<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-24025
---------
HORIZON MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1882343
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Horizon Way
P.O. Box 627
Manchester, Georgia 31816
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 706-846-3126
------------
Indicate by check mark whether the registrant: (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of May 15, 2000 was 13,366,278.
<PAGE> 2
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................................. 3
Interim Condensed Consolidated Balance Sheets.................................... 4
Interim Condensed Consolidated Statements of Operations.......................... 5
Interim Condensed Consolidated Statements of Cash Flows.......................... 6
Notes to Interim Condensed Consolidated Financial Statements..................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk....................... 18
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities............................................................ 19
ITEM 6. Exhibits and Reports on Form 8-K................................................. 20
SIGNATURE ................................................................................. 21
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements listed below are included on the following
pages of this Report on Form 10-Q (unaudited):
Interim Condensed Consolidated Balance Sheets at March 31,
2000 (unaudited) and December 31, 1999.
Interim Condensed Consolidated Statements of Operations for
the three months ended March 31, 2000 and March 31, 1999
(unaudited).
Interim Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2000 and March 31, 1999
(unaudited).
Notes to Interim Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 2,166,079 1,991,427
Accounts receivable - trade, net............................................ 16,687,569 18,091,455
Inventories................................................................. 18,630,761 19,647,250
Prepaid expenses and other current assets................................... 1,223,377 1,262,611
Income tax receivable....................................................... 862,050 953,055
Deferred taxes.............................................................. 1,246,439 1,246,439
------------- -------------
Total current assets..................................................... 40,816,275 43,192,237
Property and equipment, net..................................................... 3,532,816 3,683,446
Intangible assets, net.......................................................... 54,532,474 55,259,193
Other assets.................................................................... 256,356 262,596
------------- -------------
Total assets............................................................. $ 99,137,921 $ 102,397,472
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade.................................................... $ 3,099,808 $ 5,861,935
Accrued salaries and commissions ........................................... 141,135 203,415
Accrued royalties .......................................................... 87,844 172,073
Accrued interest ........................................................... 477,595 450,560
Other accrued expenses...................................................... 711,246 820,227
Current portion of long-term debt........................................... 10,161,180 5,757,196
------------- -------------
Total current liabilities................................................ 14,678,808 13,265,406
Long-term debt, net of current portion.......................................... 40,254,723 44,998,709
Other liabilities............................................................... 151,979 157,282
Deferred taxes.................................................................. 907,079 907,079
------------- -------------
Total liabilities........................................................ 55,992,589 59,328,476
------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000 shares authorized,
none issued and outstanding.............................................. -- --
Common stock, $.001 par value per share; 50,000,000 shares authorized,
13,366,278 shares issued and outstanding in 2000 and 1999................ 13,366 13,366
Additional paid-in capital.................................................. 51,826,125 51,826,125
Shareholders' notes receivable.............................................. (459,336) (452,581)
Accumulated deficit......................................................... (8,234,823) (8,317,914)
------------- -------------
Total shareholders' equity .............................................. 43,145,332 43,068,996
------------- -------------
Total liabilities and shareholders' equity .............................. $ 99,137,921 $ 102,397,472
============= =============
</TABLE>
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
-4-
<PAGE> 5
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales ..................................................................... $17,099,203 $ 19,441,341
Cost of goods sold.............................................................. 11,060,598 12,055,895
------------ ------------
Gross profit..................................................... 6,038,605 7,385,446
Selling, general and administrative expenses.................................... 4,676,760 4,842,554
------------- ------------
Operating income................................................. 1,361,845 2,542,892
------------- ------------
Other income (expense):
Interest expense............................................................ (1,170,931) (912,210)
Other income................................................................ 45,907 11,473
------------- ------------
(1,125,024) (900,737)
------------- ------------
Income before income taxes........................................ 236,821 1,642,155
Provision for income taxes...................................................... (153,730) (702,862)
------------- -------------
Net income ...................................................... $ 83,091 $ 939,293
============= ============
Net income per share - basic and diluted ....................................... $ 0.01 $ 0.07
============= ============
Weighted average common shares outstanding - basic.............................. 13,366,278 13,366,278
============= ============
Weighted average common shares outstanding - diluted............................ 13,371,063 13,369,015
============= ============
</TABLE>
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
-5-
<PAGE> 6
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 83,091 $ 939,293
------------- ------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation......................................................... 187,879 182,099
Amortization......................................................... 726,719 669,327
Non-cash increase in notes receivable-shareholders................... (6,755)
(Increase) decrease in operating assets, net:
Accounts receivable-trade....................................... 1,403,886 (1,585,153)
Inventories..................................................... 1,016,489 (3,288,349)
Prepaid expenses and other assets............................... 180,562 (177,201)
Income tax receivable........................................... 91,005 --
Increase (decrease) in operating liabilities:
Accounts payable - trade........................................ (2,762,127) 2,103,719
Income taxes payable............................................ (783,604)
Accrued expenses and other liabilities.......................... (212,841) (527,810)
------------- ------------
Net cash provided by (used in) operating activities.................. 707,908 (2,467,679)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (37,249) (123,373)
Change in non-operating assets, net............................................. (19,714)
------------- ------------
Net cash used in investing activities................................ (37,249) (143,087)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt............................................ (496,007) (101,314)
------------- ------------
Net cash used in financing activities ................................... (496,007) (101,314)
------------- -------------
Net increase (decrease) in cash and cash equivalents..................... 174,652 (2,712,080)
Cash and cash equivalents, beginning of period.................................. 1,991,427 6,232,215
------------- ------------
Cash and cash equivalents, end of period........................................ $ 2,166,079 $ 3,520,135
============= ============
</TABLE>
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
-6-
<PAGE> 7
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim condensed consolidated balance sheet of Horizon Medical
Products, Inc. and Subsidiaries (the "Company") at December 31, 1999
has been derived from the Company's audited consolidated financial
statements at such date. Certain information and footnote disclosures
normally included in complete financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and instructions to Form
10-Q. The interim condensed consolidated financial statements at March
31, 2000, and for the three months ended March 31, 2000 and 1999 are
unaudited; however, these statements reflect all adjustments and
disclosures which are, in the opinion of management, necessary for a
fair presentation. All such adjustments are of a normal recurring
nature unless noted otherwise. The results of operations for the
interim periods are not necessarily indicative of the results of the
full year. These financial statements should be read in conjunction
with the Company's Form 10-K for the year ended December 31, 1999,
including, without limitation, the summary of accounting policies and
notes and consolidated financial statements included therein.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires all
derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value
are required to be recognized immediately in net income to the extent
the derivatives are not effective as hedges. In September 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133, an amendment to delay the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company does not expect
the adoption of SFAS No. 133 as amended by SFAS No. 137 to have a
material impact on the interim condensed consolidated financial
statements.
2. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials............................................. $ 5,534,979 $ 5,551,390
Work in process........................................... 3,131,952 3,943,563
Finished goods............................................ 11,073,258 11,260,057
------------- ------------
19,740,189 20,755,010
Less inventory reserves................................... (1,109,428) (1,107,760)
------------- -------------
$ 18,630,761 $ 19,647,250
============= ============
</TABLE>
-7-
<PAGE> 8
3. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share
("EPS") is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
--------------------------------------------
Income Shares Per-share
Numerator Denominator Amount
--------- ------------ --------
<S> <C> <C> <C>
Basic EPS ........................ $ 83,091 13,366,278 $ 0.01
========
Effect of Dilutive Securities .... -- 4,785
--------- -----------
Diluted EPS ...................... $ 83,091 13,371,063 $ 0.01
========= =========== ========
<CAPTION>
For the Three Months Ended March 31, 1999
--------------------------------------------
Income Shares Per-share
Numerator Denominator Amount
--------- ------------ --------
<S> <C> <C> <C>
Basic EPS ........................ $ 939,293 13,366,278 $ 0.07
========
Effect of Dilutive Securities .... -- 2,737
--------- -----------
Diluted EPS ...................... $ 939,293 13,369,015 $ 0.07
========= =========== ========
</TABLE>
The number of stock options assumed to have been bought back by the
Company for computational purposes has been calculated by dividing
gross proceeds from all weighted average stock options outstanding
during the period, as if exercised, by the average common share market
price during the period. The average common share market price used in
the above calculation was $2.87 for the three months ended March 31,
2000 and $5.94 for the three months ended March 31, 1999.
Stock options to purchase shares of common stock at prices greater than
the average market price of the common shares during that period are
considered antidilutive. There were 292,863 options outstanding for the
three months ended March 31, 2000, with exercise prices ranging from
$3.38 to $ 15.50, and 220,694 options outstanding for the three months
ended March 31, 1999, with exercise prices ranging from $6.25 to
$15.50. All of these options expire in 2008 and 2009 and were not
included in the computation of diluted EPS because the exercise price
of the options was greater than the average market price of the common
shares for the three months ended March 31, 2000 and 1999.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the consolidated financial position, results of
operations, or cash flows of the Company.
-8-
<PAGE> 9
The Company is subject to numerous federal, state and local
environmental laws and regulations. Management believes that the
Company is in material compliance with such laws and regulations and
that potential environmental liabilities, if any, are not material to
the interim condensed consolidated financial statements.
In September 1999, the Company identified a breach in the primary
sterile barrier of a dialysis catheter kit. Further inspection revealed
the breach was inherent in the packaging design, and the Company
initiated a voluntary product recall. The Food and Drug Administration
has approved the packaging rework procedures for the recalled kits, and
product manufacturing resumed with a modified packaging design.
Management believes the majority of the affected product has been
returned. Expense associated with the recall was approximately $148,000
during 1999 and $20,000 for the three months ended March 31, 2000.
On September 30, 1998, the Company acquired certain assets used in the
manufacture and sale of medical devices by Ideas for Medicine, Inc.
("IFM"), a wholly-owned subsidiary of CryoLife, Inc. (the
"Acquisition"). The Acquisition was consummated pursuant to an Asset
Purchase Agreement, dated as of September 30, 1998, by and between the
Company and IFM. In connection with the Acquisition, the Company and
the seller of IFM (the "Seller") entered into a manufacturing agreement
(the "Manufacturing Agreement"), dated as of September 30, 1998,
pursuant to which, for a four year term, the Seller agreed to
manufacture exclusively for the Company and the Company agreed to
purchase from the Seller a specified minimum amount of products (the
"Products"). The Manufacturing Agreement requires that the annual sales
of the products to the Company shall equal at least $6,000,000 during
each 12-month period under this Manufacturing Agreement. The
Manufacturing Agreement is cancelable at the option of the Seller if
the Company fails to meet the quotas required under the Manufacturing
Agreement.
On June 22, 1999, IFM notified the Company that the Company was in
breach of the Manufacturing Agreement. IFM notified the Company that
the Company was in violation of the payment provision contained in the
Manufacturing Agreement, which calls for the Company to pay amounts due
to IFM within 45 days of the date of each invoice. The total accounts
payable due to IFM under the Manufacturing Agreement at March 31, 2000
was approximately $459,000. Additionally, IFM notified the Company that
the Company was in violation of the Manufacturing Agreement due to the
nonpayment of interest related to such past due accounts payable. In
addition, IFM notified the Company that the Company was in breach for
failing to provide a production schedule at the end of the first six
months of the term of the Manufacturing Agreement and on a monthly
basis thereafter. Finally, IFM notified the Company that the Company
was in breach for the failure to provide packaging and labeling.
The Company is in default under the Manufacturing Agreement. As a
result, IFM may terminate the Manufacturing Agreement and may be
entitled to receive an amount equal to (i) the direct costs incurred by
IFM for all purchase orders committed for raw materials and components,
(ii) the direct and indirect costs incurred by IFM for six months after
such termination for labor utilized in the manufacture of the Products,
and (iii) the fixed facility costs incurred by IFM in connection with
the manufacture of the Products for the remainder of the term of the
Manufacturing Agreement.
-9-
<PAGE> 10
The Company has continued to indicate to IFM that it will not be able
to meet the minimum purchase requirements outlined in the Manufacturing
Agreement. The Company is currently in negotiations with IFM to
purchase the existing inventory, fixed assets, and leasehold
improvements. The Company would assume responsibility for the plant and
manufacturing of the IFM product line. The parties are currently
operating under a verbal modification to the Manufacturing Agreement.
