<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 10, 1996
MATRIA HEALTHCARE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20619 58-2205984
- ------------------------------------------------------------- ------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1850 Parkway Place, 12th Floor, Marietta, Georgia 30067
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 423-4500
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE> 2
On July 10, 1996, NRMC Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Registrant, merged with and into National
Reproductive Medical Centers, Inc., a Delaware corporation and a multi-site
provider of infertility treatment services ("NRMC"), pursuant to the terms of
an Agreement and Plan of Merger, dated June 24, 1996, by and among NRMC, the
Registrant, NRMC Acquisition Corporation and certain shareholders of NRMC. The
consideration paid for NRMC was 779,679 shares of the Registrant's Common
Stock, par value $.01 per share ("Common Stock"), valued at $8.50 per share and
$5,447,180 cash from the Registrant's existing working capital, for a total
purchase price of approximately $12.7 million.
The Registrant previously owned approximately 15% of the capital stock of
NRMC and acquired the remaining 85% ownership interest in NRMC in the Merger by
exercising an option (the "Option") to purchase such stock acquired under the
terms of a Shareholders Agreement, dated February 28, 1995, among Healthdyne,
Inc. (a predecessor of the Registrant) and the shareholders of NRMC. No other
pre-existing relationship existed between the Registrant and NRMC. The
Registrant presently intends to operate the business of NRMC as a wholly-owned
subsidiary.
2
<PAGE> 3
Item 7. Financial Statements and Exhibits
(a) Financial Statements
Audited:
Report of Independent Auditors
Combined Balance Sheets as of December 31, 1995 and 1994, and Combined
Statements of Operations for the years ended December 31, 1995 and 1994.
Combined Statements of Cash Flow for the years ended December 31, 1995
and 1994.
Notes to Combined Financial Statements
(b) Proforma Financial Information:
Proforma financial information required to be presented is not currently
available but will be filed on or before September 13, 1996.
B. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger, dated June 24, 1996, between NRMC,
Matria, Acquisition Corporation and certain NRMC Shareholders.
99.3 Shareholders Agreement, dated February 28, 1995, among Healthdyne,
Inc. (a predecessor of the Registrant), certain NRMC shareholders
and NRMC.
</TABLE>
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Matria Healthcare, Inc.
/s/ J. Brent Burkey
-----------------------------
J. Brent Burkey
Senior Vice President,
General Counsel and Secretary
Date: July 24, 1996
4
<PAGE> 5
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC.,
SUBSIDIARIES AND AFFILIATE
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
National Reproductive Medical Centers, Inc.:
We have audited the accompanying combined balance sheets of National
Reproductive Medical Centers, Inc. (a Delaware corporation), Subsidiaries and
Affiliate (collectively, the Company) as of December 31, 1995 and 1994, as
restated (see Note 12), and the related combined statements of operations,
common stockholders' deficit and cash flows for the years then ended, as
restated for the year ended December 31, 1994. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As further discussed in Note 1 to the accompanying combined financial
statements, the Company has issued 71,400 shares of Series C Redeemable
Convertible Preferred Stock (the Series C Preferred Stock) during 1995, in
exchange for $1.25 million in cash. The Series C Preferred stockholder has an
option to purchase all outstanding shares of the Company's common stock in
1996. If the holder of the Series C Preferred Stock elects not to exercise
this option, the Series C Preferred Stock may convert to a note payable due in
1998, and management may be compelled to implement cost- cutting measures or
seek to restructure its debt and Series A and Series B Redeemable Convertible
Preferred Stock in order to satisfy the Company's obligations as they become
due.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of National
Reproductive Medical Centers, Inc., Subsidiaries and Affiliate as of December
31, 1995 and 1994, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
San Francisco, California,
February 21, 1996
<PAGE> 7
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET PATIENT SERVICE REVENUE $12,565,888 $10,486,482
OTHER REVENUE 19,980 -
----------- -----------
12,585,868 10,486,482
----------- -----------
OPERATING EXPENSES:
Human resources 6,227,316 5,973,024
Physical resources 2,653,904 2,045,851
General and administrative
1,419,033 1,754,580
Purchased services 913,954 377,053
Depreciation and amortization
356,370 403,427
Research and development costs 190,151 141,898
Provision for doubtful accounts
11,428 80,011
Interest 61,044 102,766
Provision for loss on idle facilities - 82,517
----------- -----------
Total operating expenses 11,833,200 10,961,127
----------- -----------
Income (loss) from operations 752,668 (474,645)
PROVISION FOR INCOME TAXES 8,567 -
----------- -----------
Net income (loss) $ 744,101 $ (474,645)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Series A Voting
Common Stock Additional Total
----------------- Paid-in Retained Loans to Stockholders'
Shares Amount Capital Deficit Stockholders Deficit
------- ------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993, as
417,686 $41,769 $ 8,983 $(3,607,581) $(82,934) $(3,639,763)
restated (Note 12)
Net loss, as restated - - - (474,645) - (474,645)
(Note 12)
Accrued interest on
stockholders' loan
- - 10,339 - (10,339) -
Cancellation of stock (2,250) (225) - - - (225)
------- ------- ------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1994, as
415,436 41,544 19,322 (4,082,226) (93,273) (4,114,633)
restated (Note 12)
Net income
- - - 744,101 - 744,101
Loans to stockholders - - - - (10,828) (10,828)
Repayments on loans to
stockholders - - - - 3,615 3,615
Reduction in accrued
interest, net
- - (4,653) - 4,653 -
------- ------- ------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1995 415,436 $41,544 $14,669 $(3,338,125) $(95,833) $(3,377,745)
======= ======= ======= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 744,101 $(474,645)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities-
Depreciation and amortization 356,370 403,427
Loss on disposal of equipment 21,757 34,246
Provision for loss on idle facilities
Changes in certain assets and liabilities-
Patient accounts receivable, net 155,374 249,689
Notes receivable 19,982 8,036
Inventories and prepaid expenses (22,329) 16,898
Deposits and other assets 4,371 35,240
Accounts payable and accrued liabilities (332,935) 98,749
Deferred revenue 626,867 176,754
Reserve for idle facilities (32,471) (175,934)
Other current liabilities (83,764) 218,246
---------- ---------
Cash provided by operating activities 1,457,323 673,223
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property and equipment - 7,746
Additions to property and equipment (204,312) (172,577)
---------- ---------
Cash used for investing activities (204,312) (164,831)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amounts due to related parties
(56,415) 12,949
Payments of principal on capital lease obligations (85,951) (66,920)
Borrowings under notes payable - 250,000
Payments of principal on notes payable
(60,643) (79,819)
Payments of principal on notes payable to stockholders (427,448) (770,547)
Loans to stockholders (10,828) -
Repayments on loans to stockholders 3,615 -
Issuance of preferred stock 1,000,000 300,000
Cancellation of common stock - (225)
---------- ---------
Cash provided by (used for) financing activities 362,330 (354,562)
---------- ---------
Net increase in cash and cash equivalents 1,615,341 153,830
CASH AND CASH EQUIVALENTS, beginning of year 465,410 311,580
---------- ---------
CASH AND CASH EQUIVALENTS, end of year $2,080,751 $ 465,410
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION- Cash paid for interest $ 55,306 $ 98,126
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment purchased under capital lease obligations or note payable 79,365 185,312
Accrual of interest on loans to stockholders - 10,339
Conversion of note payable to preferred stock 250,000 -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 10
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND MANAGEMENT AGREEMENT:
National Reproductive Medical Centers, Inc. (NRMC), its wholly owned
subsidiaries, Pacific Fertility Centers of California, Inc. (PFC of C) and
Pacific Fertility Parenting Center, Inc. (PFPC), and Pacific Fertility Medical
Group, Inc. (PFMG), an affiliated medical group (collectively, the Company),
are organized to develop and operate clinics providing fertility services,
including in-vitro fertilization (IVF), surgery and similar procedures. NRMC,
which functions as a parent corporation, facilitates the raising of capital for
the further development of the Company. PFC of C provides nonphysician
management services and facilities to the clinics staffed with physicians
provided by PFMG. PFMG employs physicians specializing in the treatment of
fertility disorders. PFPC operates an ovum donor and surrogacy program for
patients of PFMG. Two physicians together hold a controlling interest in both
NRMC and PFMG.
PFC of C and PFMG have entered into a management agreement under which PFC of C
is to provide administrative management and clinical support services and
facilities to PFMG. Under the terms of the agreement, PFMG employs only
licensed physicians treating fertility-related conditions. All nonphysician
employees, as well as facilities, equipment and administrative services are
provided by PFC of C. The term of the agreement is ten years, ending in 2002,
with automatic renewal for additional ten-year periods. The agreement provides
for certain circumstances under which it may be terminated. PFMG has assigned
to PFC of C all of its rights to revenues it is entitled to receive as a result
of services it provides. PFC of C reimburses PFMG for physician salaries and
related expenses. PFMG does not have significant assets or liabilities. All
interentity fees paid under this agreement have been eliminated in the
accompanying combined financial statements.
The Company has allocated substantial resources to equipping its clinics,
recruiting and training physicians, and establishing a management organization
that can actively pursue expansion opportunities and effectively manage higher
patient volumes. These activities caused the Company to incur significant
losses through 1994. As such, a significant stockholders' deficit also exists,
and current liabilities exceed current assets. The Company has entered into a
letter of understanding with a previously unaffiliated party (the Prospective
Buyer) engaged in healthcare activities similar to the Company's business.
Under the terms of this letter of understanding, the Prospective Buyer will
have an option to purchase all of the common stock of the Company during a
four-month period to commence in early 1996. In the event that the Prospective
Buyer exercises its option, the Series A, Series B and Series C Redeemable
Convertible Preferred Stock will be converted to Series A Voting Common Stock
and be included in the purchase. In exchange for this option and other
considerations, including the right to appoint one member of the Company's
five-member Board of Directors, the Prospective Buyer advanced $250,000 to the
Company in December 1994 and an
<PAGE> 11
-2-
additional $1 million in February 1995. The entire $1.25 million advance was
then converted to 71,400 shares at $17.50 per share of Series C Preferred
Stock. In the event that the Prospective Buyer elects not to exercise its
option, the Series C Preferred Stock may be converted to a note in the amount
of $1.25 million, bearing interest at 8.25 percent, with one-half of the
outstanding principal to be paid in 24 equal monthly installments commencing
between April and July 1996, together with interest due on all the outstanding
principal. The remaining principal will be due with the final installment. If
this proposed sale of the Common Stock of the Company does not occur,
management may be compelled to implement cost-cutting measures or seek to
restructure its debt and Series A and Series B Preferred Stock in order to
satisfy the Company's obligations as they become due.
In March 1994, the Company completed an operational consolidation adopted in
1993. The consolidation called for the relocation of the San Francisco and
Marin clinics to one new location in San Francisco. In addition, the Company's
corporate office was relocated to space adjacent to the new clinic. A
provision of $250,552 was recorded in 1993, primarily for the estimated loss on
idle facilities. In 1994, an additional reserve was established for the
estimated loss on idle facilities that were previously intended to be used for
an intracytoplasmic sperm injection (ICSI) lab. This work is currently being
done at the San Francisco clinic lab. The total reserve of $93,420 at December
31, 1995, is for a portion of the future rental costs of previously occupied
space that has not been released. Portions of the former corporate office
space have been sublet for a period expiring prior to the end of the Company's
related lease. If the Company is unable to resublease this space after the
expiration of the current sublease agreements, the Company will be liable for
additional rent for idle facilities of approximately $17,000, $56,000 and
$14,000 in 1996, 1997 and 1998, respectively. These contingent liabilities
have not been recorded in the accompanying financial statements. They are,
however, included in the schedule of future minimum payments at Note 3.
The Company's future operations are subject to a number of significant risk
factors, including, but not limited to, having sufficient working capital to
meet short-term operational and debt service needs, competition from other
providers who may establish lower cost structures, and changes in technology
that may permit competitors to achieve higher success rates in performing IVF
procedures. In addition, the affects, if any, of any regulatory or legislative
actions currently being examined or debated concerning the delivery or
financing of healthcare services cannot be measured at this time.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Combination
The combined financial statements include the accounts of NRMC, PFPC, PFC of C
and PFMG. All significant intercompany accounts and transactions have been
eliminated. While PFMG is not owned by NRMC or PFC of C, its revenues,
receivables and operating expenses are included in the accompanying combined
financial statements due to the assignment of revenues under the management
agreement discussed above and in order to provide a meaningful presentation of
NRMC's financial position, results of operations and cash flows. PFMG does not
have significant shareholders' equity.
<PAGE> 12
-3-
Pervasiveness of Estimates and Presence of Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. As further discussed in Note
1, the Company may be the subject of a purchase transaction or it may be
compelled to restructure its Series A and B Preferred Stock if such a sale does
not take place. Additionally, the Company is subject to certain risk factors,
also discussed in Note 1. The ultimate impact of these transactions and risk
factors upon the Company is uncertain; however, the results may be material.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity to the Company of three months or less to be cash equivalents.
Inventories
The Company records inventories at cost on the first-in, first-out (FIFO)
basis, which is not in excess of market.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method based on the estimated useful lives
that range as follows:
Furniture and equipment - 5 to 7 years
Leasehold improvements - The shorter of the remaining
lease term or the useful life
Patient Service Revenue, Discounts and Deferred Revenue
Patient service revenue is recognized based upon usual and customary charges at
the time service is provided. Under certain circumstances, discounts from
usual and customary charges are granted to individual patients and recorded as
deductions from revenue. Revenues from services provided at reduced rates
under agreements to provide multiple procedures to the same patient are
recognized ratably as the services are provided. Certain services are provided
under arrangements subject to refund of a substantial portion of the fee if the
procedure is unsuccessful. Revenue subject to refund is deferred under these
arrangements until a successful outcome is achieved. All revenue associated
with agreements to provide multiple procedures will be recognized in the
statement of operations if a procedure performed under such arrangements
results in a successful first trimester pregnancy completed up to 12 weeks
after the end of the period in which the procedure leading to the pregnancy was
performed.
Procedures performed under contractual arrangements are reimbursed in
accordance with a negotiated fee schedule. The difference between usual and
customary charges and amounts received under contractual arrangements is
recorded as contractual discounts and deducted from revenue.
<PAGE> 13
-4-
The Company also collects fees prior to providing many of its services. These
amounts are recorded as deferred revenue until such time as the related
services are provided.
3. CAPITAL AND OPERATING LEASE OBLIGATIONS:
The Company leases certain property and equipment under capital and operating
leases. The original cost of assets under capital leases included in property
and equipment is $340,913 at December 31, 1995, with accumulated depreciation
of $218,565.
The minimum future lease payments required under the Company's capital and
operating leases at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Operating Leases
--------------------------
Operating Net
Capital Facilities Idle Sublease Operating
Leases and Equipment Facilities Income Leases
-------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1996 $115,807 $ 805,873 $187,114 $(124,358) $ 868,629
1997 93,082 757,071 79,126 (23,536) 812,661
1998 48,547 706,981 14,175 - 721,156
1999 1,745 695,821 - - 695,821
2000 - 486,844 - - 486,844
Thereafter - - - - -
-------- ---------- -------- --------- ----------
Total minimum payments $259,181 $3,452,590 $280,415 $(147,894) $3,585,111
---------- -------- --------- ----------
Interest on capital
lease obligations
at rates ranging
from 6 percent to
21 percent $ 40,616
--------
Net minimum payments 218,565
Current maturities 126,225
--------
$ 92,340
--------
</TABLE>
Future amounts due under operating leases for facilities that were vacated in
1994 but have not been subleased (see Note 1) are included above.
4. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1995 1994
------- --------
<S> <C> <C>
Notes payable at 3.31 percent to 2 percent over the prime interest rate,
secured and unsecured, maturing 1995 through 1997 (including $31,275 at
December 31, 1995, guaranteed by the majority holders of the Company's
outstanding Series A Common Stock)
$44,309 $354,952
Less- Current maturities 40,911 62,524
------- --------
$ 3,398 $292,428
------- --------
</TABLE>
<PAGE> 14
-5-
Minimum future payments under notes payable as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996 $40,911
1997 3,398
-------
$44,309
-------
</TABLE>
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The Company has authorized the issuance of 150,000 shares of Series A
Convertible Preferred Stock (Series A Preferred Stock). These shares are
convertible into shares of Series A Common Stock in accordance with a formula
set forth in the Company's certificate of incorporation, subject to certain
restrictions, including automatic conversion in the event of an initial public
offering of Series A Common Stock closing at $35 per share or more with a
minimum total offering of $5 million. The Series A Preferred Stock has a
cumulative dividend preference of 8.25 percent, commencing on September 17,
1997, which is five years from the date shares were first issued; prior to that
date, dividends are noncumulative. Commencing on September 17, 1997, the
holders of the Series A Preferred Stock may require the Company to redeem their
shares in three equal annual installments, plus accrued dividends, if any.
Pursuant to a private placement memorandum dated August 1, 1992, the Company
offered to sell up to 112,500 shares of Series A Preferred Stock at $22.2222
per share to Fertility Center Partners, L.P., A California Limited Partnership
(the Partnership), a venture formed to purchase and hold such shares. On
September 17, 1992, sufficient limited partnership units in the Partnership
were sold to enable it to meet its minimum offering requirements. The
Partnership purchased 81,000 shares of Series A Preferred Stock for a total
price of $1,800,000.
The Company has issued a warrant to purchase 5,000 shares of the Company's
Series A Common Stock at $1.75 per share to the placement agent of the private
offering discussed above. The warrant expires on September 30, 1997. All
shares to be issued in connection with the exercise of this warrant are
included in the shares to be issued under the terms of the nonqualified stock
option plan discussed in Note 6.
On April 27, 1994, the Company issued 12,000 shares of Series B Convertible
Preferred Stock (Series B Preferred Stock) at $25 per share to one of the
principal holders of its Series A Common Stock. In connection with the
issuance of these shares, the same principal shareholder was granted a warrant
to purchase 5,000 shares of the Company's Series A Common Stock under the terms
of the nonqualified stock option plan discussed in Note 6, exercisable at a
price of $1.75 per share. This warrant expires on April 30, 1999.
The terms of the Series B Preferred Stock are similar to those of the Series A
Preferred Stock. Commencing on the fifth anniversary from the date of
issuance, August 1, 1997, a majority of the holders of the Series B Preferred
Stock may require the Company to redeem all outstanding shares in three equal
annual installments at $25 per share plus any declared but unpaid dividends.
In
<PAGE> 15
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addition, the Series B Preferred Stock will automatically convert to Series
A Common Stock in the event of an initial public offering, closing at $25 per
share or more with a minimum total offering of $5 million.
