-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WCzWGQ6IlUfxGmo3k/PGxr9IGkkeRmAD7vL4/DxquFUc+cZUihvUezlujnyAHOWK 1oJCAGLvUKwzqr20z7ymLg== 0000950144-98-002919.txt : 19980319 0000950144-98-002919.hdr.sgml : 19980319 ACCESSION NUMBER: 0000950144-98-002919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980201 FILED AS OF DATE: 19980318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXXIM MEDICAL INC CENTRAL INDEX KEY: 0000858660 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 760291634 STATE OF INCORPORATION: TX FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10600 FILM NUMBER: 98568156 BUSINESS ADDRESS: STREET 1: 10300 49TH ST N CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7132405588 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 10-Q 1 MAXXIM MEDICAL, INC. FORM 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended FEBRUARY 1, 1998 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________ to _______________. Commision File Number 0-18208 --------------------- MAXXIM MEDICAL, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 76-0291634 ------------------------------ ------------------------------------- (State or other jurisdiction of (I.R.S. Employee Identification No.) incorporation or organization) 10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762 - -------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code........................(813) 561-2100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------------------- ----------------------- Indicate the number of shares outstanding of each of the registrant's classes of common stock: Class Outstanding at March 13, 1998 - ----------------------------------- ------------------------------------- COMMON STOCK, $.001 PAR VALUE 14,213,665
2 MAXXIM MEDICAL, INC. INDEX
PART I. Financial Information Page No. --------------------- -------- Item 1. Condensed Consolidated Balance Sheets as of February 1, 1998 and November 2, 1997 2 Condensed Consolidated Statements of Operations for the Three Months Ended February 1, 1998 and February 2, 1997 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended February 1, 1998 and February 2, 1997 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II. Other Information 11 ----------------- Signatures - ----------
1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
February 1, November 2, 1998 1997 ------------ ----------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 3,322 $ 3,130 Accounts receivable, net of allowances of $2,922 and $3,181, respectively 75,328 77,209 Inventory, net 81,349 83,184 Prepaid expenses, deferred taxes and other 11,076 11,000 --------- --------- Total current assets 171,075 174,523 Property and equipment 123,574 122,938 Less: accumulated depreciation (33,725) (31,384) --------- --------- 89,849 91,554 Goodwill and other intangibles, net 147,787 150,234 Deferred taxes and other assets, net 7,706 7,735 --------- --------- Total assets $ 416,417 $ 424,046 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 13,500 $ 12,750 Accounts payable 35,539 32,194 Accrued liabilities 26,215 26,631 Other short-term obligations 2,623 3,133 --------- --------- Total current liabilities 77,877 74,708 Long-term debt, net of current maturities 65,270 78,550 10 1/2% Senior subordinated notes 100,000 100,000 6 3/4% Convertible subordinated debentures -- 23,352 Other long-term obligations, net of current maturities 2,702 3,300 Deferred taxes 8,565 6,208 --------- --------- Total liabilities 254,414 286,118 Commitments and contingencies Shareholders' equity Preferred Stock, $1.00 par, 20,000,000 shares authorized, none issued or outstanding -- -- Common Stock, $.001 par value, 40,000,000 shares authorized, 10,170,262 and 8,871,355 shares issued and outstanding, respectively 10 9 Additional paid-in capital 126,456 103,872 Retained earnings 49,001 45,250 Subscriptions receivable (5,200) (5,200) Cumulative translation adjustment (8,264) (6,003) --------- --------- Total shareholders' equity 162,003 137,928 --------- --------- Total liabilities and shareholders' equity $ 416,417 $ 424,046 ========= =========
See accompanying notes to condensed consolidated financial statements. 2 4 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) (Unaudited)
Three Months Ended -------------------------------- February 1, February 2, 1998 1997 ----------- ----------- Net sales $ 128,003 $ 133,401 Cost of sales 94,942 101,165 --------- --------- Gross profit 33,061 32,236 Operating expenses 22,334 22,517 --------- --------- Income from operations 10,727 9,719 Interest expense (4,333) (5,541) Other income (expense), net 164 1,799 --------- --------- Income before taxes 6,558 5,977 Income taxes 2,807 2,518 --------- --------- Net income $ 3,751 $ 3,459 ========= ========= Basic earnings per share $ 0.38 $ 0.43 ========= ========= Diluted earnings per share $ 0.37 $ 0.39 ========= ========= Basic weighted average shares outstanding 9,793 8,131 ========= ========= Diluted weighted average shares outstanding 10,492 9,835 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 5 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, In thousands)
Three Months Ended --------------------------------- February 1, February 2, 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 3,751 $ 3,459 Adjustment to reconcile net income to net cash provided by operating activities: Deferred income tax expense 789 -- Depreciation and amortization 4,630 4,644 Gain on sale of investment in equity securities -- (1,510) Change in operating assets and liabilities 1,908 (1,022) -------- -------- Net cash provided by operations 11,078 5,571 Cash flows from investing activities Purchase of property and equipment (2,324) (2,943) Proceeds from available-for-sale securities -- 3,130 Proceeds from sale of building -- 450 -------- -------- Net cash (used in) provided by investing activities (2,324) 637 Cash flows from financing activities Increase (decrease) in bank overdraft 5,513 (589) Payments on long-term debt--net (12,530) (6,533) Payment on debenture redemption (152) -- (Decrease) increase in other obligations (1,338) 301 Other,net 88 -- -------- -------- Net cash used in financing activities (8,419) (6,821) Effect of foreign currency translation adjustment (143) (263) -------- -------- Net increase (decrease) in cash and cash equivalents 192 (876) Cash and cash equivalents at beginning of period 3,130 5,950 -------- -------- Cash and cash equivalents at end of period $ 3,322 $ 5,074 ======== ======== Supplemental cash flow disclosures: Interest paid during the period $ 2,026 $ 2,434 Income taxes paid during the period 826 512 Conversion of 6 3/4% convertible subordinated debentures 22,278 -- Note received from the sale of building -- 350
See accompanying notes to condensed consolidated financial statements. 4 6 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Maxxim Medical, Inc. and its wholly owned subsidiaries (collectively, the Company). The Company develops, manufactures and markets specialty hospital products. The accompanying unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the Company's annual audited financial statements for the year ended November 2, 1997, included in the Company's Annual Report on Form 10-K/A as filed with the Securities and Exchange Commission. Certain reclassifications have been made to the fiscal 1997 condensed consolidated financial statements to conform with the fiscal 1998 presentation. Note 2 - Summary of Significant Accounting Policies Fiscal Year. Commencing in fiscal year 1994 the Company implemented a fiscal year which ends on the Sunday nearest to the end of the month of October. Normally each fiscal year will consist of 52 weeks, but every five or six years, the fiscal year will consist of 53 weeks. For fiscal 1998 the year end date will be November 1 compared to a 1997 year end date of November 2. Fiscal 1998 will consist of 52 weeks. The first quarter of fiscal 1998 ended on February 1 compared to the fiscal 1997 first quarter end date of February 2. Translation of Foreign Currency Financial Statements. Assets and liabilities of foreign subsidiaries have been translated into United States dollars at the applicable rates of exchange in effect at the end of the period reported. Revenues and expenses have been translated at the applicable weighted average rates of exchange in effect during the period reported. Translation adjustments are reflected as a separate component of stockholders' equity. Earnings Per Share. Statement of Financial Accounting Standards No. 128, "Earnings per Share", specifies new measurement, presentation and disclosure requirements for earnings per share and is required to be applied retroactively upon initial adoption. The Company has adopted SFAS No. 128 effective with the release of February 1, 1998 earnings data, and accordingly, has restated herein all previously reported earnings per share data. Basic earnings per share is based on the weighted average shares outstanding without any dilutive effects considered. Diluted earnings per share reflects dilution from all contingently issuable shares, including options and convertible debt. A reconciliation of such earnings per share data is as follows: 5 7 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three Months Ended February 2, 1998 Per Share Income Shares Amounts ------ ------ --------- (In thousands) Basic EPS Net Income $3,751 9,793 $ 0.38 ========= Effect of dilutive securities Convertible Debt 107 363 Options 336 ------ ------ Diluted EPS $3,858 10,492 $ 0.37 ====== ====== ========= Three Months Ended February 1, 1997 Per Share Income Shares Amounts ------ ------ --------- Basic EPS Net Income $3,459 8,131 $ 0.43 ========= Effect of dilutive securities Convertible Debt 341 1,597 Options 107 ------ ------ Diluted EPS $3,800 9,835 $ 0.39 ====== ====== =========
