As filed with the Securities and Exchange Commission on June 21, 2002
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
MATRIA HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8082 58-2205984
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
(770) 767-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------
ROBERTA L. MCCAW
VICE PRESIDENT AND GENERAL COUNSEL
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE, 12TH FLOOR
MARIETTA, GEORGIA 30067
(770) 767-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
----------------------------
Copies to:
JAMES L. SMITH, III, ESQUIRE LOWELL D. TURNBULL, ESQUIRE
TROUTMAN SANDERS LLP SIMON TURNBULL & MARTIN, CHARTERED
BANK OF AMERICA PLAZA, SUITE 5200 2000 PENNSYLVANIA AVENUE, NW
600 PEACHTREE STREET, N.E. SUITE 4600
ATLANTA, GEORGIA 30308-2216 WASHINGTON, DC 20006-1812
(404) 885-3111 (202) 785-7644
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective and the
satisfaction or waiver of all other conditions to the acquisition by Matria of
assets of LifeMetrix, Inc., including all of the issued and outstanding stock of
Quality Oncology, Inc., pursuant to the Purchase and Sale Agreement dated as of
April 29, 2002, described in this proxy statement/prospectus.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
-----------------------
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) FEE(3)
------------------------------------------------------------------------------------------------------------------------------
common stock, $0.01 par value (1)....... 3,000,000 Shares $11.27 $33,810,000 $3,110.52
==============================================================================================================================
(1) With the attached rights to purchase additional shares of common stock
in certain circumstances.
(2) Based on an estimate of the maximum number of shares of common stock of
the Registrant available in the acquisition described herein.
(3) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of
1933, as amended, the registration fee has been calculated based on the
average of the high and low prices per share of Matria's common stock
on June 14, 2002 as reported on the Nasdaq National Market.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
YOUR VOTE IS VERY IMPORTANT
To the stockholders of Matria:
Matria Healthcare, Inc., LifeMetrix, Inc. and Quality Oncology, Inc., a
wholly owned subsidiary of LifeMetrix, have entered into an agreement pursuant
to which Matria will acquire all of the issued and outstanding shares of Quality
Oncology and other assets of LifeMetrix and its other subsidiaries relating to
its cancer disease management business in exchange for a combination of cash and
shares of Matria common stock. At the 2002 annual meeting of Matria's
stockholders to be held at Matria's corporate headquarters at 1850 Parkway
Place, Suite 320, Marietta, Georgia 30067 on ________________, 2002, at 11:00
a.m. local time, you will be asked to consider and vote upon a proposal relating
to the issuance of Matria's common stock in connection with the acquisition.
Also at the annual meeting, Matria stockholders will elect three Class
I directors, vote on approving the Matria 2002 Stock Incentive Plan, vote on
approving the Matria 2002 Stock Purchase Plan and consider and act upon such
other business as may properly come before the meeting.
This document is being sent to Matria stockholders to provide detailed
information about the matters to be considered at the annual meeting. This proxy
solicitation is made by the board of directors of Matria. By signing and
returning the enclosed proxy card, you are authorizing the persons named on the
proxy card to represent you and vote your shares.
This document also is being sent to LifeMetrix stockholders in
connection with the solicitation by LifeMetrix of written consents from
LifeMetrix stockholders to approve the acquisition and is being distributed as a
prospectus for any shares of Matria common stock that LifeMetrix stockholders
may receive in connection with the acquisition and that LifeMetrix and Quality
Oncology employees may receive as a part of incentive bonuses that LifeMetrix
may pay in connection with the acquisition.
The board of directors believes that the matters to be presented at the
annual meeting are in the best interests of Matria and its stockholders.
Therefore, the board of directors urges stockholders to vote in favor of each of
the proposals presented at the annual meeting. Whether or not you plan to attend
the annual meeting, please take the time to vote on the proposal to approve the
issuance of Matria common stock in connection with the acquisition, to elect
three Class I directors, to approve the 2002 Stock Incentive Plan and to approve
the 2002 Stock Purchase Plan by completing and mailing the enclosed proxy card
to us.
Very truly yours,
PARKER H. PETIT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 10 OF
THIS DOCUMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF MATRIA COMMON STOCK TO
BE ISSUED IN CONNECTION WITH THE ACQUISITION, NOR HAVE THEY DETERMINED WHETHER
THIS DOCUMENT IS ADEQUATE OR CORRECT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS DOCUMENT IS ___________, 2002 AND IT WAS FIRST MAILED
TO MATRIA STOCKHOLDERS ON OR ABOUT ___________, 2002.
LIFEMETRIX, INC.
1430 SPRING HILL ROAD, SUITE 106
MCLEAN, VIRGINIA 22102
To the stockholders of LifeMetrix:
LifeMetrix, Inc., Quality Oncology, Inc., a wholly owned subsidiary of
LifeMetrix, and Matria Healthcare, Inc. have entered into an agreement pursuant
to which Matria will acquire all of the issued and outstanding shares of Quality
Oncology and other assets of LifeMetrix and its other subsidiaries relating to
its cancer disease management business in exchange for a combination of cash and
shares of Matria common stock. The enclosed materials seek your consent to a
proposal to approve the sale of assets by LifeMetrix to Matria upon the terms of
the purchase and sale agreement, a copy of which is attached as Appendix A to
this document.
Approval of the acquisition requires both the affirmative vote of a
majority of the outstanding shares of LifeMetrix common and preferred stock,
voting as a single class, on an as-converted basis, and the separate affirmative
vote of a majority of the outstanding shares of LifeMetrix preferred stock.
Stockholders of LifeMetrix having sufficient voting power to approve the
acquisition have entered into voting agreements with Matria to vote in favor of
or give written consent to the acquisition. Consequently, approval of the
acquisition is assured. LifeMetrix is seeking approval of the acquisition from
its stockholders by written consent. In the materials accompanying this document
you will find a form of consent. It is important that your shares of LifeMetrix
common and preferred stock be represented in this matter. If you approve of the
acquisition by Matria, please sign, date and return the enclosed consent form as
soon as possible.
The board of directors of LifeMetrix has carefully considered the terms
and conditions of the proposed acquisition and has determined that the
acquisition is fair to, and in the best interests of, LifeMetrix and its
stockholders. THE BOARD HAS UNANIMOUSLY APPROVED THE ACQUISITION AND RECOMMENDS
THAT ALL LIFEMETRIX STOCKHOLDERS CONSENT TO THE APPROVAL OF THE ACQUISITION.
This document is being sent to stockholders of LifeMetrix in connection
with the written consents being sent to such stockholders seeking approval of
the acquisition and is being distributed as a prospectus for any shares of
Matria common stock that LifeMetrix stockholders may receive in connection with
the acquisition and that LifeMetrix and Quality Oncology employees may receive
as a part of incentive bonuses that will be paid by LifeMetrix in connection
with the acquisition. The accompanying materials provide detailed information
concerning the proposed acquisition, the reasons why the board of directors has
recommended the approval of the acquisition and other information about the
businesses of LifeMetrix and Matria. You are encouraged to read this entire
document carefully.
Very truly yours,
EDMUND C. BUJALSKI
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 10 OF
THIS PROXY STATEMENT/PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF MATRIA COMMON STOCK TO
BE ISSUED IN CONNECTION WITH THE ACQUISITION, NOR HAVE THEY DETERMINED WHETHER
THIS DOCUMENT IS ADEQUATE OR CORRECT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS DOCUMENT IS ___________, 2002 AND IT WAS FIRST MAILED
TO LIFEMETRIX STOCKHOLDERS ON OR ABOUT ___________, 2002.
MATRIA HEALTHCARE, INC. PROXY STATEMENT/PROSPECTUS
LIFEMETRIX, INC. CONSENT SOLICITATION STATEMENT
Matria Healthcare, Inc. has filed a registration statement on Form S-4,
of which this document is a part, with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, covering the shares of
Matria common stock that may be issued in connection with the proposed
acquisition of assets from LifeMetrix, Inc. pursuant to a purchase and sale
agreement, dated as of April 29, 2002, among Matria, LifeMetrix and Quality
Oncology, Inc., a wholly owned subsidiary of LifeMetrix. The transactions
contemplated by the purchase and sale agreement are generally referred to
throughout this document as the "acquisition."
This document constitutes:
- A prospectus of Matria for the shares of common stock to be
issued in connection with the acquisition;
- A proxy statement of Matria with respect to the solicitation
of proxies from Matria stockholders for the matters to be
considered at Matria's annual meeting of stockholders to be
held on ______, 2002, which includes approval of the issuance
of shares in connection with the acquisition; and
- A consent solicitation statement of LifeMetrix relating to the
solicitation of consents from holders of LifeMetrix common
stock and preferred stock for the approval of the acquisition.
REFERENCE TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Matria from documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in this document
(other than exhibits to those documents) by requesting such documents or
information in writing or by telephone from Matria at the following address:
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Attention: Corporate Secretary
Tel: (770) 767-4500
You will not be charged for any of the documents that you request
(other than exhibits to those documents). IF YOU WOULD LIKE TO REQUEST
DOCUMENTS, PLEASE DO SO BY ___________, 2002 TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS.
