<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MATRIA HEALTHCARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1998
NOTICE IS HEREBY GIVEN THAT the 1998 Annual Meeting of Stockholders of
Matria Healthcare, Inc. (the "Company"), will be held on Tuesday, May 12, 1998,
at 10:30 a.m. local time at 1850 Parkway Place, Suite 320, Marietta, Georgia
30067, for the following purposes:
(1) To elect three Class III directors of the Company for a three year
term expiring at the 2001 Annual Meeting of Stockholders and until their
respective successors are duly elected and qualified;
(2) To amend the Company's Bylaws to allow for a change in the
composition of the Board of Directors and the committees thereof;
(3) To amend the Company's 1996 Directors' Non-Qualified Stock Option
Plan to increase the automatic annual grant of options to non-employee
directors from 5,000 shares to 10,000 shares each; and
(4) To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Annual Meeting, is
requested to sign, date and return the enclosed proxy card without delay in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. Any stockholder present at the Annual Meeting or any adjournment
or postponement thereof may revoke his or her proxy and vote personally on each
matter brought before the meeting.
I look forward to welcoming you at the meeting.
Very truly yours,
/s/ Roberta L. McCaw
Roberta L. McCaw
Assistant Secretary
Marietta, Georgia
April 8, 1998
<PAGE> 3
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998
GENERAL INFORMATION
This proxy statement and the accompanying proxy card are being furnished to
stockholders in connection with the solicitation of proxies by the Board of
Directors of Matria Healthcare, Inc., a Delaware corporation (the "Company"),
for use at the 1998 Annual Meeting of Stockholders (the "Annual Meeting") to be
held on Tuesday, May 12, 1998 at 10:30 a.m. local time at 1850 Parkway Place,
Suite 320, Marietta, Georgia 30067, and at any adjournment or postponement
thereof.
At the Annual Meeting, stockholders will consider and vote upon a proposal
to elect three Class III directors, a proposal to amend the Company's Bylaws, a
proposal to amend the Company's 1996 Directors' Non-Qualified Stock Option Plan
and upon such other matters as properly may come before the Annual Meeting. The
Board unanimously urges stockholders to vote FOR the re-election of the Class
III directors, FOR the proposed amendment to the Bylaws and FOR the proposed
amendment to the 1996 Directors' Non-Qualified Stock Option Plan.
It is anticipated that this proxy statement, accompanying proxy and the
1997 Annual Report to Stockholders will first be mailed to the Company's
stockholders on or about April 8, 1998.
RECORD DATE
The Board of Directors has fixed the close of business on March 27, 1998 as
the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting and at any adjournment
or postponement thereof. At the close of business on the Record Date, 36,855,091
shares of Common Stock were issued and outstanding.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the Annual Meeting and does not
return the signed proxy card, such stockholder's shares will not be voted. If a
stockholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted FOR the election of the three
Class III directors named herein, FOR the proposed amendment to the Bylaws and
FOR the proposed amendment to the 1996 Directors' Non-Qualified Stock Option
Plan. As of the date of this proxy statement, the Board of Directors does not
know of any other matters that are to come before the Annual Meeting. If any
other matters are properly presented at the Annual Meeting for consideration,
the persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given may be revoked by the person giving it at any time before
it is voted. Proxies may be revoked by (i) filing with the Assistant Secretary
of the Company, at or before the taking of the vote at the Annual Meeting, a
written notice of revocation bearing a later date than the proxy, (ii) duly
executing a later dated proxy relating to the same shares of Common Stock and
delivering it to the Assistant Secretary of the Company at or before the taking
of the vote at the Annual Meeting or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Matria Healthcare,
Inc., 1850 Parkway Place, Marietta, Georgia 30067, Attention: Assistant
Secretary, or hand delivered to the Assistant Secretary of the Company at or
before the taking of the vote at the Annual Meeting.
<PAGE> 4
The Company will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of the Company in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and the Company will
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. In addition, D. F. King & Co., Inc. ("D.F.
King") will assist in the solicitation of proxies by the Company for a fee of
$5,000, plus reimbursement of reasonable out-of-pocket expenses.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of the Company's Common Stock is
necessary to constitute a quorum at the Annual Meeting.
VOTE REQUIRED
The Company's stockholders are entitled to one vote at the Annual Meeting
for each share of Common Stock held of record by them on the Record Date. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting is required to elect the Class III directors
and to approve the amendment to the 1996 Directors' Non-Qualified Stock Option
Plan. Votes may be cast for or withheld from each nominee for Class III director
and stockholders may vote for, against or abstain from approval of the amendment
to the 1996 Directors' Non-Qualified Stock Option Plan. Under applicable
Delaware law, broker non-votes (i.e., shares held by a broker or nominee which
are represented at the meeting, but with respect to which such broker or nominee
is not empowered to vote on a particular proposal) will have no effect on the
vote for the proposed amendment to the 1996 Directors' Non-Qualified Stock
Option Plan and abstentions will have the effect of "no" votes.
Under the Company's Restated Certificate of Incorporation, during the
three-year period beginning March 8, 1996 (the date of the merger among
Healthdyne, Inc., Tokos Medical Corporation (Delaware) and the Company), the
affirmative vote of the holders of at least 66 2/3% of the outstanding shares of
Common Stock is required to amend the provisions of the Company's Bylaws that
govern the composition of the Board of Directors. Abstentions and broker
non-votes will be counted as shares that are present and entitled to vote for
purposes of determining a quorum and will have the effect of votes against the
proposed amendment to the Company's Bylaws.
1. ELECTION OF DIRECTORS
BACKGROUND
The Company was formed for the purpose of participating in the merger (the
"Merger") of Healthdyne, Inc., a Georgia corporation ("Healthdyne"), and Tokos
Medical Corporation (Delaware), a Delaware corporation ("Tokos"), with and into
the Company.
Upon consummation of the Merger, which was effected on March 8, 1996 (the
"Merger Date"), the Company's Board of Directors consisted of ten members
divided into three classes. Pursuant to the Agreement and Plan of Merger dated
as of October 2, 1995, as amended (the "Merger Agreement"), Carl E. Sanders and
Craig T. Davenport were elected as directors of the Company for terms expiring
at the 1996 Annual Meeting of Stockholders (Class I directors); Jackie M. Ward,
Frederick P. Zuspan, M.D., Thomas W. Erickson and David L. Goldsmith were
elected as directors for terms expiring at the 1997 Annual Meeting of
Stockholders (Class II directors); and Parker H. Petit, Robert F. Byrnes, Morris
S. Weeden and Gene P. Guselli were elected as directors of the Company for terms
expiring at the 1998 Annual Meeting of Stockholders (Class III directors).
2
<PAGE> 5
Robert F. Byrnes, the President and Chief Executive Officer of Tokos,
served as the President and Chief Executive Officer of the Company until
December 31, 1996, when his employment agreement expired. On September 30, 1997,
the Board of Directors approved a settlement with Mr. Byrnes of certain matters
relating to the termination of his employment, including severance payments. At
this same meeting the Board of Directors voted unanimously to reduce the size of
the Board from ten to five members. Messrs. Byrnes, Goldsmith, Davenport,
Erickson and Busch resigned from the Board without protest in order to
accommodate these changes. The five resigning directors were all former Tokos
directors or persons selected by former Tokos directors to fill vacancies
created by previous resignations.