On February 28, 1995, the Company issued 71,400 shares of Series C Preferred
Stock at $17.50 per share to the Prospective Buyer. The terms of the Series C
Preferred Stock are discussed in Note 1 above. The Series C Preferred Stock
will automatically convert to Series A Common Stock in the event of an initial
public offering closing at $17.50 per share or more with a minimum total
offering of $5 million.
In the event that the sale transaction discussed in Note 1 above does not occur
and the holders of all classes of outstanding preferred stock elected to redeem
their shares, the Company's principal payments on these redemptions would be as
follows (including the $1,250,000 of the Series C Preferred Stock discussed in
Note 1 above):
<TABLE>
<S> <C>
1996 $ 156,250
1997 912,500
1998 1,381,250
1998 600,000
1999 100,000
Thereafter 200,000
----------
$3,350,000
----------
</TABLE>
6. COMMON STOCKHOLDERS' EQUITY:
The Company has authorized the issuance of one million shares each of Series A
Voting Common Stock (Series A Common Stock) and Series B Nonvoting Common
Stock. Each share of both classes of common stock has a par value of $.10. As
of December 31, 1995, no shares of Series B Nonvoting Common Stock had been
issued. All Series A Common Stock outstanding at December 31, 1995, was owned
by employees or former employees of the Company.
The Company has adopted a nonqualified stock option plan authorizing the
granting of options to purchase up to 56,200 shares of Series A Common Stock to
certain of its key employees, officers, directors and consultants. Under the
terms of the plan, the options will expire five years from the date of grant.
On June 1, 1992, options were granted to two employees to purchase 8,000 shares
each of the Company's Series A Common Stock. These options are now fully
vested. On February 6, 1993, a director was granted an option to purchase
10,998 shares of Series A Common Stock, subsequently exchanged on February 17,
1995, for an option to purchase 2,500 shares of Series A Common Stock.
Effective February 17, 1995, the Company's Board of Directors elected to modify
the plan. Effective January 1, 1995, a director and two employees were granted
options to purchase 5,000 and 10,875 shares of Series A Common Stock,
respectively. On October 26, 1995, an employee was granted an option to
purchase 1,000 shares of Series A Common Stock. All options granted are
exercisable at $1.75 per share.
<PAGE> 16
-7-
7. INCOME TAXES:
The Company provides for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." Provisions or benefits for income taxes are based on
financial accounting income. Deferred income taxes are provided on items of
income and expense which are reported for tax purposes in a period different
from that reported for financial statement purposes. The Company's tax and
financial statement timing differences result primarily from reserves for
losses on idle facilities and bad debts.
The following table approximates the Company's deferred tax assets at December
31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 533,000 $ 789,000
Reserves for losses on idle facilities 37,000 50,000
Reserves for bad debts 48,000 87,000
Other 77,000 -
--------- ---------
695,000 926,000
Less- Reserve (695,000) (926,000)
--------- ---------
$ - $ -
--------- ---------
</TABLE>
No significant components of the Company's deferred tax assets are attributable
to PFMG.
The Company's net operating loss carryforwards expire between 2008 and 2009.
Following is a reconciliation of the expected federal statutory income tax rate
to the effective tax rate, expressed as a percentage of pretax income, for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----- ----
<S> <C> <C>
Expected federal statutory income tax 34.0 % - %
State income taxes, net of federal tax 6.0 -
Utilization of deferred tax assets (39.0) -
----- ---
Effective tax rate 1.0 % - %
----- ---
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company has entered into certain transactions with parties that are related
by common ownership or control. These transactions are summarized below:
- For the years ended December 31, 1995 and 1994, the Company paid
$55,131 and $105,624, respectively, for professional liability
insurance through Western Medical Management Services, an affiliate.
<PAGE> 17
-8-
- In connection with a reorganization of the Company, which occurred in
June 1992, the Company executed a note to the stockholders in lieu of
a cash dividend. As discussed below, this note was paid over a
three-year period ending in June 1995.
- One of the major stockholders of the Company is also an employee of
PFMG, for which he was paid a salary and benefits in the years ended
December 31, 1995 and 1994. The second major stockholder has served
as a medical director of PFMG, for which he was paid a fee.
- The two major stockholders own a controlling interest in Pacific
Biomedical Research, Inc. (PBR) and National Fertility Institute.
These entities are engaged in research, some of which is in the field
of fertility disorder treatments. The Company has entered into a
license and funding agreement with PBR expiring on December 31, 1996.
Under the terms of this agreement, the Company will fund a maximum of
$12,500 per month to PBR for use in its research activities. In
exchange, the Company has exclusive rights to use certain reproductive
technology developed and owned by PBR.
- The Company has accrued interest in relation to a note payable to a
stockholder of $5,738 and $4,640 for the years ended December 31, 1995
and 1994, respectively.
Following is a summary of amounts advanced by the Company to stockholders:
<TABLE>
<CAPTION>
December 31
--------------------
1995 1994
------- -------
<S> <C> <C>
Receivables from major stockholders, unsecured, bearing
interest at a variable rate; due upon demand
$95,833 $93,273
------- -------
</TABLE>
<PAGE> 18
-9-
Notes payable to stockholders consist of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Note payable to stockholders at 1 percent over prime, payable in
monthly installments of $54,721, including interest, matured in
June 1995; this loan follows an underlying agreement with a financial
institution, which is secured by the stockholders' interests in the
Company, the accounts receivable, furniture, furnishings and equipment
of the Company, and certain marketable securities of the stockholders;
this note was paid in full during 1995
$ - $ 344,712
Notes payable to stockholders, interest at 4.84 percent per annum,
unsecured, payable in monthly installments of $13,646, including
interest, matured June 1995; this note was paid in full during 1995
- 82,736
Note payable to stockholder, interest at Bank of America reference
rate, unsecured, maturing January 29, 1996
78,968 73,230
--------- ---------
78,968 500,678
Less- Current maturities (78,968) (500,678)
--------- ---------
$ - $ -
--------- ---------
</TABLE>
9. PROFESSIONAL LIABILITY INSURANCE:
The Company purchases professional liability coverage on a claims-made basis on
behalf of the physicians practicing with PFMG. This insurance is purchased
through an affiliate (see Note 8). The insurance policies cover claims that
are reported to the insurance carrier prior to the end of the policy period.
Claims reported after the end of the policy period will also be covered as long
as the policy is continually renewed. Management intends to renew the existing
claims-made policies annually and expects to be able to reasonably obtain such
coverage. It is the Company's policy to require physicians leaving the PFMG
practice to purchase their own individual tail-coverage policies. There are
currently no claims outstanding.
10. DEFERRED COMPENSATION PLAN:
The Company sponsors a defined contribution 401(k) plan (the Plan) covering all
eligible employees. Employees who have completed at least 1,000 hours of
service by their first anniversary of hire, have attained the age of 21 and are
not covered by a collective bargaining agreement are eligible to participate in
the Plan. The assets of the Plan are held by an independent trustee. The
Company is
<PAGE> 19
-10-
obligated to make matching contributions to the Plan of one-half of each
individual participant's elective deferrals, limited to 5 percent of each
individual participant's total annual compensation. The Company contributed
$67,832 and $111,864, respectively, to the Plan for the years ended December
31, 1995 and 1994.
11. CONTINGENCY:
During 1994, the Company was presented with a claim for payment from two
individuals acting as investment bankers for the Company (the Claimants). One
member of the Company's Board of Directors is related by marriage to one of the
Claimants. The claim arises from a finder's fee agreement between the Company
and the Claimants, who maintain that the letter of understanding referred to in
Note 1 constitutes a transaction giving rise to a finder's fee payable to the
Claimants. The member of the Board of Directors referred to above has a
beneficial interest in the finder's fee agreement through a separate agreement
with the Claimants. The amount of the claim is $100,000 plus legal expenses.
The Company believes that the claim is without merit and that the Company has
equitable and legal defenses to this claim.
12. PRIOR PERIOD ADJUSTMENT:
Subsequent to the issuance of its 1994 financial statements, the Company
discovered that it had issued an unsecured promissory note to a shareholder for
$65,000 in relation to services the shareholder provided to the Company in
1993. The note accrued interest at the Bank of America reference rate and
became due on January 29, 1996. Accordingly, the 1994 financial statements
have been restated to correct this error. This has resulted in an increase in
the previously reported retained deficit at December 31, 1993, and notes
payable to stockholders at December 31, 1993, of $68,590, an increase in the
previously reported net loss for the year ended December 31, 1994, of $4,640,
and the previously reported net income for the year ended December 31, 1995, of
$5,738.
<PAGE> 20
-11-
NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., SUBSIDIARIES AND AFFILIATE
COMBINED BALANCE SHEETS--DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,080,751 $ 465,410
Patient accounts receivable, less allowance for discount and
doubtful accounts of $119,356 and $218,500, respectively
300,170 455,545
Notes receivable 16,103 36,085
Inventories 30,168 30,211
Prepaid expenses 55,462 33,090
---------- ----------
Total current assets 2,482,654 1,020,341
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment 2,232,541 2,080,950
Leasehold improvements 441,070 366,722
---------- ----------
2,673,611 2,447,672
Less- Accumulated depreciation 1,508,913 1,188,525
---------- ----------
1,164,698 1,259,147
---------- ----------
DEPOSITS 69,723 66,332
OTHER ASSETS, net of accumulated amortization 2,070 9,832
---------- ----------
$3,719,145 $2,355,652
---------- ----------
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
--------------------------------------------
CURRENT LIABILITIES:
Current maturities of-
Capital lease obligations $ 126,225 $ 80,129
Notes payable 40,911 62,524
Notes payable to stockholders 78,968 500,678
Accounts payable 470,018 586,141
Accrued liabilities 229,214 446,026
Deferred revenue 2,488,292 1,861,425
Amounts due to related parties - 56,415
Reserve for idle facilities 93,420 125,891
Other current liabilities 124,104 213,606
----------- -----------
Total current liabilities 3,651,152 3,932,835
CAPITAL LEASE OBLIGATIONS, less current maturities 92,340 145,022
NOTES PAYABLE, less current maturities 3,398 292,428
----------- -----------
Total liabilities 3,746,890 4,370,285
----------- -----------
REDEEMABLE PREFERRED STOCK:
Series A Redeemable Convertible Preferred Stock; $.10 par
value; 150,000 shares authorized; 81,000 shares issued and
outstanding at December 31, 1995 and 1994 1,800,000 1,800,000
Series B Redeemable Convertible Preferred Stock; $.10 par
value; 15,000 shares authorized; 12,000 shares issued and
outstanding at December 31, 1995 and 1994 300,000 300,000
Series C Redeemable Convertible Preferred Stock; $.10 par
value; 75,000 shares authorized; 71,400 shares issued and
outstanding at December 31, 1995 1,250,000 -
----------- -----------
3,350,000 2,100,000
----------- -----------
COMMON STOCKHOLDERS' EQUITY (DEFICIT):
Series A Voting Common Stock; $.10 par value;
1,000,000 shares authorized; 415,436 shares issued and
outstanding at December 31, 1995 and 1994 41,544 41,544
Additional paid-in capital 14,669 19,322
Retained deficit (3,338,125) (4,082,226
Loans to stockholders (95,833) (93,273
----------- -----------
Total common stockholders' deficit (3,377,745) (4,114,633
----------- -----------
$ 3,719,145 $ 2,355,652
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and
entered into as of this 24th day of June, 1996, by and among NATIONAL
REPRODUCTIVE MEDICAL CENTERS, INC., a Delaware corporation ("NRMC"), MATRIA
HEALTHCARE, INC., a Delaware corporation ("Matria"), NRMC ACQUISITION
CORPORATION, a Delaware corporation ("Acquisition Corporation") (NRMC and
Acquisition Corporation being hereinafter sometimes referred to collectively as
the "Constituent Corporations"), and the persons and entities listed under the
heading "Investors" on the signature pages hereof (individually, an "Investor"
and collectively, the "Investors").
WHEREAS, Matria (as the successor to Healthdyne, Inc.), NRMC, the
Investors and certain other shareholders of NRMC (such other NRMC shareholders,
individually, a "Shareholder" and collectively, the "Shareholders") are parties
to that certain Shareholders Agreement dated as of February 28, 1995 (the
"Shareholders Agreement"), pursuant to which Matria has an option to acquire
all outstanding NRMC Securities (as hereinafter defined) not already owned by
it; and
WHEREAS, Matria proposes to exercise its option rights under the
Shareholders Agreement by merging its wholly-owned subsidiary, Acquisition
Corporation, with and into NRMC (the "Merger"), with NRMC being the Surviving
Corporation, and by converting NRMC Securities held by persons other than
Matria in the Merger into the right to receive cash and/or Matria Common Stock,
as determined by this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a taxable reverse subsidiary merger; and
WHEREAS, the Investors desire to accept, in whole or in part, Matria
Common Stock (or options, as the case may be) in exchange for their NRMC
Securities pursuant to such Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and promises contained herein and other
good and valuable consideration, the parties hereto warrant, represent,
covenant and agree as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
Unless the context otherwise requires, the following terms shall have,
for all purposes of this Agreement, the meanings herein specified:
"Closing" has the meaning assigned to that term in Section 2.5(a)
hereof.
"Closing Date" has the meaning assigned to that term in Section 2.5(a)
hereof.
"Commission" means the Securities and Exchange Commission.
"Delaware Law" means the General Corporation Law of the State of
Delaware.
"Dissenting NRMC Shares" has the meaning assigned to that term in
Section 3.4 hereof.
"Effective Time" has the meaning assigned to that term in Section
2.5(b) hereof.
"Matria Common Stock" means the common stock, par value $.01 per
share, of Matria.
"Matria Common Stock Value" has the meaning assigned to that term in
Section 3.6 hereof.
"Matria Options" means options to purchase shares of Matria Common
Stock which are issued pursuant to Section 3.5 hereof.
"Non-Competition Agreements" means those non-competition agreements
referred to in Section 4.6 of the Shareholders Agreement and attached as
exhibits thereto.
"NRMC Capital Stock" means the NRMC Common Stock, the NRMC Series A
Stock, the NRMC Series B Stock and the NRMC Series C Stock.
"NRMC Common Stock" means the Class A Voting Common Stock of NRMC, par
value $.10 per share.
"NRMC Options" means all outstanding options for the purchase of NRMC
Common Stock.
"NRMC Securities" means all securities of NRMC, including shares of
NRMC Capital Stock, NRMC Options, and NRMC Warrants, as listed on Schedule A to
this Agreement.
2
<PAGE> 3
"NRMC Series A Stock" means the Series A Convertible Preferred Stock
of NRMC, par value $.10 per share.
"NRMC Series B Stock" means the Series B Convertible Preferred Stock
of NRMC, par value $.10 per share.
"NRMC Series C Stock" means the Series C Convertible Preferred Stock
of NRMC, par value $.10 per share.
"NRMC Warrants" means all warrants for the purchase of NRMC Capital
Stock.
"NRMC Shareholders Meeting" has the meaning assigned to that term in
Section 5.4 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Step-Up Option" means the option granted to Matria by all holders of
NRMC Securities other than Matria pursuant to Article 4 of the Shareholders
Agreement.
"Surviving Corporation" has the meaning assigned to that term in
Section 2.1 hereof.
ARTICLE 2
MERGER
2.1 Merger. Subject to the conditions hereinafter set forth and
in accordance with the Delaware Law, at the Effective Time (as hereinafter
defined), (i) Acquisition Corporation shall be merged with and into NRMC, and
the separate existence of Acquisition Corporation shall thereupon cease; and
(ii) NRMC (hereinafter with respect to the period following the Effective Time
sometimes referred to as the "Surviving Corporation") shall continue in
existence and the Merger shall in all respects have the effect provided for in
Section 259 of the Delaware Law.
2.2 Effect of the Merger. Without limiting the foregoing, at and
after the Effective Time, the Surviving Corporation shall possess all of the
rights, privileges, powers and franchises, of a public as well as of a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations, and all property, real, personal and mixed,
and all debts due to either of the Constituent Corporations on whatever
account, as well for stock subscriptions and all other things in action or
belonging to each of the Constituent Corporations, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and any and all and every other interest shall thereafter be as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations; and the title to any real estate vested by deed or
otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired; but all
3
<PAGE> 4
rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired; and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts and liabilities had been incurred or contracted by it.
2.3 Certificate; Bylaws. At the Effective Time, (i) the
Certificate of Incorporation of NRMC as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, and (ii) the Bylaws of NRMC as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
2.4 Directors; Officers. The directors and officers of
Acquisition Corporation at the Effective Time shall, from and after the
Effective Time, be the sole directors and officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
2.5 Closing.
(a) The closing of the Merger (the "Closing") will take
place at the offices of Troutman Sanders LLP, NationsBank Plaza, Suite 5200,
600 Peachtree Street, N.E., Atlanta, Georgia, at 10:00 a.m. on June 28, 1996
or, if later, on the second business day after the conditions set forth in
Article 6 shall have been fulfilled or waived in accordance with this Agreement
(the "Closing Date"), unless another date, time or place is agreed in writing
by the parties hereto.
(b) At the Closing, (i) the parties shall provide to each
other proof of the satisfaction or waiver of each of the conditions set forth
in Article 6, (ii) the Surviving Corporation shall execute and acknowledge a
Certificate of Merger consistent with the terms of this Agreement, and (iii)
the Surviving Corporation shall immediately cause the Merger to be consummated
by filing the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the provisions of the Delaware Law. The Merger
shall be effective at the time of such filing of the Certificate of Merger or
such later time as may be provided therein (the "Effective Time").
2.6 Agreement of Investors. The Investors represent and warrant
that collectively they are the holders of a majority of the outstanding shares
of NRMC Capital Stock, including all of the outstanding shares of NRMC Series A
Stock, and hereby agree to vote all shares of NRMC Capital Stock held by them
in favor of the Merger and this Agreement at any meeting of the holders of NRMC
Capital Stock held to vote thereon or by any written consent of shareholders
and further agree to receive Matria Common Stock in the Merger in exchange for
any NRMC Common Stock held by them to the extent contemplated by Section 3.1
below.
4
<PAGE> 5
2.7 Further Action. Prior to and from and after the Effective
Time, the Constituent Corporations and Matria and the proper officers of each
of them shall take all such commercially reasonable actions as shall be
necessary or appropriate in order to carry out the purposes of this Agreement
and effectuate the Merger in accordance with the terms hereof. If at any time
the Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other actions are necessary,
appropriate or desirable to vest in said corporation according to the terms
hereof the title to any property or rights of Acquisition Corporation, the last
acting officers of Acquisition Corporation or the corresponding officers of the
Surviving Corporation, shall and will execute and make all such proper
assignments and assurances and take all action necessary and proper to vest
title in such property or rights in the Surviving Corporation, and otherwise to
carry out the purposes of this Agreement.
