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SECURITIES AND EXCHANGE COMMISSION CONFORMED COPY
WASHINGTON, D.C. 20549 --------------
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the fiscal year ended December 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 NO. 0-20619
MATRIA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1850 Parkway Place
Marietta, Georgia 30067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 767-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share, together
With associated Common Stock Purchase Rights
--------------------------------------------
(Title of class)
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
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 12, 1999, there were 36,468,834 shares of Common Stock outstanding.
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates was approximately $106,120,563 based upon the closing sale price
on March 12, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III.
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MATRIA HEALTHCARE, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I ......................................................................
Item 1. Business.................................................. 3
Item 2. Properties................................................ 10
Item 3. Legal Proceedings......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ...... 12
PART II......................................................................
Item 5. Market for the Company's Common Equity
and Related Stockholder Matters.......................... 13
Item 6. Selected Financial Data................................... 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 15
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 22
Item 8. Financial Statements and Supplementary Data............... 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 23
PART III.....................................................................
Item 10. Directors and Executive Officers of the Company........... 23
Item 11. Executive Compensation ................................... 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 23
Item 13. Certain Relationships and Related Transactions............ 23
PART IV......................................................................
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................. 24
SIGNATURES................................................................... 28
</TABLE>
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PART I.
ITEM 1. BUSINESS.
GENERAL. Matria Healthcare, Inc., a Delaware corporation ("Matria" or
the "Company"), was incorporated on October 4, 1995 for the purpose of the
merger (the "Merger") of Tokos Medical Corporation (Delaware), a Delaware
corporation ("Tokos"), and Healthdyne, Inc., a Georgia corporation
("Healthdyne"), with and into Matria. The effective date of the Merger was
March 8, 1996. Prior to the Merger, Matria had no material assets or
liabilities and its then outstanding shares of common stock, par value $0.01
per share ("Matria Common Stock"), were held exclusively by Tokos and
Healthdyne. As a result of the Merger, the operations and assets of Tokos and
Healthdyne were consolidated into Matria, and each share of common stock of
Tokos and Healthdyne outstanding on the effective date of the Merger was
exchanged for one share of Matria Common Stock.
The Company is engaged principally in the business of providing
women's health services, cardiovascular and respiratory disease management
services, infertility practice management, and diabetes supplies and services.
ACQUISITION OF BUSINESSES. On June 1, 1996, the Company exercised an
option and acquired the remaining ownership interest in National Reproductive
Medical Centers, Inc. ("NRMC"), a physician practice management services
business that manages infertility treatment centers in California, in which
Healthdyne had previously owned a minority interests.
Effective July 1, 1998, the Company acquired substantially all of the
assets of Quality Diagnostic Services, Inc., a Georgia-based company engaged in
the business of cardiac event monitoring, holter monitoring and pacemaker
follow-up.
Also in July 1998, the Company entered into a subcontract agreement
with National Jewish Medical and Research Center ("National Jewish"). Under the
terms of the subcontract agreement, the Company provides screening, enrollment
and call support services to participants in National Jewish's respiratory
disease management programs. On October 1, 1998, the Company acquired an
exclusive, five-year license to market and provide National Jewish's
respiratory disease management programs in North America.
On January 15, 1998, the Company acquired 10% of the outstanding stock
of Diabetes Management Services, Inc. ("DMS"), a South Carolina-based company
engaged in the sale of insulin pumps and diabetes supplies as well as providing
diabetes education and management services. The Company also acquired an option
to purchase the balance of the outstanding stock of DMS at a formula price and
agreed to provide working capital for DMS's growth and expansion. Effective
January 1, 1999, the Company acquired the remaining 90% ownership interest in
DMS.
Also effective January 1, 1999, Matria acquired substantially all of
the assets of Gainor Medical Management, L.L.C. ("Gainor Medical"), a Georgia
limited liability company engaged in the business of diabetes disease
management in the United States and Germany and the design, assembly, packaging
and distribution of microsampling products throughout the world.
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The integration of the operations of each of the recently acquired
businesses will require the dedication of management resources to achieve the
anticipated benefits of these acquisitions. The difficulties of integrating
these operations include the necessity of coordinating geographically separate
organizations, integrating personnel with diverse business backgrounds and
combining different corporate cultures. The process of integrating operations
could cause an interruption of, or loss of momentum in, the activities of the
combined businesses. The diversion of management's attention and any
difficulties encountered in connection with the integration of the combined
businesses' operations could have an adverse effect on the business, results of
operations or financial condition of Matria.
BUSINESS SEGMENTS AND GEOGRAPHIC AREAS. In 1998, the Company's
operations consisted of two reportable business segments: Women's Health and
Cardiovascular. With the acquisition of the stock of DMS and the assets of
Gainor Medical, the Company entered another business segment: Diabetes Supplies
and Services.
Information regarding net sales, operating income, and total assets of
each of the business segments in which the Company operated in fiscal years
1996 through 1998 is in Note 15 of Notes to Consolidated Financial Statements
on pages F-21 through F-22 of this report.
Women's Health. The Women's Health segment offers a wide range of
specialized services designed to assist physicians and payors in the cost
effective management of maternity patients. Services include specialized home
nursing, risk assessment, patient education and management, home uterine
contraction monitoring, infusion therapy, gestational diabetes management and
other monitoring and clinical services as prescribed by the patient's
physician. The Women's Health segment has 47 service centers throughout the
United States. Forty-one of the 47 sites are or are in the process of becoming
accredited as home care organizations by the Joint Commission on Accreditation
of Health Care Organizations. Although this segment maintains a dominant market
share, the industry continues to be vulnerable to several controversies
surrounding the home obstetrical care business, including academic debate as to
the efficacy of certain services and controversy over the "off-label" use of
certain tocolytic medications. See "Regulation and Healthcare Industry Changes"
below in this Item 1.
Cardiovascular. The Cardiovascular segment provides cardiac event
monitoring services, holter monitoring services and pacemaker follow-up to
patients throughout the United States from its headquarters in Marietta,
Georgia.
Other. The Other business segment has three components that are below
the threshold for reporting: respiratory disease management, infertility
practice management and clinical patient record software.
The respiratory disease management division (Respiratory Management
Services - "RMS"), which is in its early stages, provides respiratory disease
risk assessment, screening and case management services to patients throughout
the United States from its headquarters in Marietta, Georgia in conjunction
with National Jewish's facility located in Denver, Colorado.
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The infertility practice management business unit (NRMC) manages three
fertility clinics in California, which provide a broad spectrum of diagnostic
and therapeutic services to infertile couples from throughout the United
States, with particular emphasis on in-vitro fertilization and embryo transfer
procedures. This unit also makes its laboratory services available to other
infertility practices.
The clinical patient record software division (Clinical-Management
Systems, Inc. - "CMS") markets a proprietary automated patient record for
obstetricians and gynecologists. This division's business currently is confined
to the United States.
Diabetes Supplies and Services. The Diabetes Supplies and Services
segment has two components: diabetes disease management and microsampling
products, which are products used to obtain and test small samples of bodily
fluid.
The diabetes disease management division sells insulin, insulin pumps,
syringes, microsampling products and other prescription and non-prescription
drugs used by diabetics. The majority of this division's sales are made on a
mail-order basis. In addition, this division provides diabetes screening,
education and patient management services. This division serves patients in the
United States through its facilities in Roanoke, Virginia and Van Nuys,
California and in Germany through its facilities in Neumunster and Dresden,
Germany. Approximately 50% of this division's revenues are derived from its
German operations.
The Company's microsampling products division is the leading global
supplier of standard lancets, lancing devices and safety lancets. The Company
designs, assembles, packages and distributes products manufactured by Nissho
Corporation, a publicly-traded Japanese manufacturer and distributor of medical
equipment with a core competency in needle-based technology. This division
operates from facilities in McDonough, Georgia and Milton Keynes, England. Its
products are shipped primarily to North and South America, Europe and Asia.
Approximately 27% of this division's revenues are derived from sales outside of
the United States.
Because of the Company's dependence on foreign markets, deterioration
in foreign economic conditions and currency exchange rate fluctuations could
have a material adverse effect on the Company's business. Due to the foregoing
factors, as well as foreign local commercial and economic policies and
political uncertainties, the Company believes its activities outside of the
United States involve greater risk than its domestic business.
CUSTOMERS, SUPPLIERS AND THIRD-PARTY PAYORS. The Company markets its
women's health services, diabetes disease management services, cardiovascular
services and respiratory disease management services to patients, physicians,
other healthcare providers and third-party payors, primarily through its
employee sales force and independent sales representatives. Virtually all of
these businesses' revenues depend on reimbursement from third-party payors,
such as managed care companies and government-sponsored health insurance
programs. In 1998 approximately 94% and 6% of the Company's revenues from these
businesses were derived from private third-party payors and government payors,
respectively. Of the Gainor Medical diabetes disease management revenues in
1998, approximately 17% were derived from private third-party payors and
approximately 83% were derived from government payors. Third-party payors are
having greater control over patient access and increasingly use their
significant bargaining power to secure discounted
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rates and other concessions from providers. This trend, as well as other
changes in reimbursement rates, policies or payment practices by third-party
payors (whether initiated by the payor or legislatively mandated) could have an
adverse impact on the Company's disease management businesses.
The Company markets its clinical patient record software to physicians
using a sales force employed by CMS.
The Company markets the services of the fertility practices it manages
by advertising in various media in targeted markets and by presentation of
educational seminars to prospective patients. The Company from time to time
offers promotional programs under which qualified patients whose pregnancies do
not succeed are entitled to a refund of a portion of the Company's fees.
The microsampling division of the Diabetes Supplies and Services
segment markets its products through its employee sales force to original
equipment manufacturers of blood glucose and other point-of-care test kits as
well as mail order companies, kit companies and distributors that sell to the
acute care, alternate care and primary care markets. Three major original
equipment manufacturer customers represented approximately 86% of this
division's total sales in 1998. Although the Company believes its relationships
with these customers are strong, the loss of any of these major customers could
have a material adverse effect on this division's business. Additionally, this
division is highly dependent on its exclusive supply relationship with Nissho
Corporation, from which the division purchases virtually all of its products on
favorable payment terms. The exclusive supply agreement has approximately four
years remaining. Termination of the exclusive supply agreement or failure to
continue the exclusive supply agreement on the terms currently in effect would
have a material adverse effect on the Company's microsampling products
business, as would any interruption in the supply of products from Nissho
Corporation, whatever the cause.
SEASONALITY. The Women's Health segment's revenues tend to be
seasonal. Revenues typically begin to decrease 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. The
Company's other businesses do not reflect any significant degree of
seasonality.
TRADEMARKS, LICENSES AND PATENTS. The Company owns a number of
trademarks and service marks which, in the aggregate, are important to the
marketing and promotion of its products and services. The Company does not
believe, however, that any single trademark or service mark is material in
relation to the Company's business as a whole. The Company generally makes a
practice of protecting its most significant trademarks by registration.
The Company has licensed its respiratory disease management programs
from National Jewish. Insofar as the licensed programs are the cornerstone of
the Company's respiratory disease management programs, the license is material
to that portion of the Company's business. Additionally, the Company has an
exclusive, perpetual right to use and purchase from Respironics, Inc. the only
uterine contraction monitor that has received pre-market approval from the FDA
for home use in connection with pre-term labor. The
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Company's rights to the monitors are a material competitive advantage in
marketing the Company's uterine contraction monitoring services.
The Company does not possess any patents that are material to its
business, although the patents owned by Nissho Corporation with respect to
products distributed by the microsampling division are material to the
continued marketing of those products.
Also, the Company considers its clinical and disease management
programs to be proprietary and material to the portion of the Company's
business to which they relate.
Any impairment of the Company's rights in the intellectual property
described above could have a material adverse effect on the particular business
to which they relate.
COMPETITION. The medical industry is characterized by rapidly
developing technology and increased competition. In all its product and service
lines, the Company competes with companies, both large and small, located in
the United States and abroad. Competition is strong in all lines, without
regard to the number and size of the competing companies involved. Certain of
the Company's competitors and potential competitors have significantly greater
financial, technical and sales resources than the Company and may, in certain
locations, possess licenses or certificates that permit them to provide
products and services that the Company cannot currently provide.
Although both the Women's Health segment and the Cardiovascular
segment are the leading providers in their respective markets, with market
shares of approximately 85% and 15%, respectively, both they and the Company's
other disease management businesses compete with a vast and ever increasing
number of competitors. Competitors of the Company's disease management
businesses include national, regional and local home health agencies, hospitals
and physicians, as well as other companies devoted primarily to offering one or
more products or services similar or identical to those offered by the Company,
such as cardiac event monitoring, diabetes supplies or diabetes education. The
Company competes on a number of factors, including quality of care and service,
reputation within the medical community, geographical scope and price. The
Company believes that its clinical expertise and coordinated approach to
patient services have enabled it to compete effectively.
Competition in the microsampling division of the Company's Diabetes
Supplies and Services segment also is based on quality, service and price. In
addition, competition in research involving the development of new products and
the improvement of existing products is particularly significant. Competitors'
research efforts could lead to the obsolescence of some or all of the
microsampling division's products. The microsampling industry is highly
fragmented, with numerous competitors of all sizes. The quality of the
microsampling division's products, as well as its strong distribution system,
value-added approach to customer service and design and development expertise
have enabled the division to achieve its significant market share,
notwithstanding the highly-competitive environment in which it operates.
There can be no assurance that the Company will not encounter
increased or more effective competition in the future, which could limit the
Company's ability to maintain or
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increase its business or render some products and services offered by Matria
obsolete or non-competitive and which could adversely affect the Company's
operating results.
RESEARCH AND DEVELOPMENT. The microsampling division of the Diabetes
Supplies and Services segment maintains a dedicated research and development
staff at its headquarters in McDonough, Georgia. This division's research and
development activities are key factors in its ability to stay abreast of its
competition.
The Company's Women's Health, Cardiovascular and Other business
segments do not maintain separate research and development teams. Program
development and refinements result from the cooperative efforts of the
businesses' clinical, operating and marketing staff and these costs are charged
to earnings when incurred. The Company's clinical patient record software
division outsourced the development of its automated patient record. These
costs are recorded as intangible assets as incurred and are amortized over the
estimated useful life.
REGULATION AND HEALTH CARE INDUSTRY CHANGES. All of the Company's
businesses are subject to varying degrees of government regulation in the
countries in which they operate. There has been a trend in recent years both in
the United States and outside of the United States toward more stringent
regulation of, and enforcement of requirements applicable to, health care
providers and medical device manufacturers. The continuing trend of more
stringent regulatory oversight in health care, enforcement activities and
product clearance for medical devices has caused health care providers and
manufacturers to experience more uncertainty, greater risk, higher expenses and
longer approval cycles. At the present time, there are no meaningful
indications that this trend will change in the near or long term, in the United
States or abroad.
In the United States, regulation of the health care industry is
particularly pervasive. Many states require providers of home health services,
such as the Company's Women's Health segment, to be licensed as nursing or home
health agencies and to have medical waste disposal permits. In addition, the
operations of Matria's diabetes disease management business require Matria to
be licensed as a pharmacy in several states. Moreover, certain employees of the
Company are subject to state laws and regulations regarding the ethics and
professional practice of pharmacy and nursing. The Company may also be required
to obtain certification to participate in governmental payment programs, such
as Medicare and Medicaid. Some states have established Certificate of Need
("CON") programs regulating the establishment or expansion of healthcare
operations. The failure to obtain, renew or maintain any of the required
licenses, certifications or CONs could adversely affect the Company's disease
management businesses.
In addition, the Company's disease management businesses are subject
to various federal and state statutes regulating payments to or relationships
with referral sources. Penalties for violation of these statutes include
substantial fines and penalties, imprisonment and exclusion from participation
in governmental healthcare programs.
Moreover, many of the medical products distributed by the Company or
utilized by the Company for the provision of its services are classified as
medical devices under the Federal Food, Drug and Cosmetic Act (the "FDC Act")
and are subject to regulation by the FDA. In addition, some of the services
involve the provision of drugs or tests that are regulated by the
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FDA under the FDC Act. Although these medical devices, drugs and tests are
labeled for specific indications and cannot be promoted for any other
indications, physicians may and do prescribe them for indications that have not
been approved by the FDA. The FDA allows physicians to prescribe drugs for such
"off-label" indications under the "practice of medicine" doctrine. For example,
terbutaline sulfate is labeled for the treatment of asthma but is frequently
prescribed by obstetricians as a tocolytic for the treatment of pre-term labor.
In response to a petition filed by the National Women's Health Network, in
November 1997, the FDA issued a letter to physicians reiterating that the use
of terbutaline sulfate has not been approved by the FDA for the management of
pre-term labor. In 1998, the Company received and responded to a request from
the FDA for information regarding the Company's promotion of terbutaline
sulfate for off-label uses. The Company believes that publicity concerning the
off-label use of terbutaline sulfate has adversely affected the Company's
Women's Health segment's business.
As a result of the increasingly complex regulatory environment for the
healthcare industry, the Company recently adopted a company-wide compliance
program, developed in accordance with federal guidelines.
Although the Company believes its operations as currently conducted
are in material compliance with existing applicable laws and regulations, there
can be no assurance that the Company will not become the subject of a
regulatory or other investigation or proceeding or that its interpretations of
applicable laws and regulations will not be challenged. The defense of any such
challenge could result in substantial cost to the Company and diversion of
management's time and attention. Thus, any such challenge could have a material
adverse effect on the Company's business, regardless of whether it ultimately
is sustained. Moreover, the Company believes that its businesses will continue
to be subject to increasing regulation, the scope and effect of which the
Company cannot predict.
The health care industry in the United States is experiencing a period
of extensive change due to economic forces, regulatory influences and political
initiatives. Market-driven reforms from forces within the industry are exerting
pressure on health care companies to reduce health care costs. These
market-driven changes are resulting in industry wide consolidation that is
expected to increase the downward pressure on health care companies' profit
margins, as larger buyer and supplier groups exert pricing pressures on health
care companies. In addition, from time to time federal and state legislatures
consider health care reform proposals. The ultimate timing or effect of
legislative efforts and market-driven reforms cannot be predicted, and these
initiatives may adversely impact Matria's business.
EMPLOYEES. The Company currently employs a total of approximately
1,125 full-time employees and over 102 regular part-time employees. In
addition, the Company employs an additional 796 part-time clinical employees to
provide, among other things, patient training and backup support on an "as
needed" basis. None of the Company's employees are represented by a union. The
Company considers its relationship with its employees to be satisfactory.
FORWARD-LOOKING STATEMENTS. This Form 10-K, including the information
incorporated by reference herein, contains various forward-looking statements
and information that are based on the Company's beliefs and assumptions, as
well as information currently available to the Company. From time to time, the
Company and its officers,
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directors or employees may make other oral or written statements (including
statements in press releases or other announcements) that contain
forward-looking statements and information. Without limiting the generality of
the foregoing, the words "believe," "anticipate," "estimate," "expect,"
"intend," "plan," "seek" and similar expressions, when used in this Form 10-K
and in such other statements, are intended to identify forward-looking
statements. All forward-looking statements and information in this Form 10-K
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are intended to be covered by the safe harbors
created thereby. Such forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to differ
materially from historical results or from any results expressed or implied by
such forward-looking statements. Such factors include, without limitation, (i)
changes in reimbursement rates, policies or payment practices by third party
payors, whether initiated by the payor or legislatively maintained; (ii) the
loss of major customers; (iii) termination of the Company's exclusive supply
agreement with Nissho Corporation or failure to continue the agreement on terms
currently in effect; (iv) impairment of the Company's rights in intellectual
property; (v) increased or more effective competition; (vi) new technologies
that render obsolete or non-competitive products and services offered by the
Company; (vii) changes in regulations applicable to the Company or the failure
to comply with existing regulations; (viii) future health care or budget
legislation or other health reform initiatives; (ix) increased future exposure
to professional negligence liability; (x) difficulties in successfully
integrating recently acquired businesses into the Company's operations and
uncertainties related to the future performance of such businesses; (xi) losses
due to foreign currency exchange rate fluctuations or deterioration of economic
conditions in foreign markets; and (xii) costs associated with Year 2000
compliance or problems associated with the Company's suppliers or payors
failure to detect and correct Year 2000 related systems failures. Many of such
factors are beyond the Company's ability to control or predict, and readers are
cautioned not to put undue reliance on such forward-looking statements. The
Company disclaims any obligation to update or review any forward-looking
statements contained in this Report or in any statement referencing the risk
factors and other cautionary statements set forth in this Report, whether as a
result of new information, future events or otherwise.
ITEM 2. PROPERTIES.
Matria's principal executive and administrative offices are located at
1850 Parkway Place, Marietta, Georgia, and total approximately 104,000 square
feet. The facility is leased through February 28, 2003.
Additional properties also are leased for the other operations of
Matria. The Women's Health segment's patient service centers are typically
located in suburban office parks and range between 600 and 6,500 square feet of
space with an average of approximately 2,900 square feet. Total square footage
for these facilities is approximately 155,000 square feet. These facilities are
leased for various terms through 2003. The three NRMC clinics are located in
California, total approximately 29,000 square feet, and are leased pursuant to
agreements that expire on various dates through 2006.
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The Company's microsampling division maintains its headquarters in
McDonough, Georgia, where its facility consists of approximately 48,000 square
feet of office and warehouse space. The lease term on the facility expires in
2011. The microsampling division also leases approximately 1,177 square feet of
office space and warehouse space as needed in Milton Keynes, England under a
lease that can be terminated at anytime with six months written notice. The
Company's diabetes disease management division maintains its United States
headquarters in Roanoke, Virginia, where its facility consists of approximately
24,000 square feet of office and warehouse space, which is leased through 2000.
The division also leases approximately 3,200 square feet of office and
warehouse space in Van Nuys, California on a month to month basis. Outside the
United States, the division maintains leased facilities in Neumunster and
Dresden, Germany, consisting of approximately 3,200 and 6,500 square feet,
respectively. The leases expire in 1999 with an automatic one year renewal and
2005, respectively.
These facilities are generally in good condition, and Matria believes
that they are adequate for and suitable to its requirements.
ITEM 3. LEGAL PROCEEDINGS
A complaint, filed by The Lindner Fund, Inc. in the Eastern District
of Missouri, was served on February 3, 1995 against Healthdyne and its former
subsidiary, Home Nutritional Services, Inc. ("HNS"), alleging that The Lindner
Fund would not have sold its investment in HNS on February 8, 1994 had
Healthdyne and HNS disclosed the potential sale of HNS. In January 1999, the
Company settled this suit for an amount not exceeding the reserve established
by the Company therefor.
In addition to the foregoing, Matria is subject to various legal
claims and actions incidental to its business and the businesses of its
predecessors and their respective subsidiaries, including product liability
claims and professional liability claims. As did its predecessors, Matria
maintains insurance, including insurance covering professional and product
liability claims, with customary deductible amounts. There can be no assurance,
however, that (i) additional suits will not be filed in the future against
Matria, (ii) Matria's prior experience with respect to the disposition of its
litigation accurately indicates the results that will occur in pending or
future cases or (iii) adequate insurance coverage will be available at
acceptable prices for incidents arising or claims made in the future.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
The following sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Donald R. Millard 51 President, Chief Executive Officer and
Chief Financial Officer
Frank D. Powers 50 Executive Vice President and
Chief Operating Officer
Thornton A. Kuntz, Jr. 45 Vice President-Administration
Roberta L. McCaw 43 Vice President-Legal, General Counsel
and Secretary
Yvonne V. Scoggins 49 Vice President, Chief Accounting Officer
and Treasurer
</TABLE>
The executive officers of the Company are elected annually and serve
at the pleasure of the Board of Directors.
Mr. Millard has served as President, Chief Executive Officer and Chief
Financial Officer since October 20, 1997 and previously was Senior Vice
President-Finance, Chief Financial Officer and Treasurer of the Company from
March 8, 1996 to October 20, 1997. Prior thereto, he 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. Powers has been Executive Vice President and Chief Operating
Officer since October 20, 1997 and previously was Executive Vice President of
the Company from March 8, 1996 to October 20, 1997. Prior thereto, he served as
President of Healthdyne Maternity
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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 and Corporate Controller of Healthdyne
from January 1983 to September 1984.
Mr. Kuntz has been Vice President-Administration since February 24,
1998 and previously was Vice President-Human Resources of the Company from
March 8, 1996 to February 24, 1998. Prior thereto, he served as Vice
President-Administration of Healthdyne from August 1992 to March 1996.
Ms. McCaw has been Vice President-Legal, General Counsel and Secretary
of the Company since April 23, 1998 and previously was Assistant General
Counsel and Assistant Secretary of the Company from December 15, 1997 to April
23, 1998, and Assistant General Counsel from July 1996 to December 1997. Prior
thereto, Ms. McCaw was a partner at Tyler, Cooper & Alcorn, a Connecticut based
law firm, from January 1990 to July 1996.
Ms. Scoggins has been Vice President, Chief Accounting Officer and
Treasurer of the Company since December 15, 1997 and previously was Vice
President and Controller from March 8, 1996 to December 15, 1997. Prior
thereto, Ms. Scoggins was Vice President and Controller of Healthdyne from May
1995 to March 8, 1996; Vice President-Planning and Analysis of Healthdyne from
May 1993 to May 1995; and Vice President and Chief Financial Officer of Home
Nutritional Services, Inc., a former majority owned subsidiary of Healthdyne,
from February 1990 to April 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Matria's Common Stock is traded in the over the counter market and is
quoted on the Nasdaq National Market ("NASDAQ") under the symbol "MATR". The
approximate number of record holders as of March 12, 1999 was 3,167.
Neither Matria nor its predecessors paid any cash dividends with
respect to their respective common stocks and Matria does not intend to declare
any dividends in the near future. The Company is a party to a Loan and Security
Agreement that contains covenants restricting the payment of dividends on the
Company's Common Stock. Matria is a party to an indenture assumed from
Healthdyne relating to subordinated debentures that contains provisions
restricting the payment of cash dividends during the continuation of a default
in the payment of interest on the subordinated debentures.
The following table sets forth, for the calendar quarters indicated,
the high and low sales prices of Matria Common Stock from January 1, 1997
through December 31, 1998:
13
<PAGE> 14
<TABLE>
<CAPTION>
CALENDAR QUARTER LOW HIGH
---------------- --- ----
<S> <C> <C>
1997
First $3.500 $7.500
Second 3.500 5.125
Third 3.563 6.250
Fourth 4.875 7.125
1998
First $4.750 $6.375
Second 3.500 6.500
Third 2.000 4.125
Fourth 1.625 3.750
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data in
respect of the Company's continuing operations. The data should be read in
conjunction with Management's Discussion and Analysis and the financial
statements. The statement of operations data for the five years ended December
31, 1998 and the related balance sheet data have been derived from the audited
consolidated financial statements of the Company.
The selected financial information represents the financial
performance of Matria from March 1, 1996 through December 31, 1998 and, for all
prior periods, of Tokos (deemed for accounting purposes to be the acquiror of
Healthdyne in the Merger). For all practical purposes, Matria did not engage in
business prior to the effective date of the Merger, and the results of Tokos
are not necessarily indicative of Matria's future performance.
14
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated statements of operations:
Revenues $ 135,215 144,533 130,806 85,209 98,565
Operating expenses 116,413 122,630 122,686 83,990 96,640
Provision for doubtful accounts 6,662 6,599 7,591 5,251 7,042
Amortization of goodwill and other
intangibles 28,155 36,604 30,083 1,235 350
Asset impairment, restructuring,
severance and other charges 85,367 -- 22,525 6,756 --
--------- -------- -------- ------- -------
Loss from operations (101,382) (21,300) (52,079) (12,023) (5,467)
Interest income (expense), net (608) 483 824 333 50
Other income (expense), net 448 (85) 134 46 108
--------- -------- -------- ------- -------
Loss before income tax expense (101,542) (20,902) (51,121) (11,644) (5,309)
Income tax expense -- -- -- 150 550
--------- -------- -------- ------- -------
Net loss $(101,542) (20,902) (51,121) (11,794) (5,859)
========= ======== ======== ======= =======
Basic and diluted loss per share $ (2.78) (0.57) (1.58) (0.68) (0.34)
========= ======== ======== ======= =======
Weighted average shares outstanding 36,580 36,527 32,328 17,396 17,169
========= ======== ======== ======= =======
<CAPTION>
December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated balance sheet data:
Total assets $ 97,034 191,132 223,188 44,468 58,183
Long-term debt obligations, excluding
current maturities 18,385 1,712 2,499 2,078 2,593
Shareholders' equity 49,881 153,169 173,178 29,489 40,160
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During 1998 and early 1999, the Company announced several strategic
actions to expand its business focus beyond managing the condition of pregnancy
into other disease management markets. These actions included: (i) the
acquisition in July 1998 of Quality Diagnostic Services, Inc. ("QDS"), a cardiac
event monitoring company; (ii) the completion of a licensing agreement in
October 1998 with National Jewish Medical and Research Center ("National
Jewish") to provide services in the respiratory disease management market; and
(iii) the acquisition in January 1999 of the business and assets of Gainor
Medical Management, L.L.C. ("Gainor") and
15
<PAGE> 16
Diabetes Management Services, Inc. ("DMS"), diabetes disease management
companies. Disease management is an emerging healthcare sector receiving a
heightened focus in the healthcare industry and the competition in this sector
is fragmented without a dominant leader. The Company's management is confident
that with the successful implementation of its expansion strategies, the
Company will become the dominant market leader in disease management and that
these strategies will result in significant revenue growth in 1999 and beyond.
On March 8, 1996, Tokos Medical Corporation ("Tokos") and Healthdyne,
Inc. ("Healthdyne") merged with and into the Company, which was created solely
for the purpose of the Merger. The Merger was accounted for using the purchase
method of accounting, and Tokos was deemed to be the acquiror since its
shareholders received approximately 51% of the newly issued shares of Matria
Common Stock.
In March 1995, Healthdyne acquired a minority ownership interest in
National Reproductive Medical ("NRMC"), and effective June 1, 1996, the Company
acquired the remaining ownership interest. The acquisition was accounted for
using the purchase method of accounting.
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 included in this Annual
Report on Form 10-K for the year ended December 31, 1998 as filed with the
Securities and Exchange Commission (the "Commission"). The results of the
Company include the results of Healthdyne only since March 1, 1996, NRMC only
since June 1, 1996, and QDS only since July 1, 1998. 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 for 1998 decreased $9.318 million, or 6.4% from 1997,
primarily due to a 10.4% decline in revenues in the Women's Health segment. A
15.5% decrease in revenues from preterm labor management services, resulting
primarily from a decrease in prescriptions for these services, was partially
offset by growth in revenues from maternity education and assessment services
as well as the Diabetes in Pregnancy Program, which was initiated in the last
half of 1997. Effective July 1, 1998, the Company entered the Cardiovascular
business segment through the acquisition of QDS. Included in the Company's 1998
revenues are $6.644 million from QDS.
