INVESTOR PARTICIPATION AGREEMENT
THIS INVESTOR PARTICIPATION AGREEMENT (this "Agreement"), dated
June 13, 1999, is made by and among Fox Xxxxx Medic Acquisition Corporation, a
Texas corporation ("Purchaser") and the undersigned individuals, whose names are
set forth on the signature page below (collectively, the "Investors" and,
together with Purchaser, the "Parties"), acting in their individual capacities
(other than Xxxxxxx X. Xxxxxxxx, who is acting in his individual capacity and as
general partner of Davidson Management International Limited Partnership).
WHEREAS, concurrently herewith, Purchaser and Maxxim Medical,
Inc., a Texas corporation (the "Company"), are entering into an Agreement and
Plan of Merger, of even date herewith (the "Merger Agreement"), providing for a
recapitalization transaction that will result in Purchaser and the Investors
owning substantially all of the outstanding capital stock of the Company, as
more fully set forth therein;
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
1. Parties to be Bound by Attached Term Sheet. The Parties, and
each of them, severally agree to all of the terms and conditions set forth in
the term sheet attached hereto as Annex A and the attachments thereto (the "Term
Sheet") and the stock and option treatment provided therein, and, unless and
until definitive documentation incorporating the terms set forth in the Term
Sheet has been executed and delivered, each of the Parties agrees that the Term
Sheet constitutes a binding agreement among the Parties, enforceable against
each such Party in accordance with its terms.
2. Execution of Definitive Documentation. Each Party agrees to
negotiate in good faith and use all reasonable efforts to prepare, execute and
deliver definitive agreements and other instruments implementing the terms set
forth in the Term Sheet on reasonable and customary terms; provided, however,
that no failure or delay in the delivery and execution of such definitive
agreements or instruments shall affect the validity, enforceability or binding
nature of the Term Sheet. Without limiting the foregoing, Purchaser agrees that
after Closing the Company will prepare, adopt and effectuate any employee
benefit plans, including stock option plans, and including issuing options to
purchase shares of its capital stock pursuant to such plans, as may be necessary
to effectuate the purposes and intent of the Term Sheet.
3. Merger Agreement. Each Investor hereby acknowledges that such
Investor has read the Merger Agreement and has had an opportunity to consult
with such Investor's counsel concerning the same, and the Investor accepts and
agrees to the terms and conditions of the Merger Agreement that relate to the
treatment of such Investor's shares of Company common stock (including as
provided in Section 1.8(b)) and such Investor's options to purchase shares of
Common Stock (including as provided in Section 1.10), and the Investor hereby
irrevocably waives any claim that the Merger Agreement, the Merger or any other
transaction contemplated by the Merger Agreement (including the Circon Sale (as
defined therein)) violates any right of the Investor under the Texas Business
Corporation Act, any fiduciary obligation owed by the
Company or any of its directors or officers to the Investor, or any obligation
owed by the Company to the Investor pursuant to any agreement between the
Company and the Investor or pursuant to any employee benefit plan or stock
option or similar plan of the Company in which the Investor participates.
4. Miscellaneous. The Parties hereto agree as follows:
a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by all of the Parties hereto; provided that any
Party may waive or amend any right of such Party hereunder.
b) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the Parties and delivered to the other Parties, it being understood
that each Party need not sign the same counterpart.
c) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
regard to the conflicts of law principles thereof.
d) Termination. In the event the Merger Agreement is
terminated in accordance with its terms prior to the occurrence of the Effective
Time, this Agreement shall terminate, and no party shall have any rights or
obligations hereunder and this Agreement shall become null and void and have no
further legal effect immediately following the termination of the Merger
Agreement in accordance with its terms. Nothing in this Section shall relieve
any party of liability for breach of this Agreement.
e) Obligations Several. The obligations of the Investors
hereunder shall be several and not joint and several.
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IN WITNESS WHEREOF, Purchaser, the Company, and each of the
Investors has executed this Agreement as of the date first written above.