See "Where You Can Find More Information" on page 104.
(MATRIA LOGO)
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 2002
NOTICE IS HEREBY GIVEN THAT the 2002 Annual Meeting of Stockholders of
Matria Healthcare, Inc. will be held on _______________, 2002, at 11:00 a.m.
local time at 1850 Parkway Place, Suite 320, Marietta, Georgia 30067, for the
following purposes:
(1) To approve the issuance of shares of Matria common stock in
connection with the acquisition of assets from LifeMetrix,
Inc., including all of the issued and outstanding stock of
Quality Oncology, Inc.
(2) To elect three Class I directors for a three-year term
expiring at the 2005 Annual Meeting of Stockholders and until
their respective successors are duly elected and qualified;
(3) To approve the Matria Healthcare, Inc. 2002 Stock Incentive
Plan;
(4) To approve the Matria Healthcare, Inc. 2002 Stock Purchase
Plan; and
(5) To transact such other business as properly may come before
the annual meeting and any adjournment or postponement
thereof.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the annual meeting, is
requested to sign, date and return the enclosed proxy card without delay in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. Any stockholder present at the annual meeting or any adjournment
or postponement thereof may revoke his or her proxy and vote personally on each
matter brought before the meeting.
I look forward to welcoming you at the meeting.
Very truly yours,
Roberta L. McCaw
Secretary
Marietta, Georgia
__________, 2002
TABLE OF CONTENTS
Page
----
SUMMARY ..........................................................................................................1
The Companies............................................................................................1
The Matria Annual Meeting................................................................................2
Date, Time, Place and Purpose......................................................................2
Record Date........................................................................................2
Votes Required.....................................................................................2
Approval by Matria Stockholders of the Issuance of Matria Common Stock in the Acquisition................2
Our Reasons for the Acquisition....................................................................2
Our Recommendation to Stockholders.................................................................2
Approval of the Acquisition by LifeMetrix Stockholders...................................................2
Consent Solicitation...............................................................................2
Votes Required.....................................................................................3
LifeMetrix Reasons for the Acquisition.............................................................3
LifeMetrix Recommendations to Stockholders.........................................................3
Interests of LifeMetrix Directors in the Acquisition...............................................3
Material Provisions of the Purchase and Sale Agreement...................................................3
The Acquisition; Consideration to be Paid by Matria................................................3
Closing of the Acquisition.........................................................................4
Representations and Warranties.....................................................................4
Conduct Prior to the Acquisition...................................................................4
Conditions to the Acquisition......................................................................4
Termination of the Purchase and Sale Agreement.....................................................4
Termination Fees...................................................................................5
Other Agreements Related to the Acquisition..............................................................5
Voting Agreements..................................................................................5
Escrow Agreement...................................................................................5
Standstill Agreement...............................................................................5
Registration Rights Agreement......................................................................5
Non-Competition Agreements.........................................................................5
License Agreements.................................................................................5
Other Considerations.....................................................................................6
Recent Developments................................................................................6
Opinion of Financial Advisor.......................................................................6
Federal Tax Consequences of the Acquisition........................................................6
Accounting Treatment of the Acquisition............................................................6
Regulatory Approvals...............................................................................6
Dissenters' and Appraisal Rights...................................................................6
Summary Selected Historical and Pro Forma Financial Data.................................................7
Matria Healthcare, Inc. Selected Historical Financial Data.........................................7
Quality Oncology, Inc. Selected Historical Financial Data..........................................8
Selected Unaudited Pro Forma Combined Condensed Financial Information..............................9
RISK FACTORS.....................................................................................................10
Risks Relating to the Acquisition for Matria Stockholders...............................................10
Risks Relating to the Acquisition for LifeMetrix Stockholders...........................................12
Risks Relating to the Acquisition for both Matria and LifeMetrix Stockholders...........................16
Risks Relating to Matria Following the Acquisition......................................................16
Forward-Looking Statements in this Document.............................................................24
THE MATRIA ANNUAL MEETING........................................................................................25
Date, Time and Place of the Annual Meeting..............................................................25
i
Matters to be Considered at the Annual Meeting..........................................................25
Recommendations of the Board of Directors...............................................................25
Voting of Proxies; Revocability of Proxies..............................................................25
Record Dates and Outstanding Shares.....................................................................26
Quorum..................................................................................................26
Votes Required..........................................................................................26
MATRIA PROPOSAL 1: APPROVAL BY MATRIA STOCKHOLDERS OF THE ISSUANCE OF
SHARES OF MATRIA COMMON STOCK IN THE ACQUISITION........................................................27
CONSENT OF LIFEMETRIX STOCKHOLDERS...............................................................................28
General.................................................................................................28
Record Date and Outstanding Shares......................................................................28
Consent Required........................................................................................28
DESCRIPTION OF THE ACQUISITION...................................................................................29
Background of the Acquisition...........................................................................29
Matria Reasons for the Acquisition......................................................................33
Recommendation of the Matria Board......................................................................34
LifeMetrix Reasons for the Acquisition..................................................................34
Recommendation of the LifeMetrix Board..................................................................35
Interests of LifeMetrix Directors and Executive Officers in the Acquisition.............................36
Accounting Treatment....................................................................................36
Regulatory Matters......................................................................................37
Appraisal Rights........................................................................................37
Material Federal Income Tax Consequences................................................................37
Opinion of Financial Advisor............................................................................40
THE PURCHASE AND SALE AGREEMENT..................................................................................45
General.................................................................................................45
The Acquisition.........................................................................................45
Closing of the Acquisition..............................................................................46
Representations and Warranties..........................................................................46
LifeMetrix and Quality Oncology Representations and Warranties....................................46
Matria Representations and Warranties.............................................................47
Covenants Relating to Conduct of Business of LifeMetrix and Quality Oncology............................47
Additional Agreements...................................................................................48
Investor Consents.................................................................................48
Matria Deposit....................................................................................48
No Shop Provision.................................................................................49
Matria Advances...................................................................................49
Matria Investment.................................................................................49
Review Committee..................................................................................49
Employment........................................................................................49
Protective Covenants..............................................................................49
Indemnification...................................................................................49
Access to Information; Confidentiality............................................................50
Conditions Precedent to the Acquisition.................................................................50
Termination, Amendment and Waiver.......................................................................51
OTHER AGREEMENTS RELATED TO THE ACQUISITION......................................................................53
Voting Agreements.......................................................................................53
Escrow Agreement........................................................................................53
Standstill Agreement....................................................................................53
Registration Rights Agreement...........................................................................54
ii
Non-Competition Agreements..............................................................................54
Data Warehouse License Agreement........................................................................54
ICMS License Agreement..................................................................................55
INFORMATION ABOUT THE COMPANIES..................................................................................56
Matria..................................................................................................56
Matria Selected Consolidated Financial Data.............................................................56
LifeMetrix and Quality Oncology.........................................................................59
Quality Oncology Selected Financial Data................................................................62
Management's Discussion and Analysis of Financial Condition and Results of Operations of
Quality Oncology........................................................................................63
Results of Operation....................................................................................63
Liquidity and Capital Resources.........................................................................64
Critical Accounting Policies............................................................................65
Principal Stockholders of LifeMetrix....................................................................66
Common Stock............................................................................................66
Preferred Stock.........................................................................................67
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION..................................................................69
Matria..................................................................................................69
LifeMetrix..............................................................................................69
COMPARISON OF STOCKHOLDERS RIGHTS................................................................................70
Authorized Shares; Shares Outstanding...................................................................70
Voting Rights; Cumulative Voting........................................................................70
Special Rights of LifeMetrix Preferred Stock............................................................72
Pre-emptive Rights......................................................................................73
Source and Payment of Dividends.........................................................................73
Record Date for Determining Stockholders................................................................74
Special Meetings of Stockholders........................................................................74
Number and Term of Directors............................................................................74
Classified Board of Directors...........................................................................75
Removal of Directors....................................................................................75
Board of Director Vacancies.............................................................................75
Committees of the Board of Directors....................................................................75
Appraisal and Dissenters' Rights........................................................................76
Action by Written Consent in Lieu of a Stockholders' Meeting............................................77
Amendment of Charter Documents..........................................................................77
Board and Stockholders' Approval of Certain Reorganizations.............................................77
Specific Provisions Relating to Share Acquisitions......................................................78
Director Liability and Indemnification..................................................................79
Limitation on Directors' Liabilities....................................................................79
Stockholders' Rights Plan...............................................................................79
MATRIA PROPOSAL 2: ELECTION OF CLASS I DIRECTORS................................................................80
Background..............................................................................................80
Security Ownership of Certain Beneficial Owners and Management..........................................82
Board Committees and Attendance.........................................................................85
Executive Compensation..................................................................................86
Stock Options...........................................................................................88
Stock Option Exercises..................................................................................89
Compensation of Directors...............................................................................89
Severance Agreements....................................................................................89
Compensation Committee Report on Executive Compensation.................................................91
Compensation Committee of the Board of Directors........................................................92
iii
Compensation Committee Interlocks and Insider Participation.............................................92
Certain Relationships and Related Transactions..........................................................92
Report of the Audit Committee and Related Matters.......................................................92
MATRIA PROPOSAL 3: APPROVAL OF 2002 STOCK INCENTIVE PLAN........................................................94
Purpose of the 2002 Stock Incentive Plan................................................................94
Summary of the 2002 Stock Incentive Plan................................................................94
Income Tax Consequences.................................................................................96
New Plan Benefits.......................................................................................98
Market Price of the Matria common stock.................................................................98
Text of the Plan........................................................................................98
MATRIA PROPOSAL 4: 2002 STOCK PURCHASE PLAN.....................................................................99
Summary of the 2002 Stock Purchase Plan.................................................................99
New Plan Benefits......................................................................................100
Text of the Plan.......................................................................................100
Equity Compensation Plan Information...................................................................101
OTHER INFORMATION RELATING TO THE MATRIA ANNUAL MEETING.........................................................102
Performance Graph......................................................................................102
Section 16(a) Beneficial Ownership Reporting Compliance................................................102
STOCKHOLDER PROPOSALS AT MATRIA'S NEXT ANNUAL MEETING OF STOCKHOLDERS...........................................103
EXPERTS.........................................................................................................103
LEGAL MATTERS...................................................................................................103
WHERE YOU CAN FIND MORE INFORMATION.............................................................................104
DOCUMENTS INCORPORATED BY REFERENCE.............................................................................104
ANNUAL REPORT AND FINANCIAL STATEMENTS..........................................................................105
GENERAL.........................................................................................................106
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
Appendix A Purchase and Sale Agreement, dated as of April 29, 2002,
among Matria Healthcare, Inc., LifeMetrix, Inc. and Quality
Oncology, Inc.
