-----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, RT/arjr8BRLCgN41SFNsBOBMYehnMw2SxPN0T/x2Lmzhi92cKWYp+k4yHb032NfP jq+qZV1bM+PpiG3sU9flpQ== 0000950144-99-011675.txt : 19991018 0000950144-99-011675.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950144-99-011675 CONFORMED SUBMISSION TYPE: DEF13E3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19991005 SUBJECT COMPANY: 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: DEF13E3 SEC ACT: SEC FILE NUMBER: 005-41487 FILM NUMBER: 99723434 BUSINESS ADDRESS: STREET 1: 10300 49TH ST N CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7275612100 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 FILED BY: 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: DEF13E3 BUSINESS ADDRESS: STREET 1: 10300 49TH ST N CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7275612100 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 DEF13E3 1 MAXXIM MEDICAL, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 13E-3 THEREUNDER) MAXXIM MEDICAL, INC. (NAME OF ISSUER) MAXXIM MEDICAL, INC. FOX PAINE MEDIC ACQUISITION CORPORATION FOX PAINE CAPITAL FUND, L.P. KENNETH W. DAVIDSON PETER M. GRAHAM DAVID L. LAMONT HENRY T. DEHART III JACK F. CAHILL ALAN S. BLAZEI JOSEPH D. DAILEY SUZANNE R. GARON ERNEST J. HENLEY DAVIS C. HENLEY (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, PAR VALUE $.001 PER SHARE (TITLE OF CLASS OF SECURITIES) 57777G 10 5 (CUSIP NUMBER OF CLASS OF SECURITIES) SAUL A. FOX KENNETH W. DAVIDSON FOX PAINE MEDIC ACQUISITION CORPORATION CHAIRMAN OF THE BOARD, PRESIDENT AND 950 TOWER LANE, SUITE 1150 CHIEF EXECUTIVE OFFICER FOSTER CITY, CALIFORNIA 94404 MAXXIM MEDICAL, INC. (650) 525-1300 10300 49TH STREET NORTH CLEARWATER, FL 33762 (727) 561-2100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) WITH COPIES TO: MITCHELL S. PRESSER, ESQ. PAUL R. LYNCH, ESQ. MICHAEL E. GIZANG, ESQ. WACHTELL, LIPTON, ROSEN & KATZ SHUMAKER, LOOP & KENDRICK, LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 51 WEST 52ND STREET 101 E. KENNEDY BLVD., SUITE 2800 919 THIRD AVENUE NEW YORK, NEW YORK 10019 TAMPA, FL 33602 NEW YORK, NEW YORK 10022 (212) 403-1000 (813) 229-7600 (212) 735-2000
2 This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [ ] A tender offer. d. [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [ ] CALCULATION OF FILING FEE ====================================================================================================================== Transaction Valuation * Amount of Filing Fee $373,802,475 $74,760 ======================================================================================================================
* For purposes of calculating the fee only. Calculated in accordance with Rule 0-11(b)(2) under the Securities Exchange Act of 1934, as amended. Assumes the purchase of 13,732,826 shares of Common Stock, par value .001 per share, of Maxxim Medical, Inc. at $26.00 per share and the purchase of the underlying options to purchase Common Stock for an aggregate of $16,748,999. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $74,760 Form or Registration No.: Preliminary Proxy Statement on Schedule 14A Filing Party: Maxxim Medical, Inc. Date Filed: July 26, 1999 3 SCHEDULE 13E-3 INTRODUCTION This Amendment No. 2 (this "Transaction Statement") to the Rule 13e-3 transaction statement, first filed July 26, 1999, is being filed with the Securities and Exchange Commission in connection with the merger of Fox Paine Medic Acquisition Corporation, a Texas corporation ("Fox Paine Medic"), with and into Maxxim Medical, Inc., a Texas corporation ("Maxxim"), pursuant to an Agreement and Plan of Merger, dated as of June 13, 1999, as amended by Amendment No. 1 to Merger Agreement, dated as of October 1, 1999, by and between Fox Paine Medic and Maxxim (the "Merger Agreement"). Under the Merger Agreement, Maxxim will continue as the surviving corporation and each share of Maxxim common stock, par value $.001 per share, outstanding immediately prior to the merger (together with the preferred stock purchase rights associated with those shares), other than a portion of the shares held by the Continuing Shareholders (as defined below), and shares held by dissenting shareholders, will be converted into the right to receive $26.00 in cash, without interest. The Continuing Shareholders are Kenneth W. Davidson, Peter M. Graham, David L. Lamont, Alan S. Blazei, Henry T. Dehart III, Joseph D. Dailey, Jack F. Cahill, Suzanne R. Garon, Ernest J. Henley and Davis C. Henley, eight of whom are executive officers of Maxxim, one is a non-executive director of Maxxim, and one is a vice president and significant shareholder of Maxxim. As described in this Transaction Statement and in the documents incorporated by reference herein, all of the Continuing Shareholders are participating in the merger and will be treated differently than the other Maxxim shareholders. Upon consummation of the merger, approximately 13% (before giving effect to options and warrants) of the equity interests will be owned by the Continuing Shareholders, and a majority of the equity interests will be owned by the Fox Paine Capital Fund, L.P., a Delaware limited partnership (the "Fox Paine Fund"). This Transaction Statement is being filed by Maxxim, Fox Paine Medic, the Fox Paine Fund, and the Continuing Shareholders. Concurrently with the filing of this Transaction Statement, Maxxim has filed with the SEC Amendment No. 2 to its Proxy Statement on Schedule 14A (the "Proxy Statement") in connection with a special meeting of the shareholders of Maxxim, at which meeting the shareholders will be asked to approve the Merger Agreement. The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of the information required to be included in response to the items of this statement. The information set forth in the Proxy Statement, including all appendices thereto, is hereby expressly incorporated herein by reference and the responses to each item are qualified in their entirety by the provisions of the Proxy Statement. The filing of this Transaction Statement shall not be construed as an admission by Maxxim, Fox Paine Medic, the Fox Paine Fund, or the Continuing Shareholders or any of their affiliates that Maxxim is "controlled" by Fox Paine or Fox Paine Fund or any of their affiliates (the "Fox Paine Entities") or that any of the Fox Paine Entities is an "affiliate" of Maxxim within the meaning of Rule 13e-3 under Section 13(e) of the Securities Exchange Act of 1934, as amended. 4 CROSS REFERENCE SHEET ITEM IN CAPTION OR LOCATION SCHEDULE 13E-3 IN THE PROXY STATEMENT Item 1(a) "Summary - The Participants" Item 1(b) "Summary - The Special Meeting," "Historical Market Information" and "The Special Meeting - Record Date and Voting" Item 1(c) - (f) "Historical Market Information" and "Merger Financing - Senior Bank Loans" Item 2(a) - (g) "Summary - The Participants," "Historical Market Information" and "Information About the Transaction Participants" Item 3(a)(1) "Summary - Interests of Certain Persons in the Merger," "Historical Market Information" and "Special Factors - Interests of Certain Persons in the Merger" Item 3(a)(2) "Summary - Interests of Certain Persons in the Merger," "Historical Market Information," "Special Factors - Background of the Merger" and "- Interests of Certain Persons in the Merger" Item 3(b) "Summary - Structure of the Transactions," "- The Voting Agreements," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Background of the Merger," "- Interests of Certain Persons in the Merger," "The Special Meeting - Voting Agreements" and "The Merger" Item 4(a) "Questions and Answers about the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "- Appraisal Rights," "Special Factors - Structure of the Transactions; Transaction Participants," "- Interests of Certain Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger," "Merger Financing," "The Merger," "Appraisal Rights" and Appendix A to the Proxy Statement Item 4(b) "Questions and Answers about the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Interests of Certain Persons in the Merger," "The Merger - Merger Consideration" and "- Treatment of Maxxim Stock Options" -2- 5 Item 5(a) "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "Special Factors - Structure of the Transactions; Transaction Participants," "- Certain Effects of the Merger; Conduct of Business After the Merger" "--Fox Paine's and the Continuing Shareholders' Reasons for the Merger" and "The Merger - Structure and Effective Time" Item 5(b) "Merger Financing - Senior Bank Loans" Item 5(c) "Special Factors - Interests of Certain Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger" and "The Merger - Directors and Officers" Item 5(d) "Summary - Merger Financing," "Historical Market Information," "Merger Financing," "The Merger Treatment of Maxxim Stock Options" and "- Retirement/Amendment of Maxxim Notes" Item 5(e) * Item 5(f) - (g) "Special Factors - Certain Effects of the Merger; Conduct of Business after the Merger" Item 6(a) "Summary - Merger Financing" and "Merger Financing" Item 6(b) "The Merger - Expenses" and "- Estimated Fees and Expenses of the Merger" Item 6(c) "Summary - Merger Financing" and "Merger Financing" Item 6(d) * Item 7(a) "Questions and Answers about the Merger," "Summary - Structure of the Transactions," "Special Factors - Structure of the Transactions; Transaction Participants," "- Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "--Fox Paine's and the Continuing Shareholders' Reasons for the Merger," "-Interests of Certain Persons in the Merger," "The Merger - Structure and Effective Time" and "- Consideration" Item 7(b)-(c) "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger" and "Information about the Transaction Participants - Fox Paine Medic Acquisition Corporation and Fox Paine" Item 7(d) "Questions and Answers About the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Accounting Treatment," "- Merger Financing," "- Interests of Certain Persons in the -3- 6 Merger," "- Appraisal Rights," "Special Factors - Structure of the Transactions; Transaction Participants," "--Fox Paine's Reasons for the Merger," "- Interests of Certain Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger," "Merger Financing," "The Merger - Structure and Effective Time," "- Merger Consideration," "- Treatment of Maxxim Stock Options," "- Retirement/Amendment of Maxxim Notes," "- Directors and Officers," "Appraisal Rights" and "Federal Income Tax Consequences" Item 8(a) - (b) "Questions and Answers About the Merger," "Summary - Recommendation to Shareholders," "- Fairness Opinion," "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board," "Opinion of Lazard Freres & Co. LLC," "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger," "- Position of the Continuing Shareholders as to Fairness of the Merger" and "--Position of Fox Paine as to Fairness of the Merger" Item 8(c) "The Special Meeting - Required Vote" Item 8(d) - (e) "Questions and Answers about the Merger," "Summary - Recommendation to Shareholders," "Fairness Opinion," "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger" and "- Opinion of Lazard Freres & Co. LLC" Item 8(f) "Special Factors - Background of the Merger" and "Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger" Item 9(a)-(c) "Summary - Fairness Opinion," "Special Factors Background of the Merger," "Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "Opinion of Lazard Freres & Co. LLC" and Appendix B to Proxy Statement Item 10(a)-(b) "Principal Shareholders and Stock Ownership of Management and Others" Item 11 "Summary - Structure of the Transactions" "- The Voting Agreements," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Interests of Certain Persons in the Merger," "The Special Meeting - Required Vote," "- Voting Agreements" and "The Merger" Item 12(a) - (b) "Questions and Answers About the Merger," "Summary - The Voting Agreements," "- Recommendation to Shareholders," "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Fox Paine and the Continuing Shareholders' Reasons for the Merger," "- Position of the -4- 7 Continuing Shareholders as to Fairness of the Merger," "--Position of Fox Paine as to Fairness of the Merger," "The Special Meeting - Required Vote" and "- Voting Agreement" Item 13(a) "Summary - Appraisal Rights," "The Special Meeting - Record Date and Voting," "Appraisal Rights" and Appendix C to the Proxy Statement Item 13(b) - (c) * Item 14(a) - (b) "Selected Historical Consolidated Financial Data" and "Incorporation of Certain Documents by Reference" Item 15(a) - (b) "The Special Meeting - Proxies; Revocation" and "The Merger - Estimated Fees and Expenses of the Merger" Item 16 Proxy Statement Item 17(a) - (f) * - ----------------- * Not applicable or answer is negative. ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The information set forth in the section entitled "Summary - The Participants" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Summary - The Special Meeting," "Historical Market Information" and "The Special Meeting - Record Date and Voting" of the Proxy Statement is incorporated herein by reference. (c)-(f) The information set forth in the section entitled "Historical Market Information" and "Merger Financing - Senior Bank Loans" of the Proxy Statement is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(g) This statement is being filed jointly by Maxxim, Fox Paine Medic, the Fox Paine Fund and the Continuing Shareholders. The information set forth in the sections entitled "Summary - The Participants," "Historical Market Information" and "Information About the Transaction Participants" of the Proxy Statement is incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)(1) The information set forth in the sections entitled "Summary - Interests of Certain Persons in the Merger," "Historical Market Information" and "Special Factors - Interests of Certain Persons in the Merger" of the Proxy Statement is incorporated herein by reference. -5- 8 (a)(2) The information set forth in the section entitled "Summary - Interests of Certain Persons in the Merger," "Historical Market Information," "Special Factors - Background of the Merger" and "Interests of Certain Persons in the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the section entitled "Summary - Structure of the Transactions," "The Voting Agreements," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Background of the Merger," "Interests of Certain Persons in the Merger," "The Special Meeting - Voting Agreements" and "The Merger" of the Proxy Statement is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Proxy Statement under "Questions and Answers about the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "- Appraisal Rights," "Special Factors - Structure of the Transactions; Transaction Participants," "Interests of Certain Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger," "Merger Financing," "The Merger," "Appraisal Rights" and Appendix A to the Proxy Statement is incorporated herein by reference. (b) The information set forth in the Proxy Statement under "Questions and Answers about the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Interests of Certain Persons in the Merger," "The Merger - Merger Consideration" and "- Treatment of Maxxim Stock Options" is incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a) The information set forth in the Proxy Statement under "Summary - Structure of the Transactions," "Terms of the Merger Agreement," "Special Factors - Structure of the Transactions; Transaction Participants," "Certain Effects of the Merger; Conduct of Business After the Merger" "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger" and "The Merger - Structure and Effective Time" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under "Merger Financing - Senior Bank Loans" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under "Special Factors - Interests of Certain Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger" and "The Merger - Directors and Officers" is incorporated herein by reference. -6- 9 (d) The information set forth in the Proxy Statement under "Summary - Merger Financing," "Historical Market Information," "Merger Financing," "The Merger - Treatment of Maxxim Stock Options" and "- Retirement/Amendment of Maxxim Notes" is incorporated herein by reference. (e) None. (f)-(g) The information set forth in the Proxy Statement under "Special Factors - Certain Effects of the Merger; Conduct of Business after the Merger," is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Proxy Statement under "Summary - Merger Financing" and "- Merger Financing" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under "The Merger - - Expenses" and "- Estimated Fees and Expenses of the Merger" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under "Summary - Merger Financing" and "Merger Financing" is incorporated herein by reference. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The information set forth in the Proxy Statement under "Questions and Answers About the Merger," "Summary - Structure of the Transactions," "- Interests of Certain Persons in the Merger," "Special Factors Structure of the Transactions; Transaction Participants," "- Background of the Merger," "- Recommendations of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger," "- Interests of Certain Persons in the Merger," "The Merger - Structure and Effective Time" and "Consideration" is incorporated herein by reference. (b)-(c) The information set forth in the Proxy Statement under "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger" and "Information about the Transaction Participants - Fox Paine Medic Acquisition Corporation and Fox Paine" is incorporated herein by reference. (d) The information set forth in the Proxy Statement under "Questions and Answers About the Merger," "Summary - Structure of the Transactions," "- Terms of the Merger Agreement," "- Accounting Treatment," "- Merger Financing," "Interests of Certain Persons in the Merger," "- Appraisal Rights," "Special Factors - Structure of the Transactions; Transaction Participants," "--Fox Paine's Reasons for the Merger," "- Interests of Certain -7- 10 Persons in the Merger," "- Certain Effects of the Merger; Conduct of Business After the Merger," "Merger Financing," "The Merger - Structure and Effective Time," " Merger Consideration," "- Treatment of Maxxim Stock Options," "- Retirement/Amendment of Maxxim Notes," "- Directors and Officers," "Appraisal Rights" and "Federal Income Tax Consequences" is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(b) The information set forth in the Proxy Statement under "Questions and Answers About the Merger," "Summary - Recommendations to Shareholders," "- Fairness Opinion," "Special Factors - Background of the Merger," "Recommendations of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Opinion of Lazard Freres & Co. LLC," "Fox Paine's and the Continuing Shareholders' Reasons for the Merger," "- Position of the Continuing Shareholders as to Fairness of the Merger," and "- Position of Fox Paine as to the Fairness of the Merger" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under "The Special Meeting - Required Vote" is incorporated herein by reference. (d)-(e) The information set forth in the Proxy Statement under "Questions and Answers about the Merger," "Summary - Recommendations to Shareholders," "Special Factors - Background of the Merger," "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger" and "- Opinion of Lazard Freres & Co. LLC" is incorporated herein by reference. (f) The information set forth in the Proxy Statement under "Special Factors - Background of the Merger" and "- Recommendation of the Special Committee and of the Full Maxxim Board; Fairness of the Merger" is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(c) The information set forth in the Proxy Statement under "Summary - - Fairness Opinion," "Special Factors - Background of the Merger," "-Recommendations of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Opinion of Lazard Freres & Co. LLC" and Appendix B to Proxy Statement is incorporated herein by reference. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) The information set forth in the Proxy Statement under "Principal Shareholders and Stock Ownership of Management and Others" is incorporated herein by reference. -8- 11 ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in the Proxy Statement under "Summary - Structure of the Transactions," "- The Voting Agreements," "- Terms of the Merger Agreement," "- Interests of Certain Persons in the Merger," "Special Factors - Structure of the Transactions; Transaction Participants," "- Interests of Certain Persons in the Merger," "The Special Meeting - Required Vote," "- Voting Agreement" and "The Merger" is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a)-(b) The information set forth in the Proxy Statement under "Questions and Answers About the Merger," "Summary - The Voting Agreements," "- Recommendations to Shareholders," "Special Factors - Background of the Merger," "- Recommendations of the Special Committee and of the Full Maxxim Board; Fairness of the Merger," "- Fox Paine's and the Continuing Shareholders' Reasons for the Merger," "- Position of the Continuing Shareholders as to Fairness of the Merger," "- Position of Fox Paine as to Fairness of the Merger," "The Special Meeting Required Vote" and "- Voting Agreement" is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in the Proxy Statement under "Summary - Appraisal Rights," "The Special Meeting - Record Date and Voting," "Appraisal Rights" and Appendix C to the Proxy Statement is incorporated herein by reference. (b) None. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a)-(b) The information set forth in the Proxy Statement under "Selected Historical Consolidated Financial Data" and "Incorporation of Certain Documents by Reference" is incorporated herein by reference. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a)-(b) The information set forth in the Proxy Statement under "The Special Meeting - Proxies; Revocation" and "The Merger - Estimated Fees and Expenses of the Merger" is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. The entirety of the Proxy Statement is incorporated herein by reference. -9- 12 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (b)(1) Opinion of Lazard Freres & Co. LLC (included as Appendix B to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (b)(2) Consent of Lazard Freres & Co. LLC dated July 20, 1999 (b)(3) Presentation of Lazard Freres & Co. LLC dated June 13, 1999 (c)(1) Agreement and Plan of Merger, dated as of June 13, 1999, by and between Fox Paine Medic Acquisition Corporation and Maxxim Medical, Inc.(included as Appendix A to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(2) Form of Voting Agreement, by and between Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc. (included as Appendix D to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) *(c)(3) Investor Participation Agreement, dated as of June 13, 1999, by and among Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc., in their individual capacities (c)(4) Form of First Amendment to Voting Agreement, by and between Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc. (included as Appendix D to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(5) Amendment No. 1 to Merger Agreement, dated October 1, 1999, by and between Fox Paine Medic Acquisition Corporation and Maxxim Medical, Inc. (included as Appendix A to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(6) Amended and Restated Investor Participation Agreement, dated as of September 30, 1999, by and among Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc., in their individual capacities. (d)(1) Letter to shareholders (included in Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(2) Notice of special meeting of shareholders (included in Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(3) Proxy Statement (incorporated by reference to Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(4) Form of proxy (incorporated by reference to Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(5) Press release issued by Maxxim and Fox Paine & Company, LLC dated as of June 14, 1999 (incorporated by reference to the Current Report on Form 8-K filed by Maxxim Medical, Inc. on June 16, 1999) (e) Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation Act (included as Appendix C to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (f) Not applicable. - ------------ * Previously filed as an exhibit to the Schedule 13E-3 filed by Maxxim Medical, Inc. on July 26, 1999. -10- 13 SIGNATURE After due inquiry and to the best of our knowledge and belief, we certify that the information set forth in this Transaction Statement is true, complete and correct. MAXXIM MEDICAL, INC. Date: September 30, 1999 By: /s/ Kenneth W. Davidson ------------------------------------- Kenneth W. Davidson, Chairman of the Board, President and Chief Executive Officer FOX PAINE MEDIC ACQUISITION CORPORATION Date: September 30, 1999 By: /s/ Saul A. Fox ------------------------------------- Saul A. Fox Chief Executive Officer FOX PAINE CAPITAL FUND, L.P. By: Fox Paine Capital, LLC its general partner Date: September 30, 1999 By: /s/ Saul A. Fox ------------------------------------- Name: Saul A. Fox Title: Member Date: September 30, 1999 /s/ Kenneth W. Davidson ------------------------------------- Kenneth W. Davidson Date: September 30, 1999 /s/ Peter M. Graham ------------------------------------- Peter M. Graham Date: September 30, 1999 /s/ David L. Lamont ------------------------------------- David L. Lamont Date: September 30, 1999 /s/ Henry T. DeHart III ------------------------------------- Henry T. DeHart III Date: September 30, 1999 /s/ Jack F. Cahill ------------------------------------- Jack F. Cahill Date: September 30, 1999 /s/ Alan S. Blazei ------------------------------------- Alan S. Blazei Date: September 30, 1999 /s/ Joseph D. Dailey ------------------------------------- Joseph D. Dailey -11- 14 Date: September 30, 1999 /s/ Suzanne R. Garon ------------------------------------- Suzanne R. Garon Date: September 30, 1999 /s/ Ernest J. Henley ------------------------------------- Ernest J. Henley Date: September 30, 1999 /s/ Davis C. Henley ------------------------------------- Davis C. Henley -12- 15 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION (b)(1) Opinion of Lazard Freres & Co. LLC (included as Appendix B to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (b)(2) Consent of Lazard Freres & Co. LLC dated July 20, 1999 (b)(3) Presentation of Lazard Freres & Co. LLC dated June 13, 1999 (c)(1) Agreement and Plan of Merger, dated as of June 13, 1999, by and between Fox Paine Medic Acquisition Corporation and Maxxim Medical, Inc. (included as Appendix A to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(2) Form of Voting Agreement, by and between Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc. (included as Appendix D to the Preliminary Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) *(c)(3) Investor Participation Agreement, dated as of June 13, 1999, by and among Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc., in their individual capacities (c)(4) Form of First Amendment to Voting Agreement, by and between Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc. (included as Appendix D to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(5) Amendment No. 1 to Merger Agreement, dated October 1, 1999, by and between Fox Paine Medic Acquisition Corporation and Maxxim Medical, Inc. (included as Appendix A to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (c)(6) Amended and Restated Investor Participation Agreement, dated as of September 30, 1999, by and among Fox Paine Medic Acquisition Corporation and each of 10 shareholders of Maxxim Medical, Inc., in their individual capacities (d)(1) Letter to shareholders (included in Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(2) Notice of special meeting of shareholders (included in Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(3) Proxy Statement (incorporated by reference to Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(4) Form of proxy (incorporated by reference to Amendment No. 2 to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (d)(5) Press release issued by Maxxim and Fox Paine & Company, LLC dated as of June 14, 1999 (incorporated by reference to the Current Report on Form 8-K filed by Maxxim Medical, Inc. on June 16, 1999)
-13- 16 (e) Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation Act (included as Appendix C to the Proxy Statement filed by Maxxim Medical, Inc. on October 5, 1999 under cover of Schedule 14A) (f) Not applicable.