ARTICLE 3
TERMS OF MERGER
3.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any other or further action by the parties:
(a) Each share of NRMC Common Stock issued and
outstanding immediately prior to the Effective Time and not provided for in
paragraph (a) above shall, by virtue of the Merger and without any action on
the part of the holder thereof, thereupon be converted into the right to
receive, at the election of the holder thereof made in accordance with Section
3.2 below, either (i) $6.06 in cash and 1.83 shares of Matria Common Stock,
(ii) $7.61 in cash and 1.65 shares of Matria Common Stock, or (iii) $21.63 in
cash; provided, however, that no fractional shares of Matria Common Stock shall
be issued and the aggregate number of shares of Matria Common stock to be
issued by reason of such conversion shall be rounded to the nearest whole
number.
(b) Each share of NRMC Series A Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, thereupon be
converted into the right to receive $14.29 in cash and 1.68 shares of Matria
Common Stock; provided, however, that no fractional shares of Matria Common
Stock shall be issued and the aggregate number of shares of Matria Common Stock
to be issued by reason of such conversion shall be rounded to the nearest whole
number.
5
<PAGE> 6
(c) Each share of NRMC Series B Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holders thereof, thereupon be
converted into the right to receive 2.76 shares of Matria Common Stock;
provided, however, that no fractional shares of Matria Common Stock shall be
issued and the aggregate number of shares of Matria Common Stock to be issued
by reason of such conversion shall be rounded to the nearest whole number.
(d) Each share of NRMC Series C Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, thereupon be
cancelled and no payment shall be made in respect thereof.
(e) Each share of Common Stock of Acquisition Corporation
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof,
thereupon be converted into and remain one share of Class A Voting Common Stock
of the Surviving Corporation.
(f) Each share of the capital stock of NRMC held in the
treasury of NRMC shall be canceled and retired and no payment shall be made in
respect thereof.
3.2 Election Procedures. Each Investor and each Shareholder who
holds NRMC Common Stock on the date hereof shall be given the opportunity to
elect by notice to Matria not later than three days following the date hereof
whether to receive all cash or part cash and part Matria Common Stock in the
Merger pursuant to Section 3.1(a)(i), (ii) or (iii) above. An appropriate form
for making such election shall be mailed to such Shareholders. Any such
Shareholder electing to receive part cash and part Matria Common Stock in the
Merger must agree to adopt and be bound by the Private Placement and
Registration Rights Agreement attached hereto as Exhibit A and must provide
such information as Matria shall reasonably request concerning such
Shareholder's status as an accredited investor or eligibility otherwise to
purchase Matria Common Stock in a private placement. Any such Shareholder not
submitting a form of election on a timely basis hereunder or not deemed by
Matria, in its sole discretion, to be eligible to purchase Matria Common Stock
in a private placement, shall be deemed to have elected to receive all cash in
the Merger, unless such Shareholder effectively exercises his or her right to
an appraisal pursuant to Section 3.4.
6
<PAGE> 7
3.3 Exchange of Certificates. After the Effective Time, subject
to Section 3.6 hereof:
(a) Each holder of an outstanding certificate or
certificates which immediately prior thereto represented shares of NRMC Capital
Stock (other than NRMC Series C Stock) held by a person entitled or electing or
agreeing hereunder to receive both Matria Common Stock and cash in the Merger,
shall, upon surrender of such certificate or certificates, be entitled to a
certificate or certificates representing the number of shares of Matria Common
Stock into which the aggregate number of shares of NRMC Capital Stock
previously represented by the surrendered certificate or certificates shall
have been converted pursuant to Section 3.1 of this Agreement and a check of
Matria representing the amount of cash into which such share of NRMC Capital
Stock shall have been converted.
(b) Each holder of an outstanding certificate or
certificates which immediately prior thereto represented shares of NRMC Capital
Stock (other than NRMC Series C Stock) held by a person electing or agreeing
hereunder to receive only cash in the Merger shall, upon surrender of such
certificate or certificates, be entitled to a check of Matria representing the
amount of cash into which the aggregate number of shares of NRMC Capital Stock
previously represented by the surrendered certificate or certificates shall
have been converted pursuant to Section 3.1 of this Agreement.
(c) Each holder of an outstanding certificate or
certificates which immediately prior thereto represented shares of Common Stock
of Acquisition Corporation shall, upon surrender of such certificate or
certificates, be entitled to a certificate or certificates representing the
number of shares of Class A Voting Common Stock of the Surviving Corporation
into which the aggregate number of shares of Common Stock of Acquisition
Corporation previously represented by the Surrendered certificate or
certificates shall have been converted pursuant to Section 3.1 of this
Agreement.
3.4 Appraisal Rights. Notwithstanding any provision of this
Agreement to the contrary, shares of NRMC Capital Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by
shareholders who do not vote in favor of the Merger and who have elected to
exercise dissenters' rights as hereinafter described (the "Dissenting NRMC
Shares") shall not be converted into or represent a right to receive cash and/or
shares of Matria Common Stock pursuant to Section 3.1 hereof, but the holder
thereof shall be entitled only to such rights as are granted by Section 262 of
the Delaware Law or Sections 1300 to and including 1312 of the California
Corporate Law. Each holder of Dissenting NRMC Shares who becomes entitled to
payment for such shares pursuant to the foregoing sections of the Delaware Law
or the California Corporate Law shall receive payment therefor from the
Surviving Corporation in accordance with the Delaware Law or the California
Corporate Law, as applicable. If any holder shall have failed to perfect, or
shall have effectively withdrawn or lost, his or her right to appraisal and
payment for his or her shares under the said sections of the Delaware Law or the
California Corporate Law, each such share shall be converted into and represent
the right to receive cash pursuant to
7
<PAGE> 8
Section 3.1 hereof, upon surrender to the Surviving Corporation of the
certificate representing such share.
3.5 Treatment of NRMC Options and Warrants.
(a) Each NRMC Option and NRMC Warrant issued and
outstanding immediately prior to the Effective Time, which is held by a person
who shall not continue as a director or an employee of Matria or the Surviving
Corporation, shall at the Effective Time be converted into the right to receive
cash in an amount equal to (i) the number of shares for which it is exercisable
multiplied by $21.63 less (ii) the aggregate exercise price of such option or
warrant.
(b) Each NRMC Option and NRMC Warrant issued and
outstanding immediately prior to the Effective Time which is held by a person
who shall continue as an employee of Matria or the Surviving Corporation shall
at the Effective Time, at the election of the holder thereof, which election
shall be received by NRMC no later than three days following the date hereof,
either (X) be converted into the right to receive cash in an amount equal to
(i) the number of shares of NRMC Common Stock for which it is exercisable
multiplied by $21.63 less (ii) the aggregate exercise price of such option or
warrant or (Y) an option for the purchase of such number of shares of Matria
Common Stock determined by multiplying the number of shares of NRMC Capital
Stock issuable on exercise of said NRMC Option or NRMC Warrant by a fraction,
the numerator of which is $21.63 and the denominator of which is the closing
price per share of the Matria Common Stock on the NASDAQ National Market System
on the last trading day prior to the Closing Date, with the aggregate exercise
price and other terms of such Matria Option being equivalent to the aggregate
exercise price and other terms (e.g., nonqualified options for nonqualified
options) of the NRMC Option or NRMC Warrant so converted.
(c) Matria agrees that the shares of Matria Common Stock
covered by the options issued pursuant to Section 3.5(b) will be covered by a
Form S-8 registration statement to be filed with the Commission under the
Securities Act and to become effective no later than one trading day after the
Closing Date.
(d) Each holder of an outstanding NRMC Option or NRMC
Warrant shall be entitled to receive the cash or Matria Options to be paid or
issued in exchange therefor under this Section 3.5 only upon surrender to
Matria of the NRMC Option or the NRMC Warrant held by such person.
3.6 Adjustment of Shares. It is understood and agreed that there
shall be an adjustment in the amount of consideration payable by Matria in the
Merger to any Shareholder or Investor who received Matria Common Stock in the
Merger if the average closing price per share of the Matria Common Stock on the
NASDAQ National Market System for the five trading days ending the earlier of
(i) five trading days before the effective date of the registration statement
(the "Registration Statement") to be filed by Matria
8
<PAGE> 9
pursuant to the Private Placement and Registration Rights Agreement attached
hereto as Exhibit A or (ii) the second anniversary of the Closing (the
"Adjusted Value") is less than the Matria Common Stock Value ($8.50, as
adjusted to reflect any stock dividend, stock split, recapitalization,
reclassification or other similar change in the Matria Common Stock after the
Closing). In such event, Matria shall pay to each Shareholder or Investor who
received Matria Common Stock in the Merger within five business days after the
date for determination of the Adjusted Value, as set forth above, an amount
equal to the difference between the Adjusted Value and the Matria Common Stock
Value multiplied by the number of shares of Matria Common Stock initially
issued to such Shareholder or Investor in the Merger, said amount to be
payable, in Matria's sole discretion, either in cash or in additional shares of
Matria Common Stock based on the Adjusted Value thereof, rounded to the next
lowest whole number of shares.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Investors. Each
Investor hereby severally represents and warrants to Matria that:
(a) This Agreement is a legal, valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms except as may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally or general
principles of equity.
(b) Neither the execution of this Agreement nor the
consummation by the Investor of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any material
contract, commitment, agreement, understanding, arrangement or restriction of
any kind by which the Investor is bound.
(c) No consent, approval, order or authorization of any
court administrative agency, or other governmental entity or any other person
is required by or with respect to the Investor in connection with the execution
and delivery of this Agreement by the Investor.
(d) On the date hereof the Investor has, and at the
Effective Time such Investor shall have, valid and marketable title to the NRMC
Securities listed opposite such Investor's signature on the signature pages
hereof free and clear of all liens, charges, proxies, encumbrances and security
interests.
Each Investor who is an officer of NRMC and Victor Knutzen, M.D. further
represents and warrants to Matria that:
9
<PAGE> 10
(e) From December 31, 1995 to the date of this Agreement,
except as set forth in Exhibit B hereto, there has not been, and from the date
of this Agreement to the Effective Date of the Merger there will not be, with
respect to NRMC (i) any material adverse change; (ii) any declaration, setting
aside or payment of any dividend or any other distribution on or in respect of
its capital stock or any direct or indirect redemption, retirement, purchase or
other acquisition of any of such stock or any issuance of any shares of such
stock, or of any options, warrants or other rights with respect thereof, except
issuance of NRMC Capital Stock upon exercise of outstanding options or
warrants; or (iii) any change in its Certificate of Incorporation or Bylaws.
Each Investor who is not an individual hereby further severally represents and
warrants to Matria that:
(f) The Investor is a corporation, organization or trust
duly incorporated, organized or formed and validly existing and in good
standing under the laws of its jurisdiction of incorporation, organization or
formation, as the case may be.
(g) The Investor is duly authorized to execute and
deliver this Agreement.
4.2 Representations and Warranties of NRMC. NRMC hereby
represents and warrants that:
(a) NRMC is duly organized, validly existing and in good
standing under the laws of its state of incorporation, and is duly authorized
to execute and deliver this Agreement.
(b) This Agreement is a legal, valid and binding
obligation of NRMC, enforceable against NRMC in accordance with its terms
except as may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or general principles
of equity.
(c) Neither the execution of this Agreement nor the
consummation by it of the transactions contemplated hereby will constitute a
violation of or default under, or conflict with, any material contract,
commitment, agreement, understanding or restriction of any kind to which it is
a party or by which it is bound.
(d) No consent, approval, or authorization of any court,
administrative agency, or other governmental entity or any other person is
required by or with respect to NRMC in connection with the execution and
delivery of this Agreement by NRMC.
(e) The authorized capital stock of NRMC consists of
1,000,000 shares of NRMC Common Stock, 1,000,000 shares of Class B Non-Voting
Common Stock, and 1,000,000 shares of Preferred Stock, including 150,000 shares
designated as NRMC Series A Stock, 15,000 shares designated as NRMC Series B
Stock and 75,000 shares designated as
10
<PAGE> 11
NRMC Series C Stock. The outstanding capital stock of NRMC on June 6, 1996
consists of 415,436 shares of NRMC Common Stock, 81,000 shares of NRMC Series A
Stock, 12,000 shares of NRMC Series B Stock and 71,400 shares of NRMC Series C
Stock. As of the date hereof, there are no shares of Class B Non-Voting Common
Stock outstanding. On June 6, 1996, the only outstanding NRMC Options, NRMC
Warrants or other rights to acquire NRMC Capital Stock are those set forth on
Schedule A to this Agreement. All of the NRMC Capital Stock outstanding has
been duly authorized, is validly issued, fully-paid, nonassessable and free of
preemptive rights.
(f) From December 31, 1995 to the date of this Agreement,
except as set forth in Exhibit B hereto, there has not been, and from the date
of this Agreement to the Effective Date of the Merger there will not be, with
respect to NRMC (i) any material adverse change; (ii) any declaration, setting
aside or payment of any dividend or any other distribution on or in respect of
its capital stock or any direct or indirect redemption, retirement, purchase or
other acquisition of any of such stock or any issuance of any shares of such
stock, or of any options, warrants or other rights with respect thereof, except
issuance of NRMC Capital Stock upon exercise of outstanding options or
warrants; or (iii) any change in its Certificate of Incorporation or Bylaws.
4.3 Representations and Warranties of Matria. Matria hereby
represents and warrants that:
(a) Matria and Acquisition Corporation are duly
organized, validly existing and in good standing under the laws of their state
of incorporation, and are duly authorized to execute and deliver this
Agreement.
(b) This Agreement is a legal, valid and binding
obligation of Matria and Acquisition Corporation, enforceable against Matria
and Acquisition Corporation in accordance with its terms except as may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or general principles of equity.
(c) Neither the execution of this Agreement nor the
consummation by it of the transactions contemplated hereby will constitute a
violation of or default under, or conflict with, any material contract,
commitment, agreement, understanding or restriction of any kind to which Matria
or Acquisition Corporation is a party or by which either of them is bound.
(d) No consent, approval, order or authorization of any
court, administrative agency, or other governmental entity or any other person
is required by or with respect to Matria or Acquisition Corporation in
connection with the execution and delivery of this Agreement by Matria or
Acquisition Corporation.
(e) The authorized capital stock of Matria consists of
100,000,000 shares of Matria Common Stock and 50,000,000 shares of Preferred
Stock, par value $.01 per share (the "Matria Preferred Stock"). The
outstanding capital stock of Matria as of May 31, 1996 consists
11
<PAGE> 12
of 35,774,000 shares of Matria Common Stock. As of the date hereof, there are
no shares of Matria Preferred Stock outstanding. All of the Matria Common
Stock has been duly authorized and the Matria Common Stock to be issued
pursuant to this Agreement and upon the exercise of the Matria Options will,
upon such issuance, be validly issued and fully paid, nonassessable and free of
preemptive rights.
(f) From March 31, 1996 to the date of this Agreement,
there has not been, and from the date of this Agreement to the Effective Date
of the Merger there will not be, with respect to Matria (i) any material
adverse change; (ii) any declaration, setting aside or payment of any dividend
or any other distribution on or in respect of its capital stock or any direct
or indirect redemption, retirement, purchase or other acquisition of any of
such stock; or (iii) any change in its Certificate of Incorporation or Bylaws.
ARTICLE 5
ADDITIONAL AGREEMENTS AND COVENANTS
5.1 Legal Conditions to Merger. Each of NRMC and Matria will take
all reasonable actions necessary to comply promptly with, and will use its
reasonable best efforts to comply with, all legal requirements which may be
imposed on it with respect to the Merger and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon either of them or any of their subsidiaries in connection with the
Merger.
5.2 Fees and Expenses. Each party to this Agreement shall pay all
of his, her or its own costs and expenses incident to the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby, including the fees, expenses and disbursements of his, her
or its counsel and advisers; provided, however, that any transaction costs and
expenses incurred by NRMC on or prior to the Closing Date in excess of $100,000
shall be paid by the Investors and the Shareholders in proportion to their
respective interests in NRMC.
5.3 Brokers or Finders. Each of Matria, the Investors and NRMC
represent, as to itself, its subsidiaries and its affiliates, that no agent,
broker, investment banker, financial adviser or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
and Matria and each of the Investors agree to indemnify and hold the others
harmless from and against any and all claims, liabilities or obligations with
respect to any fees, commissions or expenses asserted by any person on the
basis of any act or statement alleged to have been made by such party or its
subsidiaries or affiliates; provided, however, that the foregoing shall not
apply to or otherwise restrict or affect payments of the Investment Banking Fee
as defined in and payable in accordance with the provisions of Section 4.4 of
the Shareholders Agreement.
12
<PAGE> 13
5.4 Shareholders' Meeting. Promptly after the execution of this
Agreement, unless the Shareholders and Investors holding the percentage of
shares of NRMC Capital Stock, and, if applicable, each class thereof, required
for approval of the Merger have consented in writing to approve the Merger,
NRMC shall call and hold a meeting of the shareholders of NRMC (the "NRMC
Shareholders' Meeting") to vote on approval of this Agreement and the proposed
Merger. NRMC shall give notice of such meeting in accordance with the Delaware
Law and shall use its best efforts to cause the meeting to be held not later
than July 17, 1996.
5.5 Waiver of Restrictions. Each of the Investors and Matria
hereby waive all restrictions on transfer of the NRMC Securities under the
Shareholders Agreement, insofar as such restrictions are applicable to the
Merger.
5.6 Non-Competition Agreements. Each of the Investors hereby
acknowledges and agrees that, effective upon Matria's exercise of the Step-Up
Option under the Shareholders Agreement pursuant to Section 5.7(ii) hereof, the
Investor shall be bound by the provisions of any Non-Competition Agreement
between Matria and such Investor.
5.7 Exercise of Step-Up Option. Each party to this Agreement
acknowledges and agrees that:
(i) Matria's entry into this Agreement does not
constitute and shall not be deemed to constitute an exercise by Matria of the
Step-Up Option under the Shareholders Agreement;
(ii) The Step-Up Option shall be deemed to be exercised by
Matria upon the Closing;
(iii) Each of the Investors by joining herein hereby waives
any rights he or she may have under the Step-Up Option, including but not
limited to any rights to notice of exercise by Matria, and the Step-Up Option
shall terminate as of the Closing;
(iv) Upon Matria's exercise of the Step-Up Option pursuant
to the Closing, each party to the Shareholders Agreement shall be bound by
those provisions of the Shareholders Agreement which become operative upon such
exercise, including, but not limited to, the Non-Competition Agreements.
5.8 Private Placement and Registration Rights Agreement. Each of
the Investors and Matria have concurrently herewith executed and hereby agrees
to be bound by the Private Placement and Registration Rights Agreement attached
hereto as Exhibit A.