Should the Company be unable to revise the Manufacturing Agreement to
include acceptable terms or fail to continue to operate under the
verbal modification to the Manufacturing Agreement, then any
liabilities incurred as a result of the default could have a material
adverse effect on the Company's consolidated financial position and
disrupt the Company's ability to obtain and sell the related products.
Also in connection with the acquisition of IFM, the Company assumed
certain license agreements (the "IFM Licensors") for the right to
manufacture and sell cholangiogram catheters, surgical retractors,
embolectomy catheters, aortic occlusion catheters, suture needles and
other medical instruments covered by the IFM Licensors' patents or
derived from the IFM Licensors' confidential information. Payments
under these agreements vary, depending on the individual products
produced, and range from 1% to 5% of the Company's net sales of such
licensed products. Such payments shall continue until the expiration of
a fixed 20-year term or the expiration date of each corresponding
licensed patent covering each product under the agreements.
The Company is party to license agreements with an individual (the
"Licensor") for the right to manufacture and sell dual lumen fistula
needles, dual lumen over-the-needle catheters, dual lumen chronic and
acute catheters, and other products covered by the Licensor's patents
or derived from the Licensor's confidential information. Payments under
the agreement vary, depending upon the purchaser, and range from 9% to
15% of the Company's net sales of such licensed products. Such payments
shall continue until the expiration date of each corresponding licensed
patent covering each product under the agreements.
On March 18, 1997, the Company entered into an agreement with a
vascular access port manufacturer (the "Manufacturer") to allow for the
eventual transfer of the manufacturing process of certain port models
to the Company. The agreement requires the Company to purchase a
minimum of 3,500 ports each year through 2002. To the extent that
purchases exceed 4,000 in one contract year, such excess purchases may
be applied to the following year's minimum commitment. The Company has
satisfied all criteria in the agreement to take over the manufacture of
the ports with the payment of a royalty to the Manufacturer. Any
royalty payments would be paid quarterly and will be calculated as
forty percent of the difference between the Company's cost to
manufacture the port and the Company's sales price, as defined in the
agreement, for each port sold by the Company. The percentage used to
calculate the royalty payments will decrease to 25% after the first
year of manufacture by the Company. When the Company takes over
manufacturing, the Company is required to buy the Manufacturer's
inventory of related parts and finished ports at the Manufacturer's
cost, including the Manufacturer's standard overhead charges.
-10-
<PAGE> 11
On June 27, 1997, the Company entered into a distribution agreement
with an overseas distributor (the "Distributor") granting the
Distributor exclusive distribution rights for one of the Company's
hemodialysis catheter products in certain foreign territories. Under
the agreement, the Distributor has agreed to purchase, and the Company
has agreed to sell, a minimum number of units each year through May
2000. The agreement also contains a renewal clause allowing the Company
to extend the agreement for an additional two years. The minimum
commitments under the extended term would be subject to negotiation
three months prior to the renewal date. In the event the Company and
the Distributor cannot come to an agreement on the minimum commitments,
the minimum commitments will be set at 105% of the commitment levels in
year three for the first renewal year and 105% of the commitment level
in the first renewal year for the second renewal year. As of March 31,
2000, neither company was in compliance with the distribution
agreement. However, management does not believe there is any exposure
as a result of these violations and is currently negotiating new terms
with the distributor.
On December 11, 1998, the Company entered into a long-term distribution
agreement ("the Distribution Agreement") with a medical devices
manufacturer. The Distribution Agreement provides for the manufacturer
to supply, and the Company to purchase, certain minimum levels of
vascular grafts for an initial term of three years. The Distribution
Agreement may be automatically extended up to two additional years upon
the achievement of annual minimum purchase targets as defined in the
Distribution Agreement. The Agreement requires the Company to purchase
a minimum of 4,500 units, 6,300 units and 8,800 units in the first 3
years, respectively, following December 11, 1998. The agreement is
cancelable at the option of the manufacturer if the Company fails to
meet the quotas required under the Distribution Agreement.
The Company has entered into various distribution agreements under
which the Company has guaranteed certain gross margin percentages to
the distributors. As a result of these guarantees, the Company has
accrued approximately $312,000 as of March 31, 2000 related to amounts
to be rebated to the various distributors.
The Company is party to numerous agreements which contain provisions
regarding change in control, as defined by the agreements, or the
acquisition of the Company by a third party. These provisions could
result in additional payments being required by the Company should
these events occur.
5. SEGMENT INFORMATION
As of March 31, 2000, the Company operates two reportable segments,
manufacturing and distribution. The manufacturing segment includes
products manufactured by the Company as well as products manufactured
by third parties on behalf of the Company through manufacturing and
supply agreements. Prior to the 1998 acquisitions of Columbia Vital
Systems, Inc. ("CVS") and Stepic Corporation ("Stepic"), the Company
only operated the manufacturing segment.
-11-
<PAGE> 12
The Company evaluates the performance of its segments based on gross
profit; therefore, selling, general, and administrative costs, as well
as research and development, interest income/expense, and provision for
income taxes, are reported on an entity wide basis only.