FOX XXXXX MEDIC ACQUISITION CORPORATION
By: /s/ Xxxx X. Xxx
--------------------------------
Name: Xxxx X. Xxx
Title: Chief Executive Officer
(Investor Signatures appear on following page)
[Signature Page 1 of 2 to Investor Participation Agreement]
INVESTORS:
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxxx, in his individual
capacity and as general partner of
Davidson Management International
Limited Partnership
/s/ Xxxxx X. Xxxxxx
-------------------------------------------------
Name: Xxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxx
-------------------------------------------------
Name: Xxxxx X. Xxxxxx
/s/ Xxxxx X. XxXxxx
-------------------------------------------------
Name: Xxxxx X. XxXxxx
/s/ Xxxx X. Xxxxxx
-------------------------------------------------
Name: Xxxx X. Xxxxxx
/s/ Xxxx Xxxxxx
-------------------------------------------------
Name: Xxxx Xxxxxx
/s/ Xxxxxx Xxxxxx
-------------------------------------------------
Name: Xxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxx
-------------------------------------------------
Name: Xxxxxxx Xxxxx
/s/ Xxxxxx X. Xxxxxx
-------------------------------------------------
Name: Xxxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxx
-------------------------------------------------
Name: Xxxxx X. Xxxxxx
[Signature Page 2 of 2 to Investor Participation Agreement]
ANNEX A
PROJECT MEDIC
MANAGEMENT/DIRECTOR EQUITY INVESTMENT AND STOCK AND COMPENSATION TERM SHEET
This term sheet sets forth the principal terms and conditions under which the
executive management team (the "Management Investors") and Xxxxxx X. Xxxxxx and
Xxxxx X. Xxxxxx (the "Other Investors", and together with the Management
Investors, the "Rollover Investors") of Maxxim Medical, Inc. ("Medic" or the
"Company") are to retain an equity interest in Medic and Circon Corporation
("Citron") upon the recapitalization of the Company and related transactions
(the "Recapitalization") by the investment funds managed by Fox Xxxxx & Company,
LLC ("Fox Xxxxx") and the Rollover Investors. It also sets forth the principal
terms and conditions of the ongoing stock and compensation arrangements.
RECAPITALIZATION PRICE: $26 per share.
ROLLOVER INVESTORS: The names, share ownership, vested options, and
unvested options of each Rollover Investor are
summarized in Exhibit A. Exhibit B provides
additional detail concerning the split-up of
Citron from Medic and its effect on shares and
options held by the Rollover Investors. If, in
order to facilitate the Recapitalization, Fox
Xxxxx reallocates its relative equity
contributions between Medic and Citron, the
Rollover Investors agree that their respective
equity in Medic and Citron will also be equitably
adjusted in order to preserve the proportionate
ownership between the Rollover Investors and Fox
Xxxxx currently reflected in Exhibits A and B.
SHARE OWNERSHIP AND ROLLOVER: The Rollover Investors collectively own 927,318
shares of Medic common stock (excluding shares
owned by the Other Investors not being rolled
over) (see Exhibit A). Each Rollover Investor will
retain the number of shares in Medic and acquire
with the proceeds of the cashout of Medic shares
in the Merger the number of shares in Citron in
each case as set forth in Annex III to Exhibit B.
VESTED AND UNVESTED OPTIONS: The Management Investors collectively hold options
to purchase 1,084,200 shares of Medic common stock
(see Exhibit A). Upon the consummation of the
transaction, the Management Investors will receive
a cash payment in respect of 635,864 options (both
vested or unvested) equal to the difference
between the Recapitalization Price and the
exercise price of each such option (less
applicable withholding taxes) on the same basis as
other Medic option holders are being cashed out in
the transaction (options at various purchase
prices to be cashed out proportionately). The
after-tax cash proceeds from the cancellation of
the 635,864 Medic options will be required to be
reinvested in Medic common stock at the
Recapitalization Price (the "Medic Additional
Shares"). Each Management Investor will receive a
new option in respect of the number of shares of
Medic common stock set forth on Annex III to
Exhibit B at an exercise price equal to the
Recapitalization Price (the aggregate being
635,864 less the Medic
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Additional Shares purchased pursuant to the prior
sentence). The remaining 448,336 options in Medic
held by the Management Investors will be canceled
and each Management Investor will also receive new
options in respect of a number of shares of Citron
equal to such canceled option shares and with an
exercise price equal to the Recapitalization
Price. In addition, the Management Investors will
be entitled to receive a cash bonus payment of
approximately $5.4 million in the aggregate as
provided for in item 3 of the "Option Rollover
Mechanics" section of Exhibit B hereto. New
options will be fully vested and permit cashless
exercise with "mature" shares (payment of the
exercise price with previously owned shares).
CITRON TAX LOAN: In connection with the Citron share rollover from
Medic shares, tax loans will be extended to the
Rollover Investors in an amount sufficient to
cover the taxes due on the Medic shares sold to
rollover into the Citron rollover shares. Interest
on the loans will be imputed at the minimum
allowable rate and will be "bonused" and
grossed-up for the tax on any bonus amounts. The
Citron tax loans will be mandatorily repayable
from the after-tax proceeds of the sale of Citron
shares (and not required to be repaid from the
proceeds of the sale of Medic shares), and shall
not accelerate on termination of employment.