Unexercised employee and director stock options to purchase 35,900 and 18,000 shares of Maxxim Medical common stock as of February 2, 1997, respectively, were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of Maxxim Medical's common stock during the quarter. Estimates Involved in Preparing the Condensed Consolidated Financial Statements. The Company's interim financial statements are prepared in accordance with the same accounting policies as those followed at year end. Certain items in the financial statements can be determined on an interim basis only by making accounting estimates. The accuracy of such amounts is dependent upon facts that will exist and procedures that will be accomplished by the Company later in the year. Certain of the significant accounting estimates related to the accompanying statements are stated below. Inventories. The amount reflected as inventory as of February 1, 1998 and the related amount for the cost of sales have been determined using the Company's normal accounting procedures. In management's opinion, no significant adjustment would have been required had an actual count of the inventory been made. Inventory as of February 1, 1998 and November 2, 1997 included the following: 6 8 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited)
February 1, November 2, 1998 1997 ----------- ----------- (In thousands) Raw materials $ 35,510 $ 36,613 Work In progress 8,734 7,227 Finished goods 40,661 43,393 Reserve (3,556) (4,049) ----------- ----------- $ 81,349 $ 83,184 =========== ===========
Income Taxes. The Company has calculated current and deferred income tax provisions for the quarters ended February 1, 1998 and February 1, 1997, based on its best estimate of the effective income tax rate expected to be applicable for the full fiscal year. Note 3 - Sale of Marketable Equity Securities In the first quarter of fiscal 1997, the Company recorded a one-time gain from the sale of an investment in marketable equity securities in the amount of $1,510,000, which is reflected in other income in the financial statements. Note 4 - 6 3/4% Convertible Subordinated Debentures In March 1993, the Company issued $28,750,000 in principal amount of 6 3/4% Convertible Subordinated Debentures (the "Debentures") due March 1, 2003. The Debentures are convertible at the option of the holder into Common Stock at a conversion price of $18 per share and pay interest every six months commencing September 1, 1993, through maturity on March 1, 2003. On October 3, 1997, the Company called for the redemption of $10,000,000, in principal amount, of the Debentures effective as of November 4, 1997 (the "First Redemption Date"). On the First Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $11.81 per $1,000 face amount of the Debentures was paid to the holders of Debentures called for redemption who did not exercise their right to convert their Debentures into common stock. On November 12, 1997, the Company called for the redemption of the remaining outstanding Debentures effective as of December 12, 1997 (the "Second Redemption Date"). On the Second Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $18.94 per $1,000 face amount of the Debentures, was paid to the holders who had not exercised their right to convert their Debentures into common stock. As of the February 1, 1998, $28,381,000 of the debentures had converted into 1,576,614 shares of the Company's common stock and debt issuance costs of $867,000 related to these converted debentures were written off to additional paid-in capital. During the conversion, $152,000 in principal amount was paid to debenture holders who presented their certificates for redemption. As of February 1, 1998, $217,000 in principal amount remains due and payable and is held in trust by the trustee. Holders may surrender their certificates for payment within two years of the respective redemption dates after which the funds revert back to the Company. 7 9 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Note 5 - Management Stock Purchase Plan On May 23, 1997 the Company issued 400,000 shares of common stock pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the closing stock price on April 30, 1997. The stock was issued in exchange for an aggregate of $5.2 million in non-interest bearing, full recourse promissory notes due May 23, 2000 from the participating managers. These notes have been recorded as subscriptions receivable and are included in the shareholders' equity section of the balance sheet. Payment of these notes also is secured by the pledge of the 400,000 shares of common stock. Net compensation costs associated with these shares is not significant. Note 6 - Subsequent Event In March 1998, the Company completed an offering of 4,025,000 shares of its common stock at a price to the public of $24.00 per share, including 525,000 shares pursuant to the underwriters' exercise of the overallotment option. After deducting offering costs and commissions, the Company received net proceeds of approximately $91,500,000. The Company will use approximately $20,000,000 to expand glove production capacity and the balance to repay certain outstanding bank debt. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes appearing elsewhere in this report. RESULTS OF OPERATIONS - --------------------- The following table sets forth, for the periods indicated, the percentage which selected items in the Condensed Consolidated Statements of Operations bear to net sales:
Percentage of Net Sales ------------------------------ Three Months Ended ------------------------------ February 1, February 2, 1998 1997 ------------- -------------- Net sales 100.0% 100.0% Cost of sales 74.2% 75.8% ----------- ------------ Gross profit 25.8% 24.2% Operating expenses 17.4% 16.9% ----------- ------------ Income from operations 8.4% 7.3% Interest expense (3.4%) (4.1%) Other income (expense), net 0.1% 1.3% ----------- ------------ Income before taxes 5.1% 4.5% Income taxes 2.2% 1.9% ----------- ------------ Net income 2.9% 2.6% =========== ============
Net sales - Net Sales for the first fiscal quarter of 1998 decreased 4.0% to $128,003,000 from $133,401,000 reported for the first fiscal quarter of 1997. This decrease is primarily due to the planned cessation of certain low margin custom procedure trays. Gross profit - In the first quarter of fiscal 1998 the Company's gross profit increased to $33,061,000, compared to $32,236,000 reported in the first quarter of last year. The Company's gross profit rate increased to 25.8% in the first quarter of fiscal 1998 from 24.2% in the first quarter of fiscal 1997. The increase in both dollars and rate are primarily attributable to the improved gross profit in the Company's custom procedure trays. Operating expenses - Operating expenses for the first quarter were $22,334,000 or 17.4% of net sales for fiscal 1998 compared to $22,517,000 or 16.9% of net sales for fiscal 1997. The increase in operating expense as a percentage of net sales is primarily attributable to increases in administrative fees paid on contracts with group purchasing organizations and the effect of lower net sales as discussed above. 9 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) Income from operations - Income from operations increased to $10,727,000, or 8.4% of net sales, in the first quarter of fiscal 1998 from $9,719,000, or 7.3% of net sales, in the comparable period of the prior fiscal year. This is an increase of 10.4% over the prior fiscal period. Interest expense - The Company's interest expense decreased from $5,541,000 in the first quarter of fiscal 1997 to $4,333,000 in the first quarter of fiscal 1998. The decrease in interest expense for the quarter is primarily related to the conversion of the Company's remaining 6 3/4% debentures in the first quarter of fiscal 1998 and the lower bank debt balance in fiscal 1998 versus the prior year. Other income - A one-time gain of $1,510,000 from the sale of investment securities was included in other income for the first quarter of fiscal 1997. Income taxes - The Company's effective tax rate for the quarter ended February 1, 1998 and February 2, 1997 was 42.8% and 42.1%, respectively and is higher than the statutory rate primarily due to non-deductible goodwill from acquisitions. Net income - As a result of the foregoing, net income for the first quarter of fiscal 1998 was $3,751,000 versus $3,459,000 for fiscal 1997. Excluding the one-time gain from the sale of marketable equity securities net income increased by 51.4%. Diluted earnings per share was $0.37 compared to $0.39 for the same period last year. Excluding the one-time gain diluted earnings per share was $0.37 versus $0.29 for the same period last year. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- On February 1, 1998 the Company had cash and cash equivalents of $3,322,000, working capital of $93,198,000, long-term liabilities of $176,537,000 and shareholders' equity of $162,003,000. For the three months ended February 1, 1998 net cash provided by operations was $11,078,000 versus $5,571,000 for the three months ended February 2, 1997. During the first quarter of fiscal 1998, the Company repaid $12,530,000 of bank debt resulting in a term loan balance of $78,000,000 and a revolver balance of $770,000. As a result of debt repayments, the Company had $74,230,000 of available credit under its revolver facility on February 1, 1998. On October 3, 1997, the Company called for redemption of $10,000,000 in principal amount of its $28,750,000 debentures effective as of November 4, 1997. On November 12, 1997, the Company called for the redemption of the remaining outstanding principal amount of Debentures effective as of December 12, 1997. $28,381,000 of the debentures converted into 1,576,614 shares of common stock as a result of the redemptions. The balance of $369,000 was paid to the trustee for distribution to debenture holders upon surrender of their certificates. In March 1998, the Company completed an offering of 4,025,000 shares of its common stock at a price to the public of $24.00 per share, including 525,000 shares pursuant to the underwriters' exercise of the overallotment option. After deducting offering costs and commissions, the Company received net proceeds of approximately $91,500,000. The Company believes that its present cash balances together with internally generated cash flows, the net proceeds from the March 1998 common stock offering and borrowings under its existing credit facility will be sufficient to meet its future working capital requirements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable to the registrant at this time. 10 12 PART II. OTHER INFORMATION Items 1, 2, 3 and 4 for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. Item 5. OTHER INFORMATION
Restatement of Earnings Per Share Data November 2, November 3, October 29, October 30, October 31, 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- As Previously Reported - ---------------------- Primary earnings per share $ 1.51 $ 1.05 $ 0.36 $ 1.05 $ 0.94 Fully diluted earnings per share $ 1.40 $ 1.01 $ 0.36 $ 1.00 $ 0.91 As Restated for SFAS No. 128, "Earnings per Share" Basic earnings per share $ 1.55 $ 1.08 $ 0.36 $ 1.10 $ 0.94 Diluted earnings per share $ 1.42 $ 1.02 $ 0.36 $ 1.05 $ 0.92
The Company has restated all previous earnings per share data to comply with Statement of Financial Accounting Standards No. 128 "Earnings per Share," which became effective on a retroactive basis with the issuance of February 1, 1998 earnings data. Item 6. EXHIBITS AND REPORTS Exhibit 10.1* - 1998 Non-Employee Directors' Stock Option Plan 10.2* - 1997 Employment Agreement between Registrant and Kenneth W. Davidson dated November 1, 1997 27 - Financial Data Schedule (for SEC use only) - ------------- * Compensatory plan or agreement. 11 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAXXIM MEDICAL, INC. Date: 3/17/98 By: /s/ Kenneth W. Davidson ----------------------------- ------------------------------------- Kenneth W. Davidson Chairman of the Board, President & Chief Executive Officer Date: 3/17/98 By: /s/ Peter M. Graham ----------------------------- ------------------------------------- Peter M. Graham Executive Vice President, Chief Operating Officer & Secretary 12 EX-10.1 2 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1 Exhibit 10.1 MAXXIM MEDICAL, INC. 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN THIS 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN (this "Plan") is adopted by the Board of Directors (the "Board of Directors") of MAXXIM MEDICAL, INC., a Texas corporation (the "Company"), effective this 11th day of February, 1998 (the "Adoption Date"). W I T N E S S E T H: WHEREAS, the Company believes that allowing certain non-employee directors of the Company to obtain shares of common stock, $.001 par value ("Common Stock"), of the Company by granting stock options as hereinafter provided is beneficial to the initial and continued success of the Company; NOW, THEREFORE, the Company agrees to provide for the granting of stock options to the non-employee directors of the Company, subject to the following conditions and provisions: 1. Purpose. The purpose of this Plan is to secure for the Company and its stockholders the benefits that flow from providing its non-employee directors with the incentive inherent in common stock ownership. The Company recognizes that stock option plan may allow the Company to attract and retain qualified and competent persons for service as members of the Company's Board of Directors because of the opportunity offered to acquire a proprietary interest in the business of the Company. 2. Amount of Stock. The total number of shares of Common Stock to be subject to options granted pursuant to this Plan shall not exceed 40,000 shares. This total number of shares shall be subject to appropriate and automatic increase or decrease under Section 11 of this Plan (without the need for further action on the part of the Board of Directors of the Company), in the event of a stock dividend, or upon a subdivision, split-up, combination or reclassification of, the shares purchasable under such options, as contemplated in Section 11. 3. Eligibility and Participation. Options may be granted pursuant to this Plan only to non-employee directors of the Company (such non-employee directors being hereinafter sometimes called "directors"). Directors who are employees of the Company or a parent or a subsidiary of the Company shall not be eligible to participate in this Plan. The holder of any option granted pursuant to this Plan shall not have any of the rights of a shareholder with respect to the shares covered by the option until one or more certificates for such shares shall be delivered to him upon the due exercise of the option. 4. Option Agreement. The terms and provisions of each option granted under this Plan shall be as set forth in a Non-Employee Director Stock Option Agreement (hereinafter called an "Option Agreement"), between the Company and the director receiving such option in form and content substantially similar to the Option Agreement attached hereto as EXHIBIT A. 2 5. Options Shares. On the Adoption Date, the Company shall grant to each director an option to purchase 5,000 shares of Common Stock, subject to the provisions of Section 16 hereof. In addition, on the date that any new director is elected at an annual meeting of the shareholders of the Company during the term of this Plan, the Company shall grant to each such new director an option to purchase 5,000 shares of Common Stock. 6. Price. The purchase price per share of Common Stock purchasable under options granted pursuant to this Plan on the Adoption Date shall be Nineteen and 02/100 Dollars ($19.02). The purchase price per share of Common Stock purchasable under options granted pursuant to this Plan after the Adoption Date shall be eighty-five percent (85%) of the opening price per share of the Common Stock on the New York Stock Exchange, or such other exchange as the Common Stock may then be traded, on the day such options are granted. The full purchase price of shares purchased shall be paid upon exercise of the option. The purchase price per share shall be subject to adjustment under Section 11 of this Plan. 7. Exercise Period. All shares of Common Stock purchasable under any option granted under this Plan will be purchasable after the first anniversary of the first annual meeting of the shareholders of the Company held after the grant of such option, provided that if the option is granted on the date of an annual shareholders' meeting, such shares will be purchasable after the next annual shareholders' meeting, and further provided that the director holding such option must have served as a director of the Company at all times from the date of grant. 