13
<PAGE> 14
ARTICLE 6
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Each Party to Closing. The
respective obligations of each party to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the Closing
Date, of the following conditions:
(a) No governmental entity shall have expressed the
intention to file an action to restrain, modify or prohibit the transaction
contemplated by this Agreement or any part thereof;
(b) This Agreement and the proposed Merger shall have
been approved by written consent or favorable vote at the NRMC Shareholders'
Meeting by the holders of the percentage of shares of NRMC Capital Stock and,
if applicable, each class thereof, required by the Shareholders Agreement, the
NRMC Certificate of Incorporation and the Delaware Law in order to approve the
Merger;
(c) Geoffrey Sher, M.D. shall have entered into an
agreement substantially in the form of Exhibit C attached hereto with respect
to restrictions on transfer and potential forfeiture of certain shares of
Matria Common Stock to be received by him in the Merger;
(d) Harley J. Earl, II and NRMC shall have executed an
amendment substantially in the form attached hereto as Exhibit D to the NRMC
Option held by Mr. Earl as to 8,000 shares of NRMC Common Stock to provide for
delay of vesting and potential forfeiture of such options upon termination of
Mr. Earl's employment in certain circumstances;
(e) Each of the Investors and each Shareholder who elects
to receive Matria Common Stock in the Merger shall have executed or agreed to
be bound by the Private Placement and Registration Rights Agreement attached
hereto as Exhibit A, and Matria shall be reasonably satisfied that the issuance
of the Matria Common Stock in the Merger is exempt from registration under the
Securities Act of 1933; and
(f) The thirty (30) day notice to the Investors, the
Shareholders and NRMC of Matria's exercise of the Step-Up Option shall have
been waived by all of the Shareholders.
6.2 Additional Conditions to Obligations of the Investors and
NRMC. The obligations of the Investors and NRMC to effect the transactions
contemplated by this Agreement shall also be subject to the fulfillment of the
following conditions:
(a) the representations and warranties of Matria
contained herein shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date;
14
<PAGE> 15
(b) the Investors shall have received a certificate of
the Secretary of Matria dated as of the Closing Date and certifying (i) that
attached thereto is a true, complete and correct copy of resolutions duly
adopted by the Board of Directors of Matria authorizing the execution, delivery
and performance of this Agreement and that such resolutions have not been
amended, modified, revoked or rescinded, (ii) that attached thereto is a true,
complete and correct copy of the Certificate of Incorporation of Matria,
together with any amendments thereto, as certified by the Secretary of State of
Delaware, and of the By-laws of Matria, together with any amendments thereto,
and (iii) as to the incumbency and specimen signature of each officer executing
this Agreement on behalf of Matria; and
(c) Matria shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing.
6.3 Additional Conditions to Obligations of Matria. The
obligations of Matria to effect the transactions contemplated by this Agreement
shall also be subject to the fulfillment of the following conditions:
(a) the representations and warranties of the Investors
and NRMC contained herein shall be true and correct in all material respects as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date;
(b) the Investors shall have performed and complied with
all agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and
(c) the holders of not less than 436,554 shares of NRMC
Common Stock (including NRMC Common Stock issuable upon conversion of other
NRMC Capital Stock but excluding NRMC Capital Stock held by Matria) entitled to
vote on the Merger shall have approved the Merger by affirmative vote or
written consent and the holders of NRMC Common Stock shall have elected to
receive not less than 715,000 shares of Matria Common Stock pursuant to Section
3.1(a) in the Merger.
(d) Each of the NRMC Options and NRMC Warrants listed on
Schedule A to this Agreement shall have been surrendered to Matria in
accordance with Section 3.5(d).
15
<PAGE> 16
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of Matria, NRMC and the Investors;
(b) by any party to this Agreement, if any representation
or warranty of any other party contained herein shall have been incorrect or
breached in any material respect and such defect shall not have been cured or
otherwise resolved to the reasonable satisfaction of the other party on or
before the Closing Date, or by any party to this Agreement, if any condition to
the consummation of the transactions contemplated by this Agreement which must
be fulfilled to its reasonable satisfaction, has (in such party's good faith
sole judgment) become impossible to be fulfilled; provided, however, that no
Investor may terminate this Agreement pursuant to this Section 7.1(b) unless
Investors holding a majority of the outstanding NRMC Capital Stock agree to
such termination; or
(c) by Matria, NRMC or Investors holding a majority of
the outstanding NRMC Capital Stock if the Closing shall not have taken place by
July 31, 1996.
7.2 Effect of Termination. In the event of the termination of
this Agreement as provided above, this Agreement shall have no further force
and effect; and there shall be no liability on the part of Matria or its
officers or directors, or on the part of NRMC or any of its officers or
directors or on the part of the Investors or any officers or directors of any
of the Investors, except that any party who breaches or fails to comply with
the requirements of this Agreement shall be liable to any other party to this
Agreement damaged thereby to the full extent provided by applicable law.
7.3 Amendment. This Agreement may be amended by the parties
hereto at any time prior to the Closing Date; provided, however, that any
amendment must be by an instrument or instruments in writing signed and
delivered on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing Date, any
party hereto which is entitled to the benefits hereof may (i) extend the time
for performance of any of the obligations or other acts of any of the other
parties hereto; (ii) in whole or in part, waive any inaccuracy in the
representations and warranties of any of the other parties hereto contained
herein or in any schedule hereto or in any document delivered pursuant hereto,
and (iii) in whole or in part, waive compliance with any of the agreements of
any of the other parties hereto or conditions contained herein. Any such
agreement on the part of any party hereto to any extension or waiver shall be
valid as set forth in an instrument in writing signed and delivered on behalf
of the party granting such extension or waiver.
16
<PAGE> 17
ARTICLE 8
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained in this Agreement shall
survive the execution and delivery of this Agreement and the Closing Date as
provided in Article 2; provided, however, that, with respect to the
representations and warranties set forth in Sections 2.6 and 4.1(e), (i) no
Investor shall be liable hereunder as to any matter which arises after the date
of this Agreement and is disclosed in writing to Matria at or prior to the
Closing hereunder; (ii) the liability of the Investors shall be several and not
joint and shall in each case be limited to such Investor's proportionate share
of the total liability, based on the percentage of NRMC Securities held by such
Investor compared to the total NRMC Securities held by all Investors giving
such representations and warranties on a fully diluted basis; (iii) such
representations and warranties shall survive only until March 31, 1997, except
that if Matria has given notice to the Investors making such representations
and warranties of the breach thereof on or before March 31, 1997, such
representations and warranties shall continue to survive thereafter with
respect to matters identified in such notice; and (iv) the Investors giving
such representations shall not be liable for any losses incurred by Matria or
NRMC as a result of all breaches thereof (including all costs of defense or
investigation) unless such losses exceed $50,000, in which case such Investors
shall be obligated to indemnify Matria or NRMC, as the case may be, for the
full amount of such losses up to but not exceeding $1,000,000.
8.2 Confidentiality. All nonpublic information disclosed by any
of the parties hereto to the representatives of the other parties shall be kept
strictly confidential.
8.3 Notices. All notices and other communications required to be
given hereunder shall be in writing and shall be deemed to have been duly given
upon delivery, if delivered by hand; if given by mail, three (3) days after the
date of mailing, postage prepaid, certified or registered mail to a party
hereto at the address set forth below; if given by facsimile, upon transmission
to the number set forth below provided written confirmation is sent to the
address below; if given by overnight delivery service addressed to the address
set forth below, the business day following the day on which such notice is
sent:
If to Matria or to Acquisition Corporation:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30066
Attention: J. Brent Burkey, Esq.
Facsimile: (770) 423-7769
17
<PAGE> 18
With a copy to:
Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attention: James L. Smith, III, Esq.
Facsimile: (404) 885-3900
If to NRMC:
National Reproductive Medical Centers, Inc.
55 Francisco Street, Suite 750
San Francisco, California 94133
Attention: Harley J. Earl II
Facsimile: (415) 834-2509
With a copy to:
Brobeck Phleger & Harrison, LLP
Spear Street Tower
One Market
San Francisco, California94105
Attention: William L. Hudson, Esq.
Facsimile: (415) 442-1018
If to the Investors:
To the address of such Investor set forth beneath its
signature below.
Any party hereto may change its address for purposes of receiving notice
pursuant to this Agreement by giving notice of such new address to each other
party hereto.
8.4 Interpretation. The Article and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. Telecopy transmission
of signatures shall be deemed originals.
18
<PAGE> 19
8.6 Miscellaneous. This Agreement, including the Schedules
hereto, together with the Shareholders Agreement and the Private Placement and
Registration Rights Agreement (i) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(ii) is not intended to and shall not confer upon any other person any rights
or remedies hereunder or otherwise with respect to the subject matter hereof;
(iii) shall not be assigned by operation of law or otherwise; and (iv) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Delaware.
8.7 Diligence. Each of the parties certifies that he, she or it
has (a) received a copy of this Agreement for review and study before being
asked to execute it; (b) read this Agreement carefully; (c) had sufficient
opportunity before he, she or it executed this Agreement to ask questions about
this Agreement, to which he, she or it has received satisfactory answers to any
such questions; and (d) understands his, her or its rights and obligations
under this Agreement.
8.8 Binding Effect. The terms and provisions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by or
against the parties and their respective legal representatives, heirs,
successors and permitted assigns.
8.9 Severability. If any part of this Agreement or other
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given full force and effect to the greatest extent permitted by law.
8.10 Preparation of Agreement. This Agreement shall not be
construed more strongly against any party regardless of who is responsible for
its preparation.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first above written.
<TABLE>
<S> <C>
MATRIA
MATRIA HEALTHCARE, INC.
(CORPORATE SEAL)
By: /s/ Donald R. Millard
---------------------------
Name: Donald R. Millard
Title: Sr. Vice President
NRMC
NATIONAL REPRODUCTIVE MEDICAL
CENTERS, INC.
By: /s/ ?
---------------------------
Title: President
------------------------
ACQUISITION CORPORATION
NRMC ACQUISITION CORPORATION
By: /s/ Donald R. Millard
---------------------------
Name: Donald R. Millard
Title: Vice President, Treasurer and
Asst. Secretary
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
20
<PAGE> 21
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
INVESTORS
<TABLE>
<CAPTION>
Shares Owned
------------
Class of Stock No. of Shares
- ------------------ ---------
FERTILITY CENTER PARTNERS, L.P.
<S> <C> <C>
Series A Preferred 81,000
By: /s/ Lawrence A. Krause DBA
-----------------------
Title: KW Financial Services
General Partner
-----------------------
GEOFFREY SHER, M.D.
Series A Common 163,778
/s/ Geoffrey Sher
------------------------------
Address:
16 Sagebrush Court
------------------------------
------------------------------
------------------------------
GEOFFREY SHER TRUSTEE, GEOFFREY SHER
INDIVIDUAL RETIREMENT ACCOUNT
Series B Preferred 12,000
/s/ Geoffrey Sher
------------------------------
Address:
16 Sagebrush Court
------------------------------
------------------------------
------------------------------
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
21
<PAGE> 22
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
Shares Owned
------------
Class of Stock No. of Shares
- -------------- --------------
<S> <C> <C>
TRUSTEE,
KNUTZEN 1992 CHILDREN'S TRUST
Series A Common 1,250
/s/
-------------------------------
Address:
100 W. Liberty St., Suite 820
-------------------------------
Reno, NV 87501
-------------------------------
-------------------------------
TRUSTEE,
KNUTZEN 1992 IRREVOCABLE TRUST
Series A Common 1,250
/s/
-------------------------------
Address:
100 W. Liberty St., Suite 820
-------------------------------
Reno, NV 87501
-------------------------------
-------------------------------
VICTOR KNUTZEN, M.D.
Series A Common 163,778
/s/ Victor Knutzen, M.D.
------------------------------
Address:
946 Marsh Ave,
------------------------------
Reno
------------------------------
Nevada 89509
------------------------------
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
22
<PAGE> 23
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
Shares Owned
------------
Class of Stock No. of Shares
- -------------- -------------
<S> <C> <C>
TRUSTEE,
SHER 1992 CHILDREN'S TRUST
Series A Common 1,250
/s/
-------------------------------
Address:
11856 Labyrinth
-------------------------------
Tucson, AZ 85737
-------------------------------
-------------------------------
TRUSTEE,
SHER 1992 IRREVOCABLE TRUST
Series A Common 1,250 /s/
-------------------------------
Address:
11856 Labyrinth
-------------------------------
Tucson, Az 85737
-------------------------------
-------------------------------
HARLEY J. EARL, II
Series A Common 5,625 /s/ Harley J. Earl, II
-------------------------------
Address:
P.O. Box 1342
------------------------------
Mill Valley, CA 94991
------------------------------
------------------------------
</TABLE>
23
<PAGE> 24
SCHEDULE A
OPTIONS AND WARRANTS OUTSTANDING
JUNE 6, 1996
<TABLE>
<CAPTION>
Name Options/Warrants No. of Shares
---- ---------------- -------------
<S> <C> <C>
Harley J. Earl, II Options 16,375
Michael O. Kokesh Options 8,000
Niall Murphy Options 1,000
Leonard N. Hecht Options 7,500
Charles M. Atkinson Options 2,500
Lawrence A. Krause Warrants 5,000
Frank L. Barnes Options 2,500
Geoffrey Sher Warrants 5,000
------
47,875
</TABLE>
*All at exercise price of $1.75 per share.
<PAGE> 25
EXHIBIT A
PRIVATE PLACEMENT AND REGISTRATION RIGHTS AGREEMENT
<PAGE> 26
PRIVATE PLACEMENT AND REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made and entered into as of this 24th day of June, 1996,
by and among MATRIA HEALTHCARE, INC., a Delaware corporation ("Matria"), and
the persons and entities listed under the heading "Investors' on the signature
pages hereof (individually, an "Investor", and collectively, the "Investors").
WHEREAS, Matria, National Reproductive Medical Centers, Inc., a Delaware
corporation ("NRMC"), NRMC Acquisition Corporation, a Delaware corporation
("Acquisition Corporation"), and the Investors entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement") pursuant to which
it is proposed that Matria's wholly-owned subsidiary, Acquisition Corporation,
will merge with and into NRMC (the "Merger"), and all of the NRMC Securities
held by persons other than Matria will be converted in the Merger into the
right to receive either cash and Matria Common Stock or cash as determined in
accordance with the Merger Agreement; and
WHEREAS, the Merger Agreement contemplates that Matria and the Investors
shall enter into this Agreement concurrently with the Merger Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises contained herein and other good and valuable consideration, the
parties hereto covenant and agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the same meaning as provided in the Merger Agreement.
2.1 Investment Intent. Each Investor and each holder of NRMC Capital
Stock electing to receive Matria Common Stock in the Merger severally, as to
itself, only:
(a) represents that the Matria Common Stock and the Matria Options are
being acquired for its own account for investment and not with a view to any
distribution or public offering within the meaning of the Securities Act except
as contemplated by Section 3 hereof;
(b) acknowledges that neither the Matria Common Stock nor the Matria
Options to be received hereunder have been registered under the Securities Act;
<PAGE> 27
(c) represents that it is an "accredited investor" within the meaning of
Rule 501 of the Securities Act or that it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in Matria Common Stock, and that the information
provided to Matria in the questionnaire completed by such Investor is true and
correct;
(d) acknowledges that it received prior to executing this Agreement the
Matria Disclosure Documents listed in Schedule A to this Agreement;
(e) acknowledges that Matria has made available to it at a reasonable
time prior to its execution of this Agreement the opportunity to ask questions
and receive answers concerning the terms and conditions of this Agreement and
to obtain any additional information which Matria possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of the information referred to in (d) above; and
(f) agrees that it will not sell or otherwise transfer any of the Matria
Common Stock except pursuant to the registered offerings contemplated by
Section 3 hereof or in one or more private transactions if, in the opinion of
counsel reasonably satisfactory to Matria, such transaction or transactions are
not required to be registered under the Securities Act.
2.2 Legend. Each certificate representing the Matria Common Stock
issued pursuant to Article 3 of the Merger Agreement shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES ACT AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM, OR IN THE
ABSENCE OF RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT IT MAY BE SOLD OR
TRANSFERRED WITHOUT SUCH REGISTRATION.
3.1 Registration by Matria. As soon as practicable after the Closing
Date but in no event later than August 30, 1996, Matria shall file a
registration statement under the Securities Act (the "Registration Statement')
with respect to resales by the investors and any other holder of NRMC Capital
Stock electing to receive Matria Common Stock in the Merger (collectively, the
"Holders") of the Matria Common Stock issued pursuant to Article 3 of the
Merger Agreement and shall cause such registration to become effective as soon
as practicable thereafter.
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<PAGE> 28
3.2 Registration Statement Form. The registration provided pursuant
to Section 3.1 shall be effected by the filing of a Registration Statement on
Form S-3.
3.3 Expenses. Except as otherwise prohibited by applicable law,
Matria will pay all expenses of registration including, without limitation,
fees and disbursements of counsel for Matria, blue sky fees and expenses, and
accountants' expenses including without limitation any special audits or
"comfort" letters incident to or required by any such registration, transfer
taxes, fees of transfer agents and registrars, costs of insurance, and
any fees and disbursements of underwriters, customarily paid by issuers of
securities, but excluding underwriting discounts and commissions and fees of
any counsel for the Holders.
3.4 Obligations with Respect to Registration.
(a) In connection with the registration of the Matria Common Stock, Matria
shall:
(i) promptly prepare and file with the Commission any amendments
(including post-effective amendments) and supplements to the
Registration Statement and to the prospectus included therein (the
"Prospectus") as may be necessary to keep such Registration Statement
continuously current and effective and to comply with the provisions
of the Securities Act and the rules and regulations promulgated
thereunder with respect to the disposition of all Matria Common Stock
covered by such Registration Statement for the period required to
effect the distribution of such Matria Common Stock, provided, that
such obligation shall expire upon the earlier of (i) two years
following the Closing Date of the Merger, or (ii) 30 days after Matria
gives notice to each Holder of Matria Common Stock covered by the
Registration Statement of its intention to terminate such
registration, which notice shall not be given earlier than 240 days
after the Effective Date of such registration statement;
(ii) notify the Holders and confirm such advice in writing, (w)
when such Registration Statement becomes effective, (x) when
the filing of any post-effective amendment to such Registration
Statement or supplement to the Prospectus is required, when the same
is filed and, in the case of a post-effective amendment, when the same
becomes effective, (y) of any request by the Commission for any
amendment of or supplement to such Registration Statement or the
Prospectus or for additional information and (z) of the entry of any
stop order suspending the effectiveness of such Registration Statement
or the initiation of any proceedings for that purpose, and, if such
stop order shall be entered, Matria shall use its best efforts
promptly to obtain the lifting thereof; and
(iii) furnish at Matria's expense to the Holders (x) at a
reasonable time prior to the filing thereof with the Commission
a copy of the Registration
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<PAGE> 29
Statement in the form in which Matria proposes to file the same;
not later than one day prior to the filing thereof, a copy of any
amendment (including any post-effective amendment) to such
Registration Statement; and promptly following the effectiveness
thereof, a conformed copy of the Registration Statement as declared
effective by the Commission and of each post-effective amendment
thereto, including financial statements and all exhibits and
reports incorporated therein by reference, and (y) such number of
copies of the preliminary, any amended preliminary, and final
Prospectus and of each post-effective amendment or supplement
thereto, as may reasonably be required in order to facilitate the
disposition of the Matria Common Stock covered by such Registration
Statement in conformity with the requirements of the Securities Act
and the rules and regulations promulgated thereunder, but only
while Matria is required under the provisions hereof to cause the
Registration Statement to remain effective.
