000 different custom procedure trays, to approximately
7,000 customers. For the fiscal year ended October 31, 1999, 89.7% of our total
net sales were in North America, substantially all of which were in the United
States, 8.8% were in Europe, primarily in The Netherlands, Germany and Belgium,
and 1.5% were in the rest of the world.
NORTH AMERICA. Our primary customers are hospitals and surgery centers, a
majority of which purchase our products under supply contracts negotiated with
us by the buying group of which the hospital or surgery center is a member. As a
result, our sales and marketing efforts target both hospitals and surgery
centers as well as buying groups. To increase sales and awareness of our
products at the hospital and surgery center level, our North American sales
force of approximately 140 full-time representatives maintains close, direct
relationships with the healthcare professionals and administrators who make the
purchasing decisions for these customers, including by offering access to our
proprietary
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DataStat(TM) and ValuQuote(TM) systems. At the same time, our 10 national
account managers focus on building relationships with buying groups. The buying
group contracts typically contain the key purchasing terms and conditions,
including price, for a list of products approved by the buying group for
purchase by its member hospitals and surgery centers. Buying groups strongly
encourage their members to purchase under their buying group contracts, although
compliance by different buying group members may vary.
Whether purchasing independently or under a buying group contract, our
North American hospitals and surgery center customers have the option of having
our products delivered directly by us or through a distributor. In the event a
customer chooses to purchase though a distributor, the distributor purchases our
product from us and resells them to the end-use customer. In general, customers
who choose to have products delivered by a distributor do so in order to
streamline their purchasing process and to consolidate deliveries, and such
customers bear the cost of such distributor. Under such arrangements, we
maintain purchase orders or supply agreements directly with the hospital or
surgery center customer that set forth the basic terms upon which the hospital
or surgery center purchases our products from the distributor, including price.
If the customer is a member of a buying group, the terms, including price, will
ordinarily be dictated by the contract between the buying group and us. Because
we typically maintain direct contact with the hospital or surgery center even if
a buying group or distributor is involved, our sales representatives can provide
superior customer service to increase sales of our products that are currently
under contract with the buying group, and introduce and sell certain of our
products that are not included on the buying group contract. For the fiscal year
ended October 31, 1999, direct sales to hospitals/surgery centers and
distributors accounted for 21.6% and 78.4%, respectively, of our total net sales
in North America. We believe that direct sales to distributors were made
primarily on behalf of hospitals and surgery centers with which we had a
purchase order or supply contract but which elected to have the products
distributed by a distributor. In each of the past three fiscal years, no
individual hospital or surgery center that purchased directly or through a
distributor represented more than 5% of our total net sales.
For products that we do not directly ship to customers, we distribute
primarily through major distributors in the United States such as Owens & Minor,
Inc., which typically serve as distributors under a purchase order or supply
agreement between the end-user and us. Sales through Owens & Minor, Inc., our
largest distributor, were 23.1%, 25.7% and 25.3% of our North American total net
sales for the fiscal years 1997, 1998 and 1999, respectively. For the fiscal
year ended October 31, 1999, no other single distributor accounted for more than
10% of our North American total net sales. We believe that in most cases, our
relationship with and sales to any hospital or surgery center is not dependent
upon our relationship with the distributor.
In North America, we utilize distribution centers in 17 U.S. states and in
the province of Ontario, Canada.
EUROPE. Our sales and marketing efforts in The Netherlands, Belgium and,
increasingly, France closely track our North American model by focusing on the
end-users of our products. In the rest of Europe, dealers play a large role in
our sales, marketing and distribution efforts. In such countries, dealers
typically purchase for their own account, and are responsible for selling and
marketing the product to the end-user. In these cases, we typically do not
maintain standing purchase orders with hospitals and surgery centers and our
sales representatives generally have less contact with the end-users of our
products. For
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the fiscal year ended October 31, 1999, direct sales to dealers accounted for
46.8% and direct sales to end-users accounted for 53.2% of our total net sales
in Europe.
In Europe, we utilize a contract warehousing and logistics company to
deliver products to our customers, including dealers. We primarily warehouse our
products at facilities in The Netherlands and Belgium that are linked to our
European computer system at our headquarters in 's-Hertogenbosch, The
Netherlands.
FACILITIES
Our principal executive and administrative offices are located in
Clearwater, Florida. The following table sets forth information with respect to
our principal facilities:
<TABLE>
<CAPTION>
BUILDING AREA
OWNED OR LEASED (SQUARE
LOCATION USE FACILITIES FEET)
- -------- --- --------------- -------------
<S> <C> <C> <C>
San Diego, California.... Bio-Safety Containment
Manufacturing; Leased 45,000
Distribution
Temecula, California..... Tray Manufacturing; Leased 162,500
Distribution
Clearwater, Florida...... Tray Manufacturing Owned 107,500
Clearwater, Florida...... Headquarters Owned 21,000
Oldsmar, Florida......... Tray Manufacturing; Owned 45,000
Distribution
Oldsmar, Florida......... Distribution; Leased 20,000
Office/Warehouse
Columbus, Mississippi.... Drapes and Gowns Owned 135,000
Manufacturing;
Distribution
Eaton, Ohio.............. Glove Manufacturing; Owned 230,000
Distribution
Honea Path, South
Carolina............... Glove Manufacturing; Owned 89,000
Distribution
Athens, Texas............ Vascular Systems Owned 142,900
Manufacturing;
Distribution
Richmond, Virginia....... Tray Manufacturing; Leased 253,000
Distribution
Clarksburg, West
Virginia............... Bio-Safety Containment Owned 45,000
Manufacturing;
Distribution
Aalst/Erembodegem,
Belgium................ Glove Manufacturing Owned 150,700
Mississauga, Ontario,
Canada................. Glove Manufacturing; Owned 170,000
La Romana, Dominican
Republic............... Drapes and Gowns Leased 69,000
Manufacturing
's-Hertogenbosch, The
Netherlands............ Distribution; Owned 25,000
Headquarters
</TABLE>
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<TABLE>
<CAPTION>
BUILDING AREA
OWNED OR LEASED (SQUARE
LOCATION USE FACILITIES FEET)
- -------- --- --------------- -------------
<S> <C> <C> <C>
's-Hertogenbosch, The
Netherlands............ Medica Products Leased 20,580
Manufacturing
Ommen, The Netherlands... Tray Manufacturing; Owned 24,340
Distribution
</TABLE>
COMPETITION
Our products compete with the products of numerous companies in the
business of developing, manufacturing, distributing and marketing single-use
specialty medical products. Some of these competitors have more extensive
financial resources, research and development facilities and marketing
organizations than we do. We do not typically provide the least expensive
products available. Instead, we emphasize overall value through a combination of
pricing, product quality and customer service.
CUSTOM PROCEDURE TRAYS. Four companies accounted for approximately 90% of
the total sales of custom procedure trays in the United States in 1998. These
four companies were:
- Cardinal Health, Inc.'s Allegiance Corporation subsidiary
- Maxxim
- DeRoyal Industries, Inc.
- Medline Industries, Inc.
We compete based on:
- the quality of relationships with hospitals, surgery centers and
individual healthcare providers;
- price;
- capacity; and
- size and, in the case of contracts with buying groups, the ability to
service accounts nationally from regional distribution centers.
We believe that the barriers to entry in the custom procedure tray business
are fairly low and it would be reasonably easy for medical products companies
currently not in the custom procedure tray business or others to enter the
business. This is because the business is not highly capital or technology
intensive as a supplier of trays does not need to manufacture single-use
specialty medical products. There are currently many manufacturers that package
specialty medical products that may not technically be "custom procedure trays,"
but that effectively compete with our custom procedure trays or could be
packaged with other products so as to directly compete with our custom procedure
trays. In addition, our end-use customers could revert to the in-house
preparation of a tray containing the same components that are found in a custom
procedure tray. There are also numerous companies that supply medical procedure
trays to niche markets, such as dental and eye, that could broaden their product
lines.
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MEDICAL GLOVES. Our primary North American competitors in the manufacture
of medical examination and surgical procedure gloves include:
- Cardinal Health Inc.'s Allegiance Corporation subsidiary
- Safeskin Corporation
- Ansell Perry, Inc.
- Johnson & Johnson
- Medline Industries, Inc.
Factors affecting medical glove competition include glove price and
performance and whether the glove is latex or non-latex. Medical glove
performance is measured by the degree of tactility and barrier protection that
the glove affords and, as a result, technology plays a significant role in the
development, manufacture and sale of medical gloves. See "-- Product Development
and Patents; Other Intellectual Property."
EUROPE. In Europe, our primary competitors in custom procedure trays
include:
- the European divisions of Cardinal Health, Inc., DeRoyal Industries, Inc.
and Medline Industries, Inc. and
- locally based competitors such as Schneider Worldwide, a unit of Pfizer,
Inc., and Molnlycke Health Care AB.
Our primary competitors in Europe in medical examination gloves include the
European divisions of:
- Cardinal Health, Inc.
- Safeskin Corporation.
- Ansell Perry, Inc.
- Johnson & Johnson
- Medline Industries, Inc.
- locally based competitors such as Schneider Worldwide and Molnlycke
Health Care AB.
Factors affecting competition in Europe that differ from those affecting
competition in the United States include the ability to address local market
concerns, such as language and product labeling, and, because direct sales are
smaller in Europe, strength of the manufacturer's relationship with dealers. See
"-- Sales, Marketing and Distribution -- Europe."
GOVERNMENT REGULATION
Our activities are subject to numerous and evolving state, federal and
foreign regulations.
DOMESTIC REGULATION. In the United States, most of our products, and
products that we are likely to develop or market in the future, are subject to
regulation as medical devices by the U.S. Food and Drug Administration ("FDA")
pursuant to the U.S. Food, Drug and Cosmetic Act and regulations promulgated
under the act (collectively, the "FDCA"). The FDA regulates the research,
testing, manufacture, safety, labeling, storage, record keeping, promotion and
distribution of medical devices in the United States to
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ensure that medical products distributed domestically are safe and effective for
their intended uses.
Pursuant to the FDCA, a medical device is classified as either a class I,
class II or class III device depending on the degree of risk associated with the
device and the extent of control necessary to ensure safety and effectiveness.
Class I devices are those for which safety and effectiveness can be assured by
adherence to a set of general controls and guidelines that are applicable to all
medical devices. Such general controls include compliance with the applicable
portions of the Quality Systems Regulations ("QSR") regarding FDA registration
and inspections of facilities, "good manufacturing practices," labeling,
promotion and advertising, maintenance of records, reporting of adverse medical
events and filings with the FDA (the "General Controls"). Some class I devices
also require premarket clearance by the FDA through the section 510(k) premarket
notification process described below. Class II devices are those that are
subject to the General Controls and most require premarket demonstration of
adherence to certain performance standards or other special controls, as
specified by the FDA, and clearance by the FDA. Class III devices are those that
have a new intended use or are based on advanced technology that is not
substantially equivalent to a use or technology with respect to a legally
marketed device.
Most of our products are class II devices and the remainder are class I
devices. We do not manufacture and are not developing any products that are or
that we expect to be classified as class III devices. FDA marketing approval of
class II devices is obtained through the premarket notification procedure under
section 510(k) of the FDCA. For most class II devices, the manufacturer must
submit to the FDA a premarket notification submission, demonstrating that the
device is "substantially equivalent" to either:
- a device that was legally marketed prior to May 28, 1976, the date upon
which the Medical Device Amendments of 1976 were enacted, or
- another commercially available, similar device that was subsequently
cleared through the section 510(k) process.
If the FDA agrees that the device is substantially equivalent, it will
grant clearance to commercially market the device. By regulation, the FDA is
required to clear a section 510(k) application within 90 days of submission of
the application. As a practical matter, clearance often takes longer. The FDA
may require further information, including clinical data, to make a
determination regarding substantial equivalence. If the FDA determines that the
device, or its intended use, is not "substantially equivalent," the FDA will
place the device, or the particular use of the device, into class III, and the
device sponsor must then fulfill much more rigorous premarket approval ("PMA")
application process.
Approval of a PMA application from the FDA is required before the marketing
of products that are class III devices can proceed. The PMA process is much more
demanding than the section 510(k) premarket notification process. A PMA
application, which is intended to demonstrate that the device is safe and
effective, must be supported by extensive data, including data from preclinical
studies and human clinical trials and existing research material. It must also
contain a full description of the device and its components, a full description
of the methods, facilities and controls used for manufacturing and proposed
labeling. Following receipt of a PMA application, once the FDA determines that
the application is sufficiently complete to permit a substantive review, the FDA
will accept the application for review. The FDA, by statute and by regulation,
has
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180 days to review a filed PMA application, although the review of an
application more often occurs over a significantly longer period of time, up to
several years. In approving a PMA application or clearing a section 510(k)
application, the FDA may also require some form of post-market surveillance
whereby the manufacturer follows certain patient groups for a number of years
and makes periodic reports to the FDA on the clinical status of those patients
when necessary to protect the public health or to provide additional safety and
effectiveness data for the device.
In addition, our manufacturing processes are required to comply with the
applicable portions of the QSR, which covers the methods and documentation of
the:
- - design
- - testing
- - production
- - processes
- - controls
- - quality assurance
- - labeling
- - packaging
- - shipping
of our products.
The QSR also, among other things, requires maintenance of a device master
record, device history record and complaint files. Our facilities, records and
manufacturing processes are subject to periodic unscheduled inspections by the
FDA. In addition, all of our products must be periodically listed with the FDA.
Labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. The export of devices is
also subject to regulation in certain instances.
The FDA's mandatory Medical Device Reporting ("MDR") regulation obligates
us to keep records and provide information to the FDA on injuries alleged to
have been associated with the use of a product or in connection with certain
product failures that could cause injury. If, as a result of FDA inspections,
MDR reports or other information, the FDA believes that we are not in compliance
with the law, the FDA can institute proceedings to:
- detain or seize products;
- enjoin future violations; and
- impose product labeling restrictions or enforce product recalls or
withdrawals from the market.
Failure to comply with the applicable FDA medical device regulatory
requirements could result in, among other things:
- - warning letters; - civil penalties;
- - additional product labeling requirements; - repairs;
- - fines; - replacements;
- - injunctions; - refunds;
- - recalls or seizures of products; - total or partial suspension
of production;
- - the FDA's refusal to grant future premarket clearances or approvals; and
- - withdrawals or suspensions of current product applications and criminal
prosecution.
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There are currently no adverse regulatory compliance issues or actions
pending with the FDA at any of our facilities or relating to our products and no
recent FDA audit of our facilities has resulted in any enforcement action by the
FDA.
There are no restrictions under United States law on the export from the
United States of any medical device that can be legally distributed in the
United States. Certificates for export, certifying the status of a product under
the FDCA, are not required by the FDA for export. However, they are often
required by the foreign country importing the product.
Many of the states in which we do business or in which our products are
sold impose licensing, labeling or certification requirements that are in
addition to those imposed by the FDA. To date, we have not experienced
difficulty in complying with these requirements; however, there can be no
assurance that one or more states will not impose additional regulations or
requirements that have a material adverse effect on our ability to sell our
products. In addition, numerous other federal, state and local agencies, such as
environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a material adverse
effect upon our business, financial condition or results of operations, though
none have done so to date.
We are subject to various federal and state laws pertaining to healthcare
fraud and abuse, including antikickback laws and physician self-referral laws.
Violations of these laws are punishable by criminal and/or civil sanctions,
including, in some instances, imprisonment and exclusion from participation in
federal and state healthcare programs, including Medicare, Medicaid and Veterans
Affairs health programs. We believe that our operations are in material
compliance with such laws; however, because of the far-reaching nature of these
laws, we or certain of our sales representatives may be required to alter one or
more of our or their practices to be in compliance with these laws. In addition,
we cannot assure you that the occurrence of one or more violations of these laws
would not result in a material adverse effect on our business, financial
condition or results of operations. If there is a change in law, regulation or
administrative or judicial interpretations, we may have to change our business
practices or our existing business practices could be challenged as unlawful,
which could have a material adverse effect on our business, financial condition
or results of operations.
INTERNATIONAL REGULATION. The products manufactured and sold by us in
Europe are subject to the European Community regulations for medical devices.
The European Community has a registration process which includes certification
of manufacturing facilities ("ISO certification") and product certification ("CE
Mark certification"). ISO certification requires that there be functioning
quality systems at each facility. Following an acceptable certification
inspection, the facility receives an ISO certification number. The CE Mark
certification is granted once it is determined that certain products or product
types meet the European Community requirements for those products. Following CE
Mark certification, the "CE" symbol is printed on the product label to show the
customer that the product complies with the requirements of the European
Community. We have obtained ISO certification and CE Mark certification for our
facilities and products in Europe as well as for those facilities and products
in North America that are sold into those markets or countries which require
such certification. However, there is no guarantee
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that we will be successful in obtaining European certifications for new
facilities or products, or that we will be able to maintain our existing
certifications for facilities or products in the future.
In many of the countries in which we do business or in which our products
are sold outside of the United States, we are subject to regulation by national
governments and supranational agencies as well as by local agencies affecting,
among other things:
- - product standards
- - packaging requirements
- - labeling requirements
- - import restrictions
- - tariff regulations
- - duties
- - tax requirements
To date, we have not experienced difficulty in complying with these
regulations; however, there can be no assurance that one or more countries or
agencies will not impose additional regulations or requirements that could have
a material adverse effect on our ability to sell our products. The harmonization
of standards in the European Community has caused a shift from a
country-by-country regulatory system to a European Community-wide single
regulatory system. However, many members of the European Community have imposed
additional country specific regulations and/or requirements. Although our
products generally are already subject to European Community regulation through
the ISO certification and CE Mark certification processes, there can be no
assurance that the changes in the regulatory schemes imposed either by the
European Community, supranational agencies or individual countries affecting our
products will not have a material adverse effect on our ability sell our
products in Europe.
ENVIRONMENTAL AND OTHER MATTERS
Our facilities and operations are subject to federal, state and local
environmental and occupational health and safety requirements of the United
States and foreign countries, including those relating to discharges of
substances to the air, water and land, the handling, storage and disposal of
wastes and the cleanup of properties affected by pollutants. We believe we are
currently in substantial compliance with such requirements and we do not
currently anticipate any material adverse effect on our business or financial
condition as a result of such environmental, health or safety requirements. In
the future, federal, state, local or foreign governments could enact new or more
stringent requirements concerning environmental, health and safety matters that
could affect our operations. Also, in the future, contamination may be found to
exist at our current or former facilities or off-site locations where we have
sent wastes. We could be held liable for such newly discovered contamination.
Changes in environmental, health and safety requirements or liabilities from
newly discovered contamination could have a material adverse effect on our
business, financial condition or results of operations.
EMPLOYEES
At October 31, 1999, we had 2,858 full-time domestic employees and 1,222
full-time foreign employees. Approximately 116 employees in Canada were covered
by a collective bargaining agreement that expired in October 1999. The Company
currently is negotiating contract language for renewal of this agreement.
Additionally, we have negotiated a collective bargaining agreement that will
cover approximately 60 employees in Clarksburg, West Virginia. We have never
experienced any strikes or other work stoppages. However, there can be no
assurance that we will not experience strikes or work stoppages in the future.
We believe that our relations with our employees are satisfactory.
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LEGAL PROCEEDINGS
GENERAL. We are currently, and are from time to time, subject to claims
and lawsuits arising in the ordinary course of business, including those
relating to product liability, safety and health and employment matters. In some
of such actions, plaintiffs request punitive or other damages or nonmonetary
relief, which may not be covered by insurance, and which could, in the case of
nonmonetary relief, if granted, materially affect the conduct of our business.
Although we maintain insurance that we believe to be reasonable and appropriate,
the amount and scope of any coverage may be inadequate to protect us in the
event of a substantial adverse judgment. In management's opinion, taking third
party indemnities into consideration, these various asserted claims and
litigation in which we are currently involved are not reasonably likely to have
a material adverse effect on our business, results of operations or financial
position. However, no assurance can be given as to the ultimate outcome with
respect to such claims and litigation.
LATEX GLOVE LITIGATION. Since March 1996, we have been served with
lawsuits alleging various adverse reactions to the latex used in certain of the
medical gloves alleged to have been manufactured by us or the prior owner of the
assets relating to our latex glove operations acquired in June 1995 as well as
certain glove products distributed by us since 1989. We believe that most of
such claims relate to gloves sold or shipped prior to June 1995. We have been
and we believe we will continue to be indemnified by the prior owner with regard
to such claims. Because we, as well as our competitors, have continued to
manufacture and sell latex gloves, we may be subject to further claims. We are
not entitled to indemnification from the prior owner for gloves that were
manufactured, sold or shipped in or from one of their plants or our plants after
June 1995. We intend to vigorously defend against such claims. We are aware that
an increasing number of lawsuits have been brought against latex glove
manufacturers with respect to such adverse reactions. There can be no assurance
that we will prevail in any such lawsuits, that the prior owner will continue to
indemnify us or that we will not incur costs or liabilities relating to such
claims that will result in a material adverse effect on our business, financial
condition or results of operations.
SHAREHOLDER LITIGATION. A complaint was filed on June 25, 1999 in state
court in Pinellas County, Florida, naming Maxxim Holdings, its former directors
and Fox Paine & Company, LLC as defendants. The case is styled Burnetti v.
Maxxim Medical, Inc. et al. No. 99-4347-CI-15 (6th Judl. Circ., Pinellas Cty.,
Fla.). The complaint is brought on behalf of a purported class of former public
shareholders of Maxxim Holdings and alleges that the consideration paid in the
merger was unfair and inadequate, and that the former directors of Maxxim
Holdings breached their fiduciary duties by failing to obtain the best price for
Maxxim Holdings. As remedies, the complaint seeks, among other things, equitable
relief and damages in an unspecified amount. On September 30, 1999, counsel for
the plaintiffs and counsel for defendants entered into a memorandum of
understanding providing that, subject to court approval and certain other
conditions, the claims asserted in the case will be settled, the action will be
dismissed and all defendants will receive a release of any claims.
On September 28, 1999, a complaint was filed in state court in Henderson
County, Texas naming Maxxim Holdings and its former directors as defendants.
This case is styled Krim v. Maxxim Medical, Inc., et al., No. 99-143 (3rd Judl.
Dist., Henderson Cty., Tex). The complaint is brought on behalf of a purported
class of former public shareholders of
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Maxxim Holdings and alleges, among other things, that the consideration paid in
the merger was unfair and inadequate and that the former directors of Maxxim
Holdings breached their fiduciary duties by failing to obtain the best price for
Maxxim Holdings. As remedies, the complaint seeks, among other things, equitable
relief and damages in an unspecified amount. On January 31, 2000, a Stipulation
and Agreed Order of Abatement, submitted by agreement of the parties, was
entered by the court providing that the Krim action shall remain abated until
the earlier of sixty days following the final resolution of the Burnetti action
described above, or notification to the Henderson county court that the action
has been resolved by agreement and should be dismissed. Under the order, the
plaintiffs have the right to participate generally in confirmatory discovery in
the Burnetti action. Additionally, they may withdraw their agreement to the
terms of the order at any time and seek a hearing before the court to request
that the abatement be terminated. The defendants in this action believe the
allegations of the complaint are without merit and intend to vigorously defend
the lawsuit should the abatement be terminated.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
As a result of the recapitalization, the executive officers and directors
of Maxxim Holdings have also become the executive officers and directors of
Maxxim Group. In accordance with the shareholders agreement among Maxxim
Holdings' shareholders, the continuing Maxxim Holdings shareholders have the
right to designate up to three members and Fox Paine has the right to designate
up to four members of the board of directors of Maxxim Holdings. The initial
representatives of the continuing Maxxim Holdings shareholders are Kenneth W.
Davidson and Ernest J. Henley, Ph.D., and one other individual to be chosen by
Mr. Davidson in the future. The initial representatives of Fox Paine are Saul A.
Fox, W. Dexter Paine, III, and Jason B. Hurwitz, and one other individual to be
chosen by Fox Paine in the future. So long as Mr. Davidson remains as the Chief
Executive Officer or Chairman of Maxxim Holdings' board, he will be entitled to
designate all three representatives of the continuing Maxxim Holdings
shareholders. Thereafter, the representatives of the continuing Maxxim Holdings
shareholders will be elected by plurality vote of the shares held by the
continuing Maxxim Holdings shareholders. See "Certain Relationships and Related
Party Transactions -- Shareholders Agreement -- Board of Directors."
The following table sets forth the names, ages and positions with Maxxim
Holdings and Maxxim Group of the individuals who serve as the executive officers
and directors of Maxxim Holdings and Maxxim Group. Subject to Maxxim Holdings'
obligations under the investor participation agreement and the employment
agreements described under "Certain Relationships and Related Party Transactions
- -- Employment Agreements," the directors and officers of Maxxim Holdings and
Maxxim Group will be elected at Maxxim Holdings' or Maxxim Group's annual
meeting of shareholders, respectively, and will serve until they resign or are
removed or until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenneth W. Davidson................. 53 Chairman of the Board, President and
Chief Executive Officer
Peter M. Graham..................... 53 Senior Executive Vice President,
Chief Operating Officer and
Secretary
David L. Lamont..................... 53 Executive Vice President, Research
and Development
Alan S. Blazei...................... 44 Executive Vice President, Controller
and Treasurer
Henry T. DeHart III................. 53 Executive Vice President,
Manufacturing Operations
Joseph D. Dailey.................... 51 Executive Vice President,
Information Services
Jack F. Cahill...................... 50 Executive Vice President, Sales and
Marketing
Suzanne R. Garon.................... 47 Executive Vice President, Human
Resources
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rob W. Beek......................... 54 Executive Vice President, Managing
Director, Maxxim Medical Europe
Ernest J. Henley, Ph.D.............. 72 Director
Saul A. Fox......................... 46 Director
W. Dexter Paine, III................ 38 Director
Jason B. Hurwitz.................... 27 Director
</TABLE>
KENNETH W. DAVIDSON has served as a director of Holdings since 1982, and as
Chairman of the Board of Directors, Chief Executive Officer and President of
Holdings since November 1, 1986. Mr. Davidson is also a director of Henley
Healthcare, Inc., a manufacturer of products used in physical therapy; Encore
Orthopedics, Inc., a designer and manufacturer of implantable orthopedic
devices, and Bovie Medical Corporation, a manufacturer and marketer of
electrosurgical medical devices.
PETER M. GRAHAM has served as Senior Executive Vice President of Maxxim
Holdings since January 1999, as Executive Vice President and Chief Operating
Officer of Maxxim Holdings since January 1986, and as Secretary of Maxxim
Holdings since July 1997. Mr. Graham also served as Treasurer of Maxxim Holdings
from April 1986 through June 1997.
DAVID L. LAMONT has served as Executive Vice President, Research and
Development of Maxxim Holdings since January 1999 and as Vice President of
Maxxim Holdings since March 1988. Mr. Lamont also served as Group Vice President
of Maxxim Holdings from July 1993 through December 1998, and as President of the
Argon Medical division of Maxxim Holdings from January 1992 through July 1993.
ALAN S. BLAZEI has served as Executive Vice President and Controller of
Maxxim Holdings since January 1999 and as Vice President and Controller of
Maxxim Holdings since December 1990, and as Treasurer of Maxxim Holdings since
July 1997.
HENRY T. DEHART has served as Executive Vice President, Manufacturing
Operations of Maxxim Holdings since January 1999 and as Vice President of Maxxim
Holdings since November 1993. Mr. DeHart also served as Executive Vice President
Manufacturing Operations, Case Management of Maxxim Holdings from June 1995
through December 1998, and as President of the Boundary Healthcare division of
Maxxim Holdings from December 1992 through July 1995.
JOSEPH D. DAILEY has served as Executive Vice President, Information
Services of Maxxim Holdings since January 1999 and as Vice President,
Information Services of Maxxim Holdings since August 1994. Mr. Dailey served as
Director of Information Services of Maxxim Holdings from January 1992 until
August 1994.
JACK F. CAHILL has served as Executive Vice President, Sales and Marketing
of Holdings since January 1999 and as Vice President of Maxxim Holdings since
May 1995. Mr. Cahill served as Executive Vice President Sales and Marketing,
Case Management of Maxxim Holdings from June 1995 through December 1998,
President of the Sterile Design division of Maxxim Holdings from May 1994
through June 1995, and Executive Vice President, Sterile Design division of
Maxxim Holdings from July 1993 through May 1994.
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SUZANNE R. GARON has served as Executive Vice President, Human Resources of
Maxxim Holdings since January 1999 and as Vice President of Maxxim Holdings
since January 1997. Ms. Garon served as Vice President Human Resources, Case
Management of Maxxim Holdings beginning August 1995, and Manager of Human
Resources, Sterile Design division of Maxxim Holdings from July 1993 through
August 1995.
ERNEST J. HENLEY, PH.D. has served as a director of Maxxim Holdings since
1976. Dr. Henley served as a consultant to Holdings from 1976 until May 1996.
Dr. Henley's principal employment for more than the past five years has been as
a Professor of Chemical Engineering at the University of Houston. Dr. Henley
also is a consultant and director of Henley Healthcare, Inc.
SAUL A. FOX has served as a director of Maxxim Holdings since November
1999. Mr. Fox is the founder and has been a managing member of Fox Paine &
Company, LLC and of Fox Paine Capital, LLC since their respective formations in
1997 and has served as a director of Alaska Communications Holdings Group, Inc.
and Alaska Communications Systems Holdings since May, 1999. Prior to founding
Fox Paine, Mr. Fox was a general partner of Kohlberg Kravis Roberts & Co.
W. DEXTER PAINE, III has served as a director of Maxxim Holdings since
November 1999. Mr. Paine is the founder and has been a managing member of Fox
Paine & Company, LLC and of Fox Paine Capital, LLC since their respective
formations in 1997 and has served as a director of Alaska Communications
Holdings Group, Inc. since October, 1998 and Alaska Communications Systems
Holdings since July, 1998. Prior to founding Fox Paine, Mr. Paine was a general
partner of Kohlberg & Company.
JASON B. HURWITZ has been a director of Maxxim Holdings since November
1999. Mr. Hurwitz has been a director, vice president, treasurer and secretary
of Circon Holdings since its formation on June 10, 1999. Mr. Hurwitz has been
employed at Fox Paine & Company, LLC since June 1997 and has served as an
associate, Vice President and, currently, a director of Fox Paine & Company,
LLC. Mr. Hurwitz was an associate at McCown De Leeuw & Co. from August 1996 to
June 1997 and was an analyst at James D. Wolfensohn Incorporated from July 1994
to July 1996.
No family relationships exist between any of the directors and the
executive officers of Maxxim Holdings.
COMPENSATION OF DIRECTORS
The directors of Maxxim Holdings, as well as those of Maxxim Group,
presently serve without monetary compensation for their service as directors. In
the past, Maxxim Holdings issued options to purchase shares of Maxxim Holdings
common stock to non-employee directors. In connection with the merger, the eight
continuing Maxxim Holdings shareholders who were part of senior management were
granted options to acquire shares of Maxxim Holdings common stock and shares of
Circon Holdings common stock. These options have an exercise price of $26.00 per
share and are fully vested. See "The Recapitalization" and "Certain
Relationships and Related Party Transactions -- Treatment of Continuing Shares
and Options."
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COMPENSATION OF EXECUTIVE OFFICERS
The compensation, incentive and employment arrangements for the executive
officers of Maxxim Holdings and Maxxim Group, as well as such individuals'
compensation and incentive arrangements with Circon Holdings, are described
under "Certain Relationships and Related Party Transactions."
The following table is a summary of the compensation paid or accrued by
Maxxim Holdings for the last three fiscal years for services in all capacities
to each of the individuals who qualified as a "named executive officer," as
defined in Item 402(a)(3) of Regulation S-K under the Securities Exchange Act,
during fiscal year 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------------- OTHER ANNUAL OPTIONS OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) (#)(3) COMPENSATION(4)
- --------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth W. Davidson..... 1999 $350,000 $275,000 $123,589 -- $ --
Chief Executive 1998 350,000 192,500 109,305 40,000 4,750
Officer 1997 320,000 160,000 70,525 40,000 4,750
Peter M. Graham......... 1999 200,000 150,000 57,889 -- --
Senior Executive Vice 1998 200,000 110,000 44,349 25,000 3,001
President 1997 140,000 68,750 23,343 25,000 4,750
Alan S. Blazei.......... 1999 175,000 137,500 43,360 -- --
Executive Vice 1998 175,000 96,250 35,329 20,000 2,913
President 1997 125,000 60,000 18,208 20,000 4,750
Jack F. Cahill.......... 1999 165,000 107,500 43,628 -- --
Executive Vice 1998 165,000 90,750 35,631 20,000 2,475
President 1997 140,000 68,750 20,542 20,000 4,750
David L. Lamont......... 1999 150,000 100,000 39,235 -- --
Executive Vice 1998 150,000 82,500 34,359 20,000 2,526
President 1997 125,000 61,250 18,208 20,000 4,750
Henry T. DeHart III..... 1999 150,000 100,000 39,235 -- --
Executive Vice 1998 150,000 82,500 34,359 20,000 2,526
President 1997 125,000 61,250 18,208 20,000 4,750
</TABLE>
- -------------------------
(1) Compensation deferred at the election of a named executive officer is
included in the category and year it would have otherwise been reported had
it not been deferred.
(2) Includes the value of the interest imputed on non-interest bearing loans
made by Maxxim Holdings and Maxxim Holdings' matching contributions on
compensation deferred by the named executive officers.
(3) Fiscal year 1998 includes options granted effective as of January 8, 1999
with respect to the performances of the named executive officers during
fiscal year 1998. Fiscal year 1997 includes options granted effective as of
November 3, 1997 with respect to the performances of the named executive
officers during fiscal year 1997.
(4) Includes contributions made by Maxxim Holdings to its 401(k) plan on behalf
of the employee. Each eligible employee has the option to contribute up to
15% of his or her salary, but in no event more than $9,500, and to have such
deferred amounts invested in the 401(k) plan. Maxxim Holdings may, but is
not required to, make a matching contribution to the 401(k) plan of up to
the first 6% of the salary of such
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participating employee. All employee contributions are fully vested. Maxxim
Holdings' contributions vest over a six-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the merger, the Maxxim Holdings' compensation committee was
comprised of Mr. Davidson, Donald R. DePriest and Richard O. Martin. Messrs.
DePriest and Martin ceased to be directors upon the consummation of the merger.
The new board of directors has not appointed a compensation committee.
Mr. Davidson is the Chairman of the Board, President and Chief Executive
Officer of Maxxim Holdings. Maxxim Holdings entered into an employment agreement
with Mr. Davidson effective November 1, 1997 that replaced a previous employment
agreement effective November 1, 1994. Among other things, that employment
agreement required Maxxim Holdings to make a loan or loans to Mr. Davidson not
to exceed an aggregate of $500,000, including loans made under Mr. Davidson's
previous employment agreement, to enable Mr. Davidson to pay any federal income
taxes associated with the exercise by him of options to purchase shares of
Maxxim Holdings common stock. Each loan made to Mr. Davidson is non-interest
bearing, unsecured and is repayable in ten equal annual installments, on the
third through twelfth anniversaries of the date of such loan. The total amount
outstanding under all such loans at October 31, 1999 was $460,000. Mr. Davidson
was, during fiscal year 1999, and at October 31, 1999, current in all of his
repayment obligations under the loans.
In connection with, and effective upon the completion of, the
recapitalization (1) Mr. Davidson's employment agreement was terminated and he
and Maxxim Holdings entered into a new employment agreement, the terms of which
are summarized under "Certain Relationships and Related Party
Transactions -- Employment Agreements," (2) all options held by Mr. Davidson
were treated as set forth in "Certain Relationships and Related Party
Transactions -- Treatment of Continuing Shares and Options" and (3) all loans
made to Mr. Davidson in connection with his past employment agreements remain
outstanding and will be repaid pursuant to the terms thereof.
In May 1997, Mr. Davidson purchased 100,000 shares of Maxxim Holdings
common stock from Maxxim Holdings at a price of $13.00 per share under the
Senior Management Stock Purchase Plan. Payment for the shares was made by means
of a full recourse promissory note in the amount of $1.3 million, the payment of
which is secured by a pledge of the shares. The note is non-interest bearing
until its due date. If the note is not paid when due, it will bear interest at
the highest maximum legal rate, or, if no maximum rate is established under
applicable law, then at 18% per year. In connection with the merger, the note
was canceled and replaced with a new note containing substantially identical
terms, except that the new note provides for a due date of November 12, 2009,
and for mandatory prepayments upon the sale by Mr. Davidson of any shares of
Maxxim Holdings or Circon Holdings common stock or options to purchase such
common stock. In addition, the old note contained a provision requiring
repayment of the note upon the termination of Mr. Davidson's employment. The new
note does not. See "Certain Relationships and Related Party
Transactions -- Treatment of Continuing Shares and Options."
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THE CONTINUING MAXXIM HOLDINGS SHAREHOLDERS AND THE EIGHT MANAGEMENT INVESTORS
Messrs. Davidson, Graham, Lamont, Blazei, DeHart, Dailey and Cahill and Ms.
