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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended March 31, 1998 .
Or
Transition Report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for the transition period from to .
-------- ------
Commission file number 0-20619
Matria Healthcare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, 12th Floor, Marietta, Georgia 30067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 767-4500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the issuer's only class of Common Stock,
$.01 par value, as of April 30, 1998 was 36,876,166.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
- ------ --------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,406 9,086
Short-term investments 5,535 11,856
Trade accounts receivable, less allowances
of $19,952 and $22,651 at March 31, 1998 and
December 31, 1997, respectively 41,485 39,601
Inventories 1,170 1,088
Prepaid expenses and other current assets 3,099 2,264
-------- --------
Total current assets 56,695 63,895
Property and equipment, less accumulated depreciation of
$24,577 and $23,328 at March 31, 1998 and
December 31, 1997, respectively 11,710 12,364
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $72,222 and $63,741 at
March 31, 1998 and December 31, 1997, respectively 100,017 108,498
Intangible assets, less accumulated amortization of $5,554
and $4,889 at March 31, 1998 and December 31,
1997, respectively 2,986 3,651
Other assets 5,262 2,724
-------- --------
$176,670 191,132
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------ --------- ------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt
and obligations under capital leases $ 1,032 884
Accounts payable, principally trade 5,934 5,712
Accrued liabilities 10,682 16,147
--------- ---------
Total current liabilities 17,648 22,743
Long-term debt and obligations under capital leases,
excluding current installments 1,593 1,712
Accrued benefit costs 4,165 5,328
Other long-term liabilities 5,540 8,180
--------- ---------
Total liabilities 28,946 37,963
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 50,000 shares;
none issued -- --
Common stock, $.01 par value. Authorized 100,000 shares;
issued and outstanding 36,855 and 36,791 shares
at March 31, 1998 and December 31,
1997, respectively 369 368
Additional paid-in capital 282,529 282,327
Accumulated deficit (131,639) (125,991)
Notes receivable and accrued interest from shareholder (3,535) (3,535)
--------- ---------
Total shareholders' equity 147,724 153,169
--------- ---------
$ 176,670 191,132
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
--------- ----------
<S> <C> <C>
Revenues $ 32,818 34,530
Cost of revenues 13,325 14,477
Selling and administrative expenses 14,708 15,680
Provision for doubtful accounts 1,490 1,500
Amortization of goodwill and other intangibles 9,147 9,164
-------- --------
38,670 40,821
-------- --------
Operating loss (5,852) (6,291)
Interest income, net 18 114
Other income (expense), net 186 (170)
-------- --------
Net loss $ (5,648) (6,347)
======== ========
Basic and diluted net loss per common share $ (.15) (.17)
======== ========
Weighted average shares outstanding 36,826 36,373
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,648) (6,347)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 10,395 10,553
Provision for doubtful accounts 1,490 1,500
Unrealized gains on short-term investments (29) (14)
Sales of short-term investments 7,850 4,592
Purchases of short-term investments (1,500) --
Changes in operating assets and liabilities,
net of effect of acquisitions:
Increase in accounts receivable (3,224) (3,058)
Increase in inventories, prepaids and other current assets (917) (1,623)
Increase in intangible and other assets (484) (396)
Increase (decrease) in accounts payable 205 (1,921)
Decrease in accrued liabilities (5,465) (6,969)
Increase (decrease) in accrued pension cost (3,217) 147
Decrease in other liabilities (2,573) (607)
-------- --------
Net cash used in operating activities (3,117) (4,143)
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (679) (388)
Acquisition of businesses, net of cash acquired -- (189)
-------- --------
Net cash used in investing activities (679) (577)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of short-term debt 334 1,067
Principal repayments of short-term debt (110) (178)
Principal repayments of long-term debt and
capital lease obligations (249) (440)
Proceeds from issuance of common stock 201 883
Purchase of treasury stock -- (880)
Distributions to minority interest in partnerships (60) (118)
-------- --------
Net cash provided by activities (116) (334)
-------- --------
Net decrease in cash and cash equivalents (3,680) (4,386)
Cash and cash equivalents at beginning of period 9,086 6,930
-------- --------
Cash and cash equivalents at end of period $ 5,406 2,544
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
1. General
The consolidated condensed financial statements as of March 31, 1998
and for the three months ended March 31, 1998 are unaudited. The
year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for fair presentation of the consolidated
financial position and results of operations for the periods presented
have been included. Certain reclassifications of prior period
information have been made to conform to the current year presentation.