(b) Each of the Holders receiving Matria Common Stock hereunder shall
furnish to Matria such information regarding such Holder and the distribution
of the Matria Common Stock as Matria may from time to time reasonably request
in writing and as shall be required by law or by the Commission in connection
therewith.
3.5 Holdback Agreements.
(a) Notwithstanding any provision of this Agreement to the contrary, in
the event Matria notifies the Holders that Matria intends to file a
registration statement in connection with an underwritten offering (other than
a shelf offering) (the "Offering") by Matria of any of its Common Stock after
the later of (i) six months from the date of this Agreement and (ii) three
months after the effectiveness of the Registration Statement, the Holders shall
refrain from selling or otherwise distributing any Matria Common Stock within
the period requested in writing by the managing underwriter for such Offering,
which period shall begin no earlier than two days (subject to prior written
notice thereof) prior to the effective date of such registration statement and
shall end no later than 90 days after such effective date (the "Offering
Restricted Period"); provided, however, that the Holders shall not be required
to refrain from selling in connection with any Offering unless (i) Matria and
all of the directors and executive officers of Matria are also required to
refrain from selling for a comparable period with respect to any shares not
registered for sale by them in such Offering pursuant to contractual
registration rights in effect on the date of this Agreement; and (ii) each of
the Holders whose shares of Matria Common Stock are covered by the Registration
Statement shall be given the opportunity to include such Matria Common Stock in
the Registration Statement filed in connection with such Offering unless the
managing underwriter of the Offering in good faith believes that the size of
the Offering should be limited to a number of shares less than that requested
to be registered by Matria and the Holders and all other persons having
contractual rights to include securities in such Registration Statement ("Other
Holders"), in which case the number of shares to be registered on behalf of the
Holders shall be reduced on a proportional basis, together with
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<PAGE> 30
shares requested to be registered by all Other Holders, it being understood
that the Company shall have priority as to sales over the Holders and each
Other Holder. The foregoing holdback agreement by the Holders shall be
applicable only to the first such underwritten offering in any twelve-month
period. If a Registration Statement filed pursuant to Section 3.1 is in effect
at any time during the Offering Restricted Period and Holders are not permitted
to include in the Registration Statement filed for the Offering all shares
requested by Holders to be included in the Offering, Matria's obligation under
Section 3.4(a) to keep such registration statement current and effective shall
be extended for a number of days equal to the number of days such Registration
Statement was in effect during the Offering Restricted Period, for such or, if
earlier, until (i) the date on which all of the Matria Common Stock initially
covered thereby has been disposed of or (ii) until the date on which the
holding period required under the Commission's Rule 144(d)(1) with respect to
such Common Stock shall have been satisfied.
(b) Notwithstanding anything set forth herein to the contrary, in the
event that Matria notifies the Holders in writing (the "Disclosure Notice")
that Matria desires to amend the Registration Statement or to supplement the
prospectus in order to disclose material information required to be disclosed
in the prospectus included in such registration statement, as then in effect,
in order to correct an untrue statement of a material fact or to disclose an
omitted material fact that is required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, the Holders shall refrain from selling Matria Common Stock thereunder
until Matria notifies the Holders in writing that the required amendment or
supplement has been filed with the Commission or until 120 days following the
Disclosure Notice, whichever is earlier (the "Disclosure Restricted Period").
If a registration statement filed pursuant to Section 3.1 is effective at the
time during the Disclosure Restricted Period, Matria's obligation under Section
3.4(a) to keep such Registration Statement current and effective shall be
extended for a number of days equal to the number of days such Registration
Statement was in effect during the Disclosure Restricted Period, or, if
earlier, until (i) the date on which all of the Matria Common Stock initially
covered thereby has been disposed of or (ii) until the holding period required
under the Commission's Rule 144(d)(1) with respect to such Common Stock shall
have been satisfied.
3.6 SEC Filings. Matria will use commercially reasonable efforts to
timely file all reports required to be filed by it under the Exchange Act and
the rules and regulations adopted thereunder to the extent required to enable
the sale of the Matria Common Stock pursuant to a Registration Statement filed
on Form S-3 or pursuant to Rule 144 promulgated under the Securities Act for
the period commencing on the date hereof and ending on the earlier of (i) three
years from the Closing Date or (ii) the sale by the Holders of all of the
Matria Common Stock referred to in Section 3.1.
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<PAGE> 31
3.7 Indemnification and Contribution.
(a) By Matria. In connection with the registration under the
Securities Act of the Matria Common Stock pursuant to this Section 3, Matria
shall indemnify and hold harmless the Holders and each other person, if any,
who controls any of the Holders within the meaning of Section 15 of the
Securities Act ("controlling persons"), against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof) ("Losses"), to
which each such indemnified party may become subject, under the Securities Act
or otherwise, but only to the extent such Losses arise out of or are based upon
(1) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such Matria Common Stock was registered under the Securities Act, in any
preliminary Prospectus (if used prior to the effective date of such
Registration Statement) or in any final Prospectus or in any posteffective
amendment or supplement thereto (if used during the period Matria is required
to keep the Registration Statement effective) (the "Disclosure Documents"), or
(ii) any omission or alleged omission to state in any of the Disclosure
Documents a material fact required to be stated therein or necessary to make
the statements made therein not misleading, or (iii) any violation of any
federal or state securities laws or rules or regulations thereunder committed
by Matria in connection with the performance of its obligations under this
Section 3; and Matria will reimburse each such indemnified party for all legal
and other expenses reasonably incurred by such party in investigating or
defending against any such claims, whether or not resulting in any liability,
or in connection with any investigation or proceeding by any governmental
agency or instrumentality with respect to any offering of securities pursuant
to this Section 3, but excluding any amounts paid in settlement of any action,
suit, arbitration, proceeding, litigation or investigation (collectively
"Litigation"), commenced or threatened, if such settlement is effected without
the prior written consent of Matria; provided, however, that Matria shall not
be liable to an indemnified party or any other Holder or controlling person of
any other Holder in any such case to the extent that any such Losses arise out
of or are based upon (i) an untrue statement or omission or alleged omission
(x) made in any such Disclosure Documents in reliance upon and in conformity
with written information furnished to Matria by such indemnified party for use
therein, or (y) made in any preliminary Prospectus if a copy of the final
Prospectus was not delivered to the person alleging any loss, claim, damage or
liability for which Losses arise at or prior to the written confirmation of the
sale of such Matria Common Stock to such person and the untrue statement or
omission concerned had been corrected in such final Prospectus and copies
thereof had timely been delivered by Matria to such indemnified party, or (z)
made in any Prospectus used by such indemnified party if a court of competent
jurisdiction finally determines that at the time of such use such indemnified
party had actual knowledge of such untrue statement or omission; or (ii) the
use of any Prospectus after such time as Matria has advised such indemnified
party in writing that the filing of a post-effective amendment or supplement
thereto is required, except the Prospectus as so amended or supplemented, or
the use of any Prospectus after such time as the obligation of Matria to keep
the same current and effective has expired. In determining the actual
knowledge of an indemnified party for purposes of clause (i)(z) above, the
actual knowledge (without any requirement of due
6
<PAGE> 32
inquiry) of a controlling person of the Holders who is also a director of
Matria shall be imputed to the Holders (and its other controlling persons).
(b) By the Holders. In connection with the registration under the
Securities Act of the Matria Common Stock of the Holders pursuant to this
Section 3, the Holders receiving such Matria Common Stock shall, severally,
indemnify and hold harmless Matria, each of its directors, each of its officers
who have signed such Registration Statement and each other person, if any, who
controls Matria within the meaning of Section 15 of the Securities Act, and
each other Holder and each controlling person of such Holders against any
Losses to which such indemnified party may become subject under the Securities
Act or otherwise, but only to the extent such Losses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any of the Disclosure Documents or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished to Matria by such indemnifying party for use therein; (ii) the use by
such indemnifying party of any Prospectus after such time as Matria has advised
such indemnifying party in writing that the filing of a post-effective
amendment or supplement thereto is required, except the Prospectus as so
amended or supplemented, or after such time as the obligation of Matria to keep
the Registration Statement effective and current has expired, or (iii) any
information given or representation made by such indemnifying party in
connection with the sale of Matria Common Stock which is not contained in and
not in conformity with the Prospectus (as amended or supplemented at the time
of the giving of such information or making of such representation); and such
indemnifying party shall reimburse each such indemnified party for all legal
and other expenses reasonably incurred by such party in investigating or
defending against any such claims, whether or not resulting in any liability,
or in connection with any investigation or proceeding by any governmental
agency or instrumentality relating to any such claims with respect to any
offering of securities pursuant to this Section 3, but excluding any amounts
paid in settlement of any Litigation, commenced or threatened, if such
settlement is effected without the prior written consent of such indemnifying
party.
(c) Actions Commenced. If a third party commences any action or proceeding
against an indemnified party related to any of the matters subject to
indemnification under Section 3.7(a) or (b) hereof, such indemnified party
shall promptly give notice to the indemnifying party in writing of the
commencement thereof, but failure so to give notice shall not relieve the
indemnifying party from any liability which it may have hereunder unless the
indemnifying party is prejudiced thereby.
The indemnifying party shall be entitled to control the defense or
prosecution of such claim or demand in the name of the indemnified party, with
counsel satisfactory to the indemnified party, if it notifies the indemnified
party in writing of its intention to do so within 20 days of its receipt of the
notice from the indemnified party without prejudice, however, to the right of
the indemnified party to participate therein through counsel of its own
choosing, which participation shall be at the indemnified party's
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<PAGE> 33
expense unless (i) the indemnified party shall have been advised by its counsel
that use of the same counsel to represent both the indemnifying party and the
indemnified party would represent a conflict of interest (which shall be deemed
to include any case where there may be a legal defense or claim available to
the indemnified party which is different from or additional to those available
to the indemnifying party), in which case the indemnifying party shall not have
the right to direct the defense of such action on behalf of the indemnified
party, or (ii) the indemnifying party shall fail vigorously to defend or
prosecute such claim or demand within a reasonable time. Whether or not the
indemnifying party chooses to defend or prosecute such claim, the parties
hereto shall cooperate in the prosecution or defense of such claim and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be requested in
connection therewith.
(d) Contribution. If the indemnification provided for in subsections
(a) or (b) of this Section 3.7 is unavailable to or insufficient to hold the
indemnified party harmless under subsections (a) or (b) above in respect of any
Losses referred to therein for any reason other than as specified therein, then
the indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by (or omitted to be supplied by) Matria or the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by an indemnified party as a result of the Losses referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Limitation of Liability of Holders. The indemnification obligation
under Section 3.7(b), and the contribution obligation under Section 3.7(d), of
a Holder shall be limited to the amount of proceeds received by such Holder
upon the sale of Matria Common Stock under the registration statement filed
pursuant to this Section 3.
4.1 Notices. All notices and other communications required to be given
hereunder shall be in writing and shall be deemed to have been duly given upon
delivery, if delivered by hand; if given by mail, three (3) days after the date
of mailing, postage prepaid, certified or registered mail to a party hereto at
the address set forth below; if given by facsimile, upon transmission to the
number set forth below provided written confirmation is sent to the address
below; if given by overnight delivery service addressed to the address set
forth below, the business day following the day on which such notice is sent:
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<PAGE> 34
If to Matria:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30066
Attention: J. Brent Burkey, Esq.
Facsimile: (770) 432-7769
With a copy to:
Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attention: James L. Smith, III, Esq.
Facsimile: (404) 885-3900
If to the Investors:
To the address of such Investor set forth beneath its
signature below.
If to any other Holder:
To the address specified in such Holder's form of election to
receive Matria Common Stock in the Merger.
Any party hereto may change its address for purposes of receiving notice
pursuant to this Agreement by giving notice of such new address to each other
party hereto.
4.2 Interpretation. The Sections and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. Terms used in the plural include the
singular, and vice versa, unless the context otherwise requires.
4.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. Telecopy transmission
of signatures shall be deemed originals.
4.4 Miscellaneous. This Agreement, including its Exhibits (i) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof; (ii) is not intended to and shall not confer upon any
other person any rights or remedies hereunder or otherwise with respect to the
subject matter hereof; (iii) shall not be assigned by operation of
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<PAGE> 35
law or otherwise; and (iv) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware.
4.5 Diligence. Each of the parties certifies that he, she or it has (a)
received a copy of this Agreement for review and study before being asked to
execute it; (b) read this Agreement carefully; (c) had sufficient opportunity
before he, she or it executed this Agreement to ask questions about this
Agreement, to which he, she or it has received satisfactory answers to any such
questions; and (d) understands his, her or its rights and obligations under
this Agreement.
4.6 Binding Effect. The terms and provisions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by or against the
parties and their respective legal representatives, heirs, successors and
permitted assigns.
4.7 Severability. If any part of this Agreement or other agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect to the greatest extent permitted by law.
4.8 Preparation of Agreement. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its
preparation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
MATRIA
MATRIA HEALTHCARE, INC.
(CORPORATE SEAL) By:
-------------------------------
Name:
Title:
INVESTORS
FERTILITY CENTER PARTNERS
By:
------------------------------
Title:
---------------------------
GEOFFREY SHER, M.D.
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
IRA of GEOFFREY SHER, M.D.
Address:
---------------------------------
---------------------------------
---------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TRUSTEE,
KNUTZEN 1992 CHILDREN'S TRUST
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
TRUSTEE,
KNUTZEN 1992 IRREVOCABLE TRUST
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
VICTOR KNUTZEN, M.D.
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TRUSTEE,
SHER 1992 CHILDREN'S TRUST
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
TRUSTEE,
SHER 1992 IRREVOCABLE TRUST
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
HARLEY J. EARL, II
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
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SCHEDULE A
List of Documents Received from Matria Healthcare, Inc. for Review
1. Joint Proxy Statement/Prospectus dated February 8, 1996 regarding the
merger among Healthdyne, Inc., Tokos Medical Corporation (Delaware) and
Matria Healthcare, Inc.
2. Form 10-K of Matria Healthcare, Inc. for the fiscal year ended December
31, 1995.
3. Press Release dated May 1, 1996 issued by Matria Healthcare, Inc. to
announce its results of operations for the first quarter of 1996.
4. Draft of the agreements to be entered into by each of Dr. Geoffrey Sher
and Harley J. Earl, II related to the Matria Healthcare, Inc. stock they
will receive in the proposed transaction.
5. Form 10-Q of Matria Healthcare, Inc. for the three months ended March
31, 1996.
<PAGE> 1
EXHIBIT 99.3
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (the "Agreement") is made and entered into as
of February 28, 1995 (the "Effective Date) by and among the following parties:
I. HEALTHDYNE, INC., a Georgia Corporation ("Healthdyne")
II. GEOFFREY SHER, M.D.
III. IRA of GEOFFREY SHER, M.D.
IV. TRUSTEE, KNUTZEN 1992 CHILDREN'S TRUST
V. TRUSTEE, KNUTZEN 1992 IRREVOCABLE TRUST
VI. VICTOR KNUTZEN, M.D.
VII. TRUSTEE, SHER 1992 CHILDREN'S TRUST
VIII. TRUSTEE, SHER 1992 IRREVOCABLE TRUST
IX. FERTILITY CENTER PARTNERS, L.P., a California limited partnership
X. RIFAAT SALEM, M.D., Ph.D.
XI. MICHAEL O. KOKESH, ESQ.
XII. LAWRENCE L. PEPPERS, CPA
XIII. HARLEY J. EARL, II
XIV. WILLIAM VAUGHT, Ph.D.
XV. LINDA VAUGHT, Ph.D.
XVI. GHANIMA MAASSARANI
XVII. MICHAEL FEINMAN, M.D.
XVIII. CHRISTO ZOUVES, M.D.
XIX. CHARLES M. ATKINSON
XX. LAWRENCE A. KRAUSE
XXI. FRANK L. BARNES, Ph.D.
XXII. LEONARD N. HECHT
<PAGE> 2
XXIII. NATIONAL REPRODUCTIVE MEDICAL CENTERS, INC., a Delaware
corporation (the "Corporation").
The above parties, other than the Corporation, may be separately referred
to as "Shareholder" and collectively as the "Shareholders".
RECITALS
A. HEALTHDYNE has entered into that certain Series C Convertible
Preferred Stock Purchase Agreement, of even date herewith, (the "Stock Purchase
Agreement") pursuant to which the Corporation shall issue and HEALTHDYNE will
purchase Seventy One Thousand Four Hundred (71,400) shares of Series C
Convertible Preferred Stock in the Corporation.
B. The Shareholders, upon consummation of the purchase and sale
contemplated by the Stock Purchase Agreement, together will own one hundred
percent (100%) of the outstanding shares of capital stock of the Corporation and
all warrants, options and rights exercisable, exchangeable or convertible into
securities of the Corporation, all as set forth on Exhibit B which is attached
hereto and incorporated herein by reference.
C. The Shareholders and the Corporation have agreed, as a condition
of, and as a principal inducement for, HEALTHDYNE's investment in the
Corporation, to impose restrictions on the transfer or other disposition of the
Shares and to address other matters relating to the conduct of the affairs of
the Corporation.
IT IS THEREFORE AGREED, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, as follows:
ARTICLE ONE - INTRODUCTION
1.1 Recitals. The parties agree that the recitals are true and
correct and the recitals are hereby incorporated into this Agreement.
1.2 Definitions.
(a) The definitions set forth in the preamble and recitals
shall be used in the Agreement.
(b) The term "Authorized Transferee" shall refer to any person
who acquires an interest as a shareholder in the Corporation pursuant to
transfer made in accordance with the terms and conditions of this
Agreement, provided that (i) the transferee agrees in writing to be bound
by the provisions of this Agreement, and (ii) the Corporation is, within a
reasonable time after such transfer, furnished with written notice of the
name and address of such transferee. Each Authorized Transferee shall have
all of the rights and obligations of a Shareholder under this Agreement and
all references hereunder to Shareholders or a Shareholder shall include any
Authorized Transferee.
<PAGE> 3
(c) The term "Closing Date" shall refer to the date of any
purchase made by the Corporation or any Shareholder pursuant to this
Agreement. Any such closing shall take place at the principal office of
the Corporation, or at such other place as the parties involved in such
transaction shall mutually agree, within the appropriate time period set
forth in this Agreement.