The table below presents information about the reported sales (which
include intersegment revenues), gross profit (which include
intersegment gross profit) and identifiable assets of the Company's
segments as of and for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------------------------------- --------------------------------------------
Identifiable Identifiable
Sales Gross Profit Assets Sales Gross Profit Assets
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing .... $ 7,280,958 $ 3,824,026 $ 62,525,002 $ 8,366,552 $ 4,894,492 $ 67,081,979
Distribution ..... 10,802,465 2,237,309 36,077,115 11,876,437 2,689,474 40,123,109
------------ ------------ ------------ ------------ ------------ ------------
$ 18,083,423 $ 6,061,335 $ 98,602,117 $ 20,242,989 $ 7,583,966 $107,205,088
============ ============ ============ ============ ============ ============
</TABLE>
A reconciliation of total segment sales to total consolidated sales and
of total segment gross profit to total consolidated gross profit of the
Company for the three months ended March 31, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
<S> <C> <C>
Total segment sales ...................... $ 18,083,423 $ 20,242,989
Elimination of intersegment sales......... (984,220) (801,648)
------------- -------------
Consolidated sales........................ $ 17,099,203 $ 19,441,341
============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
<S> <C> <C>
Total segment gross profit ............... $ 6,061,335 $ 7,583,966
Elimination of intersegment gross profit.. (22,730) (198,520)
------------- -------------
Consolidated gross profit................. $ 6,038,605 $ 7,385,446
============= =============
</TABLE>
A reconciliation of total segment assets to total consolidated assets
of the Company as of March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
As of As of
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Total segment assets ............................ $ 98,602,117 $ 107,205,088
Elimination of intersegment receivables.......... (710,635) (1,521,515)
Assets not allocated to segments ................ 1,246,439 699,316
------------- -------------
Consolidated assets ............................. $ 99,137,921 $ 106,382,889
============= =============
</TABLE>
-12-
<PAGE> 13
The Company's operations are located in the United States. Thus,
substantially all of the Company's assets are located domestically.
Sales information by geographic area for the three months ended March
31, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
------------- -------------
<S> <C> <C>
United States ......................... $ 16,294,541 $ 18,155,096
Foreign ............................... 804,662 1,286,245
------------- -------------
$ 17,099,203 $ 19,441,341
============= =============
</TABLE>
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Sales. Net sales decreased 12.0% to $17.1 million for the first
quarter of 2000 from $19.4 million for the first quarter of 1999. This decrease
is primarily attributable to a decline in sales volume resulting from scheduled
management reductions of inventory held by its distributors during first
quarter 2000 as well as timing of shipment differences resulting in higher than
anticipated backlog of orders at the end of first quarter 2000. The allocation
of 1999 net sales on a segment basis for the three months ended March 31, 2000
resulted in net sales of $7.3 million from the manufacturing segment and $10.8
million from the distribution segment, before intersegment eliminations. The
allocation of net sales on a segment basis for the three months ended March 31,
1999 resulted in net sales of $8.4 million from the manufacturing segment and
$11.9 million from the distribution segment, before intersegment eliminations.
Gross Profit. Gross profit decreased 18.2% to $6.0 million for the first
quarter of 2000 from $7.4 million for the first quarter of 1999. Gross margin
decreased to 35.3% in the first quarter of 2000 from 38.0% in the first quarter
of 1999. The decrease in gross margin is the result of higher costs in first
quarter 2000, resulting from higher manufacturing costs incurred in late 1999.
Additionally, distribution sales as a percentage of total sales was higher in
first quarter 2000, which generates a lower margin than manufacturing sales.
The allocation of gross profit between segments for the three months ended
March 31, 2000 resulted in gross profit of $3.8 million from the manufacturing
segment and $2.2 million from the distribution segment, before intersegment
eliminations. The allocation of gross profit between segments for the three
months ended March 31, 1999 resulted in gross profit of $4.9 million from the
manufacturing segment and $2.7 million from the distribution segment, before
intersegment eliminations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) decreased approximately $166,000 or 3.4% to
approximately $4.7 million for the first quarter of 2000 compared with $4.8
million for the first quarter of 1999. This decrease is due to lower salaries
and commissions and shipping and marketing expenses in first quarter 2000
compared to first quarter 1999. SG&A expenses increased as a percentage of net
sales to 27.4% for the first quarter of 2000 from 24.9% for the first quarter
of 1999. This increase is substantially due to decreased sales in first quarter
2000 from first quarter 1999.
Interest Expense. Net interest expense increased to approximately $1.2
million in the first quarter of 2000 compared to approximately $913,000 in the
first quarter of 1999. The increase in 2000 is due to higher debt outstanding
during the first quarter of 2000 compared to the first quarter of 1999 as well
as higher interest rates under the Company's New Credit Facility in first
quarter 2000.
-14-
<PAGE> 15
Income Tax Expense. Income tax expense decreased to approximately
$154,000 for the first quarter of 2000 from approximately $703,000 for the
first quarter of 1999. The 2000 effective tax rate is higher than the statutory
tax rate due to certain goodwill amortization that is not deductible for tax
purposes. The decrease in the first quarter 2000 was the result of lower
taxable income in the first quarter of 2000 compared to the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $707,908 for the three
months ended March 31, 2000 compared with ($2,467,679) for the three months
ended March 31, 1999. The decrease in cash used in operations during 2000
compared to 1999 was primarily attributable to the reduction in accounts
receivable and inventory and lower income taxes paid during 2000.
Net cash used in investing activities was $37,249 in 2000 compared to $143,087
in 1999. Substantially all of the investing activities in both 2000 and 1999
were for capital expenditures for the Company's facilities.
Net cash used in financing activities was $496,007 in 2000 compared to $101,314
in 1999. Financing activities in both 2000 and 1999 consisted primarily of
principal payments on outstanding debt. The increase in principal payments on
outstanding debt in 2000 was attributable to payments on the notes payable to
the shareholders of Stepic of approximately $488,000.
As discussed more fully in Note 6 of the Company's consolidated financial
statements included in the Company's Form 10-K for the year ended December 31,
1999, in May 1998, the Company entered into a $50 million amended and restated
credit facility (the "New Credit Facility") with Banc of America Commercial
Finance Corporation to be used for working capital purposes and to fund future
acquisitions. Portions of the amounts outstanding under the New Credit Facility
are payable in 16 quarterly installments beginning October 1, 2000 in amounts
representing 6.25% of the principal amounts outstanding on the payment due
dates. The remaining portion is due on the date of the expiration of the New
Credit Facility, which is July 1, 2004. The total balance outstanding under the
New Credit Facility was approximately $45 million and no funds were available
for borrowing under the New Credit Facility at March 31, 2000. In addition, the
Company had outstanding standby letters of credit at March 31, 2000 of
approximately $4.8 million, which collateralize the Company's obligations to
third parties in connection with its 1998 acquisitions. The Company's New
Credit Facility contains certain restrictive covenants that require a minimum
net worth and EBITDA as well as specific ratios such as total debt service
coverage, leverage, interest coverage and debt to capitalization. The covenants
also place limitations on capital expenditures, other borrowings, operating
lease arrangements and affiliate transactions. The Company and Banc of America
amended the New Credit Facility on March 31, 1999 and March 29, 2000, to adjust
certain of the financial ratio covenants and increase the interest rate. The
Company is in compliance with these covenants as of the date of this filing.