- ------------------ * Previously filed as an exhibit to the Schedule 13E-3 filed by Maxxim Medical, Inc. on July 26, 1999. -14- EX-99.(B)(2) 2 CONSENT OF LAZARD FRERES & CO. LLC 1 EXHIBIT (b)(2) LAZARD FRERES & CO. LLC 30 ROCKEFELLER PLAZA NEW YORK, N.Y. 10020 ---- TELEPHONE (212) 632-6000 FACSIMILE (212) 632-6060 NEW YORK July 20, 1999 The Board of Directors and the Special Committee of the Board of Directors Maxxim Medical, Inc. 10300 49th Street North Clearwater, FL 33762 We hereby consent to the reference to the opinion of our Firm in the Proxy Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, LAZARD FRERES & CO. LLC By /s/ Stephen H. Sands ----------------------------- Stephen H. Sands Managing Director EX-99.(B)(3) 3 PRESENTATION OF LAZARD FRERES & CO. LLC 1 EXHIBIT (b)(3) =============================================================================== PROJECT MEDIC PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS =============================================================================== LAZARD FRERES & CO. LLC JUNE 13, 1999 2 PROJECT MEDIC Table of Contents - -------------------------------------------------------------------------------
PAGE ---- I. MARKET PERSPECTIVES ON MEDIC Trading Statistics................................................................................... 1 Analyst Perspectives................................................................................. 4 II. VALUATION AND PROCESS Projections.......................................................................................... 5 Summary of Process................................................................................... 7 Summary Valuation.................................................................................... 8 Analysis at Various Prices........................................................................... 9 Implied Valuation - Equity Comparables, Transactions and Premiums.................................... 10 Summary DCF Analysis................................................................................. 13 Implied Valuation - LBO Transactions................................................................. 14 Summary LBO Analysis................................................................................. 15 APPENDICES A. Equity Comparables................................................................................... 16 B. Health Care Transactions Comparables................................................................. 17 C. LBO Transactions Comparables......................................................................... 18 D. Characteristics of Comparable LBO Transactions....................................................... 19 E. Weighted Average Cost of Capital Analysis............................................................ 20
3 PROJECT MEDIC I. Market Perspectives - ------------------------------------------------------------------------------- DEVELOPMENTS AT MEDIC SINCE JUNE 8, 1998 [Line graph showing price of Medic stock from June 8, 1998 to June 8, 1999, with the dates of the following key developments noted: 6/29/98 - Medic completes acquisition of Winfield Medical 9/3/98 - Medic reports $0.37 Q3 EPS matching First Call consensus 11/21/98 - Medic announces plan to acquire Circon for $243 million in cash and debt 1/5/99 - Medic signs credit agreement with Nationsbank to fund acquisition of Circon 1/7/99 - Medic reports $0.39 Q3 EPS vs. $0.40 First Call consensus 3/3/99 - Medic reports $0.40 Q1 EPS versus $0.42 First Call consensus 6/3/99 - Medic reports $0.42 Q2 EPS matching First Call consensus] [Bar graph showing trading volume (in thousands) of Medic shares from 6/8/98 to 6/8/99] -1- 4 PROJECT MEDIC I. Market Perspectives - ------------------------------------------------------------------------------- THREE YEAR TRADING PERFORMANCE [Line graph comparing three-year trading performance of S&P Medical Supply & Device, S&P Small Cap, Russell 2000 and Medic] [Bar graph tracking share price and trading volume (in thousands) of Medic from 6/7/96 to 6/8/99] - 2 - 5 PROJECT MEDIC I. Market Perspectives - ------------------------------------------------------------------------------- VOLUME TRADED AT VARIOUS SHARE PRICES
LAST 90 DAYS [Bar graph illustrating volume of Medic shares traded at various prices during the last 90 days] Shares Traded (thousands) Share Price % of Traded Volume Weighted Average Prices Per Share - ------------------------ ----------- ------------------ ----------------------- --------- 1,212.5 $15-$16 24.5% 30 Days $16.37 1,702.2 $16-$17 34.4% 60 Days 16.60 1,316.4 $17-$18 26.6% 90 Days 16.90 369.0 $18-$19 7.5% 350.4 $19-$20 7.1%
Trading Volume over period represents 34.5% of total shares outstanding Last 12 Months (Bar graph illustrating volume of Medic shares traded at various price during the last twelve months)
Shares Traded (thousands) Share Price % of Traded Volume Weighted Average Prices Per Share - ------------------------ ----------- ------------------ ----------------------- --------- 1,212.5 $15-$16 7.3% 180 Days $20.12 1,702.2 $16-$17 10.3% 270 Days 21.06 2,202.1 $17-$18 13.3% 360 Days 21.98 1,672.9 $18-$19 10.1% 722.9 $19-$20 4.4% 513.6 $20-$21 3.1% 337.1 $21-$22 2.0% 660.1 $22-$23 4.0% 293.9 $23-$24 1.8% 402.3 $24-$25 2.4% 1,527.5 $25-$26 9.2% 1,823.6 $26-$27 11.0% 1,556.8 $27-$28 9.4% 1,114.1 $28-$29 6.7% 861.5 $29-$30 5.2%
Trading Volume over period represents 115.8% of total shares outstanding Note: Based on 14.3 million primary shares outstanding Memo: In March 1998 Medic issued 4.0 million primary shares in a stock offering at $24.00 -3- 6 PROJECT MEDIC I. Market Perspectives - ------------------------------------------------------------------------------- ANALYST PERSPECTIVES
PRICE FISCAL YEAR EPS LT EPS ------------------- --------------- GROWTH AT ANALYST DATE RATING 1999 2000 RATE REPORT TARGET - ---------- --------- ---------- -------- ------- ------- ----- ------- Bear Stearns 6/4/99 Attractive $1.75 $2.05 17.0% $17.81 $30.00 Bank of America Securities 6/3/99 Buy 1.75 2.07 15.0% 17.69 30.00 Wachovia Securities 4/9/99 Neutral 1.75 2.05 15.0% 18.25 NA Everen Securities 3/4/99 Outperform 1.74 2.18 17.0% 16.94 38.00 -------------------------------------------------------------------------- Average of Set FY Estimates $1.75 $2.09 16.0% IBES FY Estimates 1.75 2.09 15.0% -------------------------------------------------------------------------- Comments ------------------------------------------------------------------------------- Bear Stearns "We continue to rate Medic shares Attractive. We are fine tuning our F1999 EPS estimates to $1.75, to reflect the penny shortfall in 2Q. Our F2000 estimate is being lowered to $2.05 from $2.12 to reflect our modified sales and margin assumptions post-Circon... Our 12-18 month price target remains $30, which assumes Medic can trade 17x our F1999 estimate of $1.75, roughly in line with its 15%-18% long term growth rate. Medic shares have been under tremendous pressure in the past quarter after a disappointing 1Q99. We feel that at current price levels, Medic shares are very inexpensive." Bank of America Securities "We modestly raise our 1999 earnings per share estimate and have become more confident that the company can reach our fiscal 2000 target of $2.07. While we realize that this company traffics in the back waters of the medical products field, has lower growth and margins, it should still carry a respectable multiple of 15-plus - a $30 Wachovia Securities "Our Neutral rating reflects current price competition in the custom procedure tray business, which was apparently started by a small competitor. We believe the stock may remain depressed until concerns over the price competition dissipate." Everen Securities "We believe the decline in the stock price was an overreaction. Medic is in higher margin businesses today than in the past and can reignite growth in its tray business moving forward. We therefore are confident in the fundamentals of the story and our new estimate of $1.74, down from $1.77, accounting for the $0.03 shortfall in Q1."
-4- 7 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- SUMMARY MEDIC PROJECTIONS - MANAGEMENT CASE ($ in millions, except per share)
YEAR ENDED NOVEMBER 1, ----------------------------------------------------------------------------------------------------- HISTORICAL PROJECTED 1999 PF - --------------------- ------------------------------------------------------------------- 2003 1998 PF(A) LTM PF(B) 1999 E(C) 1999 PF(A) 2000 2001 2002 2003 CAGR ---------- --------- --------- ---------- ---------- --------- --------- ---------- --------- Income Statement Items: Revenues $ 675.0 $ 679.9 $ 674.6 $ 701.8 $ 733.9 $ 768.2 $ 804.1 $ 841.8 4.7% % Growth -- -- -- 4.0% 4.6% 4.7% 4.7% 4.7% EBITDA 82.9 97.5 104.0 106.1 114.0 119.1 124.4 130.0 5.2% % Margin 12.3% 14.3% 15.4% 15.1% 15.5% 15.5% 15.5% 15.4% EBIT 52.6 67.3 72.5 72.9 80.7 84.6 88.8 93.2 6.4% % Margin 7.8% 9.9% 10.7% 10.4% 11.0% 11.0% 11.0% 11.1% Net Income (pre one-times) 8.3 18.3 25.7 24.0 29.8 33.4 38.1 43.0 15.7% % Growth -- -- -- 189.5% 24.3% 12.2% 13.8% 13.0% Fully Diluted EPS $ 0.64 $ 1.25 $ 1.75 $ 1.63 $ 1.99 $ 2.23 $ 2.54 $ 2.87 15.1% % Growth -- -- -- 156.9% 21.8% 12.2% 13.8% 13.0% Cash Flow Items: Capital Expenditures (45.0) (35.0) (25.0) (25.0) (15.8) (16.6) (17.4) (18.3) Change in Working Capital 5.2 0.0 (5.2) (5.2) (6.9) (7.8) (8.2) (8.6)
- -------------------------- (a) Pro Forma as if Citron had been acquired on November 1, 1997. 1998 data is from 8-K dated 3/19/99, adjusted to eliminate $4.5 million of expenses related to Citron tender offer expenses and write down of intangibles. (b) Latest twelve months for the period ending April 30, 1999, pro forma for Citron acquisition. (c) Management's guidance to research analysts. -5- 8 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- COMPARISON OF PROJECTIONS ($ in millions, except per share)
Revenues [Bar graph comparing Management and Wall Street average estimates of revenues] KEY PROJECTIONS PARAMETERS Year Average of Street Management Estimates - ------------------------------------------------------------------------ ---- ----------------- -------------------- - - 1999 revenue growth is slower than Wall Street 1998A -- 675 estimate, but management expects to hit earnings targets 1999 689 675 based on additional synergies from Citron. 2000 761 734 2001 -- 768 - - No acquisitions assumed in management model. 2002 -- 804 - - Management believes that 5% projected revenues growth is an aggressive target to hit without acquisitions.