(d) The term "Healthdyne Affiliate" shall refer to any entity
controlled by, in control of, or under common control with Healthdyne.
(e) The term "Material Corporate Transaction" includes (i) the
merger or consolidation of the Corporation with or into any other
corporation; (ii) the sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the assets of the Corporation
to or with any other corporation, person or entity; (iii) a sale, transfer
or exchange by the Corporation of shares or securities convertible into
shares of the Corporation resulting in a change of control of the
Corporation; and (iv) the adoption of any plan or proposal for the
liquidation, dissolution or winding up of the Corporation.
(f) The term "New Securities" shall mean capital stock of the
Corporation, whether now authorized or not, options, warrants,
subscription agreements and other rights to purchase such capital stock
and securities of any type whatsoever that are or may become convertible
into or exchangeable for such capital stock, other than (i) Stock issued
to Healthdyne pursuant to the Stock Purchase Agreement or upon the
exercise of any rights granted thereunder or hereunder, (ii) shares of
capital stock issued in connection with any stock split or stock dividend,
(iii) securities offered to the general public pursuant to a registration
statement filed under the Securities Act of 1933, as amended, or (iv)
shares of capital stock issued upon the exercise or conversion of options,
warrants, subscription agreements, convertible securities or other rights
issued and outstanding as of the Effective Date.
(g) A Shareholder's "prorata share" shall be the quotient
obtained by dividing (i) the number of shares of Stock held by such
Shareholder, assuming that all outstanding warrants, options and rights,
other than the Step Up Option rights granted under Article Four hereof,
have been fully exercised, exchanged or converted into Stock, by (ii) the
total number of issued and outstanding shares of Stock held by all
Shareholders, assuming that all outstanding warrants, options and rights,
other than the Step Up Option rights granted under Article Four hereof,
have been fully exercised, exchanged or converted into Stock.
(h) The term "Stock" shall mean all of the shares of capital
stock of the Corporation now or hereafter owned by a Shareholder or any
other securities which may from time to time be issued or issuable in
respect of the capital stock of the Corporation in any recapitalization,
dividend or other distribution, merger or consolidation, exchange of
shares or otherwise, together with all rights, options, warrants or
otherwise to acquire the same, now or hereafter possessed by a
Shareholder, the personal representatives of any Shareholder who is a
natural person upon the death of such Shareholder, or any other successor
in interest of any kind whatsoever.
<PAGE> 4
1.3 Endorsement on Certificates. Each certificate representing shares
of Stock of the Corporation now or hereafter held by the Shareholders shall be
stamped with a legend in substantially the following form:
"The transfer of these securities is restricted by the Shareholders
Agreement dated February 28, 1995, a copy of which is on file at the
office of the Corporation. The Corporation will furnish to any
shareholder upon request and without charge a full statement of such
restrictions."
ARTICLE TWO - RESTRICTIONS ON TRANSFER
2.1 Restriction on Transfer. No Shareholder shall sell, assign, give,
pledge, encumber, or otherwise transfer all or any part of such Shareholder's
Stock, except as provided in this Agreement. Any attempt by a Shareholder to
transfer any Stock in violation of any provision of this Agreement shall be void
and the Corporation shall not (i) transfer on its books any Stock that has been
sold, gifted or otherwise transferred in violation of any of the provisions set
forth in this Agreement or (ii) treat as the owner of such Stock or accord the
right to vote or pay dividends to any purchaser, donee or other transferee to
whom such Stock may have been so transferred.
2.2 Permitted Transfers.
(a) Any Shareholder who is a natural person may make a
gratuitous transfer of all or any part of such Shareholder's Stock during
the Shareholder's lifetime or upon the death of a Shareholder to one or
more members of such Shareholder's immediate family, including such
Shareholder's spouse, children, grandchildren, or other lineal descendants
or to a trust for the benefit of such person or persons, provided the
Shareholder, or personal representative of any deceased Shareholder,
desiring to make such disposition shall have notified the Board of
Directors of the Corporation in writing of the details of such intended
transfer no later than thirty (30) days prior to the effective date of such
transfer.
(b) Healthdyne shall be permitted to transfer all or any part
of its Stock to a Healthdyne Affiliate. Any such Healthdyne Affiliate to
whom Healthdyne's Stock is transferred shall assume all the rights and
responsibilities of Healthdyne hereunder.
(c) Any Stock transferred pursuant to this Section shall remain
subject to this Agreement, and upon receipt of delivery of shares
representing the transferred Stock, the transferee shall be so bound. Upon
request of the Corporation, the transferee shall acknowledge in writing
that the Stock transferred remains subject to this Agreement.
ARTICLE THREE - RIGHT OF FIRST REFUSAL
3.1 Proposed Transfer. Except as otherwise permitted under the terms
of this Agreement, no Shareholder shall sell, transfer, assign or otherwise
dispose of any Stock to any person, firm, or corporation without the consent of
the Corporation and the other Shareholder(s) unless the Shareholder desiring to
make such transfer or other disposition (hereinafter referred to as the
"Transferor") shall have first made an offer (the "Offer") to sell such stock to
the
<PAGE> 5
Corporation and the other Shareholders in the manner hereinafter described and
the Offer shall not have been accepted.
3.2 Offer to Corporation.
(a) Offer by Transferor. The Offer shall be given to both the
Corporation and the Shareholders, provided that the Shareholders may only
exercise the right to purchase the offered stock if the Corporation
declines or fails to exercise its rights hereunder. The Offer shall be a
written offer to sell all the Stock offered to the prospective transferee
owned by the Transferor which is to be transferred on the same terms and
conditions as offered to the prospective transferee, to which shall be
attached a statement of intention to transfer, the name and address of such
prospective transferee, the number of shares of Stock involved in the
proposed transfer and the terms of such transfer.
(b) Acceptance of Offer. Within fifteen (15) days after the
receipt of the Offer, the Corporation may, at its option, elect to purchase
all, but not less than all, of the Stock owned by the Transferor which is
to be transferred. The Corporation shall exercise its election to purchase
by giving notice thereof to the Transferor and to the other Shareholders.
The notice shall specify the Closing Date of the purchase which shall be
not more than thirty (30) days after the date of the giving of such notice.
3.3 Offer to Shareholders.
(a) If the Offer is not accepted by the Corporation, the other
Shareholders, within thirty (30) days after the receipt of the Offer, at
their option, may elect to purchase all the shares of the Stock of the
Corporation owned by the Transferor which are to be transferred. Each
Shareholder shall have the right to purchase such Shareholder's prorata
share of the Stock to be transferred. If any Shareholder declines to
purchase any portion of the shares such Shareholder has the right to
purchase and the remaining Shareholders desire to purchase all of the Stock
to be transferred, they may, in that event, elect to do so and each
purchasing Shareholder shall have the right to purchase such Shareholder's
prorata share of the Stock to be transferred (calculated as if the number
of shares of Stock held by all purchasing Shareholders were the total
number of shares of Stock held by all Shareholders, assuming that all
outstanding warrants, options and rights, other than the Step Up Option
rights granted under Four hereof, have been fully exercised, exchanged or
converted into Stock) as well as the right to purchase such Shareholder's
prorata share of any remaining Stock to be transferred which is not
purchased by another Shareholder.
(b) The other Shareholders shall exercise their election to
purchase by giving notice thereof to the Transferor and to the Corporation.
The notice shall specify the Closing Date of the purchase which shall be
not more than thirty (30) days after the date of the giving of such notice.
<PAGE> 6
3.4 Determination and Payment of Purchase Price. The purchase price
for any shares of Stock purchased by the Corporation or any Shareholders
pursuant to this Article Three shall be the purchase price set forth in the
Offer.
3.5 Release from Restriction. If the Offer to sell is neither
accepted by the Corporation or by the other Shareholders, or, if accepted, if
the closing does not occur through no fault of the Transferor within thirty (30)
days after the date of the giving of the notice required under Section 3.2(b) or
3.3(b), as the case may be, the Transferor may, subject to Article Four hereof,
make a bona fide transfer to the prospective transferee named in the statement
attached to the offer, such transfer to be made only in strict accordance with
the terms therein stated, provided that the Transferor shall have furnished the
Board of Directors of the Corporation with an opinion of counsel reasonably
satisfactory to the Corporation, that such transfer shall not violate any
applicable state or federal securities law, rule or regulation. If the
Transferor shall fail to make such transfer within thirty (30) days following
the approval by the Board of Directors of the Corporation, such shares of Stock
shall again become subject to all the restrictions of this Agreement. Provided,
further, however, that nothing contained herein shall be construed as releasing
any shares of this Corporation from any restrictions or requirements of law
concerning transfer of such shares.
3.6 Shares Still Subject to Agreement. Any shares transferred in
accordance with this Agreement shall continue to be subject to the terms hereof
and such transfer shall only become effective upon receipt by the Corporation of
an acknowledgment, acceptance and agreement to be bound by the terms of this
Agreement executed by the transferee.
3.7 Termination of Right of First Refusal. The right of first refusal
set forth herein shall terminate as of the closing of the first firm commitment
underwritten sale to the general public of any shares of Stock which become
registered pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act of
1933, as amended. The right of first refusal shall also be inapplicable to any
transfer of Stock to be made as part of a Material Corporate Transaction.
ARTICLE FOUR - STEP UP OPTION RIGHTS
4.1 Step Up Option. As of the date of receipt by HEALTHDYNE of
audited financial statements for the Corporation's fiscal year ending December
31, 1995 (the "Current Year"), which statements shall in no event be delivered
to HEALTHDYNE later than April 1, 1996, and at any time for a period of one
hundred twenty (120) days following receipt thereof, Healthdyne shall be
entitled, at its option and in its sole discretion, to purchase that number of
shares of Stock which, when added to the number of shares of Stock then held by
Healthdyne, shall give Healthdyne ownership of One Hundred Percent (100%) of the
fully diluted shares of Stock then held by any shareholder of the Corporation
other than Healthdyne, including all outstanding options, warrants and
convertible instruments. Any and all such outstanding options, warrants and
convertible instruments shall become exercisable, convertible or exchangeable in
accordance with the terms thereof immediately upon written notice to HEALTHDYNE
and the Corporation following HEALTHDYNE's delivery of notice pursuant to
Section 4.3 of this Agreement and shall remain exercisable until the Closing
Date for the exercise of the option granted to HEALTHDYNE hereunder. Any
options, warrants or convertible instruments which are not either tendered for
cancellation, transferred to Healthdyne or exercised, exchanged or converted
<PAGE> 7
prior to the Closing Date shall be null and void. The purchase price for
exercise of such option shall be calculated in accordance with the formula set
forth in Section 4.2 of this Agreement.
4.2. Purchase Price Formula. The purchase price for exercise of the
option granted to HEALTHDYNE pursuant to this s Article Four shall be determined
in accordance with the following formula:
(a) The lesser of (i) Thirty Percent (.30), or (ii) the
Corporation's operating earnings for the Current Year divided by the
Corporation's net revenue for the Current Year; multiplied by one hundred
(100); plus;
(b) The lesser of (i) Forty Percent (.40), or (ii) the
Corporation's net revenue for the Current Year minus the Corporation's net
revenue for the Corporation's fiscal year ending December 31, 1994 (the
"Prior Year") divided by the Corporation's net revenue for the Prior Year;
multiplied by one hundred (100);
(c) Take the lesser of (i) the sum determined under (a) and (b)
above or (ii) sixty (60) and divide by sixty (60);
(d) Multiply by ten (10) times the Corporation's operating
earnings for the Current Year; and
(e) Multiply by the percentage ownership interest in the
Corporation represented by the shares of Stock to be purchased assuming
that all outstanding warrants, options and rights, other than the Step Up
Option rights granted under Article Four hereof, have been fully exercised,
exchanged or converted into Stock.
For example:
Assuming (1) net revenue of $100 for Current Year, (2) operating
earnings of $19 for Current Year, (3) Prior Year net revenue of $60 and (4)
an 88.89% ownership interest to be purchased, the purchase price would be
calculated as follows:
- The lesser of (i) .30 or (ii) .19; multiplied by one hundred
(100); plus;
- The lesser of (i) .40, or (ii) .66; multiplied by one hundred
(100); equals 59 (40 + 19 = 59).
- The lesser of (i) 59 or (ii) 60; divided by (60), equals .98;
- .98 times 10 times $19 equals $186.20;
- $186.20 times 88.89% equals $165.51
<PAGE> 8
Notwithstanding any provision of this Section 4.3 to the contrary, the parties
agree that the value for One Hundred Percent of the stock, options, warrants
and any convertible securities of the Corporation, including interests owned by
HEALTHDYNE, shall not be less than Fifteen Million Dollars ($15,000,000.00).
4.3. Method of Exercise. Healthdyne shall exercise the option granted
under this Article Four by giving written notice thereof to the Shareholders and
to the Corporation. The notice shall specify the Closing Date, which shall be
not more than forty-five (45) days after the date of the giving of such notice.
The purchase price for exercise of such option shall be payable in full on the
Closing Date, in either (i) a tax free exchange utilizing common stock of
HEALTHDYNE ("Healthdyne Stock"), (ii) cash (or cash equivalents such as
certified or bank checks or federal funds), or (iii) a combination of (i) and
(ii) above. At least thirty (30) days prior to the Closing Date, Healthdyne
shall notify the other Shareholders of the type of consideration available for
selection by the Shareholders, which in all instances shall include cash (or
cash equivalents such as certified or bank checks or federal funds) and which
may also include up to a maximum amount specified by HEALTHDYNE of Healthdyne
Stock (the selection of whether Healthdyne Stock shall be made available shall
be in the sole and absolute discretion of HEALTHDYNE). Within ten (10) days
after receipt of such notice, the other Shareholders shall inform HEALTHDYNE of
their preference, which may include cash and, to the extent that it has been
made available by HEALTHDYNE, Healthdyne Stock or a combination of both in the
amount of the purchase price for the Stock to be purchased. In no event shall
the Shareholders be required to accept Healthdyne Stock as part of the
consideration and, notwithstanding the selection of Healthdyne Stock by the
Shareholders, HEALTHDYNE, in its discretion and upon written notice to the
Shareholders, may substitute cash or another form of consideration acceptable to
the Shareholders in the event that it is impracticable for any reason to provide
by the Closing Date Healthdyne Stock in amounts selected by the Shareholders;
provided, however, that in no event shall HEALTHDYNE be required to include
Healthdyne Stock unless each of the other Shareholders agrees to accept the
amount of Healthdyne Stock specified by HEALTHDYNE. Healthdyne common stock
shall be valued at the average closing price per share of such stock on a
national securities exchange or the NASDAQ National Market System (wherever such
stock is then most frequently traded) for the twenty (20) trading days ending on
the day which is ten (10) days prior to the Closing Date. Proceeds shall be
disbursed as provided in Section 4.4 below.
4.4 Disbursement of Proceeds.
(a) Definitions.
Gross Proceeds - The amount paid by Healthdyne as a consequence of
exercising its option under this Article Four for all the common and
preferred shares together with all options and warrants of Corporation.
Net Proceeds - Gross Proceeds less that portion of the Gross Proceeds
attributable to Healthdyne's Series C Convertible Preferred Stock assuming
conversion thereof.
<PAGE> 9
Minimum Series A Amount - The purchase price of the Series A
Convertible Preferred plus dividends calculated at 8.25% from the date of
purchase of the Series A through the date of closing of sale to Healthdyne
under this Article Four.
Investment Banking Fee - An amount of the Net Proceeds as calculated
in accordance with Exhibit C which is attached hereto and incorporated
herein by reference to be paid only if the fully diluted interest of the
Series A Convertible Preferred in the Gross Proceeds is greater than or
equal to the Minimum Series A Amount.
(b) Allocation of Proceeds. The Net Proceeds paid by
Healthdyne, Inc. as a consequence of its execution of its option under
Article Four of this Shareholders Agreement shall be allocated as follows:
(1) If the Gross Proceeds are such that by multiplying the fully
diluted interest of the Series A Convertible Preferred by the
Gross Proceeds, the result is less than the Minimum Series A
Amount, then the Series A shareholders shall receive the
Minimum Series A Amount. The balance of the Net Proceeds after
deducting the amount paid to the Series A shareholders and the
balance of any amounts due under the 1995 Executive Incentive
Compensation Plan shall be distributed pro-rata to the
remaining common shareholders assuming complete conversion of
the Series B Convertible Preferred and all outstanding options
and warrants.
(2) If the Gross Proceeds are such that by multiplying the fully
diluted interest of the Series A Convertible Preferred by the
Gross Proceeds, the result is greater than or equal to the
Minimum Series A Amount, then the Net Proceeds after deduction
of any amounts due under the 1995 Executive Incentive
Compensation Plan and after deduction of the Investment Banking
Fee shall be distributed pro-rata to all the remaining common
shareholders assuming complete conversion of the Series B
Convertible Preferred and all outstanding options and warrants;
provided that in no event shall the amount payable to the
Series A Convertible Preferred Shares be less than the Minimum
Series A Amount.
(c) Healthdyne Liability. Healthdyne shall only be liable under
this Section 4.4 for delivering the Net Proceeds to an agent for the
shareholders, warrant holders and option holders hereunder.
4.5 Non-Solicitation. In the event Healthdyne exercises the option
rights granted to Healthdyne pursuant to this Article Four, in consideration of
and ancillary to the Shareholders' sale of such Stock, each Shareholder (with
the exception of Linda Vaught, Ph.D., William Vaught, Ph.D. and Lawrence L.
Peppers, CPA who agree, in lieu of these non-solicitation provisions, to be
bound to the fullest extent by California common law with respect to
confidential information, unfair business practices, interference with
contractual relations and
<PAGE> 10
similar statutory and common law provisions) hereby agrees that for Five (5)
years after the exercise of such option, such Shareholder shall not (i) deal,
directly or indirectly, in a competitive manner with any employee, independent
contractor, customer or supplier doing business with the Corporation or any
subsidiary thereof, (ii) solicit any officer, director, employee, independent
contractor or agent of the Corporation or any subsidiary or affiliate thereof to
become an officer, director, employee, independent contractor or agent of such
Shareholder, any entity with which such Shareholder is affiliated or anyone
else, (iii) engage in or participate in, directly or indirectly, any business
conducted under any name that shall be the same as or similar to the name of the
Corporation or any subsidiary or affiliate thereof or any trade name used by any
of them, or (iv) solicit or take any other action to persuade or induce any
employee, independent contractor, customer or supplier doing business with the
Corporation or any subsidiary thereof to discontinue such association with the
Corporation or reduce the amount or value of products or services sold to or
purchased from the Corporation.
4.6 Non-Competition Agreements. In the event Healthdyne executes the
option rights granted to Healthdyne pursuant to this Article Four, Dr. Knutzen
shall be bound by the noncompetition agreement set forth on Exhibit A-1, Dr.