-15-
<PAGE> 16
The Company is currently negotiating with various lenders to refinance the
existing senior indebtedness and to provide new subordinate debt or equity
investment, which, together with its cash flows from operations, the Company
believes will be sufficient to satisfy its future working capital and capital
expenditure requirements.
YEAR 2000 READINESS DISCLOSURE
The Company previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and
began taking corrective action. The Company's efforts included replacing and
testing four basic aspects of its business operations: internal information
technology ("IT") systems, including sales order processing, contract
management, financial systems and service management; internal non-IT systems,
including office equipment and test equipment products; building
infrastructure, including heating and cooling systems, security systems, water,
gas and electric; and material third-party relationships. Management believes
the Company has completed all of the activities within its control to ensure
that the Company's systems are Year 2000 compliant, and the Company has
experienced no interruptions to normal operations due to the start of the Year
2000.
The Company's Year 2000 readiness costs were not material and were incurred and
recorded as normal operating costs. The Company funded these costs through
funds generated from operations and such costs were generally not incremental
to existing IT budgets; internal resources were re-deployed and timetables for
implementation of replacement systems were accelerated. The Company does not
currently expect to apply any further funds to address Year 2000 issues.
As of March 31, 2000, the Company has not experienced any material disruptions
of its internal computer systems or software applications, and has not
experienced any problems with the computer systems or software applications of
its third party vendors, suppliers or service providers. The Company will
continue to monitor these third parties to determine the impact, if any, on the
business of the Company and the actions the Company must take, if any, in the
event of non-compliance by any of these third parties. Based upon the Company's
assessment of compliance by third parties, there appears to be no material risk
posed by any such noncompliance. Moreover, the Company generally believes that
the vendors that supply products to the Company for resale are responsible for
the products' Year 2000 functionality.
Although the Company's Year 2000 rollover did not present any material business
disruption, there were some remaining Year 2000-related risks, including risks
due to the fact that the year 2000 is a leap year. These risks included
potential product supply issues and other non-operational issues. Management
believes that appropriate action was taken to address these remaining Year 2000
issues and contingency plans were in place to minimize the financial impact to
the Company. Management, however, cannot be certain that Year 2000 issues will
not have a material adverse impact on the Company, since the evaluation process
is not yet complete and it is early in the Year 2000.
-16-
<PAGE> 17
RECENTLY ISSUED ACCOUNTING STANDARDS
Note 1 of the interim condensed consolidated financial statements included
elsewhere in this Form 10-Q describes the recently issued accounting standards.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral statements
made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as management's expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. All forward-looking statements are subject to certain risks and
uncertainties that could cause actual events to differ materially from those
projected. Such risks and uncertainties include, among others, the Company's
limited manufacturing experience, the inability to efficiently manufacture
different products and to integrate newly acquired products with existing
products, the possible failure to successfully commence the manufacturing of
new products, the possible failure to maintain or increase production volumes
of new or existing products in a timely or cost-effective manner, the possible
failure to maintain compliance with applicable licensing or regulatory
requirements, the inability to successfully integrate acquired operations and
products or to realize anticipated synergies and economies of scale from
acquired operations, the dependence on patents, trademarks, licenses and
proprietary rights, the Company's potential exposure to product liability, the
possible inadequacy of the Company's cash flow from operations and cash
available from external financing, the inability to introduce new products, the
Company's reliance on a few large customers, the Company's dependence on key
personnel, the fact that the Company is subject to control by certain
shareholders, the Company's ability to address Year 2000 problems, pricing
pressure related to healthcare reform and managed care and other healthcare
provider organizations, the possible failure to comply with applicable federal,
state or foreign laws or regulations, limitations on third-party reimbursement,
the highly competitive and fragmented nature of the medical devices industry,
deterioration in general economic conditions and the Company's ability to pay
its indebtedness. Management believes that these forward-looking statements are
reasonable; however, you should not place undue reliance on such statements.
These statements are based on current expectations and speak only as of the
date of such statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of future
events, new information or otherwise. Additional information concerning the
risk and uncertainties listed above and other factors that you may wish to
consider is contained in the Company's Form 10-K for the year ended December
31, 1999.
-17-
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Like other companies, the Company is exposed to market risks relating to
fluctuations in interest rates. The Company's objective of financial risk
management is to minimize the negative impact of interest rate fluctuations on
the Company's earnings and cash flows.
To manage this risk, the company has entered into an interest rate cap agreement
("the Cap Agreement") with Bank of America to minimize the risk of credit loss.
The Company uses this Cap Agreement to reduce risk by essentially creating
offsetting market exposures. The Cap Agreement is not held for trading purposes.
At December 31, 1999, and March 31, 2000, the Company had approximately $45
million outstanding under its New Credit Facility, which expires in July 2004.
Amounts outstanding under the New Credit Facility of approximately $11.1
million at December 31, 1999, and $10.5 million at March 31, 2000, were subject
to the Cap Agreement, which expires in October 2002. The Cap Agreement settles
quarterly and the cap rate is 8.8%.
For more information on the Cap Agreement, see Notes 2 and 6 to the Company's
consolidated financial statements included in the Company's Form 10-K for the
year ended December 31, 1999.
-18-
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(a) On March 29, 2000, the company entered into the Third Amendment to
Amended and Restated Credit Agreement and Waiver by and among the
Company, the Lenders referred to therein and Banc of America Commercial
Finance Corporation, as Agent. The Amended and Restated Credit
Agreement and Waiver, as amended, currently prohibits the payment of
dividends on the Company's capital stock and also restricts the
Company's capital expenditures.
-19-
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.1 Third Amendment to Amended and Restated Credit
Agreement and Waiver, dated as of March 29, 2000, by
and among the Company, the Lenders referred to therein
and Banc of America Commercial Finance Corporation, as
Agent.
27.1 Financial Data Schedule (for SEC filing purposes only).
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2000.