At a meeting held on October 20, 1997, the Board of Directors elected
Donald R. Millard as President and Chief Executive Officer of the Company. Mr.
Millard replaced a three-person "Office of the President" composed of Messrs.
Parker H. Petit, Robert F. Byrnes and Donald R. Millard, which had performed the
duties of President of the Company since the non-renewal of the employment
agreement of Mr. Byrnes. Frank D. Powers, the Executive Vice President of the
Company, was elected Chief Operating Officer. In recognition of the importance
of the new positions held by Messrs. Millard and Powers, their salaries were
increased and they were granted additional stock options. In addition, the size
of the Board was increased to seven members and Messrs. Millard and Powers were
elected as Class I and Class III directors, respectively.
The Company's Bylaws currently contain certain provisions relative to the
appointment or election of an equal number of directors by each of Healthdyne
and Tokos, as set forth in greater detail at Item 2 herein. In light of the
above changes in the composition of the Board of Directors, the Company is
recommending that the stockholders approve the amendment to the Bylaws (see Item
2 herein) to, among other things, eliminate all references to or requirements
for certain directors designated by Healthdyne or Tokos.
The following biographical information is furnished with respect to each of
the three nominees for election as Class III directors at the Annual Meeting and
for each of the other four directors whose terms will continue after the 1998
Annual Meeting.
CLASS III NOMINEES FOR THE TERM EXPIRING IN 2001
PARKER H. PETIT, age 58, has served as Chairman of the Board of the Company
since the Merger Date. In addition, he served as a member of the three-person
Office of the President during the period in 1997 preceding the election of
Donald R. Millard as President and Chief Executive Officer of the Company. Mr.
Petit was the founder of Healthdyne and served as its Chairman of the Board of
Directors and Chief Executive Officer from 1970 until the Merger. Mr. Petit is
also Chairman of the Board of Directors of Healthdyne Information Enterprises,
Inc. and a director of Respironics, Inc., ASA Holdings, Inc. and Intelligent
Systems, Inc.
FRANK D. POWERS, age 49, has been an Executive Vice President of the
Company since the Merger Date and also has served as a member of the Board and
as Chief Operating Officer since October 20, 1997. Prior thereto, he served as
President of Healthdyne Maternity Management, a subsidiary of Healthdyne, from
October 1989 until March 1996, and as President of Healthdyne's Home Care Group
from November 1986 to October 1989. In addition, he was President of
Healthdyne's Home Care Products Division from September 1984 to November 1986.
MORRIS S. WEEDEN, age 78, has served as a director of the Company since the
Merger Date and previously served as a director of Healthdyne from 1987 until
the Merger. Mr. Weeden, who is retired, was Vice Chairman -- Board of Directors
of Morton Thiokol Inc., a salt, chemical, household and aerospace products
manufacturer, from March 1980 to December 1984. Prior thereto, Mr. Weeden was
Executive Vice President of Morton Norwich Products, Inc. in charge of
pharmaceutical operations, President of Morton International, a pharmaceutical
division of Morton Norwich Products, Inc., and President of Bristol
Laboratories, a pharmaceutical division of Bristol Myers Corp.
3
<PAGE> 6
CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL 1999
DONALD R. MILLARD, age 50, has served as a member of the Board and as
President, Chief Executive Officer and Chief Financial Officer since October 20,
1997, and prior thereto served as Senior Vice President -- Finance, Chief
Financial Officer and Treasurer of the Company since the Merger Date. Mr.
Millard served as Vice President-Finance and Chief Financial Officer of
Healthdyne from July 1987 to March 1996 and, in addition, was Treasurer of
Healthdyne from March 1990 to March 1996. Mr. Millard is also a director of
Coast Dental Services, Inc. and Endeavor Technologies, Inc.
CARL E. SANDERS, age 72, has served as a director of the Company since the
Merger Date and previously served as a director of Healthdyne from 1986 until
the Merger. Mr. Sanders, a former governor of the State of Georgia, is Chairman
of Troutman Sanders LLP, an Atlanta based law firm which provides legal services
to the Company. Mr. Sanders is also a director of Carmike Cinemas, Inc.,
Metromedia International Group, Inc., Norrell Corporation and Healthdyne
Information Enterprises, Inc.
CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2000
JACKIE M. WARD, age 59, has served as a director of the Company since the
Merger Date. Ms. Ward is President and Chief Executive Officer of Computer
Generation Incorporated, a privately-held, Atlanta based corporation engaged in
designing and producing "turnkey" computer hardware and software systems for
telecommunications and other specialized applications, which she founded in
1968. Ms. Ward is also a former Chairperson of the Board of Regents of the
University System of Georgia and former Chairman of the Metro Atlanta Chamber of
Commerce, as well as a director of SCI Systems, Inc., Trigon Blue Cross Blue
Shield and NationsBank, N.A. and a member of several other civic and government
organizations.
FREDERICK P. ZUSPAN, M.D., age 76, has served as a director of the Company
since the Merger Date and previously served as a director of Healthdyne from
1993 until the Merger. Dr. Zuspan, who has been a physician since 1951, has been
Professor and Chairman Emeritus, Department of Obstetrics and Gynecology at the
Ohio State University College of Medicine since July 1991 and Editor-in-Chief of
the American Journal of Obstetrics and Gynecology since 1991. Dr. Zuspan was
previously Professor of the Ohio State University College of Medicine from 1987
to 1991 and Professor and Chairman of the Department of Obstetrics and
Gynecology at the Ohio State University College of Medicine from 1975 to 1987,
at the University of Chicago, Pritzker School of Medicine from 1966 to 1975, and
at the Medical College of Georgia from 1960 to 1966.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as to the beneficial
ownership of shares of the Company's Common Stock as of March 11, 1998 by (i)
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares, (ii) each director of the Company, (iii) each Named
Executive Officer (as hereinafter defined) and (iv) all executive officers and
directors as a group. Unless
4
<PAGE> 7
otherwise indicated, the holders listed below have sole voting and investment
power with respect to all shares beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
- ------------------------ -------------------------- -----------
<S> <C> <C>
Parker H. Petit(3).......................................... 655,457 1.8%
Donald R. Millard(4)........................................ 181,795 --
Frank D. Powers(5).......................................... 164,021 --
J. Brent Burkey(6).......................................... 147,693 --
Thornton A. Kuntz, Jr.(7)................................... 39,461 --
Yvonne V. Scoggins(8)....................................... 25,415 --
Carl E. Sanders(9).......................................... 69,501 --
Jackie M. Ward(10).......................................... 10,005 --
Morris S. Weeden(11)........................................ 30,001 --
Frederick P. Zuspan(12)..................................... 20,001 --
All executive officers and directors as a group (11
persons).................................................. 1,350,693 3.7%
</TABLE>
- ---------------
-- Less than 1%
(1) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be a beneficial owner of a security if he or she has or
shares the power to vote or to direct the voting of such security or the
power to dispose or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which that person
has the right to acquire beneficial ownership within 60 days as well as any
securities owned by such person's spouse, children or relatives living in
the same house. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities.