Revenues for 1997 increased $13.727 million, or 10.5%, from 1996,
primarily due to a $6.229 million (5.1%) increase in the Women's Health segment
and a $7.472 million increase in revenues resulting from additional revenues of
NRMC in 1997, the acquisition of which was effective June 1, 1996. The increase
in the Women's Health segment in 1997 was primarily due to the inclusion of
Healthdyne's revenues for an entire year in 1997 and additional revenues from
the introduction of the fetal fibronectin immunoassay (fFN) test, an in-vitro
diagnostic test used as an aid in assessing the risk of preterm delivery in
women. Revenues from this segment's preterm labor management services declined
$7.828 million (6.3%)
16
<PAGE> 17
in 1997 when compared to 1996 annualized, combined revenues of Tokos and
Healthdyne, Inc. for these services.
The Company entered into an agreement with the manufacturer of the fFN
test to relinquish all marketing rights to the test, effective August 31, 1998.
After this date, the Company no longer had revenues on sales of fFN tests.
Revenues from marketing these tests were $2.991 million, $3.636 million and
$738,000 in 1998, 1997, and 1996, respectively.
Cost of revenues as a percentage of revenues remained relatively
constant at 39.5% and 39.9%, in 1998 and 1997, respectively, decreasing from
42.7% in 1996. The reduction from 1997 was primarily due to decreases in costs
of revenues in the Women's Health segment from 41.0% in 1996 to 36.6% in 1997
and 36.9% in 1998, primarily achieved through consolidation of service sites
and operating efficiencies related to the Merger. These reductions were
partially offset by the inclusion of the results of operations of NRMC
effective June 1, 1996, whose costs of revenues as a percentage of revenues
were 63.2%, 66.3%, and 67.5% in 1998, 1997 and 1996, respectively.
Selling and administrative expenses as a percentage of revenues
increased to 46.6% in 1998 from 45.0% in 1997, due in part to increased
expenses associated with the Company's strategy to diversify into the disease
management market. These expenses declined as a percentage of revenue in 1997
from 51.1% in 1996, primarily due to synergies achieved as a result of the
Merger.
The Company provides for estimated uncollectible accounts as revenues
are recognized. The provision for doubtful accounts as a percentage of revenues
for the Women's Health and Cardiovascular segments was approximately 5% in 1998
and 1997 and 6% in 1996. 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 practice
management business is not significant as substantially all charges for patient
services are collected at the time services are provided.
In 1998, the Company recorded an $82.885 million asset impairment
charge of which $74.496 million was to write-down goodwill and intangible assets
relating to the Merger and $8.389 million was to write-down goodwill relating to
the acquisition of NRMC (see Note 3 to the consolidated financial statements).
Due to a decrease in pre-term labor management services in 1997, the Company
experienced a decline in pre-term labor management revenues. As part of its 1997
Business Assessment Plan, the Company assessed the future of this business and
expected revenue growth and profits to improve in 1998 and future years.
However, in 1998, revenues continued to decline due to negative market forces
which impacted the business. In addition, in 1998, the Company revised its
strategic plan to expand beyond maternity management. As a result, in the third
quarter of 1998, the Company determined that Healthdyne, Inc.'s estimated future
undiscounted cash flows were below the carrying value of its long-lived assets,
primarily goodwill. Accordingly, the Company adjusted the carrying value of
Healthdyne's long-lived assets and goodwill to their estimated fair value. The
estimated fair value was based on anticipated cash flows discounted at a rate
commensurate with the risk involved.
17
<PAGE> 18
As a result of NRMC's inability to achieve improvements specified in
the 1997 Business Assessment Plan, as well as continued operational issues,
including the termination of the founding physician in July 1998, NRMC's net
revenue declined approximately 17% in 1998, and operating losses were
approximately $761,000. As a result, in the fourth quarter of 1998, the Company
determined that NRMC's estimated future cash flows were below the carrying value
of its long-lived assets. Accordingly, the Company adjusted the carrying value
of NRMC's long-lived assets, primarily goodwill, to their estimated fair value
by recording an $8.389 million asset impairment charge. The estimated fair value
was based on anticipated cash flows discounted at a rate commensurate with the
risk involved.
The Company recorded a $2.482 million charge in 1998 for acquired
in-process research and development costs as a result of the acquisition of QDS
(see Note 2 to the consolidated financial statements).
In 1996, the Company charged to operations approximately $22.525
million of restructuring costs in connection with the Merger. Of these costs,
approximately $12.000 million related to involuntary severance and relocation of
employees, $2.500 million related to the consolidation of facilities, $5.400
million related to the write-down of software and equipment that was made
obsolete as a result of the adoption of new systems, and $2.625 million related
to other miscellaneous Merger costs (see Note 11 to the consolidated financial
statements).
The Company did not record federal or state income tax benefits in
1998, 1997 or 1996. The tax net operating loss carryforwards of approximately
$90.000 million will be available to offset future taxable income, if any.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998 the Company had cash and short-term
investments of $11.968 million.
Net cash provided by operating activities was $4.931 million, compared
with $667,000 provided in 1997 and $10.823 million used in 1996. During 1998,
cash flow from operating activities was reduced by payments of $4.183 million
relating to severance costs of terminated employees and $1.328 million for
lump-sum payouts related to the termination of a pension plan. In 1997, cash
flow from operating activities was reduced by payments of $9.759 million for
merger related costs. In 1996, net cash flow was reduced by payments of $14.720
million for Merger related costs, $5.345 million for the settlement of a former
Tokos shareholder's lawsuit and $5.947 million related to the purchase of NRMC.
Net cash used in investing activities was $18.902 million in 1998,
compared to $3.090 million and $12.068 million provided in 1997 and 1996,
respectively. The decrease in 1998 is primarily due to $17.000 million cash
paid related to the acquisition of QDS and $4.587 million paid for investments
in strategic partners. Also in 1998, the Company had a $3.413 million increase
in capital expenditures from 1997, primarily relating to the upgrade of
computer systems as the Company positioned itself for expansion into new
markets.
The Company's accounts receivable days sales outstanding were 96 days
as of December 31, 1998 and 1997 and 73 days as of December 31, 1996. The
Company began
18
<PAGE> 19
reorganizing its reimbursement and verification processes during 1998 and
expects days sales outstanding to decline during 1999.
In 1997, the Company entered into a credit agreement with a leading
national banking organization for a $25.000 million secured line of credit. The
acquisition of QDS in July 1998 for $17.000 million cash (See Note 2 to the
consolidated financial statements) was financed primarily by borrowings under
this agreement, and the balance outstanding under this agreement as of December
31, 1998 was $16.659 million. In January 1999, the Company entered into a
$125.000 million, five-year secured credit facility and the existing credit
facility was terminated. The new credit facility consists of an $80.000 million
term loan and a $45.000 million revolving credit facility. In January 1999, the
Company borrowed $105.000 million under the facility and used $90.300 million
for cash payments related to the purchase of Gainor Medical and DMS (see Note 16
to the consolidated financial statements) and $14.700 million to repay existing
debt.
The acquisition agreement for the purchase of QDS provides for
additional cash payments of up to $6.000 million contingent upon 1999 revenues
of the Company's Cardiovascular segment. The acquisition agreement for Gainor
Medical provides for additional contingent purchase price of up to $35.000
million based upon 1999 financial performance. If earned, the Gainor Medical
contingent purchase price is payable by the issuance of subordinated notes to
the sellers in year 2000.
In February 1998, the Board of Directors of the Company approved the
purchase of up to ten percent of the Company's outstanding common stock. As of
December 31, 1998, 626,000 shares had been purchased for $2.397 million.
The Company believes that its current cash balances, expected cash
flows from operations and investing activities and amounts available under its
credit facilities will be sufficient to finance its current operations and
expansion initiatives.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 established standards for reporting and display
of comprehensive income and its components. Comprehensive income generally
includes all changes in equity during a period except those resulting from
investments by owners and distribution to owners. The adoption of SFAS 130 had
no impact on the Company's consolidated financial statements.
Also 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.
19
<PAGE> 20
YEAR 2000 ISSUE
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. The Year 2000 issue
affects information technology ("IT") systems, such as computer programs and
various types of electronic equipment that process date information by using
only two digits rather than four digits to define the applicable year, and thus
may recognize a date using "00" as the Year 1900 rather than the Year 2000. The
issue also affects some non-IT systems, such as devices which rely on a
microcontroller to process date information. The Year 2000 issue could disrupt
a company's operations by generating erroneous data or causing system failures
or miscalculations.
The Company is involved in an extensive, ongoing program to identify
and correct problems arising from the Year 2000 issue. The program is broken
down into the following categories: (1) application systems; (2) hardware; (3)
monitoring equipment; and (4) computer applications of its significant
suppliers and significant payors.
The Company has evaluated the application systems in two parts: (1)
AS400 applications and (2) client server applications. The AS400 applications
are believed to be capable of functioning properly beyond the year 1999 at this
time. Although the Company originally had intended to replace its client server
applications in 1999, because that project will not be complete by year end
1999, the Company intends to remediate the existing client server application
systems in the second quarter of 1999, a process that the Company estimates
will take four months to complete.
Remediation and testing of the AS400 hardware is 100% complete, and
the remediation and testing of the Company's individual personal computers is
approximately 85% complete. The Company expects the remainder of remediation
and testing to be complete by April 1999.
In the first quarter of 1999, the Company completed its review of
embedded computer chips and software applications, which control certain
monitoring and other equipment. Remediation efforts are expected to be minor
and should be completed in the second quarter of 1999.
In 1998, the Company spent approximately $60,000 for software and
consulting fees associated with its initial Year 2000 evaluation. Budgeted
expenditures in 1999 total $100,000. The Company is primarily addressing all
Year 2000 issues with current staffing levels.
In the first quarter of 1999, the Company sent inquiries to its
significant suppliers and payors concerning the Year 2000 compliance of their
significant computer applications. The Company plans to send second requests
during the second quarter of 1999. The responses received to date do not
disclose any significant issues of non-compliance. The Company will continue to
evaluate Year 2000 risks with respect to such suppliers and payors as responses
are received. In that connection, it should be noted that substantially all of
the Company's 1998 and prior revenues were derived from reimbursement by
third-party payors, and that the Company is dependent upon such payors'
evaluation of their Year 2000 compliance status to assess such risks. If such
payors are incorrect in their evaluation of their own Year 2000 compliance
status, this could result in delays or errors in reimbursement to the Company,
the effects of which could be material to the Company.
20
<PAGE> 21
In light of its compliance efforts and based on the information
currently available, the Company believes that its risk associated with
problems arising from Year 2000 issues is not significant. However, because of
the many uncertainties associated with Year 2000 compliance issues, and because
the Company's assessment is necessarily based on information from third-party
payors and suppliers, there can be no assurance that the Company's assessment
is correct or that the Year 2000 issue will not have a material adverse effect
on the Company's business, results of operations, or financial condition. The
Company will continue with its assessment process as described above and, to
the extent that changes in such assessment require it, will attempt to develop
alternatives or modifications to its compliance plan described above. There
can, however, be no assurance that such compliance plan, as it may be changed,
augmented or modified from time to time, will be successful.
The SEC's recent guidance for Year 2000 disclosure calls for companies
to describe their most likely worst case Year 2000 scenarios. Notwithstanding
the aforementioned issues, the Company does not expect significant problems at
the turn of the century with internal conversions and remediation. However, the
most likely worst case scenario is that if third-party payors are not able to
reimburse the Company after the turn of the century, the Company would be
required to sustain operations through existing cash balances or through the
use of available borrowings under its credit facilities. Also, the Company
would be required to add additional staff during the time period leading up to
and immediately following January 1, 2000, in order to address any unexpected
Year 2000 issues.
FORWARD-LOOKING STATEMENTS. This Management's Discussion and Analysis
contains various forward-looking statements and information that are based on
the Company's beliefs and assumptions, as well as information currently
available to the Company. From time to time, the Company and its officers,
directors or employees may make other oral or written statements (including
statements in press releases or other announcements) that contain
forward-looking statements and information. Without limiting the generality of
the foregoing, the words "believe," "anticipate," "estimate," "expect,"
"intend," "plan," "seek" and similar expressions, when used in this Form 10-K
and in such other statements, are intended to identify forward-looking
statements. All forward-looking statements and information in this Form 10-K
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are intended to be covered by the safe harbors
created thereby. Such forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to differ
materially from historical results or from any results expressed or implied by
such forward-looking statements. Such factors include, without limitation, (i)
changes in reimbursement rates, policies or payment practices by third party
payors, whether initiated by the payor or legislatively maintained; (ii) the
loss of major customers; (iii) termination of the Company's exclusive supply
agreement with Nissho Corporation or failure to continue the agreement on terms
currently in effect; (iv) impairment of the Company's rights in intellectual
property; (v) increased or more effective competition; (vi) new technologies
that render obsolete or non-competitive products and services offered by the
Company; (vii) changes in regulations applicable to the Company or the failure
to comply with existing regulations; (viii) future health care or budget
legislation or other health
21
<PAGE> 22
reform initiatives; (ix) increased exposure to professional negligence
liability; (x) difficulties in successfully integrating recently acquired
businesses into the Company's operations and uncertainties related to the
future performance of such businesses; (xi) losses due to foreign currency
exchange rate fluctuations or deterioration of economic conditions in foreign
markets; and (xii) costs associated with Year 2000 compliance or problems
associated with the Company's or its suppliers' or payors failure to detect and
correct Year 2000 related systems failures; and (xiii) the risk factors
discussed 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,
1998. Many of such factors are beyond the Company's ability to control or
predict, and readers are cautioned not to put undue reliance on such
forward-looking statements. The Company disclaims any obligation to update or
review any forward-looking statements contained in this Report or in any
statement referencing the risk factors and other cautionary statements set
forth in this Report, whether as a result of new information, future events or
otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates
and foreign exchange rates.
The Company's primary interest rate risk relates to its variable rate
long term debt obligations. At December 31, 1998, the Company's total variable
rate long term debt obligations, including the current portion of those
obligations, was $16.659 million. A hypothetical 10% change in interest rates
applied to the December 31, 1998 outstanding balance of variable rate long term
debt obligations would not have a material impact on the Company's earnings or
cash flows over a one-year period. With the acquisition of Gainor Medical and
resultant increase in variable rate long term debt obligations, the Company's
interest rate risk will increase in future periods.
In the years 1998 and prior, the Company's business was confined to
the United States and, therefore, the Company did not have any exposure to
risks associated with fluctuations in foreign currency exchange rates. With the
acquisition of Gainor Medical, a significant portion of the Company's future
revenues may be designated in foreign currencies. In addition, the Company may
face currency exposure that arises from translating the results of its global
operations to the U.S. dollar at exchange rates that have fluctuated from the
beginning of the period. As a result, the Company's future earnings and cash
flows could be negatively impacted by fluctuations in foreign currency exchange
rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and its
subsidiaries and independent auditors' report thereon are included as pages F-1
through F-23 of this Annual Report on Form 10-K:
22
<PAGE> 23
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Reports F-1
Consolidated Balance Sheets - December 31, 1998 and 1997 F-2
Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10-13.
The information contained under the heading "Management of the
Company" in the Company's definitive proxy materials for its 1999 Annual
Meeting of Shareholders, to be filed with the Securities and Exchange
Commission, is incorporated by reference herein. Additional information
relating to the executive officers of the Company is included as a Special Item
in Part I of this Annual Report on Form 10-K.
For purposes of determining the aggregate market value of the
Company's common stock held by nonaffiliates, shares held by all directors and
executive officers of the Company have been excluded. The exclusion of such
shares is not intended to, and shall not, constitute a determination as to
which persons may be "affiliates" of the Company as defined by the Securities
and Exchange Commission.
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, 1998, all officers, directors and greater
than ten percent beneficial owners complied with the Section 16(a) filing
requirements of the Act in all instances with the exception of late filings
with respect to two transactions relating to (i) the purchase of Common Stock
by Frederick P. Zuspan, M.D. and (ii) the purchase of Common Stock upon an
option exercise by Thornton A. Kuntz, Jr.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1)The following consolidated financial statements of the Company
and its subsidiaries and report of independent auditors thereon are included as
pages F-1 through F-23 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Reports F-1
Consolidated Balance Sheets - December 31, 1998 and 1997 F-2
Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
(a)(2) The following supporting financial statement schedule and
report of independent auditors thereon are included as part of this Annual
Report on Form 10-K:
Independent Auditors' Report.
Schedule II - Valuation and Qualifying Accounts.
All other Schedules are omitted because the required information is
inapplicable or information is presented in the Consolidated Financial
Statements or related notes.
(a)(3) Exhibits:
The following exhibits are incorporated by reference herein as part of
this Report as indicated:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
2.1 Agreement and Plan of Merger, dated October 2, 1995, as
amended, between Healthdyne, Tokos and Registrant
(incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus filed as part of the Company's
Registration Statement No. 333-00781 on Form S-4
(Registration No. 333-00781) filed February 7, 1996 (the
"Form S-4").
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
2.2 Asset Purchase Agreement, dated July 21, 1998, for the
purchase of assets of Quality Diagnostic Services, Inc.
("QDS") (incorporated by reference to Exhibit 2 to the Matria
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
2.3 Purchase and Sale Agreement, dated December 21, 1998, by
and between Matria and Gainor Medical Management, L.L.C.,
with exhibits (incorporated by reference to Exhibit 2.1 to
the Company's Form 8-K dated February 3, 1999 with those
portions omitted for confidentiality reasons filed separately
with the Commission).
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Appendix D to the Joint Proxy
Statement/Prospectus filed as part of the Company's Form
S-4).
3.2 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Matria Annual Report on Form
10-K for the year ended December 31, 1995).
4.1 Indenture dated as of December 1, 1986, between
Healthdyne and National Bank of Georgia, trustee, for 8%
Convertible Subordinated Indentures due December 31, 2001
(incorporated by reference to Exhibit (4)(b) to the
Healthdyne Annual Report on Form 10-K for the year ended
December 31, 1986, Commission File No. 0-10647).
4.2 Supplemental Indenture dated March 7, 1996, between the
Company and SouthTrust Estate & Trust Company of Georgia,
N.A., Trustee to Indenture, dated December 1, 1986, for 8%
Convertible Subordinated Debentures due December 31, 2001
(incorporated by reference to Exhibit 4.3 to the Matria
Annual Report on Form 10-K for the year ended December 31,
1995).
4.3 Amendment No. 1 to Loan and Security Agreement, dated
April 27, 1998 between BankAmerica Business Credit, Inc. and
the Company (incorporated by reference to Exhibit 4.5 to the
Matria Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
4.4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 4% Series
A Convertible Preferred Stock dated January 15, 1999
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated February 3, 1999).
4.5 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 8% Series
B Redeemable Preferred Stock dated January 15, 1999
(incorporated by reference to Exhibit 4.2 to the Company's
Form 8-K dated February 3, 1999).
4.6 Credit Agreement, dated January 19, 1999, among Matria,
certain other borrowers from time to time party thereto, the
banks and other financial institutions from time to time
party thereto, and First Union National Bank as
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
Administrative Agent (incorporated by reference to Exhibit
4.3 to the Company's Form 8-K dated February 3, 1999).
4.7 Loan and Security Agreement, dated September 15, 1997,
between BankAmerica Business Credit, Inc. and Matria
Healthcare, Inc. (incorporated by reference to Exhibit 4.4 to
the Matria Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.1 Form of Rights Agreement between Registrant and SunTrust
Bank, Atlanta (incorporated by reference to Exhibit 10.1 to
the Company's Form S-4).
*10.2 1996 Stock Incentive Plan (incorporated by reference to
Appendix F-1 to the Joint Proxy Statement/Prospectus filed as
a part of the Company's Form S-4).
*10.3 1996 Directors' Non-Qualified Stock Option Plan
(incorporated by reference to Appendix F-11 to the Joint
Proxy Statement/Prospectus filed as a part of the Company's
Form S-4).
*10.4 1996 Employee Stock Purchase Plan (incorporated by
reference to Appendix F-111 to the Joint Proxy
Statement/Prospectus filed as a part of the Company's Form
S-4).
*10.5 Severance Compensation and Restrictive Covenant
Agreement, dated October 2, 1995, between Healthdyne and
Frank D. Powers (incorporated by reference to Exhibit 10.22
to the Company's Form S-4).
10.6 Form of Promissory Note with Tokos officers and related
Security Agreement (incorporated by reference to an Exhibit
to the Tokos Registration Statement on Form S-1 (Registration
No. 33-33340), Commission File No. 0-18320).
10.7 Agreement and Plan of Merger, dated June 24, 1996,
between National Reproductive Medical Centers, Inc. ("NRMC"),
Matria, NRMC Acquisition Corporation and certain NRMC
shareholders (incorporated by reference to Exhibit 2.1 to the
Matria Current Report on Form 8-K dated July 10, 1996).
10.8 Shareholders Agreement, dated February 28, 1995, among
Healthdyne, Inc. (a predecessor of Matria), certain
shareholders of National Reproductive Medical Centers, Inc.
("NRMC") and NRMC (incorporated by reference to Exhibit 99.3
to the Matria Current Report on Form 8-K dated July 10,
1996).
10.9 Letters, dated November 10 and November 17, 1997, between the
Company, Healthdyne Technologies, Inc. and Respironics, Inc.
amending the Corporate Services Agreement and Tradename
License Agreement, both dated April 25, 1995 between
Healthdyne, Inc. and Healthdyne Technologies, Inc.
(incorporated by reference to Exhibit 10.32 to the Matria
Annual Report on Form 10-K for the year ended December 31,
1997).
10.10 Settlement Agreement, dated March 3, 1998 between the
Company and Adeza Biomedical Corporation (incorporated by
reference to Exhibit 10.33 to the Matria
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
Annual Report on Form 10-K for the year ended December 31,
1997 with those portions omitted for confidentiality reasons
filed separately with the Commission).
10.11 Amendment to Rights Agreement effective December 21,
1998 (incorporated by reference to Exhibit 99 to the
Company's Form 8-K dated February 3, 1999).
The following exhibits are filed as part of this Report:
3.3 Bylaws, as amended.
*10.12 Split-Dollar Life Insurance Agreement between the Company and
Parker H. Petit, effective January 1, 1997.
*10.13 Split-Dollar Life Insurance Agreement between the Company and
Donald R. Millard, effective January 1, 1997.
*10.14 Split-Dollar Life Insurance Agreement between the Company and
Frank D. Powers, effective January 1, 1997.
*10.15 Split-Dollar Life Insurance Agreement between the Company and
Thornton A. Kuntz, Jr., effective January 8, 1998.
*10.16 Split-Dollar Life Insurance Agreement between the Company and
Roberta L. McCaw, effective January 8, 1998.
*10.17 Split-Dollar Life Insurance Agreement between the Company and
Yvonne V. Scoggins, effective January 8, 1998.
*10.18 Management Agreement between the Company and Lucor
Holdings, LLC, Mark J. Gainor and J. Michael Highland, dated
January 19, 1999.
10.19 Standstill Agreement between the Company and Mark J.
Gainor and SZ Investments, L.L.C., dated January 19, 1999.
21.0 List of Subsidiaries.
23.0 Accountants' Consents.
27.0 Financial Data Schedule. (For SEC use only)
</TABLE>
(b) Reports on Form 8-K.
The Company filed two Current Reports on Form 8-K as
follows: (1) reporting the pending purchase of Gainor Medical
Management, L.L.C. ("Gainor") filed on December 23, 1998; and
(2) reporting the consummation of the purchase of Gainor
filed on February 3, 1999.
*Management contract or compensatory plan or arrangement
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 26, 1999 By: /s/ Donald R. Millard
---------------------------------------
Donald R. Millard, Director, President,
Chief Executive Officer and Chief
Financial Officer (Principal Executive
and Financial Officer)
/s/ Yvonne V. Scoggins
---------------------------------------
Yvonne V. Scoggins, Vice President,
Chief Accounting Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald R. Millard as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form l0-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully and to all intents and purposes as he or she might or
would do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Parker H. Petit Chairman of the Board March 26, 1999
- ----------------------------------
Parker H. Petit Director
/s/ Donald R. Millard Director, President March 26, 1999
- ---------------------------------- Chief Executive Officer
Donald R. Millard and Chief Financial
Officer (Principal
Executive and Financial
Officer)
/s/ Frank D. Powers Director, Executive March 26, 1999
- ---------------------------------- Vice President and
Frank D. Powers Chief Operating Officer
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
/s/ Rod E. Dammeyer Director March 29, 1999
- ----------------------------------
Rod E. Dammeyer
/s/ Mark J. Gainor Director March 29, 1999
- ----------------------------------
Mark J. Gainor
/s/ Carl E. Sanders Director March 26, 1999
- ----------------------------------
Carl E. Sanders
/s/ Jackie M. Ward Director March 26, 1999
- ----------------------------------
Jackie M. Ward
/s/ Morris S. Weeden Director March 26, 1999
- ----------------------------------
Morris S. Weeden
/s/ Frederick P. Zuspan Director March 26, 1999
- ----------------------------------
Frederick P. Zuspan, M.D.
</TABLE>
29
<PAGE> 30
MATRIA HEALTHCARE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charges to
beginning Charges to costs and Net Balance at
Description of period other accounts expenses Deductions end of period
----------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1996
Allowance for doubtful accounts $20,296 8,3001(1) 7,591 9,989 26,198
December 31, 1997
Allowance for doubtful accounts 26,198 -- 6,599 10,146 22,651
December 31, 1998
Allowance for doubtful accounts 22,651 2,8361 6,662 10,914 21,235
December 31, 1996
Reserves for patient service
equipment and supplies 2,030 -- -- 2,030 --
December 31, 1996
Reserves for patient monitoring devices 2,200 -- -- 2,200 --
</TABLE>
- ---------------------------------
(1) Represents beginning balances in allowance for doubtful accounts of
acquired companies.
30
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Matria Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Matria
Healthcare, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Matria Healthcare,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Atlanta, Georgia
February 19, 1999
F-1
<PAGE> 32
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,109 9,086
Short-term investments 2,859 11,856
Trade accounts receivable, less allowances of $21,235 and
$22,651 at December 31, 1998 and 1997, respectively 37,311 39,601
Inventories 1,699 1,088
Prepaid expenses 1,642 1,566
Note receivable (note 16) 1,335 --
Other current assets 1,579 698
-------- -------
Total current assets 55,534 63,895
Property and equipment, net (note 4) 16,865 12,364
Intangible assets, less accumulated amortization of $612
and $68,630 at December 31, 1998 and 1997, respectively
(notes 2 and 3) 16,261 112,149
Cash surrender value of life insurance (note 9) 4,425 1,800
Other assets (note 2) 3,949 924
-------- -------
$ 97,034 191,132
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and obligations
under capital leases (notes 5 and 12) $ 718 884
Accounts payable, principally trade 8,939 5,712
Accrued liabilities (notes 2 and 6) 9,536 16,147
-------- -------
Total current liabilities 19,193 22,743
Long-term debt and obligations under capital leases, excluding
current installments (notes 5, 10, and 12) 18,385 1,712
Accrued benefit costs (note 9) 4,705 5,328
Other long-term liabilities 4,870 8,180
-------- -------
Total liabilities
47,153 37,963
-------- -------
Shareholders' equity (note 8):
Preferred stock, $.01 par value. Authorized 50,000
shares; none issued -- --
Common stock, $.01 par value. Authorized 100,000
shares; issued and outstanding 36,410 and 36,791 shares
at December 31, 1998 and 1997, respectively 364 368
Additional paid-in capital 280,585 282,327
Accumulated deficit (227,533) (125,991)
Notes receivable and accrued interest from shareholder (3,535) (3,535)
-------- -------
Total shareholders' equity 49,881 153,169
Commitments and contingencies (notes 9, 12, and 13)
-------- --------
$ 97,034 191,132
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 33
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Revenues $ 135,215 144,533 130,806
Cost of revenues 53,385 57,610 55,911
Selling and administrative expenses 63,028 65,020 66,775
Provision for doubtful accounts 6,662 6,599 7,591
Amortization of intangible assets 28,155 36,604 30,083
Asset impairment charges (note 3) 82,885 -- --
Acquired in-process research and development (note 2) 2,482 -- --
Restructuring expenses (note 11) -- -- 22,525
---------- ------- -------
Operating loss (101,382) (21,300) (52,079)
Interest income 475 794 1,177
Interest expense (1,083) (311) (353)
Other income (expense), net 448 (85) 134
---------- ------- -------
Loss before income taxes (101,542) (20,902) (51,121)
Income taxes (note 7) -- -- --
---------- ------- -------
Net loss $ (101,542) (20,902) (51,121)
========== ======= =======
Basic and diluted net loss per common share $ (2.78) (0.57) (1.58)
========== ======= =======
Weighted average shares outstanding 36,580 36,527 32,328
========== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 34
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts and shares in thousands)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK ADDITIONAL AND ACCRUED TREASURY STOCK TOTAL
-------------- PAID-IN ACCUMULATED INTEREST FROM -------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SHAREHOLDER SHARES AMOUNT EQUITY
------ ------ --------- ----------- ------------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 17,661 $ 18 87,608 (53,968) (3,630) (112) $(539) 29,489
Issuance of common stock:
Acquisition of Healthdyne, Inc. 17,007 170 182,826 -- -- -- -- 182,996
Exercise of options 839 7 4,298 -- -- -- -- 4,305
Employee Stock Purchase Plan 33 -- 214 -- -- -- -- 214
Conversion of subordinated debentures 9 -- 43 -- -- -- -- 43
Acquisition of National Reproductive
Medical Center, Inc. 899 9 7,112 -- -- -- -- 7,121
Payment on debt resulting from acquisition of
minority interest in partnerships 40 -- 335 -- -- -- -- 335
Change in par value of common stock -- 159 (159) -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- (43) (420) (420)
Cancellation of treasury stock (155) -- (959) -- -- 155 959 --
Payment on note receivable from officers -- -- -- -- 350 -- -- 350
Accrued interest on shareholder notes -- -- -- -- (134) -- -- (134)
Net loss -- -- -- (51,121) -- -- -- (51,121)
------ ----- ------- -------- ------ ---- ----- --------
Balance, December 31, 1996 36,333 363 281,318 (105,089) (3,414) -- -- 173,178
Issuance of common stock:
Exercise of options 500 5 1,471 -- -- -- -- 1,476
Employee Stock Purchase Plan 111 1 454 -- -- -- -- 455
Conversion of subordinated debentures 3 -- 15 -- -- -- -- 15
Purchase and cancellation of treasury stock (156) (1) (931) -- -- -- -- (932)
Accrued interest on shareholder notes -- -- -- -- (121) -- -- (121)
Net loss -- -- -- (20,902) -- -- -- (20,902)
------ ----- ------- -------- ------ ---- ----- --------
Balance, December 31, 1997 36,791 368 282,327 (125,991) (3,535) -- -- 153,169
Issuance of common stock:
Exercise of options 121 1 272 -- -- -- -- 273
Employee Stock Purchase Plan 121 1 364 -- -- -- -- 365
Conversion of subordinated debentures 3 -- 13 -- -- -- -- 13
Purchase and cancellation of treasury stock (626) (6) (2,391) -- -- -- -- (2,397)
Net loss -- -- -- (101,542) -- -- -- (101,542)
------ ----- ------- -------- ------ ---- ----- --------
Balance, December 31, 1998 36,410 $ 364 280,585 (227,533) (3,535) -- $ -- 49,881
====== ===== ======= ======== ====== ==== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 35
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(101,542) (20,902) (51,121)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Asset impairment 82,885 -- --
Acquired in-process research and development 2,482 -- --
Depreciation and amortization 33,345 41,944 34,263
Provision for doubtful accounts 6,662 6,599 7,591
Other, net 146 218 1,500
(Increase) decrease in:
Trade accounts receivable (7,230) (16,770) (8,598)
Inventories (611) (221) 1,230
Prepaid expenses and other current assets (957) (547) 3,582
Other assets (2,398) 14 1,469
Increase (decrease) in:
Accounts payable 3,227 (774) 2,388
Accrued and other liabilities (11,078) (8,894) (3,127)
------- ------- -------
Net cash provided by (used in)
operating activities 4,931 667 (10,823)
------- ------- -------
Cash flows from investing activities:
Short-term investments 8,997 5,854 15,656
Acquisition of businesses, net of cash acquired (17,370) (249) (3,981)
Investment in affiliated companies (4,587) -- --
Purchases of property and equipment (5,942) (2,529) (3,868)
Proceeds from disposal of property and equipment -- 14 4,261
------- ------- -------
Net cash (used in) provided by
investing activities (18,902) 3,090 12,068
------- ------- -------
</TABLE>
(Continued)
F-5
<PAGE> 36
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings under credit agreement, net $ 16,659 -- --
Proceeds from issuance of debt 781 -- 1,542
Principal repayments of debt and obligations
under capital leases (1,627) (2,369) (4,501)
Proceeds from issuance of common stock 638 1,931 4,519
Purchase of treasury stock (2,397) (932) (420)
Other, net (60) (231) 123
-------- ------- -------
Net cash provided by (used in)
financing activities 13,994 (1,601) 1,263
-------- ------- -------
Net increase in cash and cash equivalents 23 2,156 2,508
Cash and cash equivalents at beginning of year 9,086 6,930 4,422
-------- ------- -------
Cash and cash equivalents at end of year $ 9,109 9,086 6,930
======== ======= =======
Supplemental disclosures of cash paid for:
Interest $ 1,161 311 382
======== ======= =======
Income taxes $ 10 -- --
======== ======= =======
Supplemental disclosures of noncash investing and
financing activities:
Common stock issued for payment on debt
resulting from acquisition of minority
interest of partnerships $ -- -- 335
======== ======= =======
Equipment acquired under capital lease obligations $ 707 -- 292
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 37
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
On March 8, 1996, Tokos Medical Corporation (Delaware) - ("Tokos")
and Healthdyne, Inc. ("Healthdyne") merged with and into Matria
Healthcare, Inc. ("Matria" or the "Company"), a Delaware
corporation created solely for the purpose of the merger. Pursuant
to the terms of the Agreement and Plan of Merger, dated October 2,
1995, as amended, each share of Tokos and Healthdyne common stock
outstanding on March 8, 1996 was exchanged for one share of Matria
common stock. Based on the outstanding shares of the respective
companies, Tokos shareholders received approximately 51% of the
combined shares of Matria common stock (see note 2).