8. Option Period. The period of time within which options granted pursuant to this Plan must be exercised shall be a period of three (3) years after such option first becomes exercisable. The actual expiration date stated in an Option Agreement is hereinafter called the "Expiration Date." 9. Termination. Each Option Agreement will provide that: (a) If the director for any reason whatsoever, other than death or permanent and total disability, as defined in (b) below, ceases to be a director of the Company, the option may be exercised by the director within one (1) year after the date of such termination, but in no event later than the Expiration Date. (b) If the director becomes permanently and totally disabled, as hereinafter defined, while serving as a director of the Company, the option will automatically become exercisable in full and may be exercised by the director at any time before one (1) year after the date of disability or the Expiration Date, whichever is earlier. "Permanently and totally disabled" means being unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. In the absence of any specific requirements for this determination, the decision of the Board of Directors of the Company, as aided by any physicians designated by the Board of -2- 3 Directors shall be conclusive, and the Board of Directors shall send written notice to the director of the determination that he has become permanently and totally disabled. (c) In the event that the director dies while serving as a director of the Company, the option will automatically become exercisable in full and may be exercised by a legatee or legatees of the director under his will, or by his personal representatives or distributees, at any time before one (1) year after the date of death or the Expiration Date, whichever is earlier. Nothing in (a), (b) or (c) shall extend the time for exercising any option granted pursuant to this Plan beyond the Expiration Date. 10. Assignability. Each Option Agreement shall provide that the option granted thereby shall not be transferable or assignable by the director in any form or fashion, and that the option may be exercised only by the director during his lifetime, or as otherwise expressly set forth in EXHIBIT A hereto. 11. Changes in Capital Structure. Each option granted pursuant to this Plan shall provide that if the option shall, subject to Section 12, be exercised subsequent to any share dividend, stock split, reverse stock split, split-up, recapitalization, merger, consolidation, combination or exchange of shares, reorganization, or liquidation occurring after the date of the grant of the option, as a result of which shares of any class have been issued in respect of outstanding Common Stock or Common Stock has been changed into the same or a different number of shares of the same or another class or classes, then the director or directors so exercising the option shall receive, for the aggregate price paid upon such exercise, the aggregate number and class of shares that, if Common Stock (as authorized at the date of the grant of the option) had been purchased at the date of the grant of the option for the same aggregate price (on the basis of the price per share set forth in Section 6 hereof) and had not been disposed of, such director or directors would be holding, at the time of such exercise, as a result of such purchase and all such share dividends, stock split reverse stock split, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, reorganizations, or liquidations; provided, however, that no fractional share shall be issued upon any such exercise, and the aggregate price paid shall be appropriately reduced on account of any fractional share not issued. 12. Change in Control. Notwithstanding anything in this Plan to the contrary, in the event of a Change in Control (as defined below), the unexercised options outstanding under this Plan will automatically become exercisable in full as of the effective date of such Change in Control. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, any outstanding options hereunder may be terminated by the Company as of the effective date of such dissolution, liquidation, merger or consolidation by giving notice to each holder thereof of its intention to do so not less than ten (10) days preceding such effective date and permitting the exercise until such effective date, or the Expiration Date if earlier, of all of such outstanding options. Notwithstanding the preceding sentence, if the Company is not the surviving corporation as a result of the Company being reorganized or merged or consolidated with another corporation while unexercised options are outstanding under this Plan, the surviving corporation may assume the unexercised options -3- 4 outstanding under this Plan or substitute new options in the surviving corporation for the outstanding options; provided, however, that the excess of the aggregate fair market value of the securities subject to the options immediately after the substitution or assumption over the aggregate option price of such shares is not less than the excess of the aggregate fair market value of the Common Stock subject to the outstanding option immediately before such substitution or assumption over the aggregate option price of such Common Stock. The existence of this Plan or of options granted hereunder shall not in any way prevent any Change in Control transaction, and no holder of options granted under this Plan shall have the right to prevent any such transaction. "Change in Control" of the Company means and shall be deemed to have occurred if and when (i) any "person" (as such term is used in Section 13(d) of the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company's then outstanding securities; (ii) individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of directors do not constitute a majority of the Board of Directors following such election; (iii) the shareholders of the Company approve the dissolution or liquidation of the Company; (iv) the shareholders of the Company approve an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities which are not subsidiaries of the Company, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former shareholders of the Company (excluding from the term "former shareholders" a shareholder who is, or as a result of the transaction in question becomes, an "affiliate", as that term is used in the Securities Exchange Act of 1934 and the Rules promulgated thereunder, of any party to such merger, consolidation or reorganization); or (v) the shareholders of the Company approve the sale of substantially all of the Company's business and/or assets to a person or entity which is not a subsidiary of the Company. 13. Registration Rights. The directors shall have no registration rights with respect to the shares of Common Stock issuable upon exercise of the options granted under this Plan. 14. Sale of Stock after Exercise of Option. Any director exercising any option under the terms of this Plan will be required to agree that, unless the shares obtained as a result of such exercise have been registered under the Securities Act of 1933, as amended (the "Securities Act"), or may otherwise be sold pursuant to an available exemption from such registration under the Securities Act, such director will not dispose of any such shares thereafter without the prior approval of the Company. Unless the Company files a registration statement with respect to the shares issuable under the Plan, the Company shall require that a legend be placed on any share certificates issued through the exercise of any option granted under this Plan with respect to the foregoing restrictions. Such legend shall be placed either on the front or back of such share certificates and shall note that the shares are governed by this Plan. This Plan shall be kept at the registered office of the Company and shall be available for inspection by any appropriate party. -4- 5 15. Amendment of the Plan. The Board of Directors may from time to time alter, amend, suspend or discontinue this Plan and make rules for its administration; provided, however, that the Plan may not be amended more than once every six (6) months, other than to conform to changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 16. Shareholder Approval. This Plan will be submitted to the shareholders of the Corporation for approval at the 1998 Annual Meeting of Shareholders and shall be approved by the affirmative vote of a majority of the outstanding shares of Common Stock of the Company voted at the Meeting, in person or by proxy, provided that the total vote cast on the proposal to adopt the Plan (including abstentions) represents more than 50% of the total number of shares of Common Stock outstanding on the record date set for the Meeting. In the event that the Plan is not so approved, the Plan and all options previously granted thereunder shall automatically terminate. 17. Termination Of Plan. Unless terminated earlier, this Plan shall terminate effective the date of the 2002 Annual Meeting of Shareholders. Any option outstanding under this Plan at the time of the termination of this Plan shall remain in effect until such option shall have been exercised or the Expiration Date thereof occurs, whichever is earlier. 