EBITDA [Bar graph comparing Management and Wall Street average estimates of EBITDA] PRODUCT LINE EXPECTATIONS - ------------------------------------------------------------------------ PRODUCT LINE 1998 SALES 1999 GROWTH MARGIN EXPECTATION Year Average of Street Management Estimates - ---------------- ------------ ---------------- -------------------- ---- ----------------- -------------------- Custom Trays $308 Slight decrease ~24%/Flat 1998A -- 83 1999 107 104 Gloves 110 12% increase ~31%/up 100 bp 2000 121 114 2001 -- 119 Circon 153 4-6% increase ~56%/Flat 2002 -- 124 All Other 105 8-12% increase ~25%/up 100-150 bp
EPS [Bar graph comparing Management, Wall Street average, and IBES estimates of EPS]
Year Average of Street Management Estimates IBES ---- ----------------- -------------------- ---- 1998A .64 1999 1.75 1.75 1.75 2000 2.09 1.99 2.09 2001 2.42 2.24 2.40 2002 2.81 2.54 2.76
Notes: Average of Street consists of DLJ, Everen, and Bear Stearns research reports pro forma for Citron acquisition, with EPS beyond 2000 projected at 16.0%. IBES EPS beyond 2000 projected at 15.0%. Management estimates are pro forma for Citron, except for 1999 which includes partial year impact for comparability to analyst projections. -6- 9 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- SUMMARY OF PROCESS
SENT SIGNED PARTIES CONFIDENTIALITY CONFIDENTIALITY INDICATION OF CONTACTED AGREEMENT AGREEMENT INTEREST COMMENT ---------------- --------------- --------------- ------------- -------------------------------- Strategic A B C X X Not interested in Citron D E X X Not interested in Citron F G X Interested in Citron H X Financial 1 X X X $25.00 - $27.50 2 X X X $23.00 - $26.00
-7- 10 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- SUMMARY VALUATION OF MEDIC ($ in millions, except per share) VALUE PER SHARE OF MEDIC [Bar graph summarizing valuation per share of Medic]
Comparison Field High/Low Range Mean/Median Range - ---------------- -------------- ----------------- Comparable Companies(a) $33-$17 $24-$25 52 week high - $30.63 Precedent Transactions(b) $42-$18 $25-$28 Offer Price - $26.00 Premiums Paid(c) $27-$17 $21-$22 Current Price-$19.25 % of 52 week high(c) $35-$24 $29-$30 52 week low - $14.88 DCF Valuation(d) $35-$23 $28-$30 LBO Transactions(e) $37-$18 $28-$29 LBO Valuation(f) $26-$23
(a) Range of implied values assuming low and high multiples for Arrow International, ConMed, Dexter, Mentor, Owens & Minor and Safeskin. (b) Range of implied values assuming low and high multiples for selected comparable healthcare transactions. See Appendix B. (c) Range of implied values assuming 30 day premiums and 52 week highs for selected comparable healthcare transactions. (d) Assumes EBITDA exit multiples of 6.5x to 8.5x, perpetual growth rates of 3% - 5% and discount rate of 11%. (e) Range of implied values for selected medical LBOs. See Appendix C. (f) Assumes LBO IRR of 25% to 30% based on 6.5x to 8.5x EBITDA exit multiples in Year 5 and 5.7x pro forma Debt/LTM EBITDA. -8- 11 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- ANALYSIS AT VARIOUS PRICES ($ in millions, except per share data)
Stock Price $ 19.25 $ 24.00 $ 26.00 $ 28.00 $ 31.00 % Premium to Current 0.0% 24.7% 35.1% 45.5% 61.0% Treasury Adjusted Shares 14.6 14.8 14.9 15.0 15.1 EQUITY VALUE $ 281.4 $ 356.2 $ 387.7 $ 419.3 $ 466.6 ENTERPRISE VALUE $ 649.8 $ 724.7 $ 756.2 $ 787.8 $ 835.0
ENTERPRISE VALUE AS A MULTIPLE OF:
SELECTED COMPARABLE COMPANIES (A) --------------------------------------------------------- MEDIC DATA GROUP ARROW OWENS & Revenue ------- MEDIAN INT'L CONMED DEXTER MENTOR MINOR SAFESKIN ------ ----- ------ ------ ------ ------- -------- 2000E $733.9 0.89x 0.99x 1.03x 1.07x 1.14x 2.14x 2.14x 2.22x NA 1.24x 0.18x 2.58x 1999E 701.8 0.93 1.03 1.08 1.12 1.19 2.26 2.26 2.38 NA 1.42 0.20 3.15 LTM (b) 679.9 0.96 1.07 1.11 1.16 1.23 2.05 2.46 2.50 0.94 1.64 0.21 3.33 EBITDA 2000E $114.0 5.7x 6.4x 6.6x 6.9x 7.3x 6.6x 7.0x 8.3x NA 5.2x 6.2x 9.7x 1999E 106.1 6.1 6.8 7.1 7.4 7.9 7.4 8.0 8.8 NA 6.2 6.7 13.3 LTM (b) 97.5 6.7 7.4 7.8 8.1 8.6 9.0 9.0 9.2 6.0 10.0 7.7 11.5 EBIT 2000E $ 80.7 8.1x 9.0x 9.4x 9.8x 10.4x 8.0x 8.1x 10.7x NA 6.3x 7.9x 12.8x 1999E 72.9 8.9 9.9 10.4 10.8 11.5 9.0 9.4 11.6 NA 7.6 8.5 17.3 LTM (b) 67.3 9.7 10.8 11.2 11.7 12.4 11.9 11.5 12.3 8.5 13.2 9.9 14.8 EQUITY VALUE AS A MULTIPLE OF: Net Income 2000E $ 29.8 9.4x 12.0x 13.0x 14.1x 15.7x 11.7x 11.5x 14.9x 15.0x 10.8x 10.8x 11.8x 1999E 24.0 11.7 14.9 16.2 17.5 19.5 15.3 13.2 17.8 18.0 12.8 12.9 17.5 LTM (b) 18.3 15.4 19.5 21.2 22.9 25.5 15.7 16.0 19.1 15.5 19.8 14.9 14.0
- ------------------------------------------------ (a) Comparable companies are calendarized to a December 31 year end. (b) Medic latest twelve months pro forma financial information for period May 1, 1998 and May 1, 1999. -9- 12 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- IMPLIED VALUATION - EQUITY COMPARABLES ($ in millions, except per share data)
IMPLIED EQUITY VALUE NORMALIZED MULTIPLES (A) PER SHARE (B) -------------------------------- MEDIC -------------------------------------- LOW MEDIAN HIGH DATA LOW MEDIAN HIGH ----- ------- ------- -------- ------- ------- ------- Revenue 2000E 1.24x -- 2.14x 2.22x $ 733.9 $ 37.11 -- $82.23 $86.22 1999E 1.42 -- 2.26 2.38 701.8 43.08 -- 83.28 88.91 LTM 0.94 -- 2.05 2.50 679.9 18.46 -- 70.13 91.19 EBITDA 2000E 5.2x -- 6.6x -- 8.3x $ 114.0 $ 15.28 -- $26.17 -- $39.26 1999E 6.2 -- 7.4 -- 8.8 106.1 19.63 -- 28.39 -- 38.32 LTM 6.0 -- 9.0 -- 10.0 97.5 14.83 -- 34.50 -- 41.63 EBIT 2000E 6.3x -- 8.0x -- 10.7x $ 80.7 $ 9.61 -- $18.72 -- $33.60 1999E 7.6 -- 9.0 -- 11.6 72.9 12.50 -- 19.46 -- 32.71 LTM 8.5 -- 11.9 -- 14.8 67.3 14.02 -- 29.63 -- 42.78 Net Income 2000E 10.8x -- 11.7x -- 15.0x $ 29.8 $ 21.95 -- $23.81 -- $30.52 1999E 12.8 -- 15.3 -- 18.0 24.0 21.04 -- 25.14 -- 29.45 LTM 14.0 -- 15.7 -- 19.8 18.3 17.58 -- 19.69 -- 24.78 MEAN(c) $16.67 -- $23.62 -- $33.98 MEDIAN(c) 17.45 -- 24.47 -- 33.16 High(c) 21.95 -- 34.50 -- 42.78 LOW(c) 9.61 -- 18.72 -- 24.78
- ----------------------------- (a) See Appendix A for comparables. (b) Assumes 14.6 million treasury adjusted diluted shares outstanding and net debt of $368.5 million. (c) Revenue multiples excluded from summary multiples. LTM multiples excluded from the calculation of Mean and Median. -10- 13 PROJECT MEDIC II. Valuation - -------------------------------------------------------------------------------- Implied Valuation - Healthcare Transactions ($ in millions, except per share data)
Implied Equity Value Normalized Multiples (a) Per Share (b) -------------------------------- Medic ---------------------------------------- Low Median High Data Low Median High ----- ------ ---- ----- ------ ------ ------- LTM Revenue 0.89x -- 1.78x -- 2.73x $679.9 $16.33 -- $57.66 -- $101.59 LTM EBITDA 7.2 -- 9.2 -- 10.7 97.5 22.81 -- 36.30 -- 46.06 LTM EBIT 8.6 -- 11.0 -- 14.6 67.3 14.38 -- 25.23 -- 42.03 LTM Net Income 14.4 -- 18.2 -- 25.3 18.3 18.02 -- 22.80 -- 31.66
Mean(c) $18.40 -- $28.11 -- $39.92 Median(c) 18.02 -- 25.23 -- 42.03 High(c) 22.81 -- 36.30 -- 46.06 Low(c) 14.38 -- 22.80 -- 31.66
- -------------------- (a) See Appendix B for comparable transactions. (b) Assumes 14.6 million treasury adjusted diluted shares outstanding and net debt of $368.5 million. (c) Revenue multiples excluded from summary multiples. - 11 - 14 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- Implied Valuation - Premiums Paid ($ in millions, except per share data)
Acquisition Price Range Number of --------------------------- Medic Transactions Low Median High Data ------------ ----- ------ ---- ------ Acquisition Price as % of 52-week High (a) Selected Healthcare Transactions 8 78.4% -- 94.6% -- 113.5% $30.63 Selected Healthcare LBO Transactions 7 93.8% -- 96.6% -- 99.5% 30.63 Acquisition Price as % Premium to One Month Prior (a) Selected Healthcare Transactions 7 9.2% -- 19.6% -- 67.4% $16.00 (b) Selected Healthcare LBO Transactions 7 5.5% -- 16.8% -- 43.5% 16.00 (b) Selected LBO Transactions Since 1998 12 8.6% -- 32.5% -- 106.1% 16.00 (b) Implied Valuation ------------------------------ Low Median High ------ ------ ------ Acquisition Price as % of 52-week High (a) Selected Healthcare Transactions $24.02 -- $28.96 -- $34.76 Selected Healthcare LBO Transactions 28.73 -- 29.57 -- 30.48 Acquisition Price as % Premium to One Month Prior (a) Selected Healthcare Transactions $17.48 -- $20.89 -- $26.79 Selected Healthcare LBO Transactions 16.87 -- 19.71 -- 22.96 Selected LBO Transactions Since 1998 17.38 -- 23.03 -- 32.97
(a) See data in Appendices B and C. (b) Medic closing price on May 10, 1999. - 12 - 15 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- Summary Discounted Cash Flow Analysis ($ in millions, except per share data)
Projected Year Ended November 1, ---------------------------------------------------------------------- 1999 (a) 2000 2001 2002 2003 --------- ------ ------ ------ ------ EBITDA (Including Synergies) (b) $53.1 $114.0 $119.1 $124.4 $130.0 Less: D&A (16.6) (33.3) (34.5) (35.6) (36.8) --------- ------ ------ ------ ------ EBIT $36.4 $ 80.7 $ 84.6 $ 88.8 $ 93.2 Less: Taxes (17.8) (35.1) (36.6) (38.2) (40.0) --------- ------ ------ ------ ------ Tax Rate 39.0% 39.0% 39.0% 39.0% 39.0% Unlevered Net Income $ 18.6 $ 45.6 $ 48.0 $ 50.6 $ 53.2 Capital Expenditures $(12.5) $(15.8) ($16.6) ($17.4) ($18.3) Depreciation & Amortization 16.6 33.3 34.5 35.6 36.8 Change in Working Capital (2.6) (6.9) (7.8) (8.2) (8.6) --------- ------ ------ ------ ------ Unlevered Free Cash Flow $20.1 $ 56.2 $ 58.1 $ 60.6 $ 63.2 ========= ====== ====== ====== ======