-20-
<PAGE> 21
HORIZON MEDICAL PRODUCTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON MEDICAL PRODUCTS, INC.
----------------------------------
(Registrant)
May 15, 2000 /s/ Robert M. Dodge
- ------------ ----------------------------------
Senior Vice-President and
Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer)
-21-
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND WAIVER
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
WAIVER made and entered into as of March 29, 2000, by and among HORIZON MEDICAL
PRODUCTS, INC., a Georgia corporation (the "COMPANY"), the Lenders signatory to
the Credit Agreement referred to below (the "LENDERS"), and BANC OF AMERICA
COMMERCIAL FINANCE CORPORATION, formerly known as NationsCredit Commercial
Corporation, as Agent for the Lenders (the "AGENT").
STATEMENT OF FACTS
A. The Company, the Lenders and the Agent are parties to the Amended
and Restated Credit Agreement, dated as of May 26, 1998, as amended by the
First Amendment to Amended and Restated Credit Agreement dated as of November
11, 1998, and the Second Amendment to Amended and Restated Credit Agreement and
Waiver dated as of March 31, 1999 (the "CREDIT AGREEMENT"; capitalized terms
used in this Amendment and not otherwise defined herein have the meanings given
in the Credit Agreement, as amended hereby), whereby the Lenders have agreed to
make certain loans and other financial accommodations to the Company, subject
to the terms and conditions contained in the Credit Agreement.
B. The Company has requested that the Agent and the Lenders agree to
modify certain terms of the Credit Agreement and that the Agent and the Lenders
grant certain waivers relating to the Credit Agreement, and the Agent and the
Lenders are willing to agree to such modifications and to grant certain
waivers, subject to the terms and conditions of this Amendment.
STATEMENT OF TERMS
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. WAIVER OF CERTAIN DEFAULTS OR EVENTS OF DEFAULT. Subject to the terms
and conditions of this Amendment, the Lenders hereby waive any Default or Event
of Default arising solely by reason of the Company's failure, on or prior to
March 31, 2000, to be in compliance with the covenants contained in the
following Sections, as in effect prior to this Amendment:
(i) Section 6.15 (Total Debt Coverage Ratio);
(ii) Section 6.16 (Leverage);
(iii) Section 6.17 (Minimum EBITDA); and
(iv) Section 6.18 (Interest Coverage).
1
<PAGE> 2
2. AMENDMENT TO CREDIT AGREEMENT. Subject to the terms and conditions of
this Amendment, the Credit Agreement is hereby amended as follows:
(a) The definition of "EBITDA" contained in Section 1.01 of the
Credit Agreement is amended by inserting the following prior to the period at
the end of such definition:
; provided, however, that for the periods shown on Schedule 1
to the Third Amendment to Amended and Restated Credit
Agreement and Waiver, dated as of March 29, 2000, EBITDA
shall be deemed to be the amounts shown on such Schedule.
(b) The definition of "Index Rate Applicable Margin" contained in
Section 1.01 of the Credit Agreement is amended to read as follows:
"INDEX RATE APPLICABLE MARGIN" means:
(a) on or prior to December 31, 1999, (i) 4.00%
per annum from and including April 1, 1999 to but excluding
July 1, 1999 (the "Initial Adjustment Date"), and (ii)
commencing on the Initial Adjustment Date and on the first
Business Day of each calendar quarter thereafter, provided
that the Company shall have timely delivered to the Agent the
financial statements required to be delivered pursuant to
Section 5.01(a) for the second month in the preceding
calendar quarter (each an "Adjustment Date"), the per annum
interest rate margin shall be that set forth below opposite
the Leverage Ratio determined from such financial statements:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE MARGIN
<S> <C>
> 3.50x 4.00%
< 3.50 but 3.75%
-
> 3.25x
-
< 3.25x 3.50%
</TABLE>
Notwithstanding the foregoing, so long as a Default shall
have occurred and be continuing, the Index Rate Applicable
Margin shall be the highest rate specified in the table
above; and
(b) from and after January 1, 2000, 4.50% per
annum, provided that for so long as (x) the Leverage Ratio is
less than or equal to 4.00x, and (y) the aggregate
outstanding amount of Loans made by and Letters of Credit
issued by Banc of America Commercial Finance Corporation
hereunder is less than $40,000,000, the Index Rate Applicable
Margin shall be 4.00% per annum.
2
<PAGE> 3
(c) The definition of "LIBOR Applicable Margin" contained in
Section 1.01 of the Credit Agreement is amended to read as follows:
"LIBOR APPLICABLE MARGIN" means:
(a) on or prior to December 31, 1999, (i) 4.00%
per annum from and including April 1, 1999 to but excluding
July 1, 1999 (the "Initial Adjustment Date"), and (ii)
commencing on the Initial Adjustment Date and on the first
Business Day of each calendar quarter thereafter, provided
that the Company shall have timely delivered to the Agent the
financial statements required to be delivered pursuant to
Section 5.01(a) for the second month of the preceding
calendar quarter (each an "Adjustment Date"), the per annum
interest rate margin shall be that set forth below opposite
the Leverage Ratio determined from such financial statements:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE MARGIN
<S> <C>
> 3.50x 4.00%
< 3.50 but 3.75%
-
> 3.25x
-
< 3.25x 3.50%
</TABLE>
Notwithstanding the foregoing, so long as a Default shall
have occurred and be continuing, the LIBOR Applicable Margin
shall be the highest rate specified in the table above; and
(b) from and after January 1, 2000, 4.50% per
annum, provided that for so long as (x) the Leverage Ratio is
less than or equal to 4.00x, and (y) the aggregate
outstanding amount of Loans made by and Letters of Credit
issued by Banc of America Commercial Finance Corporation
hereunder is less than $40,000,000, the LIBOR Applicable
Margin shall be 4.00% per annum.