18. Exhibits. EXHIBIT A (attached) is hereby incorporated into this Plan by reference. -5- 6 EXHIBIT "A" MAXXIM MEDICAL, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT THIS NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this "Agreement"), effective as of _______________, 199__ (the Effective Date"), by and between MAXXIM MEDICAL, INC., a Texas corporation (the "Company"), and, an individual residing in (the "Optionee"); W I T N E S S E T H: WHEREAS, the Optionee is a member of the Board of Directors of the Company but is neither an employee nor an executive officer of the Company on the effective date hereof; and WHEREAS, in consideration of the Optionee's past service to the Company and to provide the Optionee with additional incentive to remain as a director of the Company, the Company has agreed to grant the Optionee options to purchase shares of common stock, $.001 par value ("Common Stock"), of the Company; and WHEREAS, by granting the Optionee options to purchase shares of Common Stock pursuant to the terms of this Agreement, the Company intends to carry out the purposes set forth in the 1998 Non-Employee Directors' Stock Option Plan of the Company (the "Plan") adopted by the Board of Directors of the Company (the "Board of Directors"); and WHEREAS, the Company and the Optionee desire to set forth the terms and conditions of such options to purchase Common Stock; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee the option (the "Option") to purchase all or any part of an aggregate of Five Thousand (5,000) shares of Common Stock (such shares, as increased or decreased in accordance with Section 8 hereof, being referred to herein as the "Option Shares") for a purchase price of per share (the "Exercise Price"), upon the additional terms and conditions hereinafter set forth. 2. Availability of Option Shares and Term of Option. The Option shall be fully exercisable after the first anniversary of the first annual meeting of the shareholders of the Company held after the grant of such option, provided that if the option is granted on the date of an annual shareholders' meeting, such shares will be purchasable after the next annual shareholders' meeting (the "Vesting Date"), and provided further that such vesting is expressly conditioned upon the Optionee having served as a director of the Company at all times from the 7 date of grant up to the date preceding the Vesting Date. The Option shall expire and terminate as to any Option Shares not purchased by the Optionee on or prior to the expiration of three years from the Vesting Date (the "Expiration Date"), subject to earlier termination as set forth in Section 13. 3. Method of Exercising the Option. Subject to the limitations contained in Section 2, the Option shall be exercised by the Optionee delivering to the Company, on or prior to the Expiration Date or the date of any earlier termination pursuant to Section 13 (i) written notice from the Optionee stating that the Optionee is exercising the Option, and specifying the number of Option Shares that the Optionee desires to purchase ("Notice"), and (ii) a check payable to the order of the Company in an amount equal to the then current Exercise Price multiplied by the number of Option Shares that the Optionee has indicated he desires to purchase in the Notice (the "Payment"). The Option may be exercised as to all, or any whole number, of the Option Shares exercisable as of the date of the Notice. The failure of the Optionee to exercise the Option as to all of the Option Shares available for exercise as of the date of the Notice shall not be deemed to be a waiver or forfeiture of the Optionee's right to later exercise the Option as to any Option Shares not previously purchased. For purposes of Section 2 hereof, the exercise of the Option to purchase the Option Shares specified in the Notice shall be deemed to have taken place on the date that Notice and Payment are actually received by the Company in accordance with this Section 3. 4. Transferability of Option. The Option shall be exercisable (i) during the Optionee's lifetime only by the Optionee, or his guardian or legal representative, or (ii) in the event of his death, by his heirs or legatees in accordance with his will or the laws of descent and distribution (but only to the extent the Option would be exercisable by the Optionee under Section 2 or as set forth in Section 13), and shall not otherwise be transferable or assignable, in whole or in part. 5. Payment of Taxes upon Exercise. The Optionee understands and acknowledges that under currently applicable law, the Optionee may be required to include in his taxable income, at the time of exercise of the Option, the amount by which the value of the Option Shares purchased (the "Exercise Shares") exceeds the Exercise Price paid. The Optionee hereby authorizes the Company to withhold Exercise Shares of a value equivalent to the amount of tax required to be withheld by the Company out of any taxable income derived by the Optionee upon exercise of the Option; provided, however, that the Optionee may, in the alternative, in order to satisfy such withholding requirement, deliver to the Company cash or other shares of Common Stock owned by the Optionee. 6. Investment Representation/Securities Law Requirements. The Optionee represents that the Option Shares available for purchase by the Optionee under this Agreement will be acquired only for investment and not with a view toward resale or distribution. The Optionee agrees and understands that the Option Shares may be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and, in such case, may not be sold, assigned or transferred, unless the sale, assignment or transfer of such shares is registered under the Securities Act and applicable blue sky laws, as now in effect or hereafter amended or under applicable exemptions therefrom. In the case of any sale under -2- 8 such an exemption, the Company will require an opinion of counsel in form and substance satisfactory to the Company from counsel acceptable to the Company that such registrations are not required. The Optionee further understands and agrees that, unless issued pursuant to an effective registration statement under the Securities Act, the following legend shall be set forth on each certificate representing Option Shares: "The shares represented by this certificate have not been registered under the Securities Act of 1933 or under the blue sky laws of any state, and may not be sold, assigned or transferred except upon such registration or upon receipt by the Company of an opinion of counsel in form and substance satisfactory to the Company from counsel acceptable to the Company that such registrations are not required for such sale, assignment or transfer." 7. No Rights as Shareholder. The Optionee shall not have any rights as a shareholder with respect to any of the Option Shares until the date of issuance by the Company of a stock certificate to the Optionee for such shares. Except as otherwise provided in Section 11 hereof, the Optionee shall not be entitled to any dividends, cash or otherwise, or any adjustment of the Exercise Price of any of the Option Shares for such dividends, if the record date therefor is prior to the date of issuance of such stock certificate. Upon valid exercise of the Option by the Optionee, the Company agrees to cause a valid stock certificate for the number of Option Shares then purchased to be issued and delivered to the Optionee within seven (7) business days. 8. Corporate Proceedings of the Company. Notwithstanding anything in this Agreement to the contrary, in the event of a Change in Control (as defined in the Plan), the Option will automatically become exercisable in full as of the effective date of such Change in Control. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, the Option may be terminated by the Company as of the effective date of such dissolution, liquidation, merger or consolidation by giving notice to Optionee of its intention to do so not less than ten (10) days preceding such effective date and permitting the exercise until such effective date, or the Expiration Date if earlier, of the Option. Notwithstanding the preceding sentence, if the Company is not the surviving corporation as a result of the Company being reorganized or merged or consolidated with another corporation while the Option is outstanding, the surviving corporation may assume the Option or substitute a new option in the surviving corporation for the Option; provided, however, that the excess of the aggregate fair market value of the securities subject to the options immediately after the substitution or assumption over the aggregate option price of such shares is not less than the excess of the aggregate fair market value of the Option Shares immediately before such substitution or assumption over the Exercise Price of Option Shares. The existence of the Option shall not in any way prevent any Change of Control transaction, and Optionee shall have no right to prevent any such transaction. If the Option shall be exercised subsequent to any share dividend, stock split, reverse stock split, split-up, recapitalization, merger, consolidation, combination or exchange of shares, reorganization, or liquidation occurring after the Effective Date, as a result of which shares of any class have been issued in respect of outstanding Common Stock or Common Stock has been changed into the same or a different number of shares of the same or another class or classes -3- 9 without payment of consideration therefor, then the Optionee shall receive, for the Exercise Price paid upon such exercise, the aggregate number and class of shares that, if the Option Shares had been purchased at the Effective Date and had not been disposed of, the Optionee would be holding, at the time of such exercise, as a result of such purchase and all such share dividends, stock split, reverse stock split, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, reorganizations, or liquidations; provided, however, that no fractional share shall be issued upon any such exercise, and the Exercise Price shall be appropriately reduced on account of any fractional share not issued. The issuance by the Company of shares of stock of any class of securities convertible into shares of stock of any class, including Common Stock, or the issuance by the Company of Common Stock, for cash, property or services rendered, either upon direct sale or upon the exercise of rights, options or warrants to subscribe therefor, or the conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of shares of Common Stock then subject to the Option. 