Garon are the eight continuing Maxxim Holdings shareholders who were part of
senior management. These eight management investors, together with Dr. Henley
and Mr. Davis Henley, are the continuing Maxxim Holdings shareholders. Dr.
Henley, in addition to serving as a director of Maxxim Holdings, is Professor of
Chemical Engineering at the University of Houston. Mr. Davis Henley is the son
of Dr. Henley and is a Vice President of a subsidiary of Maxxim Group.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of Maxxim Group is owned by Maxxim
Holdings. The following table sets forth certain information regarding
beneficial ownership of the Maxxim Holdings common stock and the Circon Holdings
common stock after the recapitalization by (1) each person known by us to own
beneficially more than 5% of the Maxxim Holdings common stock or the Circon
Holdings common stock, (2) each director and each named executive officer of
Maxxim Holdings and the other Maxxim Holdings continuing shareholders and (3)
all executive officers and directors of Maxxim Holdings as a group. Except as
otherwise indicated in the footnotes below, each beneficial owner has the sole
power to vote and to dispose of all shares held by such owner.
<TABLE>
<CAPTION>
PERCENT OF
MAXXIM MAXXIM CIRCON PERCENT OF FOX
HOLDINGS HOLDINGS HOLDINGS PAINE CIRCON
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING
OWNED AFTER THE AFTER THE OWNED AFTER THE AFTER THE
NAME RECAPITALIZATION RECAPITALIZATION RECAPITALIZATION RECAPITALIZATION
- ---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Fox Paine Capital, LLC(1)...... 4,850,824 84.1% 3,691,484 86.8%
Fox Paine Capital Fund,
L.P.(1)...................... 3,930,217 68.1 2,990,901 70.3
FPC Investors, L.P.(1)......... 58,317 1.0 44,379 1.0
GS Mezzanine Partners, L.P. and
GS Mezzanine Partners
Offshore, L.P.(2)............ 394,968(2) 6.1 273,379(3) 6.3
Kenneth W. Davidson............ 304,761(4) 5.2 226,607(5) 5.2
Peter M. Graham................ 162,598(6) 2.8 120,901(7) 2.8
David L. Lamont................ 128,043(8) 2.2 95,207(9) 2.2
Henry T. DeHart................ 79,091(10) 1.4 58,809(11) 1.4
Jack F. Cahill................. 83,392(12) 1.4 62,007(13) 1.4
Alan S. Blazei................. 108,972(14) 1.9 81,027(15) 1.9
Joseph D. Dailey............... 47,776(16) 0.8 35,524(17) 0.8
Suzanne R. Garon............... 9,636(18) 0.2 7,164(19) 0.2
Ernest J. Henley, Ph.D......... 143,385 2.5 106,615 2.5
Davis C. Henley................ 86,031 1.5 63,969 1.5
Saul A. Fox(1)................. 58,317 1.0 44,379 1.0
W. Dexter Paine, III(1)........ 58,317 1.0 44,379 1.0
Jason B. Hurwitz(1)............ -- -- -- --
All directors and executive
officers as a group (12
Persons)(20)................. 1,125,970 18.1 838,241 17.8
</TABLE>
A person is deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Under the
beneficial ownership rules, more than one person may be deemed a beneficial
owner of the same securities and a person may be deemed to be beneficial owner
of securities as to which such person has no economic interest. The address of
Fox Paine Capital, LLC, Fox Paine Capital Fund, L.P., FPC Investors, L.P. and
Messrs. Paine, Fox and Hurwitz is 950 Tower Lane, Suite 1150, Foster City, CA
94404. The addresses of Dr. Henley, Messrs. Davidson, Graham, Lamont, DeHart,
Cahill, Blazei, Dailey and Henley and Ms. Garon is 10300 49th Street North,
Clearwater, Florida 33762.
- -------------------------
(1) Fox Paine Capital, LLC is (a) General Partner of (1) Fox Paine Capital
Fund, L.P. and (2) FPC Investors, L.P. and (b) the sole manager of (1)
Maxxim Coinvestment Fund I, LLC, Maxxim Coinvestment Fund II, LLC, Maxxim
Coinvestment Fund III, LLC, Maxxim Coinvestment Fund IV, LLC and Maxxim
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Coinvestment Fund V, LLC, only one of which funds owns in excess of 5% of
the outstanding shares of Holdings common stock, and (2) Circon
Coinvestment Fund I, LLC, Circon Coinvestment Fund II, LLC, Circon
Coinvestment Fund III, LLC, Circon Coinvestment Fund IV, LLC and Circon
Coinvestment Fund V, LLC, only one of which funds owns in excess of 5% of
the outstanding shares of Circon Holdings common stock, and possesses
voting and investment power over all shares held by each of such entities.
Fox Paine Capital, LLC is not the record owner of any shares of Maxxim
Holdings common stock or Circon Holdings common stock. Messrs. Fox and
Paine are the members of Fox Paine Capital, LLC and share voting power of
Fox Paine Capital, LLC. None of the shares shown as beneficially owned by
any of Messrs. Fox, Paine and Hurwitz are owned of record by such
individuals. Each of such individuals disclaims beneficial ownership of
such shares except to the extent of his indirect pecuniary interest
therein.
(2) The general partner of each of GS Mezzanine Partners, L.P. and GS Mezzanine
Partners Offshore, L.P. is an indirect wholly-owned subsidiary of the
Goldman Sachs Group. Includes 218,407 shares held of record by GS Mezzanine
Partners, L.P. or its designee and 176,561 shares purchasable under
currently exercisable warrants. The address of GS Mezzanine Partners, L.P.
is 85 Broad Street, New York, New York 10004.
(3) Includes 166,208 shares held of record by GS Mezzanine Partners, L.P. or
its designee and 107,171 shares purchasable under currently exercisable
warrants.
(4) Includes 194,514 shares held of record by Mr. Davidson and 120,247 shares
purchasable under currently exercisable options.
(5) Includes 102,934 shares held of record by Mr. Davidson and 123,673 shares
purchasable under currently exercisable options.
(6) Includes 75,364 shares held of record by Mr. Graham and 87,234 shares
purchasable under currently exercisable options.
(7) Includes 30,065 shares held of record by Mr. Graham and 90,836 shares
purchasable under currently exercisable options.
(8) Includes 59,917 shares held of record by Mr. Lamont and 68,126 shares
purchasable under currently exercisable options.
(9) Includes 24,415 shares held of record by Mr. Lamont and 70,792 shares
purchasable under currently exercisable options.
(10) Includes 36,737 shares held of record by Mr. DeHart and 42,354 shares
purchasable under currently exercisable options.
(11) Includes 17,016 shares held of record by Mr. DeHart and 41,793 shares
purchasable under currently exercisable options.
(12) Includes 39,660 shares held of record by Mr. Cahill and 43,732 shares
purchasable under currently exercisable options.
(13) Includes 18,764 shares held of record by Mr. Cahill and 43,243 shares
purchasable under currently exercisable options.
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(14) Includes 46,520 shares held of record by Mr. Blazei and 62,452 shares
purchasable under currently exercisable options.
(15) Includes 16,632 shares held of record by Mr. Blazei and 64,395 shares
purchasable under currently exercisable options.
(16) Includes 24,321 shares held of record held by Mr. Dailey and 23,455 shares
purchasable under currently exercisable options.
(17) Includes 12,069 shares held of record by Mr. Dailey and 23,455 shares
purchasable under currently exercisable options.
(18) Includes 5,024 shares held of record by Ms. Garon and 4,612 shares
purchasable under currently exercisable options.
(19) Includes 2,985 shares held of record by Ms. Garon and 4,179 shares
purchasable under currently exercisable options.
(20) Includes shares deemed to be beneficially owned by Messrs. Fox and Paine as
a result of their relationships with and to Fox Paine. Excluding such
shares, all directors and executive officers as a group beneficially own
1,067,655 Maxxim Holdings shares and 793,863 Circon Holdings shares
representing 17.2% and 16.8% of the common stock of Maxxim Holdings and
Circon Holdings, respectively.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
THE INVESTOR PARTICIPATION AGREEMENT
In connection with the merger, Fox Paine Medic Acquisition Corporation
entered into an investor participation agreement, dated as of June 13, 1999, as
amended, with the continuing Maxxim Holdings shareholders. Pursuant to the
investor participation agreement Fox Paine Medic Acquisition Corporation and
each continuing Maxxim Holdings shareholder agreed to be bound by all the terms
and conditions set forth in a term sheet relating to the retention by the
continuing Maxxim Holdings shareholders of an equity interest in Maxxim
Holdings, the purchase by the continuing Maxxim Holdings shareholders of an
equity interests in Circon Holdings at the time of the Circon sale and the terms
for employment, compensation and equity incentive compensation for the eight
management investors. We describe the key provisions of the investor
participation agreement in the next few sections.
TREATMENT OF CONTINUING SHARES AND OPTIONS
STOCK ROLLOVER. Immediately prior to the merger, the continuing Maxxim
Holdings shareholders collectively owned 1,125,402 shares of Maxxim Holdings
common stock. In the merger, these shares of Maxxim Holdings common stock were
treated as follows:
-- 198,084 shares of Maxxim Holdings common stock, all but 2,150 of which
are owned by Dr. Henley or Mr. Henley, were converted into $26.00 per
share in cash;
-- 531,854 shares of Maxxim Holdings common stock were retained by the
continuing Maxxim Holdings shareholders in the merger, and not converted
into cash, and continue to represent an ownership interest in Maxxim
Holdings; and
-- 395,464 shares of Maxxim Holdings common stock were converted into
$26.00 per share in cash, with the gross proceeds of approximately $10.3
million immediately being reinvested in shares of Circon Holdings common
stock. See "Security Ownership of Certain Beneficial Owners and
Management."
The continuing Maxxim Holdings shareholders and Maxxim Holdings entered
into agreements requiring Maxxim Holdings to make loans to the continuing Maxxim
Holdings shareholders in an amount sufficient to cover the taxes due on the cash
received from the conversion of the 395,464 shares of Maxxim Holdings common
stock used to purchase shares of Circon Holdings common stock. There will be no
cash interest payments on these tax loans. Instead, interest will be imputed and
the eight management investors will receive gross-up payments from Maxxim
Holdings in respect of the taxes due on that imputed interest. These tax loans
will be mandatorily repayable from the after-tax proceeds of future sales of
shares of Circon Holdings common stock.
In May 1997, Maxxim Holdings issued 400,000 shares of Maxxim Holdings
common stock at a price of $13.00 per share to members of Maxxim Holdings'
senior management, including the eight management investors, under a Maxxim
Holdings stock purchase plan. These shares were issued in exchange for
non-interest bearing, full recourse promissory notes due May 23, 2000. The
aggregate outstanding principal amount owed by the eight management investors
under these promissory notes was $4,498,000 at October 31, 1999. The amounts due
under the promissory notes were divided between Maxxim Holdings and Circon
Holdings. The old notes were canceled and replaced with new notes containing
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substantially identical terms, except as described below. New notes for an
aggregate amount of $1,918,215 were transferred to Circon Holdings, to reflect
the fact that some of each of the eight management investor's shares of Maxxim
Holdings common stock that were subject to the notes were exchanged for shares
of Circon Holdings common stock in the recapitalization. Pursuant to the terms
of the investor participation agreement, the new notes extend the due date until
the tenth anniversary of the completion of the recapitalization. The new notes
also provide for mandatory prepayments using the after-tax proceeds of any sales
of shares of Maxxim Holdings or Circon Holdings common stock or options to
purchase Maxxim Holdings common stock or Circon Holdings common stock after the
completion of the recapitalization. The old notes contained a provision
requiring repayment of the note upon the termination of the manager's
employment. The new notes do not. In addition, the Maxxim Holdings stock
purchase plan was amended to remove the provision that required the holder to
forfeit to Maxxim Holdings 50% of the profit from the sale of shares of Maxxim
Holdings common stock that are subject to the promissory notes.
OPTION ROLLOVER. Immediately prior to the merger, the eight management
investors collectively owned options to acquire 1,084,200 shares of Maxxim
Holdings common stock at a weighted average exercise price of $13.97 per share.
Upon the completion of the recapitalization, vested or unvested options on
621,832 shares of Maxxim Holdings common stock were canceled in exchange for a
cash payment equal to the difference between the $26.00 merger price and the
exercise price per share under the relevant option. The eight management
investors used the after-tax proceeds of this cash-out to purchase 169,619 new
shares of Maxxim Holdings common stock at $26.00 per share, and were granted
452,213 new options to acquire shares of Maxxim Holdings common stock, which
equals the number of shares of Maxxim Holdings common stock subject to the
cashed-out options (621,832) minus the number of newly issued shares of Maxxim
Holdings common stock (169,619). The new options have an exercise price of
$26.00 per share. The remaining 462,368 options held by the eight management
investors were canceled, and the eight management investors received new options
to acquire 462,368 shares of Circon Holdings common stock at a price of $26.00
per share. These options are fully vested, permit cashless exercise with
previously owned shares and have no built-in gain.
NEW MANAGEMENT EQUITY INCENTIVE PLANS
In connection with the recapitalization, Maxxim Holdings and Circon
Holdings each adopted a new management equity incentive plan that grants the
eight management investors options to purchase up to a total of 10% of the
common equity on a fully-diluted basis of each of Maxxim Holdings and Circon
Holdings at an exercise price of $26.00 per share. The new incentive plans
generally provide for a ten-year option term, and allow cashless exercise of the
options through the payment of the exercise price with previously owned shares.
The options are split evenly into two pools:
-- a pool of options that will vest on the ninth anniversary of the date of
grant, which vesting may be earlier accelerated (1) to the first through
fifth anniversaries of the date of grant if certain corporate financial
goals established under the new incentive plans are achieved, or (2)
upon Fox Paine's realization of an internal rate of return of at least
30% on its investment in Maxxim Holdings or Circon Holdings, as the case
may be; and
-- a pool of options that vest in 20% increments on each of the first
through fifth anniversaries of the merger, or earlier, upon Fox Paine's
realization of an internal
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rate of return of at least 30% on its investment in Maxxim Holdings or
Circon Holdings, as the case may be.
With regard to any of the eight management investors, any options granted
under the new incentive plans that remain unvested as of the date of his or her
termination of employment with Maxxim Holdings or Circon Holdings for any reason
will be forfeited on the date of termination. However, any options that are
vested at the time of termination may be exercised for one year following the
termination of employment, after which they will be forfeited.
Options granted under the new equity incentive plans were granted to each
of the eight management investors and other members of Maxxim Holdings or Circon
management based upon the recommendation of Mr. Davidson to the board of
directors.
SPECIAL BONUS PROGRAMS
In connection with the recapitalization, Maxxim Holdings established a key
executive special bonus program, valued at approximately $3.7 million, for the
benefit of the eight management investors. The bonus payments for all the
participants, other than Mr. Graham and Mr. Blazei, became payable upon
completion of the recapitalization. A portion of Mr. Graham's and Mr. Blazei's
bonus became payable upon completion of the recapitalization, with the remaining
portion to be paid subsequently, part of which will be based on the achievement
of performance goals.
In addition, the special bonus program provides that the unpaid portion of
Mr. Graham's and Mr. Blazei's respective bonuses will be forfeited if their
employment is terminated either by Maxxim Holdings for cause or by Messrs.
Graham or Blazei without good reason. If, however, Mr. Graham's or Mr. Blazei's
employment is terminated by Maxxim Holdings without cause or by Messrs. Graham
or Blazei for good reason, or upon their disability or death, the unpaid portion
of their respective bonuses will become payable in accordance with an agreed
upon schedule and conditions.
In addition, Circon Holdings established a bonus pool of approximately $5.6
million in the aggregate for the benefit of the eight management investors.
Bonuses will be paid upon the occurrence of certain events and will be related
to the value of the Circon Holdings equity.
EMPLOYMENT AGREEMENTS
Effective upon the completion of the recapitalization, each of the eight
management investors, including Mr. Davidson, whose prior employment agreement
was terminated, entered into a new employment agreement with Maxxim Holdings and
the executive continuity agreements between the eight management investors and
Maxxim Holdings were terminated without any termination benefits being paid
under them. The following is a summary of the material terms of such new
employment agreements.
The employment period under the new employment agreements commenced upon
completion of the recapitalization and will terminate on the fifth anniversary
of the merger, with automatic one-year renewals, unless previously terminated.
Pursuant to the new employment agreements, each executive will continue in the
position and with the duties and responsibilities as in effect prior to the
completion of the recapitalization, subject to reassignment from time to time by
Mr. Davidson, in the case of all executives other than
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Mr. Davidson. The new employment agreements provide that each executive will
receive an annual base salary equal to his or her annual base salary prior to
the merger and an annual performance bonus opportunity equal to a percentage of
his or her annual base salary. The annual base salary and bonus opportunity
percentage for Mr. Davidson are $350,000 and 90%, respectively, and are less for
the other executives. In addition, during the employment period, each executive
is entitled to participate in compensation and benefit plans on terms and
conditions no less favorable in the aggregate than those in effect prior to the
recapitalization.
Pursuant to the new employment agreements, upon the termination of an
executive's employment by Maxxim Holdings other than for cause, or by the
executive for good reason, the executive will be entitled to a cash payment
equal to a multiple of the sum of the executive's annual base salary and the
most recent annual bonus earned by the executive, as well as continued
participation in Maxxim Holdings' benefit plans for a number of years equal to
that executive's multiple. Mr. Davidson's multiple is three, so that he is
entitled to receive a payment of three times the sum of his annual base salary
and most recent annual bonus, as well as continued participation in Maxxim
Holdings' benefit plans for a period of three years. The compensation, multiple
and length of continuing participation are less for the other executives.
Under the new employment agreements, Maxxim Holdings is required to provide
term life insurance with death benefits equal to two times the sum of the
executive's then-current base salary and annual bonus opportunity. Should the
executive become disabled, Maxxim Holdings is required to pay the executive's
then-current base salary and bonus opportunity for a period of 24 months.
The new employment agreements provide that if any amounts payable to the
executive in connection with a change in control, other than the
recapitalization, would be subject to excise tax under Section 4999 of the
Internal Revenue Code an additional payment will be made so that after the
payment of all income and excise taxes the executive will be in the same
after-tax position as if no excise tax under Section 4999 of the Internal
Revenue Code had been imposed. In addition, the new employment agreements with
Messrs. Davidson, Graham and Blazei provide for a similar additional payment in
the event any amounts payable to these individuals in connection with the
recapitalization would be subject to excise tax under Section 4999 of the
Internal Revenue Code.
Pursuant to the new employment agreements, each executive also has agreed
to non-competition and non-solicitation restrictions during the employment
period and thereafter for the number of years equal to the executive's multiple.
SHAREHOLDERS AGREEMENT
As a result of the recapitalization, the continuing Maxxim Holdings
shareholders, together with the new investors who purchased shares of Fox Paine
Medic Acquisition Corporation prior to the merger, own all of the equity of
Maxxim Holdings. The continuing Maxxim Holdings shareholders and the new
investors entered into a shareholders agreement that permits the new investors
and the continuing Maxxim Holdings shareholders to transfer or sell their shares
in some circumstances, and anyone who becomes a shareholder of Maxxim Holdings
as a result of a permitted transfer or sale will be required to sign the
shareholders agreement and be bound in the same way as the person who
transferred or sold the shares to the new shareholder. Unless otherwise
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indicated, the following items apply equally to the new investors' and the
continuing Maxxim Holdings shareholders' participation in Maxxim Holdings, as
well as the participation in Maxxim Holdings by any person who obtains shares of
Maxxim Holdings common stock upon the exercise of the warrants issued with the
old notes or the Maxxim Holdings notes. The following is a summary of the
material terms of the shareholders agreement, a copy of which has been filed as
an exhibit to the registration statement of which this prospectus is a part.
TAG-ALONG RIGHTS. If, at any time before an initial public offering of
stock, a shareholder accepts an offer from a third party to sell any or all of
its shares, each of the other shareholders will be able to participate in the
offer on a proportionate basis, at the same price and on the same terms.
DRAG-ALONG RIGHTS. If, at any time before an initial public offering of
stock, Fox Paine sells at least 50% of its shares in a bona fide arm's-length
transaction or series of related transactions, Fox Paine may require the other
shareholders to sell a proportionate number of their shares and, at the election
of Fox Paine, options or warrants, in each case whether vested or unvested, 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 of stock, the
continuing Maxxim Holdings shareholders will collectively have the right, which
can only be used twice, to demand that Maxxim Holdings register their Maxxim
Holdings' shares for sale under the Securities Act. The new shareholders,
excluding the shareholders who purchased the Maxxim Holdings notes, will have
the same right, which they will be permitted to use as a group up to five times.
The shareholders who purchased the Maxxim Holdings notes will also have the same
right, which they will be permitted to use as a group once. The purchasers of
the Maxxim Holdings common stock obtained upon exercise of the warrants sold
with the old notes will have a similar one-time right, which they will be
permitted to use as a group. In addition, the continuing Maxxim Holdings
shareholders, the new shareholders and the holders of the Maxxim Holdings common
stock obtained upon exercise of the warrants sold with the old notes will all
have customary and full "piggyback" registration rights on registrations
initiated by the other shareholders. If the underwriters request a reduction in
the number of shares to be sold in any registered offering, the number of shares
offered by any participating shareholders will be cut back proportionally based
on the number of shares owned by each person, regardless of who initiated the
registration. Expenses related to all demand registrations and piggyback
registrations will be borne by Maxxim Holdings. Other customary registration
rights provisions will apply, including holdbacks, indemnification, and
contribution provisions. If the new shareholders are permitted to include any of
their shares in an initial public offering, the other shareholders will be
entitled to participate proportionately as well.
RIGHT OF FIRST OFFER. Before an initial public offering of stock, if any
shareholder proposes to sell or transfer any of its shares, it will first be
required to offer to sell the shares to the other shareholders at a minimum
price suggested by the selling shareholder. If the other shareholders elect not
to purchase all of the offered shares, the selling shareholder will have the
right to sell the shares to any other party as long as the sale price is equal
to or above the minimum price offered to the other shareholders. These right of
first offer provisions do not apply to transfers to customary permitted
transferees, such as affiliates of the new investors or family members of the
continuing Maxxim Holdings shareholders. These right of first offer provisions
also do not apply to certain transfers to related parties or otherwise by the
purchasers of the Maxxim Holdings common stock
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obtained upon exercise of the warrants sold with the old notes and the
shareholders who purchased the Maxxim Holdings notes.
LIQUIDITY UPON DEATH OR DISABILITY AND SOME TERMINATIONS. The eight
management investors have the right to sell any shares of Maxxim Holdings common
stock that are acquired upon the exercise of stock options, provided that the
shares have been held for at least six months, back to Maxxim Holdings at fair
market value upon death or disability or termination of employment by such
management investors for good reason or by Maxxim Holdings without cause. The
eight management investors' liquidity rights described above will end upon
completion of an initial public offering of Maxxim Holdings shares of common
stock and, in any event, are subject to Maxxim Holdings' available cash flow,
debt restrictions and any legal restrictions on distributions of cash. If
payments related to these rights are not made immediately, the payments will
remain a continuing obligation of Maxxim Holdings and will be made, with
interest, before the payment of any dividends or distributions to other
shareholders.
BOARD OF DIRECTORS. Pursuant to the terms of the shareholders agreement,
the continuing Maxxim Holdings shareholders have the right to appoint three
members of the board of directors, and Fox Paine has the right to appoint at
least four members. So long as Mr. Davidson is the Chief Executive Officer or
Chairman of the Board of Directors, Mr. Davidson will have the right to
designate all three representatives of the continuing Maxxim Holdings
shareholders. Thereafter, the representatives of the continuing Maxxim Holdings
shareholders will be elected by plurality vote of shares held by the continuing
Maxxim Holdings shareholders. The shareholders who purchased the Maxxim Holdings
notes have the right to appoint one observer to the board of directors. Fox
Paine's and the continuing Maxxim Holdings shareholders' right to designate
directors will terminate upon an initial public offering of stock or a
significant reduction in ownership percentage by either group. See
"Management -- Executive Officers and Directors."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the merger agreement, the indemnification and exculpation
provisions of Maxxim Holdings' articles of incorporation and bylaws as in effect
at the time of the completion of the merger will, to the extent they relate to
matters arising before the completion of the merger, remain in force after the
merger. In addition, for a period of six years after the completion of the
merger, Maxxim Holdings will maintain in effect the current policies of
directors' and officers' liability insurance maintained by Maxxim Holdings with
respect to matters arising on or before the completion of the merger. Maxxim
Holdings will obtain only as much comparable insurance as is available at an
annual premium of 150% of Maxxim Holdings' annual premium prior to the merger.
In addition, pursuant to the investor participation agreement, Maxxim Holdings
has adopted customary mandatory indemnification and expense advancement policies
for its officers.
MANAGEMENT AND ADVISORY SERVICES PROVIDED BY FOX PAINE
In connection with the recapitalization, Maxxim Holdings and Maxxim Group
entered into a management services agreement with an affiliate of Fox Paine
pursuant to which such affiliate will provide certain financial and strategic
consulting and advisory services to Maxxim Holdings and Maxxim Group. In
exchange for these services, the Fox Paine affiliate will receive a fee based on
the services provided, with an initial annual retainer of $722,000. Thereafter
such fee shall be equal to 1% of the annual adjusted EBITDA of
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Maxxim Group for the prior fiscal year. In addition, upon the completion
recapitalization, Maxxim Holdings paid to such affiliate aggregate transaction
fees of approximately $9,814,000, plus reimbursement of its expenses.
SERVICES AGREEMENT
Maxxim Holdings, Maxxim Group, Circon Holdings and Circon have entered into
a services agreement that provides for Maxxim Holdings and Maxxim Group to
provide services to Circon Holdings and Circon, including services and advice
provided by management employees as well as general corporate overhead services.
In exchange for these services, Circon Holdings and Circon will reimburse Maxxim
Holdings and Maxxim Group for all direct expenses or out of pocket fees directly
attributable to the services provided to Circon Holdings and Circon. For
services without expenses or fees directly attributable to Circon Holdings and
Circon, the actual cost of such services will be allocated between Maxxim
Holdings and Maxxim Group, on the one hand, and Circon Holdings and Circon, on
the other hand, pro rata based on net sales.
LOAN TO OFFICER
In connection with his relocation from Houston, Texas to our corporate
headquarters in Clearwater, Florida, we made a loan on September 30, 1999, in
the amount of $325,000, to Peter M. Graham, our Senior Executive Vice President
and Chief Operating Officer. The loan is unsecured, non-interest bearing and
repayable upon the earlier of the sale of his prior residence in Houston, Texas
or December 31, 2000.
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DESCRIPTION OF NEW CREDIT FACILITIES AND OTHER INDEBTEDNESS
NEW CREDIT FACILITIES
Maxxim Group has entered into a credit agreement with The Chase Manhattan
Bank, as Administrative Agent and Collateral Agent, Bankers Trust Company and
Merrill Lynch Capital Corporation, as Co-Syndication Agents, Canadian Imperial
Bank of Commerce and Credit Suisse First Boston, as Co-Documentation Agents, and
certain other lenders that governs the new credit facilities. Chase Securities
Inc. acted as advisor, lead arranger and book manager in connection with the new
credit facilities. The following is a summary of the principal terms of the new
credit facilities, and is subject to and qualified in its entirety by reference
to the credit agreement, a copy of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
STRUCTURE. The new credit facilities consist of:
- an $80.0 million tranche A term loan;
- a $90.0 million tranche B term loan;
- a $90.0 million tranche C term loan; and
- a $50.0 million revolving credit facility, which will be available, in
part, for up to $25.0 million in letters of credit and up to $10.0
million in the form of swingline loans.
SECURITY; GUARANTEES. Maxxim Group's obligations under the new credit
facilities, any hedging arrangements entered into with a lender in relation to
the new credit facilities and all obligations relating to any overdrafts and
related liabilities owed to Chase or any of its affiliates arising from
treasury, cash management or depository services or in connection with certain
automated transfers of funds are unconditionally and irrevocably guaranteed,
jointly and severally, by Maxxim Holdings and by each of Maxxim Group's existing
and subsequently acquired or organized U.S. subsidiaries and may, in certain
circumstances, become guaranteed by certain non-U.S. subsidiaries. In addition,
the new credit facilities and the guarantees thereunder are secured by
collateral consisting of substantially all of the assets of Maxxim Group and the
guarantors of the new credit facilities, including, but not limited to:
- a perfected first priority pledge by Maxxim Holdings of all of Maxxim
Group's capital stock;
- to the extent not prohibited by law or any existing contract, a perfected
first priority pledge by Maxxim Group of:
-- all of the capital stock held by it of companies in which it holds
a minority stake; and
-- all of the capital stock held by it or any of its U.S. subsidiaries
and, in certain circumstances, by its non-U.S. subsidiaries, in any
existing and subsequently acquired or organized subsidiary. In the
case of the pledge of stock of any non-U.S. subsidiary, the pledge
is generally limited to 65% of the capital stock of such non-U.S.
subsidiary;
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- a perfected first priority security interest in, and mortgage on,
substantially all of the tangible and intangible assets of Maxxim Group
and each guarantor of the new credit facilities, including, but not
limited to:
- accounts receivable
- general intangibles
- real property
- intellectual property
- investment property
- cash and cash accounts
- inventory
- equipment
- documents
- the proceeds of the foregoing, in each case, subject to certain limited
exceptions.
The credit agreement and related guarantee and security agreements provide
for the release of guarantees and of collateral under certain limited
circumstances.
AVAILABILITY. Amounts repaid or prepaid under the term loan facilities may
not be reborrowed. Amounts repaid under the revolving credit facility will be
available for reborrowing on a revolving basis, subject to the terms of the
revolving credit facility.
AMORTIZATION; INTEREST. The tranche A term loan is repayable in 6
principal payments over 6 years of $10.0 million, $12.0 million, $12.0 million,
$14.0 million and $16.0 million on October 31, 2000, 2001, 2002, 2003 and 2004,
respectively, with the balance of the tranche A term loan ($16,000,000) payable
at maturity on the sixth anniversary of the closing date for the new credit
facilities. The tranche A term loan bears interest at an annual rate equal, at
Maxxim Group's option, to: (1) an adjusted London interbank offered rate
("Adjusted LIBOR") plus 2.75% or (2) a rate equal to the greater of the
administrative agent's prime rate, a certificate of deposit rate plus 1% and the
Federal Funds effective rate plus 1/2 of 1% (the "Alternate Base Rate") plus
1.75%, in each case, subject to certain adjustments based on Maxxim Group's
leverage.
The tranche B term loan is repayable in 8 principal payments over 7 1/2
years, consisting of 6 payments of $250,000 on October 31, 2000, 2001, 2002,
2003, 2004, 2005, a payment of $40.0 million on October 31, 2006 with the
balance of the tranche B term loan ($48,500,000) payable at maturity on the
seven-and-one-half year anniversary of the closing date for the new credit
facilities. The tranche B term loan bears interest at an annual rate equal, at
Maxxim Group's option, to: (1) Adjusted LIBOR plus 3.25% or (2) the Alternate
Base Rate plus 2.25%.
The tranche C term loan is repayable in 9 principal payments over 8 1/2
years, consisting of 7 payments of $250,000 on October 31, 2000, 2001, 2002,
2003, 2004, 2005, 2006, a payment of $30.0 million on October 31, 2007, with the
balance of the tranche C term loan ($58,250,000) payable at maturity on the
eight-and-one-half year anniversary of the closing date for the new credit
facilities. The tranche C term loan bears interest at an annual rate equal, at
Maxxim Group's option, to: (1) Adjusted LIBOR plus 3.50% or (2) the Alternate
Base Rate plus 2.50%.
The revolving credit facility is a six-year facility, and outstanding
balances thereunder bear interest at an annual rate equal, at Maxxim Group's
option, to: (1) Adjusted LIBOR plus 2.75% or (2) the Alternate Base Rate plus
1.75%, in each case, subject to certain adjustments based on Maxxim Group's
leverage. All outstanding loans under the revolving credit facility will be
payable at maturity.
Amounts under the new credit facilities not paid when due bear interest at
a default rate equal to 2.0% above the otherwise applicable rate.
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PREPAYMENTS. The new credit facilities permit Maxxim Group to prepay loans
and to permanently reduce revolving credit commitments, in whole or in part, at
any time. In addition, Maxxim Group is required to make mandatory prepayments of
the term loan facilities, subject to certain exceptions, in amounts equal to:
- 50% of excess cash flow for each fiscal year (as specified in the credit
agreement);
- 100% of the net cash proceeds of certain dispositions of assets of Maxxim
Holdings or any of its subsidiaries; and
- 100% of certain issuances of debt obligations of Maxxim Holdings or any
of its subsidiaries.
Mandatory and optional prepayments will be allocated ratably among the
three term loans, and, within each term loan, applied ratably to the remaining
amortization payments under such term loan, except that the lenders
participating in the tranche B and C term loans, as applicable, will have the
right to refuse mandatory prepayments, in which case such prepayments will be
applied to the tranche A term loan, or, if no portion of the tranche A term loan
remains outstanding, Maxxim Group may retain the prepayments. Any prepayment of
Adjusted LIBOR loans other than at the end of an interest period will be subject
to reimbursement of breakage costs as described in the credit agreement.
FEES. Maxxim Group is required to pay to the lenders, on a quarterly
basis, a commitment fee equal to 1/2 of 1% per year on the unused commitments
under the revolving credit facility, subject to adjustments based upon Maxxim
Group's financial performance. Maxxim Group also is required to pay:
- on a quarterly basis, a commission on the face amount of all outstanding
letters of credit equal to the applicable margin then in effect for
Adjusted LIBOR loans under the revolving credit facility;
- on a quarterly basis, a fronting fee to the issuing bank in the amount of
0.25% per year on each letter of credit;
- standard fees of the issuing bank with respect to issuance, amendment,
renewal or extension of any letters of credit; and
- fees payable to the administrative agent.
COVENANTS, EVENTS OF DEFAULT. The credit agreement contains covenants
that, among other things, restrict the ability of Maxxim Holdings, the ability
of Maxxim Group and the ability of Maxxim Group's subsidiaries to:
- - dispose of assets
- - incur additional indebtedness
- - incur guarantee obligations
- - prepay other indebtedness or amend other debt instruments
- - pay dividends
- - create liens on assets
- - enter into sale and leaseback transactions
- - make investments
- - loans or advances
- - make acquisitions
- - engage in mergers or consolidations
- - change the business of Maxxim Group
- - make capital expenditures
- - engage in certain transactions with affiliates
- - otherwise restrict certain corporate activities.
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In addition, under the new credit facilities, Maxxim Group is required to
comply with specified financial ratios, including minimum interest coverage
ratios and maximum total and senior leverage ratios.
The credit agreement obligates Maxxim Holdings and Maxxim Group to maintain
separate books and records and separate financial statements for Maxxim Holdings
and Maxxim Group, on the one hand, and Circon Holdings and Circon, on the other,
to not comingle financial assets or certain other assets, to have certain
affiliate transactions specifically approved by the board of directors or
determined to be fair by an independent expert, and to observe a number of other
formalities intended to ensure that Maxxim Holdings and Maxxim Group, on the one
hand, and Circon Holdings and Circon, on the other, are managed as separate
companies. The credit agreement also contains provisions that prohibit any
modification of the indenture as well as representations and warranties,
affirmative covenants and events of default, including cross default, material
judgments and change in control.
MAXXIM HOLDINGS NOTES
As part of the recapitalization, Maxxim Holdings issued $98.5 million
principal amount at maturity of senior unsecured discount notes. The Maxxim
Holdings notes were sold at a discount from their face value, resulting in
accreted interest accruing on the then accreted value at a semi-annual rate of
7.0% until November 15, 2004. The Maxxim Holdings notes will mature 11 years
from the date of issuance and, beginning November 15, 2004, will pay interest
semi-annually in cash at a rate of 14.0% per year on the accreted value of the
Maxxim Holdings notes on the issue date. For the first five years from the date
the Maxxim Holdings notes are issued, interest that becomes payable will be
added to the then outstanding principal amount of the Maxxim Holdings notes, and
will not be payable in cash. After five years from the issuance date, cash
interest will be payable in cash unless cash interest cannot be paid without
violating certain terms of Maxxim Group's senior or senior subordinated debt, in
which case Maxxim Holdings may issue additional Maxxim Holdings notes in payment
of such interest. The Maxxim Holdings notes were not registered for sale under
the Securities Act and are not eligible for offer or sale in the United States
absent registration or an exemption from the registration process. In addition,
the purchasers of the Maxxim Holdings notes received warrants to purchase
144,132 shares of Maxxim Holdings common stock at a purchase price of $0.01 per
share in connection with their purchase of the Maxxim Holdings notes. They also
purchased 218,407 shares of Fox Paine Medic stock which was converted into an
equal number of shares of Maxxim Holdings common stock in the merger. The
purchasers signed and entered into the Maxxim Holdings shareholders agreement.