(2) Based on 36,416,199 shares of Common Stock outstanding on March 11, 1998.
With respect to each person in the table, assumes that such person has
exercised all options, warrants and other rights to purchase Common Stock
which he or she beneficially owns and which are exercisable within 60 days
and that no other person has exercised any such rights.
(3) Represents 581,290 shares owned by Mr. Petit, 52,500 shares held by Petit
Investments Limited Partnership, 10,000 shares held by Petit Grantor Trust
and 11,667 shares which are subject to purchase upon exercise of options
exercisable within 60 days.
(4) Represents 40,255 shares owned by Mr. Millard, 139,500 shares which are
subject to purchase upon exercise of options exercisable within 60 days,
and 2,040 shares issuable upon conversion of 8% Convertible Subordinated
Debentures owned by Mr. Millard.
(5) Represents 21,436 shares owned by Mr. Powers and 142,585 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(6) Represents 104,693 shares owned by Mr. Burkey and 43,000 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(7) Represents 834 shares owned by Mr. Kuntz and 38,627 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(8) Represents 9,895 shares owned by Ms. Scoggins and 15,520 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(9) Represents 54,500 shares owned by Mr. Sanders and 15,001 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(10) Represents 4 shares issuable upon conversion of 8% Convertible Subordinated
Debentures owned by Ms. Ward and 10,001 shares which are subject to
purchase upon exercise of options exercisable within 60 days.
(11) Represents 15,000 shares owned by Mr. Weeden and 15,001 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(12) Represents 10,000 shares owned by Dr. Zuspan and 10,001 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
5
<PAGE> 8
BOARD COMMITTEES AND ATTENDANCE
In addition to an Executive Committee and other single purpose committees
established from time to time to assist the Board of Directors with particular
tasks, the Company's Board of Directors has the following standing committees: a
Compensation and Stock Option Committee (the "Compensation Committee"), an Audit
Committee and a Nominating Committee.
The Compensation Committee is composed of Morris S. Weeden and Frederick P.
Zuspan, M.D. In addition, Parker H. Petit is an ex-officio, non-voting member of
the Compensation Committee. The Compensation Committee is responsible for the
recommendation and approval of salaries of executive officers and the review and
approval of incentive plans, including stock options and related programs. The
Compensation Committee held two meetings during the year ended December 31,
1997.
The Audit Committee is composed of Jackie M. Ward and Morris S. Weeden. The
Audit Committee reviews the scope of the audit of the Company's consolidated
financial statements by independent public accountants and their report on such
audit, evaluates audit performance and reports on such matters to the Board of
Directors. The Audit Committee held two meetings during the year ended December
31, 1997.
The Nominating Committee is composed of Parker H. Petit and Frederick P.
Zuspan, M.D. The Nominating Committee shall to the extent not inconsistent with
the Bylaws of the Company identify, screen and recommend candidates for
appointment to the Board of Directors for consideration by the full Board of
Directors of the Company and by the stockholders of the Company. The Nominating
Committee held one meeting during the year ended December 31, 1997.
During the year ended December 31, 1997, the Board of Directors held six
meetings. Each of the Directors standing for re-election attended more than 75%
of the total number of Board meetings and meetings of committees of which he or
she was a member during 1997.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
(the "Named Executive Officers") for their services in all capacities to the
Company and its subsidiaries from March 8, 1996 (the effective date of the
Merger) to December 31, 1996 and for the full fiscal year ended December 31,
1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- ---- ------------ -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Donald R. Millard..................... 1997 246,302 243,452 180,000 118,061
President and Chief Executive 1996 174,519 40,000 30,000 990
Officer
Frank D. Powers....................... 1997 254,143 223,819 200,000 119,855
Executive Vice President and Chief 1996 185,673 0 40,000 663
Operating Officer
J. Brent Burkey(3).................... 1997 246,353 196,332 23,000 136,883
Former Senior Vice President, 1996 174,519 0 30,000 1,417
General Counsel and Secretary
Thornton A. Kuntz, Jr................. 1997 154,719 95,873 17,250 270
Vice President -- Administration 1996 141,982 0 15,000 194
Yvonne V. Scoggins.................... 1997 148,713 81,195 14,375 648
Vice President, Chief Accounting 1996 135,099 14,000 12,500 457
Officer and Treasurer
</TABLE>
- ---------------
(1) For 1997, includes the Company's matching contributions to the Named
Executive Officers under the Company's tax-qualified 401(k) Profit Sharing
Plan during 1997 of $4,000 each to Mr. Millard, Mr. Powers, Mr. Burkey and
Ms. Scoggins, and $3,773 to Mr. Kuntz.
(2) For 1996, represents the value of (i) group term life insurance and (ii)
officer term life insurance. Details of amounts reported in "All Other
Compensation" column for 1997 are provided in the table below. Effective
January 1, 1997, Messrs. Millard, Powers and Burkey each agreed to forego
vested benefits under the Company's non-qualified retirement plan in
exchange for entering into this split-dollar arrangement with the Company.
See "Pension Plan." Split dollar insurance represents the present value of
the earnings projected to accrue for the employee's benefit on the current
year's insurance premium paid by the Company plus the portion of the premium
paid allocable to the term life insurance provided under the policy.
<TABLE>
<CAPTION>
ITEM MR. MILLARD MR. POWERS MR. BURKEY MR. KUNTZ MS. SCOGGINS
---- ----------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Officer Term Life Insurance.......... $ 1,340 $ 426 $ 1,428 $270 $648
Split Dollar Insurance Premium
Value.............................. 116,721 119,429 135,455 -0- -0-
-------- -------- -------- ---- ----
Total All Other Compensation......... 118,061 119,855 136,883 270 648
</TABLE>
(3) Mr. Burkey terminated his employment with the Company for "good reason"
effective January 9, 1998. His termination entitles him to severance
compensation payable pursuant to a Change of Control Severance Agreement.
See "Change of Control Severance Agreements" herein.
As previously noted (see "1. Election of Directors -- Background"), Robert
F. Byrnes served as the President and Chief Executive Officer of the Company
until December 31, 1996. The Board of Directors created a three-person "Office
of the President" composed of Parker H. Petit, Robert F. Byrnes and Donald R.
Millard, which performed the duties of President until Mr. Millard's election as
President and Chief Executive Officer on October 20, 1997. The members of the
Office of the President received no compensation for their services in such
capacity. Mr. Millard's compensation for services in all capacities to the
Company is set forth above, and amounts paid to Messrs. Petit and Byrnes for
their services as directors in 1997 are described under "Compensation of
Directors".