The Company is a nationwide provider of specialized obstetrical
home healthcare, home pregnancy monitoring, and risk assessment
services which assist physicians and payors in the management of
high-risk pregnancies and numerous other obstetrical and
gynecological conditions. The Company also provides diagnosis and
treatment of fertility disorders. During 1998, Matria established
itself as a diversified provider of disease management. The
Company expanded its existing diabetes-in-pregnancy program to
include the general diabetes population. In July 1998, the Company
acquired Quality Diagnostic Services, Inc. ("QDS") and entered the
cardiovascular disease management market. In October 1998, the
Company entered the respiratory disease management market by
signing a licensing agreement with National Jewish Medical
Research Center ("National Jewish") that gives Matria exclusive
rights to market the comprehensive asthma and chronic obstructive
pulmonary disease ("COPD") management programs developed by
National Jewish.
(B) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
consolidated balance sheets and income and expenses for the
periods. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of
Matria Healthcare, Inc. and all of its majority owned subsidiaries
and partnerships. All significant intercompany balances and
transactions have been eliminated in consolidation.
(C) REVENUES AND ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS
Revenues are generated from the Company's own patient service
centers and fees from patient service operations managed by the
Company. Revenues are recognized as the related services are
rendered and are net of contractual allowances and related
discounts. A significant portion of the Company's revenues are
billed to third-party reimbursement sources. Accordingly, the
ultimate collectibility of a substantial portion of the Company's
trade accounts receivable is susceptible to changes in third-party
reimbursement policies.
A provision for doubtful accounts is made for revenues estimated
to be uncollectible and is adjusted periodically based upon the
Company's evaluation of current industry conditions, historical
collection experience, and other relevant factors which, in the
opinion of management, deserve recognition in estimating the
allowance for uncollectible accounts.
(Continued)
F-7
<PAGE> 38
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
(D) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of accounts
receivable from third-party payors. The collectibility of accounts
receivable from third-party payors is directly affected by
conditions and changes in the insurance industry and governmental
programs, which are taken into account by the Company in computing
and evaluating its allowance for uncollectible accounts.
(E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and interest-bearing
deposits. For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(F) SHORT-TERM INVESTMENTS
Short-term investments consist of United States Government and
municipal bonds. Under the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities, the Company classifies its
short-term investments as trading securities which are carried at
fair value with any unrealized gains and losses included in
earnings. Unrealized gains (losses) of $51, $67, and $(131) are
included in the consolidated statements of operations for the
years ended December 31, 1998, 1997, and 1996, respectively.
(G) INVENTORIES
Inventories, which consist primarily of drugs and patient
supplies, are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(H) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided primarily
on the straight-line method over the estimated useful lives of the
assets ranging from three to ten years. Amortization of leasehold
improvements and leased equipment is recorded over the shorter of
the lives of the related assets or the lease terms.
(I) INTANGIBLE ASSETS
A summary of intangible assets follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Goodwill $ 11,150 172,239
Other intangible assets 5,723 8,540
-------- -------
16,873 180,779
Less accumulated amortization 612 68,630
-------- -------
Total $ 16,261 112,149
======== =======
</TABLE>
(Continued)
F-8
<PAGE> 39
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
Intangible assets consist of goodwill and other intangible assets.
Goodwill is being amortized using the straight-line method over
periods ranging from 5 to 15 years. At each balance sheet date,
the Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based upon projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds (see note 3).
Other intangible assets consist of customer lists, trade names,
work force, purchased software, and covenants not to compete.
These costs are being amortized on a straight-line basis over
periods ranging from 4 to 15 years.
(J) LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets (see note 3).
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(K) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense to be recognized over the related vesting
period would generally be determined on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123
also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net earnings (loss) and pro
forma earnings (loss) per share disclosures for employee stock
option grants as if the fair-value based method defined in SFAS
123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosures required by SFAS 123 (see note 8).
(L) INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases
of existing assets and liabilities and net operating loss and
credit carryforwards. Additionally, the effect on deferred taxes
of a change in tax rates is recognized in earnings in the period
that includes the enactment date.
(Continued)
F-9
<PAGE> 40
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
Investment and research and experimental tax credits are accounted
for by the flow-through method.
(M) 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, determined using the
treasury stock method. 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.
(N) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130 established standards for reporting and display
of comprehensive income and its components. Comprehensive income
generally includes all changes in equity during a period except
those resulting from investments by owners and distribution to
owners. There was no impact on the Company's consolidated
financial statements with the adoption of SFAS 130 as the Company
has no elements of comprehensive income other than net income
(loss).
(O) SEGMENT REPORTING
On January 1, 1998, the Company adopted 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 (see note 15).
(P) RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to presentations
adopted in 1998.
(2) ACQUISITIONS
On July 21, 1998, Matria purchased certain assets of Quality Diagnostic
Services, Inc. ("QDS"), a cardiac event monitoring company, a Georgia
corporation and wholly owned subsidiary of Endeavor Technologies, Inc.,
subsequently named WebMD, for $17,000 in cash with potential additional
payments contingent on QDS's revenues reaching certain levels in 1999.
The assets purchased include intellectual property, accounts receivable,
and contract rights. The acquisition was accounted for in accordance with
the purchase method of accounting with the results of operations of the
business acquired included in the consolidated financial statements from
the effective date of the acquisition, July 1, 1998. The acquisition
resulted in acquired in-process research and development of $2,482;
(Continued)
F-10
<PAGE> 41
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
intangibles of $3,846, including customer lists, noncompete agreements,
trade names, and work force; and goodwill of $8,029, which is being
amortized over 15 years. Any additional payments made will be accounted
for as additional goodwill and amortized over the remaining life of the
assets. In connection with the acquisition, the Company made a $2,010
preferred stock investment in WebMD.
Unaudited pro forma results of operations for the years ended December
31, 1998 and 1997 as if QDS had been acquired January 1, 1997 follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Revenues $140,433 151,624
Net loss (102,792) (23,731)
Net loss per share (2.81) (.65)
</TABLE>
As discussed in note 1(a), on March 8, 1996, Tokos and Healthdyne merged
with and into Matria (the "Merger") with Tokos deemed to be the acquirer
since Tokos shareholders received the majority of Matria common stock.
The purchase price of Healthdyne was based upon the number of shares of
Healthdyne common stock (including options to purchase shares of
Healthdyne common stock) outstanding on the date the Merger was
consummated and the average trading value of Tokos common stock for two
trading days immediately prior to and two trading days immediately after
the announcement date of the Merger. 17,007,000 shares of Matria common
stock with a value of $182,996 were issued to Healthdyne shareholders.
The Merger was accounted for in accordance with the purchase method of
accounting with the results of operations of the business acquired
included in the consolidated financial statements from the effective date
of the acquisition. The acquisition resulted in purchased software of
$5,000, executive noncompete agreements of $3,000, and excess of cost
over net assets acquired of $149,731 which was being amortized over five
years. In the third quarter of 1998, based on operating and specific
market indicators, the Company determined that future undiscounted cash
flows were below the carrying value of the goodwill and intangible assets
related to the Merger and recorded a $74,496 asset impairment charge (see
note 3).
The purchased fair value of the net tangible assets of Healthdyne
included $9,150 of estimated severance payments for Healthdyne employees
resulting from the Merger, and $200 of facilities costs for patient
service centers specifically identified to be closed. Accrued severance
costs of $1,036 remained at December 31, 1998 and is included in accrued
liabilities.
In February 1995, Healthdyne converted a $250 note receivable from
National Reproductive Medical Center, Inc. ("NRMC"), a California
fertility clinic, into an 11% equity ownership in NRMC. In June 1996, the
Company exercised an option to acquire the remaining ownership interest
in NRMC. This acquisition was accounted for using the purchase method of
accounting with the results of operations of the business acquired
included in the consolidated financial statements from the effective date
of the acquisition. The acquisition resulted in excess of cost over net
assets acquired of approximately $15,053. In the fourth quarter of 1998,
the Company determined that estimated future undiscounted cash flows were
below the carrying value of its long-lived assets and recorded an $8,389
asset impairment charge (see note 3).
(Continued)
F-11
<PAGE> 42
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with these acquisitions:
<TABLE>
<CAPTION>
QDS HEALTHDYNE NRMC
-------- ------------ --------
<S> <C> <C> <C>
Fair value of assets acquired, including goodwill $ 17,370 221,435 17,970
Cash paid for the assets acquired, net of cash acquired (17,000) -- (5,447)
Common stock issued for the assets acquired -- (182,996) (7,121)
Acquisition costs paid (370) (3,700) (250)
-------- -------- -------
Liabilities assumed $ -- 34,739 5,152
======== ======== =======
</TABLE>
(3) ASSET IMPAIRMENT CHARGES
The Company recorded a $74,496 asset impairment charge to write down
goodwill and intangible assets relating to the 1996 merger of Tokos
Medical Corporation and Healthdyne, Inc. in the third quarter of 1998.
Due to a decrease in pre-term labor management services in 1997, the
Company experienced a decline in pre-term labor management revenues. As
part of its 1997 Business Assessment Plan, the Company assessed the
future of this business and expected revenue growth and profits to
improve in 1998 and future years. However, in 1998, revenues continued to
decline due to negative market forces which impacted the business. In
addition, in 1998, the Company revised its strategic plan to expand
beyond maternity management. As a result, in the third quarter of 1998,
the Company determined that Healthdyne Inc.'s estimated future
undiscounted cash flows were below the carrying value of its long-lived
assets and related goodwill. Accordingly, the Company adjusted the
carrying value of Healthdyne Inc.'s long-lived assets and goodwill to
their estimated fair value. The estimated fair value was based on
anticipated net cash flows discounted at a rate commensurate with the
risk involved. The operations of Tokos Medical Corporation and
Healthdyne, Inc. are included in the Women's Health operating segment
(see note 15).
As a result of NRMC's inability to achieve improvements specified in the
1997 Business Assessment Plan, as well as continued operational issues,
including the termination of the founding physician in July 1998, NRMC's
net revenue declined approximately 17% in 1998, and an operating loss was
incurred. As a result, in the fourth quarter of 1998, the Company
determined that NRMC's estimated future cash flows were below the
carrying value of its long-lived assets and related goodwill.
Accordingly, the Company adjusted the carrying value of NRMC's long-lived
assets and goodwill, to their estimated fair value by recording an $8,389
asset impairment charge. The estimated fair value was based on
anticipated net cash flows discounted at a rate commensurate with the
risk involved. The operations of NRMC are included in Other Segments (see
note 15).
(Continued)
F-12
<PAGE> 43
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
(4) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Medical equipment $ 25,923 19,608
Machinery, equipment, and fixtures 18,488 13,668
Leasehold improvements 2,692 2,416
-------- -------
47,103 35,692
Less accumulated depreciation and amortization 30,238 23,328
-------- -------
$ 16,865 12,364
======== =======
</TABLE>
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Secured revolving line of credit, interest at the LIBOR rate
plus 2.75%; outstanding principal balance plus all accrued
but unpaid interest, payable September 2000 (see below) $16,659 --
Convertible subordinated debentures (net of discount of $60
and $88 at December 31, 1998 and 1997, respectively); interest at 8%
payable annually; maturing on December 31, 2001; convertible into
the Company's common stock at
$4.90 per share; redeemable by the Company at face value 1,249 1,234
Unsecured, noninterest-bearing obligations incurred in
connection with buyout of physician-owned companies;
payable at various dates through June 1999 111 456
Capital lease obligations; interest ranging from 3% to 20%
with various monthly payments and maturing at various
dates through October 2001 998 718
Note payable to equipment financing company; interest
at 10% per annum, paid off in 1998 -- 99
Other debt; interest at rates ranging from approximately 6% to
10%; payable in monthly installments through January 1999 86 89
------- -----
Total long-term debt 19,103 2,596
Less current installments 718 884
------- -----
Long-term debt, excluding current installments $18,385 1,712
======= =====
</TABLE>
In September 1997, the Company entered into a secured revolving line of
credit with a commercial lender. Under the terms of this credit facility,
the Company can borrow up to $25,000 based upon the value of eligible
collateral as defined in the credit agreement. Borrowings under this
agreement bear interest, at the Company's option, of (i) the reference
rate of the Bank plus 0.5% or (ii) the LIBOR rate plus 2.75% (8.25% at
December 31, 1998). There were $16,659 in borrowings outstanding under
this agreement at December 31, 1998. This agreement was terminated in
January 1999 (see note 16).
(Continued)
F-13
<PAGE> 44
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
Approximate aggregate minimum annual payments due on long-term debt for
the five years subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 718
2000 16,903
2001 1,457
2002 21
2003 4
-------
$19,103
=======
</TABLE>
(6) ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- ------
<S> <C> <C>
Accrued salaries, wages, and incentives $ 1,750 6,806
Accrued severance 1,036 2,602
Accrued restructuring costs 500 559
Deferred revenue 4,374 3,561
Other 1,876 2,619
------- ------
$ 9,536 16,147
======= ======
</TABLE>
(7) INCOME TAXES
The provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future and any increase or decrease
in the valuation allowance for deferred income tax assets.
Below is a reconciliation of the expected income tax benefit (based on
the U.S. Federal statutory income tax rate of 35%) to the actual income
taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------- ----------- ------------
<S> <C> <C> <C>
Computed expected income tax benefit $ (35,540) (7,316) (17,892)
(Increase) decrease resulting from:
Losses in excess of allowable carrybacks 796 132 7,529
Nontaxable municipal interest income (83) (244) (385)
Nondeductible expenses 39,563 7,428 10,748
Reduction in valuation allowance (4,624) -- --
Other, net (112) -- --
---------- -------- ----------
$ -- -- --
========== ======== ==========
</TABLE>
(Continued)
F-14
<PAGE> 45
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
At December 31, 1998, the Company had the following estimated credit and
operating loss carryforwards available for Federal income tax reporting
purposes to be applied against future taxable income and tax liabilities:
<TABLE>
<CAPTION>
GENERAL NET
YEAR OF BUSINESS OPERATING
EXPIRATION CREDIT LOSS
---------- ---------- ----------
<S> <C> <C>
1999 $ 100 523
2000 79 990
2001 97 1,537
2002 43 3,252
2003 61 2,922
2004 151 6,198
2005 -- 7,137
2007 -- 4,475
2008 -- 7,266
2009 -- 15,241
2010 -- 7,182
2011 -- 29,015
2012 -- 1,649
2018 -- 3,228
------ ------
$ 531 90,615
====== ======
</TABLE>
The net operating loss carryforward of $90,615 includes deductions of
approximately $19,276 related to the exercise of stock options which will
be credited to additional paid-in capital when recognized. A portion of
the net operating loss ($15,600) is limited, by the Internal Revenue Code
Section 382, to an annual utilization of $2,300. The total net operating
loss is limited to an annual utilization of approximately $17,000. The
Company also has available alternative minimum tax (AMT) credit
carryforwards of approximately $1,392 available to offset regular income
tax, if any, in future years. The AMT credit carryforwards do not expire.
The AMT net operating loss carryforward is approximately $78,974.
At December 31, 1998 and 1997, the Company had deferred tax assets of
approximately $45,339 and $49,963, respectively, before valuation
allowances. The valuation allowance is based on the likelihood that a
substantial portion of the deferred tax asset will not be realized. The
decrease in the valuation allowance of $4,624 during 1998 was equal to
the decrease in the deferred tax asset.
(Continued)
F-15
<PAGE> 46
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
At December 31, 1998 and 1997, deferred income taxes consist of future
tax benefits attributable to:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 1,062 1,894
Accruals and reserves not deducted for tax purposes 3,167 6,490
Depreciation and amortization 6,943 8,246
Net operating loss carryforwards 31,715 30,618
Credit carryforwards 1,923 2,197
Contribution carryforward 445 518
Other 84 --
------- -------
Total 45,339 49,963
Less valuation allowance (45,339) (49,963)
------- -------
Net deferred income tax asset $ -- --
======= =======
</TABLE>
(8) SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
Prior to the Merger, the Company maintained a stock option plan for the
benefit of key employees and directors under which options granted
expired ten years from the date of grant. In connection with the Merger,
the Company assumed options outstanding under the Healthdyne option
plans. Both the Company's options and Healthdyne's options outstanding on
the date of the Merger became fully vested. All other terms and
conditions of the options remained the same as they were prior to the
Merger. As of the date of the Merger, the Company adopted two stock
option plans for the benefit of key employees and nonemployee directors.
A total of 1,250,000 shares of the Company's common stock have been
authorized for issuance under these plans. Stock options granted under
these plans are exercisable in equal amounts over three years and expire
in ten years.
During 1997, the Board of Directors of the Company adopted the 1997 Stock
Option Plan for key employees, officers, independent contractors, and
consultants of the Company. The 1997 Stock Option Plan has three
components: a stock option component, a stock bonus/stock purchase
component, and a Stock Appreciation Right component. A total of 1,800,000
shares of the Company's common stock have been authorized for issuance
under this Plan. The Stock Option Committee shall determine the term of
each option granted under the Plan, provided, however, that the term does
not exceed ten years. These options are exercisable based upon
established performance goals, provided, however, that they are not
exercisable in less than two years or more than four years and expire
after ten years. In addition, during 1997, the Board of Directors of the
Company granted nonplan options to purchase 479,150 shares of common
stock to certain nonexecutive employees.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its stock options. Under APB Opinion
No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. However, SFAS 123, requires
presentation of pro forma net earnings (loss) and pro forma earnings
(loss) per share as if the Company had accounted for its employee stock
options under the fair value method of that statement. For purposes of
pro forma disclosure, the estimated fair
(Continued)
F-16
<PAGE> 47
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
value of the options is amortized to expense over the vesting period.
Under the fair value method, the Company's net loss and loss per share
would have been increased as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------- --------
<S> <C> <C> <C>
Net loss $ (102,479) (22,530) (52,279)
========== ======= =======
Loss per share $ (2.80) (.62) (1.62)
========== ======= =======
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, and the options generally have a three-year vesting
period, the pro forma effect was not fully reflected until 1998.
The weighted average fair value of the individual options granted during
1998, 1997, and 1996 is estimated at $2.48, $3.22, and $3.03,
respectively, on the date of grant. The fair values for those years were
determined using a Black-Scholes option-pricing model with the following
assumptions.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend yield None None None
Volatility 50% 46% 40%
Risk-free interest rate 5.15% 6.25% 6.25%
Expected life 5 Years 5 Years 5 Years
</TABLE>
A summary of stock option transactions under these plans is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,905,383 $ 6.23 3,088,501 $ 6.00 2,032,429 $5.97
Assumed from Healthdyne
option plans -- -- -- -- 1,108,888 3.34
Granted 931,518 5.01 974,150 6.51 919,920 8.14
Exercised (121,472) 2.25 (500,261) 2.95 (838,881) 4.47
Canceled (490,309) 6.71 (657,007) 8.03 (133,855) 7.57
--------- -------- --------- ------ ---------- -----
Outstanding at end of year 3,225,120 $ 5.91 2,905,383 $ 6.23 3,088,501 $6.00
========= ======== ========= ====== ========== =====
Exercisable at year-end 1,985,068 $ 5.99 1,638,263 $ 5.61 2,262,627 $5.18
========== ======== ========= ====== ========== =====
</TABLE>
(Continued)
F-17
<PAGE> 48
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------- ----------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
$.67-$5.00 554,430 4.24 $ 3.27 434,095 $ 3.18
$5.00-$10.00 2,659,803 7.66 6.41 1,540,086 6.71
$10.00-$20.00 7,587 1.19 11.46 7,587 11.46
$20.00-$30.00 3,300 3.66 27.95 3,300 27.95
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an Employee Stock Purchase Plan (the "Purchase
Plan") to encourage ownership of its common stock by employees. The
Purchase Plan provides for the purchase of up to 500,000 shares of the
Company's common stock by eligible employees of the Company and its
subsidiaries. Under the Purchase Plan, the Company may conduct an
offering each fiscal quarter of its common stock to eligible employees.
The participants in the Purchase Plan can elect to purchase common stock
at the lower of 85% of the fair market value per share on either the
first or last business day of the quarter, limited to a maximum of either
10% of the employee's compensation or 1,000 shares of common stock per
quarter. A participant immediately ceases to be a participant in the
Purchase Plan upon termination of his or her employment for any reason.
During 1998, 1997, and 1996, respectively, 120,532, 110,967, and 33,357
shares of common stock were issued under the Purchase Plan. Compensation
cost related to this plan determined under SFAS 123 was insignificant to
the Company's consolidated statements of operations for the three years
ended December 31, 1998.
SHAREHOLDER RIGHTS PLAN
In connection with the Merger, Matria established a Shareholders' Rights
Agreement. If a person or group acquires beneficial ownership of 15% or
more of the Company's outstanding common stock or announces a tender
offer or exchange that would result in the acquisition of a beneficial
ownership of 20% or more of the Company's outstanding common stock, the
rights detach from the common stock and are distributed to shareholders
as separate securities. Each right entitles its holder to purchase one
one-hundredth of a share (a unit) of common stock, at a purchase price of
$61 per unit. The rights, which do not have voting power, expire on March
9, 2006 unless previously distributed and may be redeemed by the Company
in whole at a price of $.01 per right any time before and within 10 days
after their distribution. If the Company is acquired in a merger or other
business combination transaction, or 50% of its assets or earnings power
are sold at any time after the rights become exercisable, the rights
entitle a holder to buy a number of common shares of the acquiring
company having a market value of twice the exercise price of the right.
If a person acquires 20% of the Company's common stock or if a 15% or
larger holder merges with the Company and the common stock is not changed
or exchanged in such merger, or engages in self-dealing transactions with
the Company, each right not owned by such holder becomes exercisable for
the number of common shares of the Company having a market value of twice
the exercise price of the right.
(Continued)
F-18
<PAGE> 49
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
(9) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined contribution plan for the benefit
of its employees. The Company's obligation for contributions under the
401(k) plan is limited to each participant's contribution but not more
than 3% of the participant's compensation. Discretionary Company
contributions are allowed under the plan. Contributions to the plan for
the years ended December 31, 1998, 1997, and 1996 were approximately
$814, $607, and $652, respectively.
During 1996, the Company established a nonqualified defined benefit
pension plan for the benefit of a certain select group of senior
management. The benefits are based on the employee's compensation during
the three calendar years in which the individual's base salary is the
highest and actual years of service. During 1997, the Company terminated
this nonqualified defined benefit pension plan and allowed existing
participants to either receive a lump-sum payment or roll over their
investment into a split-dollar life insurance contract whereby the
participants or their beneficiaries are entitled to the greater of the
contract's cash surrender value or the contract's death benefit, less
insurance premiums paid by the Company. The participants who chose the
lump-sum payout were paid approximately $1,328 on January 2, 1998.
During 1998, the Company entered into split-dollar life insurance
contracts with additional members of senior management. These contracts
operate in the same manner as the contracts entered into in 1997.
On the earlier date that occurs of: (i) the date the employee reaches age
65; (ii) the date of the employee's death; or (iii) the date of
termination of the employee prior to the completion of ten years of
service, the Company has the right to be repaid an amount, up to the
amount of premiums paid, by which the cash surrender value of the policy
exceeds the employee's vested life insurance plan benefit.
During 1998 and 1997, the Company paid $2,640 and $1,928, respectively,
in insurance premiums. At December 31, 1998 and 1997, respectively, the
cash value of life insurance policies was $4,425 and $1,800 and the
related liability was $4,705 and $4,000. Insurance premium expense was
$521 and $320 in 1998 and 1997, respectively.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of business.
The carrying values of cash equivalents, short-term investments, accounts
receivable, accounts payable, and accrued liabilities approximate fair
value due to the short-term maturities of these assets and liabilities.
The Company estimates that the carrying amounts of the Company's
long-term debt approximates the fair value based on the current rates
offered to the Company for debt of the same remaining maturities.
(11) RESTRUCTURING
During 1996, in connection with the Merger, the Company incurred
restructuring charges of $22,525 related to severance costs for 278
involuntarily terminated employees in the executive, sales, clinical
service, and administrative support functions. Also, lease terminations
and other facilities-related exit costs arising from closing duplicate
patient service centers and consolidation of two corporate
(Continued)
F-19
<PAGE> 50
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
headquarters were incurred. In addition, computer and patient service
equipment was determined to be incompatible with nursing station software
to be used by Matria and computer hardware and software was determined to
be obsolete by adoption of new systems. Remaining accrued restructuring
charges are $500 at December 31, 1998, which is current.
A summary of the components of the 1996 restructuring charges follows:
<TABLE>
<S> <C>
Employee severance $ 10,750
Relocation 1,250
Duplicate/excess facility costs 2,500
Write-off of excess/obsolete equipment 5,400
Other 2,625
--------
$ 22,525
========
</TABLE>
(12) COMMITMENTS
The Company is committed under noncancelable lease agreements for
facilities and equipment. Future minimum operating lease payments and the
present value of the future minimum capital lease payments as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
-------------------------- ---------- ----------
<S> <C> <C>
1999 $ 6,563 601
2000 4,814 293
2001 4,152 232
2002 3,514 15
2003 956 4
2004 and thereafter 948 --
--------- ------
$ 20,947 1,145
=========
Less interest (147)
------
Present value of future minimum
capital lease payments $ 998
======
</TABLE>
Amortization of leased assets is included in depreciation expense.
Rental expense for cancelable and noncancelable leases was approximately
$6,500, $6,100, and $5,200 for the years ended December 31, 1998, 1997,
and 1996, respectively.
(13) CONTINGENCIES
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, based in part on the advice of counsel, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated balance sheet, results of operations, or
liquidity.
(Continued)
F-20
<PAGE> 51
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
In March 1997, Adeza Biomedical Corporation ("Adeza") initiated
litigation against the Company alleging that the Company breached the
Exclusive Marketing Agreement, dated as of December 31, 1991, as amended
(the "Agreement") between the Company and Adeza under which the Company
was granted the exclusive marketing rights to Adeza's fetal fibronectin
immunoassay test ("fFN"). On March 3, 1998, the Company settled its
dispute with Adeza. Under the terms of the settlement, the Company agreed
to relinquish its rights under the Agreement and its equity interest in
Adeza in exchange for a right to recoup a portion of its investment in
Adeza and the product, based on future sales of fFN. The Company
continued to distribute fFN during a transition period which ended on
August 31, 1998.
A complaint was filed on February 1, 1995 by The Lindner Fund, Inc. in
the Eastern District of Missouri against Healthdyne and its former
subsidiary, Home Nutritional Services, Inc. ("HNS"), and alleged that The
Lindner Fund would not have sold its investment in HNS on February 8,
1994 had Healthdyne and HNS disclosed the potential sale of HNS. Damages
were requested in the amount of $1,051, representing the aggregate
difference between the price received upon the sale of such stock by The
Lindner Fund and the $7.85 per share price paid by W. R. Grace & Co. on
April 6, 1994 for HNS. On December 30, 1998, the Company agreed to settle
the suit for a nominal amount.