CAPITAL LEASES, INDUSTRIAL REVENUE BONDS AND OTHER LONG-TERM OBLIGATIONS
CAPITAL LEASES. We lease our Clarksburg, West Virginia production facility
as well as certain equipment at the facility under long-term leases and have the
option to purchase the assets for a nominal cost at the termination of the
leases. Obligations under the Clarksburg Capital Lease totaled $4.5 million as
of October 31, 1999.
INDUSTRIAL REVENUE BONDS. In 1991, the Bucks County, Pennsylvania
Industrial Development Authority issued industrial revenue bonds to finance the
purchase of land and facilities in Bucks County, Pennsylvania. Our obligations
under these industrial revenue bonds totaled $2.4 million as of October 31,
1999.
OTHER LONG-TERM OBLIGATIONS. We have various other long-term obligations,
which totaled $.9 million as of October 31, 1999.
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DESCRIPTION OF THE EXCHANGE NOTES
Maxxim Group will issue the exchange notes under the same indenture, dated
as of November 12, 1999 among Maxxim Group, the guarantors and The Bank of New
York, as trustee, that governs the old notes. The indenture contains provisions
that define your rights under the exchange notes. In addition, the indenture
governs the obligations of Maxxim Group and of each guarantor under the exchange
notes and the old notes. The terms of the exchange notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act. For all purposes under the indenture, the exchange notes and the
old notes are treated as one class and references to the exchange notes in this
"Description of the Exchange Notes" refers to both old notes and exchange notes,
unless stated otherwise.
THE FOLLOWING DESCRIPTION IS MEANT TO BE ONLY A SUMMARY OF THE INDENTURE.
IT DOES NOT RESTATE THE TERMS OF THE INDENTURE IN THEIR ENTIRETY. WE URGE THAT
YOU CAREFULLY READ THE INDENTURE AS IT, AND NOT THIS DESCRIPTION, GOVERNS YOUR
RIGHTS AS A HOLDER. THE INDENTURE HAS BEEN FILED WITH THE SEC AS AN EXHIBIT TO
THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
Definitions for capitalized terms found in this section can be found under
the caption "-- Certain Definitions" at the end of the section.
PRINCIPAL, MATURITY AND INTEREST
Maxxim Group will issue exchange notes in exchange for old notes in an
aggregate principal amount at maturity of up to $144,552,000. The exchange notes
will mature on November 15, 2009. The exchange notes but not the old notes will
initially be represented by one or more permanent global notes in definitive,
fully registered book-entry form, without interest coupons. The global notes
will be deposited with, or on behalf of, DTC and registered in the name of Cede
and Co., as nominee of DTC, on behalf of the acquirors of exchange notes for
credit to the accounts of the acquirors or to other accounts as they may direct.
Such accounts may be at DTC, or Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System, or Cedel Bank, societe
anonyme.
Each exchange note will bear cash interest at a rate of 11% per annum on
the initial accreted value of such exchange note ($761) on November 12, 1999.
Beginning on May 15, 2000, and on each May 15 and November 15 thereafter as long
as the exchange notes are outstanding, Maxxim Group will pay semiannually cash
interest equal to $41.86 per $1,000 in principal amount at maturity to holders
of record at the close of business on the May 1 or November 1 before the
interest payment date. In addition, the accreted value will accrete between
November 12, 1999 and November 15, 2009, on a semi-annual bond equivalent basis
using a 360-day year comprised of twelve 30-day months, such that the accreted
value will be equal to the full principal amount at maturity of the exchange
notes on November 15, 2009. Maxxim Group will pay interest on overdue principal
at 12% annually and will pay interest on overdue installments of interest at
such higher rate to the extent lawful.
PAYING AGENT AND REGISTRAR
Maxxim Group will pay the principal of, and interest on, the exchange notes
at any office of Maxxim Group or any agency designated by Maxxim Group which is
located in
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the Borough of Manhattan, The City of New York. Maxxim Group has initially
designated the corporate trust office of the trustee to act as the paying agent
of Maxxim Group in such matters. The location of the corporate trust office of
the trustee is 101 Barclay Street, New York, NY 10268 attention of: Trust
Department. Maxxim Group reserves the right, however, to pay interest to holders
by check mailed directly to their registered addresses.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, Maxxim Group may not redeem
the exchange notes at its option prior to November 15, 2004. After that date, it
may redeem the exchange notes in whole or in part at the following redemption
prices, which are expressed as percentages of accreted value, plus accrued and
unpaid interest thereon to the redemption date. Holders of record on the
relevant record date will also have the right to receive interest due on the
relevant interest payment date.
<TABLE>
<CAPTION>
REDEMPTION
DATE PRICE
- ---- ----------
<S> <C>
November 15, 2004 to November 14, 2005...................... 106.875%
November 15, 2005 to November 14, 2006...................... 104.583
November 15, 2006 to November 14, 2007...................... 102.292
November 15, 2007 and thereafter............................ 100.000
</TABLE>
Prior to November 15, 2002, Maxxim Group may, at its option, on one or more
occasions, also redeem exchange notes representing up to a maximum of 35% of the
original aggregate principal amount at maturity of the old notes with the net
cash proceeds of one or more equity offerings by Maxxim Group or by Maxxim
Holdings to the extent the net cash proceeds thereof are contributed to Maxxim
Group or used to purchase capital stock, other than Disqualified Stock, of
Maxxim Group from Maxxim Group. This purchase must be at a redemption price
equal to 113 3/4% of the accreted value of the exchange notes, plus accrued and
unpaid interest thereon to the redemption date. Holders of record on the
relevant record date will also have the right to receive interest due on the
relevant interest payment date. Such purchases may only be made if after giving
effect to the purchase at least 65% of the original aggregate principal amount
at maturity of the old notes remains outstanding. Further, the purchase must be
made within 90 days of such related equity offering by Maxxim Group or Maxxim
Holdings, as the case may be, and must be made in accordance with certain
procedures set forth in the indenture.
SELECTION
If Maxxim Group partially redeems the exchange notes, the trustee will
select the exchange notes to be redeemed on a ratable basis, by lot or by such
other method as the trustee determines to be fair and appropriate. No exchange
note of $1,000 in principal amount at maturity or less will be redeemed in part.
On and after the redemption date the accreted value of exchange notes or portion
thereof called for redemption shall cease to accrete and interest will cease to
accrue on exchange notes or portions of exchange notes called for redemption so
long as Maxxim Group has deposited with the paying agent funds sufficient to pay
the principal of and accrued and unpaid interest on the exchange notes to be
redeemed.
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RANKING
The exchange notes:
- will be general unsecured obligations of Maxxim Group;
- will be subordinated in right of payment to all existing and future
Senior Indebtedness of Maxxim Group;
- will rank equally in right of payment with all existing and future Senior
Subordinated Indebtedness of Maxxim Group;
- will be senior in right of payment to all existing and future
subordinated obligations of Maxxim Group;
- will be effectively subordinated to all secured Indebtedness to the
extent of the value of the assets securing such Indebtedness;
- will be effectively subordinated to all liabilities, including trade
payables, and preferred stock of each subsidiary of Maxxim Group that is
not a guarantor; and
- are guaranteed by Maxxim Holdings and each of the domestic subsidiaries
of Maxxim Group.
The guarantee of each guarantor:
- will be a general unsecured obligation of such guarantor;
- will be subordinated in right of payment to all existing and future
Senior Indebtedness of such guarantor;
- will rank equally in right of payment with all existing and future Senior
Subordinated Indebtedness of such guarantor;
- will be senior in right of payment to all existing and future
subordinated obligations of such guarantor;
- will be effectively subordinated to all secured Indebtedness of such
guarantor and its subsidiaries to the extent of the value of the assets
securing such Indebtedness; and
- will be effectively subordinated to all liabilities, including trade
payables, and preferred stock of each subsidiary of such guarantor that
is not also a guarantor.
Maxxim Group currently conducts all its operations through its
subsidiaries. To the extent such subsidiaries are not guarantors, creditors,
including trade creditors, and preferred stockholders, if any, of such
subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Maxxim Group,
including the holders of the exchange notes. The exchange notes, therefore, will
be effectively subordinated to the interests of creditors, including trade
creditors, and preferred stockholders, if any, of subsidiaries of Maxxim Group
that are not guarantors. The non-U.S. subsidiaries of Maxxim Group will not
initially guarantee the exchange notes. As of October 31, 1999, on a pro forma
basis, the non-U.S. subsidiaries would have had total liabilities, including
trade payables, of approximately $9.8 million and no outstanding preferred
stock.
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As of October 31, 1999, on a pro forma basis giving effect to the
recapitalization, there would have been outstanding:
- $261.6 million of Senior Indebtedness of Maxxim Group, exclusive of
unused commitments under the new credit agreement, all of which would
have been Secured Indebtedness;
- $50.0 million of Senior Indebtedness of Maxxim Holdings under the Maxxim
Holdings notes, but excluding Maxxim Holdings' guarantee of Indebtedness
under the new credit agreement, none of which would have been secured
Indebtedness;
- $7.7 million of Senior Indebtedness of the subsidiaries of Maxxim Group
that are guarantors, exclusive of guarantees of Indebtedness under the
new credit agreement, $6.9 million of which would have been secured
Indebtedness;
- no Senior Subordinated Indebtedness of Maxxim Group, other than the old
notes and the remaining $5,000 of 10 1/2% senior subordinated notes due
2006, or of the guarantors, other than their guarantees of the remaining
$5,000 of 10 1/2% senior subordinated notes due 2006; and
- no subordinated obligations of Maxxim Group or the guarantors.
Although the indenture will limit the incurrence of Indebtedness by Maxxim
Group and its subsidiaries and the issuance of preferred stock by the
subsidiaries, such limitations are subject to a number of significant
qualifications. Maxxim Group and its subsidiaries may be able to incur
substantial amounts of Indebtedness in certain circumstances. Such Indebtedness
may be Senior Indebtedness. In addition, the indenture will not limit the
incurrence of Indebtedness by Maxxim Holdings. See "-- Restrictive Covenants --
Limitation on Indebtedness."
Maxxim Group has agreed in the indenture that neither it nor its restricted
subsidiaries will incur, directly or indirectly, any Indebtedness that is
subordinate or junior in ranking in any respect to Senior Indebtedness, unless
the Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to secured Indebtedness
merely because it is unsecured.
In general, Maxxim Group may not make any payments on the exchange notes
if:
- Maxxim Group is in default on any Designated Senior Indebtedness for
failure to make any payment thereon or
- any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated,
unless, in either case,
- Maxxim Group cures the default has been cured or it is waived and
any such acceleration has been rescinded or
- such Designated Senior Indebtedness has been paid in full.
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During the continuance of any default, other than a default described in
the preceding paragraph, with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice, except notice required to effect such acceleration, or the
expiration of any applicable grace periods, Maxxim Group may not pay the
exchange notes for a period (a "Payment Blockage Period"). The Payment Blockage
Period will commence upon the receipt by the trustee of written notice (a
"Blockage Notice") of the default from the representative of the Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
ending 179 days thereafter, or earlier if such Payment Blockage Period is
terminated:
- by written notice to the trustee and Maxxim Group from the person or
persons who gave such Blockage Notice;
- because such Designated Senior Indebtedness has been repaid in full;
or
- because the default giving rise to such Blockage Notice is no longer
continuing.
Notwithstanding the provisions described in the prior paragraph, but
subject to the provisions contained in the second preceding paragraph and in the
next paragraph, unless the holders of such Designated Senior Indebtedness or the
representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, Maxxim Group may resume payments on the exchange notes
after the end of such Payment Blockage Period.
Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any period of 360 consecutive days. For purposes of this paragraph, no
default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of Maxxim Group upon a total
or partial liquidation or a total or partial dissolution of Maxxim Group or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Maxxim Group or its properties:
(1) the holders of Senior Indebtedness of Maxxim Group will be
entitled to receive payment in full in cash or cash equivalents of such
Senior Indebtedness, including interest accruing after, or that would
accrue but for, the commencement of such proceeding at the rate specified
in the applicable Senior Indebtedness, whether or not such claim for such
interest would be allowed, before the holders of the exchange notes are
entitled to receive any payment; and
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(2) until such Senior Indebtedness is paid in full in cash or cash
equivalents, any payment or distribution to which holders of the exchange
notes would be entitled but for the subordination provisions of the
indenture will be made to holders of such Senior Indebtedness as their
interests may appear, except that holders of the exchange notes may receive
and retain:
(A) Permitted Junior Securities; and
(B) payments made from the defeasance trust described under the
caption "-- Defeasance," so long as, on the date or dates the respective
amounts were paid into the defeasance trust, such payments were made
with respect to the exchange notes without violating the subordination
provisions described herein.
If a payment or distribution is made to holders of the exchange notes that,
due to the subordination provisions of the indenture, should not have been made
to them, such holders will be required to hold the distribution in trust for the
holders of Senior Indebtedness of Maxxim Group and pay it over to them.
If payment of the exchange notes is accelerated because of a default under
the exchange notes or indenture, Maxxim Group or the trustee must promptly
notify the holders of the Designated Senior Indebtedness, or their
representative, of the acceleration. If any Designated Senior Indebtedness of
Maxxim Group is outstanding, Maxxim Group may not pay the exchange notes until
five business days after the holders or the representative of such Designated
Senior Indebtedness receive notice of such acceleration. Thereafter, Maxxim
Group may pay the exchange notes only if the subordination provisions of the
indenture otherwise permit payment at that time.
Due to the subordination provisions of the indenture, in the event of the
insolvency of Maxxim Group:
- creditors of Maxxim Group who are holders of Senior Indebtedness of
Maxxim Group may recover more, ratably, than the holders of the exchange
notes and
- creditors of Maxxim Group who are not holders of Senior Indebtedness
of Maxxim Group or of Senior Subordinated Indebtedness of Maxxim Group may
recover less, ratably, than holders of Senior Indebtedness of Maxxim Group
and more, ratably, than the holders of Senior Subordinated Indebtedness,
including the exchange notes, of Maxxim Group.
The indenture contains substantially identical subordination provisions
relating to each guarantor's obligations under its guarantee.
GUARANTEES
Maxxim Holdings and each current U.S. subsidiary of Maxxim Group, as
primary obligors and not merely as sureties, have jointly and severally
irrevocably and unconditionally guaranteed on an unsecured senior subordinated
basis the performance and full and punctual payment when due, of all obligations
of Maxxim Group under the indenture and the exchange notes. The guarantors have
agreed to pay all costs and expenses incurred by the trustee or the holders of
the exchange notes in enforcing any rights under the guarantees.
Each guarantee will be limited in amount to an amount not to exceed the
maximum amount that can be guaranteed by the applicable guarantor without
rendering the
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guarantee, as it relates to the guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Subject to the provisions of the
last paragraph of this section, Maxxim Group will cause:
- each new U.S. subsidiary, and
- each non-U.S. subsidiary, present or future, that guarantees any
Indebtedness of Maxxim Group, other than the outstanding $5,000 of 10 1/2%
senior subordinated notes due 2006, or a U.S. subsidiary,
to execute and deliver to the trustee a supplemental indenture pursuant to which
such subsidiary will guarantee payment of the exchange notes.
Each guarantee is a continuing guarantee and will, except as described in
the immediately succeeding paragraph:
- remain in full force and effect until payment in full of all the
guaranteed obligations;
- be binding upon each guarantor and its successors; and
- inure to the benefit of, and be enforceable by, the trustee, the
holders of the exchange notes and their successors, transferees and
assigns.
Any guarantee by a subsidiary of Maxxim Group will be automatically
released upon:
- the sale or other disposition of the capital stock, or all or
substantially all the assets, of the applicable subsidiary if such sale or
other disposition is made in compliance with the covenant described under
the caption "-- Restrictive Covenants -- Limitation on Sales of Assets and
Subsidiary Stock;" or
- the applicable subsidiary ceasing to be a subsidiary of Maxxim Group
as a result of any foreclosure of any pledge or security interest securing
Bank Indebtedness or other exercise of remedies in respect thereof if such
subsidiary is released from its guarantees of, and all pledges and security
interests granted in connection with, such Bank Indebtedness.
In addition, if any subsidiary is released from its guarantee of, and all
pledges and security interests granted in connection with, or it is not required
to guarantee or provide security for, any Indebtedness of Maxxim Group or any of
its subsidiaries, or in the case of a non-U.S. subsidiary, Maxxim Group or any
of its U.S. subsidiaries, then such guarantor's guarantee will also be
automatically released, or not required, for so long as such guarantor does not
guarantee, or provide security interests for, any Indebtedness of Maxxim Group
or any of its subsidiaries, or in the case of a non-U.S. subsidiary, Maxxim
Group or any of its U.S. subsidiaries. However, if the subsidiary is a U.S.
subsidiary, such subsidiary's guarantee will only be so released or not required
if, after giving effect to such release or lack of guarantee, such subsidiary
and all other U.S. subsidiaries that are not guarantors:
- would have generated 10% or less of the EBITDA of Maxxim Group and
its U.S. subsidiaries on a consolidated basis for the period of the most
recent four consecutive fiscal quarters ending at the end of the most
recent fiscal quarter for which financial statements are publicly available
and
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- would have had assets that represented 10% or less of the
Consolidated Net Tangible Assets of Maxxim Group and its U.S. subsidiaries
on a consolidated basis as of the end of the most recent fiscal quarter for
which financial statements are publicly available.
Once a subsidiary guarantee is released or not required as contemplated
above, the applicable subsidiary of Maxxim Group will not be required to give a
guarantee unless it guarantees, or provides security interests for, any
Indebtedness of Maxxim Group or any of its subsidiaries, or in the case of a
non-U.S. subsidiary, Maxxim Group or any of its U.S. subsidiaries.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of the exchange notes will have the right to require
Maxxim Group to repurchase all or any part of such holder's exchange notes at a
purchase price in cash equal to 101% of the accreted value thereof, plus accrued
and unpaid interest thereon to the date of repurchase. Holders of record on the
relevant record date will also have the right to receive interest due on the
relevant interest payment date. Notwithstanding the occurrence of a Change of
Control, however, Maxxim Group shall not be obligated to repurchase the exchange
notes pursuant to this section in the event that it has exercised its right to
redeem all the exchange notes under the terms described under the caption
"-- Optional Redemption."
Each of the following will constitute a Change of Control:
- Prior to the earlier to occur of (a) the first public offering of
common stock of Maxxim Holdings or (b) the first public offering of common
stock of Maxxim Group, the Permitted Holders cease to be the "beneficial
owner," directly or indirectly, of a majority in the aggregate of the total
voting power of the voting stock of Maxxim Holdings or Maxxim Group. For
purposes of this paragraph, "beneficial owner" has the same definition as
in Rules 13d-3 and 13d-5 under the Securities Exchange Act. Also for the
purposes of this paragraph, the Permitted Holders also shall be deemed to
beneficially own any voting stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the voting stock of the parent entity.
- (a) Any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act, other than one or more Permitted Holders,
is or becomes the beneficial owner, directly or indirectly, of more than
35% of the total voting power of the voting stock of Maxxim Holdings or
Maxxim Group and (b) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the voting stock of Maxxim Holdings or Maxxim Group than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of Maxxim Holdings or Maxxim Group, as the case may be. For
purposes of this paragraph, "beneficial owner" has the same definition as
in Rules 13d-3 and 13d-5 under the Securities Exchange Act when applied to
the Permitted Holders, but a person other than a Permitted Holder is deemed
to have "beneficial ownership" of all shares that the person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time. Also for the purposes of this paragraph,
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the Permitted Holders also shall be deemed to beneficially own any voting
stock of an entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a majority of the voting power of
the voting stock of the parent entity. However, a person other than a
Permitted Holder shall be deemed to beneficially own any voting stock of a
specified entity held by a parent entity, if such other person is the
beneficial owner (as defined in the second preceding sentence), directly or
indirectly, of more than 35% of the voting power of the voting stock of
such parent entity and the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
voting stock of such parent entity and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity.
- During any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of Maxxim Group
or Maxxim Holdings, together with any new directors:
-- whose election by such board of directors of Maxxim Holdings or
Maxxim Group, or whose nomination for election by the shareholders of
Maxxim Holdings or Maxxim Group, was approved by a majority vote of the
directors of Maxxim Holdings or Maxxim Group then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved or
-- who are designees of the Permitted Holders or were nominated by
the Permitted Holders
cease for any reason to constitute a majority of the Board of Directors of
Maxxim Group or Maxxim Holdings then in office.
- The adoption of a plan relating to the liquidation or dissolution of
Maxxim Holdings or Maxxim Group.
- The merger or consolidation of Maxxim Holdings or Maxxim Group with
or into another person or the merger of another person with or into Maxxim
Holdings or Maxxim Group, or the sale of all or substantially all the
assets of Maxxim Holdings or Maxxim Group to another person, other than a
person that is controlled by the Permitted Holders, and, in the case of any
such merger or consolidation, the securities of Maxxim Holdings or Maxxim
Group that are outstanding immediately prior to such transaction and that
represent 100% of the aggregate voting power of the voting stock of Maxxim
Holdings or Maxxim Group are changed into or exchanged for cash, securities
or property, unless pursuant to such transaction such securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving person or transferee that represent immediately
after such transaction, at least a majority of the aggregate voting power
of the voting stock of the surviving person or transferee.
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In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of exchange notes pursuant
to this covenant, then prior to the mailing of the notice to holders provided
for in the next paragraph, but in any event within 30 days following any Change
of Control, Maxxim Group shall:
- repay in full all Bank Indebtedness or, if doing so will allow the
repurchase of exchange notes, offer to repay in full all Bank Indebtedness
and repay the Bank Indebtedness of each lender who has accepted such offer;
or
- obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the exchange notes.
Within 30 days following any Change of Control, Maxxim Group shall mail a
notice to each holder of exchange notes with a copy to the trustee (the "Change
of Control Offer") stating that a Change of Control has occurred and that such
holder has the right to require Maxxim Group to purchase all or a portion of
such holder's exchange notes.
In the event that holders of not less than 98% of the principal amount of
the outstanding exchange notes accept a Change of Control Offer and Maxxim Group
purchases all of the exchange notes held by such holders, Maxxim Group will have
the right to redeem all the exchange notes that remain outstanding following
such purchase at the purchase price specified in the Change of Control Offer
plus accrued and unpaid interest thereon to the date of redemption. Holders of
record on the relevant record date will also have the right to receive interest
on the relevant interest payment date.
Maxxim Group will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in
compliance with the requirements set forth in the indenture applicable to a
Change of Control Offer made by Maxxim Group and purchases all exchange notes
validly tendered and not withdrawn under such Change of Control Offer.
Certain of the events that constitute a Change of Control would constitute
a default under Maxxim Group's new senior credit agreement. Future Senior
Indebtedness of Maxxim Group may contain prohibitions of certain events that
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
holders of exchange notes of their right to require Maxxim Group to repurchase
the exchange notes could cause a default under such Senior Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on Maxxim Group. Finally, Maxxim Group's ability to pay cash to the
holders of exchange notes upon a repurchase may be limited by Maxxim Group's
then existing financial resources. Sufficient funds may be unavailable when
necessary to make any required repurchases. The provisions under the indenture
relative to Maxxim Group's obligation to make an offer to repurchase the
exchange notes as a result of a Change of Control may be waived or modified with
the written consent of the holders of a majority in principal amount of the
exchange notes.
RESTRICTIVE COVENANTS
The indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (1) Maxxim Group will not, and will not
permit any restricted subsidiary to, incur any Indebtedness, unless on the
date of and after
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giving effect to such incurrence the Consolidated Coverage Ratio would be
greater than 2:1 if such Indebtedness is incurred on or prior to November
12, 2002, and 2.25:1 if such Indebtedness is incurred thereafter.
(2) Notwithstanding the foregoing paragraph (1), Maxxim Group and the
restricted subsidiaries may incur the following Indebtedness:
(a) Bank Indebtedness of Maxxim Group in an aggregate principal
amount not to exceed $310.0 million less the aggregate amount of all
prepayments of principal of such Indebtedness pursuant to the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock;"
(b) Indebtedness of Maxxim Group owed to and held by any wholly
owned subsidiary or Indebtedness of a restricted subsidiary owed to and
held by Maxxim Group or any wholly owned subsidiary; provided, however,
that (i) any subsequent issuance or transfer of any capital stock or any
other event that results in any such wholly owned subsidiary ceasing to
be a wholly owned subsidiary or any subsequent transfer of any such
Indebtedness, except to Maxxim Group or a wholly owned subsidiary, shall
be deemed to constitute the incurrence of such Indebtedness by the
issuer thereof, (ii) if Maxxim Group is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash or cash equivalents of all obligations with
respect to the exchange notes and (iii) if a restricted subsidiary that
is a guarantor of the exchange notes is the obligor on such Indebtedness
and such Indebtedness is owed to and held by a wholly owned subsidiary
that is not a guarantor of the exchange notes, such Indebtedness is
expressly subordinated to the prior payment in full in cash or cash
equivalents of all obligations of such restricted subsidiary with
respect to its guarantee of the exchange notes;
(c) Indebtedness (i) represented by the exchange notes and the
guarantees thereof, (ii) outstanding on November 12, 1999, other than
the Indebtedness described in clauses (a) and (b) above, (iii)
consisting of Refinancing Indebtedness incurred in respect of any
Indebtedness described in this clause (c), including Indebtedness that
is Refinancing Indebtedness, or the foregoing paragraph (1), or (iv)
consisting of guarantees of any Indebtedness otherwise permitted under
the indenture, other than guarantees of Indebtedness of subsidiaries
that are not guarantors of the exchange notes;
(d) (i) Indebtedness of a restricted subsidiary incurred and
outstanding on or prior to the date on which such restricted subsidiary
was acquired by Maxxim Group, other than Indebtedness incurred as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such restricted subsidiary became
a subsidiary of, or was otherwise acquired by, Maxxim Group; provided,
however, that, if $10 million in the aggregate of Indebtedness incurred
by restricted subsidiaries and/or other persons pursuant to this clause
(d)(i) and clause (h)(i) of this paragraph (2) remains outstanding,
Indebtedness may be incurred under this clause (d)(i) only if, on the
date that such restricted subsidiary is acquired by Maxxim Group, Maxxim
Group would have been able to incur $1.00 of additional Indebtedness
pursuant to the foregoing paragraph (1) after giving effect to the
incurrence of such Indebtedness pursuant to this clause (d)(i) and (ii)
Refinancing Indebtedness incurred by Maxxim Group or a
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restricted subsidiary in respect of Indebtedness incurred pursuant to
subclause (i) of this clause (d);
(e) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by
Maxxim Group and the restricted subsidiaries in the ordinary course of
their business;
(f) Indebtedness incurred by Maxxim Group or any restricted
subsidiary to finance the purchase, lease or improvement of property or
equipment, whether through the direct purchase of assets or capital
stock of any person owning such assets that becomes a wholly owned
subsidiary, in an aggregate principal amount, which when aggregated with
the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (f), does not exceed $20.0 million;
(g) hedging obligations of Maxxim Group or any guarantor entered
into in the ordinary course of business for the purpose of fixing or
hedging interest rate risk or currency fluctuations;
(h) (i) Indebtedness of another person incurred and outstanding on
or prior to the date on which such person consolidates with or merges
with or into Maxxim Group, other than Indebtedness incurred as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such person consolidates with or
merges with or into Maxxim Group; provided, however, that (A) such
transaction complies with the covenant described under the caption
"-- Merger and Consolidation," and (B) if $10 million in the aggregate
of Indebtedness incurred by any persons and/or restricted subsidiaries
pursuant to this clause (h)(i) and clause (d)(i) of this paragraph (2)
remains outstanding, Indebtedness may be incurred under this clause
(h)(i) only if, on the date that such transaction is consummated, Maxxim
Group would have been able to incur $1.00 of additional Indebtedness
pursuant to the foregoing paragraph (1) after giving effect to the
incurrence of such Indebtedness pursuant to this clause (h)(i) and (ii)
Refinancing Indebtedness incurred by Maxxim Group or the successor
company in respect of Indebtedness incurred pursuant to subclause (i) of
this clause (h);
(i)(i) Indebtedness of a non-U.S. subsidiary that is not a
guarantor of the exchange notes; provided, however, that, on the date
that such non-U.S. subsidiary incurs such Indebtedness, (A) Maxxim Group
would have been able to incur $1.00 of additional Indebtedness pursuant
to the foregoing paragraph (1) after giving effect to the incurrence of
such Indebtedness pursuant to this clause (i)(i), and (B) the Foreign
Coverage Ratio would be greater than 2.5:1.0 after giving effect to the
incurrence of such Indebtedness pursuant to this clause (i)(i), and (ii)
Refinancing Indebtedness incurred by such non-U.S. subsidiary in respect
of Indebtedness incurred pursuant to subclause (i)of this clause (i); or
(j) Indebtedness, other than Indebtedness permitted to be incurred
pursuant to the foregoing paragraph (1) or any other clause of this
paragraph (2), in an aggregate principal amount on the date of
Incurrence that, when added to all
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other Indebtedness incurred pursuant to this clause (j) and then
outstanding, shall not exceed $10.0 million.
(3) Notwithstanding the foregoing, a U.S. subsidiary that is not a
guarantor of the exchange notes may not incur any Indebtedness pursuant to
paragraph (1) or (2), except pursuant to clauses (b) and (c) of paragraph
(2) above if such subsidiary, together with all other U.S. subsidiaries
that are not guarantors of the exchange notes, (x) generated in excess of
10% of the EBITDA of Maxxim Group and its U.S. subsidiaries on a
consolidated basis for the period of the most recent four consecutive
fiscal quarters ending at the end of the most recent fiscal quarter for
which financial statements are publicly available or (y) had assets
representing more than 10% of the Consolidated Net Tangible Assets of
Maxxim Group and its U.S. subsidiaries on a consolidated basis as of the
end of the fiscal quarter for which financial statements are publicly
available.
(4) Notwithstanding the foregoing, Maxxim Group may not incur any
Indebtedness pursuant to paragraph (2) above if the proceeds thereof are
used, directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any subordinated obligations, unless such Indebtedness
will be subordinated to the exchange notes to at least the same extent as
such subordinated obligations. Maxxim Group may not incur any Indebtedness
if such Indebtedness is subordinate or junior in ranking in any respect to
any Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. In addition, Maxxim Group may not incur any
secured Indebtedness that is not Senior Indebtedness unless at the time
effective provision is made to secure the exchange notes equally and
ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the exchange notes) such secured
Indebtedness for so long as such secured Indebtedness is secured by a lien.
A guarantor of the exchange notes may not incur any Indebtedness if such
Indebtedness is by its terms expressly subordinate or junior in ranking in
any respect to any Senior Indebtedness of such guarantor unless such
Indebtedness is Senior Subordinated Indebtedness of such guarantor or is
expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such guarantor. In addition, a guarantor may not incur any
secured Indebtedness that is not Senior Indebtedness of such guarantor
unless at the time effective provision is made to secure the guarantee of
the exchange notes of such guarantor equally and ratably with (or on a
senior basis to, in the case of Indebtedness subordinated in right of
payment to such guarantee) such secured Indebtedness for as long as such
secured Indebtedness is secured by a lien.
(5) Notwithstanding any other provision of this covenant, an increase
in the dollar amount of Indebtedness of Maxxim Group or any restricted
subsidiary that comes about solely as a result of fluctuations in the
exchange rates of currencies shall not be deemed to be the incurrence by
Maxxim Group or such restricted subsidiary of additional Indebtedness.
(6) For purposes of determining the outstanding principal amount of
any particular Indebtedness incurred pursuant to this covenant:
(a) Indebtedness incurred pursuant to the new senior credit
agreement on November 12, 1999 shall be treated as incurred pursuant to
clause (a) of paragraph (2) above;
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(b) Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such Indebtedness but
may be permitted in part by one such provision and in part by one or
more other provisions of this covenant permitting such Indebtedness; and
(c) in the event that Indebtedness meets the criteria of more than
one of the types of Indebtedness described in this covenant, Maxxim
Group shall classify such Indebtedness and only be required to include
the amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (1) Maxxim Group will not, and
will not permit any restricted subsidiary, directly or indirectly, to:
(a) declare or pay any dividend, make any distribution on or in
respect of its capital stock or make any similar payment, including any
payment in connection with any merger or consolidation involving Maxxim
Group, to the holders of its capital stock, except (i) dividends or
distributions payable solely in its capital stock, other than
Disqualified Stock, and (ii) dividends or distributions payable to
Maxxim Group or another restricted subsidiary and, if such restricted
subsidiary has shareholders other than Maxxim Group or other restricted
subsidiaries, to its other shareholders on a pro rata basis;
(b) purchase, repurchase, redeem or otherwise acquire or retire for
value any capital stock of Maxxim Holdings, Maxxim Group or any
restricted subsidiary held by persons other than Maxxim Group or another
restricted subsidiary;
(c) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any subordinated obligations, other than
the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of subordinated obligations purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case, due within one year of the
date of acquisition or payment; or
(d) make any Investment, other than a Permitted Investment in any
Person,
any such dividend, distribution, purchase, repurchase, redemption,
defeasance, retirement, other acquisition or Investment referred to in
clauses (a) through (d) of this paragraph (1) being herein referred to as a
"Restricted Payment," if at the time Maxxim Group or such restricted
subsidiary makes such Restricted Payment:
(i) a default under the exchange notes or indenture will have occurred
and be continuing or would result therefrom;
(ii) Maxxim Group could not incur at least $1.00 of additional
Indebtedness under paragraph (1) of the covenant described under the
caption "-- Limitation on Indebtedness;" or
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(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to November 12, 1999 would
exceed the sum, without duplication, of:
(A) 50% of the Consolidated Net Income accrued during the period
from January 31, 2000 to the end of the most recent fiscal quarter for
which financial statements are publicly available or, in case such
Consolidated Net Income will be a deficit, minus 100% of such deficit;
plus
(B) the aggregate net cash proceeds received by Maxxim Group from
the issue or sale of its capital stock (other than Disqualified Stock)
after November 12, 1999, other than (x) an issuance or sale to a
subsidiary of Maxxim Group, (y) an issuance or sale to an employee stock
ownership plan or other trust established by Maxxim Group or any of its
subsidiaries or (z) to the extent used in accordance with clause (e)(ii)
or (f)(iii)(B) of paragraph (2) below; plus
(C) the aggregate net cash proceeds received by Maxxim Group or a
restricted subsidiary from the sale or other disposition (other than to
(x) Maxxim Group or a subsidiary of Maxxim Group or (y) an employee
stock ownership plan or other trust established by Maxxim Group or any
of its subsidiaries) of any Investments previously made by Maxxim Group
or a restricted subsidiary and treated as a Restricted Payment; provided
that the amount added pursuant to this clause (C) shall not (x) exceed
the amount of such Investments previously made by Maxxim Group or any
restricted subsidiary, which amount was included in the calculation of
the amount of Restricted Payments and (y) include any amounts from such
sale or disposition previously included in clause (iii) of this
paragraph (1); plus
(D) the amount by which Indebtedness of Maxxim Group or the
restricted subsidiaries is reduced on Maxxim Group's balance sheet upon
the conversion or exchange (other than by a subsidiary of Maxxim Group)
after November 12, 1999, of any Indebtedness of Maxxim Group or the
restricted subsidiaries issued after November 12, 1999 that is
convertible or exchangeable for capital stock (other than Disqualified
Stock) of Maxxim Group, less the amount of any cash or the fair market
value of other property distributed by Maxxim Group or any restricted
subsidiary upon such conversion or exchange; plus
(E) the amount equal to the net reduction in Investments in
unrestricted subsidiaries resulting from (i) payments of dividends,
repayments of the principal of loans or advances or other transfers of
assets to Maxxim Group or any restricted subsidiary from unrestricted
subsidiaries or (ii) the redesignation of unrestricted subsidiaries as
restricted subsidiaries (valued, in each case, as provided in the
definition of "Investment") not to exceed, in the case of any
unrestricted subsidiary, the amount of Investments previously made by
Maxxim Group or any restricted subsidiary in such unrestricted
subsidiary, which amount was included in the calculation of the amount
of Restricted Payments; plus
(F) $5.0 million.