The results for the three month period ended March 31, 1998 are not
necessarily indicative of the results for the full year ending December
31, 1998.
The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related
notes of the Company included in the Company's Form 10-K for the year
ended December 31, 1997.
2. Net Loss Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
prescribes the calculation methodology and financial reporting
requirements for basic and diluted earnings per share. Basic earnings
(loss) per common share available to common shareholders are based on
the weighted average number of common shares outstanding. Diluted
earnings (loss) per common share available to common shareholders are
based on the weighted average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options. The
computation of diluted net loss per share of common stock was
antidilutive in each of the periods presented; therefore, the amounts
reported for basic and diluted are the same.
3. Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
About Segments of an Enterprise and Related Information." SFAS 131
established
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standards for reporting information about operating segments in annual
financial statements and in interim financial reports to shareholders.
The Company adopted SFAS 131 in the first quarter of 1998; however, the
provisions of this statement need not be applied to interim periods in
the initial year of application.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
The Company's present operations and future prospects may be influenced
by several factors, including developments in the healthcare industry,
third-party reimbursement policies and practices, and changes in regulatory
requirements or the manner in which such requirements are enforced. As a result
of the increasing cost of healthcare in the United States and overall efforts to
reduce or control government and corporate spending, government and third-party
payors are becoming increasingly focused on promoting cost-effective healthcare
services, and payors, in particular, have become more involved in decisions
regarding diagnosis and treatment to ensure that care is delivered in a
cost-effective manner.
A substantial portion of the Company's current revenues are derived
directly from third-party payors for services rendered to patients by the
Company. The financial performance of all healthcare companies, including the
Company, could be adversely affected by the financial condition of certain
governmental and private payors and by their continuing efforts to reduce
healthcare costs by lowering reimbursement rates, increasing medical reviews of
invoices for services and negotiating for reduced contract rates. The Company
has responded to these developments by attempting to emphasize cost-effective
therapies and procedures, pre-qualifying insurance coverage prior to the
delivery of services and educating third-party payors on the benefits of the
Company's home therapies. Although reduction in the reimbursement rates that the
Company receives for services rendered could have an adverse impact on
operations, the Company is hopeful that the overall cost-effective nature of
treatment in the home (as compared to hospitalization), coupled with the
potential benefits to be derived from prenatal care, will be recognized and
encouraged by any new healthcare initiatives.
The Company's revenues from its preterm labor management business tend
to be seasonal. Revenues typically begin to decline with the onset of the
holiday season, starting with Thanksgiving, causing the first quarter revenues
of each year to be less than those of the fourth quarter of the previous year.
Over the previous four-year period the decline in revenues from the fourth to
first quarters has averaged 7%; management believes this seasonality will
continue to impact comparability between quarters. In the first quarter of 1998,
revenues declined 13% from the fourth quarter of 1997. In addition to
seasonality, the decline in revenues in the first quarter of 1998 was partially
due to a decrease in physician prescriptions for the Company's preterm labor
management services, as discussed below in the quarterly comparison.
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The trend within the healthcare industry to deliver quality healthcare
services in a more cost-effective manner is expected to continue to have an
impact on the Company. Driven by employers and third-party payors, as well as by
legislation and regulation, prices for services provided to patients, in
general, are being reduced, cost-effective preventative health care is being
stressed and vertically integrated networks of care providers (some of whom are
accepting the insurance risk of providing care through capitation contracts with
third-party payors) are being established. The Company anticipates that this
trend will continue and is attempting to focus its efforts on services, some of
which are offered in conjunction with third-party payors, which it believes can
benefit from this new environment. There can be no assurance, however, that
either additional changes or presently unforeseen consequences from this trend
may not develop.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and related notes of the Company's Annual Report on Form
10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission. The historical results of operations are not necessarily
indicative of the results that will be achieved by the Company during future
periods.
RESULTS OF OPERATIONS.