7
<PAGE> 10
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to the Named Executive Officers of the Company during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES AT ASSUMED ANNUAL RATES
UNDERLYING % OF TOTAL EXERCISE OF STOCK PRICE
OPTIONS/ OPTIONS/SARS OR APPRECIATION FOR
SARS GRANTED TO BASE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Millard......... 180,000(1) 20.06% $6.6875 10/20/2007 $757,026 $1,918,476
Frank D. Powers........... 200,000(1) 22.29% 6.6875 10/20/2007 841,140 2,131,640
J. Brent Burkey........... 23,000(2) 2.56% 6.6875 10/20/2007 96,731 245,139
Thornton A. Kuntz, Jr..... 17,250(3) 1.92% 6.6875 10/20/2007 72,548 183,854
Yvonne V. Scoggins........ 14,375(3) 1.60% 6.6875 10/20/2007 60,457 153,212
</TABLE>
- ---------------
(1) These options to purchase the Company's Common Stock were granted on October
20, 1997 under the Company's 1996 Stock Incentive Plan (the "1996 Plan").
For each option granted under the 1996 Plan, full vesting shall occur not
before two years and not later than four years from April 15, 1997, based on
performance vesting thresholds. Per the performance vesting thresholds,
fifty percent (50%) of the shares subject to these option grants became
exercisable on April 15, 1998. The options each have a term of ten years
from the date of grant and are not transferable, otherwise than by will or
the laws of descent and distribution. Except as provided in each of the
option agreements, the options generally may not be exercised unless
employment with the Company or an affiliate or subsidiary continues. Options
granted under the plans will expire (i) immediately upon the employee's
termination for good cause; (ii) three months after the date of termination
for reason other than good cause; (iii) three months after the employee's
voluntary termination; (iv) one year after the employee's death or
disability; or (v) ten years from the date of the grant, whichever shall
occur first. The purchase price of the shares subject to these options may
be paid (i) in cash, (ii) through the surrender of previously owned stock of
the Company or (iii) in a combination of cash and previously owned stock of
the Company. The optionees are obligated to reimburse the Company at the
time of any exercises of the options for any taxes required to be withheld
by the Company under federal, state or local law as the result of the
exercise of the options. Options granted under the 1996 Plan become
immediately exercisable as to all shares covered by the option and remain
exercisable for the full remaining term of the option (without regard to
termination of the option holder's employment) in the event of a "change in
control" and certain other "corporate transactions" as defined in the 1996
Plan.
(2) This option to purchase the Company's Common Stock was granted on October
20, 1997, and became fully vested and exercisable on April 1, 1998. The
option has a term of ten years from the date of grant and is not
transferable, otherwise than by will or the laws of descent and
distribution. Except as provided in the option agreement, the option may not
be exercised unless employment or consulting services with the Company or an
affiliate or subsidiary continues. This option will expire (i) immediately
upon the employee's termination for good cause; (ii) three months after the
date of termination for reason other than good cause; (iii) three months
after the employee's voluntary termination; (iv) one year after the
employee's death or disability; or (v) ten years from the date of the grant,
whichever shall occur first. The purchase price of the shares subject to
this option may be paid (i) in cash, (ii) through the surrender of
previously owned stock of the Company, or (iii) in a combination of cash and
previously owned stock of the Company. The optionee is obligated to
reimburse the Company at the time of any exercises of the option for any
taxes required to be withheld by the Company under federal, state or local
law as the result of the exercise of the option.
(3) These options to purchase the Company's Common Stock were granted on October
20, 1997. For each option granted, full vesting shall occur not before two
years and not later than four years from April 15, 1997, based on
performance vesting thresholds. Per the performance vesting thresholds,
fifty per-
8
<PAGE> 11
cent (50%) of the shares subject to these options granted became exercisable
on April 15, 1998. The options have a term of ten years from the date of
grant and are not transferable, otherwise than by will or the laws of
descent and distribution. Except as provided in each of the option
agreements, the options may not be exercised unless employment with the
Company or an affiliate or subsidiary continues. These options will expire
(i) immediately upon the employee's termination for good cause; (ii) three
months after the date of termination for reason other than good cause; (iii)
three months after the employee's voluntary termination; (iv) one year after
the employee's death or disability; or (v) ten years from the date of the
grant, whichever shall occur first. The purchase price of the shares subject
to these options may be paid in (i) in cash, (ii) through the surrender of
previously owned stock of the Company, or (iii) in a combination of cash and
previously owned stock of the Company. The optionees are obligated to
reimburse the Company at the time of any exercises of the options for any
taxes required to be withheld by the Company under federal, state or local
law as the result of the exercise of the options.
STOCK OPTION EXERCISES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options in 1997 and unexercised
options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
ACQUIRED VALUE REALIZED END(#) FISCAL YEAR END($)(1)
ON EXERCISE (MARKET PRICE AT EXERCISE --------------------------- ---------------------------
NAME (#) LESS EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Millard.... 15,000 $ 55,393 95,000 200,000 $241,388 $ -0-
Frank D. Powers...... -0- -0- 66,000 226,667 145,879 -0-
J. Brent Burkey...... 85,000 239,724 10,000 43,000 -0- -0-
Thornton A. Kuntz,
Jr................. -0- -0- 25,896 27,250 53,280 -0-
Yvonne V. Scoggins... -0- -0- 4,166 22,709 -0- -0-
</TABLE>
- ---------------
(1) Based on $5.625, the last sale price of the Company's Common Stock on
December 31, 1997.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Directors who are not
employees of the Company ("Non-Employee Directors") receive a fee of $3,000 per
quarter, plus $1,000 for each Board meeting attended and $750 for each Committee
meeting attended on a day other than a Regular Meeting of the Board, and are
reimbursed for any travel expenses incurred. In lieu of the above retainer and
meeting fees, Messrs. Petit and Byrnes were each paid a fee of $12,500 per
quarter for their services as directors in 1997. In view of Mr. Byrnes'
resignation from the Board and the additional responsibilities assumed by Mr.
Petit, the Board of Directors increased the fees payable to Mr. Petit in 1998 to
$37,500 per quarter. In addition, all Non-Employee Directors are entitled to
receive options to purchase Common Stock under the 1996 Directors' Non-Qualified
Stock Option Plan. See "Item 3. -- Proposal to Amend the 1996 Directors'
Non-Qualified Stock Option Plan."
CHANGE OF CONTROL SEVERANCE AGREEMENTS
Prior to the Merger, Healthdyne had certain Change of Control Agreements
with certain of the Named Executive Officers, the terms of which were assumed by
the Company, as follows:
In February 1988, Healthdyne entered into agreements with Messrs. Millard
and Burkey and certain other officers of Healthdyne who did not become officers
of the Company, entitling such executive officers to certain benefits upon
specified terminations of employment within three years following a "change in
control" of Healthdyne. The Merger, as well as several other transactions
engaged in by Healthdyne prior to the Merger, constituted a "change in control"
under these agreements. Each agreement provided that in the event of a "change
in control" of Healthdyne, the executive officer concerned would be entitled to
certain benefits
9
<PAGE> 12
upon his subsequent termination of employment during the term of the agreement
unless such termination is (i) because of his death, disability or retirement,
(ii) by the Company for cause or (iii) with respect to termination by the
executive officer, other than for "good reason." Under these agreements, a
number of circumstances entitle the executive officer to treat a good faith
termination on his part as being a termination for "good reason." These include
an adverse change in the executive officer's compensation, discontinuation of
certain benefits, the assignment of duties inconsistent with his status or
duties in effect immediately prior to the "change in control," the relocation of
the principal executive office to a location outside of Marietta, Georgia, or
requiring the executive officer to be based anywhere other than the Company's
principal executive office.