Sher shall be bound by the noncompetition agreement as set forth on Exhibit A-2,
Dr. Salem shall be bound by the noncompetition agreement as set forth on Exhibit
A-3, and all other shareholders who are either significant shareholders,
employees or directors of Corporation and it subsidiaries as of the date hereof
or on the date of the exercise of the option granted under Article Four shall be
bound by noncompetition agreements set forth on Exhibit A-4. A significant
shareholder shall be defined as any shareholder owning more than five percent
(5%) of the Stock of the Corporation.
4.7 Organization. In the event HEALTHDYNE exercises the option rights
granted to Healthdyne pursuant to this Article Four, each of the other
Shareholders and the Corporation will use his, her or its best efforts to
preserve the business organization of the Corporation intact for the benefit of
HEALTHDYNE, to keep the officers and employees of the Corporation available to
HEALTHDYNE, and to preserve for HEALTHDYNE the relationships with its suppliers,
customers and other having business relations with the Corporation.
4.8 Initial Board Following Step-Up. Following Healthdyne's exercise
of its option rights pursuant to this Article Four, the initial Board of
Directors of the Corporation shall be five (5) members, the Chief Executive
Officer of the Corporation, the Medical Director of the Corporation and three
(3) other board members selected by Healthdyne.
4.9 Waivers. Any rights of any of the parties hereto which are
inconsistent with or would delay Healthdyne's exercise of its option granted
under this Article Four are hereby waived, including but not limited to,
preemptive rights, rights of first refusal and rights of cosale contained in the
Series A Convertible Preferred Stock Agreement, the Buy-Sell Agreement by and
among Corporation, Earl, Kokesh and Peppers as amended through the date hereof,
Cosale Agreement by and among Corporation, Sher, Knutzen and Fertility Center
Partners as amended through the date hereof , the Series B Convertible Preferred
Stock Agreement and the Cosale Agreement between the Corporation, Sher, Knutzen
and the IRA of Dr. Geoffrey Sher as amended through the date hereof.
<PAGE> 11
ARTICLE FIVE- OPERATIONS
5.1 Management. The parties hereby agree that the duly appointed
officers and executive employees of the Corporation shall be primarily
responsible for the executive and day-to-day management of the business affairs
of the Corporation, subject to the general direction and supervision of the
Board of Directors; provided, however, that at all times the then current
Executive Medical Director, working through the Medical Advisory Board of the
Corporation, shall have responsibility for and control of the clinical aspects
of the Corporation's operations.
5.2 Board of Directors. Immediately upon the Effective Date and at
all times thereafter prior to the earlier of HEALTHDYNE's conversion of the
Series C Convertible Preferred Stock pursuant to the Stock Purchase Agreement or
HEALTHDYNE's exercise of the step up option rights granted to it pursuant to
Article Four hereof, the Corporation and the Shareholders shall take all
necessary action, including, without limitation, voting shares of Stock held by
them to establish and maintain a Board of Directors fixed at five (5) members,
which shall include one (1) appointee of the holder of the Series C Convertible
Preferred Stock and one (1) appointee of the holder of the Series A Convertible
Preferred Stock in the Corporation, all as provided in the Second Amendment to
the Amended and Restated Certificate of Incorporation. In the event HEALTHDYNE
elects to exercise the conversion rights granted to it pursuant to the Stock
Purchase Agreement with respect to over 75% of the Series C Convertible
Preferred Stock held by it, and for so long thereafter as Healthdyne continues
to own Fifty Percent (50%) of the Stock so converted, the Corporation and the
Shareholders shall take all necessary action, including, without limitation,
voting shares of Stock held by them, to establish and maintain a Board of
Directors fixed at five (5) members, which shall include two (2) appointees of
Healthdyne, one (1) appointee of the holder of the Series A Convertible
Preferred Stock in the Corporation and (2) members elected by majority vote of
all Shareholders. In the event the parties unanimously agree to increase the
size of the Board of Directors, the proportionate representation of the
aforementioned parties shall remain the same. In addition, upon death or
resignation of a member of the Board of Directors, the vacancy shall be filled
so as to maintain the proportionate representation required hereunder.
Notwithstanding any provision of this Section 5.2 to the contrary, in the event
either: (i) the Corporation's net worth after giving effect to the investment
by Healthdyne contemplated by the Stock Purchase Agreement becomes less than the
net worth of the Corporation immediately after the closing of the Stock Purchase
Agreement increased by any positive amount of post closing net cumulative
earnings; or (ii) the net current ratio of the Corporation (excluding unearned
revenue) becomes less than 1.5:1.0, and such an event described in (i) or (ii)
above shall continue unremedied at the end of the fiscal quarter in which the
event occurs; or, (iii) the Corporation fails to deliver to HEALTHDYNE the
audited financial statements required under Section 4.1 prior to April 1, 1996;
then, HEALTHDYNE shall be entitled to elect a majority of the members of the
Board of Directors and to maintain such a majority until, as the case may be,
the net worth or working capital shortfall has been corrected and maintained for
a period of one (1) fiscal quarter or the audited financial statements required
under Section 4.1 have been delivered to HEALTHDYNE.
<PAGE> 12
5.3 Material Corporate Transactions. At all times following the
Effective Date prior to the earlier of (i) an underwritten public offering of
Corporation's shares, or (ii) Healthdyne's exercise of the rights granted to it
pursuant to Article Four of this Agreement, the Corporation and the Shareholders
agree that any Material Corporate Transaction shall require approval of the
holders of shares having at least 90% of the voting power of all outstanding
shares of capital stock.
5.4 Inspection Rights. The Corporation shall keep proper books and
records in which full, true and correct entries in conformity with generally
accepted accounting principles shall be made of all dealings and transactions in
relation to its business and activities and shall cause audited financial
statements to be prepared by the Corporation's outside accountants and delivered
to Healthdyne in a timely fashion following the close of each fiscal year of the
Corporation. The Corporation shall permit Healthdyne, at Healthdyne's expense,
to visit and inspect the Corporation's properties, examine and make extracts
from its books of account and records and discuss the Corporation's affairs,
finances and accounts with its officers, directors, employees and consultants
(including its independent accountants) all at such reasonable times as may be
requested by Healthdyne. The Corporation shall provide Healthdyne with an
unaudited monthly income statement, balance sheet and cash flow statement no
later than fifteen (15) days following the last day of each calendar month. In
addition, the Corporation shall cause audited financial statements to be
prepared by Arthur Anderson & Co., or such other independent accountants as
shall be selected by Healthdyne and approved by the Board of Directors of the
Corporation (provided that such approval shall not be unreasonably withheld by
the Board of Directors), and made available to the Shareholders upon
Healthdyne's request in connection with Healthdyne's exercise of the rights
granted under Article Four hereof.
5.5 Dividends and Distributions. The Corporation shall not declare,
pay or set aside for payment any dividend or distribution in respect of its
capital stock, or redeem, purchase or otherwise acquire any shares of its
capital stock, any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants or other rights to
purchase or subscribe to any of the foregoing, or reduce any debt owing to any
Shareholder, option holder or warrant holder or incur any new debt to any
Shareholder, option holder or warrant holder without the prior written approval
of the Healthdyne appointee to the Board of Directors; provided, however, that
such approval shall not be required for any existing debt payable by Corporation
to a Shareholder which is to be immediately utilized by such Shareholder to
reduce bank debt incurred by the Shareholder on behalf of the Corporation,
provided, further, that all such checks will be issued in the name of the
Shareholder and the bank.
5.6 Employee Best Efforts. The Corporation shall enter into
employment arrangements with each of its executive employees which require such
employee to devote employee's full business time and best efforts to performance
of such reasonable duties on behalf of Corporation (and, in the case of Dr.
Sher, Pacific Fertility Medical Group, Inc.) as are assigned to employee by the
officers and directors of the Corporation from time to time. Corporation shall
cause each physician employed by Pacific Fertility Medical Group, Inc. to enter
into an employment agreement which require such physician to devote physician's
full business time and best efforts to perform such reasonable duties on behalf
of Pacific Fertility Medical Group, Inc. as may be requested by the officers and
directors of the Pacific Fertility Medical Group, Inc. from time to time. Each
such employment agreement shall require the employee to maintain the
confidentiality of and not to divulge to third parties or exploit for such
employee's own use any proprietary information of the Corporation and shall
require that the employee not solicit any
<PAGE> 13
patient customer or independent contractor to reduce or discontinue services
provided by the Corporation.
5.7 Capital Changes. The Corporation shall not issue or sell, or
grant options, warrants or rights to purchase or to subscribe to, or enter into
any arrangement or contract with respect to the issuance or sale of any of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or make any changes in its capital
structure without unanimous consent of the Board of Directors of the
Corporation, provided that the Company may grant options and warrants pursuant
to the 1992 Stock Option plan (not to exceed 56,200 of such options and
warrants) and may issue shares upon exercise of such options and warrants,
provided further that all options granted by the Company shall require, as a
condition of the grant, that the optionee shall agree to be bound by this
Agreement and have all the rights and obligations as a shareholder hereto,
including, but not limited to, the provisions of Article 4 hereof.
5.8 Subsidiaries. The Corporation shall not organize any subsidiary,
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business without unanimous
approval of the Board of Directors of the Corporation.
ARTICLE SIX- GENERAL PROVISIONS
6.1 Notices. All notices required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or overnight delivery service or five days
after deposit with the United States Postal Service, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof or at such other address
as such party may designate by ten days' prior written notice to the other
parties hereto. Copies of all notices, other than any notice delivered by
Healthdyne, shall be provided in accordance with the requirements set forth
hereunder to:
Healthdyne, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
National Reproductive Medical Centers, Inc.
55 Francisco Street, Suite 750
San Francisco, California 94133
Attention: General Counsel
6.2 Specific Performance. The parties hereby declare that it is
impossible to measure in money the damages which will accrue to a party hereto
or to the personal representatives of a decedent by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if any party
hereto or the personal representatives of a decedent shall institute any action
or proceeding to enforce the provisions hereof, any person (including the
Corporation) against whom such action or proceeding is brought hereby waives the
claim or defense therein that such party or such personal representatives has or
have an adequate remedy at law, and such person shall not urge in any such
action or proceeding the claim or defense that such remedy at law exists.
<PAGE> 14
6.3 Termination.
(a) This Agreement and all restrictions on stock transfer
created hereby shall terminate on the occurrence of any of the following
events:
1) Bankruptcy, dissolution or liquidation of the Corporation;
2) A single Shareholder becoming the owner of all of the
shares of Stock of the Corporation;
3) The execution of a written instrument by the Corporation
and all Shareholders terminating this Agreement;
4) The exchange of Healthdyne's Series C Convertible Preferred
Stock to a Promissory Note in accordance with Section 1.3 of the
Stock Purchase Agreement.
6.4 Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of and be binding upon the respective successors,
assigns and legal representatives of the parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
giving effect to principles of conflicts of law.
6.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
6.7 Headings. The headings and captions used in this Agreement are used
for convenience of reference only and shall in no way define, limit or describe
the scope or intent of any of the terms or provisions of this Agreement or be
considered in construing or interpreting this Agreement. All references in this
Agreement to Articles and Sections shall, unless otherwise provided, refer to
the Articles and Sections hereof.
6.8 Arbitration. Any and all disputes relating to this Agreement or its
breach shall be settled by arbitration in Atlanta, Georgia, in accordance with
the then-current rules of the American Arbitration Association, and judgment
upon the award entered by the arbitrators may be entered in any Court having
jurisdiction hereof. Costs of arbitration, including reasonable attorneys' fees
incurred in arbitration, as determined by the arbitrator, together with any
reasonable attorneys' fees incurred by the prevailing party in Court enforcement
of the arbitration award after it is rendered by the arbitrator, must be paid to
the prevailing party by the party designated by the Arbitrator or Court. Said
arbitration shall be conducted in the English language and the award rendered in
United States dollars. Service of the Petition to Confirm the Award of the
Arbitrator shall be made in the manner provided herein for all notices. Such
service shall be complete on personal delivery or the deposit of the Petition
and notice in the United States mail. Should one party either dismiss or abandon
the claim or counterclaim before hearing thereon, the other party shall be
deemed the "prevailing party" pursuant to this Agreement. Should both
<PAGE> 15
parties receive judgment or award on their respective claims, the arbitrator
shall determine who shall be deemed the "prevailing party" for purposes of this
Agreement.
6.9 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of any this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
6.10 Amendments and Waivers. Except as otherwise specified herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), with and only with the written consent of each
of the parties hereto.
6.11 Severability. If one or more provisions of this Agreement are
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
6.12 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior discussions, understandings and
agreements with respect thereto.
6.13 Incompetency. If a Shareholder is legally declared incompetent,
such Shareholder's guardian shall have all of the rights of and be subject to
all of the obligations under this Agreement.
6.14 Amendment of Bylaws. The Shareholders hereby agree that the terms
of this Agreement shall supersede any provision of the Bylaws of the Corporation
that might be in conflict with this Agreement, and to the extent required by
California law, this Agreement shall be considered a written action taken by the
Shareholders of the Corporation and shall be deemed an amendment of the
Corporation's Bylaws.
6.15 Healthdyne Seal. Notwithstanding any provision of this Agreement
to the contrary, this Agreement and any amendments hereto or waivers of any of
the terms hereof must bear the Healthdyne corporate seal to be binding upon
Healthdyne.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto and, if individuals, such
individual's spouses, have executed this Agreement as of the day and year first
above written.
<TABLE>
<S> <C>
HEALTHDYNE, INC. NATIONAL REPRODUCTIVE
MEDICAL CENTER, INC.
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
[SEAL] Address:
---------------------------------
---------------------------------
---------------------------------
SHAREHOLDERS
FERTILITY CENTER PARTNERS
By:
-----------------------------
Title:
--------------------------
GEOFFREY SHER, M.D.
--------------------------------
(Spouse)
------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
IRA of GEOFFREY SHER, M.D.
--------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
</TABLE>
<PAGE> 17
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 18
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<S> <C>
TRUSTEE, TRUSTEE,
KNUTZEN 1992 CHILDREN'S FUND KNUTZEN 1992 IRREVOCABLE TRUST
- ---------------------------------- ---------------------------------
(Spouse) (Spouse)
- --------------------------- --------------------------
Address: Address:
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
VICTOR KNUTZEN, M.D. TRUSTEE,
SHER 1992 CHILDREN'S TRUST
- ---------------------------------- ---------------------------------
(Spouse) (Spouse)
- --------------------------- --------------------------
Address: Address:
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
TRUSTEE, HARLEY J. EARL, II
SHER 1992 IRREVOCABLE TRUST
- ---------------------------------- ---------------------------------
(Spouse) (Spouse)
- --------------------------- --------------------------
Address: Address:
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 19
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<S> <C>
RIFAAT SALEM, M.D. Ph.D. WILLIAM VAUGHT, Ph.D.
- --------------------------------- -------------------------------
(Spouse) (Spouse)
- ------------------------- -----------------------
Address: Address:
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
MICHAEL O. KOKESH, ESQ. LINDA VAUGHT, Ph.D.
- --------------------------------- -------------------------------
(Spouse) (Spouse)
- ------------------------- -----------------------
Address: Address:
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
LAWRENCE L. PEPPERS, CPA GHANIMA MAASSARANI
- --------------------------------- -------------------------------
(Spouse) (Spouse)
- ------------------------- -----------------------
Address: Address:
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 20
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<S> <C>
MICHAEL FEINMAN, M.D. CHARLES M. ATKINSON
- ------------------------------- -----------------------------
(Spouse) (Spouse)
- ----------------------- ---------------------
Address: Address:
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
CHRISTO ZOUVES, M.D. LAWRENCE A. KRAUSE
- ------------------------------- -----------------------------
(Spouse) (Spouse)
- ----------------------- ---------------------
Address: Address:
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
FRANK L. BARNES, Ph.D.LEONARD N. HECHT
- ------------------------------- -----------------------------
(Spouse) (Spouse)
- ----------------------- ---------------------
Address: Address:
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
- ------------------------------- -----------------------------
</TABLE>
<PAGE> 21
EXHIBIT A-1
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is by and among Healthdyne, Inc.
("Healthdyne"), National Reproductive Medical Centers, Inc. ("NRMC") and Victor
Knutzen, M.D., a shareholder of NRMC ("Shareholder") and is effective as of
February 28, 1995.
WHEREAS, Healthdyne, NRMC and Shareholder have agreed that as a condition
precedent to the execution of the Shareholders Agreement and the related Series
C Convertible Stock Purchase Agreement dated as of February 28, 1995,
Shareholder shall execute an agreement not to engage in certain prohibited
activities (as hereinafter defined) for certain periods of time in certain
geographic locations (as hereinafter defined); and
NOW, THEREFORE, in consideration of the premises which shall be considered
an integral part of this Agreement and not mere recitals thereto, and in
consideration of the mutual covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged by the parties, the parties agree as follows:
1. Duration of the Noncompetition Agreement. The duration of this
Noncompetition Agreement shall be five (5) years from the date that Healthdyne
exercises its option under Article Four of the Shareholders Agreement to acquire
all of the issued and outstanding shares, options, warrants and convertible
securities of NRMC.
2. Persons Restricted. Shareholder shall be restricted from engaging
in the "Prohibited Activities" (as that term is defined below) either directly
or indirectly such as through a spouse, family member or relative.
3. Prohibited Activities. Shareholder shall not directly or
indirectly engage in, and shall have no interest in any business, firm, person,
partnership, or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, that engages in any activity
that is the same or similar to, or competitive with, any activity now engaged in
by NRMC within the Geographic Territory (as defined below) for the Duration of
the Noncompetition Agreement (as defined above) or so long as NRMC, Healthdyne
or its or their successors carry on a like business, whichever first occurs.
Shareholder shall not divulge, communicate, use to the detriment of NRMC or
Healthdyne, or for the benefit of any other business, firm, person, partnership,
or corporation, NRMC's confidential information, data, or trade secrets,
including secret processes, formulas, or other technical data, production
methods, patient lists, customer lists, or personnel information. Shareholder
acknowledges that any such information or data shareholder may have acquired was
received in confidence and as a fiduciary of NRMC. Prohibited Activities shall
not include Shareholder's interest as a shareholder and employee of the Northern
Nevada Medical Group, Inc. ("Northern Nevada") provided that Shareholder takes
no action to expand Northern Nevada's activities beyond the State of Nevada,
and, provided further, that Shareholder takes no action, directly or indirectly,
to divert business from NRMC to Northern Nevada. The first proviso to the
exclusion to the definition of Prohibited Activities in the preceding sentence
shall not apply in the event Shareholder moves Northern Nevada's entire medical
practice outside the State of Nevada. Prohibited Activities shall
<PAGE> 22
not include Shareholder's provision of obstetrical and gynecological services to
patients so long as the provision of such services do not include, directly or
indirectly, services related to assisted reproductive technology.