(14) QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Revenues $ 34,817 34,107 33,473 32,818
Net loss (6,443) (84,156) (5,295) (5,648)
Net loss per common share (.18) (2.31) (.14) (.15)
1997:
Revenues $ 37,101 36,540 36,362 34,530
Net loss (4,141) (4,898) (5,516) (6,347)
Net loss per common share (.11) (.13) (.15) (.17)
</TABLE>
(15) BUSINESS SEGMENT INFORMATION
The Company's reportable business segments are the strategic business
units that offer different products and services. They are managed
separately, and the Company evaluates performance based on operating
earnings of the respective business unit.
The Company's operations have been classified into two reportable
business segments, Women's Health and Cardiovascular. The Women's Health
segment offers services designed to assist physicians and payors in the
cost effective management of maternity patients including: specialized
home nursing; risk assessment; patient education and management; home
uterine contraction monitoring; infusion therapy; gestational diabetes
management; and other monitoring and clinical services as prescribed by
(Continued)
F-21
<PAGE> 52
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
the patient's physician. The Cardiovascular segment provides cardiac
event monitoring, holter event monitoring and pace maker follow-up
services. The Other Segments include three business segments that are
below the quantitative threshold for disclosure: respiratory disease
management; infertility services; and clinical record software and
services.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. There are no
intersegment sales and operating earnings (loss) by business segment
excludes interest income, interest expense, and corporate expenses.
Summarized financial information by business segment follows:
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS (LOSS)
-------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Women's Health $ 115,147 128,489 122,261 (8,584) (12,924) (23,367)
Cardiovascular 6,644 -- -- (1,136) -- --
Other Segments 13,424 16,044 8,545 (4,917) (3,871) (2,540)
---------- --------- --------- ---------- -------- ---------
Total segments 135,215 144,533 130,806 (14,637) (16,795) (25,907)
General corporate -- -- -- (3,860) (4,505) (3,647)
Asset impairment charges (note 3) -- -- -- (82,885) -- --
Restructuring expenses -- -- -- -- -- (22,525)
Interest income (expense), net -- -- -- (608) 483 824
Other income (expense), net -- -- -- 448 (85) 134
---------- --------- --------- --------- -------- ---------
Consolidated revenues and
loss before income taxes $ 135,215 144,533 130,806 (101,542) (20,902) (51,121)
========== ========= ========= ========= ======== =========
<CAPTION>
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION
-------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
---------- --------- --------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Women's Health $ 57,011 150,627 176,464 29,150 38,151 32,110
Cardiovascular 14,383 -- -- 1,054 -- --
Other Segments 6,582 17,084 18,725 3,041 3,664 2,005
General corporate 19,058 23,421 27,999 100 129 148
---------- --------- --------- --------- ------- --------
Consolidated assets, deprecia-
tion, and amortization $ 97,034 191,132 223,188 33,345 41,944 34,263
========== ========= ========= ========= ======== ========
<CAPTION>
CAPITAL EXPENDITURES
--------------------------------
1998 1997 1996
---------- ------- --------
<S> <C> <C> <C>
Women's Health $ 2,828 1,460 1,743
Cardiovascular 1,912 -- --
Other Segments 406 298 1,779
General corporate 796 771 346
---------- ------- --------
Consolidated capital expenditures $ 5,942 2,529 3,868
========= ======= ========
</TABLE>
The Company's revenues from outside the United States were less than 1%
of total revenues. No single customer accounted for 10% of consolidated
net revenue in 1998, 1997, or 1996.
(Continued)
F-22
<PAGE> 53
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1998, 1997, and 1996
(16) SUBSEQUENT EVENTS
Effective January 1, 1999, the Company completed an acquisition of
substantially all of the assets of Gainor Medical Management, L.L.C.
("Gainor Medical"), for a purchase price of approximately $130 million.
The acquisition will be accounted for under the purchase method of
accounting and will result in goodwill of approximately $137 million. The
acquisition agreement also provides for additional contingent purchase
price of up to $35 million based on 1999 financial performance. The
assets acquired included the outstanding capital stock of and membership
interests and other equity interests in the subsidiaries of Gainor
Medical.
At the closing of the transaction, the Company paid $83.8 million of the
purchase price in cash, assumed approximately $1.2 million in debt and
issued $45 million in redeemable preferred stock and warrants of the
Company. The transaction also included a cash adjustment payable by the
Company of approximately $6.6 million, one-half of which was paid at the
closing and the remaining one-half of which is payable on April 1, 1999.
If earned, the contingent purchase price is payable by the issuance of
subordinated notes in the year 2000.
The cash portion of the purchase price was financed partially through a
$125 million five-year bank credit facility, which the Company entered
into in January 1999. The credit facility consists of an $80 million term
loan facility and a $45 million revolving credit facility. Borrowings
under this agreement bear interest at the LIBOR rate plus 1.5% to 2.5%.
In January 1998, the Company converted a $250 note receivable from
Diabetes Management Systems, Inc. ("DMS") and paid $500 cash to acquire a
10% equity interest in DMS. During 1998, the Company made advances to
fund the working capital of DMS totaling $1,335. In January 1999, the
Company converted the notes receivable for these advances and paid cash
of $6,500 to acquire the remaining equity interests of DMS. The
acquisition will be accounted for using the purchase method of
accounting. Results of operations of this business will be included in
the Company's consolidated results of operations effective January 1,
1999. DMS had revenues of $9,900 and operating losses of $969 in the
12-month period ended December 31, 1998 (unaudited). Included in DMS 1998
revenues were $1,700 of sales to the Company.
The following unaudited pro forma consolidated results of operations are
presented as if the Gainor Medical acquisition had been made at the
beginning of the periods presented. The effect of the DMS acquisition is
not significant and, accordingly, has been excluded from the pro forma
presentation:
<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Revenues $ 213,615 185,413
Net loss (107,255) (32,871)
Net loss available to common shareholders (110,455) (36,071)
Net loss per common share (3.02) (0.99)
</TABLE>
The pro forma consolidated results of operations include adjustments to
give effect to amortization of goodwill and interest expense on
acquisition debt, together with related income tax effects. The unaudited
pro forma amounts are not necessarily indicative of the results of
operations that would have occurred had the purchase been made at the
beginning of the periods presented or the future results of the combined
operations.
F-23
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF MATRIA HEALTHCARE, INC.
a Delaware corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
Offices.......................................................................... 4
Section 1.1 Registered Office................................................ 4
Section 1.2 Principal Office................................................. 4
Section 1.3 Other Offices.................................................... 4
ARTICLE II
Meetings of Stockholders......................................................... 4
Section 2.1 Time and Place of Meetings....................................... 4
Section 2.2 Annual Meetings of Stockholders.................................. 4
Section 2.3 Special Meetings................................................. 5
Section 2.4 Stockholder Lists................................................ 5
Section 2.5 Notice of Meetings............................................... 5
Section 2.6 Quorum and Adjournment........................................... 6
Section 2.7 Voting........................................................... 6
Section 2.8 Proxies.......................................................... 6
Section 2.9 Inspectors of Election........................................... 7
ARTICLE III
Directors........................................................................ 7
Section 3.1 Powers........................................................... 7
Section 3.2 Number, Election and Tenure...................................... 8
Section 3.3 Vacancies and Newly Created Directorships........................ 8
Section 3.4 Meetings......................................................... 8
Section 3.5 Annual Meeting................................................... 8
Section 3.6 Regular Meetings................................................. 8
Section 3.7 Special Meetings................................................. 8
Section 3.8 Notices of Meetings.............................................. 8
Section 3.9 Quorum........................................................... 8
Section 3.10 Fees and Compensation............................................ 9
Section 3.11 Meetings by Telephonic Communication............................. 9
Section 3.12 Committees....................................................... 9
Section 3.13 Action Without Meetings.......................................... 9
Section 3.14 Initial Committees............................................... 9
Article IV
Officers......................................................................... 11
Section 4.1 Appointment and Salaries......................................... 11
Section 4.2 Removal and Resignation.......................................... 11
Section 4.3 Chairman......................................................... 11
Section 4.4 President/CEO.................................................... 11
Section 4.5 Vice President................................................... 11
Section 4.6 Secretary and Assistant Secretary................................ 11
Section 4.7 Chief Financial Officer.......................................... 12
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8 Treasurer........................................................ 12
Section 4.9 Assistant Officers............................................... 12
ARTICLE V
Seal............................................................................. 12
ARTICLE VI
Form of Stock Certificate........................................................ 13
ARTICLE VII
Representation of Shares of Other Corporation.................................... 13
ARTICLE VIII
Transfers of Stock............................................................... 13
ARTICLE IX
Lost, Stolen or Destroyed Certificates........................................... 14
ARTICLE X
Record Date...................................................................... 14
ARTICLE XI
Registered Stockholders.......................................................... 14
ARTICLE XII
Fiscal Year...................................................................... 14
ARTICLE XIII
Amendments....................................................................... 15
ARTICLE XIV
Dividends........................................................................ 15
Section 14.1 Declaration...................................................... 15
Section 14.2 Set Aside Funds.................................................. 15
ARTICLE XV
Indemnification and Insurance.................................................... 15
Section 15.1 Right to Indemnification......................................... 15
Section 15.2 Right of Claimant to Bring Suit.................................. 16
Section 15.3 Non-Exclusivity of Rights........................................ 16
Section 15.4 Insurance........................................................ 16
Section 15.5 Expenses as a Witness............................................ 16
Section 15.6 Indemnity Agreements............................................. 17
Section 15.7 Settlement of Claims............................................. 17
Section 15.8 Effect of Amendment.............................................. 17
Section 15.9 Subrogation...................................................... 17
Section 15.10 No Duplication of Payments....................................... 17
</TABLE>
3
<PAGE> 4
BYLAWS OF MATRIA HEALTHCARE, INC.
a Delaware corporation
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of Matria
Healthcare, Inc. (the "Corporation") shall be in the City of Wilmington, County
of New Castle, Delaware and the name of the resident agent in charge thereof is
the agent named in the Certificate of Incorporation until changed by the Board
of Directors (the "Board").
Section 1.2 Principal Office. The principal office for the transaction
of the business of the Corporation shall be such place as may be established by
the Board, The Board is granted full power and authority to change said
principal office from one location to another.
Section 1.3 Other Offices. The Corporation may also have an office or
offices at such other places, either within or without the State of Delaware,
as the Board may from time to time designate or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Time and Place of Meetings. Meetings of stockholders shall
be held at such time and place, within or without the state of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2.2 Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held on such date and at such time and place as may be
fixed by the Board and stated in the notice of the meeting, for the purpose of
electing directors and for the transaction of such other business as is
properly brought before the meeting in accordance with these Bylaws. To be
properly brought before the annual meeting, business must be either (i)
specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the Board, (ii) otherwise brought
before the annual meeting by or at the direction of the Board, (iii) brought
before the meeting in accordance with Rule 14a-8 under the Securities Exchange
Act of 1934, or (iv) otherwise properly brought before the annual meeting by a
stockholder. The nomination by a stockholder of any person for election as a
director, other than the persons nominated by the Board of Directors or any
duly authorized committee thereof, shall be considered business for purposes of
this Article II and shall be permitted only under compliance with the
requirements of this Section 2.2. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of
the Corporation not less than sixty (60) days nor more than ninety (90) days
prior to the meeting; provided, however, that in the event that less than forty
(40) days' notice or prior public disclosure of the date of the annual meeting
is given or made to stockholders, notice by a
4
<PAGE> 5
stockholder, to be timely, must be received no later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class, series and number of shares of the Corporation which
are beneficially owned by the stockholder, and (iv) any material interest of
the stockholder in such business. No business shall be conducted at the annual
meeting except in accordance with the procedures set forth in this Section 2.2.
The officer of the Corporation presiding at an annual meeting shall, if the
facts warrant, determine and declare to the annual meeting that business was
not properly brought before the annual meeting in accordance with the
provisions of this Section 2.2, and if he should so determine, he shall so
declare to the annual meeting and any such business not properly brought before
the meeting shall not be transacted.
Section 2.3 Special Meetings. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board that has been duly designated by the
Board and whose powers and authority, as provided in a resolution of the Board
or in these Bylaws, include the power to call such meetings, and shall be
called by the President or Secretary at the request in writing of a majority of
the Board, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding
and entitled to vote, but such special meetings may not be called by any other
person or persons; provided, however, that if any to the extent that any
special meeting of stockholders may be called by any other person or persons
specified in any provisions of the Certificate of Incorporation or any
amendment thereto, or any certificate filed under Section 151(g) of the
Delaware General Corporation Law (or its successor statute as in effect from
time to time hereafter), then such special meeting may also be called by the
person or persons in the manner, at the times and for the purposes so
specified. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 2.4 Stockholder Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held; which place shall be specified in the
notice of the meeting or at the place of the meeting, and the list shall also
be available at the meeting during the duration thereof, and may be inspected
by any stockholder who is present.
Section 2.5 Notice of Meetings. Notice of each meeting of stockholders,
whether annual or special, stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which such
meeting has been called, shall be given to each stockholder of record entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting, except that where the matter to be acted on is
a merger or consolidation of the Corporation or a sale, lease or exchange of
all or substantially all of its assets, such notice shall be given not less
than twenty (20) nor more than sixty (60) days prior to
5
<PAGE> 6
such meeting. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
Whenever any notice is required to be given under the provisions of
applicable law or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Notice of any meeting of stockholders shall be deemed
waived by any stockholder who shall attend such meeting in person or by proxy,
except a stockholder who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 2.6 Quorum and Adjournment. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders, except as otherwise provided by applicable law or by the
Certificate of Incorporation; provided, however, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally noticed. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting. The Chairman of the meeting may
determine that a quorum is present based upon any reasonable evidence of the
presence in person or by proxy of stockholders holding a majority of the
outstanding votes, including without limitation, evidence from any record of
stockholders who have signed a register indicating their presence at the
meeting.
Section 2.7 Voting. In all matters, when a quorum is present at any
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of applicable law or of the Certificate of Incorporation, a
different vote is required in which case such express provision shall govern
and control the decision of such quorum. Such vote may be by voice or by
written ballot; provided, however, that the Board may, in its discretion,
require a written ballot for any vote, and further provided that all elections
for directors must be by written ballot upon demand made by a stockholder at
any election and before the voting begins.
Unless otherwise provided in the Certificate of Incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder.
Section 2.8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize in writing another person or persons to act for such
holder by proxy, but no proxy shall
6
<PAGE> 7
be voted or acted upon after three years from its date, unless the person
executing the proxy specifies therein the period of time for which it is to
continue in force. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary of the Corporation.
Section 2.9 Inspectors of Election. The Corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation or the Chairman of
the meeting shall appoint one or more alternate inspectors to replace any
inspector who fails to act. Each inspector, before undertaking his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the bests of his or her
ability. The inspectors shall ascertain the number of shares outstanding and
the voting power of each, determine the shares represented at the meeting and
the validity of the proxies and ballots, count all votes and ballots, determine
and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors and certify their
determination of the number of shares represented at the meeting and their
count of all votes and ballots. Each inspector shall perform his or her duties
and shall make all determinations in accordance with the Delaware General
Corporation Law including, without limitation, Section 231 of the Delaware
General Corporation Law.
The date and time of the opening and closing of the polls for each matter
upon which the stockholders will vote at a meeting shall be announced at the
meeting. No ballot, proxies or votes, nor revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
The appointment of inspectors of election shall be in the discretion of
the Board except that as long as the Corporation has a class of voting stock
that is (i) listed on a national securities exchange, (ii) authorized for
quotation on an interdealer quotation system of a registered national
securities association, or (iii) held of record by more than 2,000
stockholders, appointment of inspectors shall be obligatory.
ARTICLE III
DIRECTORS
Section 3.1. Powers. The Board of Directors shall have the power to
manage or direct the management of the property, business and affairs of the
Corporation, and except as expressly limited by law, to exercise all of its
corporate powers. The Board may establish procedures and rules, for the fair
and orderly conduct of any meeting including, without limitation, registration
of the stockholders attending the meeting, adoption of an agency, establishing
the order of business at the meeting, recessing and adjourning the meeting for
the purposes of tabulating any votes and receiving the results thereof, the
time of the opening and closing of the polls, and the physical layout of the
facilities for the meeting.
7
<PAGE> 8
Section 3.2. Number, Election and Tenure. The Board shall initially
consist of ten (10) members. Thereafter, the number of directors shall be
fixed or altered exclusively by resolutions adopted by the Board. The
directors shall be divided into three classes of two directors, four directors
and four directors, designated Class I, Class II and Class III, respectively.
The initial term of office of Class I directors shall expire at the 1996 annual
meeting of stockholders; of Class II directors at the 1997 annual meeting of
stockholders; and of Class III directors at the 1998 annual meeting of
stockholders. At each annual meeting of stockholders, successors to the class
of directors whose terms of office expire in that year shall be elected to hold
office for a term of three (3) years. Each director shall hold office until
his successor is elected and qualified or until his earlier resignation. No
decrease in the number of directors shall shorten the term of any incumbent
director.
Section 3.3. Vacancies and Newly Created Directorships. Any vacancy on
the Board, including any newly created directorship resulting from an increase
in the number of directors, may be filled by a majority of the Board then in
office, provided that a quorum is present.
Section 3.4. Meetings. The Board may hold meetings, both regular and
special, either within or outside the State of Delaware.
Section 3.5. Annual Meeting. The Board shall meet as soon as practicable
after each annual election of directors.
Section 3.6. Regular Meetings. Regular meetings of the Board shall be
held without call or notice at such time and place as shall from time to time
be determined by resolution of the Board.
Section 3.7. Special Meetings. Special meetings of the Board may be
called at any time, and for any purpose permitted by law, by the Chairman of
the Board, or by the Secretary on the written request of any two members of the
Board unless the Board consists of only one director in which case the special
meeting shall be called on the written request of the sole director, which
meetings shall be held at the time and place designated by the person or
persons calling the meeting. Notice of the time, place and purpose of any such
meeting shall be given to the directors by the Secretary, or in case of the
Secretary's absence, refusal or inability to act, by any other officer. Not
less than three (3) days notice of all special meetings of the Board of
Directors shall be given to each director.
Section 3.8. Notices of Meetings. All notices of meetings shall be in
writing and shall be deemed effectively given upon personal delivery or
twenty-four hours after delivery to a courier service which guarantees
overnight delivery or five days after deposit with the U.S. Post Office, by
registered or certified mail, return receipt requested, postage prepaid, and,
in the case of courier or mail delivery, addressed to such director at his or
her last known address as furnished by such director to the Company.
Section 3.9. Quorum. At all meetings of the Board, the vote of a
majority of the whole Board shall be necessary to constitute the act of the
Board, regardless of the number of directors present at the meeting at which
such matter is voted upon. For all purposes hereof, the phrase "whole Board"
and phrase "total number of directors" shall mean the total number of directors
that the Corporation would have if there were no vacancies. Any meeting of the
Board may be
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adjourned to meet again at a stated day and hour. Even though a quorum is not
present, as required in this Section, a majority of the directors present at
any meeting of the Board, either regular or special, may adjourn from time to
time until a quorum is present. Notice of any adjourned meeting need not be
given.
Section 3.10. Fees and Compensation. Each director and each member of a
committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 3.11. Meetings by Telephonic Communication. Members of the Board
or any committee thereof may participate in a regular or special meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
Section 3.12. Committees. The Board may designate committees, each
committee to consist of one or more of the directors of the Corporation. The
initial committees of the Board of Directors shall be as set forth in Section
3.14. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers that may
require it. Notwithstanding the foregoing, no committee of the Board shall
have the power or authority in reference to (a) amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing the issuance of shares of stock adopted by
the Board as provided in Section 151(a) of the Delaware General Corporation Law
fix the designation and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any series); (b) adopting an agreement of merger or consolidation
under Section 251 or 252 of the Delaware General Corporation Law; (c)
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (d) recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution; or (e) amending the Bylaws of the Corporation. Unless the
resolution appointing such committee or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Each committee shall keep minutes of its meeting and
report to the Board when required.
Section 3.13. Action Without Meetings. Unless otherwise restricted by
applicable law or by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at a meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
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
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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: 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 a 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
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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.
ARTICLE IV
OFFICERS
Section 4.1. Appointment and Salaries. The senior officers of the
Corporation shall be appointed by the Board and shall be a Chairman of the
Board ("Chairman"), a President and Chief Executive Officer ("President/CEO"),
a Secretary, a Treasurer and a Chief Financial Officer. The Board may also
appoint other offices as it deems necessary or appropriate. The senior
officers shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the Board.
Each other officer appointed by the Board shall hold office for such term and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board. The Board shall, upon the recommendation of the
Compensation Committee, fix the salaries of all officers appointed by it.
Unless prohibited by applicable law or by the Certificate of Incorporation or
by these Bylaws, one person may be elected or appointed to serve in more than
one official capacity. Any vacancy occurring in any senior office of the
Corporation may be filled only by the Board.
Section 4.2. Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board. Any officer may resign at any time by
giving notice to the Board, the President/CEO or the Secretary. Any such
resignation shall take effect at the date of receipt of such notice or at any
later time specified therein and, unless otherwise specified in such notice,
the acceptance of the resignation shall not be necessary to make it effective.
Section 4.3. Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board and shall have such other powers and duties as
may from time to time be assigned to him or her by the Board.
Section 4.4. President/CEO. The President/CEO shall be the chief
executive officer of the Corporation and shall have such other powers and
duties as may from time to time be assigned to him or her by the Board.
Section 4.5. Vice President. The rank of Vice Presidents in descending
order shall be Executive Vice President, Senior Vice President and Vice
President. The Vice Presidents shall perform such duties and have such powers
as the Board may from time to time prescribe.
Section 4.6. Secretary and Assistant Secretary. The Secretary shall
attend all meetings of the Board (unless the Board shall determine otherwise)
and all meetings of the stockholders and record all the proceedings of the
meetings of the Board and of the stockholders in a book to be kept for that
purpose and shall perform like duties for the committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board. The Secretary shall have
custody of the corporate seal of the Corporation
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and shall (as well as any Assistant Secretary) have authority to affix the same
to any instrument requiring it and to attest it. The Secretary shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.
Section 4.7. Chief Financial Officer. Subject to the powers of the
Chairman and the President/CEO, the Chief Financial Officer shall be the
principal officer in charge of the financial affairs of the Corporation and
shall perform such other duties and have such other powers as the Board may
from time to time prescribe.
Section 4.8. Treasurer. Subject to the powers of the Chief Financial
Officer, the Treasurer shall have custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board. Subject to the powers of the
Chief Financial Officer, the Treasurer may disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements and shall render to the Board at its regular meetings, or when
the Board requires, an account of the transactions and of the financial
condition of the Corporation. The Treasurer shall perform such other duties
and have such other powers as the Board may from time to time prescribe.
If required by the Board and at the expense of the Corporation, the Chief
Financial Officer, the Treasurer, and the Assistant Treasurer, if any, shall
give the Corporation a bond (which shall be renewed at such times as specified
by the Board) in such sums and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
person's office and for the restoration to the Corporation, in case of such
person's death, resignation retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in such person's
possession or under such person's control belonging to the Corporation.
Section 4.9. Assistant Officers. An assistant officer shall, in the
absence of the officer to whom such person is an assistant officer or in the
event of such officer's inability or refusal to act, perform the duties of such
officer and when so acting, shall have all the powers of and be subject to all
the restrictions upon such officer. An assistant officer shall perform such
other duties and have such other powers as the Board or the officer appointing
any such assistant officer may from time to time prescribe.
ARTICLE V
SEAL
It shall not be necessary to the validity of any instrument executed by
any authorized officer or officers of the Corporation that the execution of
such instrument be evidenced by the corporate seal, and all documents,
instruments, contracts and writings of all kinds signed on behalf of the
Corporation by any authorized officer or officers shall be as effectual and
binding on the Corporation without the corporate seal, as if the execution of
the same had been evidenced by affixing the corporate seal thereto. The Board
may give general authority to any officer to affix the seal of the Corporation
and to attest the affixing by signature.
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ARTICLE VI
FORM OF STOCK CERTIFICATE
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of, the Corporation by the Chairman or
Vice Chairman of the Board, if any, or by the President/CEO or a Vice
President, and by the Treasurer or Chief Financial Officer, or the Secretary or
an Assistant Secretary certifying the number of shares owned in the
Corporation. Any or all of the signatures on the certificate may be a
facsimile signature. If any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
the issuance.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock. Except as otherwise provided
in Section 202 of the Delaware General Corporation Law, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences or rights.
ARTICLE VII
REPRESENTATION OF SHARES OF OTHER CORPORATION
Any and all shares of any other corporation or corporations standing in
the name of the Corporation shall be voted, and all rights incident thereto
shall be represented and exercised on behalf of the Corporation by the Board,
Chairman or President/CEO. The foregoing authority may be exercised either by
the President/CEO in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said office.
ARTICLE VIII
TRANSFERS OF STOCK
Upon surrender of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
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ARTICLE IX
LOST, STOLEN OR DESTROYED CERTIFICATES
The Board may direct a new certificate or certificates be issued in place
of any certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue
of a new certificate, the Board may, in its discretion and as a condition
precedent to the issuance, require the owner of such certificate or
certificates, or such person's legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the lost, stolen or destroyed
certificate.
ARTICLE X
RECORD DATE
The Board may fix in advance a date, which shall not be more than sixty
(60) days nor less than ten (10) days preceding the date of any meeting of
stockholders, nor more than sixty (60) days prior to any other action, as a
record date for the determination of stockholders entitled to notice of or to
vote at any such meeting and any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise the rights in respect of any change, conversion or exchange of
stock, and in such case such stockholders, and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record
date fixed as aforesaid.
ARTICLE XI
REGISTERED STOCKHOLDERS
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by applicable
law.
ARTICLE XII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
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ARTICLE XIII
AMENDMENTS
Subject to any contrary or limiting provisions contained in the
Certificate of Incorporation, these Bylaws may be amended or repealed, or new
Bylaws may be adopted (a) by the affirmative vote of the holders of at least a
majority of the Common Stock of the Corporation, or (b) by the affirmative vote
of the majority of the whole Board at any regular or special meeting. Any
Bylaws adopted or amended by the stockholders may be amended or repealed by the
Board or the stockholders.
ARTICLE XIV
DIVIDENDS
Section 14.1. Declaration. Dividends on the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board at any regular or special meeting, pursuant
to law, and may be paid in cash, in property or in shares of capital stock.
Section 14.2. Set Aside Funds. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall determine to be in the best
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE XV
INDEMNIFICATION AND INSURANCE
Section 15.1. Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted by the
laws of the State of Delaware, as the same exist or may hereafter be amended,
against all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith, and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and
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administrators; provided, however, that the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification conferred in this
Article shall be a contract right and shall include the right to be paid by the
Corporation the expense incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of any undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by action of
the Board, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors
and officers.
Section 15.2. Right of Claimant to Bring Suit. If a claim under Section
15.1 is not paid in full by the Corporation within thirty (30) days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, shall be
a defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
Section 15.3. Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 15.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 15.5. Expenses as a Witness. To the extent that any director,
officer, employee or agent of the Corporation, is by reason of such position,
or a position with another entity at the request of the Corporation, a witness
in any action, suit or proceeding, he or she shall be
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indemnified against all costs and expenses actually and reasonably incurred by
him or her or on his or her behalf in connection therewith.
Section 15.6. Indemnity Agreements. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permitted by Delaware law.
Section 15.7. Settlement of Claims. The Corporation shall not be liable
to indemnify any director, officer, employee or agent under this Article (a)
for any amounts paid in settlement of any action or claim effected without the
Corporation's written consent, which consent shall not be unreasonably
withheld; or (b) for any judicial award if the Corporation was not given a
reasonable and timely opportunity at its expense, to participate in the defense
of such action.
Section 15.8. Effect of Amendment. Any amendment, repeal, or
modification of this Article shall not adversely affect any right or protection
of any director, officer, employee or agent existing at the time of such
amendment, repeal or modification.
Section 15.9. Subrogation. In the event of payment under this Article,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the director, officer, employee or agent, who shall
execute all papers required and shall do everything that may be necessary to
secure such rights, including the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights.
Section 15.10. No Duplication of Payments. The Corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the director, officer, employee or agent to the extent the director,
officer, employee or agent has otherwise actually received payment (under any
insurance policy, agreement, vote, or otherwise) of the amounts otherwise
indemnifiable hereunder.
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SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of January 1, 1997, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and PARKER H.
PETIT (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this Agreement
caused Aetna Life Insurance and Annuity Company (the "Insurance
Company") to issue and deliver to the Employee Policy Number I0001637
(the "Policy") on the life of the Employee. The first annual premium
has been paid by the Company as of the date of this Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his rights
granted by the terms of the Policy, except to the extent that the power
of the Employee to exercise those rights is specifically limited by
this Agreement and the Collateral Security Assignment Agreement of even
date in the form attached hereto as Exhibit A (the "Collateral
Assignment") executed by the Employee with respect to the Policy.
Except as so limited, it is the expressed intention of the parties to
reserve to the Employee all rights in and to the Policy granted to its
owner by the terms thereof, including, but not limited to, the right to
change the beneficiary of that portion of the proceeds to which the
Employee is entitled under Section 3(d) of this Agreement and the right
to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, the
Company agrees to make an annual premium payment on each of the first
six (6) anniversary dates of the Policy in the amount of $890,707. The
Company shall transmit all premium payments required hereunder directly
to the Insurance Company. During the period of time that this Agreement
is in effect, the Employee irrevocably agrees that all dividends paid
on the Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee.
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3. Repayment Obligation.
(a) Upon the fifteenth (15th) anniversary date of the Policy or
the Employee's death, whichever shall first occur, the Company
shall have the right to be paid the total amount of premiums
paid by it hereunder (including any premiums paid on the
Policy by the Trustee under a trust established pursuant to
Section 6(a) below), plus interest on such sum computed at the
rate of four percent (4%) per annum (compounded annually) from
the date that the Employee attains age sixty-five (65) through
the date of repayment. (Such amount is hereinafter referred to
as the "Repayment Obligation.")
(b) If the Employee survives until the fifteenth (15th)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(c) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b), upon the death of the Employee, the
Company shall have the right to receive a portion of the death
benefit payable under the Policy equal to the Repayment
Obligation. The balance of the death benefit provided under
the Policy, if any, shall be paid directly to the beneficiary
or beneficiaries designated by the Employee, in the manner and
in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the
amount payable to the Company hereunder exceed the Policy
proceeds payable at the death of the Employee. No amount shall
be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof.
