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