EBITDA Valuation - ---------------------------------------------------------------------------------------------------------- NPV of Terminal Value @ Enterprise Value @ Equity Value Per Share (c) @ NPV of EBITDA Exit Multiple of EBITDA Exit Multiple of EBITDA Exit Multiple of Discount Future ----------------------- ----------------------- ----------------------------- Rate Cash Flows 6.5x 7.5x 8.5x 6.5x 7.5x 8.5x 6.5x 7.5x 8.5x - -------- ---------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 10.0% $198 $550 $635 $720 $749 $833 $918 $25.89 $31.66 $37.43 11.0% 194 528 610 691 722 803 884 24.07 29.61 35.15 12.0% 189 507 586 664 696 774 853 22.34 27.66 32.97
Perpetual Growth Valuation of Unlevered Free Cash Flows - ---------------------------------------------------------------------------------------------------------------- NPV of Terminal Value @ Enterprise Value @ Equity Value Per Share (c) @ NPV of Perpetual Growth Rate of Perpetual Growth Rate of Perpetual Growth Rate of Discount Future ------------------------ ------------------------ ----------------------------- Rate Cash Flows 3.0% 4.0% 5.0% 3.0% 4.0% 5.0% 3.0% 4.0% 5.0% - -------- ---------- ----- ----- ----- ----- ----- ------ ------ ------ ------ 10.0% $198 $605 $713 $864 $804 $911 $1,062 $29.65 $36.99 $47.26 11.0% 194 509 587 691 702 780 885 22.73 28.06 35.17 12.0% 189 434 493 569 623 682 758 17.35 21.37 26.54
(a) Income and cash flow data is pro rata for six months from May 1, 1999 to November 1, 1999. (b) Assumes annualized synergies of $5.0 million per year. (c) Assumes 14.6 million treasury adjusted diluted shares outstanding and net debt of $368.5 million. - 13 - 16 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- Implied Valuation - LBO Transactions ($ in millions, except per share data)
Implied Equity Value Normalized Multiples (a) Per Share (b) ------------------------------- Medic ----------------------------------- Low Median High Data Low Median High ----- ------ ----- ------ ------ ------ ------- LTM Revenue 0.87x -- 1.94x -- 2.73x $679.9 $15.26 -- $65.03 -- $101.59 LTM EBITDA 7.2 -- 8.6 -- 9.5 97.5 22.81 -- 32.33 -- 37.96 LTM EBIT 8.6 -- 11.8 -- 13.5 67.3 14.38 -- 28.93 -- 36.81 LTM Net Income 14.4 -- 18.7 -- 23.4 18.3 18.02 -- 23.41 -- 29.30
Mean(c) $18.40 -- $28.22 -- $34.69 Median(c) 18.02 -- 28.93 -- 36.81 High(c) 22.81 -- 32.33 -- 37.96 Low(c) 14.38 -- 23.41 -- 29.30
(a) See Appendix C for comparable transactions. (b) Assumes 14.6 million treasury adjusted diluted shares outstanding and net debt of $368.5 million. (c) Revenue multiples excluded from summary multiples. - 14 - 17 PROJECT MEDIC II. Valuation - ------------------------------------------------------------------------------- SUMMARY LBO ANALYSIS - RECAPITALIZATION ($ in millions, except per share data)
Key Assumptions - ---------------------------------------------------------------- % Shares Repurchased 87.3% Management Carry 5.0% Assumed Non-Public Annual Savings $ 10.0 Options Proceeds 5.8 Senior Bank Debt @ 8.1% 309.8 Subordinated Debt @ 11.0% 250.0 PIK Preferred Stock @ 14.0% & 3.0% Warrants 50.0 Equity Balance
Equity IRR Assuming Exit at End of Year 5 - ------------------------------------------------------------------------------- Purchase Price Per Share -------------------------------------------------------- $22.00 $23.00 $24.00 $25.00 $26.00 $27.00 ------ ------ ------ ------ ------ ------ EBITDA 6.5x 19.5% 17.3% 15.3% 13.5% 11.9% 10.4% Exit 7.5x 26.5% 24.1% 22.0% 20.1% 18.4% 16.8% Multiple 8.5x 32.2% 29.7% 27.5% 25.5% 23.7% 22.0%
Pro Forma Credit Statistics - ------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 LTM (a) 1999 2000 2001 2002 2003 ------- ------ ------ ------ ------ ------ Total Debt/EBITDA 5.7x 5.0x 4.1x 3.7x 3.2x 2.8x EBITDA/Interest 1.9 2.1 2.5 2.8 3.1 3.5 EBITDA - CapEx / Interest 1.2 1.6 2.2 2.4 2.7 3.0 Total Debt & Pref. /EBITDA 6.3x 7.4x 5.5x 4.7x 4.3x 3.9x Senior Debt Paydown 0.0% 4.8% 15.4% 27.1% 40.3% 54.9%
(a) Latest twelve months estimate for the period between May 1, 1998 and May 1, 1999. - 15 - 18 PROJECT MEDIC APPENDIX A - -------------------------------------------------------------------------------- Equity Comparables
Group Group Group Group ARROW Mean Median High Low MEDIC INTL CONMED DEXTER ----- ------ ----- ----- ------- ------- -------- -------- LTM Ended 1/31/99 2/28/99 3/31/99 3/31/99 LFY Ended 11/1/98 8/31/98 12/31/98 12/31/98 Current Market Information Ticker ARRO US CNMD US DEX US Exchange NASDAQ NASDAQ NYSE Share Price on 6/9/99 $ 19.25 $26.38 $ 31.38 $ 38.63 52 Week High 30.63 33.00 35.75 41.50 52 Week Low 14.88 18.63 19.75 23.50 Indicated Dividend -- 0.22 -- 1.04 Fully Diluted Shares Outstanding 14.53 23.17 15.70 23.14 Equity Value (a) $ 279.8 $611.2 $ 492.6 $ 893.6 Enterprise Value (b) 641.8 671.4 868.5 1,087.3 Enterprise Value/Sales 2000E 1.9x 2.1x 2.2x 1.2x 0.8x 2.1x 2.2x NA 1999E 2.0 2.3 2.4 1.4 0.9 2.3 2.4 NA LTM 1.9 2.0 2.5 0.9 1.2 2.5 2.5 0.9 Enterprise Value/EBITDA 2000E 6.7x 6.6x 8.3x 5.2x 5.4x 7.0x 8.3x NA 1999E 7.4 7.4 8.8 6.2 6.3 8.0 8.8 NA LTM 8.4 9.0 10.0 6.0 6.5 9.0 9.2 6.0 Enterprise Value/EBIT 2000E 8.2x 8.0x 10.7x 6.3x 7.2 8.1 10.7 NA 1999E 9.3 9.0 11.6 7.6 8.6 9.4 11.6 NA LTM 11.7 11.9 14.8 8.5 9.4 11.5 12.3 8.5 Price to Earnings 2000E 12.5x 11.7x 15.0x 10.8x 9.0x 11.5x 14.9x 15.0x 1999E 15.4 15.3 18.0 12.8 10.8 13.2 17.8 18.0 LTM 16.6 15.7 19.8 14.0 13.8 16.0 19.1 15.5 Long-Term Growth Rate (c) 11.1% 13.8% 18.8% 13.8% Summary Capitalization 1/31/99 2/28/99 3/31/99 3/31/99 -------- ------- ------- ------- Cash and Equivalents $ 7.0 $ 5.1 $ 4.2 $ 126.4 Short-Term Debt 22.6 53.6 25.4 71.0 Long-Term Debt 346.4 11.7 354.6 164.0 Minority Interest -- -- -- 85.0 Preferred Stock -- -- -- -- Common Stock 275.3 264.0 182.2 443.2 -------- ------- ------- ------- Total Book Capitalization (d) $644.4 $329.2 $562.2 $ 763.2 ======== ======= ======= ======= Total Debt / Total Capitalization 57.3% 19.8% 67.6% 30.8% OWENS & MENTOR MINOR SAFESKIN -------- -------- -------- LTM Ended 12/31/98 3/31/98 3/31/99 LFY Ended 3/31/98 12/31/98 12/31/98 Current Market Information Ticker MNTR US OMI US SFSK US Exchange NASDAQ NYSE NASDAQ Share Price on 6/9/99 $ 15.56 $ 10.88 $ 11.38 52 Week High 27.63 17.25 47.13 52 Week Low 9.38 9.50 7.13 Indicated Dividend 0.10 0.20 -- Fully Diluted Shares Outstanding 25.08 32.68 55.42 Equity Value (a) $ 390.4 $ 355.4 $ 630.4 Enterprise Value (b) 382.1 636.7 734.5 Enterprise Value/Sales 2000E 1.2x 0.2x(*) 2.6x(*) 1999E 1.4 0.2 (*) 3.2 (*) LTM 1.6 0.2 (*) 3.3 (*) Enterprise Value/EBITDA 2000E 5.2x 6.2x 9.7x(*) 1999E 6.2 6.7 13.3 (*) LTM 10.0 7.7 11.5 (*) Enterprise Value/EBIT 2000E 6.3 7.9 12.8 (*) 1999E 7.6 8.5 17.3 (*) LTM 13.2 9.9 14.8 Price to Earnings 2000E 10.8x 10.8x 11.8x 1999E 12.8 12.9 17.5 LTM 19.8 14.9 14.0 Long-Term Growth Rate (c) 19.2% 15.0% 21.0% Summary Capitalization 12/31/98 3/31/98 3/31/99 -------- ------- ------- Cash and Equivalents $ 13.8 $ 0.7 $ 7.0 Short-Term Debt 5.5 -- 6.0 Long-Term Debt -- 150.0 105.0 Minority Interest -- -- -- Preferred Stock -- 132.0 -- Common Stock 152.1 165.2 122.3 ------- ------- ------- Total Book Capitalization (d) $ 157.6 $ 447.2 $233.3 ======= ======= ======= Total Debt / Total Capitalization 3.5% 33.5% 47.6%
(*) Excluded from summary multiples as outliers. - 16 - 19 PROJECT MEDIC Appendix B - ------------------------------------------------------------------------------ HEALTHCARE TRANSACTIONS COMPARABLES ($ in millions except per share data)
DATES: PRICE PER SHARE/ TRANSACTION VALUE/ LTM ANNOUNCED EQUITY VS. ---------------- ---------------------- CLOSED BUYER/TARGET TRANS. VALUE LTM EPS BOOK VALUE EBIT EBITDA SALES ------ ------------ ------------ ------- ---------- ---- ------ ----- 5/27/99 The Carlyle Group $ 164.8 15.4x 5.1x 8.6x 7.5x 2.2x NA EMPI Inc. 162.82 4/30/99 Chase Capital (Chase Manhattan Corp.) $ 201.0 NA NA 12.4x NA 1.9x NA Donjoy (Smith & Nephew) 201.0 12/23/98 Kimberly-Clark Corporation 778.3 24.9* 4.4* 14.4* 12.3* 4.7* NA Ballard Medical Products 703.7 11/20/98 Maxxim Medical, Inc. 207.1 25.3 1.9 16.5* 10.7 1.6 1/8/99 Circon Corporation 241.4 10/9/98 Cardinal Health Inc. 4,768.8 44.6* 12.5* 24.1* 15.8* 1.3* 2/3/99 Allegiance Corporation 5,603.8 5/20/98 Maxxim Medical, Inc. 31.50 NA NA NA NA 1.5 6/29/98 Winfield Medical 36.8 2/12/98 Freeman Spogli & Co., and Management 162.3 14.4 7.2 8.6 7.2 1.8 4/7/98 Hudson Respiratory Care Inc. 182.0 12/22/97 Tyco International Ltd. 1,770.0 21.8 NA 14.6 9.5 1.8 3/3/98 Sherwood-Davis & Geck 1,770.0 11/27/97 Conmed Corporation 370.0 NA NA 10.1 NA 1.7 12/31/97 Linvatec Corp. (Bristol-Myers 386.6 9/4/97 Kimberly-Clark Corporation 407.8 16.8 4.2 11.0 9.0 2.2 12/18/97 Tecnol Medical Products Inc. 407.9 7/11/97 Investor Group (Freemont Partners) 821.3 19.6 4.1 12.7 9.5 2.7 11/6/97 Kinetic Concepts, Inc. 780.4 1/28/97 McKesson Corporation 347.0 NM NM 15.9* 12.6* 0.5* 2/24/97 General Medical Inc. 