(d) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(c).
(e) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
2
<PAGE> 3
(f) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made first from Policy cash value
attributable to the paid-up additional life insurance
purchased by Policy dividends. The Employee shall have no
interest in the paid-up additional life insurance protection
except to the extent the death benefit or cash value thereof
exceeds the amount of the Repayment Obligation.
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy to anyone other than the Employee.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, he will not modify the death benefit under the Policy or
direct the investment of the cash surrender value of the Policy. The
Employee agrees that, prior to attaining age fifty-five (55), he shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55), he shall not withdraw any portion of the cash value of
the Policy or borrow against the Policy if, after such borrowing, the
cash value of the Policy would be reduced to an amount less than the
amount of the Repayment Obligation. Notwithstanding the preceding
sentences, the Employee may borrow or withdraw from the Policy, so long
as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the
3
<PAGE> 4
Company, who shall be entitled to direct the investments under the
Policy; provided, however, that the Designee may only direct the
investments under the Policy in funds offered by the Insurance Company
under the Policy.
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation and changes in ownership of
a substantial portion of a corporation's assets all as
defined, discussed and illustrated in Section 280G of the
Internal Revenue Code of 1986, as amended, and the duly
promulgated Treasury Regulations thereunder, and the
disposition of a substantial portion of the corporation's
assets as defined in (iv) below. Without limiting the
foregoing and by way of example:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation that, together with stock held by
such person or group, possess more than fifty percent
(50%) of the total fair market value or total voting
power of the stock of such corporation. An increase
in the percentage of stock owned by any one person,
or persons acting as a group, as a result of a
transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group, acquires (or
has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the
corporation and possessing twenty percent (20%) or
more of the total voting power of the stock of such
corporation; or a majority of members of the
corporation's board of directors is replaced during
any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
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<PAGE> 5
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-third (1/3) of the
total fair market value of all of the assets of the
corporation immediately prior to such acquisition or
acquisitions. The transfer of assets by a corporation
is not treated as a change in the ownership of such
assets if the assets are transferred: to a
shareholder of the corporation (immediately before
the asset transfer) in exchange for such
shareholder's capital stock of the corporation having
a fair market value approximately equal to the fair
market value of such assets; or to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-third (1/3) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the corporation or corporations
who acquired ownership of fifty percent (50%) or more of the surviving
corporations shall be deemed to have acted as a group, resulting in a change in
ownership under (i) above.
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<PAGE> 6
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
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<PAGE> 7
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
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<PAGE> 8
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his sole
discretion when he decides he has heard sufficient
evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he shall order the Company
to immediately take the necessary steps to remedy the
breach. The award of the arbitrator shall be final
and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible
after its rendition. If an action is brought to
confirm the award, both the Company and the Employee
(on his own behalf and on behalf of all other
Claimants) agree that no appeal shall be taken by
either party from any decision rendered in such
action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the other party. In the event that
the Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
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<PAGE> 9
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event
shall the Company have any power or interest related
to the Policy or its proceeds, except as provided
herein and in the Collateral Assignment. In the event
that the Company ever receives or may be deemed to
have received any right or interest in the Policy or
its proceeds beyond the limited rights described
herein and in the Collateral Assignment, such right
or interest shall be held in trust for the benefit of
the Employee and shall be held separate from the
property of the Company. The Company hereby agrees to
act as trustee for the benefit of the Employee and
his beneficiary concerning any right to the Policy or
its proceeds, except to the extent expressly provided
otherwise in this Agreement.
(b) In order to further protect the rights of the
Employee, the Company agrees that its rights to the
Policy and proceeds thereof shall serve as security
for the Company's obligations as provided in this
Agreement to the Employee. The Company grants to the
Employee a security interest in and collaterally
assigns to the Employee any and all rights the
Company has in the Policy and products and proceeds
thereof, whether now existing or hereafter arising
pursuant to the provisions of the Policy, this
Agreement, the Collateral Assignment, or otherwise,
to secure any and all obligations owed by the Company
to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the
Employee's rights to the Policy or expand in any way
the rights or benefits of the Company under this
Agreement, the Policy, or the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
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<PAGE> 10
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this
Agreement and the rights of the parties hereunder
shall be controlled by the laws of the State of
Georgia.
b) If this Agreement is considered a "plan" under the
Employee Retirement Income Security Act of 1974
("ERISA"), both the Company and the Employee
acknowledge and agree that, for all purposes, the
Agreement shall be treated as a "welfare plan" within
the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans
shall apply to the Agreement, and that any rights
that might arise under ERISA if this Agreement were
treated as a "pension plan" within the meaning of
Section 3(2) of ERISA are hereby expressly waived.
Consistent with the preceding sentence, the Employee
further acknowledges that his rights to the Policy
and the release of the Company's Security Interest
are strictly limited to those rights set forth in
this Agreement. In furtherance of this
acknowledgement and in consideration of the Company's
payment of the initial premiums for this Policy, the
Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any
different restrictions on the release of the
Company's Security Interest that he might otherwise
argue to exist under either federal, state, or local
law. The Employee further agrees that he will not
argue that any such additional rights or different
restrictions exist in any judicial or arbitration
proceeding. Similarly, the Company acknowledges that
its Security Interest is strictly limited as set
forth in this Agreement and voluntarily and
irrevocably relinquishes and waives any additional
interests or different interests or advantages that
the Company would have or enjoy if the Agreement were
not treated as a "welfare plan" within the meaning of
Section 3(1) of ERISA. The Company is hereby
designated as the named fiduciary under this
Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
--------------------------------
Its: President
--------------------------------
EMPLOYEE
/s/ Parker H. Petit
-----------------------------------
11
<PAGE> 12
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of January 1, 1997, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Number I0001637 (the "Policy") issued by Aetna Life Insurance
and Annuity Company (the "Insurer") upon the life of Owner and by Matria
Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of ______________, 19__, and entered into between the Owner and the
Assignee, as such Agreement may be hereafter amended or modified (the
"Agreement") (unless otherwise indicated, the terms herein shall have the
definitions ascribed thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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<PAGE> 13
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his ownership rights as of the third (3rd) business day following
either of the following events: (1) the Owner mails written notice of
such exercise to the Assignee by United States Certified Mail, postage
paid, at the address below and provides the Insurer with a copy of such
notice and a copy of the certified mail receipt, or (2) the Insurer
mails written notice of such exercise to the Assignee by regular United
States Mail, postage paid, at the address set forth below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
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<PAGE> 14
4. If the Policy is in the possession of the Assignee, the Assignee shall,
upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or
the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) of the Agreement and
transfer of such withdrawn or borrowed amount to the Assignee, or (2)
the payment to the Assignee of that portion of the death benefit under
the Policy to which the Assignee is entitled under Section 3(c) of the
Agreement. So long as the notice is also signed by the Owner or his
beneficiary, the Insurer shall pay or loan the specified amounts to the
Assignee without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
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<PAGE> 15
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 8 of the Agreement. Th rights under this Collateral Security
Agreement may be enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Parker H. Petit
-----------------------------------
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
---------------------------------
Title: President
------------------------------
15
<PAGE> 16
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION OF NON-SPOUSAL BENEFICIARY
My spouse is ____________. I hereby consent to the designation made by
my spouse of ____________ as the beneficiary (subject to any rights collaterally
assigned to Matria Healthcare, Inc.) under Life Insurance Policy No.
____________, which Matria Healthcare, Inc. has purchased from __________ and
transferred to him. I understand that this Consent is valid only with respect to
the naming of the beneficiary indicated above and that the designation of any
other beneficiary will not be valid unless I consent in writing to such
designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
---------------------------------------
Spouse's Signature
---------------------------------------
Print Spouse's Name
---------------------------------------
Date
16
<PAGE> 17
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
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<PAGE> 18
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
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<PAGE> 19
shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company if the principal and
earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
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<PAGE> 20
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
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<PAGE> 21
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
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<PAGE> 22
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
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<PAGE> 23
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
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<PAGE> 24
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
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<PAGE> 1
EXHIBIT 10.13
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of January 1, 1997, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and DONALD R.
MILLARD (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this
Agreement caused Aetna Life Insurance and Annuity Company (the
"Insurance Company") to issue and deliver to the Employee
Policy Numbers I0001567 and I0002714 (the "Policy") on the
life of the Employee. The first annual premium has been paid
by the Company as of the date of this Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his rights
granted by the terms of the Policy, except to the extent that the power
of the Employee to exercise those rights is specifically limited by
this Agreement and the Collateral Security Assignment Agreement of even
date in the form attached hereto as Exhibit A (the "Collateral
Assignment") executed by the Employee with respect to the Policy.
Except as so limited, it is the expressed intention of the parties to
reserve to the Employee all rights in and to the Policy granted to its
owner by the terms thereof, including, but not limited to, the right to
change the beneficiary of that portion of the proceeds to which the
Employee is entitled under Section 3(d) of this Agreement and the right
to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, the
Company agrees to make an annual premium payment on each of the first
six (6) anniversary dates of the Policy in the amount of $261,300. The
Company shall transmit all premium payments required hereunder directly
to the Insurance Company. During the period of time that this Agreement
is in effect, the Employee irrevocably agrees that all dividends paid
on the Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee.
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<PAGE> 2
3. Repayment Obligation.
(a) Upon the sixteenth (16th) anniversary date of the Policy or
the Employee's death, whichever shall first occur, the Company
shall have the right to be paid the total amount of premiums
paid by it hereunder (including any premiums paid on the
Policy by the Trustee under a trust established pursuant to
Section 6(a) below), plus interest on such sum computed at the
rate of four percent (4%) per annum (compounded annually) from
the date that the Employee attains age sixty-five (65) through
the date of repayment. (Such amount is hereinafter referred to
as the "Repayment Obligation.")
(b) If the Employee survives until the sixteenth (16th)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(c) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b), upon the death of the Employee, the
Company shall have the right to receive a portion of the death
benefit payable under the Policy equal to the Repayment
Obligation. The balance of the death benefit provided under
the Policy, if any, shall be paid directly to the beneficiary
or beneficiaries designated by the Employee, in the manner and
in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the
amount payable to the Company hereunder exceed the Policy
proceeds payable at the death of the Employee. No amount shall
be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof.
(d) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(c).
(e) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
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<PAGE> 3
(f) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made first from Policy cash value
attributable to the paid-up additional life insurance
purchased by Policy dividends. The Employee shall have no
interest in the paid-up additional life insurance protection
except to the extent the death benefit or cash value thereof
exceeds the amount of the Repayment Obligation.
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy to anyone other than the Employee.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, he will not modify the death benefit under the Policy or
direct the investment of the cash surrender value of the Policy. The
Employee agrees that, prior to attaining age fifty-five (55), he shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55), he shall not withdraw any portion of the cash value of
the Policy or borrow against the Policy if, after such borrowing, the
cash value of the Policy would be reduced to an amount less than the
amount of the Repayment Obligation. Notwithstanding the preceding
sentences, the Employee may borrow or withdraw from the Policy, so long
as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the
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<PAGE> 4
Company, who shall be entitled to direct the investments under the
Policy; provided, however, that the Designee may only direct the
investments under the Policy in funds offered by the Insurance Company
under the Policy.
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation and changes in ownership of
a substantial portion of a corporation's assets all as
defined, discussed and illustrated in Section 280G of the
Internal Revenue Code of 1986, as amended, and the duly
promulgated Treasury Regulations thereunder, and the
disposition of a substantial portion of the corporation's
assets as defined in (iv) below. Without limiting the
foregoing and by way of example:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation that, together with stock held by
such person or group, possess more than fifty percent
(50%) of the total fair market value or total voting
power of the stock of such corporation. An increase
in the percentage of stock owned by any one person,
or persons acting as a group, as a result of a
transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group, acquires (or
has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the
corporation and possessing twenty percent (20%) or
more of the total voting power of the stock of such
corporation; or a majority of members of the
corporation's board of directors is replaced during
any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
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<PAGE> 5
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-third (1/3) of the
total fair market value of all of the assets of the
corporation immediately prior to such acquisition or
acquisitions. The transfer of assets by a corporation
is not treated as a change in the ownership of such
assets if the assets are transferred: to a
shareholder of the corporation (immediately before
the asset transfer) in exchange for such
shareholder's capital stock of the corporation having
a fair market value approximately equal to the fair
market value of such assets; or to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-third (1/3) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the corporation or corporations
who acquired ownership of fifty percent (50%) or more of the surviving
corporations shall be deemed to have acted as a group, resulting in a change in
ownership under (i) above.
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<PAGE> 6
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
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<PAGE> 7
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
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<PAGE> 8
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his sole
discretion when he decides he has heard sufficient
evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he shall order the Company
to immediately take the necessary steps to remedy the
breach. The award of the arbitrator shall be final
and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible
after its rendition. If an action is brought to
confirm the award, both the Company and the Employee
(on his own behalf and on behalf of all other
Claimants) agree that no appeal shall be taken by
either party from any decision rendered in such
action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the other party. In the event that
the Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
8
<PAGE> 9
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event shall the
Company have any power or interest related to the Policy or
its proceeds, except as provided herein and in the Collateral
Assignment. In the event that the Company ever receives or may
be deemed to have received any right or interest in the Policy
or its proceeds beyond the limited rights described herein and
in the Collateral Assignment, such right or interest shall be
held in trust for the benefit of the Employee and shall be
held separate from the property of the Company. The Company
hereby agrees to act as trustee for the benefit of the
Employee and his beneficiary concerning any right to the
Policy or its proceeds, except to the extent expressly
provided otherwise in this Agreement.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds
thereof shall serve as security for the Company's obligations
as provided in this Agreement to the Employee. The Company
grants to the Employee a security interest in and collaterally
assigns to the Employee any and all rights the Company has in
the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of
the Policy, this Agreement, the Collateral Assignment, or
otherwise, to secure any and all obligations owed by the
Company to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the Employee's
rights to the Policy or expand in any way the rights or
benefits of the Company under this Agreement, the Policy, or
the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
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<PAGE> 10
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his rights to the Policy
and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he might otherwise argue to exist under either federal,
state, or local law. The Employee further agrees that he will
not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding.
Similarly, the Company acknowledges that its Security Interest
is strictly limited as set forth in this Agreement and
voluntarily and irrevocably relinquishes and waives any
additional interests or different interests or advantages that
the Company would have or enjoy if the Agreement were not
treated as a "welfare plan" within the meaning of Section 3(1)
of ERISA. The Company is hereby designated as the named
fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ J. Brent Burkey
----------------------------------
Its: Sr. V.P. and General Counsel
----------------------------------
EMPLOYEE
/s/ Donald R. Millard
-------------------------------------------
11
<PAGE> 12
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of January 1, 1997, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Numbers I0001567 and I0002714 (the "Policy") issued by Aetna
Life Insurance and Annuity Company (the "Insurer") upon the life of Owner and by
Matria Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of January 1, 1997, and entered into between the Owner and the
Assignee, as such Agreement may be hereafter amended or modified (the
"Agreement") (unless otherwise indicated, the terms herein shall have the
definitions ascribed thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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<PAGE> 13
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his ownership rights as of the third (3rd) business day following
either of the following events: (1) the Owner mails written notice of
such exercise to the Assignee by United States Certified Mail, postage
paid, at the address below and provides the Insurer with a copy of such
notice and a copy of the certified mail receipt, or (2) the Insurer
mails written notice of such exercise to the Assignee by regular United
States Mail, postage paid, at the address set forth below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
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<PAGE> 14
4. If the Policy is in the possession of the Assignee, the Assignee shall,
upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or
the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) of the Agreement and
transfer of such withdrawn or borrowed amount to the Assignee, or (2)
the payment to the Assignee of that portion of the death benefit under
the Policy to which the Assignee is entitled under Section 3(c) of the
Agreement. So long as the notice is also signed by the Owner or his
beneficiary, the Insurer shall pay or loan the specified amounts to the
Assignee without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
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<PAGE> 15
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 8 of the Agreement. The rights under this Collateral
Security Agreement may be enforced pursuant to the terms of the
Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Donald R. Millard
----------------------------------------
MATRIA HEALTHCARE, INC.
By: /s/ J. Brent Burkey
---------------------------------
Title: Sr. V.P. and General Counsel
---------------------------------
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<PAGE> 16
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION OF NON-SPOUSAL BENEFICIARY
My spouse is ____________. I hereby consent to the designation made by
my spouse of ____________ as the beneficiary (subject to any rights collaterally
assigned to Matria Healthcare, Inc.) under Life Insurance Policy No.
____________, which Matria Healthcare, Inc. has purchased from __________ and
transferred to him. I understand that this Consent is valid only with respect to
the naming of the beneficiary indicated above and that the designation of any
other beneficiary will not be valid unless I consent in writing to such
designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
_______________________________________
Spouse's Signature
_______________________________________
Print Spouse's Name
_______________________________________
Date
16
<PAGE> 17
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
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<PAGE> 18
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
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<PAGE> 19
shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company if the principal and
earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
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<PAGE> 20
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
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<PAGE> 21
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
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<PAGE> 22
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
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<PAGE> 23
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
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<PAGE> 24
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
24
<PAGE> 1
EXHIBIT 10.14
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of January 1, 1997, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and FRANK D.
POWERS (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this
Agreement caused Aetna Life Insurance and Annuity Company (the
"Insurance Company") to issue and deliver to the Employee
Policy Numbers I0001568 and I0002715 (the "Policy") on the
life of the Employee. The first annual premium has been paid
by the Company as of the date of this Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his rights
granted by the terms of the Policy, except to the extent that the power
of the Employee to exercise those rights is specifically limited by
this Agreement and the Collateral Security Assignment Agreement of even
date in the form attached hereto as Exhibit A (the "Collateral
Assignment") executed by the Employee with respect to the Policy.
Except as so limited, it is the expressed intention of the parties to
reserve to the Employee all rights in and to the Policy granted to its
owner by the terms thereof, including, but not limited to, the right to
change the beneficiary of that portion of the proceeds to which the
Employee is entitled under Section 3(d) of this Agreement and the right
to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, the
Company agrees to make an annual premium payment on each of the first
six (6) anniversary dates of the Policy in the amount of $234,035. The
Company shall transmit all premium payments required hereunder directly
to the Insurance Company. During the period of time that this Agreement
is in effect, the Employee irrevocably agrees that all dividends paid
on the Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee.
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<PAGE> 2
3. Repayment Obligation.
(a) Upon the seventeenth (17th) anniversary date of the Policy or
the Employee's death, whichever shall first occur, the Company
shall have the right to be paid the total amount of premiums
paid by it hereunder (including any premiums paid on the
Policy by the Trustee under a trust established pursuant to
Section 6(a) below), plus interest on such sum computed at the
rate of four percent (4%) per annum (compounded annually) from
the date that the Employee attains age sixty-five (65) through
the date of repayment. (Such amount is hereinafter referred to
as the "Repayment Obligation.")
(b) If the Employee survives until the seventeenth (17th)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(c) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b), upon the death of the Employee, the
Company shall have the right to receive a portion of the death
benefit payable under the Policy equal to the Repayment
Obligation. The balance of the death benefit provided under
the Policy, if any, shall be paid directly to the beneficiary
or beneficiaries designated by the Employee, in the manner and
in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the
amount payable to the Company hereunder exceed the Policy
proceeds payable at the death of the Employee. No amount shall
be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof.
(d) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(c).
(e) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
2
<PAGE> 3
(f) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made first from Policy cash value
attributable to the paid-up additional life insurance
purchased by Policy dividends. The Employee shall have no
interest in the paid-up additional life insurance protection
except to the extent the death benefit or cash value thereof
exceeds the amount of the Repayment Obligation.
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy to anyone other than the Employee.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, he will not modify the death benefit under the Policy or
direct the investment of the cash surrender value of the Policy. The
Employee agrees that, prior to attaining age fifty-five (55), he shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55), he shall not withdraw any portion of the cash value of
the Policy or borrow against the Policy if, after such borrowing, the
cash value of the Policy would be reduced to an amount less than the
amount of the Repayment Obligation. Notwithstanding the preceding
sentences, the Employee may borrow or withdraw from the Policy, so long
as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the
3
<PAGE> 4
Company, who shall be entitled to direct the investments under the
Policy; provided, however, that the Designee may only direct the
investments under the Policy in funds offered by the Insurance Company
under the Policy.
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation and changes in ownership of
a substantial portion of a corporation's assets all as
defined, discussed and illustrated in Section 280G of the
Internal Revenue Code of 1986, as amended, and the duly
promulgated Treasury Regulations thereunder, and the
disposition of a substantial portion of the corporation's
assets as defined in (iv) below. Without limiting the
foregoing and by way of example:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation that, together with stock held by
such person or group, possess more than fifty percent
(50%) of the total fair market value or total voting
power of the stock of such corporation. An increase
in the percentage of stock owned by any one person,
or persons acting as a group, as a result of a
transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group, acquires (or
has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the
corporation and possessing twenty percent (20%) or
more of the total voting power of the stock of such
corporation; or a majority of members of the
corporation's board of directors is replaced during
any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
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<PAGE> 5
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-third (1/3) of the
total fair market value of all of the assets of the
corporation immediately prior to such acquisition or
acquisitions. The transfer of assets by a corporation
is not treated as a change in the ownership of such
assets if the assets are transferred: to a
shareholder of the corporation (immediately before
the asset transfer) in exchange for such
shareholder's capital stock of the corporation having
a fair market value approximately equal to the fair
market value of such assets; or to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-third (1/3) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the corporation or corporations
who acquired ownership of fifty percent (50%) or more of the surviving
corporations shall be deemed to have acted as a group, resulting in a change in
ownership under (i) above.
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<PAGE> 6
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
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<PAGE> 7
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
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<PAGE> 8
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his sole
discretion when he decides he has heard sufficient
evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he shall order the Company
to immediately take the necessary steps to remedy the
breach. The award of the arbitrator shall be final
and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible
after its rendition. If an action is brought to
confirm the award, both the Company and the Employee
(on his own behalf and on behalf of all other
Claimants) agree that no appeal shall be taken by
either party from any decision rendered in such
action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the other party. In the event that
the Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
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<PAGE> 9
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event shall the
Company have any power or interest related to the Policy or
its proceeds, except as provided herein and in the Collateral
Assignment. In the event that the Company ever receives or may
be deemed to have received any right or interest in the Policy
or its proceeds beyond the limited rights described herein and
in the Collateral Assignment, such right or interest shall be
held in trust for the benefit of the Employee and shall be
held separate from the property of the Company. The Company
hereby agrees to act as trustee for the benefit of the
Employee and his beneficiary concerning any right to the
Policy or its proceeds, except to the extent expressly
provided otherwise in this Agreement.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds
thereof shall serve as security for the Company's obligations
as provided in this Agreement to the Employee. The Company
grants to the Employee a security interest in and collaterally
assigns to the Employee any and all rights the Company has in
the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of
the Policy, this Agreement, the Collateral Assignment, or
otherwise, to secure any and all obligations owed by the
Company to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the Employee's
rights to the Policy or expand in any way the rights or
benefits of the Company under this Agreement, the Policy, or
the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
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<PAGE> 10
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his rights to the Policy
and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he might otherwise argue to exist under either federal,
state, or local law. The Employee further agrees that he will
not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding.
Similarly, the Company acknowledges that its Security Interest
is strictly limited as set forth in this Agreement and
voluntarily and irrevocably relinquishes and waives any
additional interests or different interests or advantages that
the Company would have or enjoy if the Agreement were not
treated as a "welfare plan" within the meaning of Section 3(1)
of ERISA. The Company is hereby designated as the named
fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
--------------------------------
Its: President
--------------------------------
EMPLOYEE
/s/ Frank D. Powers
--------------------------------------
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<PAGE> 12
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of January 1, 1997, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Numbers I0001568 and I0002715 (the "Policy") issued by Aetna
Life Insurance and Annuity Company (the "Insurer") upon the life of Owner and by
Matria Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of January 1, 1997, and entered into between the Owner and the
Assignee, as such Agreement may be hereafter amended or modified (the
"Agreement") (unless otherwise indicated, the terms herein shall have the
definitions ascribed thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
12
<PAGE> 13
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his ownership rights as of the third (3rd) business day following
either of the following events: (1) the Owner mails written notice of
such exercise to the Assignee by United States Certified Mail, postage
paid, at the address below and provides the Insurer with a copy of such
notice and a copy of the certified mail receipt, or (2) the Insurer
mails written notice of such exercise to the Assignee by regular United
States Mail, postage paid, at the address set forth below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
13
<PAGE> 14
4. If the Policy is in the possession of the Assignee, the Assignee shall,
upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or
the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) of the Agreement and
transfer of such withdrawn or borrowed amount to the Assignee, or (2)
the payment to the Assignee of that portion of the death benefit under
the Policy to which the Assignee is entitled under Section 3(c) of the
Agreement. So long as the notice is also signed by the Owner or his
beneficiary, the Insurer shall pay or loan the specified amounts to the
Assignee without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
14
<PAGE> 15
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 8 of the Agreement. Th rights under this Collateral Security
Agreement may be enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Frank D. Powers
---------------------------------------
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
---------------------------------
Title: President
---------------------------------
15
<PAGE> 16
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION OF NON-SPOUSAL BENEFICIARY
My spouse is ____________. I hereby consent to the designation made by
my spouse of ____________ as the beneficiary (subject to any rights collaterally
assigned to Matria Healthcare, Inc.) under Life Insurance Policy No.
____________, which Matria Healthcare, Inc. has purchased from __________ and
transferred to him. I understand that this Consent is valid only with respect to
the naming of the beneficiary indicated above and that the designation of any
other beneficiary will not be valid unless I consent in writing to such
designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
_______________________________________
Spouse's Signature
_______________________________________
Print Spouse's Name
_______________________________________
Date
16
<PAGE> 17
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
17
<PAGE> 18
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any
18
<PAGE> 19
earnings thereon are not sufficient to make payments of
Premium Obligations in accordance with the terms of the
Agreements, the Company shall make the balance of each such
payment as it falls due. The Trustee shall notify the Company
if the principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
19
<PAGE> 20
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
20
<PAGE> 21
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
21
<PAGE> 22
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
22
<PAGE> 23
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
23
<PAGE> 24
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
24
<PAGE> 1
EXHIBIT 10.15
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of July 1, 1998, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and THORNTON A.
KUNTZ, JR. (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this
Agreement caused Aetna Life Insurance and Annuity Company (the
"Insurance Company") to issue and deliver to the Employee
Policy Number I0003341 (the "Policy") on the life of the
Employee. The first annual premium has been paid by the
Company as of the date of this Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his or her
rights granted by the terms of the Policy, except to the extent that
the power of the Employee to exercise those rights is specifically
limited by this Agreement and the Collateral Security Assignment
Agreement of even date in the form attached hereto as Exhibit A (the
"Collateral Assignment") executed by the Employee with respect to the
Policy. Except as so limited, it is the expressed intention of the
parties to reserve to the Employee all rights in and to the Policy
granted to its owner by the terms thereof, including, but not limited
to, the right to change the beneficiary of that portion of the proceeds
to which the Employee is entitled under Section 3(d) of this Agreement
and the right to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, unless
and until the Employee's employment with the Company is terminated for
reasons other than Employee's Disability (as defined in this Section 2)
prior to the Employee's completion of ten (10) Years of Service (as
defined in this Section 2) if such termination occurs prior to a Change
in Control (as defined in Section 6 below) or due to the Employee's
Disability prior to the Employee's completion of five (5) Years of
Service, the Company agrees to make an annual premium payment on each
of the first six (6) anniversary dates of the Policy in the amount of
$116,570. The Company shall transmit all premium payments required
hereunder directly to the
1
<PAGE> 2
Insurance Company. During the period of time that this Agreement is in
effect, the Employee irrevocably agrees that all dividends paid on the
Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee. For
purposes of this Agreement, "Disability" shall mean disability under
the Company's long-term disability plan then in effect (or if no plan
is then in effect, on the date hereof) and a "Year of Service" shall
mean each twelve (12) month period during the Employee's employment
with the Company in which the Employee completes at least one thousand
(1,000) hours of employment with the Company plus, in the event of a
Change in Control of the Company, three (3) years. Employment with any
entity in which the Company, directly or indirectly, owns in excess of
fifty percent (50%) of the voting interests therein shall, for all
purposes of this Agreement, constitute employment with the Company.
3. Repayment Obligation.
(a)(i) Subject to the last sentence of Sections 3(b) and 3(d) below,
upon the first to occur of (w) the twenty-second (22nd)
anniversary date of the Policy, (x) the Employee's death, (y)
termination of the Employee's employment with the Company
(other than by reason of the Employee's death or Disability)
prior to completion of ten (10) Years of Service if such
termination occurs prior to a Change in Control or (z)
termination of the Employee's employment with the Company by
reason of the Employee's Disability prior to completion of
five (5) Years of Service, the Company shall have the right to
be paid the amount of its Premium Advances (as hereinafter
defined), plus, except in the case of the death of the
Employee while employed by the Company, the amount by which
the Net Policy Value (as hereinafter defined) exceeds the
Employee's Vested Life Insurance Plan Benefit (as hereinafter
defined).
(ii) For purposes of this section, the term "Premium Advances"
shall mean the total amount of premiums paid by the Company
hereunder (including any premiums paid on the Policy by the
Trustee under a trust established pursuant to Section 6(a)
below) and the term "Net Policy Value" shall mean the amount
by which the then cash surrender value of the Policy or, in
the event the payment obligation arises pursuant to Section
3(a)(i)(x) above, the death benefit payable under the Policy,
exceeds the amount of the Premium Advances. In the case of a
termination of the Employee's employment described in Section
3(a)(i)(y) or Section 3(a)(i)(z) above, the Employee's Vested
Life Insurance Plan Benefit shall be zero (0).