Under the agreements, if an executive officer's employment with the Company
terminates following the consummation of a "change in control" other than under
the circumstances set forth in clauses (i), (ii) or (iii) of the preceding
paragraph, the executive officer will be entitled to receive his full base
salary through the date of termination and a lump sum severance payment equal to
three times the executive officer's average annual salary and other income
derived from Healthdyne or the Company which is reportable for federal tax
purposes for the five years ending prior to the date of termination. In
addition, such executive officer will be entitled to receive, for a period of
three years after the date of termination, all life, disability and health
insurance coverage, automobile allowances and other fringe benefits equivalent
to those in effect at the date of termination and will be entitled to receive
additional amounts, if any, relating to any excise taxes imposed on the
executive officer as a result of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code").
Healthdyne entered into amended and restated agreements with each of the
executive officers mentioned above and a new agreement with Frank D. Powers
(collectively, the "Restated Agreements") upon the effective date of the Merger,
which superseded the prior agreements described above. The Restated Agreements
did not increase the amount of compensation payable upon a "change in control,"
but acknowledged that the Merger constituted a "change in control," as defined
in the Restated Agreements, and extended the term of the Restated Agreements
from a term ending in February 1997 to a term ending three years after the
Merger. In addition, under the Restated Agreements the executive officer agrees
to comply with certain protective covenants not to compete which, for a period
of three years following the later of the Merger Date or the effective time of
any other "change in control" of the Company that occurs within three years
after the Merger Date and during the executive officer's continued employment
with the Company, prohibit the executive officer from competing with the
Company, or soliciting customers or personnel of the Company. The Restated
Agreements otherwise are substantially similar to the change in control
agreements previously in effect.
Mr. Burkey, the former Senior Vice President and General Counsel of the
Company, terminated his employment as an employee for "good reason" effective
January 9, 1998, and became entitled under his Restated Agreement to receive
compensation in the amount of $1,556,244 and to a continuation of fringe
benefits for a period of three years.
PENSION PLAN
The nonqualified defined benefit plan previously maintained by the Company
was terminated effective January 1, 1997. The Named Executive Officers who had
participated in such plan agreed to forego payments under the nonqualified
defined benefit plan in exchange for entering into a split-dollar life insurance
arrangement with the Company effective January 1, 1997. See "Item 1. Election of
Directors -- Certain Transactions" and Note 1 to the Summary Compensation Table
in "Item 1. Election of Directors -- Executive Compensation."
10
<PAGE> 13
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Stock Performance Graph shall not be incorporated by reference into any such
filings.
COMPENSATION COMMITTEE REPORT ON CORPORATE COMPENSATION
Overall Objectives and Approach. Prior to the Merger the levels of
compensation of the Named Executive Officers were determined by the respective
Compensation Committees and Boards of Directors of the companies (Tokos or
Healthdyne) by which such individuals were employed. Although certain
adjustments were made to reflect revised responsibilities after the Merger and
the consolidation of benefit plans, in 1996 the Company did not undertake an
overall review of its compensation programs for executives. In 1997 the Company
engaged William M. Mercer, Incorporated ("Mercer"), a recognized consulting firm
with a specialty in employee compensation and headquartered in Atlanta, Georgia,
to conduct a review of its overall compensation program, including base
compensation, incentive compensation and stock option programs and to compare
the Named Executive Officers to positions of similar responsibility at other
companies both within and outside of the healthcare industry. A report was
presented by Mercer to the Compensation Committee in April 1997 and, in part,
formed the basis for the Compensation Committee's 1997 compensation
recommendations.
In making its compensation determinations, the Compensation Committee
evaluates, on both an absolute and relative basis, a variety of Company
financial results (including sales, earnings, return on equity, return on assets
and balance sheet strength), market share and competitive position, the
potential for future growth, the overall importance of the individual to the
organization, the individual and group performance of senior management and
compensation levels at comparable companies, especially within the healthcare
industry. In formulating its determinations, it recognizes and rewards
achievements on an annual basis, while emphasizing the value and importance of
sustained long-term performance and recognition of developing trends within the
healthcare industry. The Compensation Committee reviews information prepared or
compiled by the Company, as well as draws on the business experience of the
individual members of the Compensation Committee.
Cash Compensation. Officers and other employees are compensated within
salary ranges that are generally based on similar positions in companies of
comparable size and complexity to the Company. The actual base pay level for
each officer is based on a combination of experience, performance and other
factors that are determined to be important by the Committee. The salary of most
officers is generally reviewed annually at the beginning of each year, with the
amount of any increases based on factors such as Company performance, general
economic conditions, marketplace compensation trends and individual performance.
Raises in salaries were granted in 1996 and 1997 based upon the factors
described above, as well as promotional increases to Messrs. Millard and Powers
to reflect their new responsibilities following their promotions to President
and Chief Executive Officer and Executive Vice President and Chief Operating
Officer, respectively, in October 1997.
Bonuses for 1997 were paid in 1998 to the Named Executive Officers as well
as other key personnel in amounts ranging from 5% to 79% of annual salary under
the Company's incentive bonus plan, which plan was based upon a financial
formula and the performance of the Company in comparison to its operating
budget. A similar bonus program based upon Company achievement as compared to
budgeted goals is in effect for 1998.
Stock Options. On Mercer's recommendation, the Company grants stock
options to certain of its management employees, based on guidelines that take
salary level, tenure, individual performance rating and importance to the
Company into account. Stock options have been granted at exercise prices equal
to the market price on the date of grant and typically become exercisable in one
of two ways (either (i) based on the financial performance of the Company or
(ii) in three annual installments commencing on the first anniversary of the
grant), and expire on the tenth anniversary.
11
<PAGE> 14
CEO Compensation. Mr. Millard's compensation was re-evaluated by the
Compensation Committee in October 1997 in connection with Mr. Millard's
promotion to President and Chief Executive Officer. At that time, the
Compensation Committee determined to grant options to Mr. Millard for 180,000
shares of the Company's Common Stock (including an annual grant of options based
upon Mr. Millard's previous position as Senior Vice President and Chief
Financial Officer), and to increase Mr. Millard's annual salary rate from
$222,000 to $235,320 effective for the period from February 1, 1997 through
October 31, 1997 and to $310,000 effective November 1, 1997. Mr. Millard was
paid a bonus of $243,452 in 1998 based on the Company's performance in 1997.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Parker H. Petit (ex-officio non-voting member)
Morris S. Weeden
Frederick P. Zuspan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for executive compensation
decisions as described above. During 1997, the Compensation Committee consisted
of Morris S. Weeden and Frederick P. Zuspan, with Mr. Parker H. Petit (who is
Chairman of the Company's Board of Directors) participating as an ex-officio
non-voting member of the Compensation Committee.