Revenues decreased $1.712 million or 5.0% in the three month period
ended March 31, 1998, as compared to the same period in 1997. During the first
quarter, physician prescriptions for Matria preterm labor management services
decreased due to confusion attributed to a November 1997 letter sent out by the
FDA to certain physician and medical groups regarding the off-label use of
terbutaline as a tocolytic. Since the issuance of the FDA letter, consumer and
physician groups have petitioned the FDA for clarification of this letter and
are awaiting a response from the Agency.
Through a marketing agreement entered into by a predecessor company in
1991, the Company had exclusive rights to market the fetal fibronectin
immunoassay (fFN) test, an in vitro diagnostic test used as an aid in assessing
the risk of preterm delivery in women, in the United States, Canada and Puerto
Rico. In March 1998, the Company entered into a settlement agreement with the
manufacturer of the tests in the litigation over the exclusive rights to
distribute the test. Under the terms of the settlement, the Company has agreed
to relinquish its distribution rights and equity interest in the test
manufacturer in exchange for the opportunity to recoup its investment over time,
from payments based upon future sales of the product. As a result, following a
six month transition period, revenues on sales of fFN are expected to be
substantially reduced. Revenues from the marketing of these tests were $1.123
million and $731,000 in the three month periods ended March 31, 1998 and 1997,
respectively.
Cost of revenues as a percent of revenues for the three month period
ended March 31, 1998 declined to 40.6% from 41.9% for the same period in 1997.
The reduction of cost of revenues as a percentage of the preterm labor
management business to 38.3% in
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the first quarter of 1998 from 38.6% in the first quarter of 1997 was primarily
achieved through operating efficiencies related to the merger of the Company's
predecessor companies in 1996.
Selling and administrative expenses declined as a percentage of
revenues in the first quarter of 1998 to 44.8% from 45.4% in the first quarter
of 1997, primarily due to synergies achieved as a result of the aforementioned
merger.
Primarily as a result of the merger in 1996, a large percentage of the
assets reflected on the Company's balance sheet are intangible assets or
goodwill. At March 31, 1998, the Company's total assets were $176.670 million,
of which $103.003 million, or 58.3% of total assets, were goodwill and
intangibles.
The Company provides for estimated uncollectible accounts as revenues
are recognized. The provision for doubtful accounts as a percentage of revenues
for the preterm labor management business was approximately 5% for the first
quarter of 1998 and 1997. The provision is adjusted periodically based upon the
Company's quarterly evaluation of historical collection experience, recoveries
of amounts previously provided, industry reimbursement trends and other relevant
factors. Therefore, the provision rate could vary on a quarterly basis. The
provision for doubtful accounts for the infertility management business is not
significant as substantially all charges for patient services are collected at
the time services are provided.
The Company did not record federal or state income tax benefits in 1998
or 1997. The net tax operating loss of approximately $87.000 million will be
available to offset future taxable income, if any.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 the Company had cash and short-term investments of
$10.941 million.
Net cash used in operating activities declined from $4.143 million for
the three month period ended March 31, 1997, to $3.117 million for the same
period in 1998. During the first quarter of 1998, cash flow from operating
activities was reduced by payments of $3.130 million relating to severance costs
of terminated employees, $2.587 million for performance incentives paid under
the Company's management incentive plan, $2.069 million for funding of a split
dollar life insurance arrangement for certain officers, and $1.328 million for
lump-sum payouts related to the termination of a nonqualified defined benefit
pension plan. In the first quarter of 1997, cash flow from operating activities
was reduced by $5.982 million for merger related costs. The Company's accounts
receivable days sales outstanding increased to 114 days as of March 31, 1998
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from 96 days as of December 31, 1997, primarily due to the consolidation of the
accounts receivable/collection process from two locations to one location and
the conversion to a new computerized billing system. The Company began
reorganizing its reimbursement and verification processes during the quarter and
expects days sales outstanding to return to 75 to 80 days by the end of 1998.
As of March 31, 1998, the remaining liability for estimated costs
related to the merger of the Company's predecessor companies was approximately
$2.000 million of which approximately $1.500 million will be paid in 1998 with
the remaining payments being made in 1999. Additionally, the Company may be
required to make additional severance payments of approximately $2.549 million
in accordance with employment agreements with certain officers.