4. Waiver of Breach. No consent or waiver, expressed or implied, by
either party in the performance of their obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default of
this Agreement. Failure of a party to complain of any act or failure to act of
irrespective of how long such failure to complain continues, shall not
constitute a waiver of such party's rights hereunder.
5. Geographic Territory. The Persons Restricted are prohibited from
engaging in the Prohibited Activities specified in Section 3 within a one
hundred (100) mile radius of the city limits of NRMC's existing locations and
those expansion sites which are identified in NRMC's 1995 Five Year Business
Plan. In the event NRMC does not adopt a Five Year Business Plan in 1995 or if
there are no expansion sites identified in such Plan, the list of expansion
sites to be included in the Geographic Territory are attached hereto as
Attachment 1.
6. Specific Performance and Injunctive Relief. Shareholder agrees
that a breach of this Noncompetition Agreement may result in irreparable damage
and harm to Healthdyne and that Healthdyne may be without an adequate remedy at
law in the event of such breach. Shareholder agrees that, in the event of such
breach, Healthdyne or its affiliates, at its or their election, may institute
and prosecute proceedings in any court of competent jurisdiction to obtain
damages for such breach or to enjoin Shareholder from violating this
Noncompetition Agreement, or both.
7. Court's Right to Modify Restriction. The parties have attempted
to limit Shareholder's rights to compete only to the extent necessary to protect
NRMC's business and goodwill. The parties recognize, however, that reasonable
people may differ in making such a determination. Consequently, the parties
hereby agree that, if the scope or enforceability of this Agreement is in any
way disputed at any time, a court or other trier of fact may modify and enforce
the covenant to the extent it believes to be reasonable under the circumstances
at that time.
8. Severability. The provisions of this Agreement are severable,
each provision does not depend upon any other provision for its enforceability,
and each provision constitutes an enforceable obligation between the parties. If
any provision shall be held invalid or unenforceable by a judicial decision
directly binding upon any of the parties, the remaining provisions shall remain
in full force and effect.
9. Miscellaneous. This Agreement shall be subject to and governed by
the laws of the State of California. This Agreement shall be binding upon the
successors and assigns of the parties hereof.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have set their hands and seals or
caused their proper corporate officers to duly execute this Agreement as of the
date first above written.
<TABLE>
<S> <C>
HEALTHDYNE, INC. NATIONAL REPRODUCTIVE
MEDICAL CENTERS, INC.
By: By:
------------------------------ ------------------------------------
Name: Name:
---------------------------- ----------------------------------
Title: Title:
--------------------------- ---------------------------------
SHAREHOLDER
- ---------------------------------
- --------------------------------- (spouse)
Name:
----------------------------
Title:
---------------------------
</TABLE>
<PAGE> 24
EXHIBIT A-2
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is by and among Healthdyne, Inc.
("Healthdyne"), National Reproductive Medical Centers, Inc. ("NRMC") and
Geoffrey Sher, M.D., a shareholder of NRMC ("Shareholder") and is effective as
of February 28, 1995.
WHEREAS, Healthdyne, NRMC and Shareholder have agreed that as a condition
precedent to the execution of the Shareholders Agreement and the related Series
C Convertible Stock Purchase Agreement dated as of February 28, 1995,
Shareholder shall execute an agreement not to engage in certain prohibited
activities (as hereinafter defined) for certain periods of time in certain
geographic locations (as hereinafter defined); and
NOW, THEREFORE, in consideration of the premises which shall be considered
an integral part of this Agreement and not mere recitals thereto, and in
consideration of the mutual covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged by the parties, the parties agree as follows:
1. Duration of the Noncompetition Agreement. The duration of this
Noncompetition Agreement shall be five (5) years from the date that Healthdyne
exercises its option under Article Four of the Shareholders Agreement to acquire
all of the issued and outstanding shares, options, warrants and convertible
securities of NRMC; provided, however, the duration of the noncompetition
agreement shall be reduced to two (2) years in the event Shareholder's
employment is terminated in accordance with the early termination provisions
contained in Section 6(h) of the Shareholder's Employment Agreements with NRMC
and the Pacific Fertility Medical Group, Inc. ("Pacific Fertility Medial
Group"). In the event each of the Boards of Directors of NRMC and Pacific
Fertility Medical Group unanimously agree in writing (i) that Shareholder's
employment has been terminated not for cause and (ii) to the amounts and payment
dates of severance due to Shareholder under his Employee Agreements with NRMC
and Pacific Fertility Medical Group, and subsequently to such agreements, with
no intervening disputes concerning amounts and payment dates of severance, NRMC
fails to pay the agreed upon severance to Shareholder, the Duration of this
Noncompetition Agreement shall terminate forty-five (45) days following receipt
by NRMC of written notice specifying the failure to pay severance provided NRMC
has not made payment in such notice period. It is the intent of the parties
that the duration of this noncompetition agreement shall not be affected by
failure to pay severance if there is a dispute over whether severance is due,
the amount due or when payment is due.
2. Persons Restricted. Shareholder shall be restricted from engaging
in the "Prohibited Activities" (as that term is defined below) either directly
or indirectly such as through a spouse, family member or relative.
3. Prohibited Activities. Shareholder shall not directly or
indirectly engage in, and shall have no interest in any business, firm, person,
partnership, or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, that engages in any activity
that is the same or similar to, or competitive with, any activity now engaged in
by NRMC within the Geographic Territory (as defined below) for the Duration of
the
<PAGE> 25
Noncompetition Agreement (as defined above) or so long as NRMC, Healthdyne or
its or their successors carry on a like business, whichever first occurs.
Shareholder shall not divulge, communicate, use to the detriment of NRMC or
Healthdyne, or for the benefit of any other business, firm, person, partnership,
or corporation, NRMC's confidential information, data, or trade secrets,
including secret processes, formulas, or other technical data, production
methods, patient lists, customer lists, or personnel information. Shareholder
acknowledges that any such information or data shareholder may have acquired was
received in confidence and as a fiduciary of NRMC. Prohibited Activities shall
not include Shareholder's interest as a Shareholder of the Northern Nevada
Medical Group, Inc. ("Northern Nevada Medical Group"), provided Shareholder
takes no action to expand Northern Nevada Medical Group's activities beyond the
State of Nevada and provided further Shareholder takes no action, directly or
indirectly, to divert business from NRMC to the Northern Nevada Medical Group.
Prohibited Activities shall not include Shareholder's provision of obstetrical
and gynecological services to patients so long as the provision of such services
do not include, directly or indirectly, services related to assisted
reproductive technology.
4. Waiver of Breach. No consent or waiver, expressed or implied, by
either party in the performance of their obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default of
this Agreement. Failure of a party to complain of any act or failure to act of
irrespective of how long such failure to complain continues, shall not
constitute a waiver of such party's rights hereunder.
5. Geographic Territory. The Persons Restricted are prohibited from
engaging in the Prohibited Activities specified in Section 3 within a one
hundred (100) mile radius of the city limits of NRMC's existing locations and
those expansion sites which are identified in NRMC's 1995 Five Year Business
Plan. In the event NRMC does not adopt a Five Year Business Plan in 1995 or if
there are no expansion sites identified in such Plan, the list of expansion
sites to be included in the Geographic Territory are attached hereto as
Attachment 1.
6. Specific Performance and Injunctive Relief. Shareholder agrees
that a breach of this Noncompetition Agreement may result in irreparable damage
and harm to Healthdyne and that Healthdyne may be without an adequate remedy at
law in the event of such breach. Shareholder agrees that, in the event of such
breach, Healthdyne or its affiliates, at its or their election, may institute
and prosecute proceedings in any court of competent jurisdiction to obtain
damages for such breach or to enjoin Shareholder from violating this
Noncompetition Agreement, or both.
7. Court's Right to Modify Restriction. The parties have attempted
to limit Shareholder's rights to compete only to the extent necessary to protect
NRMC's business and goodwill. The parties recognize, however, that reasonable
people may differ in making such a determination. Consequently, the parties
hereby agree that, if the scope or enforceability of this Agreement is in any
way disputed at any time, a court or other trier of fact may modify and enforce
the covenant to the extent it believes to be reasonable under the circumstances
at that time.
8. Severability. The provisions of this Agreement are severable, each
provision does not depend upon any other provision for its enforceability, and
each provision constitutes an enforceable obligation between the parties. If
any provision shall be held invalid or unenforceable
<PAGE> 26
by a judicial decision directly binding upon any of the parties, the remaining
provisions shall remain in full force and effect.
9. Miscellaneous. This Agreement shall be subject to and governed by
the laws of the State of California. This Agreement shall be binding upon the
successors and assigns of the parties hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals or
caused their proper corporate officers to duly execute this Agreement as of the
date first above written.
<TABLE>
<S> <C>
HEALTHDYNE, INC. NATIONAL REPRODUCTIVE
MEDICAL CENTERS, INC.
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
SHAREHOLDER
- ----------------------------------
(spouse)
- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
</TABLE>
<PAGE> 27
EXHIBIT A-3
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is by and among Healthdyne, Inc.
("Healthdyne"), National Reproductive Medical Centers, Inc. ("NRMC") and Rafaat
Salem, M.D., a shareholder of NRMC ("Shareholder") and is effective as of
February 28, 1995.
WHEREAS, Healthdyne, NRMC and Shareholder have agreed that as a condition
precedent to the execution of the Shareholders Agreement and the related Series
C Convertible Stock Purchase Agreement dated as of February 28, 1995,
Shareholder shall execute an agreement not to engage in certain prohibited
activities (as hereinafter defined) for certain periods of time in certain
geographic locations (as hereinafter defined); and
NOW, THEREFORE, in consideration of the premises which shall be considered
an integral part of this Agreement and not mere recitals thereto, and in
consideration of the mutual covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged by the parties, the parties agree as follows:
1. Duration of the Noncompetition Agreement. The duration of this
Noncompetition Agreement shall be two (2) years from the date that Healthdyne
exercises its option under Article Four of the Shareholders Agreement to acquire
all of the issued and outstanding shares, options, warrants and convertible
securities of NRMC.
2. Persons Restricted. Shareholder shall be restricted from engaging
in the "Prohibited Activities" (as that term is defined below) either directly
or indirectly such as through a spouse, family member or relative.
3. Prohibited Activities. Shareholder shall not directly or
indirectly engage in, and shall have no interest in any business, firm, person,
partnership, or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, that engages in any activity
that is the same or similar to, or competitive with, any activity now engaged in
by NRMC within the Geographic Territory (as defined below) for the Duration of
the Noncompetition Agreement (as defined above) or so long as NRMC, Healthdyne
or its or their successors carry on a like business, whichever first occurs.
Shareholder shall not divulge, communicate, use to the detriment of NRMC or
Healthdyne, or for the benefit of any other business, firm, person, partnership,
or corporation, NRMC's confidential information, data, or trade secrets,
including secret processes, formulas, or other technical data, production
methods, patient lists, customer lists, or personnel information. Shareholder
acknowledges that any such information or data shareholder may have acquired was
received in confidence and as a fiduciary of NRMC. Prohibited Activities shall
not include Shareholder's provision of obstetrical and gynecological services to
patients so long as the provision of such services do not include, directly or
indirectly, services related to assisted reproductive technology.
<PAGE> 28
4. Waiver of Breach. No consent or waiver, expressed or implied, by
either party in the performance of their obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default of
this Agreement. Failure of a party to complain of any act or failure to act of
irrespective of how long such failure to complain continues, shall not
constitute a waiver of such party's rights hereunder.
5. Geographic Territory. The Persons Restricted are prohibited from
engaging in the Prohibited Activities specified in Section 3 within a fifty (50)
mile radius of the city limits of Los Angeles.
6. Specific Performance and Injunctive Relief. Shareholder agrees
that a breach of this Noncompetition Agreement may result in irreparable damage
and harm to Healthdyne and that Healthdyne may be without an adequate remedy at
law in the event of such breach. Shareholder agrees that, in the event of such
breach, Healthdyne or its affiliates, at its or their election, may institute
and prosecute proceedings in any court of competent jurisdiction to obtain
damages for such breach or to enjoin Shareholder from violating this
Noncompetition Agreement, or both.
7. Court's Right to Modify Restriction. The parties have attempted
to limit Shareholder's rights to compete only to the extent necessary to protect
NRMC's business and goodwill. The parties recognize, however, that reasonable
people may differ in making such a determination. Consequently, the parties
hereby agree that, if the scope or enforceability of this Agreement is in any
way disputed at any time, a court or other trier of fact may modify and enforce
the covenant to the extent it believes to be reasonable under the circumstances
at that time.
8. Severability. The provisions of this Agreement are severable,
each provision does not depend upon any other provision for its enforceability,
and each provision constitutes an enforceable obligation between the parties. If
any provision shall be held invalid or unenforceable by a judicial decision
directly binding upon any of the parties, the remaining provisions shall remain
in full force and effect.
9. Miscellaneous. This Agreement shall be subject to and governed by
the laws of the State of California. This Agreement shall be binding upon the
successors and assigns of the parties hereof.
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have set their hands and seals or
caused their proper corporate officers to duly execute this Agreement as of the
date first above written.
<TABLE>
<S> <C>
HEALTHDYNE, INC. NATIONAL REPRODUCTIVE
MEDICAL CENTERS, INC.
By: By:
------------------------------ ---------------------------------
Name: Name:
---------------------------- -------------------------------
Title: Title:
--------------------------- ------------------------------
SHAREHOLDER
- ---------------------------------
(spouse)
- ---------------------------------
Name:
----------------------------
Title:
---------------------------
</TABLE>
<PAGE> 30
EXHIBIT A-4
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is by and among Healthdyne, Inc.
("Healthdyne"), National Reproductive Medical Centers, Inc. ("NRMC") and
______________________, a shareholder of NRMC ("Shareholder") and is effective
as of February 28, 1995.
WHEREAS, Healthdyne, NRMC and Shareholder have agreed that as a condition
precedent to the execution of the Shareholders Agreement and the related Series
C Convertible Stock Purchase Agreement dated as of February 28, 1995,
Shareholder shall execute an agreement not to engage in certain prohibited
activities (as hereinafter defined) for certain periods of time in certain
geographic locations (as hereinafter defined); and
NOW, THEREFORE, in consideration of the premises which shall be considered
an integral part of this Agreement and not mere recitals thereto, and in
consideration of the mutual covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged by the parties, the parties agree as follows:
1. Duration of the Noncompetition Agreement. The duration of this
Noncompetition Agreement shall be five (5) years from the date that Healthdyne
exercises its option under Article Four of the Shareholders Agreement to acquire
all of the issued and outstanding shares, options, warrants and convertible
securities of NRMC.
2. Persons Restricted. Shareholder shall be restricted from engaging
in the "Prohibited Activities" (as that term is defined below) either directly
or indirectly such as through a spouse, family member or relative.
3. Prohibited Activities. Shareholder shall not directly or
indirectly engage in, and shall have no interest in any business, firm, person,
partnership, or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, that engages in any activity
that is the same or similar to, or competitive with, any activity now engaged in
by NRMC relating directly or indirectly to Assisted Reproductive Technology
within the Geographic Territory (as defined below) for the Duration of the
Noncompetition Agreement (as defined above) or so long as NRMC, Healthdyne or
its or their successors carry on a like business, whichever first occurs.
Prohibited Activities shall not include the provision of legal services to a
competitor of NRMC provided such legal services are provided as a partner or
employee of a law firm and provided further that more than forty percent (40%)
of such legal services are not provided to a single competitor to NRMC.
Shareholder shall not divulge, communicate, use to the detriment of NRMC or
Healthdyne, or for the benefit of any other business, firm, person, partnership,
or corporation, NRMC's confidential information, data, or trade secrets,
including secret processes, formulas, or other technical data, production
methods,patient lists, customer lists, or personnel information. Shareholder
acknowledges that any such information or data shareholder may have acquired was
received in confidence and as a fiduciary of NRMC.
<PAGE> 31
4. Waiver of Breach. No consent or waiver, expressed or implied, by
either party in the performance of their obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default of
this Agreement. Failure of a party to complain of any act or failure to act of
irrespective of how long such failure to complain continues, shall not
constitute a waiver of such party's rights hereunder.
5. Geographic Territory. The Persons Restricted are prohibited from
engaging in the Prohibited Activities specified in Section 3 within a one
hundred (100) mile radius of the city limits of NRMC's existing locations and
those expansion sites which are identified in NRMC's 1995 Five Year Business
Plan. In the event NRMC does not adopt a Five Year Business Plan in 1995 or if
there are no expansion sites identified in such Plan, the list of expansion
sites to be included in the Geographic Territory are attached hereto as
Attachment 1.
6. Specific Performance and Injunctive Relief. Shareholder agrees
that a breach of this Noncompetition Agreement may result in irreparable damage
and harm to Healthdyne and that Healthdyne may be without an adequate remedy at
law in the event of such breach. Shareholder agrees that, in the event of such
breach, Healthdyne or its affiliates, at its or their election, may institute
and prosecute proceedings in any court of competent jurisdiction to obtain
damages for such breach or to enjoin Shareholder from violating this
Noncompetition Agreement, or both.
7. Court's Right to Modify Restriction. The parties have attempted
to limit Shareholder's rights to compete only to the extent necessary to protect
NRMC's business and goodwill. The parties recognize, however, that reasonable
people may differ in making such a determination. Consequently, the parties
hereby agree that, if the scope or enforceability of this Agreement is in any
way disputed at any time, a court or other trier of fact may modify and enforce
the covenant to the extent it believes to be reasonable under the circumstances
at that time.
8. Severability. The provisions of this Agreement are severable,
each provision does not depend upon any other provision for its enforceability,
and each provision constitutes an enforceable obligation between the parties. If
any provision shall be held invalid or unenforceable by a judicial decision
directly binding upon any of the parties, the remaining provisions shall remain
in full force and effect.
9. Miscellaneous. This Agreement shall be subject to and governed by
the laws of the State of California. This Agreement shall be binding upon the
successors and assigns of the parties hereof.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have set their hands and seals or
caused their proper corporate officers to duly execute this Agreement as of the
date first above written.
<TABLE>
<S> <C>
HEALTHDYNE, INC. NATIONAL REPRODUCTIVE
MEDICAL CENTERS, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
SHAREHOLDER
- ----------------------------------
- ---------------------------------- (spouse)
Name:
-----------------------------
Title:
----------------------------
</TABLE>
<PAGE> 33
ATTACHMENT 1
GEOGRAPHIC TERRITORY
Boston
New York
Philadelphia
Washington, D.C.
Atlanta
Miami
Cleveland
Detroit
Chicago
Minneapolis
New Orleans
Dallas
Houston
Denver
Salt Lake City
Phoenix
Seattle