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(2) The provisions of the foregoing paragraph (1) will not prohibit:
(a) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of capital stock or subordinated
obligations of Maxxim Group made by exchange for, or out of the proceeds
of the substantially concurrent sale of, capital stock of Maxxim Group,
other than Disqualified Stock and other than capital stock issued or
sold to a subsidiary of Maxxim Group or an employee stock ownership plan
or other trust established by Maxxim Group or any of its subsidiaries;
provided, however, that:
(i) such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value will be excluded in the
calculation of the amount of Restricted Payments; and
(ii) the net cash proceeds from such sale applied in the
manner set forth in this clause (a) will be excluded from the
calculation of amounts under clause (iii)(B) of paragraph (1)
above;
(b) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of subordinated obligations of
Maxxim Group made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of Maxxim Group that
is permitted to be incurred pursuant to paragraph (2) of the
covenant described under the caption "-- Limitation on
Indebtedness"; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value
will be excluded in the calculation of the amount of Restricted
Payments;
(c) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of subordinated obligations of
Maxxim Group or any guarantor of the exchange notes, other than
Maxxim Holdings, from Net Available Cash to the extent permitted by
the covenant described under the caption "-- Limitation on Sales of
Assets and Subsidiary Stock"; provided, however, that such
purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value will be excluded in the calculation of the
amount of Restricted Payments;
(d) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividends
would have complied with this covenant; provided, however, that
such dividends will be included in the calculation of the amount of
Restricted Payments;
(e) any purchase, repurchase, redemption or other acquisition
or retirement for value of shares of, or options to purchase shares
of, common stock of Maxxim Group or any of its subsidiaries from
employees, former employees, consultants, former consultants,
directors or former directors of Maxxim Group or any of its
subsidiaries, or their permitted transferees, pursuant to the terms
of agreements or plans approved by the board of directors of Maxxim
Group under which such individuals purchase or sell, or are granted
the option to purchase or sell, such shares of common stock or such
options; provided, however, that the aggregate amount of such
purchases, repurchases, redemptions and other acquisitions or
retirements for value, together with any amounts or other
distributions to Maxxim Holdings
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under paragraph (f)(iii) below, shall not exceed in any calendar
year the sum of (i) $5.0 million plus (ii) the net cash proceeds
(A) received since November 12, 1999 by Maxxim Group or received by
Maxxim Holdings and contributed to Maxxim Group from the sale of
capital stock to employees, consultants and directors of Maxxim
Group or Maxxim Holdings and (B) not previously credited to any
purchase, repurchase, redemption or retirement for value or other
acquisition of such shares or options to purchase shares of common
stock pursuant to this clause (e)(ii) or clause (f)(iii)(B) below;
provided, further, however, that such purchase, repurchase,
redemption or other acquisition or retirement for value shall be
included in the calculation of the amount of Restricted Payments,
unless made with net cash proceeds excluded pursuant to clause
(d)(iii)(B)(z) of the foregoing paragraph (1);
(f) any payment of dividends, other distributions or other
amounts by Maxxim Group solely for the purposes set forth in
clauses (i) through (iv) below; provided, however, that any such
dividend, distribution or other amount set forth in clauses (i),
(iii) (unless made with net cash proceeds excluded pursuant to
clause (d)(iii)(B)(z) of the foregoing paragraph (1)) and (iv) (but
not clause (ii)) shall be included in the calculation of the amount
of Restricted Payments:
(i) to Maxxim Holdings to provide for operating costs in
an aggregate amount not to exceed $1.0 million per fiscal
year;
(ii) to Maxxim Holdings in amounts equal to amounts
required for Maxxim Holdings to pay U.S. federal, state and
local or foreign income taxes to the extent such income taxes
are attributable to the income of Maxxim Group and the
restricted subsidiaries and, to the extent of amounts actually
received from its unrestricted subsidiaries, in amounts
required to pay such taxes to the extent attributable to the
income of such unrestricted subsidiaries;
(iii) to Maxxim Group in amounts equal to amounts
expended by Maxxim Holdings to purchase, repurchase, redeem or
otherwise acquire or retire for value shares of, or options to
purchase shares of, common stock of Maxxim Holdings from
employees, former employees, consultants, former consultants,
directors or former directors of Maxxim Holdings, Maxxim Group
or any of Maxxim Group's subsidiaries, or their permitted
transferees, pursuant to the terms of agreements or plans
approved by the board of directors of Maxxim Holdings under
which such individuals purchase or sell, or are granted the
option to purchase or sell, such shares of common stock of
Maxxim Holdings or such options; provided, however, that the
aggregate amount paid, loaned or advanced to Maxxim Holdings
pursuant to this clause (iii), together with the amounts of
any repurchases or other acquisitions under clause (e) above,
shall not exceed in any calendar year the sum of (A) $5.0
million plus (B) the net cash proceeds (1) received since
November 12, 1999 by Maxxim Group or received by Maxxim
Holdings and contributed to Maxxim Group from the sale of
capital stock to employees, consultants and directors of
Maxxim Holdings or Maxxim Group and (2) not previously
credited to any purchase, repurchase,
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redemption or other acquisition or retirement for value of
such shares or options to purchase shares of common stock
pursuant to this clause (f)(iii)(B) or clause (e)(ii) above;
and
(iv) to Maxxim Holdings in amounts equal to amounts
necessary for Maxxim Holdings to make loans or advances to
employees in the ordinary course of business in accordance
with past practices, but in any event not to exceed, when
aggregated with amounts loaned or advanced under clause (6) of
the definition of "Permitted Investment," $5.0 million in the
aggregate outstanding at any one time; and
(g) any payment of dividends from Maxxim Group to Maxxim
Holdings on or prior to November 12, 1999 in order to complete the
recapitalization, provided, however, that any such dividend shall
be excluded in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Maxxim Group will not, and will not permit any restricted
subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
restricted subsidiary to:
(1) pay dividends or make any other distributions on its capital
stock or pay any Indebtedness or other obligations owed to Maxxim Group
or any of the restricted subsidiaries;
(2) make any loans or advances to Maxxim Group or any of the
restricted subsidiaries; or
(3) transfer any of its property or assets to Maxxim Group or any
of the restricted subsidiaries, except:
(a) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on November 12, 1999;
(b) any encumbrance or restriction with respect to a restricted
subsidiary pursuant to an agreement relating to any Indebtedness
incurred by such restricted subsidiary prior to the date on which such
restricted subsidiary was acquired by Maxxim Group and outstanding on
such date, other than Indebtedness incurred as consideration in, in
contemplation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such restricted subsidiary became
a restricted subsidiary or was otherwise acquired by Maxxim Group;
(c) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in clause (a) or (b) above or this clause (c) or
contained in any amendment to an agreement referred to in clause (a) or
(b) above or this clause (c); provided, however, that the encumbrances
and restrictions contained in any such refinancing agreement or
amendment are no less favorable to the holders of the exchange notes
than the encumbrances and restrictions contained in such predecessor
agreements;
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(d) in the case of clause (3), any encumbrance or restriction:
(i) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to
a lease, license or similar contract; or
(ii) contained in security agreements securing Indebtedness of
a restricted subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to such
security agreements;
(e) with respect to a restricted subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the capital stock or assets of
such restricted subsidiary pending the closing of such sale or
disposition;
(f) any encumbrance or restriction relating to Purchase Money
Indebtedness or capitalized lease obligations for property acquired in
the ordinary course of business that imposes restrictions on the ability
of Maxxim Group or a restricted subsidiary to sell, lease or transfer
the acquired property to Maxxim Group or its restricted subsidiaries;
(g) restrictions on cash or other deposits imposed by customers
under contracts entered into in the ordinary course of business; and
(h) any encumbrance or restriction contained in joint venture
agreements and other similar agreements entered into in the ordinary
course of business and customary for such types of agreements.
Limitation on Sales of Assets and subsidiary Stock. (1) Maxxim Group will
not, and will not permit any restricted subsidiary to, make any Asset
Disposition unless:
(a) Maxxim Group or such restricted subsidiary receives
consideration at the time of such Asset Disposition at least equal to
the fair market value of the shares and assets subject to such Asset
Disposition;
(b) at least 75% of the consideration therefor received by Maxxim
Group or such restricted subsidiary is in the form of cash; provided
that the following shall be deemed to be cash for purposes of this
clause (b), but not for purposes of the definition of Net Available
Cash: (i) the amount of any liabilities shown on Maxxim Group's or such
restricted subsidiary's most recent balance sheet or in the notes
thereto that are assumed by the transferee of any such assets, other
than liabilities that are by their terms subordinated to the exchange
notes or the guarantees of the exchange notes, (ii) the amount of any
securities received by Maxxim Group or such restricted subsidiary from
such transferee that are converted or scheduled to be converted by
Maxxim Group or such restricted subsidiary into cash (to the extent of
the cash received or scheduled to be received) within 90 days following
the closing of such Asset Disposition, (iii) the fair market value of
any Related Assets received by Maxxim Group or such restricted
subsidiary in such Asset Disposition and (iv) any Designated Noncash
Consideration received by Maxxim Group or such restricted subsidiary in
such Asset Disposition having an aggregate fair market value, taken
together with all other Designated Noncash Consideration received
pursuant to this clause (iv) that has not been converted into cash or
cash equivalents, not to exceed 10% of Consolidated Net Tangible Assets
as of the end of the most recent fiscal
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quarter for which financial statements are publicly available at the
time such Designated Noncash Consideration is received, with the fair
market value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to subsequent
changes in value; and
(c) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by Maxxim Group, or such restricted
subsidiary, as the case may be:
(i) first, to the extent Maxxim Group elects or is required by
the terms of any Indebtedness to prepay, repay, redeem, purchase,
repurchase, defease or otherwise acquire or retire for value Senior
Indebtedness of Maxxim Group or Indebtedness, other than
obligations in respect of any preferred stock, of a wholly owned
subsidiary (in each case, other than Indebtedness owed to Maxxim
Group or an affiliate of Maxxim Group and other than obligations in
respect of Disqualified Stock) within 360 days of the later of the
date of such Asset Disposition or the receipt of such Net Available
Cash;
(ii) second, to the extent of the balance of Net Available
Cash after application in accordance with clause (i) above, to the
extent Maxxim Group or such restricted subsidiary elects to, or
enters into a binding agreement to, reinvest in Additional Assets,
including by means of an Investment in Additional Assets by a
restricted subsidiary with cash in an amount equal to the amount of
Net Available Cash received by, or to be received by, Maxxim Group
or another restricted subsidiary, within 360 days of the later of
such Asset Disposition or the receipt of such Net Available Cash;
and
(iii) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (i) and
(ii) above, to make an offer to purchase exchange notes pursuant to
and subject to the conditions set forth in paragraph (2) below;
provided, however, that, if Maxxim Group elects or is required by
the terms of any other Senior Subordinated Indebtedness, such offer
may be made ratably to purchase the exchange notes and other Senior
Subordinated Indebtedness of Maxxim Group;
provided, however that, in connection with any prepayment, repayment,
purchase, repurchase, defeasance or other acquisition or retirement for
value of Indebtedness pursuant to clause (i) or (iii) above, Maxxim
Group or such restricted subsidiary will retire such Indebtedness and
will cause the related loan commitment, if any, to be permanently
reduced in an amount equal to the principal amount so prepaid, repaid,
purchased, repurchased, defeased or otherwise acquired or retired for
value.
Upon completion of any offer, the amount of Net Available Cash shall
be reset at zero and Maxxim Group shall be entitled to use any remaining
proceeds for any corporate purposes to the extent permitted under the
indenture.
Notwithstanding the foregoing provisions of this covenant, Maxxim
Group and the restricted subsidiaries will not be required to apply any Net
Available Cash in accordance with this covenant except to the extent that
the aggregate Net Available
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Cash from all Asset Dispositions that is not applied in accordance with
this covenant exceeds $10.0 million.
(2) In the event of an Asset Disposition that requires the purchase of
exchange notes pursuant to clause (c)(iii) above, Maxxim Group will be
required to offer to purchase exchange notes tendered pursuant to an offer
by Maxxim Group for the exchange notes at a purchase price of 100% of their
accreted value plus accrued and unpaid interest thereon to the date of
purchase in accordance with the procedures set forth in the indenture and
to purchase other Senior Subordinated Indebtedness on the terms and to the
extent contemplated thereby. Maxxim Group will not be required to make an
offer for exchange notes pursuant to this covenant if the Net Available
Cash available therefor, after application of the proceeds as provided in
clauses (c)(i) and (c)(ii) above, is less than $10.0 million for any
particular Asset Disposition. If so, the lesser amount will be carried
forward for purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition.
(3) Maxxim Group will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of exchange notes
pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant,
Maxxim Group will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under
this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (1) Maxxim Group will
not, and will not permit any restricted subsidiary to, directly or
indirectly, enter into or conduct any transaction or series of related
transactions with any affiliate of Maxxim Group (an "Affiliate
Transaction") unless such Affiliate Transaction is on terms:
(a) that are no less favorable to Maxxim Group or such restricted
subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a person who is not such an
affiliate;
(b) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $10.0 million:
(i) are set forth in writing; and
(ii) have been approved by a majority of the members of the
board of directors of Maxxim Group having no personal stake, other
than as a holder of capital stock of Maxxim Holdings, Maxxim Group
or such restricted subsidiary, in such Affiliate Transaction; and
(c) that, in the event such Affiliate Transaction involves an
amount in excess of $25.0 million or does not comply with clause (b)
above, have been determined by a nationally recognized appraisal,
accounting or investment banking firm to be fair, from a financial
standpoint, to Maxxim Group and the restricted subsidiaries.
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(2) The provisions of paragraph (1) above will not prohibit:
(a) any Restricted Payment permitted pursuant to the covenant
described under the caption "-- Restrictive Covenants -- Limitation on
Restricted Payments;"
(b) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the board of directors of Maxxim Group;
(c) the grant of stock options or similar rights to employees,
consultants and directors of Maxxim Group, Maxxim Holdings or the
subsidiaries of Maxxim Group pursuant to plans approved by the board of
directors of Maxxim Group or Maxxim Holdings;
(d)(x) extensions and refinancings of loans or advances existing on
November 12, 1999 that were made to employees or consultants and (y)
loans or advances to employees in the ordinary course of business in
accordance with past practices of Maxxim Holdings, but in any event in
the case of this clause (y) not to exceed $10.0 million in the aggregate
outstanding at any one time;
(e) the payment of reasonable fees to directors of Maxxim Holdings,
Maxxim Group and the subsidiaries of Maxxim Group who are not employees
of Maxxim Holdings, Maxxim Group or such subsidiaries;
(f) any transaction between Maxxim Group and a restricted
subsidiary or between restricted subsidiaries;
(g) customary indemnification and insurance arrangements in favor
of officers, directors, employees and consultants of Maxxim Holdings,
Maxxim Group or any of the restricted subsidiaries;
(h) the purchase and sale of inventory in the ordinary course of
business on an arm's-length basis consistent with customary market
pricing;
(i) marketing and/or distribution arrangements on arm's-length
terms;
(j) payments by Maxxim Group or any of the restricted subsidiaries
to Fox Paine and its affiliates for any financial advisory, management,
financing, underwriting or other placement services or in respect of
other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures which payments are approved
by a majority of the members of the board of directors of Maxxim Group
referred to in clause (b)(ii) of paragraph (1) above in good faith;
(k) the existence of, or the performance by Maxxim Group or any
restricted subsidiary of the obligations under the terms of, any
stockholders' agreements, including any registration rights agreement or
purchase agreement related thereto to which any of them is a party as of
November 12, 1999, as such agreements may be amended from time to time
pursuant to the terms thereof; provided, however, that the terms of any
such amendment are no less favorable to the holders of the exchange
notes than the terms of any such agreements in effect as of November 12,
1999;
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(l) the issuance of capital stock, other than Disqualified Stock,
of Maxxim Group for cash to any Permitted Holder;
(m) any transaction between Circon and Maxxim Group or a restricted
subsidiary in respect of the Circon Note; and
(n) the performance of the Services Agreement as in effect on
November 12, 1999, or any addition or deletion of services thereunder on
substantially similar terms, or any other amendment, modification, or
replacement thereof so long as any such other amendment, modification or
replacement agreement is not materially more disadvantageous to the
holders of the exchange notes than the original agreement as in effect
on November 12, 1999.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Maxxim Group will not sell or otherwise dispose of any shares
of capital stock of a restricted subsidiary, and will not permit any
restricted subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any shares of its capital stock except:
(1) to Maxxim Group or a wholly owned subsidiary;
(2) if, immediately after giving effect to such issuance, sale or
other disposition, neither Maxxim Group nor any of its subsidiaries owns
any capital stock of such restricted subsidiary; or
(3) if, immediately after giving effect to such issuance or sale,
such restricted subsidiary would no longer constitute a restricted
subsidiary and any Investment in such person remaining after giving
effect thereto would have been permitted to be made under the covenant
described under the caption "-- Restrictive Covenants -- Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition.
The cash proceeds of any sale of such capital stock permitted hereby
will be treated as cash proceeds from an Asset Disposition and must be
applied in accordance with the terms of the covenant described under the
caption "-- Restrictive Covenants -- Limitation on Sales of Assets and
Subsidiary Stock."
SEC Reports. Maxxim Holdings will file with the SEC and provide the
trustee and holders and prospective holders of the exchange notes (upon
request) within 15 days after it files them with the SEC, copies of its
annual report and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act. In addition,
following a public Equity Offering, Maxxim Group will furnish to the
trustee and holders, promptly upon their becoming available, copies of the
annual report to shareholders and any other information provided by Maxxim
Group or Maxxim Holdings to its public shareholders generally. Maxxim Group
also will comply with the other provisions of Section 314(a) of the Trust
Indenture Act.
Future Guarantors. Subject to the last paragraph under "Guarantees,"
Maxxim Group will cause (1) each U.S. subsidiary that is acquired or formed
after November 12, 1999, and (2) each current and future foreign subsidiary
that guarantees any Indebtedness of Maxxim Group, other than the remaining
$5,000 of 10 1/2% senior subordinated notes due 2006, or of a U.S.
subsidiary, to become a guarantor of the exchange notes, and, if
applicable, execute and deliver to the trustee a supplemental indenture in
the form set forth in the indenture pursuant to which such subsidiary will
guarantee payment of the exchange notes. Each guarantee will be
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limited to an amount not to exceed the maximum amount that can be
guaranteed by that subsidiary without rendering the guarantee, as it
relates to such subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Limitation on Lines of Business. Maxxim Group will not, and will not
permit any restricted subsidiary to, engage in any business, other than a
Permitted Business.
MERGER AND CONSOLIDATION
Maxxim Group will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person, unless:
(1) the successor company will be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia, and the successor company, if not Maxxim Group, will
expressly assume, by a supplemental indenture, executed and delivered to
the trustee, in form satisfactory to the trustee, all the obligations of
Maxxim Group under the exchange notes and the indenture;
(2) immediately after giving effect to such transaction, no default
under the exchange notes or indenture shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the successor
company would be able to incur an additional $1.00 of Indebtedness under
paragraph (1) of the covenant described under the caption "-- Restrictive
Covenants -- Limitation on Indebtedness";
(4) Maxxim Group shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture, if any,
comply with the indenture; and
(5) Maxxim Group shall have delivered to the trustee an opinion of
counsel to the effect that the holders of the exchange notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such transaction and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such transaction had not occurred.
Notwithstanding the foregoing clause (2) or (3), Maxxim Group may merge
with an affiliate incorporated or formed solely for the purpose of
reincorporating Maxxim Group in another jurisdiction.
The successor company will succeed to, and be substituted for, and may
exercise every right and power of, Maxxim Group under the indenture, but Maxxim
Group, in the case of a conveyance, transfer or lease of all or substantially
all its assets, will not be released from the obligation to pay the principal of
and interest on the exchange notes.
In addition, Maxxim Group will not permit any guarantor of the exchange
notes to consolidate with or merge with or into, or convey, transfer or lease
all or substantially all of its assets to any person unless:
(1) the successor company will be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia, and such successor guarantor, if not such guarantor,
will expressly assume,
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by a supplemental indenture, executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of such guarantor under
its guarantee;
(2) immediately after giving effect to such transaction, no default
under the exchange notes or indenture shall have occurred and be
continuing; and
(3) Maxxim Group will have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture, if any,
comply with the indenture.
Notwithstanding clauses (2) and (3)of the first paragraph of this section
and clause (2) of the immediately preceding paragraph, any restricted subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to Maxxim Group or another restricted subsidiary. In addition, the
foregoing will not apply to any such consolidation with, merger with or into, or
conveyance, transfer or lease to, any person if the resulting, surviving or
transferee person will not be a subsidiary of Maxxim Group and the other terms
of the indenture, including the covenant described under "-- Restrictive
Covenants -- Limitation on Sales of Assets and Subsidiary Stock," are complied
with.
DEFAULTS
Each of the following is an "Event of Default":
(1) a default in any payment of interest on any exchange note when due
and payable, whether or not prohibited by the provisions described under
the caption "-- Ranking," continued for 30 days;
(2) a default in the payment of principal of any exchange note when
due and payable at its stated maturity, upon required redemption or
repurchase, upon declaration or otherwise, whether or not such payment is
prohibited by the provisions described under the caption "-- Ranking";
(3) the failure by Maxxim Group to comply with its obligations under
the covenant described under the caption "-- Merger and Consolidation";
(4) the failure by Maxxim Group to comply for 30 days after notice to
Maxxim Group and the trustee with any of its obligations under the
covenants described under the captions "-- Change of Control" or
"-- Restrictive Covenants," in each case, other than a failure to purchase
exchange notes;
(5) the failure by Maxxim Group or any guarantor to comply for 60 days
after notice with its other agreements contained in the exchange notes or
the indenture;
(6) the failure by Maxxim Group or any subsidiary of Maxxim Group to
pay any Indebtedness, other than Indebtedness owing to Maxxim Group or a
subsidiary of Maxxim Group, within any applicable grace period after final
maturity or the acceleration of any such Indebtedness by the holders
thereof because of a default, if the total amount of such Indebtedness
unpaid or accelerated exceeds $5.0 million or its foreign currency
equivalent (the "cross acceleration provision") and such failure continues
for 10 days after receipt of the notice to Maxxim Group and the trustee;
(7) certain events of bankruptcy, insolvency or reorganization of
Maxxim Group or a Significant Subsidiary (the "bankruptcy provisions"); or
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(8) the rendering of any judgment or decree for the payment of money
in excess of $5.0 million or its foreign currency equivalent against Maxxim
Group or a restricted subsidiary, to the extent such judgment or decree is
not covered by insurance or is in excess of insurance coverage, if such
judgment or decree remains outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed (the "judgment
default provision"); or
(9) any guarantee of the exchange notes ceases to be in full force and
effect, except as contemplated by the terms thereof, or any guarantor of
the exchange notes, or person acting by or on behalf of such guarantor,
denies or disaffirms such guarantor's obligations under the indenture or
any guarantee and such default continues for 10 days after receipt of the
notice specified in the indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (4), (5) or (6) above will not constitute
an Event of Default until the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding exchange notes notify Maxxim Group
and the trustee of the default and Maxxim Group or the guarantor, as applicable,
does not cure such default within the time specified in clauses (4), (5) or (6)
above after receipt of such notice.
If an Event of Default, other than an Event of Default under the bankruptcy
provisions, occurs and is continuing, the trustee or the holders of at least 25%
in aggregate principal amount of the outstanding exchange notes by notice to
Maxxim Group and the trustee may declare the principal of and accrued but unpaid
interest on all the exchange notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default under the bankruptcy provisions occurs, the principal of and
interest on all the exchange notes will become immediately due and payable.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding exchange notes may rescind any such acceleration with respect to
the exchange notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of exchange notes,
unless such holders have offered to the trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal or interest when due on the exchange notes, no holder may
pursue any remedy with respect to the indenture or the exchange notes unless:
(1) such holder has previously given the trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the
outstanding exchange notes have requested the trustee in writing to pursue
the remedy;
(3) such holders have offered the trustee security or indemnity
reasonably acceptable to the trustee against any loss, liability, fees or
expenses including reasonable fees and expenses of legal counsel;
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(4) the trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity;
and
(5) the holders of a majority in aggregate principal amount of the
outstanding exchange notes have not given the trustee a direction
inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in aggregate
principal amount of the outstanding exchange notes will be given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or of exercising any trust or power conferred on the
trustee. The trustee, however, may refuse to follow any direction that conflicts
with law or the indenture or that the trustee determines is unduly prejudicial
to the rights of any other holder or that would involve the trustee in personal
liability. Prior to taking any action under the indenture, the trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
If a default occurs and is continuing and is known to a trust officer, the
trustee must mail to each holder notice of the default within the earlier of 90
days after it occurs or 30 days after it is known to a trust officer or written
notice of it is received by a trust officer. Except in the case of a default in
the payment of principal of or interest on any exchange note, including payments
pursuant to the redemption provisions of such exchange note, if any, the trustee
may withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of the holders. The
trustee shall not be deemed to have notice of a default unless a trust officer
shall have actual knowledge thereof or shall have received written notice
thereof from any holder. In addition, Maxxim Group will be required to deliver
to the trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any default that occurred during
the previous year. Maxxim Group will also be required to deliver to the trustee,
within 30 days after the occurrence thereof, written notice of any event that
would constitute certain Events of Default, its status and what action Maxxim
Group is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the holders of a majority in aggregate
principal amount of the exchange notes then outstanding may amend the indenture
or the exchange notes and waive defaults. More significant amendments require
the consent of each holder of an exchange note affected by the amendment.
Without the consent of each holder of an outstanding exchange note affected, no
amendment may, among other things:
(1) reduce the amount of exchange notes whose holders must consent to
an amendment;
(2) reduce the rate of or extend the time for payment of interest on
any exchange note;
(3) reduce the principal of or extend the stated maturity of any
exchange note;
(4) reduce the premium payable upon the redemption of any exchange
note or change the time at which any exchange note may be redeemed as
described under the caption "-- Optional Redemption";
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(5) make any exchange note payable in money other than that stated in
the exchange note;
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any holder of an exchange note;
(7) impair the right of any holder of an exchange note to receive
payment of principal of and interest on such holder's exchange notes on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's exchange notes;
(8) make any change in the amendment provisions which require each
exchange note holder's consent or in the waiver provisions; or
(9) modify the guarantees in any manner adverse to the holders of the
exchange notes.
Without the consent of any holder of the exchange notes, Maxxim Group and
trustee may amend the indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of the
obligations of Maxxim Group under the indenture;
(3) provide for uncertificated exchange notes in addition to or in
place of certificated exchange notes, provided that the uncertificated
exchange notes are issued in registered form for purposes of Section 163(f)
of the Internal Revenue Code, or in a manner such that the uncertificated
exchange notes are described in Section 163(f)(2)(B) of the Internal
Revenue Code;
(4) make any change in the subordination provisions of the indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of Maxxim Group under such subordination provisions;
(5) add additional guarantees with respect to the exchange notes;
(6) secure the exchange notes;
(7) add to the covenants of Maxxim Group for the benefit of the
holders of the exchange notes or to surrender any right or power conferred
upon Maxxim Group;
(8) make any change that does not adversely affect the rights of any
holder, subject to the provisions of the indenture;
(9) provide for the issuance of the exchange notes;
(10) comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act; or
(11) to change the name or title of the exchange notes and make any
conforming changes related thereto.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
of Maxxim
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Group then outstanding, unless the holders of such Senior Indebtedness, or any
group or representative thereof authorized to give a consent, consent to such
change.
TRANSFER AND EXCHANGE
A holder of exchange notes will be able to transfer or exchange its
exchange notes. Upon any transfer or exchange, the registrar and the trustee may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and Maxxim Group may require a holder to pay any taxes
required by law or permitted by the indenture. Maxxim Group will not be required
to transfer or exchange any exchange note selected for redemption or to transfer
or exchange any exchange note for a period of 15 days prior to a selection of
exchange notes to be redeemed.
DEFEASANCE
Maxxim Group may at any time terminate all its obligations under the
exchange notes and the indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the exchange notes, to replace mutilated,
destroyed, lost or stolen exchange notes and to maintain a registrar and paying
agent in respect of the exchange notes.
In addition, Maxxim Group may at any time terminate:
(1) its obligations under the covenants described under
"-- Restrictive Covenants" and
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment default
provision described under "-- Defaults" and the limitations contained in
clause (3) under the first paragraph under "-- Merger and Consolidation"
("covenant defeasance").
In the event that Maxxim Group exercises its legal defeasance option or its
covenant defeasance option, each guarantor of the exchange notes will be
released from all of its obligations with respect to its guarantee.
Maxxim Group may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If Maxxim Group exercises its
legal defeasance option, payment of the exchange notes may not be accelerated
because of an Event of Default with respect thereto.
If Maxxim Group exercises its covenant defeasance option, payment of the
exchange notes may not be accelerated because of an Event of Default specified
in clause (4), (6), (7) (with respect only to Significant Subsidiaries), (8)
(with respect only to Significant Subsidiaries) or (9) under "-- Defaults" or
because of the failure of Maxxim Group to comply with clause (3) under the first
paragraph under "-- Merger and Consolidation."
In order to exercise either defeasance option, Maxxim Group must
irrevocably deposit in trust (the "defeasance trust") with the trustee money, in
an amount sufficient, or U.S. government obligations, the principal of and
interest on which will be sufficient, or a combination thereof sufficient, to
pay the principal of and interest on the outstanding exchange notes to
redemption or maturity, as the case may be. Maxxim Group also must comply with
certain other conditions, including delivery to the trustee of an opinion of
counsel to the effect that holders of exchange notes will not recognize income,
gain or loss
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for federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred. In the case of legal defeasance only, the opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee under the indenture and has been
appointed by Maxxim Group as registrar and paying agent with regard to the
exchange notes.
GOVERNING LAW
The indenture and the exchange notes are governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"accreted value" means, as of any date, the amount provided below for each
$1,000 principal amount at maturity of exchange notes:
(1) if the specified date occurs on one of the following dates (each,
a "Semi-Annual Accrual Date"), the accreted value will equal the amount set
forth below under the "Accreted Value" column for such Semi-Annual Accrual
Date:
<TABLE>
<CAPTION>
ACCRETED VALUE
------------------------
SEMI-ANNUAL ACCRUAL DATE PER UNIT AGGREGATE
------------------------ ---------- -----------
<S> <C> <C>
Issue Date $ 761.000 110,004,072
May 15, 2000........................... 771.464 111,516,602
November 15, 2000 782.071 113,049,929
May 15, 2001........................... 792.824 114,604,339
November 15, 2001 803.725 116,180,122
May 15, 2002........................... 814.776 117,777,572
November 15, 2002 825.979 119,396,986
May 15, 2003........................... 837.337 121,038,666
November 15, 2003 848.850 122,702,920
May 15, 2004........................... 860.521 124,390,056
November 15, 2004 872.353 126,100,391
May 15, 2005........................... 884.348 127,834,242
November 15, 2005 896.507 129,591,933
May 15, 2006........................... 908.834 131,373,791
November 15, 2006 921.330 133,180,150
May 15, 2007........................... 933.998 135,011,346
November 15, 2007 946.841 136,867,721
May 15, 2008........................... 959.860 138,749,620
November 15, 2008 973.057 140,657,395
May 15, 2009........................... 986.437 142,591,401
November 15, 2009...................... 1,000.000 144,552,000
</TABLE>
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; or
(2) if the specified date occurs between two Semi-Annual Accrual
Dates, the accreted value will equal the sum of (a) the accreted value for
the Semi-Annual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (i) the accreted value for the
immediately following Semi-Annual Accrual Date less the accreted value for
the immediately preceding Semi-Annual Accrual Date multiplied by (ii) a
fraction, the numerator of which is the number of days elapsed from the
immediately preceding Semi-Annual Accrual Date to the specified date, using
a 360-day year of twelve 30-day months, and the denominator of which is 180
or, if the Semi-Annual Accrual Date immediately preceding the specified
date is the issue date, the denominator of which is 182. In the event the
trustee is required to take any action which requires the calculation
described in the preceding sentence, upon request by the trustee Maxxim
Group will calculate such accreted value and set forth such in an officers'
certificate.
"Additional Assets" means:
(1) any property or assets, other than Indebtedness and capital stock,
to be used by Maxxim Group or a restricted subsidiary in a Permitted
Business;
(2) the capital stock of a person that becomes a restricted subsidiary
as a result of the acquisition of such capital stock by Maxxim Group or
another restricted subsidiary; or
(3) capital stock constituting a minority interest in any person that
at such time is a restricted subsidiary;
provided, however, that any such restricted subsidiary described in clauses (2)
or (3) above is primarily engaged in a Permitted Business.
"Asset Disposition" means any sale, lease, transfer or other disposition,
or series of related sales, leases, transfers or dispositions, by Maxxim Group
or any restricted subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of capital stock of a restricted subsidiary, other than
directors' qualifying shares or shares required by applicable law to be
held by a person other than Maxxim Group or a restricted subsidiary;
(2) all or substantially all the assets of any division or line of
business of Maxxim Group or any restricted subsidiary; or
(3) any other assets of Maxxim Group or any restricted subsidiary
outside of the ordinary course of business of Maxxim Group or such
restricted subsidiary;
other than, in the case of (1), (2) and (3) above:
(a) a disposition by a restricted subsidiary to Maxxim Group or by
Maxxim Group or a restricted subsidiary to a wholly owned subsidiary;
(b) for purposes of the provisions described under the caption
"-- Restrictive Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" only, a disposition subject to the covenant described under the
caption "-- Restrictive Covenants -- Limitation on Restricted Payments;"
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(c) a disposition of assets with a fair market value of less than
$100,000;
(d) a disposition of temporary cash investments or obsolete equipment
or other obsolete assets in the course of business consistent with past
practices of Maxxim Group; and
(e) the disposition of all or substantially all of the assets of
Maxxim Group in a manner permitted under the covenant described under the
caption "-- Merger and Consolidation" or any disposition that constitutes a
change of control under the indenture; provided that the covenant described
under the caption "-- Merger and Consolidation" or "-- Change of Control,"
as the case may be, is complied with.
"Attributable Debt" in respect of a sale/leaseback transaction means, as at
the time of determination, the present value (discounted at 13.64%, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such sale/leaseback transaction,
including any period for which such lease has been extended.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the new senior secured credit agreement entered into on November 12, 1999 by
Maxxim Group and the collateral documents relating thereto and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium, if any, interest, fees, charges, expenses, reimbursement
obligations and all other amounts payable thereunder or in respect thereof.
"Circon Note" means a promissory note issued in connection with the
recapitalization by Circon to a restricted subsidiary of Maxxim Group as a
dividend payment.
"Closing Date" means November 12, 1999, the original date of the indenture.
"Consolidated Coverage Ratio" means, as of any date of determination, the
ratio of:
(1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at the end of the most recent
fiscal quarter for which financial statements are publicly available, to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(a) if Maxxim Group or any restricted subsidiary has incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been incurred on the first day of such period and
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period;
(b) if Maxxim Group or any restricted subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
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calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if Maxxim Group or such restricted
subsidiary has not earned the interest income actually earned during such
period in respect of cash or temporary cash investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(c) if since the beginning of such period Maxxim Group or any
restricted subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of Maxxim Group or any restricted subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to Maxxim Group
and its continuing restricted subsidiaries in connection with such Asset
Disposition for such period or, if the capital stock of any restricted
subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such restricted subsidiary to
the extent Maxxim Group and its continuing restricted subsidiaries are no
longer liable for such Indebtedness after such sale;
(d) if since the beginning of such period Maxxim Group or any
restricted subsidiary shall have made an Investment in any restricted
subsidiary, or any person that subsequently became a restricted subsidiary
or was merged with or into Maxxim Group or any restricted subsidiary since
the beginning of such period, or an acquisition of assets, including by
acquisition of the capital stock of an entity that becomes a restricted
subsidiary, including any acquisition of assets occurring in connection
with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business or
a product line or a line of business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Investment or acquisition occurred on the first day of
such period; and
(e) if since the beginning of such period any person that subsequently
became a restricted subsidiary or was merged with or into Maxxim Group or
any restricted subsidiary since the beginning of such period shall have
made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (c) or (d) above if
made by Maxxim Group or a restricted subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an Investment, acquisition of assets or capital stock or Asset Disposition
under clauses (c), (d) or (e) above, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting officer of
Maxxim Group and shall include those adjustments permitted in accordance with
GAAP and/or Article XI of Regulation S-X promulgated by the SEC. Notwithstanding
the foregoing, with respect to any Investment or acquisition of assets or
capital stock, by merger or otherwise, any such pro forma calculations may
include the annualized amount of operating expense reductions, net of any
annualized expenses incurred to achieve such operating expense reductions for
such
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period resulting from the acquisition or other transaction which is being given
pro forma effect that have been realized or for which the steps necessary for
realization have been taken or are reasonably expected to be taken within six
months following any such acquisition or other transaction. In addition, and
notwithstanding the foregoing, for purposes of calculating the Consolidated
Coverage Ratio, as of any date of determination, pro forma effect may be given
to the annualized amount of operating expense reductions, net of any annualized
expenses incurred to achieve such operating expense reductions resulting from
any acquisitions or other transactions occurring in either of the two fiscal
quarters prior to the four quarter reference period for which the Consolidated
Coverage Ratio is being calculated, provided that (A) such acquisition or other
transaction would have been given pro forma effect under clause (d) or (e) above
had it occurred in the four quarter reference period for which the Consolidated
Coverage Ratio is being calculated and (B) such operating expense reductions
have been realized, or the steps necessary for realization have been taken or
are reasonably expected to be taken within six months following any such
acquisition or other transaction, including the steps described in the
immediately preceding sentence. In connection with any pro forma adjustment or
adjustments made pursuant to either of the two immediately preceding sentences,
such adjustment or adjustments shall be set forth in an officers' certificate
signed by Maxxim Group's chief financial officer and another officer which
states (x) the amount of such adjustment or adjustments, (y) that such
adjustment or adjustments are based on the reasonable good faith beliefs of the
officers executing such officers' certificate at the time of such execution and
(z) that any related incurrence of Indebtedness is permitted pursuant to the
indenture.