2
<PAGE> 3
In all other cases, the Employee's Vested Life Insurance Plan
Benefit shall be the lesser of (x) the Net Policy Value and
(y) the amount calculated by multiplying the greater of (i)
$2,082,188 and (ii) the Net Policy Value by a percentage based
on the Employee's age at termination of employment, Years of
Service and other factors as set forth below:
<TABLE>
<CAPTION>
PERCENTAGE
--------------------------------------------------------------------------
Termination of Employment prior to Termination of Employment
a Change in Control for reasons other due to Disability or after a
than Disability Change in Control
------------------------------------- ------------------------------
Years of Age at Termination Age at Termination
Service <55 55 or more
- -------- --------------------------------------------------------------------------
<S> <C> <C> <C>
< 5 - 0 - - 0 - - 0 -
5 - 0 - - 0 - 33%
6 - 0 - - 0 - 40%
7 - 0 - - 0 - 47%
8 - 0 - - 0 - 53%
9 - 0 - - 0 - 60%
10 30% 50% 67%
11 36% 60% 73%
12 42% 70% 80%
13 48% 80% 87%
14 54% 90% 93%
15 or more 60%* 100% 100%
</TABLE>
* 100% in the event the Employee's employment is terminated without cause after
attaining 15 Years of Service and 52 years of age. "Cause" shall mean the
Company's termination of the Employee's employment on the basis of criminal or
civil fraud on the part of the Employee involving a material amount of funds of
the Company. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Company's
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board) finding that
in the good faith opinion of the Board, the Employee was guilty of conduct set
forth in the second sentence of this footnote and specifying the particulars
thereof in detail. For purposes of this Agreement only, the preparation and
filing of fictitious, false or misleading claims in connection with any federal,
state or other third-party medical reimbursement program, or any other violation
of any rule or regulation in respect of any federal, state or other third-party
medical reimbursement program by the Company or any subsidiary of the Company
shall not be deemed to constitute "criminal fraud" or "civil fraud."
The amount that the Company is entitled to be paid under this
Section 3 is hereinafter referred to as the "Repayment
Obligation."
(b) In the case of a termination of the Employee's employment
described in Section 3(a)(i)(y) or Section 3(a)(i)(z) above,
the Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a non-recourse basis, to be
transferred to the Company, an amount equal to the maximum
amount that may then be obtained under the Policy. In no event
shall the amount payable to the Company under this Section
3(b) exceed the amount described in the preceding sentence.
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<PAGE> 4
(c) If the Employee survives until the twenty-second (22nd)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(d) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b) or Section 3(c) above, upon the death
of the Employee, the Company shall have the right to receive a
portion of the death benefit payable under the Policy equal to
the Repayment Obligation. The balance of the death benefit
provided under the Policy, if any, shall be paid directly to
the beneficiary or beneficiaries designated by the Employee,
in the manner and in the amount or amounts provided in the
beneficiary designation provision of he Policy. No amount
shall be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof. In no event shall the
amount payable to the Company under this Section 3(d) exceed
the Policy proceeds payable at the death of the Employee.
(e) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(d).
(f) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
(g) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made from Policy cash value attributable
to the paid-up additional life insurance purchased by Policy
dividends. The Employee shall have no interest in the paid-up
additional life insurance protection except to the extent the
death benefit or cash value thereof exceeds the amount of the
Repayment Obligation.
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<PAGE> 5
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, the Employee will not modify the death benefit under the
Policy or direct the investment of the cash surrender value of the
Policy. The Employee agrees that, prior to attaining age fifty-five
(55) and completion of fifteen (15) Years of Service, he or she shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55) and completion of fifteen (15) Years of Service, he or
she shall not withdraw any portion of the cash value of the Policy or
borrow against the Policy if, after such borrowing, the cash value of
the Policy would be reduced to an amount less than the amount of the
Repayment Obligation. Notwithstanding the preceding sentences, the
Employee may borrow or withdraw from the Policy, so long as the
borrowing or withdrawal request is submitted to the Insurance Company
along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the Company, who shall be entitled to direct the
investments under the Policy; provided, however, that the Designee may
only direct the investments under the Policy in funds offered by the
Insurance Company under the Policy.
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<PAGE> 6
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation, changes in ownership of a
substantial portion of a corporation's assets and the
disposition of a substantial portion of the corporation's
assets all as defined below:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation which, together with stock held by
such person or group, represents more than fifty
percent (50%) of the total fair market value or total
voting power of the stock of such corporation. An
increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of
a transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group becomes the
beneficial owner of stock of the corporation and
possessing twenty percent (20%) or more of the total
voting power of the stock of such corporation; or a
majority of members of the corporation's board of
directors is replaced during any twenty-four (24)
month period by directors whose appointment or
election is not endorsed by at least two-thirds (2/3)
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-half (1/2) of the
total fair market value of all of the assets
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<PAGE> 7
of the corporation immediately prior to such
acquisition or acquisitions. The transfer of assets
by a corporation is not treated as a change in the
ownership of such assets if the assets are
transferred: to a shareholder of the corporation
(immediately before the asset transfer) in exchange
for such shareholder's capital stock of the
corporation having a fair market value approximately
equal to the fair market value of such assets; or to
an entity, fifty percent (50%) or more of the total
value or voting power of which is owned, directly or
indirectly, by the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-half (1/2) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the other parties to the
transaction shall be deemed to have acted as a group that acquired ownership of
more than fifty percent (50%) of the outstanding voting securities of the
Company, resulting in a change in ownership under (i) above.
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
7
<PAGE> 8
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his or her beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
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<PAGE> 9
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he or she can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
9
<PAGE> 10
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole
discretion when he or she decides he or she has heard
sufficient evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he or she shall order the
Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall
be final and binding upon the parties. The award may
be enforced in any appropriate court as soon as
possible after its rendition. If an action is brought
to confirm the award, both the Company and the
Employee (on his or her own behalf and on behalf of
all other Claimants) agree that no appeal shall be
taken by either party from any decision rendered in
such action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the Claimant. In the event that the
Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event shall the Company
have any power or interest related to the Policy or its proceeds,
except as provided herein and in the Collateral Assignment. In the
event that the Company ever receives or may be deemed to have received
any
10
<PAGE> 11
right or interest in the Policy or its proceeds beyond the limited
rights described herein and in the Collateral Assignment, such right or
interest shall be held in trust for the benefit of the Employee and
shall be held separate from the property of the Company. The Company
hereby agrees to act as trustee for the benefit of the Employee and his
beneficiary concerning any right to the Policy or its proceeds, except
to the extent expressly provided otherwise in this Agreement.
(b) In order to further protect the rights of the Employee, the Company
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Company's obligations as provided in this Agreement
to the Employee. The Company grants to the Employee a security interest
in and collaterally assigns to the Employee any and all rights the
Company has in the Policy and products and proceeds thereof, whether
now existing or hereafter arising pursuant to the provisions of the
Policy, this Agreement, the Collateral Assignment, or otherwise, to
secure any and all obligations owed by the Company to the Employee
under this Agreement. In no event shall this provision be interpreted
to reduce the Employee's rights to the Policy or expand in any way the
rights or benefits of the Company under this Agreement, the Policy, or
the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
11
<PAGE> 12
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he or she might otherwise argue to exist under either
federal, state, or local law. The Employee further agrees that
he or she will not argue that any such additional rights or
different restrictions exist in any judicial or arbitration
proceeding. Similarly, the Company acknowledges that its
Security Interest is strictly limited as set forth in this
Agreement and voluntarily and irrevocably relinquishes and
waives any additional interests or different interests or
advantages that the Company would have or enjoy if the
Agreement were not treated as a "welfare plan" within the
meaning of Section 3(1) of ERISA. The Company is hereby
designated as the named fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
-------------------------------
Its: President
-------------------------------
EMPLOYEE
/s/ Thornton A. Kuntz, Jr.
-------------------------------------
THORNTON A. KUNTZ, JR.
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<PAGE> 14
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
THIS COLLATERAL SECURITY ASSIGNMENT is made and entered into effective
as of July 1, 1998, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Number I0003341 (the "Policy") issued by Aetna Life Insurance
and Annuity Company (the "Insurer") upon the life of Owner and by Matria
Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him or her in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of July 1, 1998, and entered into between the Owner and the Assignee,
as such Agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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<PAGE> 15
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his or her ownership rights as of the third (3rd) business day
following either of the following events: (1) the Owner mails written
notice of such exercise to the Assignee by United States Certified
Mail, postage paid, at the address below and provides the Insurer with
a copy of such notice and a copy of the certified mail receipt, or (2)
the Insurer mails written notice of such exercise to the Assignee by
regular United States Mail, postage paid, at the address set forth
below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
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<PAGE> 16
4. If the Policy is in the possession of the Assignee, the Assignee shall,
upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or
the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) or 3(c) of the
Agreement and transfer of such withdrawn or borrowed amount to the
Assignee, or (2) the payment to the Assignee of that portion of the
death benefit under the Policy to which the Assignee is entitled under
Section 3(d) of the Agreement. So long as the notice is also signed by
the Owner or his beneficiary, the Insurer shall pay or loan the
specified amounts to the Assignee without the need for any additional
documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
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<PAGE> 17
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 7 of the Agreement. Th rights under this Collateral Security
Agreement may be enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Thornton A. Kuntz, Jr.
-------------------------------------
THORNTON A. KUNTZ, JR.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
----------------------------
Title: President
----------------------------
17
<PAGE> 18
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION
OF NON-SPOUSAL BENEFICIARY
My spouse is __________________. I hereby consent to the designation
made by my spouse of __________________ as the beneficiary (subject to any
rights collaterally assigned to Matria Healthcare, Inc.) under Life Insurance
Policy No. ________________, which Matria Healthcare, Inc. has purchased from
__________________ and transferred to him or her. I understand that this Consent
is valid only with respect to the naming of the beneficiary indicated above and
that the designation of any other beneficiary will not be valid unless I consent
in writing to such designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
_______________________________________
Spouse's Signature
_______________________________________
Print Spouse's Name
_______________________________________
Date
18
<PAGE> 19
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
19
<PAGE> 20
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
20
<PAGE> 21
shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company if the principal and
earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
21
<PAGE> 22
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
22
<PAGE> 23
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
23
<PAGE> 24
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
24
<PAGE> 25
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
25
<PAGE> 26
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
26
<PAGE> 27
APPENDIX A
The Company is a party to a Split Dollar Insurance Agreement dated as
of July 1, 1998 with each of the following individuals: Yvonne Scoggins; Roberta
L. McCaw; Thornton A. Kuntz, Jr; James P. Reichmann, III; and Martin L. Olson.
27
<PAGE> 1
EXHIBIT 10.16
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of July 1, 1998, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and ROBERTA L.
MCCAW (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this Agreement
caused Aetna Life Insurance and Annuity Company (the "Insurance
Company") to issue and deliver to the Employee Policy Number
I0003335 (the "Policy") on the life of the Employee. The first
annual premium has been paid by the Company as of the date of this
Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his or her
rights granted by the terms of the Policy, except to the extent that
the power of the Employee to exercise those rights is specifically
limited by this Agreement and the Collateral Security Assignment
Agreement of even date in the form attached hereto as Exhibit A (the
"Collateral Assignment") executed by the Employee with respect to the
Policy. Except as so limited, it is the expressed intention of the
parties to reserve to the Employee all rights in and to the Policy
granted to its owner by the terms thereof, including, but not limited
to, the right to change the beneficiary of that portion of the proceeds
to which the Employee is entitled under Section 3(d) of this Agreement
and the right to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, unless
and until the Employee's employment with the Company is terminated for
reasons other than Employee's Disability (as defined in this Section 2)
prior to the Employee's completion of ten (10) Years of Service (as
defined in this Section 2) if such termination occurs prior to a Change
in Control (as defined in Section 6 below) or due to the Employee's
Disability prior to the Employee's completion of five (5) Years of
Service, the Company agrees to make an annual premium payment on each
of the first six (6) anniversary dates of the Policy in the amount of
$99,240. The Company shall transmit all premium payments required
hereunder directly to the
<PAGE> 2
Insurance Company. During the period of time that this Agreement is in
effect, the Employee irrevocably agrees that all dividends paid on the
Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee. For
purposes of this Agreement, "Disability" shall mean disability under
the Company's long-term disability plan then in effect (or if no plan
is then in effect, on the date hereof) and a "Year of Service" shall
mean each twelve (12) month period during the Employee's employment
with the Company in which the Employee completes at least one thousand
(1,000) hours of employment with the Company plus, in the event of a
Change in Control of the Company, three (3) years. Employment with any
entity in which the Company, directly or indirectly, owns in excess of
fifty percent (50%) of the voting interests therein shall, for all
purposes of this Agreement, constitute employment with the Company.
3. Repayment Obligation.
(a)(i) Subject to the last sentence of Sections 3(b) and 3(d)
below, upon the first to occur of (w) the twenty-third (23rd)
anniversary date of the Policy, (x) the Employee's death, (y)
termination of the Employee's employment with the Company
(other than by reason of the Employee's death or Disability)
prior to completion of ten (10) Years of Service if such
termination occurs prior to a Change in Control or (z)
termination of the Employee's employment with the Company by
reason of the Employee's Disability prior to completion of
five (5) Years of Service, the Company shall have the right to
be paid the amount of its Premium Advances (as hereinafter
defined), plus, except in the case of the death of the
Employee while employed by the Company, the amount by which
the Net Policy Value (as hereinafter defined) exceeds the
Employee's Vested Life Insurance Plan Benefit (as hereinafter
defined).
(ii) For purposes of this section, the term "Premium Advances"
shall mean the total amount of premiums paid by the Company
hereunder (including any premiums paid on the Policy by the
Trustee under a trust established pursuant to Section 6(a)
below) and the term "Net Policy Value" shall mean the amount
by which the then cash surrender value of the Policy or, in
the event the payment obligation arises pursuant to Section
3(a)(i)(x) above, the death benefit payable under the Policy,
exceeds the amount of the Premium Advances. In the case of a
termination of the Employee's employment described in Section
3(a)(i)(y) or Section 3(a)(i)(z) above, the Employee's Vested
Life Insurance Plan Benefit shall be zero (0). In all other
cases, the Employee's Vested Life Insurance Plan Benefit shall
be the lesser of (x) the Net Policy Value and (y) the amount
calculated by multiplying the greater of (i) $1,844,207 and
(ii) the Net Policy Value by a percentage based on the
Employee's age at termination of employment, Years of Service
and other factors as set forth below:
2
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE
------------------------------------------------------------------------
Termination of Employment prior to Termination of Employment
a Change in Control for reasons other due to Disability or after a
than Disability Change in Control
----------------------------------------- ----------------------------
Years of Age at Termination Age at Termination
Service < 55 55 or more
- -------- ------------------------------------------
<S> <C> <C> <C>
< 5 - 0 - - 0 - - 0 -
5 - 0 - - 0 - 33%
6 - 0 - - 0 - 40%
7 - 0 - - 0 - 47%
8 - 0 - - 0 - 53%
9 - 0 - - 0 - 60%
10 30% 50% 67%
11 36% 60% 73%
12 42% 70% 80%
13 48% 80% 87%
14 54% 90% 93%
15 or more 60%* 100% 100%
</TABLE>
* 100% in the event the Employee's employment is terminated without cause after
attaining 15 Years of Service and 52 years of age. "Cause" shall mean the
Company's termination of the Employee's employment on the basis of criminal or
civil fraud on the part of the Employee involving a material amount of funds of
the Company. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Company's
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board) finding that
in the good faith opinion of the Board, the Employee was guilty of conduct set
forth in the second sentence of this footnote and specifying the particulars
thereof in detail. For purposes of this Agreement only, the preparation and
filing of fictitious, false or misleading claims in connection with any federal,
state or other third-party medical reimbursement program, or any other violation
of any rule or regulation in respect of any federal, state or other third-party
medical reimbursement program by the Company or any subsidiary of the Company
shall not be deemed to constitute "criminal fraud" or "civil fraud."
The amount that the Company is entitled to be paid under this
Section 3 is hereinafter referred to as the "Repayment
Obligation."
(b) In the case of a termination of the Employee's employment
described in Section 3(a)(i)(y) or Section 3(a)(i)(z) above,
the Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a non-recourse basis, to be
transferred to the Company, an amount equal to the maximum
amount that may then be obtained under the Policy. In no event
shall the amount payable to the Company under this Section
3(b) exceed the amount described in the preceding sentence.
3
<PAGE> 4
(c) If the Employee survives until the twenty-third (23rd)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(d) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b) or Section 3(c) above, upon the death
of the Employee, the Company shall have the right to receive a
portion of the death benefit payable under the Policy equal to
the Repayment Obligation. The balance of the death benefit
provided under the Policy, if any, shall be paid directly to
the beneficiary or beneficiaries designated by the Employee,
in the manner and in the amount or amounts provided in the
beneficiary designation provision of he Policy. No amount
shall be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof. In no event shall the
amount payable to the Company under this Section 3(d) exceed
the Policy proceeds payable at the death of the Employee.
(e) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(d).
(f) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
(g) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made from Policy cash value attributable
to the paid-up additional life insurance purchased by Policy
dividends. The Employee shall have no interest in the paid-up
additional life insurance protection except to the extent the
death benefit or cash value thereof exceeds the amount of the
Repayment Obligation.
4
<PAGE> 5
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, the Employee will not modify the death benefit under the
Policy or direct the investment of the cash surrender value of the
Policy. The Employee agrees that, prior to attaining age fifty-five
(55) and completion of fifteen (15) Years of Service, he or she shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55) and completion of fifteen (15) Years of Service, he or
she shall not withdraw any portion of the cash value of the Policy or
borrow against the Policy if, after such borrowing, the cash value of
the Policy would be reduced to an amount less than the amount of the
Repayment Obligation. Notwithstanding the preceding sentences, the
Employee may borrow or withdraw from the Policy, so long as the
borrowing or withdrawal request is submitted to the Insurance Company
along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the Company, who shall be entitled to direct the
investments under the Policy; provided, however, that the Designee may
only direct the investments under the Policy in funds offered by the
Insurance Company under the Policy.
5
<PAGE> 6
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation, changes in ownership of a
substantial portion of a corporation's assets and the
disposition of a substantial portion of the corporation's
assets all as defined below:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation which, together with stock held by
such person or group, represents more than fifty
percent (50%) of the total fair market value or total
voting power of the stock of such corporation. An
increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of
a transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group becomes the
beneficial owner of stock of the corporation and
possessing twenty percent (20%) or more of the total
voting power of the stock of such corporation; or a
majority of members of the corporation's board of
directors is replaced during any twenty-four (24)
month period by directors whose appointment or
election is not endorsed by at least two-thirds (2/3)
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-half (1/2) of the
total fair market value of all of the assets
6
<PAGE> 7
of the corporation immediately prior to such
acquisition or acquisitions. The transfer of assets
by a corporation is not treated as a change in the
ownership of such assets if the assets are
transferred: to a shareholder of the corporation
(immediately before the asset transfer) in exchange
for such shareholder's capital stock of the
corporation having a fair market value approximately
equal to the fair market value of such assets; or to
an entity, fifty percent (50%) or more of the total
value or voting power of which is owned, directly or
indirectly, by the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-half (1/2) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the other parties to the
transaction shall be deemed to have acted as a group that acquired ownership of
more than fifty percent (50%) of the outstanding voting securities of the
Company, resulting in a change in ownership under (i) above.
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
7
<PAGE> 8
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his or her beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
8
<PAGE> 9
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he or she can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
9
<PAGE> 10
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole
discretion when he or she decides he or she has heard
sufficient evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he or she shall order the
Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall
be final and binding upon the parties. The award may
be enforced in any appropriate court as soon as
possible after its rendition. If an action is brought
to confirm the award, both the Company and the
Employee (on his or her own behalf and on behalf of
all other Claimants) agree that no appeal shall be
taken by either party from any decision rendered in
such action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the Claimant. In the event that the
Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event shall the
Company have any power or interest related to the Policy or
its proceeds, except as provided herein and in the Collateral
Assignment. In the event that the Company ever receives or may
be deemed to have received any
10
<PAGE> 11
right or interest in the Policy or its proceeds beyond the
limited rights described herein and in the Collateral
Assignment, such right or interest shall be held in trust for
the benefit of the Employee and shall be held separate from
the property of the Company. The Company hereby agrees to act
as trustee for the benefit of the Employee and his beneficiary
concerning any right to the Policy or its proceeds, except to
the extent expressly provided otherwise in this Agreement.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds
thereof shall serve as security for the Company's obligations
as provided in this Agreement to the Employee. The Company
grants to the Employee a security interest in and collaterally
assigns to the Employee any and all rights the Company has in
the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of
the Policy, this Agreement, the Collateral Assignment, or
otherwise, to secure any and all obligations owed by the
Company to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the Employee's
rights to the Policy or expand in any way the rights or
benefits of the Company under this Agreement, the Policy, or
the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
11
<PAGE> 12
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he or she might otherwise argue to exist under either
federal, state, or local law. The Employee further agrees that
he or she will not argue that any such additional rights or
different restrictions exist in any judicial or arbitration
proceeding. Similarly, the Company acknowledges that its
Security Interest is strictly limited as set forth in this
Agreement and voluntarily and irrevocably relinquishes and
waives any additional interests or different interests or
advantages that the Company would have or enjoy if the
Agreement were not treated as a "welfare plan" within the
meaning of Section 3(1) of ERISA. The Company is hereby
designated as the named fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
----------------------------
Its: President
----------------------------
EMPLOYEE
/s/ Roberta L. McCaw
----------------------------------
ROBERTA L. McCAW
13
<PAGE> 14
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
THIS COLLATERAL SECURITY ASSIGNMENT is made and entered into effective
as of July 1, 1998, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Number I0003335 (the "Policy") issued by Aetna Life Insurance
and Annuity Company (the "Insurer") upon the life of Owner and by Matria
Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him or her in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of July 1, 1998, and entered into between the Owner and the Assignee,
as such Agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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<PAGE> 15
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his or her ownership rights as of the third (3rd) business day
following either of the following events: (1) the Owner mails written
notice of such exercise to the Assignee by United States Certified
Mail, postage paid, at the address below and provides the Insurer with
a copy of such notice and a copy of the certified mail receipt, or (2)
the Insurer mails written notice of such exercise to the Assignee by
regular United States Mail, postage paid, at the address set forth
below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
15
<PAGE> 16
4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without
unreasonable delay for endorsement of any designation or change of
beneficiary or the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) or 3(c) of the
Agreement and transfer of such withdrawn or borrowed amount to the
Assignee, or (2) the payment to the Assignee of that portion of the
death benefit under the Policy to which the Assignee is entitled under
Section 3(d) of the Agreement. So long as the notice is also signed by
the Owner or his beneficiary, the Insurer shall pay or loan the
specified amounts to the Assignee without the need for any additional
documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
16
<PAGE> 17
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 7 of the Agreement. Th rights under this Collateral Security
Agreement may be enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Roberta L. McCaw
-----------------------------
ROBERTA L. McCAW
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
-----------------------------
Title: President
-----------------------------
17
<PAGE> 18
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION
OF NON-SPOUSAL BENEFICIARY
My spouse is __________________. I hereby consent to the designation
made by my spouse of __________________ as the beneficiary (subject to any
rights collaterally assigned to Matria Healthcare, Inc.) under Life Insurance
Policy No. ________________, which Matria Healthcare, Inc. has purchased from
__________________ and transferred to him or her. I understand that this Consent
is valid only with respect to the naming of the beneficiary indicated above and
that the designation of any other beneficiary will not be valid unless I consent
in writing to such designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
------------------------------------
Spouse's Signature
------------------------------------
Print Spouse's Name
------------------------------------
Date
18
<PAGE> 19
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
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<PAGE> 20
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
20
<PAGE> 21
shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company if the
principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
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<PAGE> 22
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
22
<PAGE> 23
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
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<PAGE> 24
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
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<PAGE> 25
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
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<PAGE> 26
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
26
<PAGE> 27
APPENDIX A
The Company is a party to a Split Dollar Insurance Agreement dated as
of July 1, 1998 with each of the following individuals: Yvonne Scoggins; Roberta
L. McCaw; Thornton A. Kuntz, Jr; James P. Reichmann, III; and Martin L. Olson.
27
<PAGE> 1
EXHIBIT 10.17
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of July 1, 1998, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and YVONNE V.
SCOGGINS (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this
Agreement caused Aetna Life Insurance and Annuity Company (the
"Insurance Company") to issue and deliver to the Employee
Policy Number I0003338 (the "Policy") on the life of the
Employee. The first annual premium has been paid by the
Company as of the date of this Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his or her
rights granted by the terms of the Policy, except to the extent that
the power of the Employee to exercise those rights is specifically
limited by this Agreement and the Collateral Security Assignment
Agreement of even date in the form attached hereto as Exhibit A (the
"Collateral Assignment") executed by the Employee with respect to the
Policy. Except as so limited, it is the expressed intention of the
parties to reserve to the Employee all rights in and to the Policy
granted to its owner by the terms thereof, including, but not limited
to, the right to change the beneficiary of that portion of the proceeds
to which the Employee is entitled under Section 3(d) of this Agreement
and the right to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, unless
and until the Employee's employment with the Company is terminated for
reasons other than Employee's Disability (as defined in this Section 2)
prior to the Employee's completion of ten (10) Years of Service (as
defined in this Section 2) if such termination occurs prior to a Change
in Control (as defined in Section 6 below) or due to the Employee's
Disability prior to the Employee's completion of five (5) Years of
Service, the Company agrees to make an annual premium payment on each
of the first six (6) anniversary dates of the Policy in the amount of
$144,955. The Company shall transmit all premium payments required
hereunder directly to the
1
<PAGE> 2
Insurance Company. During the period of time that this Agreement is in
effect, the Employee irrevocably agrees that all dividends paid on the
Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee. For
purposes of this Agreement, "Disability" shall mean disability under
the Company's long-term disability plan then in effect (or if no plan
is then in effect, on the date hereof) and a "Year of Service" shall
mean each twelve (12) month period during the Employee's employment
with the Company in which the Employee completes at least one thousand
(1,000) hours of employment with the Company plus, in the event of a
Change in Control of the Company, three (3) years. Employment with any
entity in which the Company, directly or indirectly, owns in excess of
fifty percent (50%) of the voting interests therein shall, for all
purposes of this Agreement, constitute employment with the Company.
3. Repayment Obligation.
(a)(i) Subject to the last sentence of Sections 3(b) and 3(d) below,
upon the first to occur of (w) the eighteenth (18th)
anniversary date of the Policy, (x) the Employee's death, (y)
termination of the Employee's employment with the Company
(other than by reason of the Employee's death or Disability)
prior to completion of ten (10) Years of Service if such
termination occurs prior to a Change in Control or (z)
termination of the Employee's employment with the Company by
reason of the Employee's Disability prior to completion of
five (5) Years of Service, the Company shall have the right to
be paid the amount of its Premium Advances (as hereinafter
defined), plus, except in the case of the death of the
Employee while employed by the Company, the amount by which
the Net Policy Value (as hereinafter defined) exceeds the
Employee's Vested Life Insurance Plan Benefit (as hereinafter
defined).
(ii) For purposes of this section, the term "Premium Advances"
shall mean the total amount of premiums paid by the Company
hereunder (including any premiums paid on the Policy by the
Trustee under a trust established pursuant to Section 6(a)
below) and the term "Net Policy Value" shall mean the amount
by which the then cash surrender value of the Policy or, in
the event the payment obligation arises pursuant to Section
3(a)(i)(x) above, the death benefit payable under the Policy,
exceeds the amount of the Premium Advances. In the case of a
termination of the Employee's employment described in Section
3(a)(i)(y) or Section 3(a)(i)(z) above, the Employee's Vested
Life Insurance Plan Benefit shall be zero (0). In all other
cases, the Employee's Vested Life Insurance Plan Benefit shall
be the lesser of (x) the Net Policy Value and (y) the amount
calculated by multiplying the greater of (i) $1,635,948 and
(ii) the Net Policy Value by a percentage based on the
Employee's age at termination of employment, Years of Service
and other factors as set forth below:
2
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE
-------------------------------------------------------------------------
Termination of Employment prior to Termination of Employment
a Change in Control for reasons other due to Disability or after a
than Disability Change in Control
----------------------------------------- -----------------------------
Years of Age at Termination Age at Termination
Service < 55 55 or more
-------- -----------------------------------------
<S> <C> <C> <C>
< 5 - 0 - - 0 - - 0 -
5 - 0 - - 0 - 33%
6 - 0 - - 0 - 40%
7 - 0 - - 0 - 47%
8 - 0 - - 0 - 53%
9 - 0 - - 0 - 60%
10 30% 50% 67%
11 36% 60% 73%
12 42% 70% 80%
13 48% 80% 87%
14 54% 90% 93%
15 or more 60%* 100% 100%
</TABLE>
* 100% in the event the Employee's employment is terminated without cause after
attaining 15 Years of Service and 52 years of age. "Cause" shall mean the
Company's termination of the Employee's employment on the basis of criminal or
civil fraud on the part of the Employee involving a material amount of funds of
the Company. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Company's
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board) finding that
in the good faith opinion of the Board, the Employee was guilty of conduct set
forth in the second sentence of this footnote and specifying the particulars
thereof in detail. For purposes of this Agreement only, the preparation and
filing of fictitious, false or misleading claims in connection with any federal,
state or other third-party medical reimbursement program, or any other violation
of any rule or regulation in respect of any federal, state or other third-party
medical reimbursement program by the Company or any subsidiary of the Company
shall not be deemed to constitute "criminal fraud" or "civil fraud."
The amount that the Company is entitled to be paid under this
Section 3 is hereinafter referred to as the "Repayment
Obligation."
(b) In the case of a termination of the Employee's employment
described in Section 3(a)(i)(y) or Section 3(a)(i)(z) above,
the Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a non-recourse basis, to be
transferred to the Company, an amount equal to the maximum
amount that may then be obtained under the Policy. In no event
shall the amount payable to the Company under this Section
3(b) exceed the amount described in the preceding sentence.
3
<PAGE> 4
(c) If the Employee survives until the eighteenth (18th)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(d) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b) or Section 3(c) above, upon the death
of the Employee, the Company shall have the right to receive a
portion of the death benefit payable under the Policy equal to
the Repayment Obligation. The balance of the death benefit
provided under the Policy, if any, shall be paid directly to
the beneficiary or beneficiaries designated by the Employee,
in the manner and in the amount or amounts provided in the
beneficiary designation provision of he Policy. No amount
shall be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof. In no event shall the
amount payable to the Company under this Section 3(d) exceed
the Policy proceeds payable at the death of the Employee.
(e) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(d).
(f) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
(g) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made from Policy cash value attributable
to the paid-up additional life insurance purchased by Policy
dividends. The Employee shall have no interest in the paid-up
additional life insurance protection except to the extent the
death benefit or cash value thereof exceeds the amount of the
Repayment Obligation.
4
<PAGE> 5
4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, the Employee will not modify the death benefit under the
Policy or direct the investment of the cash surrender value of the
Policy. The Employee agrees that, prior to attaining age fifty-five
(55) and completion of fifteen (15) Years of Service, he or she shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55) and completion of fifteen (15) Years of Service, he or
she shall not withdraw any portion of the cash value of the Policy or
borrow against the Policy if, after such borrowing, the cash value of
the Policy would be reduced to an amount less than the amount of the
Repayment Obligation. Notwithstanding the preceding sentences, the
Employee may borrow or withdraw from the Policy, so long as the
borrowing or withdrawal request is submitted to the Insurance Company
along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the Company, who shall be entitled to direct the
investments under the Policy; provided, however, that the Designee may
only direct the investments under the Policy in funds offered by the
Insurance Company under the Policy.