EXISTING MANAGEMENT In May 1997, the Company issued 400,000 shares
PROMISSORY NOTES: of common stock pursuant to a Senior Management
Stock Purchase Plan at $13.00 per share. The stock
was issued in exchange for an aggregate of
$4,498,000 currently outstanding principal amount
in non-interest bearing, full recourse promissory
notes (the "Management Promissory Notes") due May
23, 2000 from the participating managers who are
Management Investors. The Management Promissory
Notes will remain outstanding after the
Recapitalization and be extended until the tenth
anniversary of the closing (except that (x)
Management Promissory Notes from any employee who
is not a Management Investor will be required to be
repaid by the employee in connection with the
cash-out of his or her options provided for in the
Merger Agreement and (y) the Management Investors
will be required to prepay the Notes with the
after-tax proceeds of any sales of stock or options
made after the Effective Time). The 50% profit
recovery provision currently in place shall be
amended out of the documents. The Management
Promissory Notes will not accelerate on termination
of employment. The Management Promissory Notes and
related security arrangements will be split pro
rata between Medic and Citron.
NEW MANAGEMENT EQUITY The Company and Citron each will provide a New
INCENTIVE PLAN: Management Equity Incentive Plan (the "New
Incentive Plan") which will grant to the Management
Investors, as of the Effective Time, options (the
"Option Pool") to purchase up to 10% of the common
equity of the Company and Citron (in each case on a
fully diluted basis) at a
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strike price equal to the Recapitalization Price.
The New Incentive Plan will generally provide for a
ten year option term and will permit cashless
exercise with "mature" shares (payment of the
exercise price with previously owned shares).
EBITDA Targets will be adjusted equitably to
reflect acquisitions and dispositions. The Option
Pool will consist of (x) half performance-based
options ("Pool A Options") that vest according to
the schedule below and (y) half time-based options
that vest in equal increments on each of the first
through fifth anniversaries of the closing (the
"Time Based Options").
VESTING SCHEDULE FOR POOL A COMPANY OPTIONS
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FISCAL EBITDA % OF OPTION POOL VESTING THROUGH ACHIEVEMENT
YEAR TARGET OF EBITDA TARGET
1999 $80.9 20%
2000 $84.3 20%
2001 $88.5 20%
2002 $92.9 20%
2003 $97.6 20%
VESTING SCHEDULE FOR POOL A CITRON OPTIONS
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FISCAL EBITDA % OF OPTION POOL VESTING THROUGH ACHIEVEMENT
YEAR TARGET OF EBITDA TARGET
1999 $24.6 20%
2000 $37.4 20%
2001 $38.9 20%
2002 $40.5 20%
2003 $42.1 20%
Pool A Options that do not vest will become "Pool B
Options" and will vest at the earliest of: (i) the
next fiscal year in which the EBITDA Target is
achieved, (ii) Fox Xxxxx'x realization of its
investment in the Company or Citron, as the case
may be, provided that such realization yields an
IRR to Fox Xxxxx of at least 30.0% after giving
effect to the vesting and exercise of the Pool B
Options pursuant to this clause (ii), or (iii) the
ninth anniversary of the date of grant. For the
purposes of the Pool B Options, a primary initial
public offering of the Company's or Citron's stock,
as the case may be (an "Initial Public Offering"),
shall not constitute a realization of Fox Xxxxx'x
investment in the Company or Citron, respectively.
The Time Based Options and the Pool A Options will
also vest and be exercisable, regardless of the
passage of time, upon Fox Xxxxx'x realization of an
IRR of at least 30.0%.
ALLOCATION OF OPTION POOL: The total Option Pool will be granted to the
Management Investors, based on the recommendation
of Xxxxxxx X. Xxxxxxxx for approval by the
Compensation Committee of the Board of Directors.
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TERMINATION OF NEW INCENTIVE Stock options granted under the New Incentive
PLAN OPTIONS: Plans that are unvested as of the date of a
Management Investor's termination of employment
with the Company, Citron and/or their respective
subsidiaries for any reason will be forfeited upon
the date of termination. Stock options (under old
and new plans) that are vested as of the date of
termination may be exercised for one year following
the termination of employment. Vested stock options
that are not exercised within one year of the date
of termination will be forfeited.
BONUSES: The Management Investors will receive aggregate
bonus compensation, as specified in Exhibit C.
EXISTING SEVERANCE Existing employment agreements and severance
AGREEMENTS/NEW EMPLOYMENT agreements for the Management Investors will be
AGREEMENTS: terminated without payment and superseded by new
employment agreements that will become
effective upon the consummation of the transaction.