If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period, taking into account any interest rate agreement
applicable to such Indebtedness if such interest rate agreement has a remaining
term as at the date of determination in excess of 12 months. In addition, for
purposes of the computations referred to in clause (a) and (b) above, interest
expense on any Indebtedness under any revolving credit facility shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period.
"Consolidated Current Liabilities" as of any date of determination means
the aggregate amount of liabilities of Maxxim Group and its consolidated
restricted subsidiaries which may properly be classified as current liabilities,
including taxes accrued as estimated, on a consolidated basis, after
eliminating:
(1) all intercompany items between Maxxim Group and any restricted
subsidiary; and
(2) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Maxxim Group and its consolidated restricted subsidiaries, to the
extent such interest expense was deducted in computing Consolidated Net Income
plus, to the extent incurred by Maxxim Group and its consolidated restricted
subsidiaries in such period but not included in such interest expense:
(1) interest expense attributable to capitalized lease obligations and
interest expense attributable to leases constituting part of a
sale/leaseback transaction;
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(2) amortization of debt discount and debt issuance costs, other than
(a) debt issuance costs incurred in connection with the recapitalization
and (b) any other debt issuance costs incurred in amounts, and on terms,
that are customary and reasonable in light of then prevailing market
conditions;
(3) capitalized interest;
(4) non-cash interest expense;
(5) amortization of, or other charges for, commissions, discounts and
other fees and charges attributable to letters of credit and bankers'
acceptance financing;
(6) interest accruing on any Indebtedness of any other person to the
extent such Indebtedness is guaranteed by Maxxim Group or any restricted
subsidiary;
(7) amortization of net costs associated with hedging obligations,
including amortization of fees;
(8) dividends in respect of all Disqualified Stock of Maxxim Group and
all preferred stock of any of the subsidiaries of Maxxim Group, to the
extent held by persons other than Maxxim Group or a wholly owned
subsidiary;
(9) interest incurred in connection with investments in discontinued
operations; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any person, other than Maxxim Group, in
connection with Indebtedness incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of Maxxim
Group and its consolidated subsidiaries for such period; provided, however,that
there shall not be included in such Consolidated Net Income:
(1) any net income of any person, other than Maxxim Group, if such
person is not a restricted subsidiary, except that:
(a) subject to the limitations contained in clause (4) below,
Maxxim Group's equity in the net income of any such person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash or the fair market value of other assets
actually distributed by such person during such period to Maxxim Group
or a restricted subsidiary as a dividend or other distribution, subject,
in the case of a dividend or other distribution made to a restricted
subsidiary, to the limitations contained in clause (3) below; and
(b) Maxxim Group's equity in a net loss of any such person for such
period shall be included in determining such Consolidated Net Income,
but only to the extent (cumulative of such losses) of Maxxim Group's
Investment in such person;
(2) any net income or loss of any person acquired by Maxxim Group or a
subsidiary of Maxxim Group in a pooling of interests transaction for any
period prior to the date of such acquisition;
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(3) any net income of any restricted subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
restricted subsidiary of its net income is not, at the date of
determination, permitted without any prior governmental approval which has
not been obtained or, directly or indirectly, by the operation of the terms
of its charter, or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that restricted
subsidiary or its stockholders, unless such restrictions with respect to
the payment of dividends or similar distributions have been legally waived,
except that the net loss of any such restricted subsidiary for such period
shall be included in determining such Consolidated Net Income;
(4) any gain, but not loss, realized upon the sale or other
disposition of any asset of Maxxim Group or its consolidated subsidiaries,
including pursuant to any sale/leaseback transaction, that is not sold or
otherwise disposed of in the ordinary course of business and any gain, but
not loss, realized upon the sale or other disposition of any capital stock
of any person;
(5) any extraordinary or otherwise nonrecurring gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under the caption "-- Restrictive Covenants -- Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
unrestricted subsidiaries to Maxxim Group or a restricted subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (d)(iii)(E)(i) of
paragraph (1) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets, less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items, which would appear on a consolidated balance sheet of
Maxxim Group and its consolidated restricted subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of:
(1) minority interests in consolidated subsidiaries held by persons
other than Maxxim Group or a restricted subsidiary;
(2) excess of cost over fair value of assets of businesses acquired,
as determined in good faith by the board of directors of Maxxim Group;
(3) any revaluation or other write-up in book value of assets
subsequent to the date of the indenture as a result of a change in the
method of valuation in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, licenses, organization or developmental expenses and
other intangible items;
(5) treasury stock;
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(6) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of capital
stock to the extent such obligation is not reflected in Consolidated
Current Liabilities; and
(7) Investments in and assets of unrestricted subsidiaries.
"Designated Noncash Consideration" means noncash consideration received by
Maxxim Group or a restricted subsidiary in connection with an Asset Disposition
that is so designated as Designated Noncash Consideration pursuant to an
officers' certificate that sets forth the basis for valuing such Designated
Noncash Consideration.
"Designated Senior Indebtedness" of Maxxim Group or a guarantor of the
exchange notes means:
(1) Bank Indebtedness or a guarantee thereof of Maxxim Group or such
guarantor, as applicable; and
(2) any other Senior Indebtedness of Maxxim Group or such guarantor
that, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to at least $15.0 million and is
specifically designated by Maxxim Group or such guarantor in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the indenture.
"Disqualified Stock" means, with respect to any person, any capital stock
that by its terms, or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable, or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock, excluding capital stock convertible or exchangeable solely at the
option of Maxxim Group or a restricted subsidiary provided, that any such
conversion or exchange shall be deemed an issuance of Indebtedness or
Disqualified Stock, as applicable; or
(3) is redeemable at the option of the holder thereof, in whole or in
part;
in the case of each of clauses (1), (2) and (3) on or prior to the first
anniversary of the stated maturity of the exchange notes; provided, however,that
any capital stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such person to
repurchase or redeem such capital stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the first anniversary of the stated
maturity of the exchange notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such capital stock
are not more favorable to the holders of such capital stock than the provisions
of the covenants described under the captions "Change of Control" and
"-- Restrictive Covenants -- Limitation on Sale of Assets and Subsidiary Stock."
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(1) income tax expense of Maxxim Group and its consolidated restricted
subsidiaries;
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(2) Consolidated Interest Expense;
(3) depreciation expense of Maxxim Group and its consolidated
restricted subsidiaries;
(4) amortization expense of Maxxim Group and its consolidated
restricted subsidiaries, excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period; and
(5) all other non-cash charges of Maxxim Group and its consolidated
restricted subsidiaries (excluding any such non-cash charge to the extent
it represents an accrual of or reserve for cash expenditures in any future
period, but that will not be expensed in such future periods) less all
non-cash items of income of Maxxim Group and its consolidated restricted
subsidiaries (other than non-cash items representing an accrual or reserve
for cash to be received in any future period but that will not be treated
as income in such future periods), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges less
all non-cash items of income of, a restricted subsidiary of Maxxim Group shall
be added to Consolidated Net Income to compute EBITDA only to the extent, and in
the same proportion, that the net income of such restricted subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to
Maxxim Group by such restricted subsidiary without prior approval (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such restricted subsidiary or its stockholders.
"Equity Offering" means any public or private sale of capital stock, other
than Disqualified Stock, of Maxxim Group or Maxxim Holdings, other than
offerings of Maxxim Group or Maxxim Holdings of the type that can be registered
on Form S-8, or any successor form, pursuant to the Securities Act.
"Foreign Coverage Ratio" has the same meaning as Consolidated Coverage
Ratio except that all references in the definition of Consolidated Coverage
Ratio and in the definitions used therein to Maxxim Group shall be deemed to be
references to the foreign subsidiaries and to "restricted subsidiaries" shall be
deemed to be references only to the foreign subsidiaries.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of November 12, 1999, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements, including pro forma financial statements, in periodic
reports required to be filed pursuant to Section 13 of the Securities
Exchange Act, including opinions and
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pronouncements in staff accounting bulletins and similar written statements
from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the indenture shall
be computed in conformity with GAAP, except as specifically provided herein.
"Indebtedness" means, with respect to any person on any date of
determination, without duplication:
(1) the principal of and premium, if any, in respect of indebtedness
of such person for borrowed money;
(2) the principal of and premium, if any, in respect of obligations of
such person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such person under letters of credit or other
similar instruments;
(4) all obligations of such person to pay the deferred and unpaid
purchase price of property or services, except trade payables and
contingent obligations to pay earn-outs, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services;
(5) all capitalized lease obligations and all Attributable Debt of
such person;
(6) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any subsidiary of such person, any preferred stock, but
excluding, in each case, any accrued dividends;
(7) all Indebtedness of other persons secured by a lien on any asset
of such person, whether or not such Indebtedness is assumed by such person;
provided, however, that the amount of Indebtedness of such person shall be
the lesser of:
(A) the fair market value of such asset at such date of
determination and
(B) the amount of such Indebtedness of such other persons;
(8) to the extent not otherwise included in this definition, hedging
obligations of such person; and
(9) all obligations of the type referred to in clauses (1) through (8)
above of other persons and all dividends of other persons for the payment
of which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
The amount of Indebtedness of any person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
except as provided above the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
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"Investment" in any person means any, direct or indirect, loan or extension
of credit, other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the lender, or
capital contribution to, or any purchase or acquisition of capital stock,
Indebtedness or other similar instruments issued by such person. For purposes of
the covenant described under the caption "-- Restrictive Covenants -- Limitation
on Restricted Payments:"
(1) "Investment" shall include the portion, proportionate to Maxxim
Group's equity interest in such subsidiary, of the fair market value of the
net assets of any subsidiary of Maxxim Group at the time that such
subsidiary is designated an unrestricted subsidiary; provided, however,
that, upon a redesignation of such subsidiary as a restricted subsidiary,
Maxxim Group shall be deemed to continue to have a permanent "Investment"
in an unrestricted subsidiary in an amount (if positive) equal to:
(a) Maxxim Group's "Investment" in such subsidiary at the time of
such redesignation less
(b) the portion, proportionate to Maxxim Group's equity interest in
such subsidiary, of the fair market value of the net assets of such
subsidiary at the time of such redesignation; and
(2) any property transferred to or from an unrestricted subsidiary
shall be valued at its fair market value.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other non-cash form, in each case net of:
(1) all legal fees and expenses, title and recording tax expenses,
commissions and other fees and expenses incurred, and all federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition;
(2) all payments, including any prepayment premiums or penalties, made
on any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any lien upon or other
security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in subsidiaries or joint ventures as a result of
such Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by
Maxxim Group or any restricted subsidiary after such Asset Disposition.
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"Permitted Business" means any business engaged in by Maxxim Group or any
restricted subsidiary on November 12, 1999 and any related, complementary or
ancillary business.
"Permitted Holders" means:
(1) Fox Paine Capital Fund, L.P. and its affiliates, FPC Investors,
L.P., Maxxim Coinvestment Fund I, LLC, Maxxim Coinvestment Fund II, LLC,
Maxxim Coinvestment Fund III, LLC, Maxxim Coinvestment Fund IV, LLC, Maxxim
Coinvestment Fund V, LLC and the members of Maxxim Holdings board of
directors and senior management who remained as shareholders of Maxxim
Holdings after the recapitalization; and
(2) any person acting in the capacity of an underwriter in connection
with a public or private offering of Maxxim Holdings' or Maxxim Group's
capital stock.
"Permitted Investment" means an Investment by Maxxim Group or any
restricted subsidiary in:
(1) Maxxim Group, a restricted subsidiary or a person that will, upon
the making of such Investment, become a restricted subsidiary; provided,
however, that the primary business of such restricted subsidiary is a
Permitted Business;
(2) another person if as a result of such Investment such other person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Maxxim Group or a restricted subsidiary;
provided, however,that such person's primary business is a Permitted
Business;
(3) temporary cash investments;
(4) receivables owing to Maxxim Group or any restricted subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as Maxxim
Group or any such restricted subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) any loans or advances to employees made in the ordinary course of
business consistent with past practices of Maxxim Group or such restricted
subsidiary and not exceeding, when aggregated with amounts loaned or
advanced under clause (f)(iv) of paragraph (2) under the caption
"-- Restrictive Covenants -- Limitation on Restricted Payments," $5.0
million in the aggregate outstanding at any one time;
(7) stock, obligations or securities received in settlement or
foreclosure of debts created in the ordinary course of business and owing
to Maxxim Group or any restricted subsidiary or in satisfaction of
judgments;
(8) any person to the extent such Investment represents the non-cash
or deemed cash portion of the consideration received for an Asset
Disposition that was made pursuant to and in compliance with the covenant
described under the caption "-- Restrictive Covenants -- Limitation on
Sales of Assets and Subsidiary Stock;"
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(9) (x) any Investment existing on November 12, 1999 and (y) in the
case of loans and advances made to employees and existing on November 12,
1999, such loans and advances and any extensions or refinancings thereof;
(10) hedging obligations permitted under clause (g) of paragraph (2)
of the covenant described under the caption "-- Restrictive
Covenants -- Limitation on Indebtedness;"
(11) guarantees of Indebtedness permitted under the covenant described
under the caption "-- Restrictive Covenants -- Limitation on Indebtedness;"
(12) the Circon Note;
(13) Investments which are made exclusively with capital stock of
Maxxim Holdings or Maxxim Group, other than Disqualified Stock; and
(14) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (14)
that are at the time outstanding, not to exceed $10.0 million at the time
of such Investment, with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value.
"Permitted Junior Securities" means debt or equity securities of Maxxim
Group or any successor corporation issued pursuant to a plan of reorganization
or readjustment of Maxxim Group that are subordinated to the payment of all
then-outstanding Senior Indebtedness of Maxxim Group at least to the same extent
that the exchange notes are subordinated to the payment of all Senior
Indebtedness of Maxxim Group on November 12, 1999, so long as to the extent that
any Senior Indebtedness of Maxxim Group outstanding on the date of consummation
of any such plan of reorganization or readjustment is not paid in full in cash
or cash equivalents on such date, the holders of any such Senior Indebtedness
not so paid in full in cash or cash equivalents have consented to the terms of
such plan of reorganization or readjustment.
"principal" of an exchange note means the accreted value of the exchange
note plus the premium, if any, payable on the exchange note which is due or
overdue or is to become due at the relevant time.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset or capital
stock, conditional sale obligations, obligations under any title retention
agreement and other purchase money obligations, in each case where the
maturity of such Indebtedness does not exceed the anticipated useful life
of the asset being financed; and
(2) incurred to finance the acquisition by Maxxim Group or a
restricted subsidiary of such asset or capital stock, including additions
and improvements; provided, however, that such Indebtedness is incurred
within 180 days before or after the acquisition by Maxxim Group or such
restricted subsidiary of such asset.
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"Refinancing Indebtedness" means Indebtedness that is incurred to refund,
refinance, replace, repay, redeem, retire, renew, repay or extend any
Indebtedness of Maxxim Group or any restricted subsidiary existing on November
12, 1999 or incurred in compliance with the indenture, including Indebtedness of
Maxxim Group that refinances Refinancing Indebtedness; provided, however, that:
(1) other than with respect to Senior Indebtedness, the Refinancing
Indebtedness has a stated maturity no earlier than the stated maturity of
the Indebtedness being refinanced;
(2) other than with respect to Senior Indebtedness, the Refinancing
Indebtedness has an average life at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the average life of the
Indebtedness being refinanced;
(3) such Refinancing Indebtedness is incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced or, in the case of
Bank Indebtedness, in an aggregate principal amount of commitments or loans
thereunder of up to $310.0 million less the aggregate amount of prepayments
of Bank Indebtedness pursuant to the covenant described under "Limitation
on Sales of Assets and Subsidiary Stock"; and
(4) if the Indebtedness being refinanced is subordinated in right of
payment to the exchange notes, such Refinancing Indebtedness is
subordinated in right of payment to the exchange notes at least to the same
extent as the Indebtedness being refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(a) Indebtedness of a restricted subsidiary that refinances
Indebtedness of Maxxim Group; or
(b) Indebtedness of Maxxim Group or a restricted subsidiary that
refinances Indebtedness of an unrestricted subsidiary.
"Related Assets" means (1) assets used or useful in a Permitted Business or
(2) equity interests representing a majority of the voting stock of persons
engaged in a Permitted Business.
"Senior Subordinated Indebtedness" of Maxxim Group or any guarantor means
the exchange notes or such guarantor's guarantee of the exchange notes, as
applicable, and any other Indebtedness of Maxxim Group, or such guarantor, that
specifically provides that such Indebtedness is to rank equal to the exchange
notes or such guarantor's guarantee, as applicable, in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of Maxxim Group or such guarantor which is not Senior Indebtedness of
Maxxim Group or such guarantor, as applicable.
"Services Agreement" means the Services Agreement entered into by Circon
Holdings, Circon, Maxxim Group and Maxxim Holdings in connection with the
recapitalization.
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"Significant Subsidiary" means any restricted subsidiary that would be a
"Significant Subsidiary" of Maxxim Group within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
On November 12, 1999, Maxxim Group, the purchasers of the old notes and the
guarantors of Maxxim Group's obligations under the indenture and the old notes
entered into an exchange and registration rights agreement. The following
description is meant to be only a summary of the exchange and registration
rights agreement. It does not restate the terms of the exchange and registration
rights agreement in their entirety. We urge that you carefully read the exchange
and registration rights agreement as it, and not this description, governs your
rights as a holder. The exchange and registration rights agreement has been
filed with the SEC as an exhibit to the registration statement of which this
prospectus is a part.
Pursuant to the exchange and registration rights agreement, Maxxim Group
and the guarantors agreed to:
- file with the SEC on or prior to 75 days after the issue date of the old
notes a registration statement on an appropriate form relating to a
registered exchange offer for the old notes under the Securities Act and
- use their reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
on or prior to 150 days after the issue date.
As soon as practicable after the effectiveness of the exchange offer
registration statement, Maxxim Group will promptly offer to the holders of the
old notes who are not prohibited by any law or policy of the SEC from
participating in the exchange offer the opportunity to exchange their old notes
for an issue of exchange notes that are identical in all material respects to
the old notes, except that the exchange notes will not contain terms with
respect to transfer restrictions and will be registered under the Securities
Act. Maxxim Group and the guarantors will keep the exchange offer open for not
less than 30 days, or longer, if required by applicable law, after the date on
which notice of the exchange offer is mailed to the holders of the old notes.
If:
- because of any change in law or applicable interpretations thereof by the
staff of the SEC, Maxxim Group is not permitted to effect the exchange
offer as contemplated by the exchange and registration rights agreement;
- any old notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes on or prior to 180 days after the issue date
of the old notes;
- any purchaser of the old notes so requests on or prior to the 20th
business day following the date on which the exchange offer is
consummated with respect to old notes not eligible to be exchanged for
exchange notes in the exchange offer and held by it following the
consummation of the exchange offer;
- any applicable law or interpretations do not permit any holder of old
notes to participate in the exchange offer;
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- any holder of old notes that participates in the exchange offer does not
receive freely transferable exchange notes in exchange for tendered old
notes so requests with respect to such old notes on or prior to the 20th
business day following the date on which the exchange offer is
consummated; or
- Maxxim Group so elects,
then Maxxim Group and the guarantors will use their reasonable best efforts to
file as promptly as practicable, but in the event more than 45 days after so
required, with the SEC a shelf registration statement to register resales of the
old notes by holders that satisfy certain conditions relating to the provision
of information in connection with the shelf registration statement.
Maxxim Group and the guarantors will use their reasonable best efforts to
have the exchange offer registration statement or, if applicable, the shelf
registration statement declared effective by the SEC as promptly as practicable
after the filing thereof. Unless the exchange offer would not be permitted by a
policy of the SEC, Maxxim Group will commence the exchange offer and will use
its reasonable best efforts to consummate the exchange offer as promptly as
practicable, but in any event prior to 180 days after the issue date of the old
notes. If applicable, Maxxim Group and the guarantors will use their reasonable
best efforts to keep the shelf registration statement effective until the second
anniversary of the issue date of the old notes.
If:
- the applicable registration statement is not filed with the SEC on or
prior to 75 days after the issue date of the old notes;
- the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective on or prior to
150 days after the issue date of the old notes, or, in the case of a
shelf registration statement required to be filed in response to a change
in law or applicable interpretations thereof by the Staff of the SEC, if
later, on or prior to 60 days after publication of the change in law or
interpretation;
- the exchange offer is not consummated on or prior to 180 days after the
issue date of the old notes; or
- the shelf registration statement is filed and declared effective on or
prior to 150 days after the issue date of the old notes, or, in the case
of a shelf registration statement required to be filed in response to a
change in law or applicable interpretations thereof by the Staff of the
SEC, if later, on or prior to 60 days after publication of the change in
law or interpretation, but shall thereafter cease to be effective at any
time that Maxxim Group and the guarantors are obligated to maintain the
effectiveness thereof, without being succeeded within 45 days by an
additional registration statement filed and declared effective, then
Maxxim Group and the guarantors will be in default under the exchange and
registration rights agreement. In such event, Maxxim Group and the
guarantors will be jointly and severally obligated to pay damages to each
holder of old notes, during the period of one or more such registration
defaults. Such damages will be in an amount equal to $0.192 per week per
$1,000 of accreted value of the old notes, as of the most recent interest
payment date, or if no interest has been paid, the issue date of the old
notes. Such damages will be payable until the applicable registration
statement is
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filed, the exchange offer registration statement is declared effective and
the exchange offer is consummated, the shelf registration statement is
declared effective or the shelf registration statement again becomes
effective, as the case may be. All accrued damages will be paid to holders
in the same manner as interest payments on the old notes on semi-annual
payment dates that correspond to interest payment dates for the old notes.
Following the cure of all registration defaults, the accrual of damages
will cease.
The exchange and registration rights agreement also provides that Maxxim
Group and the guarantors:
- will make available, for a period of 90 days after the consummation of
the exchange offer, a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale
of any such exchange notes and
- shall pay all expenses incident to the exchange offer, including the
expense of one counsel to the holders of the old notes, and will jointly
and severally indemnify certain holders of the old notes, including any
broker-dealer, against certain liabilities, including liabilities under
the Securities Act.
A broker-dealer that delivers such a prospectus to purchasers in connection
with such resales will be subject to certain of the civil liability provisions
under the Securities Act and will be bound by the provisions of the exchange and
registration rights agreement, including certain indemnification rights and
obligations.
Each holder of old notes who wishes to exchange such old notes for exchange
notes in the exchange offer will be required to make certain representations,
including representations that:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the old notes or the exchange notes; and
- it is not an "affiliate", as defined in Rule 405 under the Securities
Act, of Maxxim Group, or, if it is an affiliate, that it will comply with
the registration and prospectus delivery requirements of the Securities
Act to the extent applicable.
If the holder is not a broker-dealer, it is required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes that were acquired as a
result of market-making activities or other trading activities, it is required
to deliver a prospectus in connection with any resale of such exchange notes.
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Holders of the old notes will be required to make certain representations
to Maxxim Group and the guarantors in order to participate in the exchange
offer, and will be required to deliver information to be used in connection with
the shelf registration statement in order to have the resale of their old notes
registered under the shelf registration statement and benefit from the
provisions regarding damages for breach of the registration provisions set forth
in the preceding paragraphs. A holder who sells old notes pursuant to the shelf
registration statement generally:
- will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers,
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales; and
- will be bound by the provisions of the exchange and registration rights
agreement that are applicable to such a holder, including certain
indemnification obligations.
For so long as any old notes or exchange notes are outstanding, Maxxim
Group will continue to provide to holders of the old notes and exchange notes
the information required by Rule 144A(d)(4) under the Securities Act.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will initially be represented by one or more permanent
global notes in definitive, fully registered book-entry form, without interest
coupons, that will be deposited with, or on behalf of, DTC and registered in the
name of Cede and Co., as nominee of DTC, on behalf of the acquirors of exchange
notes for credit to the accounts of the acquirors or to other accounts as they
may direct. Such accounts may be at DTC, or Morgan Guaranty Trust Company of New
York, Brussels Office, as operator of the Euroclear System, or Cedel Bank,
societe anonyme.
The global notes may be transferred, in whole and not in part, solely to
another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the global notes may not be exchanged for exchange notes in
physical, certificated form except in the limited circumstances described below.
All interests in the global notes, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of those systems.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided as a matter of convenience. These operations
and procedures are solely within the control of the settlement systems and are
subject to change by them from time to time. We take no responsibility for these
operations or procedures, and you are urged to contact the relevant system or
its participants directly to discuss these matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York,
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- a "banking organization" within the meaning of the New York Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, eliminating
the need for physical transfer and delivery of certificates. DTC's participants
include securities brokers and dealers, banks and trust companies, clearing
corporations and similar organizations. Indirect access to DTC's system is also
available to indirect participants, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
We expect that pursuant to procedures established by DTC, ownership of the
exchange notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC, with respect to the interests
of participants, and the records of participants and the indirect participants,
with respect to the interests of persons other than participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of purchased securities in definitive form. Accordingly,
the ability to transfer interests in the exchange notes represented by a global
note to those persons may be limited. In addition, because DTC can act only on
behalf of its participants, who in turn act on behalf of persons who hold
interests through participants, the ability of a person having an interest in
exchange notes represented by a global note to pledge or transfer that interest
to persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of that interest, may be affected by the lack of a
physical definitive security in respect of that interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or its nominee will be considered the sole owner or holder of the exchange notes
represented by the global note for all purposes under the indenture. Except as
provided below, owners of beneficial interests in a global note will not be
entitled to have exchange notes represented by that global note registered in
their names, will not receive or be entitled to receive physical delivery of
certificated exchange notes and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee. Accordingly,
each holder owning a beneficial interest in a global note must rely on the
procedures of DTC and, if the holder is not a participant or an indirect
participant, on the procedures of the participant through which the holder owns
its interest, to exercise any rights of a holder of exchange notes under the
indenture or the global note. We understand that under existing industry
practice, in the event that we request any action of holders of exchange notes,
or a holder that is an owner of a beneficial interest in a global note desires
to take any action that DTC, as the holder of that global note, is entitled to
take, DTC would authorize the participants to take that action and the
participants would authorize holders owning through the participants to take
that action or would otherwise act upon the instruction of the holders. Neither
we nor the trustee will have any responsibility or liability for any
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aspect of the records relating to or payments made on account of exchange notes
by DTC, or for maintaining, supervising or reviewing any records of DTC relating
to exchange notes.
Payments with respect to the principal of, and premium, if any, damages, if
any, and interest on, any exchange notes represented by a global note registered
in the name of DTC or its nominee on the applicable record date will be payable
by the trustee to or at the direction of DTC or its nominee in its capacity as
the registered holder of the global note representing the exchange notes under
the indenture. Under the terms of that indenture, we and the trustee may treat
the persons in whose names the exchange notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we nor the
trustee has or will have any responsibility or liability for the payment of
these amounts to owners of beneficial interests in a global note, including
principal, premium, if any, damages, if any, and interest. Payments by the
participants and the indirect participants to the owners of beneficial interests
in a global note will be governed by standing instructions and customary
industry practice and will be the responsibility of the participants or the
indirect participants and DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter year 2000 problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as they relate
to the timely payment of distributions, including principal and income payments,
to security holders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting and will
continue to contact third party vendors from whom DTC acquires services to:
- impress upon them the importance of their services being year 2000
compliant; and
- determine the extent of their efforts for year 2000 remediation and, as
appropriate, testing of their services.
In addition, DTC is in the process of developing the contingency plans that
it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
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Subject to compliance with the transfer restrictions applicable to the
exchange notes, cross-market transfers between the participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary. However, these
cross-market transactions will require delivery of instructions to Euroclear or
Cedel by the counterparty in the appropriate system in accordance with the rules
and procedures and within the established deadlines, Brussels time, of the
appropriate system. Euroclear or Cedel will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global notes in DTC and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and that crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a global note by or through a Euroclear or Cedel participant to a
participant in DTC will be received with value on the settlement date of DTC,
but will be available in the relevant Euroclear or Cedel cash account only as of
the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the global notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform these procedures, and these procedures may be discontinued at any
time. Neither we nor the trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their participants or indirect
participants of their obligations under the rules and procedures governing their
operations.
CERTIFICATED EXCHANGE NOTES
If:
- we notify the trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within
90 days of that notice or cessation;
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of exchange notes in definitive form under the indenture; or
- upon the occurrence of other events as provided in the indenture,
then, upon surrender by DTC of the global notes, certificated exchange notes
will be issued to each person that DTC identifies as the beneficial owner of the
exchange notes represented by the global notes. Upon that issuance, the trustee
is required to register the certificated exchange notes in the name of that
person, or the nominee of any thereof, and cause the same to be delivered to
that person.
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Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related exchange notes, and each beneficial owner of exchange debentures may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes, including with respect to the registration and delivery,
and the respective principal amounts, of the exchange notes to be issued.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes some of the United States federal
income tax consequences of the exchange offer to holders of old notes. The
discussion is intended only as a summary and does not purport to be a complete
analysis or listing of all potential tax considerations that may be relevant to
holders of old notes. The discussion does not include special rules that may
apply to some holders, including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, and does not address the tax
consequences of the law of any state, locality or foreign jurisdiction. Except
where noted, this summary deals only with old notes held as capital assets by
U.S. holders. The discussion is based upon currently existing provisions of the
Internal Revenue Code, existing and proposed Treasury regulations under the
Internal Revenue Code and current administrative rulings and court decisions.
Everything listed in the previous sentence may change and any change could
affect the continuing validity of this discussion.
As used in this prospectus, "U.S. holder" means a beneficial owner of the
old notes who or that:
- is a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the
Internal Revenue Code;
- is a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or political
subdivision of the United States;
- is an estate the income of which is subject to U.S. federal income
taxation regardless of its source;
- is a trust, if:
-- a U.S. court is able to exercise primary supervision over the
administration of the trust and
-- one or more U.S. fiduciaries have authority to control all
substantial decisions of the trust, or if the trust was in existence
on August 20, 1996 and has elected to continue to be treated as a
U.S. person; or
- is otherwise subject to U.S. federal income tax on a net income basis in
respect of the old notes.
A "non-U.S. holder" is a beneficial owner of old notes who or that is not a
"U.S. holder."
If a partnership holds old notes, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships should consult their own tax advisors.
160
<PAGE> 166
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
EXCHANGING THEIR OLD NOTES FOR EXCHANGE NOTES, INCLUDING APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The issuance of the exchange notes to U.S. holders or non-U.S. holders of
the old notes pursuant to the terms set forth in this prospectus will not
constitute an exchange for federal income tax purposes. Consequently, no gain or
loss will be recognized by U.S. holders or non-U.S. holders of the old notes
upon receipt of the exchange notes, and ownership of the exchange notes will be
considered a continuation of ownership of the old notes. For purposes of
determining gain or loss upon the subsequent sale or exchange of the exchange
notes, a holder's basis in the exchange notes should be the same as the holder's
basis in the old notes exchanged. A holder's holding period for the exchange
notes should include the holder's holding period for the old notes exchanged.
The issue price and other tax characteristics of the exchange notes should be
identical to the issue price and other tax characteristics of the old notes
exchanged.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for old notes where the old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for at least 90 days after the exchange offer
is completed, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any resale of exchange
notes.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of methods of
resale, at market prices prevailing at the time of resale, at prices related to
those prevailing market prices or at negotiated prices. Any resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
and/or the purchasers of the exchange notes. Any broker-dealer that resells the
exchange notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by any of those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
161
<PAGE> 167
We have agreed to pay the expenses incident to the exchange offer, other
than commission or concessions of any brokers or dealers and the fees of any
counsel or other advisors or experts retained by the holders of old notes, and
will indemnify the holders of the exchange notes, including any broker-dealers,
against related liabilities, including liabilities under the Securities Act.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act for the registration of the exchange notes offered in this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement, some of which is contained in exhibits and schedules to the
registration statement as permitted by the rules and regulations of the SEC. For
further information with respect to us or the exchange notes offered in this
prospectus, you should refer to the registration statement, including the
related exhibits and financial statements. With respect to each document filed
with the SEC as an exhibit to the registration statement, you should refer to
the exhibit for a more complete description of the matter involved, and each
discussion in this prospectus of any document filed as an exhibit to the
registration statement qualified in its entirety by reference to the relevant
exhibit.
In connection with the exchange offer, we will become subject to the
information requirements of the Securities Exchange Act, and, in accordance
therewith, will file reports and other information with the SEC. The
registration statement and the reports and other information we file can be
inspected and copied at the Public Reference Room of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the regional offices of the SEC located
at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. Copies of these materials may be obtained
from the Public Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its public reference facilities in New York,
New York and Chicago, Illinois at prescribed rates. Information on the operation
of the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330. We will make our filings with the SEC electronically. The SEC
maintains an internet site that contains reports, proxy and information
statements and other information regarding registrants that file electronically,
which information can be accessed at <http://www.sec.gov>.
As a result of the offering of the exchange notes, each of the guarantors
will become subject to the informational requirements of the Securities Exchange
Act. We will fulfill our obligations with respect to these requirements by
filing periodic reports with the SEC on our own behalf or, in the case of the
guarantors, by including information regarding the guarantors in our periodic
reports. In addition, we will send to each holder of exchange notes copies of
annual reports and quarterly reports containing the information required to be
filed under the Securities Exchange Act. So long as we are subject to the
periodic reporting requirements of the Securities Exchange Act, we are required
to furnish the information required to be filed with the SEC to the trustee and
the holders of the old notes and the exchange notes. We have agreed that, even
if we are not required under the Securities Exchange Act to furnish this
information to the SEC, we will nonetheless continue to furnish information that
would be required to be furnished by us by Section 13 of the Securities Exchange
Act to the trustee and the holders of the old notes or exchange notes as if we
were subject to these periodic reporting requirements.
162
<PAGE> 168
EXPERTS
The consolidated financial statements of Maxxim Medical, Inc. and
subsidiaries as of October 31, 1999 and November 1, 1998, and for each of the
fiscal years in the three-year period ended October 31, 1999, have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of that firm as experts in accounting and auditing.
VALIDITY OF THE EXCHANGE NOTES
The validity of the exchange notes will be passed upon for us by Wachtell,
Lipton, Rosen & Katz.