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
periods in question for the Company, the S&P 500 Index and the S&P Healthcare
Composite Index. The graph assumes that the value of the investment in the
Company's Common Stock and each index was $100 at April 1, 1996 (the first day
of the first full month of trading of the Common Stock of the Company), and that
all dividends (there were none) were reinvested. The Company's Common Stock
commenced trading on March 8, 1996, closing at a price of $8.875 on that date
and $8.375 on April 1, 1996.
<TABLE>
<CAPTION>
Measurement Period Matria Healthcare, S&P HealthCare
(Fiscal Year Covered) Inc. S&P 500 Index Composite
<S> <C> <C> <C>
April 1, 1996 100.00 100.00 100.00
1996 56.72 116.70 116.23
1997 67.17 155.63 167.04
</TABLE>
12
<PAGE> 15
CERTAIN TRANSACTIONS
Mr. Carl E. Sanders, a director of the Company, is also the Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia, which provided
certain legal services to the Company in fiscal year 1997 and is expected to be
retained by the Company in the future.
2. PROPOSAL TO AMEND THE COMPANY'S BYLAWS
The Board of Directors has approved and declared advisable and is
recommending to the stockholders for their approval and adoption, the
resolutions described below that would amend the Company's Bylaws (the "Bylaw
Amendments"), to allow for a change in the composition of the Board of Directors
and the committees of the Board of Directors of the Company and to eliminate the
references in the Bylaws to "Tokos Directors" and "Healthdyne Directors".
The Board of Directors is seeking stockholder approval of the following
resolution in order to effect the Bylaw Amendments:
RESOLVED, That the Bylaws of the Company are hereby amended as follows:
(i) That Section 3.14 of the Bylaws (and all references to Section
3.14) be deleted in their entirety;
(ii) That all references in or requirements of the Bylaws with respect
to "HD Directors" and "TM Directors," including, but not limited to, the
provisions of Section 3.15 regarding the composition of committees of the
Board of Directors be deleted; and
(iii) That the size of the four committees of the Board established by
Section 3.15 of the Bylaws be reduced so that each of the Executive
Committee and the Compensation Committee shall consist of three (3) members
and each of the Audit Committee and the Nominating Committee shall consist
of two (2) members.
Section 3.15 of the Bylaws, as so amended, is attached to this proxy
statement as Appendix I.
REASONS FOR THE PROPOSED BYLAW AMENDMENTS
As previously discussed at "1. Election of Directors -- Background" herein,
the Company was formed in order to effectuate the Merger of Healthdyne and Tokos
with and into the Company. Pursuant to the Merger Agreement, five of the initial
ten members of the Company's Board of Directors (Parker H. Petit, Morris S.
Weeden, Frederick P. Zuspan, M.D., Carl E. Sanders and Jackie M. Ward) were
designated by Healthdyne and the other five members (Robert F. Byrnes, Gene P.
Guselli, Thomas W. Erickson, David L. Goldsmith and Craig T. Davenport) were
designated by Tokos.
Section 3.14 of the Company's Bylaws was structured to require that such a
split designation of directors remain in effect for a three-year period
commencing at the effective time of the Merger (such period, the "Post-Merger
Period"). During the Post-Merger Period, Section 3.14 provides that any vacancy
on the Board arising among Parker H. Petit and the other initial members of the
Board designated by Healthdyne (or any other individual or individuals selected
(i) as a replacement director for the foregoing individuals or (ii) by the
foregoing individuals or their successors) and any nominee selected to fill a
director position occupied by any of the foregoing individuals (the "HD
Directors") will be filled or selected by a majority vote of the remaining HD
Directors, and any vacancy arising among Robert F. Byrnes and the other initial
members of the Board designated by Tokos (or any other individual or individuals
selected (i) as a replacement director for the foregoing individuals or (ii) by
the foregoing individuals or their successors) and any nominee selected to fill
a director position occupied by any of the foregoing individuals (the "TM
Directors") will be filled or selected by a majority vote of the remaining TM
Directors. Section 3.14 further provides that any HD Director or TM Director
whose term expires at the 1996, 1997 and 1998 annual meetings of stockholders of
the Company shall be automatically nominated to serve an additional three year
term expiring at the 1999, 2000 and 2001 annual meetings, as applicable.
13
<PAGE> 16
Section 3.15 of the Bylaws establishes the following committees of the
Board of Directors: an Executive Committee, consisting of six members; an Audit
Committee, consisting of four members; a Compensation Committee, consisting of
six members; and a Nominating Committee, consisting of four members.
Section 3.15 provides for each committee to initially be composed of an
equal number of HD Directors and TM Directors, and that for a period of three
years following March 8, 1996, any vacancies on a Board committee shall be
filled in accordance with Section 3.14, as if Section 3.14 referenced such
committee instead of the Company's Board of Directors.
As previously discussed at "1. Election of Directors -- Background," Robert
F. Byrnes, the former President and Chief Executive Officer of Tokos, served as
the President and Chief Executive Officer of the Company until the expiration of
his employment agreement on December 31, 1996. At a meeting held on September
30, 1997, the Board of Directors approved a settlement with Mr. Byrnes of
certain matters relating to the termination of his employment, including
severance payments. At this meeting the Board also voted to reduce the size of
the Board from ten to five members, and to reduce the size of the Executive and
Compensation Committees from six to three members and the size of the Audit and
Nominating Committees from four to two members. At this same meeting, Messrs.
Byrnes, Goldsmith, Davenport, Erickson and Busch, constituting all the TM
Directors, resigned from the Board and all committees of the Board effective
September 30, 1997, without protest in order to accommodate these changes and
agreed not to stand for re-election as directors of the Company.
Since there are no remaining Tokos Directors, it is not possible to comply
with the provisions of Section 3.14 of the Bylaws requiring Tokos Directors to
fill a certain number of positions on the Company's Board of Directors and its
committees.
At a meeting of the Board of Directors held on October 20, 1997, the size
of the Board was increased from five to seven members, and Donald R. Millard and
Frank D. Powers were appointed as Class I and Class III directors, respectively.
The Bylaw Amendments are intended to reflect the foregoing changes to the
Company's Board of Directors. Pursuant to the proposed amendments, Section 3.14
will be deleted in its entirety, all references in or requirements of the Bylaws
with respect to "HD Directors" and "TM Directors" will be deleted, and the size
of the Executive, Compensation, Audit and Nominating Committees of the Board
will be reduced.
Article VII of the Company's Restated Certificate of Incorporation
provides, in part, that until three years from March 8, 1996, Sections 3.14 and
3.15 of the Bylaws can only be amended by the affirmative vote of the holders of
at least 66 2/3% of the Common Stock of the Company.
The Board of Directors believes that the Bylaw Amendments are both
desirable and appropriate given the significant changes in the Board since the
Merger. If the Bylaw Amendments are not approved by the necessary shareholder
vote, those sections of the Bylaws pertaining to HD Directors and TM Directors
will continue to be treated as not applicable to the composition of the Board of
Directors because there are no longer any TM Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
AMENDMENTS TO THE BYLAWS
PROPOSAL TO AMEND THE 1996 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On February 6, 1996, the Board of Directors of the Company adopted the 1996
Directors' Non-Qualified Stock Option Plan (the "Director Stock Option Plan" or
the "Plan") and the stockholders of the Corporation ratified, adopted and
approved the Director Stock Option Plan on March 6, 1996. Options to purchase
15,000 shares of stock under the Director Stock Option Plan were granted to the
eligible non-employee directors on March 8, 1996 (the effective date of the
Director Stock Option Plan) and 25,000 shares of stock were granted to
continuing non-employee directors who were serving as directors of the Company
immediately following the first annual meeting of stockholders following the
effective date of the Director Stock Option Plan on December 15, 1997).