The material terms of the new agreements are set
forth on Exhibit D.
TAG-ALONG RIGHT: If, at any time prior to an Initial Public
Offering, Fox Xxxxx or a Rollover Investor (as the
case may be) accepts a third party offer to sell
any or all of its common stock in either company
(other than to a permitted transferee), Fox Xxxxx
and each other Rollover Investor (as the case may
be) will be able to participate on a proportionate
basis, based on ownership, at the same price and on
the same terms in the sale of shares of such
company.
DRAG-ALONG RIGHTS: Prior to an Initial Public Offering, if Fox Xxxxx
sells at least 50% of its common stock in either
company in a bona fide arm's length transaction or
series of related transactions, Fox Xxxxx may
require the Rollover Investors to sell a
proportional number (on an as-converted basis) of
their shares of common stock in that same company
in the same transaction (at the same price and on
the same terms, with appropriate adjustments for
warrants or options).
REGISTRATION RIGHTS: After an Initial Public Offering, the Rollover
Investors will have one demand in Citron and two in
Medic, and Fox Xxxxx will have five in each. All
such parties will have full piggybacks in each
other's demands, with no relative priority as to
cutbacks; cutbacks will be proportional based on
ownership among the parties, no matter who
initiated the demand. Fox Xxxxx and Rollover
Investors will also have customary "piggyback"
registration rights. Expenses, in both demands and
piggybacks, to be borne by Medic or Citron, as the
case may be. Other customary registration rights
provisions will apply, including holdbacks,
indemnification and contribution provisions. If Fox
Xxxxx is permitted to sell secondary shares in an
Initial Public Offering, the Rollover Investors
will get a proportionate opportunity.
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RIGHT OF FIRST OFFER: Fox Xxxxx and the Rollover Investors will have
reciprocal proportional rights of first offer
(seller to propose minimum sale price) on transfers
of shares (acceptance must be all shares offered or
none as to the group), other than transfers to
customary permitted transferees (including with
respect to Fox Xxxxx, its investors and affiliates,
and including with respect to Rollover Investors,
family members and trusts for them), prior to an
Initial Public Offering. Permitted transferees step
into shoes of transferor for transfer restriction
and registration rights provisions.
LIQUIDITY UPON DEATH OR Citron Shares: The Management Investors will have
DISABILITY AND CERTAIN the right to "put" all of their Citron shares to
TERMINATIONS: Citron at fair market value, upon death or
disability or termination of employment for Good
Reason, or by the companies without Cause (each as
defined in the Employment Agreement).
Medic Shares: The Management Investors will have
the right to "put" their shares of Medic which were
acquired upon the exercise of stock options
(provided that the shares have been held for at
least six months), less the number of shares used
to exercise in cashless exercises, but including
the Medic Additional Shares (the governing
objective being to preserve recapitalization
accounting) to Medic at fair market value, upon
death or disability or termination of employment
for Good Reason or by the companies without Cause.
Notwithstanding the above, the put rights described
above will be subject to each company's available
cash flow, debt restrictions and any legal
restrictions on distributions of cash from the
relevant company. In the event the payments with
respect to put rights are not satisfied in whole or
in part immediately, the payments will be a
continuing obligation of the relevant company and
such rights will be satisfied before the payment of
any dividends or distributions to shareholders. Any
unpaid amounts upon exercise of a put right will
accrue interest at applicable "afr" rate. The put
rights terminate upon an Initial Public Offering.
CALL RIGHT: Prior to an Initial Public Offering, Citron will
have call rights at fair market value with respect
to Citron stock only, upon a termination of
employment by the companies for Cause or by the
Management Investor voluntarily (without Good
Reason).
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BOARD OF DIRECTORS: Each Company's Board of Directors will initially
consist of Xxxxxxx X. Xxxxxxxx (Chairman), Xxxxxx
X. Xxxxxx, Ph.D. and one other member to be
appointed by the Rollover Investors and four
members designated by Fox Xxxxx (not limiting Fox
Xxxxx or the companies' rights to add additional
directors). The right to appoint Board members will
terminate upon an Initial Public Offering or
significant reduction in ownership percentage.
While Xxx Xxxxxxxx is CEO or Chairman of the Board,
all three Rollover Investor representatives will be
designated by him; thereafter, by plurality vote of
shares held by the Rollover Investors.
INDEMNITY: Following the consummation of the transaction, the
Board of Directors of each Company will adopt a
customary mandatory indemnification and expense
advancement policy for officers, subject to any
limitations imposed by applicable law.
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[Exhibits A, B, C and D and the annexes thereto are omitted]