5
<PAGE> 6
6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation, changes in ownership of a
substantial portion of a corporation's assets and the
disposition of a substantial portion of the corporation's
assets all as defined below:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation which, together with stock held by
such person or group, represents more than fifty
percent (50%) of the total fair market value or total
voting power of the stock of such corporation. An
increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of
a transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group becomes the
beneficial owner of stock of the corporation and
possessing twenty percent (20%) or more of the total
voting power of the stock of such corporation; or a
majority of members of the corporation's board of
directors is replaced during any twenty-four (24)
month period by directors whose appointment or
election is not endorsed by at least two-thirds (2/3)
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-half (1/2) of the
total fair market value of all of the assets
6
<PAGE> 7
of the corporation immediately prior to such
acquisition or acquisitions. The transfer of assets
by a corporation is not treated as a change in the
ownership of such assets if the assets are
transferred: to a shareholder of the corporation
(immediately before the asset transfer) in exchange
for such shareholder's capital stock of the
corporation having a fair market value approximately
equal to the fair market value of such assets; or to
an entity, fifty percent (50%) or more of the total
value or voting power of which is owned, directly or
indirectly, by the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-half (1/2) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the other parties to the
transaction shall be deemed to have acted as a group that acquired ownership of
more than fifty percent (50%) of the outstanding voting securities of the
Company, resulting in a change in ownership under (i) above.
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
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<PAGE> 8
purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his or her beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
8
<PAGE> 9
(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he or she can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
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<PAGE> 10
(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole
discretion when he or she decides he or she has heard
sufficient evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he or she shall order the
Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall
be final and binding upon the parties. The award may
be enforced in any appropriate court as soon as
possible after its rendition. If an action is brought
to confirm the award, both the Company and the
Employee (on his or her own behalf and on behalf of
all other Claimants) agree that no appeal shall be
taken by either party from any decision rendered in
such action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the Claimant. In the event that the
Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event
shall the Company have any power or interest related
to the Policy or its proceeds, except as provided
herein and in the Collateral Assignment. In the event
that the Company ever receives or may be deemed to
have received any
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<PAGE> 11
right or interest in the Policy or its proceeds
beyond the limited rights described herein and in the
Collateral Assignment, such right or interest shall
be held in trust for the benefit of the Employee and
shall be held separate from the property of the
Company. The Company hereby agrees to act as trustee
for the benefit of the Employee and his beneficiary
concerning any right to the Policy or its proceeds,
except to the extent expressly provided otherwise in
this Agreement.
(b) In order to further protect the rights of the
Employee, the Company agrees that its rights to the
Policy and proceeds thereof shall serve as security
for the Company's obligations as provided in this
Agreement to the Employee. The Company grants to the
Employee a security interest in and collaterally
assigns to the Employee any and all rights the
Company has in the Policy and products and proceeds
thereof, whether now existing or hereafter arising
pursuant to the provisions of the Policy, this
Agreement, the Collateral Assignment, or otherwise,
to secure any and all obligations owed by the Company
to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the
Employee's rights to the Policy or expand in any way
the rights or benefits of the Company under this
Agreement, the Policy, or the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
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<PAGE> 12
12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he or she might otherwise argue to exist under either
federal, state, or local law. The Employee further agrees that
he or she will not argue that any such additional rights or
different restrictions exist in any judicial or arbitration
proceeding. Similarly, the Company acknowledges that its
Security Interest is strictly limited as set forth in this
Agreement and voluntarily and irrevocably relinquishes and
waives any additional interests or different interests or
advantages that the Company would have or enjoy if the
Agreement were not treated as a "welfare plan" within the
meaning of Section 3(1) of ERISA. The Company is hereby
designated as the named fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
-----------------------------------
Its: President
-----------------------------------
EMPLOYEE
/s/ Yvonne V. Scoggins
-----------------------------------------
YVONNE V. SCOGGINS
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<PAGE> 14
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
THIS COLLATERAL SECURITY ASSIGNMENT is made and entered into effective
as of July 1, 1998, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Number I0003338 (the "Policy") issued by Aetna Life Insurance
and Annuity Company (the "Insurer") upon the life of Owner and by Matria
Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him or her in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of July 1, 1998, and entered into between the Owner and the Assignee,
as such Agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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<PAGE> 15
3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his or her ownership rights as of the third (3rd) business day
following either of the following events: (1) the Owner mails written
notice of such exercise to the Assignee by United States Certified
Mail, postage paid, at the address below and provides the Insurer with
a copy of such notice and a copy of the certified mail receipt, or (2)
the Insurer mails written notice of such exercise to the Assignee by
regular United States Mail, postage paid, at the address set forth
below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
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<PAGE> 16
4. If the Policy is in the possession of the Assignee, the Assignee shall,
upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or
the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) or 3(c) of the
Agreement and transfer of such withdrawn or borrowed amount to the
Assignee, or (2) the payment to the Assignee of that portion of the
death benefit under the Policy to which the Assignee is entitled under
Section 3(d) of the Agreement. So long as the notice is also signed by
the Owner or his beneficiary, the Insurer shall pay or loan the
specified amounts to the Assignee without the need for any additional
documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
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<PAGE> 17
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 7 of the Agreement. The rights under this Collateral
Security Agreement may be enforced pursuant to the terms of the
Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Yvonne V. Scoggins
------------------------------------------
YVONNE V. SCOGGINS
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
--------------------------------------
Title: President
-----------------------------------
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<PAGE> 18
EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION
OF NON-SPOUSAL BENEFICIARY
My spouse is __________________. I hereby consent to the designation
made by my spouse of __________________ as the beneficiary (subject to any
rights collaterally assigned to Matria Healthcare, Inc.) under Life Insurance
Policy No. ________________, which Matria Healthcare, Inc. has purchased from
__________________ and transferred to him or her. I understand that this Consent
is valid only with respect to the naming of the beneficiary indicated above and
that the designation of any other beneficiary will not be valid unless I consent
in writing to such designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
_______________________________________
Spouse's Signature
_______________________________________
Print Spouse's Name
_______________________________________
Date
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<PAGE> 19
EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
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<PAGE> 20
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
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<PAGE> 21
shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company if the principal and
earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
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<PAGE> 22
(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
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<PAGE> 23
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
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<PAGE> 24
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
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<PAGE> 25
SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
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<PAGE> 26
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
26
<PAGE> 27
APPENDIX A
The Company is a party to a Split Dollar Insurance Agreement dated as
of July 1, 1998 with each of the following individuals: Yvonne Scoggins; Roberta
L. McCaw; Thornton A. Kuntz, Jr; James P. Reichmann, III; and Martin L. Olson.
27
<PAGE> 1
EXHIBIT 10.18
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is entered into as of this
19th day of January, 1999, by and between Matria Healthcare, Inc., a Delaware
corporation, (the "Company"), Lucor Holdings, LLC, a Georgia limited liability
company ("Lucor"), Mark J. Gainor, a Georgia resident ("MJG"), and J. Michael
Highland, a Georgia resident ("JMH").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and certain subsidiaries of the Company have acquired
substantially all of the assets of Gainor Medical Management, L.L.C., a Georgia
limited liability company ("GMM"), including all of the equity interests of
GMM's subsidiaries (the "Subsidiaries") pursuant to the terms of that certain
Purchase and Sale Agreement (the "Purchase Agreement") dated as of December 21,
1998, by and among Company and GMM; and
WHEREAS, MJG and JMH are stockholders, officers and directors of Lucor
and expect to provide services to the Company hereunder through Lucor and are
executing this Agreement solely for the purpose of agreeing to be bound by
Sections 9 and 10 hereof; and
WHEREAS, the execution and delivery of this Agreement is a material
condition for the Company to enter into the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereinafter set forth, Lucor and the Company hereto agree as follows:
1. RETENTION OF MANAGER. Subject to each of the terms, conditions
and provisions of this Agreement, the Company hereby retains Lucor and Lucor
hereby agrees to be retained by the Company and the Subsidiaries to perform
those managerial functions set forth in Section 4 of this Agreement.
2. TERM.
2.1 Subject to the provisions for termination set forth herein,
the term of this Agreement shall be from the date hereof through December 31,
2008.
<PAGE> 2
2.2 The Company, by written notice to Lucor, authorized by a
majority of the directors other than those who are partners, principals or
employees of Lucor (or an affiliate of Lucor), may terminate this Agreement for
justifiable cause, which shall mean any of the following events: material breach
by Lucor of any of its obligations hereunder (including, without limitation,
failure to make available the services of MJG as provided in paragraph 4 below);
misappropriation by Lucor of funds or property of the Company or the
Subsidiaries, or other willful breach in the course of its duties hereunder; any
attempt by Lucor, MJG or JMH to secure personal profit related to the business
of the Company and not fairly disclosed to and approved by the Board of
Directors of the Company or gross neglect by Lucor in the fulfillment of its
obligations hereunder.
2.3 Either party, by sixty (60) days' prior written notice to the
other party, may terminate this Agreement effective as of the end of each
calendar year during the Term hereof.
3. COMPENSATION.
3.1 As compensation to Lucor for its management services to the
Company and the Subsidiaries under this Agreement in 1999, the Company, on
behalf of itself and the Subsidiaries, agrees to pay Lucor a fee at the annual
rate of Eight Hundred Thousand Dollars ($800,000). Such fee shall be payable
monthly in arrears, on or before the last day of each month, commencing on
January 31, 1999. Payment shall be prorated for any partial month during the
term hereof.
3.2 For years subsequent to 1999, Lucor's compensation under this
Agreement will be established by agreement between Lucor and the Board of
Directors based on the level of compensation paid Lucor in 1999, the number of
employees of Lucor providing management services to the Company, Lucor's
performance in the previous year, inflation and other relevant factors.
3.3 Compensation payable hereunder is intended to cover all
expenses incurred by Lucor in connection with providing management services to
the Company hereunder. Unless approved in advance by the Chief Executive Officer
of the Company, the Company will not reimburse Lucor, MJG or JMH, for
out-of-pocket or other costs and expenses (including travel expenses) incurred
by it or any of its employees or affiliates in connection with (i) providing the
services under this Agreement; or (ii) serving as an officer of the Company.
Unbudgeted approved expenses as set forth in the preceding sentence shall be
reimbursed, if reasonable, upon receipt by the Company of invoices from Lucor
providing information reasonably required by the Company. Provided further, MJG
acknowledges and agrees that as long as this Agreement is in effect, MJG shall
not receive any Board of Directors' fees or participate in the Company's
Director Stock Option Plan.
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<PAGE> 3
4. DUTIES AS MANAGER. Lucor's duties under this Agreement shall
include providing management services to the diabetes disease management and
microsampling businesses operated by the Company, the Subsidiaries and Diabetes
Management Services, Inc., with overall responsibility for the management of
such businesses, subject to the direction and oversight of the Chief Executive
Officer of the Company (the "Services"). Services shall include, without
limitation, identifying and implementing other acquisition opportunities or
joint ventures and business development projects agreed upon by Lucor and the
Company's Chief Executive Officer. Lucor agrees that substantially the full-time
services of its officer, MJG, will be included in the Services provided
hereunder.
5. AUTHORITY OF MANAGER. Except as may be authorized by the Chief
Executive Officer of the Company, Lucor shall have no authority to enter into
any agreement or to make any representation, commitment or warranty binding upon
the Company or any Subsidiary or to obtain or incur any right, obligation or
liability on behalf of the Company.
6. INDEPENDENT CONTRACTOR. Lucor shall act as an independent
contractor and shall have complete charge of its personnel engaged in the
performance of the Services. Neither the Company nor any Subsidiary shall have
any obligation to provide health insurance, life insurance, worker's
compensation, or other benefits, or to pay or withhold employment taxes with
respect to Lucor personnel. To the extent permitted by applicable law and the
Company's insurance carriers, at the request of Lucor, the Company will include
Lucor employees in Company's group health and worker's compensation programs,
provided that Lucor shall pay the Company the Company's cost of providing such
coverage upon the Company's invoice therefor.
7. DISPUTES OVER REQUIRED EXPENDITURES WITH RESPECT TO CALENDAR
YEAR 1999. Notwithstanding the limitations on Lucor's authority and the
requirement that Lucor act under the direction of the Chief Executive Officer of
the Company, as set forth above, any dispute over required expenditures with
respect to calendar year 1999 shall be resolved in accordance with Section 1.5
of the Purchase Agreement.
8. BOOKS AND RECORDS.
(a) Lucor's books and records with respect to the
Services and any reimbursable costs ("Books and Records") shall be kept
at Lucor's office located at 2317 Forest Drive, Jonesboro, Georgia
30236. The Books
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<PAGE> 4
and Records shall be kept in accordance with recognized accounting
principles and practices, consistently applied, and shall be made
available for the Company or the Company's representatives' inspection
and copying at all times during regular office hours. Lucor shall not
be required to maintain the Books and Records for more than three (3)
years after termination of this Agreement.
(b) Lucor shall have access at all reasonable times to
the premises, business properties, assets, financial statements and
other books and records of the Subsidiaries, to the extent necessary
for Lucor to perform its duties hereunder, and the Company agrees to
cause its officers and employees, and the officers and employees of the
Subsidiaries and DMS, to cooperate with Lucor in carrying out its
duties hereunder.
9. CONFIDENTIAL INFORMATION.
9.1 The parties acknowledge that during the course of provision of
the Services, the Company may disclose confidential information to Lucor, MJG
and JMH or its affiliated companies. Lucor, MJG and JMH shall treat such
information as the Company's confidential property and safeguard and keep secret
all such information about the Company, including reports and records, customer
lists, trade lists, trade practices, and prices pertaining to the Company's
business coming to the attention or knowledge of Lucor, MJG or JMH because of
any activities conducted by Lucor, MJG or JMH under or pursuant to this
Agreement.
9.2 Lucor, MJG and JMH shall exercise their best efforts and shall
cause any of their affiliated companies to exercise their best efforts to
prevent any confidential information from being disclosed to third parties,
except as necessarily required in the performance of the Services and except
under terms of confidentiality satisfactory to the Company. This obligation
shall remain in effect until the Company shall release Lucor or its affiliated
companies from their obligations under this paragraph 9, but in no event later
than three (3) years after the completion of the Services. Lucor shall not use
any of the Company's confidential information in any way that is detrimental to
the interests of the Company, directly or indirectly, either during the term of
this Agreement or at any time thereafter.
10. DEFINITIONS.
10.1 For purposes of this Section 10, the following terms shall
have the following respective meanings:
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<PAGE> 5
(a) "Competing Business" shall mean a business that,
wholly or partly, directly or indirectly, is engaged in (i) providing,
selling or marketing lancet or lancing devices, microsampling, sale of
diabetes supplies or diabetic disease management; or (ii) designing,
developing, manufacturing, testing, selling, marketing or distributing
products or equipment relating thereto.
(b) "Competitive Position" shall mean: (i) Lucor's, MJG's
or JMH's direct or indirect equity ownership (excluding ownership of
less than one percent (1%) of the outstanding common stock of any
publicly held corporation) or control of any portion of any Competing
Business; or (ii) Lucor, MJG or JMH serving as a director, officer,
consultant, lender, joint venturer, partner, agent, advisor or
independent contractor of or to any Competing Business.
(c) "Covenant Period" shall mean the period of time
commencing with the date of this Agreement and continuing for a period
of three (3) years after the termination of this Agreement.
(d) "Restricted Territory" shall mean the United States,
the United Kingdom and Germany.
10.2 During the Covenant Period, Lucor, MJG and JMH, and each of
them, agrees that he/it will not, without the prior written consent of the
Company, either directly or indirectly, alone or in conjunction with any other
person or entity, accept, enter into or attempt to enter into a Competitive
Position in the Restricted Territory.
10.3 During the Covenant Period, Seller, MJG and JMH, and each of
them, agrees that it/he will not, without the prior written consent of the
Company, either directly or indirectly, alone or in conjunction with any other
person or entity, solicit any customer of the Subsidiaries (or any actively
sought or prospective customer of the Subsidiaries) for or on behalf of any
Competing Business to purchase any products offered by the Company.
10.4 During the Covenant Period, Lucor, MJG and JMH, and each of
them, agrees that it/he will not, without the prior written consent of the
Company, either directly or indirectly, alone or in conjunction with any other
person or entity, solicit or attempt to solicit any "key or material" employee,
consultant, contractor or other personnel of the Company or the Subsidiaries to
terminate, alter or lessen that party's affiliation with the Company or the
Subsidiaries or to violate the terms of any agreement or understanding between
such employee, consultant, contractor or other person and the Company or the
Subsidiaries. For purposes of this Section
5
<PAGE> 6
10.4, "key or material" employees, consultants, contractors or other personnel
shall mean those such persons or entities who have direct access to or have had
substantial exposure to confidential information or trade secrets of the Company
or the Subsidiaries.
10.5 During the Covenant Period, Lucor, MJG and JMH, and each of
them, shall not make any statement or other communication that impugns or
attacks the reputation or character of the Company or the Subsidiaries, or
materially damages the goodwill of the Company or the Subsidiaries, take any
action that would interfere with any contractual, customer or referral source
relationships of the Company or the Subsidiaries in a way, including, without
limitation, any action that would result in a diminution of business, or
otherwise take any action that is detrimental to the best interests of the
Company or the Subsidiaries.
11. INDEMNIFICATION. The Company agrees to indemnify and hold
Lucor and its partners, officers, directors and agents harmless from damages,
losses or expenses (including, without limitation, reasonable attorneys' fees
and expenses) incurred or paid directly or indirectly, by Lucor as a result or
arising out of any actions taken by Lucor in connection with the performance of
the Services under this Agreement except to the extent that such actions
resulted solely from the gross negligence or willful misconduct of Lucor. The
Company hereby further agrees to reimburse Lucor for all reasonable fees and
expenses (including attorneys' fees) incurred in connection with defending any
such claim to which Lucor is a party, as such fees and expenses are incurred by
Lucor.
12. NOTICES AND COMMUNICATIONS.
12.1 All communications relating to the day-to-day activities
necessary to render the Services shall be exchanged between the respective
representatives of the Company and Lucor, who will be designated by the parties
promptly upon commencement of the Services.
12.2 All other notices, demands and communications required or
permitted hereunder shall be in writing and shall be delivered personally to
the respective representatives of the Company and Lucor set forth below or shall
be mailed by registered mail, postage prepaid, return receipt requested.
Notices, demands and communications hereunder shall be effective: (i) if
delivered personally, on delivery; or (ii) if mailed, 48 hours after deposit
thereof in the United States mail addressed to the party to whom such notice,
demand, or communication is given. Until changed by written notice, all such
notices, demands and communications shall be addressed as follows:
6
<PAGE> 7
If to the Company:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
Telephone: (770) 767-8332
Telecopy: (770) 767-7769
With a copy to:
Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
Attention: James L. Smith, III, Esq.
Telephone: (404) 885-3111
Telecopy: (404) 962-6687
If to Lucor:
Lucor Management Company, Inc.
2205 Highway 42 North
McDonough, Georgia 30253-0353
Attention: Mark J. Gainor
Telephone: (404) 474-0474
Telecopy: (404) 474-1600
With a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street
Suite 1400
Atlanta, GA 30307
Attention: Philip H. Moise, Esq.
Telephone: (404) 817-6141
Telecopy: (404) 817-6050
7
<PAGE> 8
If to MJG:
Mark J. Gainor
2205 Highway 42 North
McDonough, Georgia 30253-0353
Attention: Mark J. Gainor
Telephone: (404) 474-0474
Telecopy: (404) 474-1600
With a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street
Suite 1400
Atlanta, GA 30307
Attention: Philip H. Moise, Esq.
Telephone: (404) 817-6141
Telecopy: (404) 817-6050
If to JMH:
J. Michael Highland
2205 Highway 42 North
McDonough, Georgia 30253-0353
Telephone: (404) 474-0474
Telecopy: (404) 474-1600
With a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street
Suite 1400
Atlanta, GA 30307
Attention: Philip H. Moise, Esq.
Telephone: (404) 817-6141
Telecopy: (404) 817-6050
13. ASSIGNMENTS. Lucor shall not assign this Agreement in whole or
in part without the prior written consent of the Company, and the Company shall
not assign this Agreement in whole or in part without the prior written consent
of Lucor; provided, however, that such consent shall not be unreasonably
withheld with respect to assignments to affiliates or wholly-owned subsidiaries;
and provided further, that any such assignment shall not relieve the assignor of
any of its obligations under this Agreement.
8
<PAGE> 9
Subject to the foregoing, all the terms and conditions contained herein
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective heirs, personal representatives, successors and assigns.
14. APPLICABLE LAW AND SEVERABILITY. This document shall, in all
respects, be governed by the laws of the State of Georgia applicable to
agreements executed and to be wholly performed within the State of Georgia.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provisions contained herein and any contrary present or future statute, law,
ordinance or regulation, the latter shall prevail, but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
15. FURTHER ASSURANCES. Each of the parties hereto shall execute
and deliver any and all additional papers, documents and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of the
parties hereto.
16. ATTORNEYS' FEES. In the event any action is instituted by a
party to enforce any of the terms and provisions contained herein, the
prevailing party in such action shall be entitled to such reasonable attorneys'
fees, costs and expenses as may be fixed by the court.
17. CAPTIONS. The captions appearing at the commencement of the
paragraphs herein are descriptive only and for convenience and reference. Should
there be any conflicts between any such caption and the paragraph at the head of
which it appears, the paragraph and not such caption shall control and govern in
the construction of this document.
18. MODIFICATIONS OR AMENDMENTS. No amendment, change or
modification of this document shall be valid unless it is in writing and signed
by all the parties hereto and expressly states that an amendment, change or
modification of this Agreement is intended.
19. SEPARATE COUNTERPARTS. This document may be executed in one or
more separate counterparts, each of which, when so executed, shall be deemed to
be an original. Such counterparts shall, together, constitute and be one and the
same instrument.
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<PAGE> 10
20. ENTIRE AGREEMENT. This Agreement shall constitute the entire
understanding and agreement between the parties hereto and shall supersede any
and all letters of intent, whether written or oral, pertaining to the subject
matter of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MATRIA HEALTHCARE, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
LUCOR HOLDINGS, LLC
By:
------------------------
Name:
----------------------
Title:
---------------------
---------------------------
MARK J. GAINOR
---------------------------
J. MICHAEL HIGHLAND
10
<PAGE> 1
EXHIBIT 10.19
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT (the "Agreement") dated as of this _____ day of
January, 1999, is between MATRIA HEALTHCARE, INC., a Delaware corporation
("Matria"), MARK J. GAINOR, a Georgia resident ("MJG"), and SZ INVESTMENTS,
L.L.C., a Delaware limited liability company ("SZI").
Statement of Purpose
MJG Affiliates (as defined below) and SZI Affiliates (as defined below)
are members of Gainor Medical Management, L.L.C., a Georgia limited liability
company ("GMM"). GMM and Matria have entered into a Purchase and Sale
Agreement dated as of December 21, 1998 (the "Purchase Agreement"), pursuant to
which Matria will acquire substantially all of the assets of GMM, including its
interests in its subsidiaries, for consideration consisting, in part, of
Redeemable Preferred Stock, Warrants, Convertible Preferred Stock and an
Earn-Out Note (each as defined below) of Matria. Upon consummation of the
transactions contemplated by the Purchase Agreement, MJG and SZI will own
indirectly through their respective Affiliates approximately 10.74% and 1.66%,
respectively, of the Fully Diluted Common Stock (as defined below) of Matria.
In addition, the MJG Affiliates and/or SZI Affiliates may acquire Common Stock
of Matria in the open market after the closing of the Purchase Agreement. As a
condition to consummation of the Purchase Agreement, MJG, SZI and Matria have
agreed to enter into this Agreement with respect to the ownership, voting and
disposition of the Voting Securities (as defined below) of Matria owned by the
MJG Affiliates and/or the SZI Affiliates.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
1. Definitions. For all purposes of this Agreement, the following terms
shall have the respective meanings specified below, and terms used herein and
not defined herein shall have the meaning given in the Purchase Agreement:
"Affiliate" shall have the meaning ascribed to such term pursuant to Rule
12b-2 under the Exchange Act, as in effect on the date hereof; provided, that
in no event shall MJG and SZI be deemed to be Affiliates of each other.
"Beneficial Ownership" means beneficial ownership as defined in Rule 13d-3
of the Exchange Act.
"Board" means the Board of Directors of Matria.
<PAGE> 2
"Change in Control" means any of the following events: (i) any Person,
other than an "Existing Shareholder" (as hereinafter defined) is or becomes the
direct or indirect beneficial owner of shares of the Matria's capital stock
representing greater than 50% of the power to vote in the election of directors
under ordinary circumstances, or (ii) Matria sells, transfers or otherwise
disposes of all or substantially all of the assets of Matria other than in any
transaction between Matria and a wholly-owned subsidiary of Matria, or (iii)
Matria is a party to a merger or a consolidation in which the holders of
Matria's voting securities prior to such merger or consolidation own, directly
or indirectly, securities representing less than 50% of the voting power in the
surviving entity.
"Common Stock" means (a) the Common Stock of Matria, par value $.01 per
share, as described in the Certificate of Incorporation of Matria or any shares
of capital stock issued in exchange, redemption or conversion thereof, and (b)
any other class of capital stock of Matria whether currently outstanding or as
may be hereafter issued or authorized for issuance having the right to share in
distributions either of earnings or assets without limit as to amount or
percentage.
"Convertible Preferred Stock" means the Series A Convertible Preferred
Stock of Matria, par value $.01 per share, issued pursuant to the Purchase
Agreement and described in the Certificate of Incorporation of Matria.
"Disinterested Majority" means a majority of the members of the Board
other than the representatives of the MJG Affiliates and/or the SZI Affiliates
nominated and elected to the Board pursuant to Section 4.1 or 4.2 below.
"Earn-Out Note" shall have the meaning ascribed to such term in the
Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Shareholder" shall mean Mark J. Gainor, SZ Investments, L.L.C.,
any holder of any of the Convertible Preferred Stock, the Redeemable Preferred
Stock or the Warrants, or any affiliate of any of them.
"Fully Diluted" means, with respect to the Common Stock, all of the
outstanding Common Stock of Matria determined as if any security or obligation
directly or indirectly exercisable for or convertible into Common Stock had
been so exercised or converted.
"Institutional Investor" shall mean any bank, thrift, investment company
registered under the Investment Company Act of 1940, pension fund or insurance
company, or any "qualified institutional buyer" as defined in Rule 144A of the
Securities Act.
"Investor" means any of the MJG Affiliates and the SZI Affiliates
individually, and "Investors" means all of the MJG Affiliates and SZI
Affiliates collectively.
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"Market Price" means, per share of Common Stock, as of the date of notice
of repurchase pursuant to Section 3.5 or as of the date of any notice of
acceptance of a director's resignation pursuant to Section 4.1, (a) if such
Common Stock is listed on a national securities exchange or traded on The
Nasdaq National Market System ("NMS"), the average mean between the highest
price and the lowest price of which the Common Stock shall have been sold
regular way on the national securities exchange (or if traded on more than one
such exchange, the principal exchange on which such shares are traded) or the
NMS each day in the 20 consecutive trading days ending on said date, or (b) if
the Common Stock shall not be listed on a national securities exchange or
traded on the NMS but shall be traded in the over-the-counter market and
quotations therefor are reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), the average during the 20
consecutive trading days ending on such date of the last price (if such last
price is then reported on a real-time basis) or each such day, or, if the last
price is not then so reported, the mean between the bid and asked prices last
reported on each such day, by NASDAQ for the over-the-counter market on said
date, or (c) if at any time quotations for the Common Stock shall not be
reported by NASDAQ for the over-the-counter market and the Common Stock shall
not be listed on any national securities exchange or traded on the NMS, the
fair market value per share of Common Stock as determined by the Board on the
basis of available prices for such Common Stock or in such other manner as the
Board may deem reasonable.
"MJG Affiliates" means MJG and any Affiliate of MJG (in each case
exclusive of any SZI Affiliate).
"MJG Minimum Ownership" means the direct or indirect beneficial ownership
by any MJG Affiliates and their Permitted Transferees (other than any SZI
Affiliate) of Convertible Preferred Stock, Redeemable Preferred Stock,
Warrants, Common Stock and/or the Earn-Out Note having an aggregate value of at
least $25,000,000. For purposes of this definition, "value" shall be
determined as follows: for Convertible Preferred Stock and Redeemable
Preferred Stock, the aggregate liquidation preference of such stock plus all
accrued and unpaid dividends thereon; for Common Stock, the aggregate Market
Price of such stock; for Warrants, the excess (if any) of the aggregate Market
Price of the Common Stock issuable upon exercise of such Warrants over the
aggregate exercise price of such Warrants; and for the Earn-Out Note, the
outstanding balance plus all accrued and unpaid interest owed thereon, not to
exceed $10,000,000 in the aggregate.
"Permitted Transferee" means (i) any member of GMM as of the date of the
Purchase Agreement, (ii) any Affiliate of any such member, (iii) any employee
or consultant of any Investor or Rosenberg & Liebentritt, P.C., (iv) the
spouse, siblings, ancestors, and lineal descendants of any of the foregoing,
and (v) any trust, family limited partnership or similar entity established for
the benefit of any of the foregoing; provided that, in each case, such Person
agrees in a writing, delivered to Matria, to be bound by the provisions of this
Agreement (if not already so bound).
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
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"Redeemable Preferred Stock" means the Series B Redeemable Preferred Stock
of Matria, par value $.01 per share, issued pursuant to the Purchase Agreement
and described in the Certificate of Incorporation of Matria.
"Securities Act" means the Securities Act of 1933, as amended.
"SZI Affiliate" means SZI and any of its Affiliates under control of or
common control with SZI (in each case exclusive of any MJG Affiliates);
provided, however, that, notwithstanding the foregoing, no Person shall be
deemed to be an SZI Affiliate unless (i) Sam Zell or any other executive
officer of SZI has actual knowledge of the relevant action to be attributed to
the SZI Affiliate hereunder or (ii) in the case of publicly held entities that
might otherwise fall within this definition, unless Sam Zell or any other
executive officer of SZI took any action, directly or indirectly, to cause,
suggest, encourage or assist such publicly held entity to take the relevant
action to be attributed to the SZI Affiliate hereunder.