163
<PAGE> 169
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of November 1, 1998 and
October 31, 1999.......................................... F-3
Consolidated Statements of Operations for Fiscal Years Ended
November 2, 1997, November 1, 1998 and October 31, 1999... F-4
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for Fiscal Years Ended November 2,
1997, November 1, 1998 and October 31, 1999............... F-5
Consolidated Statements of Cash Flows for Fiscal Years Ended
November 2, 1997, November 1, 1998 and October 31, 1999... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 170
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Maxxim Medical, Inc.:
We have audited the consolidated balance sheets of Maxxim Medical, Inc. and
subsidiaries for the years ended November 1, 1998 and October 31, 1999 and the
related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the fiscal years in the three
year period ended October 31, 1999. In connection with our audits of the
consolidated financial statements, we have also audited the related financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial
statement schedule referred to above present fairly, in all material respects,
the financial position of Maxxim Medical, Inc. and subsidiaries as of November
1, 1998, and October 31, 1999, and the results of operations and their cash
flows for the fiscal years ended November 2, 1997, November 1, 1998 and October
31, 1999, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Houston, Texas
January 7, 2000
F-2
<PAGE> 171
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 1, 1998 AND OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,125 $ 4,040
Accounts receivable, net of allowances of $1,840 and
$1,653, respectively.................................... 70,429 61,323
Inventory, net............................................ 79,648 97,811
Net current deferred tax asset............................ 10,325 9,189
Prepaid expenses and other................................ 8,690 6,597
Net assets held for sale.................................. -- 224,909
-------- --------
Total current assets.................................... 173,217 403,869
Property and equipment...................................... 169,048 194,208
Less: accumulated depreciation............................ (41,538) (54,902)
-------- --------
127,510 139,306
Goodwill, net of accumulated amortization of $11,826 and
$16,152, respectively..................................... 147,016 142,459
Other assets, net........................................... 20,308 25,959
-------- --------
Total assets............................................ $468,051 $711,593
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ -- $ 430
Current maturities of capital lease obligations........... 508 473
Current maturities of other long-term obligations......... 2,036 546
Accounts payable.......................................... 35,834 31,826
Accrued liabilities....................................... 25,921 22,279
-------- --------
Total current liabilities............................... 64,299 55,554
Long-term debt, net of current maturities................... 13,800 255,940
10 1/2% Senior subordinated notes........................... 100,000 100,000
Capital lease obligations, net of current maturities........ 4,531 4,000
Other long-term obligations, net of current maturities...... 808 360
Net non-current deferred tax liability...................... 11,704 10,622
-------- --------
Total liabilities....................................... 195,142 426,476
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, 14,238,822 and 14,278,942 shares issued and
outstanding, respectively............................... 14 14
Additional paid-in capital................................ 219,268 220,230
Retained earnings......................................... 64,886 78,950
Subscriptions receivable.................................. (5,200) (5,200)
Accumulated other comprehensive loss...................... (6,059) (8,877)
-------- --------
Total shareholders' equity.............................. 272,909 285,117
-------- --------
Total liabilities and shareholders' equity.............. $468,051 $711,593
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-3
<PAGE> 172
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 1, 1998 AND OCTOBER 31, 1999
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales......................................... $529,552 $522,516 $508,654
Cost of sales..................................... 397,691 381,638 366,778
-------- -------- --------
Gross profit...................................... 131,861 140,878 141,876
-------- -------- --------
Operating expenses
Marketing and selling........................... 62,603 65,837 71,070
General and administrative...................... 27,498 28,573 22,624
Restructure charges and transition expenses..... -- -- 4,637
-------- -------- --------
90,101 94,410 98,331
-------- -------- --------
Income from operations............................ 41,760 46,468 43,545
Interest expense.................................. 22,145 13,420 27,789
Other income (expense), net....................... 2,751 1,042 (555)
-------- -------- --------
Income from continuing operations before income
taxes........................................... 22,366 34,090 15,201
Income taxes...................................... 9,485 14,454 7,175
-------- -------- --------
Income from continuing operations................. 12,881 19,636 8,026
Income from discontinued operations, net of tax... -- -- 6,038
-------- -------- --------
Net income................................... $ 12,881 $ 19,636 $ 14,064
======== ======== ========
Basic earnings per share:
Basic earnings from continuing operations....... $ 1.55 $ 1.55 $ 0.56
Basic earnings from discontinued operations..... -- -- 0.43
-------- -------- --------
Basic earnings per share........................ $ 1.55 $ 1.55 $ 0.99
======== ======== ========
Diluted earnings per share:
Diluted earnings from continuing operations..... $ 1.42 $ 1.50 $ 0.55
Diluted earnings from discontinued operations... -- -- 0.41
-------- -------- --------
Diluted earnings per share...................... $ 1.42 $ 1.50 $ 0.96
======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-4
<PAGE> 173
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
------------------ PAID-IN RETAINED SUBSCRIPTIONS INCOME
SHARES PAR VALUE CAPITAL EARNINGS RECEIVABLE (LOSS) TOTAL
------ --------- ---------- -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT NOVEMBER 3, 1996... 8,129 $ 8 $ 92,445 $ 32,369 $ -- $(1,266) $123,556
Senior management stock
purchase..................... 400 1 5,199 -- (5,200) -- --
Officer loan, net of payment
received..................... -- -- (11) -- -- -- (11)
Stock options compensation..... -- -- 471 -- -- -- 471
Stock options exercised,
including federal income tax
benefit of $122.............. 43 -- 536 -- -- -- 536
Conversion of convertible
debentures................... 299 -- 5,232 -- -- -- 5,232
Comprehensive income:
Net income..................... -- -- -- 12,881 -- -- 12,881
Other comprehensive income
(loss)
Realized gain on investment
securities -- net of
reclassification
adjustment................. -- -- -- -- -- (259) (259)
Translation adjustment....... -- -- -- -- -- (4,478) (4,478)
--------
Total comprehensive
income................... 8,144
------ --- -------- -------- ------- ------- --------
BALANCES AT NOVEMBER 2, 1997... 8,871 9 103,872 45,250 (5,200) (6,003) 137,928
Officer loan, net of payment
received..................... -- -- (40) -- -- -- (40)
Stock options compensation..... -- -- 625 -- -- -- 625
Stock options exercised,
including federal income tax
benefit of $269.............. 66 -- 1,119 -- -- -- 1,119
Conversion of convertible
debentures................... 1,277 1 22,278 -- -- -- 22,279
Secondary stock offering....... 4,025 4 91,414 -- -- -- 91,418
Comprehensive income:
Net income..................... -- -- -- 19,636 -- -- 19,636
Other comprehensive income
(loss)
Net unrealized gain on
investment securities, net
of tax..................... -- -- -- -- -- 796 796
Translation adjustment....... -- -- -- -- -- (852) (852)
--------
Total comprehensive
income................... 19,580
------ --- -------- -------- ------- ------- --------
BALANCES AT NOVEMBER 1, 1998... 14,239 14 219,268 64,886 (5,200) (6,059) 272,909
Payment received on officer
loan......................... -- -- 40 -- -- -- 40
Stock options compensation..... -- -- 211 -- -- -- 211
Stock options exercised,
including federal income tax
benefit of $227.............. 40 -- 711 -- -- -- 711
Comprehensive income:
Net income..................... -- -- -- 14,064 -- -- 14,064
Other comprehensive loss, net
of tax
Net unrealized loss on
investment securities...... -- -- -- -- -- (1,657) (1,657)
Translation adjustment....... -- -- -- -- -- (1,161) (1,161)
------ --- -------- -------- ------- ------- --------
Total comprehensive
income................... 11,246
------ --- -------- -------- ------- ------- --------
BALANCES AT OCTOBER 31, 1999... 14,279 $14 $220,230 $ 78,950 $(5,200) $(8,877) $285,117
====== === ======== ======== ======= ======= ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-5
<PAGE> 174
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 1, 1998 AND OCTOBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 12,881 $ 19,636 $ 14,064
Adjustment to reconcile net income to net cash provided by
operating activities:
Income from discontinued operations, net of tax.......... -- -- (6,038)
Deferred income tax expense.............................. 3,846 5,584 2,496
Amortization of financing fees........................... 830 1,021 1,148
Depreciation and amortization............................ 16,665 18,379 22,526
Compensation expense for outstanding stock options....... 471 625 211
Gain on sale of building................................. -- (25) (167)
Loss on sale of product line............................. -- -- 112
Gain on sale of investment in equity securities.......... (1,510) -- --
Changes in current assets and liabilities, net of effects
of asset acquisitions and dispositions and business
combinations:
Decrease in accounts receivable, net..................... 8,694 10,680 8,905
Decrease (increase) in inventory, net.................... 11,073 6,057 (19,891)
(Increase) decrease in prepaid expenses and other........ (619) (454) 462
Increase (decrease) in accounts payable.................. 23 (1,716) (4,444)
Decrease in accrued liabilities.......................... (2,777) (4,245) (3,809)
-------- -------- ---------
Net cash provided by continuing operations............. 49,577 55,542 15,575
Net cash provided by discontinued operations........... -- -- 26,765
-------- -------- ---------
Net cash provided by operating activities.............. 49,577 55,542 42,340
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from building sale................................ 500 1,200 338
Proceeds from product line sale............................ -- -- 1,635
Proceeds from sale of investment securities................ 3,130 1,650 --
Purchase of investment securities.......................... -- -- (400)
Purchase of Circon, net of cash acquired................... -- -- (247,067)
Purchase of Winfield Medical, net of cash acquired......... -- (31,267) --
Purchase of glove plant assets and assumption of
liabilities, net......................................... -- (16,096) --
Purchase of property and equipment of discontinued
operations............................................... -- -- (540)
Purchase of property and equipment, net of asset
acquisitions and business combinations................... (6,829) (23,441) (25,757)
-------- -------- ---------
Net cash used in investing activities.................. (3,199) (67,954) (271,791)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings........................... (7,500) (81,000) (15,405)
Increase in long-term borrowings........................... -- -- 200,000
Net (payments) borrowing on revolving line of credit....... (29,790) (1,539) 55,200
Net borrowing (payments) on capital lease obligations...... -- 5,039 (566)
Net payments on other long-term obligations................ (4,153) (4,143) (2,012)
Recapitalization costs..................................... -- -- (2,844)
Payment of debt offering costs............................. -- -- (5,584)
Net proceeds from secondary stock offering................. -- 91,418 --
(Decrease) increase in bank overdraft...................... (7,893) 2,843 168
Proceeds from exercise of stock options.................... 536 1,119 751
Other, net................................................. (7) (366) (238)
-------- -------- ---------
Net cash (used in) provided by financing activities.... (48,807) 13,371 229,470
-------- -------- ---------
Effect of foreign currency translation adjustment.......... (391) 36 (104)
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents... (2,820) 995 (85)
Cash and cash equivalents at beginning of year............. 5,950 3,130 4,125
-------- -------- ---------
Cash and cash equivalents at end of year................... $ 3,130 $ 4,125 $ 4,040
======== ======== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid during the period............................ $ 21,643 $ 13,718 $ 17,236
Income taxes paid during the period........................ 6,147 5,568 5,677
Noncash investing and financing activities
Note receivable from sale of product line................ $ -- $ -- $ 1,500
Note receivable from sale of building.................... 300 -- 195
Conversion of 6 3/4% convertible subordinated
debentures............................................. 5,232 22,278 --
Conversion of note receivable into investment
securities............................................. -- 4,000 --
Receipt of investment securities in exchange for certain
assets................................................. -- 2,706 --
Subscriptions receivable from senior management for stock
purchase............................................... 5,200 -- --
Net unrealized gain (loss) on investment................. -- 796 (1,657)
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-6
<PAGE> 175
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Maxxim Medical, Inc. ("Maxxim"), a Texas corporation, and its subsidiaries
(collectively, "the Company") develops, manufactures, and markets specialty
medical products.
Basis of Presentation
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the fiscal 1999 presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Maxxim and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Cash Equivalents and Financial Instruments
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less.
Investment Securities
Investment securities at October 31, 1999 consist of corporate equity
securities and are reflected in the consolidated balance sheet in prepaid
expenses and other current assets. The Company classifies its equity securities
as available-for-sale. Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Dividend income is recognized when earned.
At November 1, 1998, the cost, gross unrealized holding gains, gross
unrealized holding losses and fair value of available-for-sale equity securities
were $4,810,000, $1,794,000, $420,000, and $6,184,000, respectively. At October
31, 1999, the cost, gross unrealized holding losses and fair value of
available-for-sale equity securities were $4,810,000, $1,484,000 and $3,326,000,
respectively. Proceeds from the sale of investment securities available-for-sale
were $3,130,000, $1,650,000 and $0 in 1997, 1998 and 1999, respectively and
gross realized gains included in income were $1,510,000 in 1997 and $0 in both
1998 and 1999, which is reflected in other income in the Consolidated Statements
of Operations. In adjusting the Company's investment securities to fair value,
an unrealized gain of $796,000, net of tax, was recognized at November 1, 1998
and an unrealized loss of $1,657,000, net of tax, was recognized at October 31,
1999.
F-7
<PAGE> 176
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Concentration Of Credit Risk
Trade receivables have a concentration of credit risk with hospitals and
healthcare distributors. The Company performs continuing credit evaluations of
its customers and generally does not require collateral; however in certain
circumstances, the Company may require letters of credit from its customers.
Historically, the Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any geographic
area.
Inventory
Inventory is priced at the lower of cost or market. In determining market
value, allowances for excess and obsolete items are provided. Cost is determined
using the average cost method.
Inventory included the following as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials............................................ $33,936 $36,325
Work in Progress......................................... 8,450 11,313
Finished Goods........................................... 43,487 55,620
Allowance for excess and obsolete inventory.............. (6,225) (5,447)
------- -------
$79,648 $97,811
======= =======
</TABLE>
Property and Equipment
The costs of ordinary maintenance and repairs are expensed, while renewals
and betterments are capitalized. Depreciation on property and equipment is
computed for financial reporting purposes using the straight-line method over
the estimated useful lives of the assets. Property and equipment included the
following as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
USEFUL LIFE 1998 1999
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.......................................... $ 15,815 $ 16,167
Buildings and improvements.................... 5-25 years 47,658 50,188
Machinery and equipment....................... 2-10 years 100,579 119,818
Furniture and fixtures........................ 3-5 years 4,996 8,035
Accumulated depreciation...................... (41,538) (54,902)
-------- --------
$127,510 $139,306
======== ========
</TABLE>
In fiscal year 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by comparison of the
F-8
<PAGE> 177
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
carrying amount of an asset to future net cash flows (undiscounted and without
interest charges) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. The adoption of SFAS No. 121 did not have a material impact on the
Company's Consolidated Financial Statements.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Goodwill
Goodwill represents the excess of the aggregate price paid by the Company
in business combinations accounted for as purchases over the fair market value
of the tangible and identifiable intangible net assets acquired. Goodwill from
the Company's previous acquisitions is approximately $158,611,000 of which
approximately $142,459,000 remains unamortized as of October 31, 1999.
Amortization periods for previous goodwill amounts range from 5 to 40 years. The
Company believes that no impairment of goodwill exists.
Revenue Recognition
The Company recognizes revenue upon shipment to customers, pursuant to
customer orders. The Company grants rebates to certain of its customers. These
sales and related receivables are recorded net of the expected rebate.
Research and Development Expenses
The Company is continually conducting research and developing new products
utilizing a team approach that involves its engineering, manufacturing and
marketing resources. Although the Company has developed a number of its own
products, most of its research and development efforts have historically been
directed towards product improvement and enhancement of previously developed or
acquired products. Company research and development expenses were approximately
$5,158,000, $5,649,000, and $6,056,000, in fiscal 1997, 1998 and 1999,
respectively.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
during the
F-9
<PAGE> 178
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
period. Diluted earnings per share is determined on the assumption that
outstanding dilutive stock options have been exercised and the aggregate
proceeds as defined were used to reacquire Company common stock using the
average price of such common stock for the period and assuming the conversion of
the convertible subordinated debentures from the date of issue.
The following table summarizes the calculation of net income, weighted
average number of common shares and weighted average number of diluted common
shares outstanding for purposes of the computation of earnings per share in
accordance with SFAS No. 128:
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNTS
------- ------ ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
1997
Basic EPS
Net Income........................................... $12,881 8,326 $1.55
=====
Effects of dilutive securities:
Convertible debt................................... $ 1,123 1,297
Options............................................ -- 208
------- ------
Diluted EPS........................................ $14,004 9,831 $1.42
======= ====== =====
1998
Basic EPS
Net Income........................................... $19,636 12,665 $1.55
=====
Effects of dilutive securities:
Convertible debt................................... $ 107 94
Options............................................ -- 365
------- ------
Diluted EPS........................................ $19,743 13,124 $1.50
======= ====== =====
1999
Basic EPS
Income from continuing operations.................... $ 8,026 14,271 $0.56
Income from discontinued operations, net of tax...... 6,038 0.43
------- -----
Net Income........................................... $14,064 $0.99
======= =====
Effects of dilutive securities:
Options............................................ 337
------
Income from continuing operations.................. $ 8,026 14,608 $0.55
======
Income from discontinued operations, net of tax.... 6,038 0.41
------- -----
Diluted EPS........................................ $14,064 $0.96
======= =====
</TABLE>
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"
F-10
<PAGE> 179
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(SFAS No. 123). SFAS No. 123 allows a company to adopt a new fair value based
method of accounting for its stock based compensation plans, or to continue to
follow the intrinsic method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock to Employees."
The Company has elected to continue to follow APB Opinion No. 25. If the
Company had adopted SFAS No. 123, the Company's net income and earnings per
share for the years ended November 2, 1997, November 1, 1998, and October 31,
1999 would have been impacted as discussed in Note 10.
Use Of Estimates In The Preparation Of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
52 Week Fiscal Year
The Company's fiscal year ends on the Sunday following the last Thursday in
October.
Translation Of Foreign Currency Financial Statements
Assets and liabilities of foreign subsidiaries have been translated into
United States dollars at the applicable rates of exchange in effect at the end
of the period reported. Revenues and expenses have been translated at the
applicable weighted average rates of exchange in effect during the period
reported. Translation adjustments are reflected as a separate component of
shareholders equity. Any transaction gains and losses are included in net
income.
Comprehensive Income (Loss)
On November 2, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income"("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income (loss) and its components.
Comprehensive income (loss), consisting of net income (loss), unrealized holding
gains and losses on available-for-sale securities, and foreign currency
translation adjustments is presented in the consolidated statements of
shareholders' equity and comprehensive income. SFAS No. 130 does not affect the
Company's financial position or results of operations. Prior year consolidated
financial statements have been reclassified to conform to the requirements of
SFAS No. 130.
F-11
<PAGE> 180
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
The components of accumulated other comprehensive income (loss) are as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN UNREALIZED OTHER
CURRENCY HOLDING COMPREHENSIVE
TRANSLATION GAINS (LOSSES) LOSS
----------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at November 3, 1996............... $(1,525) $ 259 $(1,266)
Fiscal year 1997 change................. (4,478) (259) (4,737)
------- ------- -------
Balance at November 2, 1997............... (6,003) -- (6,003)
Fiscal year 1998 change................. (852) 796 (56)
------- ------- -------
Balance at November 1, 1998............... (6,855) 796 (6,059)
Fiscal year 1999 change................. (1,161) (1,657) (2,818)
------- ------- -------
Balance at October 31, 1999............... $(8,016) $ (861) $(8,877)
======= ======= =======
</TABLE>
The change in holding gains (losses) in fiscal year 1997 is calculated as
follows:
<TABLE>
<S> <C>
Unrealized holding gains arising in fiscal year 1997........ $ 1,251
Less: reclassification adjustment for gains included in net
income in fiscal year 1997................................ (1,510)
-------
Net unrealized gains on securities........................ $ (259)
=======
</TABLE>
There were no reclassification adjustments for fiscal years 1998 or 1999.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"), was issued by
the Financial Accounting Standards Board in June 1998. SFAS No. 133 standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of financial
position at fair value. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133
beginning in the first quarter of fiscal 2001.
(2) BUSINESS COMBINATIONS, SIGNIFICANT ASSET ACQUISITIONS, DISPOSITIONS AND
DISCONTINUED OPERATIONS
Business Combinations
On June 26, 1998, the Company purchased all of the issued and outstanding
common stock of Winfield Medical. The assets acquired in the Winfield Medical
acquisition consisted primarily of accounts receivable, inventory, furniture and
equipment and leased manufacturing and other facilities in San Diego, California
and Clarksburg, West Virginia. Winfield Medical was a developer, manufacturer
and distributor of medical products. The purchase price consisted of
approximately $31,267,000 in cash and the assumption of approximately $5,300,000
of capital lease obligations. The acquisition has been accounted
F-12
<PAGE> 181
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
for as a purchase with the purchase price and direct acquisition costs allocated
based on fair value of assets acquired and liabilities assumed. Goodwill of
approximately $23,700,000 was recorded in connection with this transaction, and
is being amortized on a straight line basis over 30 years.
The following unaudited pro forma summary results of operations assume the
acquisition of Winfield Medical occurred on November 3, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 1, 1998
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Net sales....................................... $542,114
Net income...................................... 19,427
Basic earnings per share........................ 1.53
Diluted earnings per share...................... 1.49
</TABLE>
The pro forma information does not purport to be indicative of results of
operations or financial position which would have occurred had the acquisition
been consummated on the date indicated, or which may be expected to occur in the
future by reason of such acquisition.
Asset Acquisition
In September 1998, the Company acquired the property, equipment and
inventory and assumed liabilities of a non-latex medical examination glove plant
in Eaton, Ohio for approximately $16,096,000. This acquisition was accounted for
by the purchase method of accounting.
Asset Dispositions
In May 1998, the Company sold certain assets and liabilities associated
with its Bovie brand of electrosurgical products to An-Con Genetics for
3,000,000 shares of An-Con Genetics common stock. Included in this sale was the
"Bovie" tradename which An-Con Genetics now uses as its company name. The
assets, which were sold at net book value, consisted primarily of inventory and
intangibles. The Company's consolidated financial statements reflect these
available-for-sale securities at fair value at October 31, 1999.
Discontinued Operations
Effective January 6, 1999, the Company successfully completed a tender
offer for Circon Corporation ("Circon"). Upon the completion of a cash-out
merger between Circon and a subsidiary of Maxxim on January 8, 1999, Maxxim
completed its acquisition of Circon for approximately $260,000,000, including
the repayment of $32,500,000 of Circon debt and certain fees and expenses
incurred in connection with the acquisition. The Company obtained all funds
required in connection with the acquisition through a bank loan, pursuant to the
Company's Third Amended and Restated Credit Agreement, dated as of January 4,
1999. The assets acquired in the Circon acquisition consist primarily of
accounts receivable, inventory, furniture and equipment, intangible assets and
owned or leased facilities in Stamford, Connecticut; Norwalk, Ohio; Racine,
Wisconsin and Santa
F-13
<PAGE> 182
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Barbara, California. Circon markets medical devices for diagnosis and minimally
invasive surgery and general surgery. This acquisition was accounted for by the
purchase method of accounting and approximately $141,300,000 of intangible
assets were recorded in connection with the transaction (approximately
$13,500,000 related to patents and $127,800,000 related to goodwill). Patents
are being amortized over 15 years and goodwill is being amortized over 30 years,
using the straight-line method in each case.
In connection with the recapitalization (see Note 4), on November 12, 1999,
the Company sold all of the common stock of Circon to Circon Holdings
Corporation in exchange for the payment of $208 million in cash and the
repayment of $20 million of debt owed by Circon to the Company. The Company
expects to record a $354,000 gain on the sale of Circon in the first quarter of
fiscal year 2000. At October 31, 1999, the net assets held for sale totaled
$224,900,000 and were classified as current assets on the consolidated balance
sheet.
Circon's activities during fiscal year 1999 have been accounted for as
discontinued operations. Net sales and income from Circon's operations in fiscal
year 1999 are as follows (note that the results of discontinued operations do
not reflect any interest expense or general corporate overhead allocated by the
Company):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $135,942
Income from operations...................................... 11,588
Income taxes................................................ 5,903
Income from discontinued operations......................... 6,038
</TABLE>
(3) DEBT AND OTHER LONG-TERM OBLIGATIONS
Long-Term Debt
The following summarizes the Company's long-term debt as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Industrial revenue bonds................................. -- $ 2,370
Revolving line of credit................................. $13,800 69,000
Term loan................................................ -- 185,000
Less -- Current maturities............................... -- (430)
------- --------
$13,800 $255,940
======= ========
</TABLE>
Industrial Revenue Bonds
In 1991, the Bucks County, Pennsylvania Industrial Development Authority
issued industrial revenue bonds to finance the purchase of land and facilities
in Bucks County, Pennsylvania. These bonds were issued with a 15 year maturity
and require monthly
F-14
<PAGE> 183
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
interest and annual principal payments. There is a renewable 5 year term with an
annual fee of 1% of the outstanding principal amount. These bonds are subject to
weekly repricing at an interest rate based on the remarketing agents'
professional judgment and prevailing market conditions at the time. These bonds
were assumed by the Company in the acquisition of Circon, and were not included
in the sale of Circon discussed in Note 2. The property is currently leased out
to third parties.
Credit Facility
In connection with the acquisition of Circon (see Note 2), the Company
entered into a Third Amended and Restated Credit Agreement ("Third Credit
Agreement") with several lending institutions which replaced the prior credit
agreement. The Third Credit Agreement provided for a term loan of $200,000,000
and a $125,000,000 revolving line of credit. Financing for the Circon
acquisition required the full use of the term loan and approximately $60,000,000
of the revolver. Both loans had a maturity date of January 6, 2005 with the term
loan requiring repayment in twenty-four quarterly installments ranging from
$5,000,000 to $10,000,000, commencing April 30, 1999. The interest rate was
prime or, for LIBOR advances, the LIBOR rate, plus a margin ranging from 1.5% to
2.75%, indexed according to a defined financial ratio. In connection with the
Third Credit Agreement, the Company incurred approximately $5,584,000 in debt
financing fees which are being amortized over the life of the Third Credit
Agreement. The Third Credit Agreement was repaid in full and terminated in
connection with the recapitalization (see Note 4).
10 1/2% Senior Subordinated Notes
In July 1996, the Company issued $100,000,000 of 10 1/2% Senior
Subordinated Notes ("10 1/2% Notes"). The 10 1/2% Notes mature on August 1,
2006, unless previously redeemed by the Company. Interest on the 10 1/2% Notes
is payable semi-annually on February 1 and August 1, commencing on February 1,
1997.
Completion of the recapitalization (see Note 4), would have violated
certain covenants contained in the indenture governing the 10 1/2% Notes.
Accordingly, on September 30, 1999, the Company commenced a debt tender offer to
acquire all of the 10 1/2% Notes and a related consent solicitation to eliminate
substantially all of the restrictive covenants in the indenture. Holders of more
than 99.9% of the principal amount of the 10 1/2% Notes consented to the
amendments and tendered their notes. The Company's obligations under the
indenture governing the remaining $5,000 of the 10 1/2% Notes has been assumed
by Maxxim Medical Group, Inc. ("Group"), a newly formed subsidiary of the
Company, and such notes, as amended through the consent solicitation process,
have become the obligations of Group. The Company remains liable, along with
Group, for payments of principal, premium and interest on the remaining $5,000
of 10 1/2% Notes and each of the subsidiaries of Group has guaranteed the
10 1/2% Notes, in each case on a senior subordinated basis.
F-15
<PAGE> 184
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
6 3/4% Convertible Subordinated Debentures
In March 1993, the Company issued $28,750,000 of 6 3/4% Convertible
Subordinated Debentures (the "Debentures") due March 1, 2003. The Debentures
were convertible at the option of the holder into Common Stock at a conversion
price of $18 per share and paid interest every six months commencing September
1, 1993, through maturity on March 1, 2003.
On October 3, 1997, the Company called for 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 had not exercised their right to convert their Debentures into
common stock. As of November 2, 1997, $5,398,000 of the debentures had been
converted into 299,882 shares of the Company's common stock and debt issuance
costs of $166,000 related to these converted debentures were written off to
additional paid-in capital in fiscal 1997 and are reflected in the accompanying
consolidated financial statements.
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. In the
first quarter of fiscal 1998, $22,983,000 of the Debentures were converted into
1,276,732 shares of the Company's common stock and debt issuance costs of
$705,000 related to these converted debentures were written off to additional
paid-in capital and are reflected in the accompanying consolidated financial
statements in fiscal 1998. The Company paid $369,000 to debenture holders who
did not exercise their right to convert upon surrender of their certificates in
fiscal 1998.
Future Minimum Principal Payments
The full outstanding balance, $254,000,000, due under the Company's Third
Credit Agreement and $99,995,000 of the 10 1/2% Notes were repaid in the
recapitalization. As discussed in Note 4, the Company obtained additional debt
to finance the recapitalization. Long term debt outstanding at October 31, 1999,
has been classified in the consolidated balance sheet based on the repayment
terms of the debt obtained to finance the recapitalization.
(4) RECAPITALIZATION
On June 13, 1999, the Company and Fox Paine Medic Acquisition Corporation,
a Texas corporation newly formed by Fox Paine Capital Fund, L.P., entered into a
merger agreement providing for the recapitalization of Maxxim. The transactions
contemplated by the merger agreement, including the recapitalization, were
consummated on November 12, 1999. The recapitalization involved, among other
transactions, (1) the sale to Circon Holdings Corporation, a newly formed Texas
corporation which is owned by the
F-16
<PAGE> 185
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
shareholders of Maxxim, of all of the capital stock of Circon in exchange for
$208.0 million in cash and the repayment of $20 million of intercompany
indebtedness owed by Circon to Maxxim, as a result of which Circon is separately
capitalized, is pursuing separate business strategies and is operated separately
from Maxxim and (2) the contribution to Maxxim Medical Group, Inc., a newly
formed wholly owned subsidiary of Maxxim, of all of Maxxim's assets and
liabilities, other than those relating to Maxxim's credit facility in existence
prior to the consummation of the recapitalization, which was repaid and
terminated as part of the recapitalization. Maxxim expects to conduct
substantially all its business and operations through subsidiaries of Maxxim
Group and any future subsidiaries it may form. The recapitalization required
total funding of approximately $799,600,000. Sources of funding were as follows:
<TABLE>
<S> <C>
Borrowings under new senior secured credit facility......... $261,600,000
Senior subordinated discount notes.......................... 110,000,000
Senior discount notes....................................... 50,000,000
Proceeds from sale of Circon................................ 228,000,000
Contributed equity.......................................... 150,000,000
------------
$799,600,000
============
</TABLE>
Transaction fees and expenses related to the recapitalization totaled
approximately $52,200,000. Fees associated with the financing will be
capitalized and amortized with the applicable debt. Fees associated with the
merger will be expensed as part of the transaction.
In connection with the recapitalization, Maxxim (1) repaid all amounts
outstanding under its previous credit facility and (2) consummated the tender
offer for Maxxim's $100,000,000 principal amount of outstanding 10 1/2% Senior
Subordinated Notes due 2006. An aggregate principal amount of $99,995,000 of the
Senior Subordinated Notes were tendered in the tender offer, leaving $5,000 in
aggregate principal amount of the Senior Subordinated Notes outstanding.
Credit Facility
In connection with the recapitalization, Maxxim repaid all amounts
outstanding under its previous credit facility. Maxxim Group entered into a new
$310,000,000 senior secured credit facility ("Credit Facility") with several
lending institutions on November 12, 1999. The Credit Facility consists of the
following:
<TABLE>
<S> <C>
Tranche A term loan ( "term loan A facility" ).............. $ 80,000,000
Tranche B term loan ( "term loan B facility" ).............. 90,000,000
Tranche C term loan ( "term loan A facility" ).............. 90,000,000
Revolving credit facility................................... 50,000,000
------------
$310,000,000
============
</TABLE>
Financing for the recapitalization required the full use of the term loans
and approximately $1,600,000 of the revolver. The term loan A facility is
repayable in six annual principal payments commencing October 31, 2000, with
payments ranging from $10,000,000 to $16,000,000. This facility bears interest
at an annual rate equal to, at
F-17
<PAGE> 186
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Maxxim Group's option: (1) an adjusted London interbank offered rate ("Adjusted
LIBOR") plus 2.75% or (2) a rate equal to the greater of the administrative
agent's prime rate, a certificate of deposit rate plus 1% and the Federal Funds
effective rate plus 1/2 of 1% (the "Alternate Base Rate") plus 1.75%, in each
cash, subject to certain adjustments based on Maxxim Group's leverage. The term
loan B facility is repayable in eight principal payments over seven and one-half
years, with the first six payments of $250,000 due annually commencing October
31, 2000, a payment of $40.0 million due on October 31, 2006, and a final
payment of $48,500,000 payable at maturity on May 12, 2007. The term loan B
facility bears interest at a rate per annum equal to, at Maxxim Group's option:
(1) Adjusted LIBOR plus 3.25% or (2) the Alternate Base Rate plus 2.25%. The
term loan C facility is repayable in nine principal payments over eight and
one-half years, with the first seven payments of $250,000 due annually
commencing October 31, 2000, a payment of $30.0 million due on October 31, 2007,
and a final payment of $58,250,000 payable at maturity on May 12, 2008. The term
loan C facility bears interest at a rate per annum equal to, at Maxxim Group's
option: (1) Adjusted LIBOR plus 3.50% or (2) the Alternate Base Rate plus 2.50%.
The revolving credit facility is a six-year facility, and outstanding balances
thereunder bear interest at a rate per annum equal to, at Maxxim Group's option:
(1) Adjusted LIBOR plus 2.75% or (2) the Alternate Base Rate plus 1.75%, in each
case, subject to certain adjustments based on the Company's leverage. All
outstanding loans under the revolving credit facility will be payable at
maturity.
Senior Subordinated Discount Notes
In connection with the recapitalization, Maxxim Group issued Senior
Subordinated Discount Notes due 2009 ("Discount Notes") with an aggregate
principal amount at maturity of $144,552,000 ($110,004,072 aggregate accreted
amount outstanding at issuance). The Discount Notes mature on November 15, 2009,
unless previously redeemed by Maxxim Group. The Discount Notes were sold at a
discount of $34,547,928 from their aggregate face value, which amount will be
accreted over the 10 year life of the Discount Notes. With each $1,000 face
amount of Discount Notes issued, Maxxim issued one warrant to purchase 0.8226
shares of its common stock on or before November 12, 2004, at a price per share
of $0.01. Each warrant is valued at $21.38 and will be amortized over the life
of the Discount Notes. Cash interest of 11% is payable on the accreted value of
the Discount Notes as of the issue date, on May 15 and November 15, commencing
May 15, 2000. The obligations under the Discount Notes are guaranteed by Maxxim
and all of Maxxim Group's U.S. subsidiaries.
Except as set forth in the following paragraph, Maxxim Group may not redeem
the Discount Notes at its option prior to November 15, 2004. On or after
November 15, 2004, Maxxim Group may redeem, in whole or in part, at the
redemption prices (expressed as a percentage of accreted value) set forth below
plus accrued and unpaid interest thereon to
F-18
<PAGE> 187
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
the applicable redemption date, if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
November 15, 2004........................................... 106.875%
November 15, 2005........................................... 104.583%
November 15, 2006........................................... 102.292%
November 15, 2007 and thereafter............................ 100.000%
</TABLE>
At any time prior to November 15, 2002, Maxxim Group may redeem up to 35%
of the original aggregate principal amount of the Discount Notes at maturity
plus accrued and unpaid interest thereon to the applicable redemption date with
the net cash proceeds of certain equity offerings at a redemption price equal to
113 3/4% of the accreted value thereof so long as at least 65% of the original
aggregate principal amount at maturity of the Discount Notes remains outstanding
after each such redemption and any such redemption is made within 90 days of the
consummation of such equity offering.
Net proceeds from the offering of approximately $106,704,000 were used in
conjunction with proceeds from the new Credit Facility and the Maxxim Holdings
Notes to finance the recapitalization.
Maxxim Senior Discount Notes
In connection with the recapitalization, Maxxim issued $98,500,000
principal amount at maturity of senior unsecured discount notes ("Maxxim
Notes"). The Maxxim Notes were sold at a $48,500,000 discount from their face
value, resulting in accreted interest on the accreted value at a semi-annual
rate of 7.0% until November 15, 2004. The Maxxim Notes will mature 11 years from
the date of issuance and beginning November 15, 2004, will pay interest in cash
at a rate of 14.0% per year on the accreted value of the Maxxim Notes as of the
issue date, payable semi-annually. For the first five years from the issue date,
accreted interest will be added to the outstanding principal amount of the
Maxxim Notes and will not be payable in cash. After five years from the issuance
date, cash interest will be payable in cash unless cash interest cannot be paid
without violating certain terms of the Maxxim Group's senior or senior
subordinated debt, in which case Maxxim may issue additional Maxxim Notes in
payment of such interest. The Maxxim Notes were not registered for sale under
the Securities Act and are not eligible for offer or sale in the United States
absent registration or an exemption from the registration process. In addition,
the purchasers of the Maxxim Notes received warrants to purchase 144,132 shares
of Maxxim's common stock at a purchase price of $0.01 per share. The market
value of the warrants was $3,746,000.
F-19
<PAGE> 188
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Future Minimum Principal Payments
Future minimum principal payments on long-term debt and other obligations,
on a pro forma basis after giving effect to the recapitalization, are as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS
------------ (UNAUDITED)
<S> <C>
2000........................................................ $ 976,000
2001........................................................ 11,136,000
2002........................................................ 13,064,000
2003........................................................ 13,006,000
2004........................................................ 14,951,000
Thereafter.................................................. 364,911,000
------------
$418,044,000
============
</TABLE>
Contributed Equity
Immediately prior to the recapitalization, which included the merger of Fox
Paine Medic Acquisition Corporation with and into Maxxim, Maxxim had 14,278,942
shares of common stock outstanding. In the merger, all of the outstanding shares
of Maxxim common stock, other than 531,854 shares held by the ten continuing
shareholders, were converted into the right to receive $26 per share.
Immediately prior to the merger, present and former directors, officers and
employees of Maxxim held options to purchase 1,481,460 shares of Maxxim common
stock at a weighted average exercise price of $14.72. As part of the
recapitalization, options to purchase 1,019,092 shares of Maxxim common stock
were canceled in exchange for a cash payment equal to the difference between the
$26.00 merger price and the exercise price per share under the relevant option.
The remaining 462,368 options held by the management investors were canceled
without any cash consideration.
As a result of the merger, the 5,069,231 outstanding shares of Fox Paine
Medic common stock were converted into the same number of shares of common stock
of Maxxim, and the cash investment of $131.8 million by the new investors in Fox
Paine Medic became an asset of Maxxim. In addition, the eight continuing
shareholders who were members of Maxxim's senior management used the after-tax
proceeds from the cash-out of their stock options to purchase 169,619 additional
shares of Maxxim common stock immediately after the merger, at a price of $26.00
per share.
Upon completion of the recapitalization, Maxxim had 5,770,704 shares of
common stock outstanding.