775.0 2/26/96 Maxxim Medical, Inc. 112.0 15.7 6.6 11.3 9.5 0.9 7/29/96 Sterile Concepts Holdings Inc. 139.6 6/1/95 Maxxim Medical, Inc. 75.0 NA NA NA NA 0.9 7/6/95 Medical Glove Division (Becton Dickinson) 75.0 7/14/94 Tyco International Ltd. 1,219.4 19.7 4.8 10.5 8.6 1.8 10/19/94 Kendall International Inc. 1,428.2 Mean: 18.6x 4.8x 11.1x 8.9x 1.8x Median: 18.2 4.8 11.0 9.2 1.8 High: 25.3 7.2 14.6 10.7 2.7 Low: 14.4 1.9 8.6 7.2 0.9 DATES: PRICE AS ANNOUNCED ONE MONTH EBIT/ SALES % OF 52 CLOSED BUYER/TARGET PREMIUM SALES GROWTH WEEK HIGH ------ ------------ ------- ----- ------ --------- 5/27/99 The Carlyle Group 16.8% 25.7% 1.7% 93% NA EMPI Inc. 4/30/99 Chase Capital (Chase Manhattan Corp.) NM 15.6% NA NM NA Donjoy (Smith & Nephew) 12/23/98 Kimberly-Clark Corporation 14.3% 32.5% 0.17 90% NA Ballard Medical Products 11/20/98 Maxxim Medical, Inc. 67.4% 9.7% NM 78% 1/8/99 Circon Corporation 10/9/98 Cardinal Health Inc. 24.1% 5.2% -4.0% 112% 2/3/99 Allegiance Corporation 5/20/98 Maxxim Medical, Inc. NM NA NA NM 6/29/98 Winfield Medical 2/12/98 Freeman Spogli & Co., and Management NM 21.3% 7.1% NM 4/7/98 Hudson Respiratory Care Inc. 12/22/97 Tyco International Ltd. NA 12.4% NA NA 3/3/98 Sherwood-Davis & Geck 11/27/97 Conmed Corporation NA 16.7% NA NA 12/31/97 Linvatec Corp. (Bristol-Myers 9/4/97 Kimberly-Clark Corporation NM 20.1% NA 83% 12/18/97 Tecnol Medical Products Inc. 7/11/97 Investor Group (Freemont Partners) 9.2% 21.4% 9.4% 97% 11/6/97 Kinetic Concepts, Inc. 1/28/97 McKesson Corporation NM 2.9% 25.8% NM 2/24/97 General Medical Inc. 2/26/96 Maxxim Medical, Inc. 55.3% 8.0% 11.5% 113% 7/29/96 Sterile Concepts Holdings Inc. 6/1/95 Maxxim Medical, Inc. NA NA NA NA 7/6/95 Medical Glove Division (Becton Dickinson) 7/14/94 Tyco International Ltd. 19.6% 16.7% NA 110% 10/19/94 Kendall International Inc. Mean: 29.5% 16.0% 9.8% 97.1% Median: 19.6% 16.7% 9.4% 94.6% High: 67.4% 32.5% 25.8% 113.5% Low: 9.2% 2.9% -4.0% 78.4%
- ------------------------------------- (*) Excluded from summary multiples as outliers. - 17 - 20 PROJECT MEDIC Appendix C - ------------------------------------------------------------------------------- LBO TRANSACTIONS COMPARABLES ($ in millions except per share data)
Dates: Price Per Share/ Transaction Value/ LTM Announced Equity vs. ---------------- ------------------------ One Month EBIT/ Sales Closed Buyer/Target Trans.Value LTM EPS Book Value EBIT EBITDA Sales Premium Sales Growth - ----------- ------------------------------------- ------------ ------- ---------- ------- ------- ------ ------- ----- ------ 5/27/99 The Carlyle Group $ 164.8 15.4x 5.1x 8.6x 7.5x 2.2x 16.8% 25.7% 1.7% NA EMPI Inc. 162.82 4/30/99 Chase Capital (Chase Manhattan Corp.) $ 201.0 NA NA 12.4x NA 1.9x NM 15.6% NA NA Donjoy (Smith & Nephew) 201.0 3/3/99 Welsh, Carson Anderson & Stowe et al. 780.5 17.8 3.3 11.1 8.6 1.6 43.5% 14.4% 24.9% NA Concentra Managed Care 989.5 1/27/99 Madison Dearborn Partners et al. 355.4 NA NA 6.4 * 5.5 * 0.5 * NA 8.1% NA NA Team Health Grp (MedPartners) 355.4 3/13/98 Welsh Carson Anderson & Stowe et al. 227.8 38.1 * 2.4 22.4 * 10.6 * 2.5 36.3% 11.0% 70.3% 7/31/98 MedCath 372.7 2/12/98 Freeman Spogli & Co., and Management 162.3 14.4 7.2 8.6 7.2 1.8 NM 21.3% 7.1% 4/7/98 Hudson Respiratory Care Inc. 182.0 1/15/98 Bruckmann Rosser Sherrill & Co. 392.1 NM NM 18.1 * 8.9 3.4 * 25.4% 18.9% 8.6% 5/29/98 MEDIQ Incorporated 534.3 8/7/97 Thomas H. Lee Co. 1,041.7 23.4 9.4 13.5 9.3 0.6 * 5.5% 4.6% 54.6% 1/21/98 Fisher Scientific International Inc. 1,340.5 7/11/97 Fremont Partners et al. 821.3 19.6 4.1 12.7 9.5 2.7 9.2% 21.4% 9.4% 11/6/97 Kinetic Concepts, Inc. 780.4 6/24/97 Apollo Management, L.P. 77.29 20.5 2.8 14.1 * 7.5 4.0 * 8.0% 28.3% 23.5% 9/29/97 SMT Health Services Inc. 85.10 11/29/94 River Medical Acquisition Corp. (DLJ) 200.0 NA NA NA NA 0.9 NA NA NA 12/31/94 Ivac Corporation (Eli Lilly) 200.0 Mean: 18.5x 4.9x 11.2x 8.4x 1.9x 20.7% 16.9% 25.0% Median: 18.7 4.1 11.8 8.6 1.9 16.8% 17.3% 16.5% High: 23.4 9.4 13.5 9.5 2.7 43.5% 28.3% 70.3% Low: 14.4 2.4 8.6 7.2 0.9 5.5% 4.6% 1.7% Dates: Price as Announced % of 52 Closed Buyer/Target Week High - ---------- ------------------------------------- --------- 5/27/99 The Carlyle Group 93% NA EMPI Inc. 4/30/99 Chase Capital (Chase Manhattan Corp.) NM NA Donjoy (Smith & Nephew) 3/3/99 Welsh, Carson Anderson & Stowe et al. 46.5% NA Concentra Managed Care 1/27/99 Madison Dearborn Partners et al. NA NA Team Health Grp (MedPartners) 3/13/98 Welsh Carson Anderson & Stowe et al. 93.8% 7/31/98 MedCath 2/12/98 Freeman Spogli & Co., and Management NM 4/7/98 Hudson Respiratory Care Inc. 1/15/98 Bruckmann Rosser Sherrill & Co. 107.4% 5/29/98 MEDIQ Incorporated 8/7/97 Thomas H. Lee Co. 99.5% 1/21/98 Fisher Scientific International Inc. 7/11/97 Fremont Partners et al. 96.6% 11/6/97 Kinetic Concepts, Inc. 6/24/97 Apollo Management, L.P. 98.9% 9/29/97 SMT Health Services Inc. 11/29/94 River Medical Acquisition Corp. (DLJ) NA 12/31/94 Ivac Corporation (Eli Lilly) Mean: 90.8% Median: 96.6% High: 107.4% Low: 46.5%
- -------------------------------- * Excluded from summary multiples as outliers. - 18 - 21 PROJECT MEDIC Appendix D - ------------------------------------------------------------------------------- CHARACTERISTICS OF COMPARABLE PUBLICLY DISCLOSED LBO TRANSACTIONS ($ in millions)
DATES: ONE MGMT SPECIAL OWNERSHIP ANNOUNCED EQUITY VS. MONTH LED COMMITTEE OF INTERESTED CLOSED BUYER/TARGET TRANS. VALUE PREMIUM BUYOUT APPOINTED PROCESS PARTIES - ---------- -------------------------- ------------ ------- ------- --------- -------------------- ---------------- Fox Paine & Co LLC 387.7 62.5% Yes Yes Management offer led Mgmt 12.6% Medic 756.2 to limited auction All Ben. 12.6% - -------------------------------------------------------------------------------------------------------------------------------- 3/31/99 Management and Trivest 254.2 28.8% Yes Yes Offer from management Mgmt 37.9% NA Winsloew Furniture Inc 254.1 led to limited auction Trivest 20.2% 2/3/99 Management and Vestar 510.9 15.4% Yes Yes Management offer led Mgmt 12.5% NA St John Knits Inc 496.4 to limited auction Vestar 7.3% 11/23/98 Management 81.1 14.5% Yes Yes Mgmt merger agreement Mgmt 20.3% NM Hudson General 44.3 led to unsolicited offers GAMCO 49.6% 10/22/98 Welsh Carson 192.1 86.9% No Yes Limited auction Mgmt 10.6% NA Centennial Healthcare Corp 285.7 WCAS 25.3% 7/24/98 Blackstone and Veritas 142.9 75.8% No No Initial Blackstone offer NA 9/21/98 Republic Engineered Steels 394.1 led to full auction 6/24/98 Apollo Management LP 195.2 56.5% No Yes Full auction Mgmt 18.8% 8/28/98 MTL Inc 248.4 Apollo 24.7% 6/23/98 Investor Group 158.0 39.1% No No Full auction Mgmt 17.0% NA Celadon Group Inc 249.5 All Ben. 60.8% 4/21/98 Jupiter Partners LP 232.5 17.8% No No Limited auction Mgmt 46.0% 8/25/98 PCA International Inc. 271.3 All Ben. 70.7% 3/13/98 Management 85.5 15.9% Yes Yes Management offer led NA NA Pollo Tropical Inc. 88.7 to limited auction 3/13/98 Welsh Carson 227.8 36.3% No Yes Full auction Mgmt 24.4% 7/31/98 MedCath 372.7 WCAS 7.5% 2/17/98 Investor Group 146.8 8.6% No Yes Full auction Mgmt 25.6% 8/17/98 Bell Sports 215.2 All Ben. 54.2% 1/15/98 Bruckmann Rosser Sherrill 392.1 25.4% No Yes Full auction Mgmt 73.5% 5/29/98 MEDIQ Incorporated 534.3 12/22/97 Clayton, Dubilier & Rice 889.5 30.4% Yes Yes Bilateral negotiations Mgmt 2.5% 5/21/98 Dynatech Corp. 842.2 with management All Ben. 14.8% 8/7/97 Thomas H. Lee Co. 1,041.7 5.5% No No Unsolicited offer led Mgmt 7.3% 1/21/98 Fisher Scientific Int. Inc. 1,340.5 to full auction All Ben. 17.8% 7/11/97 Fremont Partners et al. 821.3 9.2% No No Full auction Mgmt 54.9% 11/6/97 Kinetic Concepts, Inc. 780.4 RCBA 9.5% 6/24/97 Apollo Management, L.P. 77.3 8.0% No No Full auction Mgmt 19.7% 9/29/97 SMT Health Services Inc. 85.1 All Ben. 34.7% 6/6/96 Investor Group 2,136.8 22.0% No Yes Full auction Mgmt 2.2% 10/1/96 AT&T Capital Corp. 9,196.9 4/23/96 Investment Group (Mgmt) 697.3 -4.0% No Yes Limited auction that Mgmt 23.0% 8/22/96 Sterling Chemicals, Inc. 820.2 expanded to a full auction 10/26/95 Investment group (Mgmt) 1,330.1 -12.9% No Yes Full auction Mgmt 0.1% 3/28/96 Riverwood International Inc. 2,305.6 Manville 81.3% -------------------------------------------------- Mean (excluding Medic) 25.2% Median (excluding Medic) 17.8% -------------------------------------------------- DATES: BREAKUP BREAKUP FEE + EXP. ANNOUNCED NO SHOP INDUCEMENTS BREAKUP EXPENSE FEE/EQUITY ------------------- CLOSED BUYER/TARGET PROVISION PRE-ANNOUNCEMENT FEE REIMBURSE. VALUE EQU. VAL. ENT. VAL. - ---------- ---------------------------- --------- -------------------------- -------- ---------- ---------- --------- --------- Fox Paine & Co LLC Yes No inducements $16.0 $3.0 * 4.1% 4.9% 2.5% Medic - ------------------------------------------------------------------------------------------------------------------------------------ 3/31/99 Management and Trivest Yes Reimburse expenses up to $6.0 $1.2 2.4% 2.8% 2.8% NA Winsloew Furniture Inc $1.2 million 2/3/99 Management and Vestar Yes No inducements $14.0 $1.5 2.7% 3.0% 3.1% NA St John Knits Inc 11/23/98 Management Yes No inducements None $1.8 NM 2.2% 4.0% NM Hudson General 10/22/98 Welsh Carson Yes No inducements $3.0 NA 