9. Notices. All notices, demands and other communications required or permitted hereunder shall be deemed to have been properly given or delivered when delivered personally or sent by certified or registered mail, return receipt requested with all postage fully prepaid, addressed to the respective parties hereto as follows: If to the Company: 10300 49th Street North Clearwater, Florida 33762 Attn: President If to Optionee: __________________________________ __________________________________ __________________________________ Any party hereto may change the above designated address by notice to the other party hereto of such new address given in accordance with this Section 9. 10. Joinder of Spouse. The Optionee's spouse is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and its binding effect upon any interest, community or otherwise, she may have in any of the Option Shares or this Agreement, and she hereby evidences such awareness, understanding, consent and agreement by execution of this Agreement. 11. Fractional Shares. Notwithstanding any other provision of this Agreement, the Company shall not be required to issue any fractional shares, and to the extent that the terms hereof would otherwise require such issuance of fractional shares, the number of shares actually issued shall be rounded down to the nearest whole share. 12. Transferability; Binding Effect. The Option shall be exercisable only by the persons described in Section 4. Subject to the foregoing, all covenants, terms, agreements and -4- 10 conditions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the Company and the Optionee and their respective heirs, executors, administrators, successors and assigns. 13. Termination. (a) If the Optionee for any reason whatsoever, other than death or permanent and total disability, as defined in (b) below, ceases to be a director of the Company, the option may be exercised by the director within one (1) year after the date of such termination, but in no event later than the Expiration Date. (b) If the Optionee becomes permanently and totally disabled, as hereinafter defined, while serving as a director of the Company, the Option will automatically become exercisable in full and may be exercised by the Optionee at any time before one (1) year after the date of disability or the Expiration Date, whichever is earlier. "Permanently and totally disabled" means being unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. In the absence of any specific requirements for this determination, the decision of the Company, as aided by any physicians designated by the Company, shall be conclusive and the Company shall send written notice to the Optionee of the determination that the Optionee has become permanently and totally disabled. (c) In the event that the Optionee dies while serving as a director of the Company, the option will automatically become exercisable in full and may be exercised by a legatee or legatees of the Optionee under the Optionee's will, or by the Optionee's personal representatives or distributees, at any time before one (1) year after the date of death or the Expiration Date, whichever is earlier, and if not so exercised, the Option shall thereupon terminate. Nothing in (a), (b) or (c) shall extend the time for exercising the Option granted pursuant to this Agreement beyond the Expiration Date. 14. Shareholder Approval. The Option granted pursuant to this Agreement is subject to the approval of the Plan by the shareholders of the Corporation at the 1998 Annual Meeting of Shareholders, as set forth in the Plan. In the event that the Plan is not so approved, this Agreement shall automatically terminate and the Optionee shall have no further rights hereunder. 15. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Company and the Optionee and their respective heirs, executors, administrators, successors and assigns. 16. Governing Law. This Agreement shall be governed by the laws of the State of Texas, and the laws of the United States applicable in Texas. -5- 11 17. Captions. The Section headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of the Agreement. 18. Counterparts. This Agreement may be executed in multiple original counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first written above, to be effective as of the Effective Date. COMPANY: MAXXIM MEDICAL, INC., a Texas corporation By: --------------------------------- Kenneth W. Davidson, President OPTIONEE: ------------------------------------ Optionee ------------------------------------ Spouse of Optionee -6- EX-10.2 3 1997 EMPLOYMENT AGREEMENT (K. DAVIDSON) 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT, made effective as of the 1st day of November, 1997, between Maxxim Medical, Inc., a Texas corporation (the "Company"), and Kenneth W. Davidson (the "Executive"). W I T N E S S E T H The Executive is presently employed by the Company as Chairman of the Board, President and Chief Executive Officer of the Company. The Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company during the past years has been substantial. The Board desires to provide for the continued employment of the Executive and to make certain changes in the Executive's employment arrangements with the Company, which changes the Board has determined will reinforce and encourage the Executive's continued attention and dedication to the business of the Company as the leader of the Company's management team. The Board recognizes that the foregoing are in the best interests of the Company and its shareholders. The Executive is willing to commit himself to continue to serve the Company, on the terms and conditions herein provided. To effect the foregoing, the Company and the Executive desire to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the promises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. EMPLOYMENT The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth therein. 2. TERM The employment of the Executive by the Company as provided in Section 1 will commence on the effective date hereof and end on October 31, 2000, unless further extended or sooner terminated as hereinafter provided. On October 31, 2000 and on the last day of October of each year thereafter, the term of the Executive's employment shall be automatically extended one (1) additional year unless, at least six months' prior to such last day of October, the Company shall have delivered to the Executive or the Executive shall have delivered to the Company written notice that the term of the Executive's employment hereunder will not be extended. Page 1 of 12 2 3. POSITION AND DUTIES The Executive shall serve as Chairman of the Board of Directors, Chief Executive Officer and President of the Company and shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Board provided that his duties at the date hereof shall not be subject to any significant diminution or change without the Executive's consent. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company. 4. PLACE OF PERFORMANCE In connection with the Executive's employment by the Company, the Executive shall be based at such office or offices of the Company as the needs of the Company's business dictate. 