Appendix B Opinion of J.P. Morgan Securities Inc.
Appendix C Matria Healthcare, Inc. 2002 Stock Incentive Plan
Appendix D Matria Healthcare, Inc. 2002 Stock Purchase Plan
iv
SUMMARY
This summary highlights selected information contained in this proxy
statement/prospectus and may not contain all of the information that is
important to you. For a more complete understanding of the acquisition, you
should carefully read the rest of this document, including the "Risk Factors"
section beginning on page 10 and the documents attached to this document,
including the purchase and sale agreement, which is attached as Appendix A.
In addition, we incorporate business and financial information about
Matria in this document by reference. For a description of this information, see
the section entitled "Incorporation of Certain Documents By Reference." You may
also obtain additional information about Matria without charge upon written or
oral request by following the instructions in the section entitled "Where You
Can Find More Information."
As used in this document, the terms "Matria," "we," "our," and "us" and
other similar terms refer to Matria Healthcare, Inc. and its consolidated
subsidiaries, unless we specify otherwise.
THE COMPANIES
MATRIA HEALTHCARE, INC. LIFEMETRIX, INC. AND QUALITY ONCOLOGY, INC.
1850 Parkway Place 1430 Spring Hill Road, Suite 106
Marietta, Georgia 30067 McLean, Virginia 22102
(770) 767-4500 (703) 506-8244
Matria is a leading comprehensive, integrated LifeMetrix, through its wholly owned subsidiary Quality
disease management company offering products and services to Oncology, is a leading cancer care management company,
patients, physicians, health plans and employers. Disease providing integrated, comprehensive and standardized cancer
management encompasses a broad range of services aimed at treatment guidelines and care management processes for
controlling healthcare costs through proactive management of cancer patients. Quality Oncology specializes in providing a
care for individuals with high-cost or chronic diseases and cancer disease management program marketed to managed care
conditions. Our strategy is to focus on providing effective plans and self-insured employers. Quality Oncology provides
cost-saving solutions for five of the most costly chronic a comprehensive, systematic approach to managing cancer for
diseases and medical conditions in the nation: diabetes, patients through use of its proprietary, Web-based
obstetrical conditions, respiratory disorders, cancer and integrated system with cancer treatment guidelines and
cardiovascular diseases. Our disease management services nurses and physicians experienced in cancer treatment.
seek to lower healthcare costs and improve patient outcomes Quality Oncology provides its services to cancer patients
through a broad range of disease management, fulfillment and through its contracts with various health care plans and
telemedicine services. Our common stock is traded on the self-insured employers. LifeMetrix is the sole stockholder
Nasdaq National Market under the symbol "MATR." For the 12 of Quality Oncology. There is no established trading market
months ended December 31, 2001, we had revenues of $264 for shares of LifeMetrix common or preferred stock. For the
million. 12 months ended December 31, 2001, Quality Oncology had
revenues of $5.8 million.
Our principal executive offices are located at 1850
Parkway Place, Marietta, Georgia 30067, and our phone number LifeMetrix and Quality Oncology are headquartered at
is (770) 767-4500. Our corporate website address is 1430 Spring Hill Road, Suite 106, McLean, Virginia, 22102,
http://www.matria.com. Information contained on our website and the phone number is (703) 506-8244.
is not part of this prospectus.
THE MATRIA ANNUAL MEETING (See page ___).
Date, Time, Place and Purpose. The date, time and place of the Matria annual
meeting are as follows:
___________, 2002
11:00 A.M. LOCAL TIME
1850 PARKWAY PLACE
SUITE 320
MARIETTA, GEORGIA 30067
At the annual meeting, Matria stockholders will be asked to approve the issuance
of shares of Matria common stock in connection with the acquisition, as required
by the rules of the Nasdaq National Market. Matria stockholders will also be
asked to elect three Class I directors, to approve the Matria 2002 Stock
Incentive Plan and to approve the Matria 2002 Stock Purchase Plan. Matria
stockholders may also consider and vote upon such other matters as may be
properly brought before the annual meeting.
Record Date. Only Matria stockholders of record at the close of business on the
Matria record date, ____________, 2002, are entitled to notice of and to vote at
the annual meeting.
Votes Required (See page ___). Approval of the issuance of shares of Matria
common stock to LifeMetrix in connection with the acquisition, approval of the
2002 Stock Incentive Plan and approval of the 2002 Stock Purchase Plan each
requires the affirmative vote of a majority of the shares of Matria's common
stock, present in person or represented by proxy at the annual meeting. Election
of the Class I directors requires the affirmative vote of the holders of a
plurality of shares of Matria's common stock present in person or represented by
proxy at the annual meeting.
As of __________, 2002, there were ______ stockholders of record of Matria
common stock, and a substantially greater number of beneficial owners, and on
the record date ____________ shares of Matria common stock were outstanding.
Each record holder of shares of Matria common stock will be entitled to one vote
for each Matria share held on the record date.
APPROVAL BY MATRIA STOCKHOLDERS OF THE ISSUANCE OF MATRIA COMMON STOCK IN THE
ACQUISITION
Our Reasons for the Acquisition (See page ___). Our board of directors believes
that the acquisition furthers our strategic objective of becoming a one-stop
shop for disease management services by broadening the scope of our services and
enhancing our ability to contract with and provide services to managed care
organizations and employers.
Our Recommendation to Stockholders (See page ___). Our board of directors and a
committee appointed by our board of directors with respect to the acquisition
have unanimously approved the purchase and sale agreement, the acquisition and
the issuance of Matria common stock to LifeMetrix at the closing of the
acquisition. Our board of directors and the committee have also concluded that
the purchase and sale agreement and the acquisition are fair to, and in the best
interests of, Matria and its stockholders. Our board of directors has also
received the written opinion from J.P. Morgan Securities Inc., to the effect
that, as of the date thereof and based upon and subject to certain matters
stated therein, the consideration to be paid by Matria in the acquisition was
fair, from a financial point of view, to Matria. Our board unanimously
recommends that holders of Matria common stock vote FOR approval of the issuance
of shares of Matria common stock to LifeMetrix in connection with the
acquisition.
APPROVAL OF THE ACQUISITION BY LIFEMETRIX STOCKHOLDERS
Consent Solicitation (See page ___). In lieu of a special meeting of
stockholders of LifeMetrix, action to approve the sale of assets of LifeMetrix
in accordance with the purchase and sale agreement will be taken by written
consent of the holders of LifeMetrix common and preferred stock. Properly
executed, dated and returned consent forms shall be given effect in accordance
with directions on the form.
2
Votes Required (See page ___). Both the affirmative vote of a majority of the
outstanding shares of LifeMetrix common and preferred stock, voting as a single
class on an as-converted basis, and the separate affirmative vote of a majority
of the outstanding shares of LifeMetrix preferred stock are required to approve
the acquisition. Stockholders of LifeMetrix having sufficient voting power to
approve the acquisition have entered into voting agreements with Matria to
approve the acquisition. Consequently, approval of the acquisition is assured.
LifeMetrix is seeking approval of the acquisition from its stockholders through
written consent. If the acquisition is approved by less than unanimous written
consent, LifeMetrix will send notice of the action taken to stockholders not
consenting to the acquisition in accordance with Section 228(e) of the Delaware
General Corporation Law. This document is being provided to LifeMetrix
stockholders as a consent solicitation regarding the approval of the acquisition
by written consent of the stockholders of LifeMetrix.