1.6% NA NA NA Centennial Healthcare Corp 7/24/98 Blackstone and Veritas Yes No inducements None None NM NM NM 9/21/98 Republic Engineered Steels Tender offer 6/24/98 Apollo Management LP Yes Management presentations to $6.0 $1.5 3.1% 3.8% 3.0% 8/28/98 MTL Inc other bidders delayed 6/23/98 Investor Group Yes Three week exclusivity $6.5 $1.5 4.1% 5.1% 3.2% NA Celadon Group Inc Expense reimbursement 4/21/98 Jupiter Partners LP Yes Exclusivity $6.0 Yes 2.6% 2.6% 2.2% 8/25/98 PCA International Inc. 3/13/98 Management Yes No inducements None None NM NM NM NA Pollo Tropical Inc. Tender offer 3/13/98 Welsh Carson Yes No inducements $6.8 Yes 3.0% 3.0% 1.8% 7/31/98 MedCath 2/17/98 Investor Group Yes No inducements $2.5 $0.5 1.7% 2.0% 1.4% 8/17/98 Bell Sports 1/15/98 Bruckmann Rosser Sherrill Yes One week exclusivity ND ND NA NA NA 5/29/98 MEDIQ Incorporated 12/22/97 Clayton, Dubilier & Rice Yes No inducements $24.5 $5.0 2.8% 3.3% 3.5% 5/21/98 Dynatech Corp. 8/7/97 Thomas H. Lee Co. No No inducements $25.0 $12.0 2.4% 3.6% 2.8% 1/21/98 Fisher Scientific Int. Inc. 7/11/97 Fremont Partners et al. Yes Three weeks exclusivity $30.0 $2.0 3.7% 3.9% 4.1% 11/6/97 Kinetic Concepts, Inc. $24 million damages provision if exclusivity violated 6/24/97 Apollo Management, L.P. Yes No inducements $3.4 $1.8 4.4% 6.7% 6.1% 9/29/97 SMT Health Services Inc. 6/6/96 Investor Group Yes No inducements None None NM NM NM 10/1/96 AT&T Capital Corp. 4/23/96 Investment Group (Mgmt) Yes No inducements $8.0 None 1.1% 1.1% 1.0% 8/22/96 Sterling Chemicals, Inc. 10/26/95 Investment group (Mgmt) Yes No inducements $37.5 $6.7 2.8% 3.3% 1.9% 3/28/96 Riverwood International Inc. ----------------------------------------------------- Mean (excluding Medic) 2.7% 3.3% 2.9% Median (excluding Medic) 2.7% 3.2% 2.9% -----------------------------------------------------
* Breakup fee is $19.0 including expenses. Estimated expenses based on capital structure, legal, filing, etc. - 19 - 22 PROJECT MEDIC Appendix E WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS ($ in millions, except per share data)
Levered Unlevered Debt/Mkt. Cap. Market Equity Ticker Company Beta(a) Beta(b) Ratio Debt(c) (i) Value(i) - ------- ------------- -------- --------- -------------- ----------- ------------- ARRO US ARROW INTL 0.83 0.78 9.7% 65 611 CNMD US CONMED 0.81 0.55 43.5% 380 493 DEX US DEXTER 0.84 0.73 20.8% 235 894 MEDIC 0.99 0.55 56.9% 369 280 MNTR US MENTOR 1.25 1.24 1.4% 6 390 OMI US OWENS & MINOR 0.88 0.70 29.7% 150 355 SFSK US SAFESKIN 1.34 1.21 15.0% 111 630 ------- --------- -------------- 0.88 0.73 20.8%
Median Assumptions - --------------------------------------- Marginal Tax Rate 40.0% Risk Free Rate of Return(d) 6.01% Equity Risk Premium(e) 7.50%
Pre-Tax/After-Tax Cost of Debt ------------------------------------------------------------ 8.00% 8.25% 8.50% 8.75% 9.00% 9.25% 9.50% 9.75% 4.80% 4.95% 5.10% 5.25% 5.40% 5.55% 5.70% 5.85%
Median Debt/ Debt/ Unlevered Levering Levered Cost of Cap. Equity Beta Factor(f) Beta Equity(g) Weighted Average Cost of Capital(h) ------ ------ --------- --------- ------- --------- ------------------------------------------------------------ 0.0% 0.0% 0.73 1.00 0.73 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 10.0% 11.1% 0.73 1.07 0.77 11.8% 11.1% 11.1% 11.1% 11.2% 11.2% 11.2% 11.2% 11.2% 20.0% 25.0% 0.73 1.15 0.83 12.3% 10.8% 10.8% 10.8% 10.9% 10.9% 10.9% 11.0% 11.0% 30.0% 42.9% 0.73 1.26 0.91 12.8% 10.4% 10.5% 10.5% 10.6% 10.6% 10.7% 10.7% 10.7% 40.0% 66.7% 0.73 1.40 1.02 13.6% 10.1% 10.2% 10.2% 10.3% 10.3% 10.4% 10.5% 10.5% 50.0% 100.0% 0.73 1.60 1.16 14.7% 9.8% 9.8% 9.9% 10.0% 10.1% 10.1% 10.2% 10.3% 60.0% 150.0% 0.73 1.90 1.38 16.3% 9.4% 9.5% 9.6% 9.7% 9.8% 9.9% 10.0% 10.0%
Notes: (a) Barra projected betas. (b) Unlevered Beta = Levered Beta/[1+(1-Tax Rate)(Debt/Equity)] (c) Debt includes Short-Term Debt and Long-Term Debt. (d) Risk Free Rate is 30-Year Treasury Bond Yield as of June 09, 1999. (e) Represents the long-horizon expected equity risk premium based on simple differences of historical arithmetic mean returns from 1926-1996 (Ibbotson Associates' 1997 Yearbook). (f) Levering Factor = [1 + (1-Tax Rate)(Debt/Equity)] (g) Cost of Equity = (Risk Free Rate of Return)+(Levered Beta)(Equity Risk Premium) (h) Weighted Average Cost of Capital = (After-Tax Cost of Debt)(Debt/Cap.)+(Cost of Equity)(Equity/Cap.) (i) Reported in local currency. - 20 - EX-99.(C)(6) 4 AMENDED AND RESTATED INVESTOR AGREEMENT 1 Exhibit (c)(6) AMENDED AND RESTATED INVESTOR PARTICIPATION AGREEMENT THIS INVESTOR PARTICIPATION AGREEMENT (this "Agreement"), dated June 13, 1999, as amended and restated on September 30, 1999, is made by and among Fox Paine Medic Acquisition Corporation, a Texas corporation ("Purchaser") and the undersigned individuals, whose names are set forth on the signature page below (collectively, the "Investors" and, together with Purchaser, the "Parties"), acting in their individual capacities (other than Kenneth W. Davidson, who is acting in his individual capacity and as general partner of Davidson Management International Limited Partnership). WHEREAS, concurrently herewith, Purchaser and Maxxim Medical, Inc., a Texas corporation (the "Company"), are entering into an Agreement and Plan of Merger, of even date herewith (the "Merger Agreement"), providing for a recapitalization transaction that will result in Purchaser and the Investors owning substantially all of the outstanding capital stock of the Company, as more fully set forth therein; NOW, THEREFORE, in consideration of the promises and the representations, warranties and agreements contained herein, the parties hereto agree as follows: 1. Parties to be Bound by Attached Term Sheet. The Parties, and each of them, severally agree to all of the terms and conditions set forth in the term sheet attached hereto as Annex A and the attachments thereto (the "Term Sheet") and the stock and option treatment provided therein, and, unless and until definitive documentation incorporating the terms set forth in the Term Sheet has been executed and delivered, each of the Parties agrees that the Term Sheet constitutes a binding agreement among the Parties, enforceable against each such Party in accordance with its terms. 2. Execution of Definitive Documentation. Each Party agrees to negotiate in good faith and use all reasonable efforts to prepare, execute and deliver definitive agreements and other instruments implementing the terms set forth in the Term Sheet on reasonable and customary terms; provided, however, that no failure or delay in the delivery and execution of such definitive agreements or instruments shall affect the validity, enforceability or binding nature of the Term Sheet. Without limiting the foregoing, Purchaser agrees that after Closing the Company will prepare, adopt and effectuate any employee benefit plans, including stock option plans, and including issuing options to purchase shares of its capital stock pursuant to such plans, as may be necessary to effectuate the purposes and intent of the Term Sheet. 3. Merger Agreement. Each Investor hereby acknowledges that such Investor has read the Merger Agreement and has had an opportunity to consult with such Investor's counsel concerning the same, and the Investor accepts and agrees to the terms and conditions of the Merger Agreement that relate to the treatment of such Investor's shares of Company common stock (including as provided in Section 1.8(b)) and such Investor's options to purchase shares of Common Stock (including as provided in Section 1.10), and the Investor hereby irrevocably waives any claim that the Merger Agreement, the Merger or any other transaction contemplated by the Merger Agreement (including the Circon Sale (as defined therein)) violates any right of 2 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. -2- 3 IN WITNESS WHEREOF, Purchaser, the Company, and each of the Investors has executed this Agreement as of the date first written above. FOX PAINE MEDIC ACQUISITION CORPORATION By: /s/ Saul A. Fox ----------------------------------- Name: Saul A. Fox Title: Chief Executive Officer (Investor Signatures appear on following page) [Signature Page 1 of 2 to Investor Participation Agreement] 4 INVESTORS: /s/ Kenneth W. Davidson --------------------------------------------- Name: Kenneth W. Davidson, in his individual capacity and as general partner of Davidson Management International Limited Partnership /s/ Peter M. Graham --------------------------------------------- Name: Peter M. Graham /s/ David L. Lamont --------------------------------------------- Name: David L. Lamont /s/ Henry T. DeHart --------------------------------------------- Name: Henry T. DeHart /s/ Jack F. Cahill --------------------------------------------- Name: Jack F. Cahill /s/ Alan Blazei --------------------------------------------- Name: Alan Blazei /s/ Joseph Dailey --------------------------------------------- Name: Joseph Dailey /s/ Suzanne Garon --------------------------------------------- Name: Suzanne Garon /s/ Ernest J. Henley --------------------------------------------- Name: Ernest J. Henley /s/ Davis C. Henley --------------------------------------------- Name: Davis C. Henley [Signature