5. COMPENSATION AND RELATED MATTERS (a) Compensation Committee. The Compensation Committee of the Board of Directors shall be maintained and a majority of the members of such committee who are not officers or employees of the Company shall be empowered to take any action required to be taken by the Compensation Committee hereunder (or if there only be one such outside member of the Compensation Committee, such person shall be so empowered). (b) Salary. During the period of the Executive's employment hereunder, the Company shall pay to the Executive a salary at a rate of $350,000 per annum, in accordance with the current payroll policies of the Company. This salary may be increased by the Board of Directors upon the recommendation of the Compensation Committee from time to time in accordance with normal business practices of the Company and, if so increased, shall not thereafter during the term of this Agreement be decreased. Compensation of the Executive by salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's salary hereunder. (c) Bonus.The Board shall after the date hereof in consultation with the Executive formulate and adopt a bonus plan for the Executive which shall provide for the Board and the Executive to jointly develop annual performance goals for the Company for each fiscal year of the Company during the term of Executive's employment hereunder (commencing with the fiscal year ended in calendar 1998). If such performance goals are fully met, the Executive will be entitled to receive, within 90 days of the end of each such fiscal year, an annual bonus of not less than one-half of his annual salary provided for in Paragraph 5(b). 3 If such performance goals are not fully met for any fiscal year, the Executive will be entitled to receive an annual bonus in an amount to be determined by the Board, in its discretion. (d) Loans to Executive. At such time or times as the Executive shall request by letter to the Compensation Committee in the form of Exhibit A (with all blanks appropriately completed), the Company shall be obligated to make the Executive a loan or loans of up to an aggregate of $400,000 (such amount to include all amounts previously loaned under any prior employment agreement between the Company and the Executive and each such loan being individually referred to as a "Loan" and such loans being collectively referred to as the "Loans"), the principal purpose of which shall be to enable the Executive to pay federal income taxes associated with the exercise of stock options exercisable by him. Each Loan shall be evidenced by a promissory note executed by the Executive in the form of Exhibit B (with all blanks appropriately completed). Each Loan shall be non-interest bearing, unsecured and repayable in ten equal installments of principal, which installments shall be payable on the third through the twelfth anniversary of such Loan. (e) Expenses. During the term of this Agreement, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses of travel and living expenses while away from home on business or at the request of or in the service of the Company, provided that such expenses are reasonable in amount and incurred and accounted for in accordance with the policies and procedures presently established by the Company and in accordance with applicable IRS regulations. (f) Other Benefits. The Company shall maintain in full force and effect, and the Executive shall be entitled to continue to participate in, all of its employee benefit plans and arrangements in effect on the date hereof in which the Executive participates, or plans or arrangements providing the Executive with at least equivalent benefits thereunder, including, but not limited to, stock option plans and 401(k) plans. The Company shall not make any changes in such plans or arrangements which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all employees of the Company entitled to participate therein and does not result in a proportionately greater reduction in the rights of or benefits to the Executive as compared with any other executive of the Company, unless required by law. The Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangement presently in effect or made available in the future. Any payments or benefits payable to the Executive hereunder in respect of any calendar year during which the Executive is employed by the Company for less than the entire year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in accordance with the number of days in such calendar year during which he is so employed. Page 3 of 12 4 (i) Vacations. The Executive shall be entitled to the number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, determined in accordance with the Company's vacation plan. The Executive shall also be entitled to all paid holidays given by the Company to its executives. (j) Services Furnished. The Company shall furnish the Executive with office space, stenographic assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties as set forth in Section 3 hereof. 6. OFFICES The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of the Company and any of its subsidiaries and in one or more executive offices of any of the Company's subsidiaries. 7. COMPETITION The Employee agrees that during the term hereof he shall not, directly or indirectly, for his own account or for the account of others (i) engage, within any market area served by the Company, as principal, agent, trustee or through the agency of any corporation, partnership, association or agency, in any business which is a Competitor, as hereinafter defined, or (ii) own more than five percent (5%) of the outstanding capital stock, or be a partner or member of any partnership which is a Competitor, or otherwise a direct or indirect owner, or employee, of any Competitor. A business will be deemed to be a "Competitor" if its business involves the development, manufacture, distribution or marketing of any hospital or medical products of the type developed, manufactured, distributed or marketed by the Company at any time during the term of this Agreement. The Executive further agrees that during the term hereof, he will not, either directly or indirectly, through any person, firm, association or corporation with which he is now or may hereafter become associated, cause or induce any present or future employee of the Company to leave the employ of the Company to accept employment with the Executive or with any Competitor. The phrase "during the term hereof", as it is used in this Section shall mean the effective date hereof until the earlier of (i) October 31, 2000, or (ii) the expiration of two (2) years from the date on which this Agreement is terminated for any reason other than termination by the Executive for Good Reason (as describe in Section 8(d)). The parties understand and agree that if the restrictions placed upon the Executive relating to time, geographical area or scope of activity are deemed more extensive than is necessary to protect the good will or other business interest of the Company under the laws of the State of Florida, then the parties hereby agree to amend the terms hereof to such time, geographical areas and scope of activity and alter the degree and extent of such provision by the minimal amount of amendment or alteration necessary to bring such provisions within the ambit of enforceability of such provisions in accordance with the laws of the State of Florida. Page 4 of 12 5 8. TERMINATION The Executive's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon his death. (b) Disability. The Company may terminate the Executive's employment hereunder if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties hereunder on a full-time basis for the entire period of four consecutive months, and shall not have returned to the performance of his duties hereunder within thirty (30) days after the Company gives the Executive written Notice of Termination (which may occur before or after the end of such four-month period). (c) Cause. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon (A) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) or regular failure to follow the specific directives of the Board, after demand for substantial performance that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties is delivered by the Company, or (B) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (iii) delivery to the Executive of a Notice of Termination as defined in subsection (e) hereof, from the Board finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth above in clause (A) or (B) of the preceding sentence and specifying the particulars thereof in detail. (d) Terminating by the Executive. The Executive may terminate his employment hereunder (i) for Good Reason or (ii) if his health shall become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that the Executive shall have furnished the Company with a written statement from a qualified doctor to such effect and, provided further that, at the Company's request, the Executive shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion contained in the written statement furnished by the Executive. Page 5 of 12 6 For purposes of this Agreement, "Good Reason" shall mean (A) a Change in Control of the Company (as defined in the Termination Agreement between the Company and the Executive dated as of January 31, 1997, hereafter the "Termination Agreement"), (B) a failure by the Company to comply with any material provision of this Agreement which has not been cured within ten (10) days, or other reasonable time if it is not possible to cure the same in such ten days, after notice of such noncompliance has been given by the Executive to the Company, or (C) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (e) hereof (and for purposes of this Agreement, no such purported termination shall be effective). (e) Any