LifeMetrix Reasons for the Acquisition (See page __). The LifeMetrix board of
directors believes that the acquisition:
- Offers the best foreseeable opportunity for obtaining value and
liquidity for LifeMetrix stockholders;
- Avoids the risk that LifeMetrix would fail to obtain sufficient
financing to continue operations until its cash flow turns positive;
and
- Eliminates the significant further dilution of the ownership of
existing stockholders that likely would occur in another round of
financing.
LifeMetrix Recommendation to Stockholders (See page ___). LifeMetrix's board of
directors has unanimously approved the purchase and sale agreement and the
acquisition. LifeMetrix's board of directors unanimously recommends that the
holders of LifeMetrix's preferred stock and common stock consent to approve the
acquisition.
Interests of LifeMetrix Directors in the Acquisition (See page ___). Each of the
five directors of LifeMetrix has interests in the acquisition that are different
from or in addition to the interests of LifeMetrix stockholders generally. Larry
H. Coleman and Charles W. Newhall, III, have been designated as directors by and
represent and have ownership interests in entities that hold preferred stock of
LifeMetrix that will be entitled to preferential distributions following the
closing of the acquisition. Frederick C. Lee and Richard B. Weininger, M.D., own
preferred stock of LifeMetrix and will be entitled to preferential liquidation
distributions. In addition, after the acquisition by Matria, Mr. Lee and Edmund
C. Bujalski will be employed by Quality Oncology at their present salaries, and
they expect to receive incentive bonuses that will be paid by LifeMetrix in
connection with the acquisition. Dr. Weininger will serve as a paid consultant
to Quality Oncology after the acquisition by Matria.
MATERIAL PROVISIONS OF THE PURCHASE AND SALE AGREEMENT
The Acquisition; Consideration to be Paid by Matria. Matria will acquire assets
of LifeMetrix which include its cancer disease management business, all of the
issued and outstanding stock of Quality Oncology, LifeMetrix's Integrated Care
Management System and its rights in Cancerpage.com(TM). Prior to the date of the
purchase and sale agreement, Matria advanced LifeMetrix a deposit of $500,000 to
obtain an option to purchase, if the purchase and sale agreement is terminated
prior to closing, a perpetual, nonexclusive, nontransferable license to use
LifeMetrix's Data Warehouse system. LifeMetrix will retain its ownership of the
Data Warehouse and TrialMatch systems and existing data, its shares in all other
LifeMetrix subsidiaries, and other assets of LifeMetrix and its subsidiaries
(other than Quality Oncology) that are not a part of the cancer disease
management business or the transferred intellectual property. In addition,
Matria will assume various contractual and payroll liabilities related to the
acquired business and assets.
At the closing of the acquisition, Matria will pay LifeMetrix $20,000,000,
subject to adjustments based on Quality Oncology's December 31, 2001 and closing
date audits. $3,000,000 of the closing payment, less the $500,000 deposit and
any advances we have made to LifeMetrix prior to the closing, will be paid in
cash. $17,000,000 of the closing payment, $2,000,000 of which will be deposited
in escrow until March 31, 2003, will be payable in Matria common stock valued at
its ten trading day average closing price immediately prior to the closing date
(but subject to a minimum and maximum per share price of $19.148 and $28.722,
respectively). LifeMetrix will also be entitled to an earn out payment based on
Quality Oncology's results for the year ending December 31, 2003, equal to (i)
3
one-half of Quality Oncology's adjusted net revenues for the year ending
December 31, 2003, plus (ii) six times Quality Oncology's adjusted EBITDA for
the year ending December 31, 2003. Matria may pay the earn out payment in cash
or Matria common stock, or a combination of cash and Matria common stock, at
Matria's election, but unless LifeMetrix agrees otherwise, Matria must pay at
least the lesser of (i) 20% of the earn out payment, or (ii) $10,000,000, in
cash.
Closing of the Acquisition (See page ____). The acquisition will close on the
latest of (i) August 15, 2002; (ii) the third business day following
satisfaction of all closing conditions; and (iii) a date designated by Matria
within ten trading days after the Matria annual meeting.
Representations and Warranties (See page ____). Each of Matria, LifeMetrix and
Quality Oncology has made standard representations and warranties in connection
with the acquisition.
Conduct Prior to the Acquisition (See page ____). LifeMetrix and Quality
Oncology have agreed to operate the business being acquired in the ordinary
course and consistent with past practice prior to the acquisition. LifeMetrix
and Quality Oncology have also agreed generally not to issue any securities of
Quality Oncology, pay any dividends with respect to the capital stock of Quality
Oncology, dispose of any of the assets to be acquired or enter into any contract
related to the business or assets being acquired except as consistent with past
practice.
Conditions to the Acquisition (See page ___). Matria's and LifeMetrix's
obligations to complete the acquisition are subject to satisfaction or waiver of
a number of closing conditions. These conditions include, among others:
- The shares of Matria common stock to be issued in connection with the
acquisition shall have been registered pursuant to an effective
registration statement.
- Matria's common stock shall not have been delisted from the Nasdaq
National Market, and Matria shall have filed with Nasdaq a Notification
Form for Listing of Additional Shares for the Matria common stock to be
issued at the closing of the acquisition.
- There must be no injunction or order in effect preventing the
completion of the acquisition.
- All waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 must have expired or been terminated and all other required
consents or approvals from governmental agencies and other third
parties shall have been obtained.
- Specified key employees of LifeMetrix shall have accepted employment
with Matria.
- Matria shall have received the resignation of all officers and
directors of Quality Oncology except for those officers and directors
designated in writing by Matria.
- The representations and warranties of Matria, LifeMetrix and Quality
Oncology must be true and correct on the closing of the acquisition
unless the failure to be true and correct would not have a material
adverse effect.
- Matria, LifeMetrix and Quality Oncology each must have complied in all
material respects with their respective agreements and conditions under
the purchase and sale agreement.
Termination of the Purchase and Sale Agreement (See page __). The purchase and
sale agreement may be terminated, and the proposed acquisition may be abandoned,
under the following conditions:
- Matria or LifeMetrix can terminate the purchase and sale agreement if
any of the covenants or agreements to be complied with or performed by
the other party prior to the closing shall not have been complied with
or performed on or before September 30, 2002, or if the acquisition has
not been consummated by September 30, 2002, due to no fault of the
terminating party.
- Matria can terminate the purchase and sale agreement if an event or
events occur which could reasonably be expected to materially diminish
the value of Quality Oncology or the business being acquired.
- Matria can terminate the purchase and sale agreement if Matria learns
of facts not disclosed by LifeMetrix or Quality Oncology as required by
the purchase and sale agreement which could reasonably be expected to
materially diminish the value of Quality Oncology or the business being
acquired.
4
- LifeMetrix can terminate the purchase and sale agreement if the average
of the closing price at which Matria common stock shall have traded on
the Nasdaq National Market during the ten trading day period ending
three days prior to the closing date is less than $15 per share.
Termination Fees (See page ___). In the event the purchase and sale agreement is
terminated because of the material breach or intentional or fraudulent
misconduct of the other party, then the terminating party can recover from the
other party its expenses relating to the purchase and sale agreement.
OTHER AGREEMENTS RELATED TO THE ACQUISITION
Voting Agreements (See page ___). Stockholders of LifeMetrix having sufficient
voting power to approve the acquisition on behalf of LifeMetrix have entered
into voting agreements with Matria to vote in favor of or approve by written
consent the purchase and sale agreement and acquisition. LifeMetrix has agreed
to deliver to Matria prior to the closing a certificate certifying that all
approvals with respect to LifeMetrix in connection with the acquisition have
been obtained.
Escrow Agreement (See page ___). At the closing of the acquisition, Matria will
place $2,000,000 of Matria common stock in escrow, to be reduced by any portion
distributed to Matria for any downward adjustments to the closing purchase price
or for tax payments and indemnification amounts owed under the purchase and sale
agreement. Any shares remaining on March 31, 2003, will be released to
LifeMetrix.
Standstill Agreement (See page ___). LifeMetrix has agreed to deliver to Matria
prior to the closing a standstill agreement executed by LifeMetrix and
LifeMetrix preferred stockholders representing at least 70% of the fully-diluted
equity of LifeMetrix. Pursuant to the standstill agreement, LifeMetrix and these
preferred stockholders will generally agree not to acquire Matria voting
securities or assets for a period of five years from the date the earn out
payment is to be made. In addition, LifeMetrix and these preferred stockholders
cannot transfer, except in connection with a liquidation of LifeMetrix or in
other permitted transfers, any shares of Matria received in connection with the
acquisition for a period of one year from the date the shares are received.
After such time, LifeMetrix and these preferred stockholders cannot collectively
transfer within any three month period shares totaling more than ten percent of
Matria's aggregate outstanding stock as of the end of the previous calendar year
(except in certain permitted transfers). LifeMetrix, the stockholders executing
the standstill agreement, and generally, permitted transferees, shall vote their
shares of Matria common stock as directed by Matria's board of directors.