In 1997, the Company entered into a credit agreement with a leading
national banking organization for a $25.000 million secured line of credit that
is available for general corporate purposes. There were no amounts outstanding
at March 31, 1998.
The Company believes that its current cash balances, expected cash
flows from operations and investing activities and amounts available under the
credit agreement will be sufficient to finance its current operations and fund
any expansion of the business for the foreseeable future.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About
Segments of an Enterprise and Related Information." SFAS 131 established
standards for reporting information about operating segments in annual financial
statements and in interim financial reports to shareholders. The Company adopted
SFAS 131 in the first quarter of 1998; however, the provisions of this statement
need not be applied to interim periods in the initial year of application.
This Management's Discussion and Analysis contains forward-looking
statements including statements concerning possible changes in the healthcare
industry, the effect of goodwill on the Company's results of operations and the
adequacy of the Company's sources of cash to finance its current and future
operations. These forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, among other factors
that could cause actual results to differ materially are the following: business
conditions and growth in the home healthcare industry and the general economy;
competitive factors, such as the possible entry of large diversified healthcare
companies into the obstetrical home healthcare business; new technologies and
pricing pressures; changes in third-party reimbursement policies and practices
and regulatory requirements applicable to the Company's business; the continued
availability for sale of existing products and services; management decisions to
pursue new product lines or lines of business which involve additional costs,
risks or capital expenditures; and the risk factors listed from time to time in
the Company's SEC reports, including but not limited to, its Annual Report on
Form 10-K for the year ended December 31, 1997.
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PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
<S> <C>
(a) Exhibits
(4.5) Amendment No. 1 to Loan and Security Agreement, dated
April 27, 1998 between BankAmerica Business Credit,
Inc. and Matria Healthcare, Inc.
(27) Financial Data Schedule
(b) The Company has not filed any Reports on Form 8-K during the
quarter ended March 31, 1998.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Matria Healthcare, Inc.
May 14, 1998 By: /s/ Donald R. Millard
---------------------
Donald R. Millard
Director, President, Chief Executive
Officer and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Yvonne V. Scoggins
---------------------
Yvonne V. Scoggins
Vice President, Chief Accounting Officer
and Treasurer
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EXHIBIT 4.5
FIRST AMENDMENT
This FIRST AMENDMENT (this "Amendment"), dated as of April 27, 1998, is
between Matria Healthcare, Inc., a Delaware corporation (the "Borrower"), and
BankAmerica Business Credit, Inc., a Delaware corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to the Loan and Security
Agreement dated as of September 15, 1997 (the "Loan and Security Agreement");
and
WHEREAS, the parties hereto desire to amend the Loan and Security
Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereto hereby acknowledge, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined
in this Amendment are used as defined in the Loan and Security Agreement. This
Amendment shall be interpreted in accordance with the conventions set forth in
Section 1.3 of the Loan and Security Agreement.
2. Amendments to Loan and Security Agreement.
2.1. The definition of "Availability" in Section 1.1 of
the Loan and Security Agreement is hereby amended by inserting the
following, immediately before the period at the end of such definition:
; provided, further, however, that for purposes of calculating
Availability, the aggregate amount of (i) Unbilled Accounts,
and (ii) Accounts with respect to which more than 120 days and
less than 151 days have elapsed since the Invoice Date
therefor, shall not exceed two million dollars ($2,000,000).
2.2. The definition of "Blocked Account Agreement" in
Section 1.1 of the Loan and Security Agreement is hereby amended and
restated to read in its entirety as follows:
"Blocked Account Agreement" means that certain Three Party
Agreement Relating to Lockbox Services among the Borrower, the
Lender and the Bank, as the same may be amended, amended and
restated or otherwise modified from time to time in accordance
with its terms.
<PAGE> 2
2.3. The definition of "Eligible Accounts" in Section 1.1
of the Loan and Security Agreement is hereby amended by replacing
clause (b) of such definition with "(b)[Reserved];" and by replacing
clause (t) of such definition with "(t) [Reserved];".
2.4. The definition of "Initial Payment Account" in
Section 1.1 of the Loan and Security Agreement is hereby amended and
restated in its entirety to read as follows:
"Initial Payment Account" means each bank account (or
"Account") of the Borrower identified in the Blocked Account
Agreement at the time the Blocked Account Agreement is
executed.