F-20
<PAGE> 189
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
The unaudited pro forma effects of the transactions included in the
recapitalization on the consolidated balance sheet of Maxxim are summarized as
follows:
<TABLE>
<CAPTION>
HISTORICAL IMMEDIATELY PRO FORMA SUBSEQUENT
PRIOR TO TO THE RECAPITALIZATION
RECAPITALIZATION (UNAUDITED)
----------------------- -----------------------
<S> <C> <C>
Current assets.................. $403,869 $203,619
Total assets.................... 711,593 527,069
Current liabilities............. 55,554 55,554
Total liabilities............... 426,476 487,244
Shareholders' equity............ 285,117 39,825
Total liabilities and
shareholders' equity.......... 711,593 527,069
</TABLE>
(5) FINANCIAL INSTRUMENTS
During the first quarter of fiscal 1996, the Company entered into an
interest rate swap agreement with its primary lender in order to reduce the
impact of changes in variable interest rates on consolidated results of
operations and future cash outflows for interest. The agreement converted a
portion of the non-indexed part of the interest rate of the Company's primary
credit agreement facilities to a fixed rate of 5.4%. The original notional
amount of the swap was $63,750,000 with an expiration of March 31, 2000. During
fiscal 1998, the Company sold this agreement for $191,000. In fiscal 1998, the
Company's financial position and results of operations were not materially
impacted by the swap agreement.
In January 1999, the Company entered into a new swap agreement with three
banks participating in the Company's Third Credit Agreement. The total notional
value of the swap was $125,000,000. The agreement fixed a portion of the
Company's non-indexed part of the interest rate at 5.08%, so long as LIBOR did
not exceed 6.75%.
The Company used the interest rate swap to manage the interest risk
associated with its borrowings and to manage the Company's allocation of fixed
and variable rate debt. The Company accounts for its interest rate swaps on the
accrual method, whereby the net receivable or payable is recognized on a
periodic basis and included as a component of interest expense. The Company does
not trade in derivative securities.
The estimated fair value of cash and cash equivalents, accounts receivable,
and accounts payable, approximate their carrying amount. The estimated fair
values and carrying amounts of long-term borrowings and the interest rate swap
were as follows:
<TABLE>
<CAPTION>
NOVEMBER 1, 1998 OCTOBER 31, 1999
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Swap agreement, paying fixed........ $ -- $ -- $ -- $ 658,000
Long-term debt (including current
maturities)....................... (121,683) (130,133) (361,749) (375,892)
</TABLE>
F-21
<PAGE> 190
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Fair values for the Company's 10 1/2% Senior Subordinated Notes were based
upon the redemption value paid in connection with the recapitalization (see Note
4). Fair values for the Company's other debts were determined from quoted market
prices or discounted cash flows.
(6) COMMITMENTS AND CONTINGENCIES
Capital Leases
The Company leases a production facility and various equipment under
long-term leases and has the option to purchase the assets for a nominal cost at
the termination of the lease.
Included in property, plant and equipment are the following assets held
under capital leases as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 271 $ 271
Buildings................................................ 1,914 1,930
Machinery and equipment.................................. 6,240 6,556
Accumulated depreciation................................. (358) (1,454)
------- -------
$ 8,067 $ 7,303
======= =======
</TABLE>
F-22
<PAGE> 191
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Future minimum lease payments for assets under capital leases at October
31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------ (IN THOUSANDS)
<S> <C>
2000........................................................ $ 746
2001........................................................ 738
2002........................................................ 738
2003........................................................ 738
2004........................................................ 738
Thereafter.................................................. 2,205
------
Total minimum lease payments...................... 5,903
Less- amount representing interest.......................... 1,430
------
Present value of net minimum lease payments................. 4,473
Less current maturities..................................... 473
------
$4,000
======
</TABLE>
Operating Leases
The Company is obligated under various operating leases. Rent expense under
these operating leases for fiscal years 1997, 1998 and 1999 was approximately
$3,519,000, $3,430,000 and $3,529,000, respectively. Minimum future rental
payments are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------ (IN THOUSANDS)
<S> <C>
2000........................................................ $ 3,361
2001........................................................ 3,392
2002........................................................ 3,162
2003........................................................ 2,484
2004........................................................ 1,663
Thereafter.................................................. 1,995
-------
$16,057
=======
</TABLE>
Claims And Litigation
The Company is currently, and is from time to time, subject to claims and
lawsuits arising in the ordinary course of business, including those relating to
product liability, safety and health and employment matters. In some of such
actions, plaintiffs request punitive or other damages or nonmonetary relief,
which may not be covered by insurance, and which could, in the case of
nonmonetary relief, if granted, materially affect the conduct of the Company's
business. Although the Company maintains insurance that it believes to be
reasonable and appropriate, the amount and scope of any coverage may be
inadequate to protect the Company in the event of a substantial adverse
judgment. In management's opinion, taking third party indemnities into
consideration, these various asserted claims and litigation in which the Company
is currently involved are not reasonably likely to have a material adverse
effect on the Company's business, results of
F-23
<PAGE> 192
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
operations or financial position. However, no assurance can be given as to the
ultimate outcome with respect to such claims and litigation.
Since March 1996, the Company has been served with various lawsuits
alleging various adverse reactions to the latex used in certain of the medical
gloves alleged to have been manufactured by the Company or the prior owner of
the assets relating to the Company's latex glove operations acquired in June
1995 as well as certain glove products distributed by the Company since 1989.
The Company believes that most of such claims relate to gloves sold or shipped
prior to June 1995, and that such prior obligation has been assumed by the prior
owner. The Company is aware that an increasing number of lawsuits have been
brought against latex glove manufacturers with respect to such allergic
reactions. Because the Company, as well as its competitors, have continued to
manufacture and sell latex gloves, the Company may be subject to further claims.
A complaint was filed on June 15, 1999 in state court in Harris County,
Texas, and another was filed on June 25, 1999 in state court in Pinellas County,
Florida, each naming the Company, its former directors and Fox Paine & Company,
LLC as defendants. Each complaint is brought on behalf of a purported class of
public shareholders of the Company and alleges that the consideration paid in
the merger (see Note 4) was unfair and inadequate, and that the former directors
of the Company breached their fiduciary duties by failing to obtain the best
price for the Company. As remedies, each complaint seeks, among other things,
equitable relief and damages in an unspecified amount. As of August 16, 1999,
the plaintiffs in the Harris County action voluntarily dismissed the action. On
September 30, 1999, counsel for the plaintiffs in the Pinellas County action and
counsel for defendants entered into a memorandum of understanding providing that
the claims asserted in the Pinellas County case will be settled, the action will
be dismissed and all defendants will receive a release of any claims. However,
the settlement is subject to court approval and certain other conditions.
On September 28, 1999, a complaint was filed in state court in Henderson
County, Texas naming the Company and its former directors as defendants. The
complaint is brought on behalf of a purported class of former public
shareholders of the Company and alleges, among other things, that the
consideration paid in the merger was unfair and inadequate and that the former
directors of the Company breached their fiduciary duties by failing to obtain
the best price for the Company. As remedies, the complaint seeks, among other
things, equitable relief and damages in an unspecified amount. On January 31,
2000, a Stipulation and Agreed Order of Abatement, submitted by agreement of the
parties, was entered by the court in Henderson County, providing that the action
shall remain abated until the earlier of sixty days following the final
resolution of the action pending in Pinellas County, Florida, or notification to
the Henderson County court that the action has been resolved by agreement and
should be dismissed. Under the order, the plaintiffs will have the right to
participate generally in confirmatory discovery in the Pinellas County action
described above. Additionally, they may withdraw their agreement to the terms of
the order at any time and seek a hearing before the court to request that the
abatement be terminated.
In the ordinary course of business, the Company has been named in various
other lawsuits. While the final resolution of any matters may have an impact on
the Company's
F-24
<PAGE> 193
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
consolidated financial results for a particular reporting period, management
believes, based on consultation with counsel, that the ultimate resolution of
these matters and the matters specifically discussed above will not have a
material adverse impact on the Company's financial position or results of
operations.
Product Liability
The Company currently has product liability insurance which it believes to
be adequate for its business. The Company's existing policy expires October 31,
2000.
(7) INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NOVEMBER 2, NOVEMBER 1, OCTOBER 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Current domestic............................. $3,784 $ 8,189 $ 4,692
Current foreign.............................. 1,855 681 (13)
------ ------- -------
$5,639 $ 8,870 $ 4,679
------ ------- -------
Deferred domestic............................ $3,724 $ 5,118 $ 2,555
Deferred foreign............................. 122 466 (59)
------ ------- -------
3,846 5,584 2,496
------ ------- -------
Income taxes from continuing operations...... $9,485 $14,454 $ 7,175
Income taxes from discontinued operations.... -- -- 6,326
------ ------- -------
Total...................................... $9,485 $14,454 $13,501
====== ======= =======
</TABLE>
Income tax expense differed from the amounts computed by applying the
statutory U.S. federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------
NOVEMBER 2, NOVEMBER 1, OCTOBER 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Statutory rate............................... 35% 35% 35%
Amortization of goodwill..................... 4 3 8
State taxes, net of federal benefit.......... 2 3 3
Other, net................................... 1 1 1
-- -- --
Effective rate............................... 42% 42% 47%
== == ==
</TABLE>
F-25
<PAGE> 194
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
The net effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below at:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CURRENT DEFERRED:
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts................................... $ 1,359 $ 1,464
Inventory, principally due to reserve for obsolescence
and costs inventoried for tax purposes.............. 3,507 2,948
Net operating loss carryforwards....................... 629 629
Accruals and provisions not currently deductible....... 4,830 3,525
Unrealized loss on investment securities............... -- 623
-------- --------
Net current deferred tax asset...................... $ 10,325 $ 9,189
======== ========
NONCURRENT DEFERRED:
Deferred tax assets:
Unrealized loss on currency translation of foreign
subsidiaries........................................ $ -- $ 1,819
Net operating loss carryforwards....................... 1,440 849
Deferred tax liabilities:
Book over tax amortization............................. (7,299) (6,775)
Differences between book and tax basis of property and
equipment........................................... (5,845) (6,515)
-------- --------
Net noncurrent deferred tax liability............... $(11,704) $(10,622)
======== ========
</TABLE>
There is no valuation allowance as of the fiscal year ended October 31,
1999. It is the opinion of management that future operations will more likely
than not generate taxable income to realize the deferred tax assets.
At October 31, 1999, the Company has $8,400,000 of net operating loss
carryforwards for federal income tax purposes which were acquired in various
acquisitions. The utilization of certain net operating loss carryforwards is
subject to limitations under U.S. federal income tax laws. The Company did not
record a deferred tax asset for $4,200,000 of these net operating loss
carryforwards in the allocation of the purchase price of these acquisitions, for
which subsequently recognized benefits will be allocated to reduce goodwill. The
net operating loss carryforwards are available to offset future federal taxable
income, if any, through 2010.
F-26
<PAGE> 195
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(8) ACCRUED LIABILITIES
Accrued liabilities include the following as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Health insurance and benefit accrual..................... $ 7,799 $ 7,389
Accrued taxes payable.................................... 5,314 3,753
Fees payable to hospital buying groups................... 2,357 1,109
Accrued payroll and commissions.......................... 2,958 2,917
Accrued interest payable................................. 2,807 3,022
Restructure accrual...................................... -- 1,663
Other.................................................... 4,686 2,426
------- -------
$25,921 $22,279
======= =======
</TABLE>
(9) OTHER ASSETS
Other assets, net of accumulated amortization, include the following as of:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Patents.................................................. $12,069 $10,736
Debt offering costs...................................... 2,660 7,100
Non-compete agreements................................... 2,269 1,338
Notes receivable......................................... 1,328 1,909
Long term investments.................................... 431 666
Other.................................................... 1,551 4,210
------- -------
$20,308 $25,959
======= =======
</TABLE>
F-27
<PAGE> 196
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(10) STOCK OPTION AGREEMENTS
Commencing with November 1, 1989, it has been the practice of the board of
directors to grant stock options to certain employees of the Company from time
to time. The Company has also granted options to its non-employee directors from
time to time. The shares purchasable by employees under such stock option
agreements (subject to continued employment with the Company) vest over five
years. The shares purchasable by non-employee directors under such stock option
agreements (subject to continued director service to the Company) vest over a
period of one to three years. Set forth below is certain information regarding
such issuances, exercises and cancellations of options in each of the indicated
fiscal years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE
--------- ----------------
<S> <C> <C>
BALANCE AT NOVEMBER 3, 1996........................... 793,700 $11.40
Fiscal 1997:
Granted............................................. 294,800 $11.48
Exercised........................................... (43,000) 12.99
Cancelled........................................... (28,780) 11.68
---------
BALANCE AT NOVEMBER 2, 1997........................... 1,016,720 $11.40
Fiscal 1998:
Granted............................................. 302,800 $19.64
Exercised........................................... (65,760) 12.94
Cancelled........................................... (11,680) 13.13
---------
BALANCE AT NOVEMBER 1, 1998........................... 1,242,080 $13.31
Fiscal 1999:
Granted............................................. 307,550 $20.81
Exercised........................................... (40,120) 12.11
Cancelled........................................... (28,050) 22.60
---------
BALANCE AT OCTOBER 31, 1999........................... 1,481,460 $14.72
=========
</TABLE>
The 1,481,460 options outstanding as of October 31, 1999 had exercise
prices ranging between $10.73 and $24.76, a weighted average exercise price of
$14.72 and a weighted average remaining contract life of 2.54 years. At October
31, 1999, options to purchase 931,707 shares, were exercisable with exercise
prices ranging between $10.73 and $24.76, and a weighted average exercise price
of $12.88.
F-28
<PAGE> 197
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
The Company has elected to continue to follow APB Opinion No. 25: however,
if the Company adopted SFAS No. 123, the Company's net income and earnings per
share for the years ended, November 2, 1997 November 1, 1998 and October 31,
1999, would have been reduced as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------------
NOVEMBER 2, 1997 NOVEMBER 1, 1998 OCTOBER 31, 1999
---------------------- ---------------------- ----------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- -------- ----------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income........... $12,881 $12,638 $19,636 $19,042 $14,064 $12,980
Basic earnings per
share.............. 1.55 1.52 1.55 1.50 0.99 0.91
Diluted earnings per
share.............. 1.42 1.40 1.50 1.46 0.96 0.89
</TABLE>
The weighted average fair value of options granted in 1997, 1998, and 1999
was $6.59, $13.58 and $14.00, respectively. The fair value of each option was
determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were as follows: average risk-free
interest rate based on 5-year Treasury bonds, stock price volatility of 36% for
1997 and 53% for 1998 and 1999, and estimated option terms ranging from 2 to 6
years. The Company has no present plans to pay dividends on its common stock.
The effect of applying SFAS No. 123 as calculated above may not be
representative of the effects on reported net income for future years.
In connection with the recapitalization (see Note 4), the Company
terminated its employee and director stock option plans. In the
recapitalization, 462,368 options of eight members of the Company's senior
management were cancelled and replaced with options of Circon Holdings
Corporation. The remaining 1,019,092 options were cancelled and each holder
received a cash payment for each share subject to an option equal to the excess
of $26 over the exercise price of the option less applicable withholding taxes.
The difference between the $26.00 cash price and the option exercise price was
charged to operations upon consummation of the recapitalization in the first
quarter of fiscal year 2000. The eight continuing shareholders who were members
of Maxxim's senior management were granted 1,172,875 new options to acquire
shares of Maxxim common stock at an exercise price of $26.00 per share.
(11) BUSINESS SEGMENTS, GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
Effective October 31, 1999, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." The Company's business
is organized, managed and internally reported as a single segment comprised of
medical products used in surgical and other medical procedures. The Company
believes its various product lines have similar economic, operating and other
related characteristics.
F-29
<PAGE> 198
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Information in the table below is presented on the basis the Company uses
to manage its business. Export sales are reported within the geographic area
where the final sales to customers are made.
<TABLE>
<CAPTION>
NORTH REST OF TOTAL
AMERICA EUROPE WORLD COMPANY
-------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997....................................... $472,305 $49,901 $7,346 $529,552
1998....................................... 469,370 45,355 7,791 522,516
1999....................................... 456,468 44,916 7,270 508,654
</TABLE>
Export sales to rest of world are primarily sales to South America and the
Pacific Rim. There were no significant investments in long-lived assets located
outside the United Sates at November 1, 1998 and October 31, 1999.
The Company distributes primarily through major distributors in the United
States. Those distributors typically serve under a purchase order or supply
agreement between the end-user and the Company. Sales through Owens & Minor,
Inc., our largest distributor, were 23.1%, 25.7% and 25.3% of our North American
total net sales in fiscal years 1997, 1998 and 1999, respectively. For the year
ended October 31, 1999, no other single distributor accounted for more than 10%
of our North American total net sales.
(12) SAVINGS PLAN
The Company has a 401(k) savings plan which permits participants to
contribute up to 15 percent of their base compensation (as defined) each year.
The Company will match at least 25 percent of a participant's contribution up to
a maximum of 6 percent of gross pay. The Company's matching percentage may be
adjusted as Company profitability dictates. Employer contributions were
$801,000, $910,000 and $1,189,000, for the 1997, 1998 and 1999 plan years,
respectively.
(13) DEFERRED COMPENSATION
During 1998, the Company established a non-qualified deferred compensation
plan for key employees of the Company. Under the program, participants may elect
to reduce their compensation and to have elective deferrals credited to their
accounts by making an election under the Plan, but no participants may defer
more than 90% of their base and 100% of bonuses. The Company will match 100% of
the first 6% of the participants' compensation deferral. Vesting in the plan is
100% immediate and the retirement age under the plan is age 55. A participant
terminating employment before retirement age is entitled to a lump sum payment
of all vested amounts. Employer contributions were $50,200 and $162,300 in
fiscal 1998 and 1999, respectively. The Company's October 31, 1999 consolidated
balance sheet includes a deferred compensation liability of $583,400 which is
included in accrued expenses.
(14) RELATED-PARTY TRANSACTIONS
Under the terms of the Chief Executive Officer's ("CEO") employment
agreement, he may borrow up to an aggregate of $500,000 for the principal
purpose of payment of
F-30
<PAGE> 199
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
federal income tax payments associated with the exercise of stock options to
purchase shares of the Company's common stock. Each loan is non-interest
bearing, unsecured and repayable in ten equal annual installments on the third
through the twelfth anniversaries of the dates of such loans. The total amount
outstanding under the CEO's loans at October 31, 1999 was $460,000. The CEO is
current in all of his repayment obligations under the loans.
In conjunction with the relocation of the Company's Chief Operations
Officer ("COO") from Houston, Texas to the Company's corporate headquarters in
Clearwater, Florida, the COO was given a loan in the amount of $325,000. This
loan is non-interest bearing, unsecured and repayable upon the earlier of the
sale of his prior residence or December 31, 2000.
(15) MANAGEMENT STOCK PURCHASE PLAN
In May 1997, the Company issued 400,000 shares 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 $5,200,000 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 Consolidated Balance Sheet. Payment of
these notes also is secured by the pledge of the 400,000 shares of common stock.
In connection with the recapitalization (see Note 4), $702,000 of the note
principal was repaid. The remaining $4,498,000 due from the managers who
continued as shareholders of the Company after the recapitalization was divided
between the Company and Circon Holdings. The old notes were canceled and
replaced with new notes containing substantially identical terms, except as
described below. New notes in an aggregate amount of $1,918,215 were transferred
to Circon Holdings, to reflect the fact that some of each manager's shares of
common stock that were subject to the notes were exchanged for shares of Circon
Holdings common stock in the recapitalization. The new notes differ from the old
notes in that they provide for a maturity date of November 12, 2009, with
mandatory prepayments using the after-tax proceeds of any sales of shares of the
common stock of the Company or Circon Holdings, or options to purchase such
shares, made after the completion of the recapitalization. The old notes also
contained a provision requiring the repayment upon the termination of the
manager's employment with the Company, which is not in the new notes. In
addition, the Stock Purchase Plan was amended to remove the provision that
required the holder to forfeit to the Company 50% of the profit from the sale of
the shares that are subject to the promissory note.
(16) PUBLIC OFFERING OF COMMON STOCK
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 sold pursuant to the underwriters' exercise of the overallotment option.
After deducting offering costs and commissions, the Company received net
proceeds of approximately $91,418,000. The Company used the proceeds to repay
the Company's term loan and a revolving credit facility.
F-31
<PAGE> 200
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(17) SHAREHOLDER RIGHTS PLAN
On July 10, 1997, the Board of Directors of the Company declared a dividend
of one right to purchase preferred stock ("Right") for each outstanding share of
the Company's Common Stock, par value $0.001 per share ("Common Stock"), to
shareholders of record at the close of business on September 15, 1997 (the
"Record Date").
In connection with its approval of the merger agreement that provided for
the recapitalization of the Company (see Note 4), the Board of Directors of the
Company amended the rights agreement, dated as of July 10, 1997, by and between
the Company and Harris Trust and Savings Bank, as the rights agent, to provide
that the approval, execution, delivery and performance of the merger agreement
and the voting agreements between Fox Paine Maxxim Acquisition Corporation and
the continuing shareholders, and the announcement of the same, would not give
rise to a triggering event or distribution date as those terms are used in the
rights agreement. The rights agreement expired upon the completion of the
recapitalization.
(18) FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES
Consolidating financial information regarding the Company, guarantor
subsidiaries and non-guarantor subsidiaries as of and for each of the fiscal
years ended November 2, 1997, November 1, 1998 and October 31, 1999 is presented
below for purposes of complying with the reporting requirements of the guarantor
subsidiaries. Separate financial statements and other disclosures concerning
each guarantor subsidiary have not been presented because management has
determined that such information is not material to investors. The guarantor
subsidiaries are wholly-owned subsidiaries of the Company who have fully and
unconditionally guaranteed the Senior Subordinated Discount Notes due 2009
issued in connection with the recapitalization (see Note 4).
F-32
<PAGE> 201
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CONSOLIDATED BALANCE SHEET
NOVEMBER 1, 1998
<TABLE>
<CAPTION>
NOVEMBER 1, 1998
---------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 742 $ 3,383 $ -- $ 4,125
Accounts receivable, net........................ 94,199 7,491 (31,261) 70,429
Inventory, net.................................. 69,261 10,387 -- 79,648
Net current deferred tax asset.................. 10,325 -- -- 10,325
Prepaid expenses and other...................... 8,263 427 -- 8,690
-------- -------- -------- --------
Total current assets.......................... 182,790 21,688 (31,261) 173,217
Property and equipment.......................... 116,125 52,923 -- 169,048
Less: accumulated depreciation.................. (28,688) (12,850) -- (41,538)
-------- -------- -------- --------
87,437 40,073 -- 127,510
Investment in subsidiaries...................... 22,898 -- (22,898) --
Goodwill, net................................... 146,135 881 -- 147,016
Other assets, net............................... 19,072 1,236 -- 20,308
-------- -------- -------- --------
Total assets.................................. $458,332 $ 63,878 $(54,159) $468,051
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease
obligations................................... $ 508 $ -- $ -- $ 508
Current maturities of other long-term
obligations................................... 2,036 14,699 (14,699) 2,036
Accounts payable................................ 30,089 5,745 -- 35,834
Accrued liabilities............................. 23,194 2,727 -- 25,921
-------- -------- -------- --------
Total current liabilities..................... 55,827 23,171 (14,699) 64,299
Long-term debt, net of current maturities....... 13,800 -- -- 13,800
10 1/2% Senior subordinated notes............... 100,000 -- -- 100,000
Capital lease obligations, net of current
maturities.................................... 4,531 -- -- 4,531
Other long-term obligations, net of current
maturities.................................... 808 16,562 (16,562) 808
Net non-current deferred tax liability.......... 10,457 1,247 -- 11,704
-------- -------- -------- --------
Total liabilities............................. 185,423 40,980 (31,261) 195,142
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock................................. -- -- -- --
Common Stock.................................... 14 -- -- 14
Additional paid-in capital...................... 219,268 -- -- 219,268
Retained earnings............................... 64,886 -- -- 64,886
Subscriptions receivable........................ (5,200) -- -- (5,200)
Accumulated other comprehensive loss............ (6,059) -- -- (6,059)
-------- -------- -------- --------
Total shareholders' equity.................... 272,909 -- -- 272,909
Net equity of non-guarantor subsidiaries...... -- 22,898 (22,898) --
-------- -------- -------- --------
Total liabilities and shareholders' equity.... $458,332 $ 63,878 $(54,159) $468,051
======== ======== ======== ========
</TABLE>
F-33
<PAGE> 202
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<CAPTION>
OCTOBER 31, 1999
---------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 474 $ 3,566 $ -- $ 4,040
Accounts receivable, net................. 73,216 30,811 (42,704) 61,323
Inventory, net........................... 81,610 16,201 -- 97,811
Net current deferred tax asset........... 9,189 -- -- 9,189
Prepaid expenses and other............... 6,339 258 -- 6,597
Net assets held for sale................. -- 224,909 -- 224,909
-------- -------- --------- --------
Total current assets................... 170,828 275,745 (42,704) 403,869
Property and equipment................... 134,375 59,833 -- 194,208
Less: accumulated depreciation........... (37,678) (17,224) -- (54,902)
-------- -------- --------- --------
96,697 42,609 -- 139,306
Investment in subsidiaries............... 268,439 -- (268,439) --
Goodwill and other intangibles, net...... 140,811 1,648 -- 142,459
Other assets, net........................ 25,010 949 -- 25,959
-------- -------- --------- --------
Total assets........................... $701,785 $320,951 $(311,143) $711,593
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt..... $ 430 $ -- $ -- $ 430
Current maturities of capital lease
obligations............................ 473 -- -- 473
Current maturities of other long-term
obligations............................ 546 4,308 (4,308) 546
Accounts payable......................... 25,986 5,840 -- 31,826
Accrued liabilities...................... 18,380 3,899 -- 22,279
-------- -------- --------- --------
Total current liabilities.............. 45,815 14,047 (4,308) 55,554
Long-term debt, net of current
maturities............................. 255,940 -- -- 255,940
10 1/2% Senior subordinated notes........ 100,000 -- -- 100,000
Capital lease obligations, net of current
maturities............................. 4,000 -- -- 4,000
Other long-term obligations, net of
current maturities..................... 360 38,396 (38,396) 360
Net non-current deferred tax liability... 10,553 69 -- 10,622
-------- -------- --------- --------
Total liabilities...................... 416,668 52,512 (42,704) 426,476
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock.......................... -- -- -- --
Common Stock............................. 14 -- -- 14
Additional paid-in capital............... 220,230 -- -- 220,230
Retained earnings........................ 78,950 -- -- 78,950
Subscriptions receivable................. (5,200) -- -- (5,200)
Accumulated other comprehensive loss..... (8,877) -- -- (8,877)
-------- -------- --------- --------
Total shareholders' equity............. 285,117 -- -- 285,117
Net equity of non-guarantor
subsidiaries......................... -- 268,439 (268,439) --
-------- -------- --------- --------
Total liabilities and shareholders'
equity............................... $701,785 $320,951 $(311,143) $711,593
======== ======== ========= ========
</TABLE>
F-34
<PAGE> 203
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 2, 1997
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 2, 1997
---------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................ $469,436 $79,493 $(19,377) $529,552
Cost of sales............................ 355,876 61,192 (19,377) 397,691
-------- ------- -------- --------
Gross profit............................. 113,560 18,301 -- 131,861
-------- ------- -------- --------
Operating expenses
Marketing and selling.................. 54,692 7,911 -- 62,603
General and administrative............. 23,695 3,803 -- 27,498
-------- ------- -------- --------
78,387 11,714 -- 90,101
-------- ------- -------- --------
Income from operations................... 35,173 6,587 -- 41,760
Interest (income) expense, net........... 22,203 (58) -- 22,145
Other income (expense), net.............. 4,304 (1,553) -- 2,751
-------- ------- -------- --------
Income before income taxes............... 17,274 5,092 -- 22,366
Income taxes............................. 7,624 1,861 -- 9,485
-------- ------- -------- --------
Net income........................... $ 9,650 $ 3,231 $ -- $ 12,881
======== ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 1, 1998
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1, 1998
---------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................ $468,646 $79,969 $(26,099) $522,516
Cost of sales............................ 345,171 62,566 (26,099) 381,638
-------- ------- -------- --------
Gross profit............................. 123,475 17,403 -- 140,878
-------- ------- -------- --------
Operating expenses
Marketing and selling.................. 56,770 9,067 -- 65,837
General and administrative............. 24,679 3,894 -- 28,573
-------- ------- -------- --------
81,449 12,961 -- 94,410
-------- ------- -------- --------
Income from operations................... 42,026 4,442 -- 46,468
Interest (income) expense, net........... 13,465 (45) -- 13,420
Other income (expense), net.............. 2,435 (1,393) -- 1,042
-------- ------- -------- --------
Income before income taxes............... 30,996 3,094 -- 34,090
Income taxes............................. 13,308 1,146 -- 14,454
-------- ------- -------- --------
Net income........................... $ 17,688 $ 1,948 $ -- $ 19,636
======== ======= ======== ========
</TABLE>
F-35
<PAGE> 204
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999
---------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................ $457,244 $88,980 $(37,570) $508,654
Cost of sales............................ 330,625 73,723 (37,570) 366,778
-------- ------- -------- --------
Gross profit............................. 126,619 15,257 -- 141,876
-------- ------- -------- --------
Operating expenses
Marketing and selling.................. 61,084 9,986 -- 71,070
General and administrative............. 19,618 3,006 -- 22,624
Restructure charges and transition
expenses............................. 4,637 -- -- 4,637
-------- ------- -------- --------
85,339 12,992 -- 98,331
-------- ------- -------- --------
Income from operations................... 41,280 2,265 -- 43,545
Interest (income) expense, net........... 25,629 2,160 -- 27,789
Other income (expense), net.............. (129) (426) -- (555)
-------- ------- -------- --------
Income (loss) from continuing operations
before income taxes.................... 15,522 (321) -- 15,201
Income taxes............................. 7,255 (80) -- 7,175
-------- ------- -------- --------
Income (loss) from continuing
operations............................. 8,267 (241) -- 8,026
Income from discontinued operations, net
of tax................................. -- 6,038 -- 6,038
-------- ------- -------- --------
Net income........................... $ 8,267 $ 5,797 $ -- $ 14,064
======== ======= ======== ========
</TABLE>
F-36
<PAGE> 205
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
FOR FISCAL YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 1, 1998 AND OCTOBER 31, 1999
<TABLE>
<CAPTION>
NOVEMBER 2, 1997 NOVEMBER 1, 1998 OCTOBER 31, 1999
------------------------- ------------------------- -------------------------
GUARANTOR NON-GUARANTOR GUARANTOR NON-GUARANTOR GUARANTOR NON-GUARANTOR
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 9,650 $ 3,231 $ 17,688 $ 1,948 $ 8,267 $ 5,797
Adjustment to reconcile net income to net
cash provided by operating activities:
Income from discontinued operations,
net of tax............................ -- -- -- -- -- (6,038)
Deferred income tax expense............ 3,724 122 5,118 466 3,674 (1,178)
Amortization of financing fees......... 830 -- 1,021 -- 1,148 --
Depreciation and amortization.......... 13,136 3,529 15,309 3,070 17,060 5,466
Compensation expense for outstanding
stock options......................... 471 -- 625 -- 211 --
Gain on sale of building............... -- -- (25) -- (167) --
Loss on sale of product line........... -- -- -- -- 112 --
Gain on sale of investment in equity
securities............................ (1,510) -- -- -- -- --
Changes in current assets and
liabilities, net of effects of asset
acquisitions and dispositions and
business combinations:
(Increase) decrease in accounts
receivable, net....................... 11,342 (2,648) 11,117 (437) 21,226 (12,321)
(Increase) decrease in inventory,
net................................... 9,201 1,872 8,204 (2,147) (13,645) (6,246)
(Increase) decrease in prepaid expenses
and other............................. (169) (450) (730) 276 341 121
Increase (decrease) in accounts
payable............................... 2,626 (2,603) (3,642) 1,926 (4,308) (136)
(Decrease) increase in accrued
liabilities........................... (1,580) (1,197) (4,074) (171) (4,820) 1,011
-------- ------- -------- -------- -------- --------
Net cash provided by continuing
operations............................... 47,721 1,856 50,611 4,931 29,099 (13,524)
Net cash provided by discontinued
operations............................... -- -- -- -- -- 26,765
Net cash provided by (used in) operating
activities............................... 47,721 1,856 50,611 4,931 29,099 13,241
-------- ------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from building sale.............. 500 -- 1,200 -- 338 --
Proceeds from product line sale.......... -- -- -- -- 1,635 --
Proceeds from sale of investment
securities............................. 3,130 -- 1,650 -- -- --
Purchase of investment securities........ -- -- -- -- (400) --
Purchase of Circon, net of cash
acquired............................... -- -- -- -- (247,067) --
Purchase of Winfield Medical, net of cash
acquired............................... -- -- (31,267) -- -- --
Purchase of glove plant assets and
assumption of liabilities, net......... -- -- (16,096) -- -- --
Purchase of property and equipment of
discontinued operations................ -- -- -- -- -- (540)
Purchase of property and equipment, net
of asset acquisitions and business
combinations........................... (3,632) (3,197) (6,467) (16,974) (10,968) (14,789)
-------- ------- -------- -------- -------- --------
Net cash used in investing activities..... (2) (3,197) (50,980) (16,974) (256,462) (15,329)
-------- ------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings......... (7,500) -- (81,000) -- (15,405) --
Increase in long-term borrowings......... -- -- -- -- 200,000 --
Net borrowing (payments) on revolving
line of credit......................... (29,790) -- (1,539) -- 55,200 --
Net borrowing (payments) on capital lease
obligations............................ -- -- 5,039 -- (566) --
Net payments on other long-term
obligations............................ (4,653) 500 (17,817) 13,674 (4,382) 2,370
Recapitalization costs................... -- -- -- -- (2,844) --
Payment of debt offering costs........... -- -- -- -- (5,584) --
Net proceeds from secondary stock
offering............................... -- -- 91,418 -- -- --
Increase (decrease) in bank overdraft.... (7,893) -- 2,843 -- 168 --
Proceeds from exercise of stock
options................................ 536 -- 1,119 -- 751 --
Other, net............................... (7) -- (366) -- (243) 5
-------- ------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................... (49,307) 500 (303) 13,674 227,095 2,375
-------- ------- -------- -------- -------- --------
Effect of foreign currency translation
adjustment............................... 280 (671) 888 (852) -- (104)
-------- ------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. (1,308) (1,512) 216 779 (268) 183
Cash and cash equivalents at beginning of
year..................................... 1,834 4,116 526 2,604 742 3,383
-------- ------- -------- -------- -------- --------
Cash and cash equivalents at end of
year..................................... $ 526 $ 2,604 $ 742 $ 3,383 $ 474 $ 3,566
======== ======= ======== ======== ======== ========
</TABLE>
F-37
<PAGE> 206
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 1, 1998
Net sales............................... $128,003 $132,958 $128,057 $133,498
Gross profit............................ 33,061 34,742 35,324 37,751
Net income.............................. 3,751 4,719 5,444 5,722
Basic earnings per share................ 0.38 0.38 0.38 0.40
Diluted earnings per share.............. 0.37 0.37 0.37 0.39
YEAR ENDED OCTOBER 31, 1999
Net sales............................... $124,632 $134,663 $131,615 $117,744
Gross profit............................ 35,334 37,586 36,151 32,805
Income (loss) from continuing
operations............................ 3,785 2,795 2,710 (1,264)
Income (loss) from discontinued
operations............................ 91 3,272 3,200 (525)
Net income (loss)....................... 3,876 6,067 5,910 (1,789)
Basic earnings (loss) per share:
Basic earnings (loss) from continuing
operations......................... 0.26 0.20 0.19 (0.09)
Basic earnings (loss) from
discontinued operations............ 0.01 0.23 0.22 (0.03)
-------- -------- -------- --------
Basic earnings (loss) per share....... 0.27 0.43 0.41 (0.12)
======== ======== ======== ========
Diluted earnings (loss) per share:
Diluted earnings (loss) from
continuing operations.............. 0.25 0.20 0.19 (0.09)
Diluted earnings (loss) from
discontinued operations............ 0.01 0.22 0.22 (0.04)
-------- -------- -------- --------
Diluted earnings (loss) per share..... 0.26 0.42 0.41 (0.13)
======== ======== ======== ========
</TABLE>
F-38
<PAGE> 207
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(20) RESTRUCTURE CHARGES AND TRANSITION EXPENSES
In the first quarter of fiscal 1999, the Company incurred approximately
$2,016,000 of transition costs in connection with the restructuring of its sales
force. The sales force transition costs included severance and training expenses
associated with the realignment of the Company's sales force. In the fourth
quarter of fiscal year 1999, the Company announced the closing of one of its
glove plants. The $2,621,000 restructure charges associated with the plant
closure included primarily severance and benefit costs for the 140 employees.
These expenses are summarized below. Unpaid expenses at October 31, 1999 are
included in accrued expenses on the Company's consolidated balance sheet, and
the Company expects to pay the remaining accruals in fiscal 2000.