Registration Rights Agreement (See page ___). LifeMetrix and certain of its
preferred stockholders will be granted "piggyback" registration rights for any
registered offering to be undertaken by Matria with respect to the shares of
Matria common stock they receive in the acquisition subject to customary
underwriter cutback provisions. The registration rights are in effect for a
period of two years after the closing of the acquisition or until such earlier
time as the shares are eligible for sale pursuant to Rule 145(d)(2) under the
Securities Act.
Non-Competition Agreements (See page ___). LifeMetrix has agreed to deliver to
Matria prior to the closing non-competition agreements for certain directors and
officers of LifeMetrix pursuant to which these individuals will agree not to
disclose confidential information or trade secrets of, compete with, or solicit
any customer, key or material employee, consultant or other personnel of, Matria
or Quality Oncology for a period of five years after the closing, except for the
non-compete provisions, which vary in duration for each individual from as short
as one year after the closing to as long as five years after the closing.
License Agreements (See page ___). LifeMetrix and Matria have also agreed to
enter into license agreements upon the closing of the acquisition pursuant to
which Matria will be granted a license to LifeMetrix's Data Warehouse system and
LifeMetrix will be granted a license to the Integrated Care Management System
being acquired by Matria.
5
OTHER CONSIDERATIONS.
Recent Developments (See page ___). In June 2002, Matria acquired
MarketRing.com, Inc., a Georgia corporation, through the merger of a wholly
owned subsidiary of Matria with MarketRing. In the merger Matria issued 295,787
shares of Matria common stock in exchange for all of the outstanding shares of
capital stock of MarketRing. In addition, Matria may issue up to 27,500 shares
upon exercise of MarketRing options assumed and a warrant issued by Matria
pursuant to the merger agreement.
Opinion of Financial Advisor (See page ___). On April 29, 2002, J.P. Morgan
Securities Inc. delivered its oral opinion, confirmed by its written opinion
dated April 29, 2002, to the Matria board of directors, to the effect that, as
of the date of its written opinion and based upon and subject to certain matters
stated therein, the consideration to be paid by Matria in the acquisition was
fair, from a financial point of view, to Matria. We have attached the opinion of
JPMorgan as Appendix B and encourage you to read it in its entirety.
Federal Tax Consequences of the Acquisition (See page ___). For federal income
tax purposes, the transaction will be treated as a taxable asset acquisition,
with LifeMetrix and Quality Oncology as the sellers, and Matria as the buyer.
Accordingly, LifeMetrix and Quality Oncology will recognize taxable gain or loss
in the transaction. Quality Oncology and LifeMetrix expect that at least most,
and possibly all, of their gain attributable to the transaction will be offset
by their available net operating loss carryforwards. Matria's aggregate tax
basis in the acquired assets will be equal to the total consideration paid.
Following the acquisition, Matria will be able to take depreciation or
amortization deductions with respect to certain of the acquired assets. The use
of Matria common stock as part of the consideration for the acquisition will not
trigger any taxable gain or loss to Matria.
The acquisition will not be taxable directly to the stockholders of LifeMetrix.
Following consummation of the acquisition, the board of directors of LifeMetrix
will consider whether LifeMetrix should adopt a plan of liquidation. If a plan
of liquidation is not adopted after consummation of the acquisition, LifeMetrix
and its stockholders may be exposed to greater tax liabilities with respect to
any non-liquidating distributions or with respect to any increases in the value
of assets that are subsequently sold, exchanged or distributed (whether or not
in liquidation).
Any liquidation of LifeMetrix would be a taxable transaction both for LifeMetrix
and its stockholders. LifeMetrix would recognize gain or loss equal to the
difference between the fair market values and the adjusted bases of the assets
distributed in liquidation. The LifeMetrix stockholders would recognize gain or
loss on the difference between the fair market values of their share of the
assets (net of liabilities) distributed to them and their adjusted basis in
their LifeMetrix stock. Because of the expected nature of the assets and
liabilities of LifeMetrix after the acquisition, any plan of liquidation
considered for adoption by LifeMetrix may provide for the distribution of its
assets and liabilities to a liquidating trust. If a liquidating trust were used,
the LifeMetrix stockholders would be deemed to have received their share of the
assets distributed to such trust (net of liabilities assumed by it), and the tax
treatment of the liquidation described above would not be materially affected,
except that income, gains and losses subsequently recognized by the trust would
also be taxable to the LifeMetrix stockholders.
Accounting Treatment of the Acquisition (See page ___). The acquisition will be
accounted for as a purchase for financial reporting and accounting purposes.
Regulatory Approvals (See page __). The acquisition is subject to the filing
requirements and waiting periods of United States antitrust laws. Matria and
LifeMetrix will make required filings with the United States Department of
Justice and the Federal Trade Commission. The acquisition may not be completed
until the specified waiting period has expired or has been earlier terminated.
Nevertheless, the Department of Justice, the Federal Trade Commission or other
governmental or private persons may challenge the acquisition at any time,
including after it has been completed.
Dissenters' and Appraisal Rights (See page __). Under Delaware law, none of the
holders of common or preferred stock of LifeMetrix or the holders of Matria
common stock are entitled to dissenters' or appraisal rights in connection with
the acquisition or the other matters described in this document to be submitted
to a vote of Matria's stockholders.
6
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present selected historical financial data of
Matria, selected historical financial data of Quality Oncology, and selected
unaudited pro forma combined condensed financial data of Matria, which reflects
the acquisition.
MATRIA HEALTHCARE, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following financial data should be read in conjunction with the
information set forth under the heading "Matria Transitional Disclosures Under
Recently Issued Accounting Standards" appearing on page 58 of this document. The
following sets forth selected consolidated financial data with respect to
Matria's operations. The summary consolidated financial data as of and for the
five years ended December 31, 2001, has been derived from our audited
consolidated financial statements. The financial data as of March 31, 2001 and
2002 and for the three-month periods ended March 31, 2001 and 2002 have been
derived from our unaudited consolidated condensed financial statements. In the
opinion of management, the unaudited consolidated condensed financial statements
from which the data below is derived contain all adjustments, which consist only
of normal recurring adjustments, necessary to present fairly our financial
position and results of operations as of the applicable dates and for the
applicable periods. Historical results are not necessarily indicative of the
results to be expected in the future.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ----------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues $ 144,533 $ 128,572 $ 231,739 $ 225,767 $ 263,983 $ 61,368 $ 65,188
Earnings (loss) from continuing
operations (20,902) (100,406) 31,366 13,694 7,925 2,031 1,618
Net earnings (loss) from continuing
operations per common share:
Basic $ (2.29) $ (10.98) $ 3.05 $ 1.10 $ 0.78 $ 0.13 $ 0.18
Diluted (2.29) (10.98) 2.82 1.05 0.76 0.13 0.17
DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ----------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 191,132 $ 97,034 $ 285,713 $ 268,850 $ 260,623 $ 248,661 $ 267,579
Long-term debt (including
current portion) 2,596 19,103 101,452 88,811 115,190 72,335 114,992
Common shareholders' equity 153,169 49,881 99,244 98,850 104,897 98,961 108,017
7
QUALITY ONCOLOGY, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following sets forth selected financial data with respect to
Quality Oncology's operations. The summary financial data as of and for the year
ended December 31, 2001 has been derived from Quality Oncology's audited
financial statements. The financial data as of March 31, 2001 and 2002 and for
the three-month periods ended March 31, 2001 and 2002 has been derived from
Quality Oncology's unaudited condensed financial statements. In the opinion of
Quality Oncology's management, the unaudited condensed financial statements from
which data below is derived contain all adjustments, which consist of normal
recurring adjustments necessary to present fairly Quality Oncology's financial
position and results of operations as of the applicable date and for the
applicable periods. Historical results are not necessarily indicative of the
results to be expected in the future.
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------- -------------------
2001 2001 2002
------------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues $ 5,751 $ 833 $ 1,815
Net loss (3,245) (1,299) (658)
DECEMBER 31, MARCH 31,
------------- -----------
2001 2002
------------- -----------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets $ 3,606 $ 3,815
Due to LifeMetrix 19,138 19,611
8
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited pro forma combined condensed financial data is not
necessarily indicative of the operating results or financial position that would
have been achieved had the acquisition been consummated as of the beginning of
the periods presented and should not be construed as representative or
indicative of these amounts for any future date or in any future periods. The
information in the table is only a summary and should be read in conjunction
with the "Unaudited Pro Forma Combined Condensed Financial Statements" beginning
on page P-1 and the audited and unaudited financial statements of Quality
Oncology, including the notes thereto, beginning on page F-1 of this document.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Presented below is selected unaudited pro forma financial information
to reflect the transaction as if the acquisition had been completed on January
1, 2001 for results of operations purposes and on March 31, 2002 for balance
sheet purposes. The pro forma financial information was prepared using the
purchase method of accounting.