2.5. The definition of "Payment Account" in Section 1.1 of
the Loan and Security Agreement is hereby amended by adding the
following sentence to the end thereof:
Notwithstanding anything to the contrary in this Agreement,
unless the Lender otherwise directs the Borrower in writing,
each bank account (or "Account") of the Borrower identified in
the Blocked Account Agreement shall constitute a Payment
Account.
2.6. The definition of "Permitted Lien" in Section 1.1 of
the Loan and Security Agreement is hereby amended by: (i) replacing the
reference in clause (h) to Section 10.11 with a reference to Section
10.12; (ii) deleting "and" after clause (j) thereof; (iii) deleting the
period at the end of clause (k) thereof and substituting "; and"
therefor; and (iv) adding the following new clause (l) at the end
thereof:
(l) the rights and interests of lessors under operating leases
under which the Borrower is the lessee, provided that (i) at
all times the sum of the lease payments for the full terms of
all of such leases does not exceed one million two hundred
fifty thousand dollars ($1,250,000) and (ii) each such lease,
if secured, is secured only by the equipment subject to such
lease and is not secured by any other Collateral.
2.7. Section 2.2(b)(i)(A) of the Loan and Security
Agreement is hereby amended in its entirety to read as follows:
(A) the amount of the Borrowing which in the case of
LIBOR Rate Loans or Reference Rate Loans, shall be in an
amount of not less than two million five hundred thousand
dollars ($2,500,000) and in an integral multiple of five
hundred thousand dollars ($500,000) in excess thereof;.
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2.8. Section 3.3 of the Loan and Security Agreement is
hereby amended in its entirety to read as follows:
3.3 Maximum Interest Rate.
(a) Notwithstanding the provisions of Section 3.1
regarding the rates of interest applicable to the Loans, if at
any time the amount of such interest computed on the basis of
the Reference Rate or the LIBOR Rate would exceed the amount
of such interest computed upon the basis of the maximum rate
of interest permitted by applicable state or federal law in
effect from time to time, after taking into account, to the
extent required by applicable law, any and all fees, payments,
charges and calculations provided for in this Agreement or in
any other Loan Document (the "Maximum Rate"), the interest
payable under this Agreement shall be computed upon the basis
of the Maximum Rate, but any subsequent reduction in the
Reference Rate or in the LIBOR Rate shall not reduce such
interest thereafter payable hereunder below the amount
computed on the basis of the Maximum Rate until the aggregate
amount of such interest accrued and payable under this
Agreement equals the total amount of interest which would have
accrued if such interest had not been limited by the Maximum
Rate.
(b) No agreements, conditions, provisions or
stipulations contained in this Agreement or any other
instrument, document or agreement between the Borrower and the
Lender or default of the Borrower, or the exercise by the
Lender of any right (including in respect of the acceleration
of payment of principal or interest) under or in connection
with this Agreement or any other Loan Document, or the arising
of any contingency whatsoever, shall entitle the Lender to
collect, in any event, interest exceeding the Maximum Rate and
in no event shall the Borrower be obligated to pay interest
exceeding such Maximum Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel the Borrower to
pay a rate of interest exceeding the Maximum Rate, shall be
without binding force or effect, at law or in equity, to the
extent only of the excess of interest over such Maximum Rate.
In the event any interest is charged in excess of the Maximum
Rate ("Excess"), the Borrower acknowledges and stipulates that
any such charge shall be the result of an accidental and bona
fide error, and such Excess shall be, first, applied to reduce
the principal then unpaid hereunder; second, applied to reduce
the other Obligations; and third, returned to the Borrower, it
being the intention of the parties hereto not to enter at any
time into a usurious or otherwise illegal relationship. The
Borrower recognizes that, considering, among other things,
fluctuations in the Reference Rate, the LIBOR Rate or the
Maximum Rate, such an unintentional result could inadvertently
occur. The Borrower covenants that (i) the credit or return of
any Excess shall constitute the acceptance by the Borrower of
such Excess, and (ii) the Borrower shall not seek or pursue
any other
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<PAGE> 4
remedy, legal or equitable, against the Lender, based in whole
or in part upon the charging or receiving of any interest in
excess of the maximum authorized by applicable law. For the
purpose of determining whether or not any Excess has been
contracted for, charged or received by the Lender, all
interest at any time contracted for, charged or received by
the Lender in connection with this Agreement shall be
amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement.