(d) Section 2.03(b)(i) of the Credit Agreement is amended to read
as follows:
(b)(i) The Company shall be obligated to pay interest to the
Lenders on the outstanding principal balance of each
Revolving Credit Loan from the date such Revolving Credit
Loan is made until such Revolving Credit Loan is repaid in
full. Except as provided in paragraph (d) below:
(X) interest on the principal balance of all
Revolving Credit Loans outstanding from the Closing Date
through April 1, 1999 shall
3
<PAGE> 4
accrue at a floating rate per annum equal, at the Company's
option, to one of: (i) the Index Rate plus three and
one-quarter percentage points (3.25%), (ii) Adjusted LIBOR
plus three and one-quarter percentage points (3.25%), or
(iii) the Prime Rate plus one-half of one percentage point
(.50%);
(Y) interest on the principal balance of all
Revolving Credit Loans outstanding on or after April 1, 1999
and on or before December 31, 1999 shall accrue at a floating
rate per annum equal, at the Company's option, to one of: (i)
the Index Rate plus the Index Rate Applicable Margin, or (ii)
Adjusted LIBOR plus the LIBOR Applicable Margin, or (iii) the
Prime Rate plus the Prime Rate Applicable Margin; and
(Z) interest on the principal balance of all
Revolving Credit Loans outstanding on or after January 1,
2000 shall accrue at a floating rate per annum equal, at the
Company's option, to one of: (i) the Index Rate plus the
Index Rate Applicable Margin, or (ii) Adjusted LIBOR plus the
LIBOR Applicable Margin.
(e) Section 2.03(b)(ii) of the Credit Agreement is amended by
inserting the phrase ", if such interest is due and payable on or prior to
December 31, 1999," immediately prior to the phrase "the Prime Rate".
(f) Section 6.15 is amended by inserting the following prior to
the period at the end of such Section:
, except for the fiscal quarter ended December 31, 2000, for
which the Company shall not permit such ratio to be less than
1.15 to 1.0.
(g) Section 6.16 of the Credit Agreement is amended to read as
follows:
SECTION 6.16. LEVERAGE. At no time shall the ratio
of (i) Consolidated Total Debt at such time to (ii) Adjusted
EBITDA for the four consecutive fiscal quarters then most
recently ended (considered as a single accounting period;
provided that for the purposes of compliance on any date
prior to the date that four complete fiscal quarters have
elapsed since the Initial Closing Date, Adjusted EBITDA for
the relevant period shall equal the sum of Adjusted EBITDA
for each fiscal quarter completed since the Initial Closing
Date, annualized), exceed 3.50 to 1.0; provided further that
during the Fiscal Years ending December 31, 1999 and December
31, 2000, the ratio of (i) Consolidated Total Debt at such
time to (ii) EBITDA for the four fiscal quarters then most
recently ended shall not exceed the ratio set forth below for
the periods occurring during such Fiscal Year:
4
<PAGE> 5
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
January 1, 1999 through June 30, 1999 4.00 : 1.00
July 1, 1999 through December 31, 1999 3.75 : 1.00
January 1, 2000 through March 31, 2000 4.40 : 1.00
April 1, 2000 through June 30, 2000 4.10 : 1.00
July 1, 2000 through September 30, 2000 3.75 : 1.00
October 1, 2000 through December 31, 2000 3.50 : 1.00
</TABLE>
(h) Section 6.17 of the Credit Agreement is amended to read as
follows:
SECTION 6.17. MINIMUM EBITDA. At no time during any
period specified below arising after the Closing Date, shall
EBITDA for the four consecutive fiscal quarters then most
recently ended (or, in the case of any fiscal quarter ending
prior to the first anniversary of the Initial Closing Date,
for the period commencing on the Initial Closing Date and
ending on the last day of such fiscal quarter), considered as
a single accounting period, be less than the corresponding
amount set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
--------------------- ------
<S> <C>
3/31/98 $ 5,500,000
6/30/98 7,000,000
9/30/98 8,000,000
12/31/98 9,000,000
3/31/99 13,000,000
6/30/99 13,000,000
9/30/99 13,000,000
12/31/99 15,500,000
3/31/00 11,000,000
6/30/00 11,000,000
9/30/00 12,000,000
12/31/00 13,000,000
All times thereafter 15,500,000
</TABLE>
(i) Section 6.18 is amended by inserting the following prior to
the period at the end of such Section:
, except for any fiscal quarter in the Fiscal Year ended
December 31, 2000, for which the Company shall not permit
such ratio to be less than 2.0 to 1.0.
(j) Section 6.19 of the Credit Agreement is amended to read as
follows:
5
<PAGE> 6
SECTION 6.19. DEBT TO CAPITALIZATION. The ratio of (i)
Consolidated Total Debt to (ii) Consolidated Capitalization
shall not exceed 60% at any time on or prior to March 31,
2000, and shall not exceed 45% at any thereafter.
(k) The following new Section 6.21 is added to the Credit
Agreement:
SECTION 6.21. CUMULATIVE CONSOLIDATED CASH FLOW. As of the
last date of any fiscal quarter commencing with the fiscal
quarter ended March 31, 2000, cash provided by (used in)
operations of the Company and its Consolidated Subsidiaries
for the four consecutive fiscal quarters then most recently
ended (or in the case of any fiscal quarter ending on or
prior to December 31, 2000, since January 1, 2000), as
determined from the statements of cash flow delivered in
accordance with Section 5.01(b) and (c), adding back any
amounts (not to exceed $3,300,000 in the aggregate) deducted
in determining cash provided by (used in) operations with
respect to the purchase from Cryolife, Inc. of the assets and
inventory associated with the plant of Cryolife, Inc. located
in Clearwater, Florida, shall be greater than 0.
3. FEES. On the earlier of (i) May 31, 2000, or (ii) the closing of an
equity investment by Banc One Equity Capital, the Company shall pay to the
Agent an amendment fee equal to $149,920.88. The Agent acknowledges that such
amount has been received by it and shall be applied against the amendment fee.
4. PAYMENT OF INTEREST. Notwithstanding Section 2.03(a) of the Credit
Agreement, amounts of interest on the Revolving Credit Loans owed by the
Company to the Lenders which are attributable to the amendments to the
definitions of Index Rate Applicable Margin and LIBOR Applicable Margin
contained in this Amendment shall be due and payable on April 1, 2000.
5. DEFAULT RATE. The Agent and the Lenders agree that the Default Rate
shall not be deemed to have been imposed with respect to the Defaults or Events
of Default expressly waived pursuant to Section 1.