If Matria had completed the acquisition on these dates, Matria might
have performed differently. You should not rely on the pro forma financial
information as an indication of the results that Matria would have achieved if
the acquisition had taken place earlier or the future results that Matria will
experience after the acquisition. You should read the following information
together with the unaudited pro forma financial statements and related notes
beginning on page P-1 of this document, as well as the separate historical
financial statements of Matria, LifeMetrix and Quality Oncology.
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 2001 MARCH 31, 2002
----------------- --------------
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 269,734 $ 67,003
Earnings from continuing operations......................... 6,114 1,199
Net earnings from continuing operations per common share
Basic.................................................. $ 0.52 $ 0.12
Diluted................................................ 0.51 0.12
Weighted average common shares outstanding
Basic.................................................. 9,562 9,783
Diluted................................................ 9,806 10,217
MARCH 31, 2002
--------------
PRO FORMA COMBINED BALANCE SHEET DATA:
Total assets................................................................................ $ 289,478
Long-term debt (including current portion).................................................. 118,019
Common shareholders' equity................................................................. 125,017
9
RISK FACTORS
The acquisition involves a high degree of risk. By signing a consent in
favor of the acquisition, preferred stockholders of LifeMetrix who have not
already signed a voting agreement with Matria will be choosing to invest in
Matria's common stock, and common stockholders of LifeMetrix also will be
choosing to invest in Matria's common stock if LifeMetrix decides to make a
liquidating or non-liquidating distribution of the Matria common stock received
in the acquisition and the value of assets available upon any liquidation for
distribution to LifeMetrix stockholders, including the purchase price payable by
Matria for the acquisition, exceeds the total liquidation preferences of
LifeMetrix's preferred stockholders. By voting in favor of the issuance of
shares of Matria's common stock in connection with the acquisition, stockholders
of Matria will be choosing to authorize the issuance of a substantial number of
Matria's shares in order to acquire assets of LifeMetrix. Both LifeMetrix
stockholders and Matria stockholders will be assuming the additional risks
associated with the acquisition and the continuing operations of Matria
following the acquisition. Stockholders of Matria and LifeMetrix should
carefully consider the following factors in determining how to vote or whether
to consent to the acquisition.
RISKS RELATING TO THE ACQUISITION FOR MATRIA STOCKHOLDERS
COMPLETION OF THE ACQUISITION MAY RESULT IN SUBSTANTIAL DILUTION TO OUR CURRENT
AND FUTURE STOCKHOLDERS.
As of April 24, 2002, Matria had 8,991,862 shares of common stock
outstanding. Upon the closing of the proposed acquisition, we may issue 887,821
shares of our common stock to LifeMetrix in exchange for the assets being
acquired, including all of the issued and outstanding stock of Quality Oncology
if the average closing price of Matria common stock for the ten trading days
prior to the closing date is less than or equal to $19.148. However, if such
average closing price of Matria common stock is greater than or equal to
$28.722, Matria will only issue 591,881 shares. The actual number of shares to
be issued will vary within this range in proportion to the average closing stock
price of Matria common stock for the ten trading days prior to the closing date
within this range of prices. In addition, in 2004, LifeMetrix may be entitled to
receive an earn out payment in cash, in additional shares of Matria common
stock, or a combination of cash and Matria common stock. The amount of the earn
out payment is dependent upon the performance of Quality Oncology in 2003. The
amount of shares, if any, that will be issued in connection with the earn out
payment will be based on the share price at the time of payment and cannot be
determined at the present time, but could be substantial. The issuance of Matria
shares upon closing of the acquisition will, and the issuance of Matria shares
as an earn out payment may, result in substantial dilution to Matria
stockholders.
FAILURE TO OBTAIN STOCKHOLDER APPROVAL FOR THE ISSUANCE OF OUR COMMON STOCK IN
THE ACQUISITION WOULD REQUIRE US TO PAY CASH OR, IF WE DO NOT HAVE THE AVAILABLE
FUNDS, TO ISSUE SHARES IN VIOLATION OF NASD RULES OR TO PAY CASH WHEN WE MAY NOT
HAVE THE FUNDS AVAILABLE.
As a company listed on the Nasdaq National Market, we are subject to
the NASD rules, including rules relating to stockholder approval of various
corporate actions. The NASD rules require us to obtain stockholder approval for
the issuance of shares amounting to 20% or more of our outstanding stock in any
transaction. Upon the closing of the proposed acquisition and possibly in future
earn out payments, we may issue a substantial number of shares of our common
stock to LifeMetrix. In the event that we are unable to obtain stockholder
approval for the issuance of our common stock in the acquisition, we will be
forced to pay cash for any amount due under the earn out that would cause the
total amount of our common stock issued in the acquisition to exceed 20% of our
outstanding common stock or to issue shares amounting to more than 20% of our
outstanding common stock without stockholder approval. If we issue shares in the
acquisition amounting to more than 20% of our outstanding common stock without
stockholder approval, it may be determined that we are in violation of NASD
rules governing stockholder approval requirements, and we may be subject to
being delisted from Nasdaq.
10
WE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING THE ACQUIRED BUSINESS AND MAY NOT
FULLY ACHIEVE, OR ACHIEVE WITHIN THE ANTICIPATED TIME FRAME, EXPECTED STRATEGIC
OBJECTIVES, COST SAVINGS AND OTHER EXPECTED BENEFITS OF THE ACQUISITION.
The acquisition will result in Matria's acquisition of Quality Oncology
and other LifeMetrix assets related to the cancer disease management business.
Matria expects to realize strategic and other benefits as a result of the
acquisition, including, among other things:
- Expansion of Matria's disease management services;
- Operating efficiencies; and
- Revenue enhancements.
However, it is impossible to predict with certainty whether, or to what
extent, these benefits will be realized. Achieving the benefits of the
acquisition will depend in part on the successful integration of technology,
operations and personnel. The integration of Matria and the acquired business
will be a complex, time-consuming and expensive process and may disrupt Matria's
business if not completed in a timely and efficient manner. The challenges and
risks involved in this integration include the following:
- Retaining existing customers of the acquired business;
- Retaining and integrating management and other key employees
of the acquired business;
- Combining product offerings, services and sales efforts
effectively and quickly;
- Potential disruption of our ongoing business and distraction
of our management in overseeing the integration process; and
- Unanticipated expenses related to the integration of Matria
and the acquired business.
We may not succeed in addressing these risks or any other problems
encountered in connection with the acquisition. The integration process will be
complicated by the need to integrate widely dispersed operations and different
corporate cultures. It is not certain that Matria and the acquired business can
be successfully integrated in a timely manner or at all or that any of the
anticipated benefits will be realized. Failure to do so could materially harm
our business and operating results.
FAILURE TO COMPLETE THE ACQUISITION COULD ADVERSELY AFFECT MATRIA'S STOCK PRICE,
FUTURE BUSINESS AND OPERATIONS OR FINANCIAL RESULTS.
The acquisition may not be completed. The purchase and sale agreement
may be terminated for certain occurrences, including events having material
adverse effects on the acquired business, specified declines in Matria's stock
price, breaches by Matria or LifeMetrix of representations, warranties,
covenants and agreements under the purchase and sale agreement, or for other
reasons, some of which are beyond the control of Matria or LifeMetrix. If the
purchase and sale agreement is terminated, the acquisition will not occur or may
be delayed, and we each will lose the intended benefits of the acquisition.
If the acquisition is not completed for any reason, Matria may be
subject to a number of material risks, including the following:
- Matria will lose the intended benefits of the acquisition;
- The price of Matria common stock may decline to the extent
that the current market price reflects a market assumption
that the acquisition will be completed;
11
- Some costs related to the acquisition, such as legal,
accounting, financial advisory and financial printing fees,
must be paid even if the acquisition is not completed;
- If the purchase and sale agreement is terminated because
of the material breach or intentional or fraudulent
misconduct of Matria, then LifeMetrix can recover from Matria
its expenses relating to the purchase and sale agreement.
- If the purchase and sale agreement is terminated for certain
reasons, Matria will be required to make a substantial
investment in LifeMetrix or, under certain other
circumstances, must license the Data Warehouse system from
LifeMetrix or forfeit its $500,000 deposit; and
- Matria will experience substantial disruption to its
businesses and the distraction of its workforce and management
team.
RISKS RELATING TO THE ACQUISITION FOR LIFEMETRIX STOCKHOLDERS
OFFICERS AND DIRECTORS OF LIFEMETRIX HAVE INTERESTS IN THE ACQUISITION THAT ARE
DIFFERENT FROM OR IN ADDITION TO THE INTERESTS OF LIFEMETRIX STOCKHOLDERS
GENERALLY.
When considering the recommendation of the board of directors of
LifeMetrix, stockholders of LifeMetrix should be aware that the directors and
officers of LifeMetrix have interests in the acquisition that are different from
or in addition to the interests of LifeMetrix stockholders generally. These
interests include:
- Ownership of preferred stock of LifeMetrix or interests in
owners of such preferred stock, which will be entitled to
distribution preferences following the closing of the
acquisition;
- Expectations of employment by Quality Oncology after the
acquisition by Matria; and
- Expectations of receiving incentive bonuses that will be paid
by LifeMetrix in connection with the acquisition.