Page 1 of 2 to Investor Participation Agreement] 5 AMENDED AND RESTATED PROJECT MEDIC MANAGEMENT/DIRECTOR EQUITY INVESTMENT AND STOCK AND COMPENSATION TERM SHEET This term sheet sets forth the principal terms and conditions under which the executive management team (the "Management Investors") and Ernest J. Henley and Davis C. Henley (the "Other Investors", and together with the Management Investors, the "Rollover Investors") of Maxxim Medical, Inc. ("Medic" or the "Company") are to retain an equity interest in Medic and Circon Corporation ("Citron") upon the recapitalization of the Company and related transactions (the "Recapitalization") by the investment funds managed by Fox Paine & Company, LLC ("Fox Paine") and the Rollover Investors. It also sets forth the principal terms and conditions of the ongoing stock and compensation arrangements. RECAPITALIZATION PRICE: $26 per share. ROLLOVER INVESTORS: The names, share ownership, vested options, and unvested options of each Rollover Investor are summarized in Exhibit A. Exhibit B provides additional detail concerning the split-up of Citron from Medic and its effect on shares and options held by the Rollover Investors. If, in order to facilitate the Recapitalization, Fox Paine reallocates its relative equity contributions between Medic and Citron, the Rollover Investors agree that their respective equity in Medic and Citron will also be equitably adjusted in order to preserve the proportionate ownership between the Rollover Investors and Fox Paine currently reflected in Exhibits A and B. SHARE OWNERSHIP The Rollover Investors collectively own 927,318 AND ROLLOVER: 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 The Management Investors collectively hold options UNVESTED 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 668,025 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 668,025 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 6 Recapitalization Price (the aggregate being 668,025 less the Medic Additional Shares purchased pursuant to the prior sentence). The remaining 416,175 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 $5.0 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 of PROMISSORY NOTES: 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 7 Company and Citron (in each case on a fully diluted basis) at a 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 ------------------------------------------------------------ FISCAL EBITDA % OF OPTION POOL VESTING THROUGH YEAR TARGET ACHIEVEMENT OF EBITDA TARGET --------- ------ -------------------------------- (IN MILLIONS) 1999 $80.9 20% 2000 $84.3 20% 2001 $88.5 20% 2002 $92.9 20% 2003 $97.6 20% VESTING SCHEDULE FOR POOL A CITRON OPTIONS ------------------------------------------------------------ FISCAL EBITDA % OF OPTION POOL VESTING THROUGH YEAR TARGET ACHIEVEMENT OF EBITDA TARGET --------- ------ -------------------------------- (IN MILLIONS) 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 Paine's realization of its investment in the Company or Citron, as the case may be, provided that such realization yields an IRR to Fox Paine of at least 30.0% after giving effect to the vesting and exercise of the Pool B Options pursuant to this clause (ii), or (iii) the ninth anniversary of the date of grant. For the purposes of the Pool B Options, a primary initial public offering of the Company's or Citron's stock, as the case may be (an "Initial Public Offering"), shall not constitute a realization of Fox Paine's investment in the Company or Citron, respectively. The Time Based Options and the Pool A Options will also vest and be exercisable, regardless of the passage of time, upon Fox Paine's realization of an IRR of at least 30.0%. 8 ALLOCATION OF OPTION POOL: The total Option Pool will be granted to the Management Investors, based on the recommendation of Kenneth W. Davidson for approval by the Compensation Committee of the Board of Directors. TERMINATION OF NEW Stock options granted under the New Incentive Plans INCENTIVE PLAN OPTIONS: 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 agreements for the Management Investors will be EMPLOYMENT terminated without payment and superseded by new AGREEMENTS: employment agreements that will become effective upon the consummation of the transaction. The material terms of the new agreements are set forth on Exhibit D. TAG-ALONG RIGHT: If, at any time prior to an Initial Public Offering, Fox Paine or a Rollover Investor (as the case may be) accepts a third party offer to sell any or all of its common stock in either company (other than to a permitted transferee), Fox Paine and each other Rollover Investor (as the case may be) will be able to participate on a proportionate basis, based on ownership, at the same price and on the same terms in the sale of shares of such company. DRAG-ALONG RIGHTS: Prior to an Initial Public Offering, if Fox Paine sells at least 50% of its common stock in either company in a bona fide arm's length transaction or series of related transactions, Fox Paine may require the Rollover Investors to sell a proportional number (on an as-converted basis) of their shares of common stock in that same company in the same transaction (at the same price and on the same terms, with appropriate adjustments for warrants or options). 9 REGISTRATION RIGHTS: After an Initial Public Offering, the Rollover Investors will have one demand in Citron and two in Medic, and Fox Paine will have five in each. All such parties will have full piggybacks in each other's demands, with no relative priority as to cutbacks; cutbacks will be proportional based on ownership among the parties, no matter who initiated the demand. Fox Paine and Rollover Investors will also have customary "piggyback" registration rights. Expenses, in both demands and piggybacks, to be borne by Medic or Citron, as the case may be. Other customary registration rights provisions will apply, including holdbacks, indemnification and contribution provisions. If Fox Paine is permitted to sell secondary shares in an Initial Public Offering, the Rollover Investors will get a proportionate opportunity. RIGHT OF FIRST OFFER: Fox Paine and the Rollover Investors will have reciprocal proportional rights of first offer (seller to propose minimum sale price) on transfers of shares (acceptance must be all shares offered or none as to the group), other than transfers to customary permitted transferees (including with respect to Fox Paine, its investors and affiliates, and including with respect to Rollover Investors, family members and trusts for them), prior to an Initial Public Offering. Permitted transferees step into shoes of transferor for transfer restriction and registration rights provisions. LIQUIDITY UPON DEATH OR Citron Shares: The Management Investors will have DISABILITY AND CERTAIN the right to "put" all of their Citron shares to TERMINATIONS: Citron at fair market value, upon death or disability or termination of employment for Good Reason, or by the companies without Cause (each as defined in the Employment Agreement). Medic Shares: The Management Investors will have the right to "put" their shares of Medic which were acquired upon the exercise of stock options (provided that the shares have been held for at least six months), less the number of shares used to exercise in cashless exercises, but including the Medic Additional Shares (the governing objective being to preserve recapitalization accounting) to Medic at fair market value, upon death or disability or termination of employment for Good Reason or by the companies without Cause. Notwithstanding the above, the put rights described above will be subject to each company's available cash flow, debt restrictions and any legal restrictions on distributions of cash from the relevant company. In the event the payments with respect to put rights are not satisfied in whole or in part immediately, the payments will be a continuing obligation of the relevant company and such rights will be satisfied before the payment of any dividends or distributions to shareholders. Any unpaid amounts upon exercise of a put right will accrue interest at applicable "afr" rate. The put rights terminate upon an Initial Public Offering. 10 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). BOARD OF DIRECTORS: Each Company's Board of Directors will initially consist of Kenneth W. Davidson (Chairman), Ernest J. Henley, Ph.D. and one other member to be appointed by the Rollover Investors and four members designated by Fox Paine (not limiting Fox Paine or the companies' rights to add additional directors). The right to appoint Board members will terminate upon an Initial Public Offering or significant reduction in ownership percentage. While Ken Davidson is CEO or Chairman of the Board, all three Rollover Investor representatives will be designated by him; thereafter, by plurality vote of shares held by the Rollover Investors. INDEMNITY: Following the consummation of the transaction, the Board of Directors of each Company will adopt a customary mandatory indemnification and expense advancement policy for officers, subject to any limitations imposed by applicable law. -----END PRIVACY-ENHANCED MESSAGE-----