(c) The provisions of this Section 3.3 shall be
deemed to be incorporated into every document or communication
relating to the Obligations which sets forth or prescribes any
account, right or claim or alleged account, right or claim of
the Lender with respect to the Borrower (or any other obligor
in respect of Obligations), whether or not any provision of
this Section 3.3 is referred to therein. All such documents
and communications and all figures set forth therein shall,
for the sole purpose of computing the extent of the
liabilities and obligations of the Borrower (or other obligor)
asserted by the Lender thereunder, be automatically recomputed
by the Borrower or other obligor, and by any court considering
the same, to give effect to the adjustments or credits
required by this Section 3.3.
(d) If applicable state or federal law is
amended in the future to allow a greater rate of interest to
be charged under this Agreement or any other Loan Document
than is presently allowed by applicable state or federal law,
then the limitation of interest under this Section 3.3 shall
be increased to the maximum rate of interest allowed by
applicable state or federal law as amended, which increase
shall be effective hereunder on the effective date of such
amendment, and all interest charges owing to the Lender by
reason thereof shall be payable upon demand.
2.9. Section 7.1(d) of the Loan and Security Agreement is
hereby amended by deleting the first sentence thereof and substituting
therefor the following new sentence:
Notwithstanding the foregoing, but subject to the next
sentence, nothing contained herein shall be deemed to
constitute the grant of security interest in favor of the
Lender (x) with respect to the Borrower's interest in any
license pursuant to which the Borrower is a licensee or in any
lease pursuant to which the Borrower is a lessee or any
agreement pursuant to which the Borrower markets the product
of any Person which is not an Account Debtor or (y) with
respect to the Borrower's ownership interest in Adeza
Biomedical Corporation, a Delaware corporation.
2.10. Section 7.9(a) of the Loan and Security Agreement is
hereby amended by adding the following new sentence to the end thereof:
-4-
<PAGE> 5
The Borrower hereby represents and warrants to the Lender that
Account Debtor Notices, signed by the Borrower, have been
delivered to all of the Account Debtors, including the
Specified Account Debtors (but excluding any Government
Account Debtors or Self-Pay Account Debtors).
2.11. Section 9.29 of the Loan and Security Agreement is
hereby amended by adding the following new sentence to the end thereof:
On the basis of a comprehensive review and assessment
undertaken by the Borrower of the Borrower's computer
applications and inquiry made of the Borrower's material
suppliers, vendors and customers, the Borrower reasonably
believes that the "Year 2000 problem" (that is, the risk that
computer applications used by any Person may be unable to
recognize and perform properly date- sensitive functions
involving certain dates prior to and any date after December
31, 1999) shall not result in a Material Adverse Effect.
2.12. Section 10.9 of the Loan and Security Agreement is
hereby amended by inserting the following immediately prior to the
period at the end thereof:
; provided that the Borrower may repurchase its capital stock
in Permitted Stock Repurchases if, and only if, upon any such
repurchase the Borrower shall immediately cancel such
repurchased capital stock and file all documents and take all
other actions required under applicable law in order to give
effect to such cancellation.
2.13. Section 10.19 of the Loan and Security Agreement is
hereby amended by adding the following new sentence immediately prior
to the last sentence thereof:
Notwithstanding any other provision of this Agreement, upon
any repurchase of its capital stock the Borrower shall
immediately cancel such repurchased capital stock and file all
documents and take all other actions required under applicable
law in order to give effect to such cancellation.
2.14. Section 12.1 of the Loan and Security Agreement is
hereby amended by (i) deleting the period at the end of clause (l)
thereof and substituting a semicolon therefor; (ii) deleting "or" after
clause (o) thereof; (iii) deleting the period at the end of clause (p)
thereof and substituting "; or" therefor; and (iv) adding the following
new clause (q) at the end thereof:
(q) the Lender shall not have received, on or prior to
May 27, 1998, all of the following items, in each case in form
and substance reasonably satisfactory to the Lender: (i) the
Blocked Account Agreement; (ii) a certificate of insurance
(covering the Borrower and its Subsidiaries) and a related
"standard insurance
-5-
<PAGE> 6
endorsement/loss payable clause" (including a provision to the
effect that any notices required to be given to the insurance
company by any named insured are waived as to the Lender); and
(iii) a "bring-down" opinion from Troutman Sanders LLP to the
effect that the opinions set forth in its opinion letter to
the Lender dated April 27, 1997 also apply to the Blocked
Account Agreement.