12
THE VALUE OF THE MATRIA COMMON STOCK PAYABLE TO LIFEMETRIX AT THE CLOSING MAY BE
LESS THAN $17 MILLION.
The agreement provides that, subject to certain adjustments and escrow
provisions, Matria is to pay $3 million in cash and $17 million in Matria common
stock to LifeMetrix at the closing. The value of such Matria common stock is to
be based upon the average closing price of Matria common stock during the ten
consecutive trading days immediately preceding the closing date; provided,
however, that such calculated or deemed value will not be less than $19.148 or
greater than $28.722. Thus, if the average closing price of Matria common stock
during the ten day period immediately preceding the closing were lower than
$19.148, the value of the Matria common stock payable by Matria at the closing
would be less than $17 million.
MATRIA'S ABILITY TO PAY A PORTION OF THE EARN OUT PAYMENT IN CASH MAY BE
AFFECTED BY AGREEMENTS WITH ITS LENDERS.
In addition to the purchase price that is payable at closing,
LifeMetrix is entitled to an earn out payment based upon the financial
performance of Quality Oncology during 2003. Unless LifeMetrix later agrees
otherwise, Matria is required to pay at least the lesser of 20% of the earn out
payment or $10 million in cash, and the remainder in Matria common stock.
However, LifeMetrix's rights to receive cash as a part of the earn out payment
are subordinate to the terms of a certain credit agreement and indenture between
Matria and its lenders. It is possible that circumstances could exist in 2004
that would prevent Matria, under such credit agreement and indenture, from
paying some or all of the cash portion of an earn out payment. In such an event,
LifeMetrix will have the option of receiving payment in shares of Matria common
stock to make up for a deficiency in cash payments.
FAILURE TO COMPLETE THE ACQUISITION COULD ADVERSELY AFFECT LIFEMETRIX AND ITS
STOCKHOLDERS.
Although LifeMetrix stockholder approval of the acquisition is assured
by the fact that stockholders with voting rights sufficient for approval have
signed voting agreements with Matria in which they agree to approve the
acquisition, the acquisition may not be completed for a number of reasons. The
purchase and sale agreement may be terminated for certain occurrences, including
events having material adverse effects on Quality Oncology's business, specified
declines in Matria's stock price, breaches by Matria or LifeMetrix of
representations, warranties, covenants and agreements under the purchase and
sale agreement, or for other reasons, some of which are beyond the control of
Matria or LifeMetrix. If the purchase and sale agreement is terminated and the
acquisition does not occur:
- LifeMetrix will lose the intended benefits of the sale;
- There is no assurance that LifeMetrix will be able to
negotiate a similar transaction on favorable terms with
another party;
- There is no assurance that LifeMetrix will be able to obtain
the additional financing that will be needed to continue its
operations;
- If LifeMetrix cannot obtain such additional financing, it will
not be able to continue operations and will be forced to
liquidate under circumstances that may result in its
stockholders incurring a total or substantial loss of their
investments in LifeMetrix;
- If LifeMetrix is able to obtain additional financing, the
financing source may insist upon preferences and premiums that
may significantly dilute the currently outstanding preferred
and common shares of LifeMetrix; and
- Even if LifeMetrix were able to obtain additional financing
and to continue operations, there is no assurance that the
results of future operations would create a value or return to
LifeMetrix stockholders equivalent to the value of the
proposed Matria acquisition.
13
LIFEMETRIX AND ITS STOCKHOLDERS WILL BE EXPOSED TO A NUMBER OF TAX-RELATED RISKS
IN CONNECTION WITH THE ACQUISITION AND, IF LIFEMETRIX IS ULTIMATELY LIQUIDATED,
UPON SUCH LIQUIDATION.
The acquisition will be treated as a taxable sale of assets, and
LifeMetrix will report a taxable gain. The proceeds of the transaction for this
purpose will include, in addition to the cash paid by Matria, the liabilities of
Quality Oncology (and the liabilities of LifeMetrix to be assumed by Quality
Oncology) and the fair market values, as of the closing date, of the Matria
stock to be issued at closing and the right to the earn out payment, which
values are not currently known. LifeMetrix will obtain an independent expert
valuation of the right to the earn out payment for this purpose. Depending on
such values, LifeMetrix could have a total gain exceeding the net operating loss
carryforwards available to offset such gains. Such taxable gain could also be
increased if the actual market price of Matria stock as of the closing is
greater than the price used for determining the number of shares to be issued at
closing, which will be the average of the closing prices on the ten preceding
consecutive trading days, subject to a minimum of $19.148 and a maximum of
$28.722. If LifeMetrix is liquidated following the acquisition, then LifeMetrix
will also recognize a gain or loss on such liquidation, including gain or loss
resulting from appreciation or depreciation (after the closing date) in the
values of the Matria stock and the right to the earn out payment. Since the
purchase and sale agreement prohibits LifeMetrix from approving or adopting a
plan of liquidation for at least 30 days after the closing of the acquisition,
such appreciation or depreciation could be substantial. If the gains recognized
by LifeMetrix as a result of the acquisition and any subsequent liquidation
exceed the available loss carryforwards by a substantial amount, LifeMetrix may
be exposed to a tax obligation exceeding the cash available to it to pay such
obligation. The liquidation would also be taxable to the LifeMetrix
stockholders, and a stockholder would be subject to tax if the fair market value
of the liquidating distributions received (or deemed received, since a
distribution could in the first instance be made to a liquidating trust) exceed
the stockholder's basis in its LifeMetrix stock. Stockholders would also be
taxed on gains and losses realized by the liquidating trust. Because there can
be no assurance that distributions from such a trust would be available for this
purpose, stockholders may have to satisfy any resulting tax obligations from
other resources.
LIFEMETRIX AND ITS STOCKHOLDERS MAY BE EXPOSED TO TAX AND OTHER RISKS IF
LIFEMETRIX DOES NOT LIQUIDATE FOLLOWING THE ACQUISITION.
Following the consummation of the acquisition, the board of directors
of LifeMetrix will consider whether LifeMetrix should adopt a plan of
liquidation. Under the purchase and sale agreement, LifeMetrix may not adopt a
plan of liquidation until at least thirty (30) days following the acquisition.
If LifeMetrix does not adopt a plan of liquidation, LifeMetrix and its
stockholders could be exposed to significant business, tax and legal risks,
including the following:
- Although LifeMetrix currently has business operations and
assets that will not be acquired by Matria, those business
operations are not yet self-supporting and would require
substantial future investment. LifeMetrix is seeking buyers
for those assets.
- Under the terms of LifeMetrix's certificate of incorporation,
the preferred stockholders have certain rights with respect to
the payment of liquidation preferences that will be triggered
by the acquisition.
- LifeMetrix anticipates that a principal asset of LifeMetrix
following the acquisition will be the Matria common stock
received in connection with the acquisition. LifeMetrix could
be exposed to adverse consequences as a result of the
Investment Company Act of 1940 if LifeMetrix were to hold the
Matria common stock for an extended period of time.
- Because the standstill agreement restricts the sale of the
Matria shares received in connection with the acquisition,
LifeMetrix may as a practical matter be required to distribute
all or at least the bulk of the Matria shares to its
stockholders. A distribution made as part of a liquidation of
LifeMetrix is anticipated to have more favorable tax
consequences to LifeMetrix and its stockholders than if a
distribution were to be made otherwise. In particular, if a
distribution of Matria shares (or other assets of LifeMetrix,
including cash) was made with respect to LifeMetrix stock
other than as part of a liquidation of LifeMetrix, the full
fair market value of the distribution, up to the greater of
the current or accumulated earnings and profits of LifeMetrix,
may be taxable as a dividend at ordinary income rates, without
any offset for the basis of the recipients in their LifeMetrix
stock.
14
AMOUNTS THAT WOULD BE DISTRIBUTABLE TO LIFEMETRIX STOCKHOLDERS FOLLOWING THE
ACQUISITION ARE UNCERTAIN.
The acquisition by Matria will constitute a sale of substantially all
of the assets of LifeMetrix and will be deemed to be a liquidation for purposes
of required payments of liquidation preferences to LifeMetrix's preferred
stockholders. Moreover, if LifeMetrix decides to liquidate following the
acquisition, all of LifeMetrix's assets, including cash and shares of Matria
common stock received pursuant to the acquisition, less any debts, liabilities,
and expenses incurred in the winding up of LifeMetrix, would be distributed to
LifeMetrix stockholders in accordance with any plan of liquidation adopted by
LifeMetrix. The amount of assets available for distribution to LifeMetrix
stockholders would depend upon a number of factors, none of which can be
quantified at this time. These factors include:
- The total purchase price payable by Matria in the acquisition,
which will depend in substantial part on the earn out which
will be based on the financial performance of Quality Oncology
during calendar year 2003;
- The net amount, if any, that LifeMetrix will be able to
realize from its attempt to sell its remaining assets and
business that are not being acquired by Matria;
- The expenses incurred by LifeMetrix in connection with any
winding up and liquidation; and
- The amount of debts and liabilities that must be paid or
reserved prior to distributions to stockholders, including any
LifeMetrix payment obligations under the indemnification
provisions of the purchase and sale agreement and any tax
payment obligations arising from the sale of assets to Matria
or from the liquidation.