6. NO OTHER WAIVERS OR AMENDMENTS. Except for the waivers and amendments
expressly set forth in Section 1 and Section 2 above, respectively, the Credit
Agreement shall remain unchanged and in full force and effect. The waivers
contained in Section 1 relate solely to the Defaults or Events of Default
described therein and nothing in this Amendment is intended or shall be
construed to be a waiver by the Lenders of any other Default or Event of
Default, including without limitation any future failure by the Company to
comply with the aforesaid financial covenants, as amended by this Amendment.
Nothing in this Amendment is intended or shall be construed to constitute a
novation or an accord and satisfaction of any of the Company's Obligations
under or in connection with the Credit Agreement or to modify, affect or impair
the
6
<PAGE> 7
perfection or continuity of Agent's security interests in, security titles to
or other liens on any Collateral for the Obligations.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Agent and the Lenders that (a) this Amendment has been duly
authorized, executed and delivered by the Company, (b) no Default or Event of
Default has occurred and is continuing as of this date, other than the Defaults
or Events of Default waived in this Amendment, and (c) except to the extent
disclosed to the Agent in writing on or prior to the date hereof, all of the
representations and warranties made by the Company in the Credit Agreement and
the other Financing Documents are true and correct in all material respects on
and as of the date of this Amendment (except to the extent that any such
representations or warranties expressly referred to a specific prior date). Any
breach by the Company of its representations and warranties contained in this
Section 6 shall be an Event of Default for all purposes of the Credit Agreement
(as amended hereby).
8. RATIFICATION. The Company hereby ratifies and reaffirms each and every
term, covenant and condition set forth in the Credit Agreement and all other
documents delivered by the Company (as amended hereby) in connection therewith
(including without limitation the other Financing Documents to which the
Company is a party), effective as of the date hereof.
9. ESTOPPEL. To induce the Agent and the Lenders to enter into this
Amendment, the Company hereby acknowledges and agrees that, as of the date
hereof, there exists no right of offset, defense or counterclaim in favor of
the Company as against the Agent or any Lender with respect to the obligations
of the Company to any of such parties under the Credit Agreement or the other
Financing Documents, either with or without giving effect to this Amendment.
10. STRICT COMPLIANCE NOTICE. The Agent hereby notifies the Company that
the Agent and the Lenders intend to rely upon the strict terms and conditions
of the Credit Agreement and the other Financing Documents, and the Agent and
the Lenders expect that the Company will strictly comply with the terms and
conditions thereof from and after this date. Nothing contained in this
Amendment shall constitute a waiver by the Agent or the Lender of any Default
or Event of Default now existing or hereafter arising under the Credit
Agreement or any other Financing Document.
11. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective upon
the date hereof, subject to the satisfaction of the following conditions:
(a) the receipt by the Agent of this Amendment, duly
executed, completed and delivered by the Agent, the Lenders and the
Company; and
(b) the receipt by the Agent of the fees and expenses due
to its counsel from the Company, which amount equals $2102.50;
(c) the receipt by the Agent of such other documents,
certificates, lien searches, instruments and opinions of counsel as
the Agent may reasonably request.
7
<PAGE> 8
12. REIMBURSEMENT OF EXPENSES. The Company hereby agrees that it shall
reimburse the Agent and the Lenders on demand for all costs and expenses
(including without limitation attorney's fees) incurred by such parties in
connection with the negotiation, documentation and consummation of this
Amendment and the other documents executed in connection herewith and therewith
and the transactions contemplated hereby and thereby.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA FOR CONTRACTS TO BE PERFORMED
ENTIRELY WITHIN SAID STATE.
14. SEVERABILITY OF PROVISIONS. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability of such
provision in any other jurisdiction. To the extent permitted by applicable law,
the Company hereby waives any provision of law that renders any provision
hereof prohibited or unenforceable in any respect.
15. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which shall be deemed to constitute but one original and
shall be binding upon all parties, their successors and permitted assigns.
16. ENTIRE AGREEMENT. The Credit Agreement as amended by this Amendment
embodies the entire agreement between the parties hereto relating to the
subject matter hereof and supersedes all prior agreements, representations and
understandings, if any, relating to the subject matter hereof.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized, as of the date
first above written.
HORIZON MEDICAL PRODUCTS, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
LENDER AND AGENT:
BANC OF AMERICA COMMERCIAL
FINANCE CORPORATION
By:
----------------------------------
Ronald S. Cohn
Duly Authorized Signatory
9
<PAGE> 10
ACKNOWLEDGMENT
The undersigned Credit Parties hereby acknowledge and consent to, and
agree to the terms of, the foregoing Third Amendment to Amended and Restated
Credit Agreement and Waiver, and ratify and confirm their respective
obligations under the Financing Documents, as of the date of such Amendment.
HORIZON ACQUISITION CORP.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
STRATO/INFUSAID, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
STEPIC CORPORATION
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
10
<PAGE> 11
SCHEDULE 1
EBITDA
<TABLE>
<CAPTION>
Fiscal Quarter Ending: Amount:
--------------------- ------
<S> <C>
March 31, 1999 $3,394,000
June 30, 1999 3,464,000
September 30, 1999 2,947,000
December 31, 1999 2,871,000
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HORIZON MEDICAL PRODUCTS, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,166,079
<SECURITIES> 0
<RECEIVABLES> 17,687,304
<ALLOWANCES> 999,735
<INVENTORY> 18,630,761
<CURRENT-ASSETS> 40,816,275
<PP&E> 5,365,495
<DEPRECIATION> 1,832,679
<TOTAL-ASSETS> 99,137,921
<CURRENT-LIABILITIES> 14,678,808
<BONDS> 40,254,723
0
0
<COMMON> 13,366
<OTHER-SE> 43,131,966
<TOTAL-LIABILITY-AND-EQUITY> 99,137,921
<SALES> 17,099,203
<TOTAL-REVENUES> 17,099,203
<CGS> 11,060,598
<TOTAL-COSTS> 11,060,598
<OTHER-EXPENSES> 4,676,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,170,931
<INCOME-PRETAX> 236,821
<INCOME-TAX> 153,730
<INCOME-CONTINUING> 83,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,091
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