14
<PAGE> 17
On February 24, 1998, the Board of Directors approved an amendment to the
Director Stock Option Plan, subject to stockholder approval, to increase the
number of shares of Common Stock for which the directors receive annual option
grants from 5,000 shares to 10,000 shares. The Board adopted this amendment to
ensure that the Company will continue to be able to obtain and maintain the
services of knowledgeable and independent directors on the Company's Board of
Directors, to provide an additional incentive for such directors to continue to
serve on the Board and to give them a greater interest as stockholders in the
success of the Company.
At the Annual Meeting, the stockholders are being requested to consider and
approve the foregoing amendment to the Director Stock Option Plan. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock will be required to approve the amendment.
PURPOSE OF THE DIRECTOR STOCK OPTION PLAN
The purpose of the Director Stock Option Plan is to attract qualified
individuals to serve as members of the Board, to provide additional performance
incentives to such individuals and to encourage their continued service on the
Board.
MAJOR PROVISIONS OF THE DIRECTOR STOCK OPTION PLAN
The major provisions of the Plan are as follows:
Eligibility. Each Non-Employee Director is entitled to receive
options under the Plan.
Number of Shares Granted. On the Merger Date, each director who was a
Non-Employee Director at the time of the Merger was granted an option to
purchase 5,000 shares of Common Stock on the Merger Date. At each annual
meeting of stockholders thereafter, each Non-Employee Director who had
served as such for at least a year was automatically granted an option to
purchase 5,000 shares of Common Stock. As of March 11, 1998, options to
purchase 35,000 of the 250,000 shares reserved under the Director Stock
Option Plan were outstanding. On May 12, 1998, options to purchase an
aggregate of 50,000 shares will be automatically granted under the Director
Stock Option Plan. The proposed amendment to the Director Stock Option Plan
would increase the number of shares of Common Stock underlying options
automatically granted on the date of an annual meeting of stockholders
under the Plan to Non-Employee Directors who have served as such for at
least a year from 5,000 shares to 10,000 shares.
Adjustment of Shares. The number of shares available under the
Director Stock Option Plan may be adjusted in the event of any stock split,
stock dividend, reorganization, merger, consolidation, recapitalization,
reincorporation or other similar action. If any stock option terminates or
is cancelled for any reason without having been exercised in full, the
unissued shares will be available for additional grants of options.
Option Price. The exercise price per share of each option granted
under the Director Stock Option Plan is the fair market value of the
Company's Common Stock on the date the option is granted.
Time and Manner of Exercise. Options granted under the Director Stock
Option Plan vest monthly over the 12 months from the date of grant, subject
to earlier vesting upon a change in control or corporate transaction. Under
the Plan, a "change of control" occurs upon (i) the acquisition of more
than 50% of the voting power of the Company by any person, or (ii) a change
in the composition of the members of the Board over a three year period to
include a majority of persons not serving on the Board at the beginning of
the period or nominated by such persons. Under the Plan, a "corporate
transaction" consists of approval by the stockholders of (i) a merger or
consolidation in which the Company is not the surviving entity, (ii) the
sale of all or substantially all of the assets of the Company, or (iii) any
reverse merger in which the Company is the surviving entity in which
holders of the Company's voting securities prior to the merger do not own
at least 50% of the voting power in the Company after the merger.
15
<PAGE> 18
Term of Options. Each option terminates ten years from the date of
grant. Options also terminate no later than three months from the date
service on the Board is discontinued, except that, in the event of death or
disability (as defined in the Plan), the option will terminate no later
than 12 months following the date of such death or disability.
Nontransferability. Options granted under the Director Stock Option
Plan are not transferable or assignable by the recipient except for a
transfer upon death. During the lifetime of the optionee, the option will
be exercisable only by him or her.
Payment. Payment of the exercise price upon exercise of any option
shall be made in cash or check; provided, however, that the Board, in its
sole discretion, may permit an optionee to pay the option price in whole or
in part (i) with shares of stock owned by the optionee or with shares of
stock withheld from the shares otherwise deliverable to the optionee upon
exercise of an option (in each case only to the extent that such an
exercise of the option would not result in an accounting compensation
charge with respect to the shares used to pay the option price); (ii) by
delivery on a form prescribed by the Company of an irrevocable direction to
a securities broker approved by the Company to sell shares of stock and
deliver all or a portion of the proceeds to the Company in payment for the
stock; (iii) by delivery of the optionee's promissory note with such
recourse, interest, security and redemption provisions as the Board in its
discretion determines appropriate or (iv) in any combination of the
foregoing. Any stock used to exercise options shall be valued at its fair
market value on the date of the exercise of the option.
Termination and Changes to the Director Stock Option Plan. The Board
of Directors may suspend, terminate or amend the Director Stock Option Plan
from time to time in any manner; provided that no such action without the
approval of the stockholders of the Company may increase the number of
shares subject to the Director Stock Option Plan (except as contemplated by
the express terms of the Director Stock Option Plan) or any option
previously granted, extend the maximum period during which options may be
exercised or materially increase the benefits of the Director Stock Option
Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTOR STOCK OPTION PLAN
An optionee generally recognizes no taxable income as the result of the
grant of an option, assuming that the option does not have a readily
ascertainable fair market value at the time it is granted (which is usually the
case with plans of this type). Upon exercise of an option, an optionee will
normally recognize ordinary compensation income for federal tax purposes equal
to the excess, if any, of the then fair market value of the shares over the
exercise price.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the exercising optionee, so long as
the optionee's total compensation is deemed reasonable in amount.
Upon a sale of shares acquired pursuant to the exercise of an option, any
difference between the sale price and the fair market value of the shares on the
date of exercise will be treated as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than 12 months.
MARKET PRICE OF THE COMMON STOCK
The closing price of the Common Stock as reported on the Nasdaq National
Market was $6.25 per share on March 11, 1998. As of such date, the aggregate
market value of the shares of Common Stock reserved for issuance under the
Director Stock Option Plan was $1,562,500.
16
<PAGE> 19
PLAN BENEFITS
Set forth below are the number of options granted under the Plan as of
March 11, 1998, to certain specified groups of individuals:
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF UNITS
----------------- --------
<S> <C>
Donald R. Millard, President and Chief Executive Officer.... -0-
Frank D. Powers, Executive Vice President and Chief
Operating Officer......................................... -0-
J. Brent Burkey, Senior Vice President, General Counsel and
Secretary................................................. -0-
Thornton A. Kuntz, Jr., Vice President -- Administration.... -0-
Yvonne V. Scoggins, Vice President and Chief Accounting
Officer................................................... -0-
All current Executive Officers as a Group................... -0-
Non-Executive Director Group................................ 35,000
Non-Executive Officer Employee Group........................ -0-
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE
AMENDMENT TO THE 1996 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP to audit the
accounts of the Company and its subsidiaries for the fiscal year ending December
31, 1998. A representative of KPMG Peat Marwick LLP will be present at the
Annual Meeting and will have the opportunity to make a statement if he or she so
desires and will be available to respond to appropriate stockholder questions.