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE FISCAL 1999 FISCAL 1999 BALANCE
NOVEMBER 2, RECORDED CASH OCTOBER 31,
1998 EXPENSES PAYMENTS 1999
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Severance........................... $ -- $2,860 $1,739 $1,121
Training............................ -- 395 395 --
Termination benefits for plant
closure........................... -- 443 100 343
Plant closure expenses.............. -- 466 267 199
Other transition expenses........... -- 473 473 --
-------- ------ ------ ------
$ -- $4,637 $2,974 $1,663
======== ====== ====== ======
</TABLE>
F-39
<PAGE> 208
(d) Schedules
SCHEDULE II
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FISCAL YEARS ENDED 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OPERATING AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1997: Allowance for uncollectible
accounts receivable................... $3,901 $1,800 $(2,520) $3,181
1998: Allowance for uncollectible
accounts receivable................... $3,181 $1,271 $(2,612) $1,840
1999: Allowance for uncollectible
accounts receivable................... $1,840 $1,460 $(1,647) $1,653
1997: Allowance for excess and obsolete
inventory............................. $4,606 $1,585 $(2,142) $4,049
1998: Allowance for excess and obsolete
inventory............................. $4,049 $3,313 $(1,137) $6,225
1999: Allowance for excess and obsolete
inventory............................. $6,225 $2,783 $(3,561) $5,447
</TABLE>
The notes to the consolidated financial statements
of Maxxim Medical,Inc. and subsidiaries
are an integral part of this schedule.
See accompanying independent auditors' report.
F-40
<PAGE> 209
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation has the power to indemnify its officers, directors, employees and
agents (or persons serving in such positions in another entity at the request of
the corporation) against expenses, including attorneys' fees, judgments, fines
or settlement amounts actually and reasonably incurred by them in connection
with the defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation (and, with respect to any criminal action, had no reasonable cause
to believe the person's conduct was unlawful), except that if such action shall
be by or in the right of the corporation, no such indemnification shall be
provided as to any claim, issue or matter as to which such person shall have
been judged to have been liable to the corporation unless and to the extent that
the Court of Chancery of the State of Delaware, or another court in which the
suit was brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity. The Registrant's Certificate of Incorporation and Bylaws provide that
the Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware law. In addition, the Registrant's Bylaws require it to
pay the expenses incurred by its officers, directors, employees and agents (or
persons serving in such positions in another entity at the request of the
corporation) in defending a pending or threatened civil or criminal action, suit
or proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such persons to
repay such amount if it shall ultimately be determined that he or she is not
entitled to indemnification by the Registrant.
As permitted by Section 102 of the DGCL, the Registrant's Certificate of
Incorporation provides that no director shall be liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as a director
other than (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <C> <S>
*3.1 -- Certificate of Incorporation of the Registrant.
*3.2 -- By-Laws of the Registrant.
*3.3 -- Certificate of Incorporation of Maxxim Medical, Inc., a
Texas corporation
*3.4 -- By-Laws of Maxxim Medical, Inc., a Texas corporation
*3.5 -- Certificate of Incorporation of Maxxim Medical, Inc., a
Delaware corporation
*3.6 -- By-Laws of Maxxim Medical, Inc., a Delaware corporation
*3.7 -- Certificate of Incorporation of Maxxim Investment
Management, Inc.
*3.8 -- By-Laws of Maxxim Investment Management, Inc.
</TABLE>
II-1
<PAGE> 210
<TABLE>
<C> <C> <S>
*3.9 -- Certificate of Incorporation of Fabritek La Romana, Inc.
*3.10 -- By-Laws of Fabritek La Romana, Inc.
*4.1 -- Indenture, dated as of November 12, 1999, among the
Registrant, the Guarantors (as defined therein) and the Bank
of New York, as Trustee.
*4.2 -- Purchase Agreement, dated as of November 12, 1999, by and
among the Registrant, the Guarantors and the Purchasers (as
defined therein).
*4.3 -- Warrant Agreement, dated as of November 12, 1999, among
Maxxim Medical, Inc., a Texas corporation, and the
Purchasers (as defined therein).
*4.4 -- Exchange and Registration Rights Agreement, dated as of
November 12, 1999, by and among the Registrant and the
Purchasers (as defined therein).
*4.5 -- Indenture, dated as of November 12, 1999, by and between
Maxxim Medical, Inc., a Texas corporation, and Wilmington
Trust Company, as Trustee.
*4.6 -- Purchase Agreement, dated as of November 12, 1999, by and
among Maxxim Medical Inc., a Texas corporation, and GS
Mezzanine Partners, L.P. and GS Mezzanine Partners Offshore,
L.P.
*4.7 -- Warrant Agreement, dated as of November 12, 1999, among
Maxxim Medical Inc., a Texas corporation, and GS Mezzanine
Partners, L.P. and GS Mezzanine Partners Offshore, L.P.
*4.8 -- Exchange and Registration Rights Agreement, dated as of
November 12, 1999, by and among Maxxim Medical Inc., a Texas
corporation, and GS Mezzanine Partners, L.P. and GS
Mezzanine Partners Offshore, L.P.
**5 -- Opinion of counsel (including consent).
*10.1 -- Credit Agreement, dated as of November 12, 1999, by and
among the Registrant, Maxxim Medical, Inc., a Texas
corporation, The Chase Manhattan Bank, Bankers Trust
Company, Merrill Lynch Capital Corporation, Canadian
Imperial Bank of Commerce, Credit Suisse First Boston and
the financial institutions party thereto.
*10.2 -- Stockholders' Agreement, dated as of November 12, 1999, by
and among Maxxim Medical, Inc., a Texas corporation, and the
shareholders listed on the signature pages thereto.
**10.3 -- Employment Agreement, dated as of March 12, 1999, by and
among the Registrant, Maxxim Medical, Inc., a Texas
corporation, and Kenneth W. Davidson.
**10.4 -- Employment Agreement, dated as of March 12, 1999, by and
among the Registrant, Maxxim Medical, Inc., a Texas
corporation, and Peter M Graham.
**10.5 -- Employment Agreement, dated as of April 19, 1999, by and
among the Registrant, Maxxim Medical, Inc., a Texas
corporation, and Alan S. Blazei.
**10.6 -- Employment Agreement, dated as of April 19, 1999, by and
among the Registrant, Maxxim Medical, Inc., a Texas
corporation, and Jack F. Cahill.
*10.7 -- Maxxim Medical, Inc., a Texas corporation, 1999 Stock
Incentive Plan.
*10.8 -- Form of Vested Stock Option Agreement.
*10.9 -- Form of Time Accelerated Stock Option Agreement.
*10.10 -- Form of Time Vesting Stock Option Agreement.
*12 -- Statement re: computation of ratios.
*21 -- Subsidiaries of the Registrant.
</TABLE>
II-2
<PAGE> 211
<TABLE>
<C> <C> <S>
23.1 -- Consent of KPMG LLP.
**23.2 -- Consent of counsel (included in Exhibit No. 5).
*24 -- Powers of Attorney.
*25 -- Statement of Eligibility and Qualification of Trustee on
Form T-1 of the Bank of New York under the Trust Indenture
Act of 1939.
*27 -- Financial Data Schedule (for SEC use only).
99.1 -- Form of Letter of Transmittal for the Senior Subordinated
Discount Notes due 2009.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99.4 -- Form of Institutions Letter
99.5 -- Form of Client Letter
</TABLE>
- -------------------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedule.
Schedule II -- Valuation and Qualifying Account and Allowances
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or information
required is included in the consolidated financial statements and, therefore,
have been omitted.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the
II-3
<PAGE> 212
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change in such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on February 14, 2000.
MAXXIM MEDICAL, INC.
(a Texas corporation)
By: /s/ KENNETH W. DAVIDSON
-----------------------------------
Kenneth W. Davidson
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH W. DAVIDSON Chairman of the Board, President
- ----------------------------------------------------- and Chief Executive Officer
Kenneth W. Davidson
* Executive Vice President,
- ----------------------------------------------------- Controller and Treasurer
Alan S. Blazei (principal financial officer)
* Director
- -----------------------------------------------------
Ernest J. Henley, Ph.D
* Director
- -----------------------------------------------------
Saul A. Fox
* Director
- -----------------------------------------------------
W. Dexter Paine, III
* Director
- -----------------------------------------------------
Jason B. Hurwitz
* By: /s/ KENNETH W. DAVIDSON as attorney in fact pursuant to the
----------------------------------------------- power of attorney included in the
Kenneth W. Davidson registration statement as
originally filed on December 15,
1999
</TABLE>
II-5
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on February 14, 2000.
MAXXIM MEDICAL GROUP, INC.
By: /s/ KENNETH W. DAVIDSON
-----------------------------------
Kenneth W. Davidson
Chairman of the Board, President,
Chief Executive Officer, Treasurer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH W. DAVIDSON Chairman of the Board, President,
- ----------------------------------------------------- Chief Executive Officer,
Kenneth W. Davidson Treasurer and Secretary
* Vice President, Chief Financial
- ----------------------------------------------------- Officer and Assistant Treasurer
Alan S. Blazei (principal accounting officer)
* Director
- -----------------------------------------------------
Ernest J. Henley, Ph.D
* Director
- -----------------------------------------------------
Saul A. Fox
* Director
- -----------------------------------------------------
W. Dexter Paine, III
* Director
- -----------------------------------------------------
Jason B. Hurwitz
* By: /s/ KENNETH W. DAVIDSON as attorney in fact pursuant to the
----------------------------------------------- power of attorney included in the
Kenneth W. Davidson registration statement as
originally filed on December 15,
1999
</TABLE>
II-6
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on February 14, 2000.
MAXXIM MEDICAL, INC.
(a Delaware corporation)
By: /s/ KENNETH W. DAVIDSON
-----------------------------------
Kenneth W. Davidson
President, Chief Executive Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH W. DAVIDSON President, Chief Executive Officer
- ----------------------------------------------------- and Secretary
Kenneth W. Davidson
* Executive Vice President, Treasurer
- ----------------------------------------------------- and Controller (principal
Alan S. Blazei financial officer)
* By: /s/ KENNETH W. DAVIDSON as attorney in fact pursuant to the
----------------------------------------------- power of attorney included in the
Kenneth W. Davidson registration statement as
originally filed on December 15,
1999
</TABLE>
II-7
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on February 14, 2000.
MAXXIM INVESTMENT MANAGEMENT, INC.
By: /s/ PETER M. GRAHAM
-----------------------------------
Peter M. Graham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER M. GRAHAM President, Chief Executive Officer
- --------------------------------------------------- and Director
Peter M. Graham
* Treasurer and Director (principal
- --------------------------------------------------- accounting officer and principal
Alan S. Blazei financial officer)
Director
- ---------------------------------------------------
Janice George
* By: /s/ PETER M. GRAHAM as attorney in fact pursuant to the
-------------------------------------------- power of attorney included in the
Peter M. Graham registration statement as
originally filed on December 15,
1999
</TABLE>
II-8
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on February 14, 2000.
FABRITEK LA ROMANA, INC.
By: /s/ KENNETH W. DAVIDSON
-----------------------------------
Kenneth W. Davidson
President, Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH W. DAVIDSON President, Secretary, Treasurer and
- -------------------------------------- Director (principal executive
Kenneth W. Davidson officer)
* Vice President (principal accounting
- -------------------------------------- officer and principal financial
Alan S. Blazei officer)
* By: /s/ KENNETH W. DAVIDSON as attorney in fact pursuant to the
- -------------------------------------- power of attorney included in the
Kenneth W. Davidson registration statement as originally
filed on December 15, 1999
</TABLE>
II-9
<PAGE> 1
Exhibit 23.1
KPMG
700 Louisiana Telephone 713 319 2000
Houston, TX 77002 Fax 713 319 2041
INDEPENDENT ACCOUNTANT'S CONSENT
The Board of Directors Maxxim Medical, Inc. and Subsidiaries:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
February 11, 2000
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
MAXXIM MEDICAL GROUP, INC.
OFFER TO EXCHANGE
Senior Subordinated Discount Notes due 2009
which have been registered under the Securities Act of
1933, as amended
for all of its outstanding
Senior Subordinated Discount Notes due 2009
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 2000, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
To: The Bank of New York (as "Exchange Agent")
By Registered or Certified Mail: By Overnight Courier or By Hand:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7 East Ground Level
New York, New York 10286 Corporate Trust Services Window
Attention: Ayikwei Aryeetey, New York, New York 10286
Reorganization Section Attention: Ayikwei Aryeetey,
Reorganization Section
By Facsimile (for Eligible Institutions Only):
(212) 815-6339
Confirm by Telephone:
(212) 815-3687
Delivery of this instrument to an address other than as set forth above
or transmission of instructions via a facsimile number other than the ones
listed above will not constitute a valid delivery. The instructions accompanying
this Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
_________, 2000 (the "Prospectus") of Maxxim Medical Group, Inc. ("Maxxim") and
this Letter of Transmittal, which together constitute Maxxim's offer (the
"Exchange Offer") to exchange $1,000 principal amount at maturity of its Senior
Subordinated Discount Notes due 2009 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount at maturity of its outstanding Senior Subordinated
Discount Notes due 2009 (the "Old Notes"), respectively. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on _________, 2000, unless
Maxxim, in its reasonable judgment, extends the Exchange Offer, in which case
the term shall mean the latest date and time to which the Exchange Offer is
extended. Capitalized terms used but not defined herein have the meaning given
to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
<PAGE> 2
List below the Old Notes to which this Letter of Transmittal relates.
If the space indicated below is inadequate, the Private Placement or
Registration Numbers and Principal Amounts should be listed on a separately
signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREBY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) PRIVATE AGGREGATE PRINCIPAL
PLACEMENT OR PRINCIPAL AMOUNT
REGISTRATION AMOUNT TENDERED*
NUMBERS REPRESENTED
BY OLD NOTES
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
* Unless otherwise indicated, the Holder will be deemed to have tendered
the full aggregate principal amount represented by such Old Notes. All
tenders must be in integral multiples of $1,000.
- ---------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used (i) if Old Notes are to be
forwarded herewith or (ii) tender of the Old Notes is to be made according to
the guaranteed delivery procedures described in the Prospectus under the caption
"The Exchange Offer-Guaranteed Delivery Procedures." See Instruction 2.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of Maxxim or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date must tender their Old Notes according
to the guaranteed delivery procedure set forth in the Prospectus under the
caption "The Exchange Offer-Guaranteed Delivery Procedures." See Instruction 2.
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):__________________________________________________
Name of Eligible Institution that Guaranteed Delivery:_________________________
[ ] CHECK HERE IF YOU ARE A BROKERDEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:__________________________________________________________________________
Address:_______________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Maxxim the principal amount of the Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Old Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, Maxxim all right, title and interest in and
to such Old Notes as are being tendered hereby, including all rights to accrued
and unpaid interest thereon as of the Expiration Date. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of Maxxim in connection with the Exchange
Offer) to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Old Notes, and that when the
same are accepted for exchange, Maxxim will acquire good and unencumbered title
to the tendered Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim.
The undersigned represents to Maxxim that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person is engaged or intends to engage in, or has an arrangement or
understanding with any person to participate in, the distribution of such
Exchange Notes. If the undersigned or the person receiving the Exchange Notes
covered hereby is a brokerdealer that is receiving the Exchange Notes for its
own account in exchange for Old Notes that were acquired as a result of
marketmaking activities or other trading activities, the undersigned
acknowledges that it or such other person will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
and any such other person acknowledge that, if they are participating in the
Exchange Offer for the purpose of distributing the Exchange Notes, (i) they
cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in Exxon Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action
letters and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the resale transaction and (ii) failure to comply with such
requirements in such instance could result in the undersigned or any such other
person incurring liability under the Securities Act for which such persons are
not indemnified by Maxxim. If the undersigned or the person receiving the
Exchange Notes covered by this letter is an affiliate (as defined under Rule 405
of the Securities Act) of Maxxim, the undersigned represents to Maxxim that the
undersigned understands and acknowledges that such Exchange Notes may not be
offered for resale, resold or otherwise transferred by the undersigned or such
other person without registration under the Securities Act or an exemption
therefrom.
3
<PAGE> 4
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or Maxxim to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes. The undersigned further agrees that acceptance of any
tendered Old Notes by Maxxim and the issuance of Exchange Notes in exchange
therefor shall constitute performance in full by Maxxim of its obligations under
the Registration Rights Agreement and that Maxxim shall have no further
obligations or liabilities thereunder for the registration of the Old Notes or
the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer-Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by Maxxim), as more particularly set forth in the Prospectus, Maxxim
may not be required to exchange any of the Old Notes tendered hereby and, in
such event, the Old Notes not exchanged will be returned to the undersigned at
the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Old Notes may be withdrawn
at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Old Notes, and any Old Notes delivered herewith but not exchanged, will
be registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if an Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Old Notes are surrendered by Holder(s) that
have completed either the box entitled "Special Registration Instructions" or
the box entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
4
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------- ------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(Please print or Type) (Please print or type)
To be completed ONLY if the Exchange Notes are To be completed ONLY if the Exchange Notes
to be issued in the name of someone other than the are to be sent to someone other than the
undersigned. undersigned, or to the undersigned at an address
other than that shown under "Description of Old
Notes Tendered Hereby."
Name: ______________________________________ Name: ______________________________________
Address:__________________________________________________ Address:_____________________________________________
Employer Identification or Social Security Number: Employer Identification or Social Security Number:
- -------------------------------------------------- --------------------------------------------------
- ---------------------------------------------------------- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(In addition, complete Substitute Form W-9 below)
X___________________________________________________________________________________________
X___________________________________________________________________________________________
Must be signed by registered holder(s) exactly as name(s) appear(s) on
the Old Notes or on a security position listing as the owner of the Old Notes or
by person(s) authorized to become registered holder(s) by properly completed
bond powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information (Please
print or type:)
- -----------------------------------------------
Name and Capacity (full title)
- -----------------------------------------------
- -----------------------------------------------
SIGNATURE GUARANTEE
(If Required-See Instruction 4)
- ------------------------------------------------ ------------------------------------------------------
Address (including zip code) (Signature of Representative of Signature Guarantor)
- ------------------------------------------------ ------------------------------------------------------
(Area Code and Telephone Number) (Name and Title)
- ------------------------------------------------ ------------------------------------------------------
(Taxpayer Identification or Social Security No.) (Name of Plan)
------------------------------------------------------
(Area Code and Telephone Number)
Dated: __________________________________, 2000 Dated: __________________________________, 2000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
PAYOR'S NAME: MAXXIM MEDICAL GROUP, INC.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED. Please provide
your social security number or other taxpayer identification number on the
following Substitute Form W-9 and certify therein that you are subject to backup
withholding.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part I PLEASE PROVIDE YOUR TIN IN THE BOX AT THE
Form W9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. ______________________
DEPARTMENT OF THE TREASURY For all accounts, enter TIN in the box at right. Social Security Number
INTERNAL REVENUE SERVICE (For most individuals, this is your social
security number. If you do not have a number, see OR
enclosed Guidelines for Certification of Taxpayer __________________________
Identification Number on Substitute Form W9.) Employer Identification Number
Certify by signing and dating below.
(If awaiting TIN, write "Applied For")
-------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER PART II For Payees exempt from backup withholding, see the enclosed Guidelines for
IDENTIFICATION NUMBER (TIN) Certification of Taxpayer Identification Number on Substitute Form W9 and complete as
instructed therein.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number or a Taxpayer Identification Number has not been issued to me
and either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service ("IRS") Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future; and
(2) I am not subject to backup withholding either because (a) I am exempt
from backup withholding, (b) I have not been notified by the IRS that I
am subject to backup withholding as a result of failure to report all
interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- -------------------------------------------------------------------------------
The IRS does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding.
- -------------------------------------------------------------------------------
SIGNATURE___________________ DATE _____________, 2000
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE
EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
6
<PAGE> 7
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU WROTE "APPLIED FOR" INSTEAD
OF A TIN IN THE SUBSTITUTE FORM W-9.
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld until I provide a number, but
will be refunded if I provide a certified taxpayer identification number within
60 days.
- ------------------------------ ---------------------------------
Signature Dated:
- -------------------------------------------------------------------------------
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All
physically delivered Old Notes, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to expiration of the
Exchange Offer (the "Expiration Date"). The method of delivery of this Letter of
Transmittal, the Old Notes and any other required documents is at the election
and risk of the Holder, and except as otherwise provided below, the delivery
will be deemed made only when actually received by the Exchange Agent. If such
delivery is by mail, it is suggested that registered mail with return receipt
requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
Delivery to an address other than as set forth herein, or instructions
via a facsimile number other than the ones set forth herein, will not constitute
a valid delivery.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes, but whose Old Notes are not immediately available and thus cannot deliver
their Old Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder, the
registration number(s) of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the Old Notes and any other documents required
by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as all tendered Old Notes in proper
form for transfer and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to tender
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Old Notes prior to the Expiration Date. Failure to comply with
the guaranteed delivery procedures outlined above will not, of itself, affect
the validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by a Holder who attempted to use the guaranteed delivery
procedures.
3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal
amount of Old Notes evidenced by a submitted certificate is tendered, the
tendering Holder should fill in the principal amount tendered in the column
entitled "Principal Amount Tendered" in the box entitled "Description of Old
Notes Tendered Hereby." A newly issued Note for the principal amount of Old
Notes submitted but not tendered will be sent to such Holder as soon as
practicable after the Expiration Date. All Old Notes delivered to the Exchange
Agent will be deemed to have been tendered in full unless otherwise indicated.
8
<PAGE> 9
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of Old Notes are
irrevocable. To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the registration number(s) and principal amount of such
Old Notes, (iii) be signed by the Holder in the same manner as the original
signature on this Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by Maxxim, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificates without
alteration or enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
Signatures of this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution unless the Old
Notes tendered hereby are tendered (i) by a registered Holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or
Holders of Old Notes listed and tendered hereby, no endorsements of the tendered
Old Notes or separate written instruments of transfer or exchange are required.
In any other case, the registered Holder (or acting Holder) must either properly
endorse the Old Notes or transmit properly completed bond powers with this
Letter of Transmittal (in either case, executed exactly as the name(s) of the
registered Holder(s) appear(s) on the Old Notes), with the signature on the Old
Notes or bond power guaranteed by an Eligible Institution (except where the Old
Notes are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by Maxxim, proper evidence
satisfactory to Maxxim of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders
should indicate, in the applicable box, the name and address in which the
Exchange Notes or substitute Old Notes for principal amounts not tendered or not
accepted for exchange are to be issued, if different from the names and
addresses of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the employer identification number or social
security number of the person named must also be indicated and the tendering
Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any Old Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Old Notes.
6. TRANSFER TAXES. Maxxim shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Old Notes to it or its order pursuant
to the Exchange Offer. If a transfer tax is imposed for any reason other than
the transfer
9
<PAGE> 10
and exchange of Old Notes to Maxxim or its order pursuant to the Exchange Offer,
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exception therefrom is not submitted
herewith, the amount of such transfer taxes will be collected from the tendering
Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. Maxxim reserves the right, in its reasonable
judgment, to waive, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number(s) set forth above. In addition, all
questions relating to the Exchange Offer, as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to Maxxim Medical Group, Inc., 10300 49th Street North, Clearwater,
Florida 33762 Attention: Mary Lugris; telephone (727) 561-2100.
10. VALIDITY AND FORM. All questions as to the validity, form,
eligibility (including time of receipt), acceptance of tendered Old Notes and
withdrawal of tendered Old Notes will be determined by Maxxim in its sole
discretion, which determination will be final and binding. Maxxim reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes Maxxim's acceptance of which would, in the opinion of counsel for Maxxim,
be unlawful. Maxxim also reserves the right, in its reasonable judgment, to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. Maxxim's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as Maxxim
shall determine. Although Maxxim intends to notify Holders of defects or
irregularities with respect to tenders of Old Notes, neither Maxxim, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder as soon as practicable
following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Old Notes is required
to provide the Exchange Agent with such Holder's correct TIN on Substitute Form
W-9 above. If such Holder is an individual, the TIN is the Holder's social
security number. The Certificate of Awaiting Taxpayer Identification Number
should be completed if the tendering Holder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future. If the
Exchange Agent is not provided with the correct TIN, the Holder may be subject
to a $50 penalty imposed by the IRS. In addition, payments that are made to such
Holder with respect to tendered Old Notes may be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed IRS Form W-9, signed under penalties of perjury, attesting
to that Holder's exempt status. Such forms can be obtained from the Exchange
Agent.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any amounts otherwise payable to the Holder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
10
<PAGE> 11
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
PURPOSE OF SUBSTITUTE FORM W-9. To prevent backup withholding on
payments that are made to a Holder with respect to Old Notes tendered for
exchange, the Holder is required to notify the Exchange Agent of his or her
correct TIN by completing the form herein certifying that the TIN provided on
Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that
(i) such Holder is exempt, (ii) such Holder has not been notified by the IRS
that he or she is subject to backup withholding as a result of failure to report
all interest or dividends or (iii) the IRS has notified such Holder that he or
she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT. Each Holder is required to give
the Exchange Agent the social security number or employer identification number
of the record Holder(s) of the Old Notes. If Old Notes are in more than one name
or are not in the name of the actual Holder, consult the instructions on IRS
Form W-9, which may be obtained from the Exchange Agent, for additional guidance
on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER. If the
tendering Holder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future, write "Applied For" in the
space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
11
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
OF
MAXXIM MEDICAL GROUP, INC.
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer of Maxxim Medical Group, Inc. ("Maxxim") made
pursuant to the Prospectus, dated _____________, 2000 (the "Prospectus"), if
the outstanding Senior Subordinated Notes due 2009 of Maxxim (the "Old Notes")
are not immediately available or time will not permit all required documents to
reach the Exchange Agent prior to 5:00 p.m., New York City time, on
_____________, 2000 (the "Expiration Date"). Such form may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to The Bank of New York (the "Exchange Agent") as set forth below. In addition,
in order to utilize the guaranteed delivery procedure to tender Old Notes
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
THE BANK OF NEW YORK, EXCHANGE AGENT.
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Ayikwei Aryeetey,
Reorganization Section
By Overnight Courier or By Hand:
The Bank of New York
101 Barclay Street
Ground Level
Corporate Trust Services Window
New York, New York 10286
Attention: Ayikwei Aryeetey,
Reorganization Section
By Facsimile (for Eligible Institutions Only):
212-815-6339
Confirm by Telephone:
212-815-3687
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS INSTRUMENT IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A
SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
ELIGIBLE INSTITUTION (AS DEFINED IN THE PROSPECTUS), SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF TRANSMITTAL FOR
GUARANTEE OF SIGNATURES.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to Maxxim
the principal amount of Old Notes set forth below, pursuant to the guaranteed
delivery procedure described in "The Exchange Offer-Guaranteed Delivery
Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:*
$-----------------------------------------------------------------------------
Private Placement Nos. (if available):
- ------------------------------------------------------------------------------
Total Principal Amount of Old Notes:
$-----------------------------------------------------------------------------
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
- ------------------------------------------------------------------------------
PLEASE SIGN HERE:
X
------------------------------------- ------------------------------------
X
------------------------------------- ------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
---------------------------------
Must be signed by the holder(s) of Old Notes as their name(s)
appear(s) on the Old Notes, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
2
<PAGE> 3
PLEASE PRINT NAME(S) AND ADDRESS(ES)
NAME(S):
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
CAPACITY:
-----------------------------------------------------------
ADDRESS(ES)
-----------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks,
savings and loan associations and brokerage houses) that is a participant in
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the Old
Notes being tendered hereby, in proper form for transfer, together with any
other documents required by the Letter of Transmittal within three New York
Stock Exchange trading days after the Expiration Date.
NAME OF FIRM:
----------------------------------------------------------------
ADDRESS:
----------------------------------------------------------------
----------------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER:
----------------------------------------------
AUTHORIZED SIGNATURE:
---------------------------------------------------------
NAME:
-------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
TITLE:
-----------------------------------------------------------------------
DATE:
---------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT ONLY
WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE> 1
Exhibit 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE
PAYEE (YOU) TO GIVE THE PAYER. Social security numbers have nine digits
separated by two hyphens: i.e., 000-00-0000. Employer identification numbers
have nine digits separated by only one hyphen: i.e., 00-0000000. The table
below will help determine the number to give the payer. All "Section"
references are to the Internal Revenue Code of 1986, as amended. "IRS" is the
Internal Revenue Service.
FOR THIS TYPE OF ACCOUNT:
1. Individual
2. Two or more individuals (joint account)
3. Custodian account of a minor (Uniform Gift to Minors Act)
4.a. The usual revocable savings trust account (grantor is also trustee)
b. So-called trust account that is not a legal or valid trust under state law
5. Sole proprietorship
GIVE THE SOCIAL SECURITY NUMBER OF:
The individual
The actual owner of the account or, if combined funds, the first individual on
the account(1)
The minor(2)
The grantor-trustee(1)
The actual owner (1)
FOR THIS TYPE OF ACCOUNT:
6. Sole proprietorship
7. A valid trust, estate, or pension trust
8. Corporate
9. Association, club, religious, charitable, educational, or other tax-exempt
organization
10. Partnership
11. A broker or registered nominee
12. Account with the Department of Agriculture in the name of a public entity
(such as a State or local government, school district, or prison) that
receives agricultural program payments(1)
GIVE THE EMPLOYER IDENTIFICATION NUMBER OF:
The owner(3)
The legal entity(4)
The corporation
The organization
The partnership
The broker or nominee
The public entity
1 List first and circle the name of the person whose number you
furnish. If only one person on a joint account has a social security
number, that person's number must be furnished.
2 Circle the minor's name and furnish the minor's social security
number.
3 You must show your individual name, but you may also enter your
business or "doing business as" name. You may use either your social
security number or your employer identification number (if you have
one).
4 List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the taxpayer identification number of the
personal representative or trustee unless the legal entity itself is
not designated in the account title.)
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
<PAGE> 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number, obtain Form SS-5,
Application for a Social Security Card, at the local Social Security
Administration office, or Form SS-4, Application for Employer Identification
Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
PAYEES SPECIFICALLY EXEMPTED FROM WITHHOLDING INCLUDE:
- - An organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under Section 403(b)(7),
if the account satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a
possession of the United States, or a political subdivision or
wholly-owned agency or instrumentality of any one or more of the
foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or
instrumentality thereof.
PAYEES THAT MAY BE EXEMPT FROM BACKUP WITHHOLDING INCLUDE:
- - A corporation.
- - A financial institution.
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures
Trading Commission.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under Section 1441.
<PAGE> 3
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
EXEMPT PAYEES SHOULD COMPLETE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. Furnish your taxpayer identification number, write "EXEMPT"
in Part II of the form, sign and date the form and return it to the payer.
PRIVACY ACT NOTICE. Section 6109 requires you to provide your correct taxpayer
identification number to payers who must report the payments to the IRS. The
IRS uses the numbers for identification purposes and to help verify the
accuracy of your return and may also provide this information to various
government agencies for tax enforcement or litigation purposes. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and
not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE> 1
Exhibit 99.4
MAXXIM MEDICAL GROUP, INC.
OFFER TO EXCHANGE
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ALL OF ITS OUTSTANDING
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated _______________,
2000 (as the same may be amended or supplemented from time to time, the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by Maxxim Medical Group, Inc.
("Maxxim") to exchange up to $144,552,000 in aggregate principal amount at
maturity of its Senior Subordinated Discount Notes due 2009 which have been
registered under the Securities Act, as amended (the "Exchange Notes"), for up
to $144,552,000 in aggregate principal amount at maturity of its outstanding
Senior Subordinated Discount Notes due 2009 that were issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Old Notes").
We are asking you to contact your clients for whom you hold Old Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Old Notes registered in
their own name. Maxxim will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. You will, however, be reimbursed by Maxxim for customary
mailing and handling expenses incurred by you for forwarding any of the
enclosed materials to your clients. Maxxim will pay all transfer taxes, if any,
applicable to the tender of Old Notes to it or its order, except as otherwise
provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. the Prospectus;
2. a Letter of Transmittal for your use in connection with the
exchange of Old Notes and for the information of your clients (facsimile copies
of the Letter of Transmittal may be used to exchange Old Notes);
3. a form of letter that may be sent to your clients for whose
accounts you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining the clients' instructions with
regard to the Exchange Offer;
4. a Notice of Guaranteed Delivery;
5. guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. a return envelope addressed to The Bank of New York, the Exchange
Agent.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON _______________,2000, UNLESS EXTENDED (THE
"EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE
WITHDRAWN, SUBJECT TO THE PROCEDURES DESCRIBED IN THE PROSPECTUS, AT ANY TIME
PRIOR TO THE EXPIRATION DATE.
<PAGE> 2
To tender Old Notes, the Old Notes, a duly executed and properly
completed Letter of Transmittal or a facsimile thereof, and any other required
documents, must be received by the Exchange Agent as provided in the Prospectus
and the Letter of Transmittal.
Questions and requests for assistance with respect to the Exchange
Offer or requests for additional copies of the enclosed material may be
directed to the Exchange Agent at its address set forth in the Prospectus or at
(212) 815-3687.
Very truly yours,
MAXXIM MEDICAL GROUP, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS AN AGENT OF MAXXIM OR THE EXCHANGE AGENT, OR ANY
AFFILIATE THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS
OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE
OFFER, EXCEPT FOR THE ENCLOSED DOCUMENTS AND THE STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS AND THE LETTER OF TRANSMITTAL.
<PAGE> 1
Exhibit 99.5
MAXXIM MEDICAL GROUP, INC.
OFFER TO EXCHANGE
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ALL OF ITS OUTSTANDING
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
THAT WERE ISSUED AND SOLD IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
To Our Clients:
Enclosed for your consideration is a Prospectus dated ____________,
2000 (as the same may be amended or supplemented from time to time, the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by Maxxim Medical Group, Inc.
("Maxxim") to exchange up to $144,552,000 aggregate principal amount at
maturity of its Senior Subordinated Discount Notes due 2009 which have been
registered under the Securities Act of 1933, as amended (the "Exchange Notes"),
for up to $144,552,000 aggregate principal amount at maturity of its
outstanding Senior Subordinated Discount Notes due 2009 that were issued and
sold in a transaction exempt from registration under the Securities Act of
1933, as amended (the "Old Notes").
The material is being forwarded to you as the beneficial owner of Old
Notes carried by us for your account or benefit but not registered in your
name. A tender of any Old Notes may be made only by us as the registered holder
and pursuant to your instructions. Therefore, Maxxim urges beneficial owners of
Old Notes registered in the name of a broker, dealer, commercial bank, trust
company or other nominee to contact such registered holder promptly if they
wish to tender Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
tender any or all of the Old Notes held by us for your account, pursuant to the
terms and conditions set forth in the Prospectus and Letter of Transmittal. We
urge you to read carefully the Prospectus and the Letter of Transmittal before
instructing us to tender your Old Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON __________,2000, UNLESS EXTENDED (THE "EXPIRATION
DATE"). Old Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal
amount at maturity of the Exchange Notes for each $1,000 principal
amount at maturity of the Old Notes, of which $144,552,000 aggregate
principal amount of the Old Notes was outstanding as of ________,
1999. The terms of the Exchange Notes are substantially identical
(including principal amount, interest rate, maturity, security and
ranking) to the terms of the Old Notes, except that the Exchange Notes
(i) are freely transferable by holders thereof (except as provided in
the Prospectus) and (ii) are not entitled to certain registration
rights and certain additional interest provisions which are applicable
to the Old Notes under an exchange and registration rights agreement
to which Maxxim is party.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE
"THE EXCHANGE OFFER-CONDITIONS" IN THE PROSPECTUS.
3. The Exchange Offer and withdrawal rights will expire at
5:00 p.m., New York City time, on _________, 2000, unless extended.
<PAGE> 2
4. Maxxim has agreed to pay the expenses of the Exchange
Offer except as provided in the Prospectus and the Letter of
Transmittal.
5. Any transfer taxes incident to the transfer of Old Notes
from the tendering holder to Maxxim will be paid by Maxxim, except as
provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to nor will exchange be accepted
from or on behalf of holders of Old Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
If you wish to have us tender any or all of your Old Notes held by us
for your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. THE ACCOMPANYING
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL PURPOSES ONLY AND
MAY NOT BE USED BY YOU TO TENDER OLD NOTES HELD BY US AND REGISTERED IN OUR
NAME FOR YOUR ACCOUNT OR BENEFIT.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein in connection with the Exchange Offer of Maxxim
Medical Group, Inc. relating to $144,552,000 aggregate principal amount at
maturity of its Senior Subordinated Discount Notes due 2009, including the
Prospectus and the Letter of Transmittal.
This form will instruct you to exchange the aggregate principal amount
of Old Notes indicated below (or, if no aggregate principal amount is indicated
below, all Old Notes) held by you for the account or benefit of the
undersigned, pursuant to the terms and conditions set forth in the Prospectus
and Letter of Transmittal.
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AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO BE EXCHANGED:
$ *
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<TABLE>
<S> <C>
*I (we) understand that if I (we) sign
these instruction forms without indicating --------------------------------
an aggregate principal amount of Old Notes
in the space above, all Old Notes held by --------------------------------
you for my (our) account will be exchanged. Signature(e)
--------------------------------
Capacity (full title), if signing
in a fiduciary or representative
capacity
--------------------------------
--------------------------------
--------------------------------
Name(s) and address, including
zip code:
Date:
--------------------------------
--------------------------------
Area Code and Telephone Number:
-----------------------------
Taxpayer Identification or Social
Security Number:
</TABLE>