"Voting Securities" means, collectively, Common Stock, any preferred stock
of Matria that is entitled to vote generally for the election of directors, any
other class or series of Matria securities that is entitled to vote generally
for the election of directors and any other securities, warrants, options or
rights of any nature that are directly or indirectly convertible into,
exchangeable for, or exercisable for the purchase of, or otherwise give the
holder thereof any rights in respect of, Common Stock, Matria preferred stock
that is entitled to vote generally for the election of directors, or any other
class or series of Matria securities that is entitled to vote generally for the
election of directors.
"Warrants" means the warrants to purchase Common Stock of Matria issued
pursuant to the Purchase Agreement.
2.1 Representations and Warranties of Investors:
(a) MJG represents and warrants to Matria as follows:
(i) MJG has full legal right, power and authority to enter into and
perform this Agreement. This Agreement is a valid and binding obligation of
MJG enforceable against MJG in accordance with its terms, except that such
enforcement may be subject to (A) bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and (B) general principles
of equity (regardless of whether asserted at law or in equity).
(ii) Neither the execution and delivery of this Agreement by MJG nor
the consummation by MJG of the transactions contemplated hereby conflicts with
or constitutes a violation of or default under any statute, law, regulation,
order or decree applicable to MJG, or any contract, commitment, agreement,
arrangement or restriction of any kind to which MJG is a party or by which MJG
is bound.
(b) SZI represents and warrants to Matria as follows:
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(i) SZI has full legal right, power and authority to enter into and
perform this Agreement. The execution and delivery of this Agreement by SZI
and the consummation by SZI of the transactions contemplated hereby have been
duly authorized by all necessary limited liability company or other action on
behalf of SZI. This Agreement is a valid and binding obligation of SZI
enforceable against SZI in accordance with its terms, except that such
enforcement may be subject to (A) bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and (B) general principles
of equity (regardless of whether asserted at law or in equity).
(ii) Neither the execution and delivery of this Agreement by SZI nor the
consummation by SZI of the transactions contemplated hereby conflicts with or
constitutes a violation of or default under the certificate of formation or
other organizational or governing documents of SZI, any statute, law,
regulation, order or decree applicable to SZI, or any contract, commitment,
agreement, arrangement or restriction of any kind to which SZI is a party or by
which SZI is bound.
2.2 Representations and Warranties of Matria. Matria hereby represents
and warrants to each Investor as follows:
(a) Matria has full legal right, power and authority to enter into and
perform this Agreement. The execution and delivery of this Agreement by Matria
and the consummation by Matria of the transactions contemplated hereby have
been duly authorized by all necessary corporate or other action on behalf of
Matria. This Agreement is a valid and binding obligation of Matria enforceable
against Matria in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, moratorium and other similar laws
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether asserted at law or in equity).
(b) Neither the execution and delivery of this Agreement by Matria nor
the consummation by Matria of the transactions contemplated hereby conflicts
with or constitutes a violation of or default under the charter or by-laws
of Matria, any statute, law, regulation, order or decree applicable to Matria,
or any contract, commitment, agreement, arrangement or restriction of any kind
to which Matria is a party or by which Matria is bound.
3.1 Restrictions on Certain Actions by Investors. Subject to Section 3.2
hereof, until the fifth anniversary of this Agreement, unless otherwise
approved by a Disinterested Majority, neither MJG, whether directly or
indirectly through any MJG Affiliate, nor SZI, whether directly or indirectly
through any SZI Affiliate, shall:
(a) acquire, announce an intention to acquire, offer or propose to
acquire, solicit an offer to sell or agree to acquire by purchase, by gift, by
joining a partnership, limited partnership, syndicate or other "group" (as such
term is used in Section 13(d)(3) of the Exchange Act, such term to have such
meaning throughout this Agreement) or otherwise, any (i) assets, businesses or
properties of Matria other than in the ordinary course of business or (ii) any
Voting Securities:
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(b) participate in the formation or encourage the formation of any
group (other than any group consisting exclusively of the Investors and/or their
Permitted Transferees), or join or in any way participate with any Person
(other than the Investors and/or their Permitted Transferees), which owns or
seeks to acquire beneficial ownership of Voting Securities;
(c) solicit, or participate in any "solicitation" of "proxies" (other
than with respect to Voting Securities held by the Investors and/or their
Permitted Transferees and/or in compliance with this Agreement) or become a
"participant" in any "election contest" (as such terms are defined or used in
Regulation 14A under the Exchange Act, these terms to have such meaning
throughout this Agreement) with respect to Matria, in each case in opposition
to the recommendation of a Disinterested Majority;
(d) initiate, propose or otherwise solicit stockholders for the
approval of one or more stockholder proposals with respect to Matria or induce
any Person (other than the Investors and/or their Permitted Transferees) to
initiate any stockholder proposal, in each case in opposition to the
recommendation of a Disinterested Majority;
(e) except as contemplated by the terms of the Convertible Preferred
Stock, the Redeemable Preferred Stock or this Agreement, seek to place more
than one representative of each of the MJG Affiliates and the SZI Affiliates on
the Board of Directors of Matria, seek the removal of any member of the Board
of Directors of Matria or seek to have called any meeting of the stockholders
of Matria, in each case in opposition to the recommendation of a Disinterested
Majority;
(f) deposit any Voting Securities in a voting trust or, except as
specifically contemplated by this Agreement, subject them to a voting agreement
or other agreement or arrangement with respect to the voting of such Voting
Securities, other than any such trust, agreement or other arrangement involving
no Person other than the Investors and their Permitted Transferees;
(g) otherwise act, alone or in concert with any other Person (other
than the Investors and/or their Permitted Transferees), to seek to control the
management, Board, policies or affairs of Matria or solicit, propose, seek to
effect or negotiate with any other Person (including, without limitation,
Matria, but excluding any Investor and its Permitted Transferees) with respect
to any form of business combination or other extraordinary transaction with
Matria or any of its subsidiaries or any restructuring, recapitalization,
similar transaction or other transaction not in the ordinary course of business
with respect to Matria or any of its subsidiaries, solicit, make or propose or
negotiate with any other Person (other than the Investors and/or their
Permitted Transferees) with respect to, or announce an intent to make, any
tender offer or exchange offer for any securities of Matria or any of its
subsidiaries, in each case in opposition to the recommendation of a
Disinterested Majority, or publicly disclose an intent, purpose, plan or
proposal with respect to Matria, any of its subsidiaries or any securities or
assets of Matria or any of its subsidiaries, that would violate the provisions
of this Section 3.1, or assist, participate in, facilitate or solicit any
effort or attempt by any Person to do or seek to do any of the foregoing; or
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(h) request Matria (or its directors, officers, employees or agents) to
amend or waive any provision of this Agreement (including, without limitation,
this Section 3.1(h)) or otherwise seek any modification to or waiver of any of
the agreements or obligations of the Investors under this Agreement in each
case in opposition to the recommendation of a Disinterested Majority.
3.2 Certain Permitted Actions. Notwithstanding the limitations and
restrictions set forth elsewhere in this Agreement:
(a) The Investors and their Permitted Transferees shall have the right
to acquire the Convertible Preferred Stock and the Redeemable Preferred Stock
and to convert the Convertible Preferred Stock and acquire Common Stock issuable
upon conversion of the Convertible Preferred Stock (or upon conversion,
exercise or exchange of any securities received from Matria in exchange for the
Convertible Preferred Stock) and shall have the right to acquire any Matria
securities distributed as a dividend, because of an adjustment resulting from
the operation of anti-dilution provisions, or otherwise in respect of
Convertible Preferred Stock or any securities received from Matria in exchange
for the Convertible Preferred Stock.
(b) The Investors and their Permitted Transferees shall have the right
to acquire the Warrants and to exercise the Warrants and acquire Common Stock
issuable upon exercise of the Warrants (or upon conversion, exercise or
exchange of any securities received from Matria in exchange for the Warrants)
and shall have the right to acquire any Matria securities distributed as a
dividend, because of an adjustment resulting from the operation of
anti-dilution provisions, or otherwise in respect of the Warrants or any
securities received from Matria in exchange for the Warrants.
(c) In addition to any Matria securities acquired pursuant to
paragraphs (a) or (b) of this Section 3.2, the Investors and their Permitted
Transferees shall have the right to acquire Voting Securities so long as
immediately after such acquisition the Investors and their Permitted
Transferees collectively would have Beneficial Ownership of no more than an
aggregate of 35% of the Fully Diluted Common Stock;
(d) Notwithstanding anything to the contrary in this Agreement, the
Investors shall have the right to discuss any business matters (including but
not limited to subjects that may be within the matters listed in Section 3.1 of
this Agreement) privately with the chief executive officer and other senior
executive officers of Matria (and Matria agrees that its chief executive
officer and other senior executive officers will make themselves reasonably
available for such discussions). Notwithstanding anything to the contrary in
this Agreement, the Investors also may discuss their investment in Matria with
each other, their Permitted Transferees, their own stockholders, and members
and with the investment community, provided that such discussions are not for
the purpose of circumventing Section 3.1 hereof.
(e) As a holder of Common Stock, Convertible Preferred Stock and
Warrants, the Investors and their Permitted Transferees may exercise Rights
under Matria's Stockholder Rights Plan and may acquire the securities issuable
upon exercise of those Rights.
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(f) Any purchase of Common Stock by the Investors or their Permitted
Transferees which was contemplated and permitted under the Confidentiality
Agreement referred to in Section 3.1 of the Purchase Agreement shall be deemed
a permitted action hereunder.
3.3 Voting. In connection with either (a) the election or removal of
directors of Matria or (b) any stockholder proposals with respect to Matria in
opposition to the recommendation of a Disinterested Majority, MJG shall, and
shall direct the MJG Affiliates to, and SZI shall, and shall direct the SZI
Affiliates to, vote all Voting Securities owned by them (a) in accordance with
the recommendation of Matria's Board of Directors with respect to such matter,
or (b) in the absence of a recommendation, in the same proportion as the votes
cast by all other holders of Voting Securities with respect to such matter;
provided that each Investor and its Permitted Transferees shall retain the
right to vote, in their sole and absolute discretion, all Voting Securities
owned by such Investor and its Permitted Transferees with respect to the
following matters:
(a) the election of individuals proposed by the Investors to serve as
members of the Board in accordance with Section 4.1 or 4.2 of this Agreement;
(b) the election of individuals proposed by the holders of the
Convertible Preferred Stock or the Redeemable Preferred Stock in accordance
with the terms of such securities; and
(c) matters respecting which a class or series vote of the Convertible
Preferred Stock or the Redeemable Preferred Stock is provided pursuant to law
or pursuant to Matria's charter or by-laws.
By voting as directed by Matria, the Investors and their Permitted Transferees
shall not be deemed to have waived any rights (i) that they may have to enforce
their rights under Matria's Certificate of Incorporation, Matria's Bylaws, the
Purchase Agreement or the Delaware General Corporation Law to challenge the
actions taken or (ii) which they would otherwise be entitled to exercise under
Section 262 of the Delaware General Corporation Law.
3.4 Restrictions on Transfer.
(a) Until the second anniversary of this Agreement, neither the MJG
Affiliates nor the SZI Affiliates will sell, assign, transfer, grant an option
with respect to or otherwise dispose of any interest in (or enter into an
agreement, arrangement or understanding with respect to the foregoing)
(individually and collectively, "Sell") any Voting Securities, except for the
dispositions described in Section 3.4(c) below, which, to the extent provided
in Section 5.1 hereof, are subject to the right of first offer specified in
Section 5.1 hereof.
(b) From and after the second anniversary of this Agreement and until
the fifth anniversary of this Agreement, neither the MJG Affiliates nor the SZI
Affiliates will Sell any Voting Securities except for (i) the dispositions
described in Section 3.4(c) below and (ii) the sale or other disposition of any
Voting Securities to any Person or group if, after due inquiry, the Investor
reasonably believes such Person or group would not have Beneficial Ownership of
15%
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or more of the then outstanding Common Stock, after taking such sale or
other disposition into account, in each case, which, to the extent provided in
Section 5.1 hereof, are subject to the right of first offer specified in
Section 5.1 hereof.
(c) The Investors and their Permitted Transferees may Sell Voting
Securities (i) pursuant to a transaction approved in writing by a Disinterested
Majority; (ii) pursuant to (A) a "qualifying offer" (as hereinafter defined) or
(B) a "qualifying tender offer" (as hereinafter defined); (iii) in a transfer
made by any Investor or its Permitted Transferees to any other Investor or any
Permitted Transferee or any other Investor's Permitted Transferees provided the
transferee agrees in a writing, delivered to Matria, to be bound by the
provisions of this Agreement (if not already bound) (provided that the
transferor of such Voting Securities shall also continue to remain bound by the
terms of this Agreement, unless Matria shall otherwise, consent in writing,
such consent not to be unreasonably withheld); (iv) pursuant to a bona fide
pledge of Voting Securities by the Investor and its Affiliates as security for
bona fide indebtedness to a brokerage firm or financial institution not
affiliated with the Investor or any of its Affiliates for money borrowed or
pursuant to such pledge by such pledgee; (v) in "brokers' transactions" (as
such term is defined in Rule 144(g) of the Securities Act, which definition
shall apply for all purposes of this Agreement) on the NMS, or if any
particular series of Voting Securities is not listed on the NMS, on the
principal national securities exchange on which such Voting Securities are
listed or admitted to trading, and if not so listed or admitted, in the
over-the-counter market, subject in all cases to the volume limitations
presently set forth in Rule 144(c)(1) of the Securities Act; (vi) in a
registered public offering pursuant to the Registration Rights Agreement; (vii)
constituting 5% or less of the then outstanding Common Stock on a Fully Diluted
basis (or, with the prior written consent of Matria, more than 5%) to any
Institutional Investor whom Investor reasonably believes is Purchasing for
investment and not with a view toward effecting or assisting in a change of
control; (viii) to any Person or group if, after due inquiry, the Investor
reasonably believes such Person or group would not own 5% or more of the then
outstanding Common Stock; or (ix) as a result of a merger, consolidation, share
exchange or liquidation of the Investor in which the Investor is not the
survivor, provided that the surviving or successor entity and each entity that
"controls" (as that term is defined in Rule 405 of the Securities Act) the
surviving or successor entity agrees in writing with Matria to be bound by the
provisions of this Agreement.
For purposes of this Agreement, a "qualifying offer" shall mean (i) any
tender offer or exchange offer commenced by Matria for any Voting Securities;
and (ii) any acquisition transaction involving any Voting Securities proposed
by a Person or entity other than Matria (A) which is approved by, or not
opposed by, a Disinterested Majority of the Board of Directors of Matria, or
(B) where such third party offeror already owns at least 50% of the outstanding
Voting Securities. For purposes of this Agreement, a "qualifying tender offer"
shall mean any acquisition transaction involving any Voting Securities which is
a bona fide tender offer or exchange offer that is commenced by a third party
offeror who does not already own at least 50% of the outstanding Voting
Securities at a price per share greater than the closing price per share on the
principal securities exchange on which the Matria Common Stock is then traded
on the last trading day prior to the first public announcement of such offer,
if upon consummation thereof, such third party offeror would be the beneficial
owner of 50% or more of the shares of Matria Common Stock then outstanding.
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3.5 Repurchase of Common Stock. In the event that MJG and SZI, whether
directly or indirectly through any Affiliate, shall at any time without the
express approval of a Disinterested Majority have in the aggregate Beneficial
Ownership of Common Stock in excess of 35% of the Fully Diluted Common Stock of
Matria (whether due to redemption, open market repurchases, an issuer tender
offer or otherwise), Matria shall have the right and option, in addition to any
other remedy for breach of this Agreement, to repurchase shares of Common Stock
held by MJG Affiliates or the SZI Affiliates (other than shares of Common Stock
acquired upon conversion of the Convertible Preferred Stock or upon exercise of
the Warrants) in order to reduce such beneficial ownership of Common Stock to
such percentage. Such right and option may be exercised by Matria by
delivering written notice to MJG or SZI, as the case may be, on any business
day at the address set forth in Section 7(h) and the closing of the repurchase
shall occur at the principal office of Matria within 10 business days of the
date of such notice. At such closing, Matria shall tender the Market Price per
share of the Common Stock subject to repurchase in immediately available funds
and the selling party shall deliver certificates for the shares to be purchased
duly endorsed for transfer to Matria together with a certificate to the effect
that such selling party owns the shares to be transferred free and clear of any
and all liens, claims and other adverse interests other than restrictions
imposed by applicable securities laws.
3.6 Dispositions in Certain Events. If an Investor acquires any Voting
Securities in violation of this Agreement, it will immediately dispose of such
Voting Securities to Persons which are not Investors in a manner permitted by
Section 3.4. If Matria shall enter into a definitive agreement providing for a
transaction that will result in a Change in Control, the restrictions in
Section 3.5 hereof shall terminate immediately.
3.7 Legend on Certificates. Any certificate representing shares of Voting
Securities held by Investors or their Affiliates shall bear a conspicuous
legend referring to the restrictions on transfer and voting agreements set
forth in this Agreement.
4.1 Nominations to the Board. Upon closing of the transactions
contemplated by the Purchase Agreement, Matria shall exercise its good faith
efforts (including effecting any increase in the size of the Board, if
necessary) and take all necessary or appropriate action to insure that (a) MJG
or such other individual as MJG shall designate shall be nominated to a class
of directors of the Board at each annual meeting at which the term of office of
such Person as a director would otherwise expire commencing as of the Closing
Date and continuing until the earlier of the fifth anniversary of this
Agreement or until the MJG Minimum Ownership is no longer satisfied; and (b)
Rod F. Dammeyer or such other individual as SZI shall designate shall be
nominated to a class of directors of the Board to serve thereon commencing as
of the Closing Date and continuing for a single three year term. In the event
that the MJG Minimum Ownership is not satisfied, MJG's nominee shall
immediately withdraw as a nominee or resign as a director, as the case may be,
and MJG shall no longer have any rights under this Section 4.1 whether or not
such party may thereafter acquire the MGJ Minimum Ownership. Provided that MJG
or his designee is otherwise qualified to serve as a director and MJG or his
designee fails to be nominated to serve as director, MJG shall be released from
his obligation under this Agreement.
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4.2 Death, Permanent Disability or Resignation of Board Representatives.
In the event that any representative nominated and elected to the Board
pursuant to Section 4.1 ceases to be a member of the Board by reason of his
death, permanent disability or resignation (other than a resignation required
pursuant to Section 4.1), Matria shall exercise its good faith efforts,
consistent with the fiduciary obligations of the Board under applicable law, to
replace any such representative with another designee of the applicable party
or his personal representative.
4.3 Reporting Obligations. As long as any Investors and/or their Permitted
Transferees holds any Convertible Preferred Stock, Redeemable Preferred Stock,
Warrants or Common Stock and/or any amount of principal or interest is owed
under the Earn-Out Note, Matria shall deliver to MJG or SZI (who in turn shall
be entitled to distribute copies of the same to any MJG Affiliate, SZI
Affiliate and/or their Permitted Transferees who hold any of the foregoing
securities or instruments) at the addresses set forth in Section 6.1 hereof:
(a) within 105 days after the close of each fiscal year and within 50 days
after the close of each of the first three quarters of each fiscal year
financial statements, including any notes thereto (and, in the case of fiscal
year end, an auditors' report by a firm of established national reputation) and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations, for Matria and its subsidiaries in the form required to be included
in an annual or quarterly reports furnished pursuant to the Exchange Act and
the rules and regulations promulgated thereunder; and
(b) within 30 days after the end of each calendar month, a consolidated
and consolidating balance sheet, income statement and cash flow statements, and
consolidated shareholders' equity statement for Matria and its subsidiaries for
the immediately preceding calendar month.
4.4 Reports Under the Exchange Act. With a view to making available to
the Investors and their Permitted Transferees the benefits of Rule 144 and any
other rule or regulation of the Securities and Exchange Commission that may at
any time permit an Investor to sell securities of Matria to the public without
registration or pursuant to a registration on Form S-3, Matria agrees to:
(a) use its reasonable efforts to make and keep public information
available, as those terms are understood and defined in Rule 144;
(b) use its reasonable efforts to file with the Securities and Exchange
Commission in a timely manner all reports and other documents required under
the Securities Act and the Exchange Act; and
(c) furnish to any Investor and its Permitted Transferees forthwith upon
request (i) a written statement by Matria as to its compliance with the
reporting requirements of Rule 144, or as to whether it qualifies as a
registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of
the most recent annual or quarterly report of Matria and such other reports and
documents so filed by Matria, and (iii) such other information (and Matria
shall take such action) as may be reasonably requested in availing the Investor
or its Permitted Transferees of any rule
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or regulation of the Securities and Exchange Commission which permits the
selling of any such securities without registration or pursuant to such form.
5.1 Right of First Offer. In the event that an Investor desires to sell
all or part of its holding of Voting Securities (the "Shares") pursuant to the
terms of Section 3.4(b)(ii), Section 3.4(c)(ii)(B), Section 3.4(c)(vii), and
Section 3.4(c)(viii) hereof, such Investor shall first give written notice of
such intent to Matria. Matria shall have a period of 30 days from the receipt
of such written notice to deliver to such Investor an irrevocable written offer
(a "Purchase Offer") to purchase such Shares for cash at the price and upon
such other terms and conditions as are set forth in the Purchase Offer. In the
event Matria delivers such Purchase Offer within the 30 day period, such
Investor may accept or reject in its sole and absolute discretion such Purchase
Offer by delivering written notice of acceptance or rejection within 30 days of
the receipt of such Purchase Offer. In the event of acceptance of such
Purchase Offer, the closing of the sale of the Shares shall occur in the manner
provided in the Purchase Offer. In the event Matria fails to deliver a
Purchase Offer or such Investor rejects such Purchase Offer, such Investor
shall have a period of 120 days following the earlier of the expiration of the
30 day period referred to above or the express rejection of the Purchase Offer
to sell the Shares in accordance with Section 3.4(b)(ii), or Section
3.4(c)(ii)(B), or Section 3.4(c)(vii) or Section 3.4(c)(viii) hereof free and
clear of the terms of this Agreement; provided, that (i) the terms of such sale
shall be more favorable than the terms contained in the Purchase Offer, if any,
and (ii) upon the expiration of the 120 day period, such Shares, if not then
sold pursuant to Section 3.4(b)(ii), Section 3.4(c)(ii)(B), Section 3.4(c)(vii)
or Section 3.4(c)(viii) shall once again be subject to the right of first offer
contained herein.
6.1 Miscellaneous.
(a) Liability of Investors. Any liability or obligation of any kind
whatsoever under this Agreement shall be several and not joint as between any
MJG Affiliate(s) and their Permitted Transferees, on the one hand, and any SZI
Affiliate(s) and their Permitted Transferees, on the other hand.
Notwithstanding anything to the contrary in this Agreement, in no event shall
any MJG Affiliate be responsible in any manner for any liability or obligation
of, or the breach of any provision of this Agreement by, any person or group
who is not an MJG Affiliate. Notwithstanding anything to the contrary in this
Agreement, in no event shall any SZI Affiliate be responsible in any manner
for any liability or obligation of, or the breach of any provision of this
Agreement by, any person or group who is not an SZI Affiliate.
(b) Interpretation. For all purposes of this Agreement, the term
Matria Common Stock shall include any securities of any issuer entitled to vote
generally for the election of directors of such issuer which securities the
holders of Matria Common Stock shall have received or as a matter of right be
entitled to receive as a result of (i) any capital reorganization or
reclassification of the capital stock of Matria, (ii) any consolidation, merger
or share exchange of Matria with or into another corporation or (iii) any sale
of all or substantially all the assets of Matria.
-12-
<PAGE> 13
(c) Enforcement.
(i) The Investors, on the one hand, and Matria, on the other,
acknowledge and agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, the parties will
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically its provisions in any court of the
United States or any state having jurisdiction, this being in addition to
any other remedy to which they may be entitled at law or in equity.
(ii) No failure or delay on the part of either party in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
(iii) MJG and SZI each shall take all action as may be necessary to
cause its respective controlled Affiliates to comply with the terms of this
Agreement and any violation of this Agreement by any MJG Affiliate or SZI
Affiliate shall be deemed a violation by MJG or SZI, as the case may be.
(d) Entire Agreement. This Agreement, the Purchase Agreement and the
documents referred to as Exhibits to the Purchase Agreement constitute the
entire understanding of the parties with respect to the transactions
contemplated by them. This Agreement may be amended only by an agreement in
writing executed by all the parties.
(e) Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be unenforceable, the remaining provisions shall
remain in full force and effect. It is declared to be the intention of the
parties that they would have executed the remaining provisions without
including any that may be declared unenforceable.
(f) Heading. Descriptive headings are for convenience only and will not
control or affect the meaning or construction of any provision of this
Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and each such executed counterpart will be an original
instrument.
(h) Notices. All notices, consents, requests, instructions, approvals and
other communications provided for in this Agreement and all legal process in
regard to this Agreement will be validly given, made or served, if in writing
and delivered personally, by telecopy (except for legal process) or sent by
registered mail postage paid.
-13-
<PAGE> 14
If to Matria:
Matria Healthcare, Inc.
1850 Parkway Place
12th Floor
Marietta, Georgia 30067
Attention: General Counsel
Telecopy Number: (770) 767-7769
with a copy to:
Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attention: James L. Smith, III, Esq.
Telecopy Number: (404) 962-6687
If to MJG:
Mr. Mark J. Gainor
Gainor Medical Management, LLC
2205 Highway 42 North
P.O. Box 353
McDonough, Georgia 30253-0353
Telecopy Number: (770) 474-1600
with a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Philip H. Moise, Esq.
Telecopy Number: (404) 817-6050
If to SZI:
SZ Investments, L.L.C.
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
Attention: Rod F. Dammeyer
Telecopy Number: (312) 454-0610
-14-
<PAGE> 15
with a copy to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1600
Chicago, Illinois 60606
Attention: President
Telecopy Number: 312-454-0335
or to such other address or telecopy number as any party may, from time to
time, designate in a written notice given in a like manner. Notice by telecopy
shall be deemed delivered on the day telephone confirmation of receipt is
given.
(i) Successors and Assigns. This Agreement shall bind the successors and
assigns of the parties, and inure to the benefit of any successor or assign of
any of the parties; provided, however, that no party may assign this Agreement
without the other party's prior written consent.
(j) Change in Control. Notwithstanding anything to the contrary in this
Agreement, all of the provisions of this Agreement shall terminate in the event
of a Change in Control of Matria.
(k) Governing Law. This Agreement will be governed by and construed and
enforced in accordance with the internal laws of the State of Georgia, without
giving effect to the conflict of laws principles thereof.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first referred to above.
MATRIA HEALTHCARE, INC.
By:
-----------------------------
Title:
-----------------------
-----------------------------
MARK J. GAINOR
SZ INVESTMENTS, L.L.C.
By:
-----------------------------
Title:
-----------------------
-16-
<PAGE> 1
EXHIBIT 21
MATRIA HEALTHCARE, INC. SUBSIDIARIES
March 26, 1999
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- ---------------
<S> <C>
Clinical-Management Systems, Inc. Georgia
Diabetes Management Services, Inc. South Carolina
Diabetes Acquisition, Inc. Georgia
Gainor Medical Acquisition Company Georgia
USCI-Healthcare Management Solutions, Inc. Delaware
Diabetes Self Care, Inc. Virginia
Gainor Medical North America, L.L.C. Georgia
Gainor Medical Europe Limited United Kingdom
Gainor Medical International, L.L.C. Georgia
"David" Achtundesechzigste Beteiligungs und
Verwaltungsgesellschaft GmbH ("David 68") Germany (LLC)
Hans M.W. Spreth GmbH Germany (LLC)
EU Medical GmbH Germany (LLC)
"David" Eimundsiebsechzigste Beteiligungs und
Verwaltungsgesellschaft GmbH ("David 71") Germany (LLC)
Dia Real Diabetesservice Kommanditgesellschaft Germany (LLC)
*Gainor Medical Direct, L.L.C. Georgia
*A.R. Medical Supplies, Inc. Florida
*Matria Canada, Inc. New Brunswick
Matria of New York, Inc. New York
Matria Healthcare Puerto Rico, Inc. Puerto Rico
National Reproductive Medical Centers, Inc. California
Infertility Management Services, Inc. Delaware
Pacific Fertility Centers of California, Inc. California
Pacific Fertility Parenting Center, Inc. California
*Perinatal Services Nederland B.V. Nederlands
Quality Diagnostic Services, Inc. Delaware
*Shared Care, Inc. Georgia
*Tokos Acquisition Corporation Delaware
*Tokos Clinical Services Corporation (Portland) Delaware
*Tokos Clinical Services Corporation (New York) New York
*Tokos Clinical Services Corporation Delaware
</TABLE>
*Inactive
Note: The above subsidiaries (except for Perinatal Services Nederland B.V. and
Matria Healthcare Puerto Rico, Inc., both in which Matria owns a 51% interest)
are directly or indirectly 100% owned by Matria Healthcare, Inc.
<PAGE> 1
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Matria Healthcare, Inc.
We consent to incorporation by reference in the registration statement
(Nos. 333-69347, 333-02283, 333-01833 and 333-01559) on Form S-8 of Matria
Healthcare, Inc. of our reports dated February 19, 1999, relating to the
consolidated balance sheets of Matria Healthcare, Inc. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and the related financial statement
schedule, which reports appear in the 1998 annual report on Form 10-K of Matria
Healthcare, Inc.
KPMG LLP
Atlanta, Georgia
March 30, 1999
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Matria Healthcare, Inc.
Under date of February 19, 1999, we reported on the consolidated balance sheets
of Matria Healthcare, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1998, as contained in the annual report on Form 10-K for the year 1998. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule for each of the years in the three-year period ended December 31, 1998
included in the annual report on Form 10-K for the year 1998. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
February 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,968
<SECURITIES> 0
<RECEIVABLES> 58,546
<ALLOWANCES> (21,235)
<INVENTORY> 1,699
<CURRENT-ASSETS> 55,534
<PP&E> 47,103
<DEPRECIATION> (30,238)
<TOTAL-ASSETS> 97,034
<CURRENT-LIABILITIES> 19,193
<BONDS> 0
0
0
<COMMON> 364
<OTHER-SE> 49,517
<TOTAL-LIABILITY-AND-EQUITY> 97,034
<SALES> 0
<TOTAL-REVENUES> 135,215
<CGS> 0
<TOTAL-COSTS> 53,385
<OTHER-EXPENSES> 175,627
<LOSS-PROVISION> 6,662
<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> (101,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,542)
<EPS-PRIMARY> (2.78)
<EPS-DILUTED> (2.78)
</TABLE>