SHAREHOLDER PROPOSALS AT THE COMPANY'S NEXT
ANNUAL MEETING OF SHAREHOLDERS
Stockholders of the Company who intend to submit proposals to the Company's
1999 Annual Meeting of Stockholders must submit such proposals to the Company no
later than December 16, 1998, in order to be considered for inclusion in the
proxy statement and form of proxy to be distributed by the Board in connection
with that meeting. Stockholder proposals should be submitted to Matria
Healthcare, Inc., 1850 Parkway Place, Marietta, Georgia 30067, Attention:
Secretary.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (the "Act")
requires the Company's directors and executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities to
file reports with the SEC regarding beneficial ownership of Common Stock and
other equity securities of the Company. To the Company's knowledge, based solely
on a review of copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all officers, directors and greater than ten percent
beneficial owners complied with the Section 16(a) filling requirements of the
Act in all instances with the exception of late filings with respect to the
reporting of two transactions relating to (i) the purchase of common stock by
Frank D. Powers (ii) the disposition of common stock by Parker H. Petit by
transfer to an Exchange Fund.
17
<PAGE> 20
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company will furnish without charge a copy of its Annual Report on Form
10-K filed with the SEC for the fiscal year ended December 31, 1997, including
financial statements and schedules, to any record or beneficial owner of its
Common Stock as of March 27, 1998 upon written or oral request of such person.
Requests for such copies should be directed to:
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Attention: Corporate Secretary
(770) 767-4500
If the person requesting the Form 10-K was not a stockholder of record on
March 27, 1998, the request must include a representation that such person was a
beneficial owner of the Common Stock on that date. Copies of any exhibit(s) to
the Form 10-K will be furnished on request and upon the payment of the Company's
expenses in furnishing such exhibit(s).
GENERAL
Management does not know of any other business to come before the 1998
Annual Meeting. If, however, other matters do properly come before the 1998
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgement.
Roberta L. McCaw
Assistant Secretary
April 8, 1998
18
<PAGE> 21
APPENDIX I
Section 3.14 Initial Committees. The Corporation shall initially have four
(4) committees of the Board of Directors of the Corporation which committees
shall consist of an executive committee (the "Executive Committee"), an audit
committee (the "Audit Committee"), a compensation and stock option committee
(the "Compensation Committee") and a nominating committee (the "Nominating
Committee").
(a) The Executive Committee shall consist of three (3) members. In addition
to such powers as may be delegated to it from time to time by the Corporation's
Board of Directors, the Executive Committee shall: resolve any differences,
disagreements or issues presented to the Executive Committee for consideration
by the "Transition Committee" (as hereinafter defined); act in the absence of
the full Board of Directors of the Corporation as deemed necessary and
appropriate and as permitted by applicable law; keep the full Board of Directors
of the Corporation apprised of Executive Committee activities and decisions; and
conduct detailed review and evaluation of the annual budget prior to submission
to the full Board of Directors of the Corporation.
(b) The Audit Committee shall consist of two (2) members. In addition to
such powers as may be delegated to it from time to time by the Corporation's
Board of Directors, the Audit Committee shall: recommend outside accountants for
approval by the full Board of Directors and the stockholders of the Corporation;
meet with the Corporation's outside auditors and the Corporation's Chief
Financial Officer and their respective staffs to review and evaluate accounting
and control systems, issues and related matters; meet independently with the
Corporation's auditors and Chief Financial Officer to discuss the accuracy and
integrity of the Corporation's financial reporting, management information and
control systems, and any other appropriate issues; and address any other matters
which are appropriate for the Audit Committee's review or involvement. The Audit
Committee shall meet no less frequently than twice per year, with special
meetings to be called at the direction of the Chairman of the Board,
President/CEO, Chief Financial Officer, outside auditors, any member of the
Audit Committee or any member of the Corporation's Board of Directors.
(c) The Compensation Committee shall consist of three (3) members. In
addition to such powers as may be delegated to it from time to time by the
Corporation's Board of Directors, the Compensation Committee shall: review and
approve salaries for all corporate officers; review and approve all incentive
and special compensation plans and programs, including stock options and related
longer term incentive compensation programs; review and approve management
succession planning; conduct special competitive compensation studies and retain
compensation consultants as deemed necessary and appropriate; and recommend
appropriate programs and actions on any of the above matters to the full Board
of Directors of the Corporation for their review and approval. The Compensation
Committee shall meet no less frequently than twice per year, with special
meetings to be called at the direction of the Chairman of the Board,
President/CEO or any member of the Compensation Committee.
(d) The Nominating Committee shall consist of two (2) members. In addition
to such powers as may be delegated to it from time to time by the Corporation's
Board of Directors, the Nominating Committee shall: identify, screen and
recommend candidates for appointment to the Board of Directors of the
Corporation for consideration by the full Board of Directors of the Corporation
and by the stockholders of the Corporation; and establish compensation and
retirement policies for members of the Board of Directors of the Corporation.
The Nominating Committee shall meet no less frequently than once per year, with
special meetings to be called at the direction of any member of the Nominating
Committee.
(e) Each of the Executive Committee, the Audit Committee, the Compensation
Committee and the Nominating Committee may act only by affirmative vote of a
majority of the authorized number of members of such committee.
A-1
<PAGE> 22
ANNEX
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 12, 1998
The undersigned hereby appoints Donald R. Millard and Roberta L. McCaw, and
each of them, proxies, with full power of substitution and with discretionary
authority, to represent and to vote in accordance with the instructions set
forth below, all shares of Common Stock of Matria Healthcare, Inc. held of
record by the undersigned on March 27, 1998 at the 1998 Annual Meeting of
Stockholders to be held at 1850 Parkway Place, Suite 320, Marietta, Georgia, at
10:30 a.m. on Tuesday, May 12, 1998 and any adjournments thereof.
<TABLE>
<S> <C>
1. Election of Class III Directors [ ] FOR all nominees listed below (except as
written to the contrary below)
<CAPTION>
<S> <C>
1. Election of Class III Directors [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below
</TABLE>
Parker H. Petit, Frank D. Powers and Morris S. Weeden.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to amend the Company's Bylaws to allow for a change in the
composition of the Board of Directors and the committees thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to amend the Company's 1996 Directors' Non-Qualified Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued on Reverse Side)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR"
ITEMS 1, 2 AND 3.
PLEASE SIGN EXACTLY AS NAME APPEARS ON STOCK CERTIFICATE.
If stock is held in the name of
two or more persons, all must
sign. When signing as attorney,
as executor, administrator
trustee, or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Dated: , 1998
--------------------
--------------------------------
Signature
--------------------------------
Signature if Held Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