2.15. Section 13(b) of the Loan and Security Agreement is
hereby amended by replacing the reference therein to Section 15.11 with
a reference to Section 15.10.
2.16. Section 15.4 of the Loan and Security Agreement is
hereby amended by deleting "New York" and substituting therefor
"Illinois."
2.17. Section 15.5 of the Loan and Security Agreement is
hereby amending by deleting "New York" and substituting therefor
"Illinois", and by deleting "Southern District of New York" and
substituting therefor "Northern District of Illinois".
3. Effect of Amendment; Ratification. On and after the Effective
Date (as defined below), (a) all references to the Loan and Security Agreement
in the Exhibits thereto and in any other Loan Document shall be deemed to refer
to the Loan and Security Agreement as amended hereby, and (b) the phrases "this
Loan and Security Agreement" or "this Agreement", as the case may be, and the
words "hereof", "herein", "hereunder" and words of similar import, as used in
the Loan and Security Agreement shall mean the Loan and Security Agreement as
amended hereby. As amended by this Amendment, the Loan and Security Agreement is
hereby ratified, approved and confirmed in all respects.
4. Absence of Events and Events of Default. The Borrower hereby
represents and warrants to the Lender that, on and as of the Effective Date (as
defined below), no Event or Event of Default has occurred and is continuing.
5. Effective Date. The amendments set forth herein shall become
effective on the date (the "Effective Date") when: (a) the Lender shall have
executed this Amendment; and (b) the Lender shall have received counterparts of
this Amendment executed by the Borrower (or notice of such execution
satisfactory to the Lender).
6. Incorporation by Reference. This Amendment shall be considered
to be a Loan Document. Without limiting the effect of any provisions of the Loan
and Security Agreement, and without limiting the fact that this Amendment is a
Loan Document, Sections 7.9, 9.1, 9.2, 9.3, 9.4, 15.3, 15.4, 15.5, 15.6, 15.9,
15.11, 15.13, 15.15 and 15.16 of the Loan and Security Agreement (as amended
hereby) are hereby incorporated into this Amendment by this reference, with the
references in such Sections to the Loan and Security Agreement or any other Loan
Documents applying instead with equal force to this Amendment. All
representations and warranties so incorporated by reference shall be deemed to
be made to the Lender and to be made as of the Effective Date.
-6-
<PAGE> 7
7. Amendments and Waivers. This Amendment shall not be amended,
modified or waived except by written consent of both parties hereto.
8. Closing Certificates. Each officer's certificate signed by an
officer of the Borrower or the Guarantor and delivered to the Lender pursuant to
Section 11.1 of the Loan and Security Agreement shall be dated the date of this
Amendment unless the Lender otherwise consents.
[SIGNATURES FOLLOW]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MATRIA HEALTHCARE, INC.
By:
--------------------------------------
Donald R. Millard
President and Chief Executive Officer
BANKAMERICA BUSINESS CREDIT, INC.
By:
--------------------------------------
Pamela M. Turner
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q OF MATRIA HEALTHCARE FOR THE QUARTER ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 10,941
<SECURITIES> 0
<RECEIVABLES> 61,437
<ALLOWANCES> (19,952)
<INVENTORY> 1,170
<CURRENT-ASSETS> 56,695
<PP&E> 36,287
<DEPRECIATION> (24,577)
<TOTAL-ASSETS> 176,670
<CURRENT-LIABILITIES> 17,648
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 147,355
<TOTAL-LIABILITY-AND-EQUITY> 176,670
<SALES> 0
<TOTAL-REVENUES> 32,818
<CGS> 0
<TOTAL-COSTS> 13,325
<OTHER-EXPENSES> 23,855
<LOSS-PROVISION> 1,490
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (5,648)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (5,648)
<EPS-PRIMARY> (.15)
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