termination of the Executive's employment by the Company or by the Executive (other than termination pursuant to subsection (a) above) shall be communicated by Written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to subsection (b) above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (iii) if the Executive's employment is terminated pursuant to subsection (c) above, the date specified in the Notice of Termination, and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination and it is ultimately determined that the Executive has prevailed in such dispute, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 9. COMPENSATION UPON TERMINATION OR DURING DISABILITY (a) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("disability period"), the Executive shall continue to receive his full salary and bonus at the rate then in effect for such period until his employment is terminated pursuant to Section 8(b) hereof and for a period of twenty-four months thereafter, provided that payments so made to the Executive shall be reduced by the Page 6 of 12 7 sum of the amounts of any payments by reason of disability insurance procured by the Company for the benefit of the Executive. (b) If the Executive's employment is terminated by his death, the Company shall pay to the Executive's spouse, or if he leaves no spouse, to his estate, commencing on the next succeeding day which is the fifteenth day or last day of the month, as the case may be, and semimonthly thereafter on the fifteenth and last days of each month, the Executives full salary and bonus at the rate in effect at the time of his death until a total of twenty-four months' salary and Minimum Bonus have been paid. (c) If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to the Executive under this Agreement. (d) If (A) in breach of this Agreement, the Company shall terminate the Executive's employment other than pursuant to Section 8(b) or 8(c) hereof (it being understood that a purported termination pursuant to Section 8(b) or 8(c) hereof which is disputed and finally determined not to have been proper shall be a termination by the Company in breach of this Agreement) or (B) the Executive shall terminate his employment for Good Reason, then (i) the Company shall pay the Executive his full salary and bonus through the Date of Termination at the rate in effect at the time Notice of Termination is given; (ii) in lieu of any further salary and bonus payments to the Executive for periods subsequent to the Date of Termination and, in addition to any amounts set forth in (i), the Company shall pay as severance pay to the Executive the Executive's annual salary and Minimum Bonus for such subsequent periods, such payment to be made in lump sum on or before the fifth day following the Date of Termination; provided, however, that in the event that upon or by reason of such termination for Good Cause the Executive is entitled to the payments set forth in Section 6(a) of the Termination Agreement, the Executive shall be paid such amounts under Section 6(a) of the Termination Agreement and shall not be entitled to any severance pay under this Subsection 9(f)(ii)(the intention of the parties being that under no circumstances shall the Executive be entitled to payments under both Section 6(a) of the Termination Agreement and this Subsection 9(f)(ii)); and (iii) if termination of the Executive's employment arises out of a breach by the Company of this Agreement, the Company shall pay all other damages to which the Executive may be entitled as a result of such breach, including damages for any and all loss of benefits to the Executive under the Company's benefit plans which the Executive would have received if the Company had not breached this Agreement and had the Executive's employment continued for the full term provided in Section 2 Page 7 of 12 8 hereof and including all reasonable legal fees and expenses incurred by him as a result of such termination. (e) If the Executive shall terminate his employment under clause (ii) of Section 8(d) hereof, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time of Notice of Termination is given. (f) If the Executive's employment is terminated by the Company without Cause and under circumstances not otherwise specifically provided for under any of the other provisions of this Section 9(a)-(e), then the Company shall continue to pay to the Executive for a period through the then scheduled termination of this Agreement and shall pay the Executive an additional amount of twenty four months' salary and Minimum Bonus. (g) Unless the Executive is terminated under the provisions of Subsections 8(a), (b) or (c) or the Executive terminates his employment otherwise than under Subsection 8(d)(i) hereof, the Company shall maintain in full force and effect, for the continued benefit of the Executive for the greater of the number of years (including partial years) remaining in the term of employment hereunder or two (2) years, all employee benefit plans and programs in which the Executive was entitled to participate immediately prior to the Date of Termination provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs and is in accordance with law. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange to provide the Executive with benefits substantially similar to those which the Executive would otherwise have been entitled to receive under such plans and programs for which his continued participation is barred if the provision of such benefits are in accordance with applicable law. 11. SUCCESSORS; BINDING AGREEMENT This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 12. NOTICE For the purposes of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: Page 8 of 12 9 If to the Executive: Kenneth W. Davidson 10300 49th Street North Clearwater, Florida 33762 If to the Company: Maxxim Medical, Inc. 10300 49th Street North Clearwater, Florida 33762 Attn: Chairman of Compensation Committee of the Board of Directors or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. MISCELLANEOUS Effective November 1, 1997, this Agreement revokes and rescinds all prior employment agreements with the Executive, including the employment agreement dated effective as of November 1, 1994, as amended. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such other officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Florida. 14. VALIDITY The validity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 15. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Page 9 of 12 10 IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMPANY: Maxxim Medical, Inc. Attest: By: /s/ Richard O. Martin -------------------------------- Name: Richard O. Martin, PhD. By: /s/ Alan S. Blazei Title: Member of Compensation ----------------------------- Committee of Board EXECUTIVE: /s/ Kenneth W. Davidson ---------------------------------- KENNETH W. DAVIDSON Page 10 of 12 11 EXHIBIT A [Letterhead of Kenneth W. Davidson] [date] Maxxim Medical, Inc. 10300 49th Street North Clearwater, Florida 33762 Attn. Compensation Committee of The Board of Directors Re: Request for Loan Dear Sirs: The undersigned hereby requests pursuant to Section 5(c) of the Employment Agreement dated effective as of November 1, 1997 by and between the Company and the undersigned an immediate Loan (as defined therein) in the aggregate amount of $400,000. The undersigned hereby certifies that at least two thirds of the proceeds thereof are to be utilized to pay federal income taxes associated with the exercise of Company stock options held by the undersigned which the undersigned has exercised or intents to exercise, and that upon the funding of such Loan, the aggregate Loans (as defined) granted by the Company to the undersigned will not exceed $400,000. VERY TRULY YOURS, ------------------- KENNETH W. DAVIDSON Page 11 of 12 12 EXHIBIT B PROMISSORY NOTE $____________ __________,Florida [Date] FOR VALUE RECEIVED, after date, without grace, in the manner, on the dates, and in the amounts so herein stipulated, the undersigned, promises to pay to the order of MAXXIM MEDICAL, INC. at Clearwater, Florida________________ DOLLARS ($_________) in lawful money of the United States of America, which shall be legal tender, in payment of all debts and dues, public and private, at the time of payment. The note is payable in ten equal annual installments of principal, the first of which shall be payable commencing on the third anniversary of this note, and the remainder of which shall be payable on each successive anniversary thereafter. No interest shall accrue or be payable on the unpaid principal amount of the note, except as specifically set forth below in the event of default hereon. ------------------------- KENNETH W. DAVIDSON Page 12 of 12 EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS NOV-01-1998 NOV-03-1997 FEB-01-1998 3,322 0 75,328 0 81,349 171,075 123,574 33,725 416,417 77,877 167,972 0 0 10 161,993 416,417 128,003 128,003 94,942 94,942 0 0 4,333 6,558 2,807 3,751 0 0 0 3,751 .38 .37 Net of allowance of $2,922
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