In addition, any amounts distributable to stockholders would be reduced
by incentive bonuses that LifeMetrix will pay to key employees of LifeMetrix and
Quality Oncology. The LifeMetrix board of directors has approved such incentive
bonuses equal to 10% of the amount that otherwise would be distributable to
stockholders upon liquidation. The incentive bonus policy is intended to
provide performance incentives to key employees during the period prior to the
closing of an acquisition and, with respect to key employees who will be
retained by Matria to work for Quality Oncology after the acquisition, will
provide added performance incentives during the earn out period, which will
determine the amount of any earn out payment to be received by LifeMetrix.
IN THE EVENT THAT LIFEMETRIX ADOPTS A PLAN OF LIQUIDATION FOLLOWING THE CLOSING
OF THE ACQUISITION, HOLDERS OF LIFEMETRIX COMMON STOCK WOULD NOT RECEIVE ANY
DISTRIBUTION UNLESS THERE IS A SIGNIFICANT EARN OUT PAYMENT BY MATRIA IN 2004.
Under LifeMetrix's certificate of incorporation, preferred stockholders
are entitled to a liquidation preference equal to the initial issue price of the
various series of preferred stock: $3.334 for Series A, $6.00 for Series B,
$1.594 for Series C, and $0.631 for Series D. The total liquidation preference
attaching to all outstanding preferred shares is approximately $40.8 million.
Any amount that remains available for distribution after payment of the
liquidation preferences is distributed pro rata to all holders of LifeMetrix
stock on an as-converted basis. Based on the number of shares of LifeMetrix
common and preferred stock currently outstanding, the preferred stockholders of
LifeMetrix would be entitled to approximately 82.5% of the amount, if any,
available for distribution after payment of the preferred stock liquidation
preferences. Preferred stockholders would receive the full amount of the
liquidation preferences only if the amount available for distribution to
stockholders, after payment of, or establishment of reserves for, debts,
liabilities, incentive bonuses and other payment obligations was approximately
$40.8 million. Common stockholders would receive liquidation distributions only
if the total amount available for distribution to stockholders exceeded $40.8
million. Holders of LifeMetrix common stock would not be entitled to receive any
liquidation distribution unless there is a significant earn out payment by
Matria in 2004.
15
RISKS RELATING TO THE ACQUISITION FOR BOTH MATRIA AND LIFEMETRIX STOCKHOLDERS
THE PURCHASE AND SALE AGREEMENT PROVIDES FOR THE ISSUANCE OF A CURRENTLY
UNQUANTIFIABLE NUMBER OF SHARES OF MATRIA COMMON STOCK.
The exact number of shares of Matria common stock issued to LifeMetrix
upon closing of the acquisition will be calculated based upon the average of the
last prices at which Matria common stock is sold during the ten consecutive
trading days immediately preceding the closing date of the acquisition. In
addition, an undetermined number of shares of Matria common stock may be issued
to LifeMetrix in the future under the earn out provisions of the purchase and
sale agreement. Consequently, Matria stockholders will be asked to approve the
issuance of Matria common stock in the acquisition and LifeMetrix stockholders
will be asked to approve the sale of assets of LifeMetrix before knowing the
actual number of Matria shares to be issued in the acquisition. Changes in the
price of Matria common stock between the date of this document and the dates of
the closing of the acquisition and the future earn out payments in 2004 may
cause the actual number of shares to be issued to LifeMetrix to differ
significantly from the number of shares that would be issued at Matria's current
stock price.
THE ACQUISITION COULD ADVERSELY AFFECT MATRIA'S AND QUALITY ONCOLOGY'S COMBINED
FINANCIAL RESULTS.
The business being acquired has historically incurred significant
losses. For example, for the year ended December 31, 2001, Quality Oncology had
a net loss of approximately $3.2 million, on revenues of approximately $5.8
million, and an accumulated deficit of approximately $17.0 million. The acquired
business will continue to incur significant sales and marketing and general and
administrative expenses. Matria may be forced to fund these additional expenses
from cash generated from its business, from borrowed funds or through additional
sales of stock. The inability of the acquired business to achieve or sustain
profitable operations would have a substantial adverse impact on Matria's and
Quality Oncology's combined financial results and on your investment in Matria.
If the benefits of the acquisition do not exceed the costs associated with the
acquisition, including any dilution to Matria stockholders resulting from the
issuance of shares in connection with the acquisition, our financial results,
including earnings per share, could be adversely affected.
RISKS RELATING TO MATRIA FOLLOWING THE ACQUISITION
LIFEMETRIX MAY BE UNABLE TO SATISFY ITS INDEMNIFICATION OBLIGATIONS, WHICH MAY
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS FOLLOWING THE ACQUISITION.
The purchase and sale agreement provides that, after the acquisition of
the Quality Oncology business, LifeMetrix will indemnify Matria for losses
suffered or incurred by Matria and related parties arising from breaches or
misrepresentations under the purchase and sale agreement, litigation arising out
of pre-closing acts or circumstances or the acquisition, retained liabilities of
LifeMetrix, any claims arising in connection with incentive bonuses, and certain
tax liabilities. LifeMetrix's indemnification obligation with respect to
breaches of representations and warranties and litigation described in the
previous sentence is generally limited to the sum of 10% of the purchase price
paid at closing plus the entire amount of the earn out payment. LifeMetrix may
not be able to fulfill its indemnification obligations to the extent they exceed
the value of the escrowed shares and the earn out. LifeMetrix may not have
sufficient funds and may not be able to obtain the funds to satisfy its
potential indemnification obligations to Matria. Matria may suffer impairment of
its assets or have to bear the costs of a liability that exceeds the liability
limitations of the purchase and sale agreement or for which it is entitled to
indemnification, but which it is unable to collect.
OUR OPERATING RESULTS HAVE FLUCTUATED IN THE PAST AND ARE LIKELY TO CONTINUE TO
FLUCTUATE IN THE FUTURE.
Our operating results have varied in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. These factors include:
- Impact of substantial divestitures and acquisitions;
- Loss or addition of customers and referral sources;
- Changes in the mix of our products and customers;
16
- Changes in healthcare reimbursement policies and amounts;
- Increases in operating expenses;
- Increases in selling, general and administrative expenses;
- Increased or more effective competition; and
- Regulatory changes.
In addition, revenues from our women's health services segment are
historically less during the fourth and first calendar quarters than during the
second and third calendar quarters. The seasonal variability of demand for these
services significantly affects, and we believe will continue to affect, our
quarterly operating results.
Since mid-2000, we have been making significant investments in an
effort to grow our disease management business. Increased expenditures
associated with these efforts may harm our results of operations in the future.
We cannot assure you that our operating results for future periods will not be
less favorable as compared to prior year periods.
IF WE FAIL TO DEVELOP NEW RELATIONSHIPS OR MAINTAIN OUR EXISTING RELATIONSHIPS
WITH ESTABLISHED HEALTH CARE INDUSTRY PARTICIPANTS, WE MAY EXPERIENCE DELAYS IN
THE GROWTH OF OUR BUSINESS.
Relationships with established health care industry participants are
critical to our success. These relationships include customer, vendor,
distributor and co-marketer relationships. We may not be able to establish
relationships with particular key participants in the health care industry if
relationships have already been established with competitors, and therefore, it
is important that we are perceived as independent of any particular customer or
partner. If we cannot successfully establish new relationships with key health
care industry participants, our business may grow slowly.
Our stock price and financial performance may suffer if the acquired
business is unable to use its existing relationships to generate additional
sales. If we were to lose any of our existing relationships, or if the other
parties were to fail to collaborate with us to pursue additional business
relationships, we would not be able to execute our business plans and our
business would suffer significantly.
SOME ASPECTS OF THE DISEASE MANAGEMENT BUSINESS ARE RELATIVELY UNPROVEN.
Matria's domestic diabetes and respiratory disease management programs
identify, classify and manage the care of patients with diabetes and respiratory
diseases. These particular aspects of our disease management services are
relatively new components of our business and of the overall healthcare
industry. We are acquiring from LifeMetrix its Quality Oncology business, which
provides disease management services for cancer patients. These types of
services are also relatively new to the healthcare industry and will involve
expansion of our current disease management operations. The success of these
components of our business plan depends on a number of factors. These factors
include:
- Our ability to differentiate our products and service
offerings from those of our competitors;
- The extent and timing of the acceptance of our services as a
replacement for, or supplement to, traditional managed care
offerings;
- Our ability to implement new and additional services
beneficial to payors; and
- Our ability to effect cost savings for payors through the use
of our programs.
Since these aspects of our disease management business are new and
unproven, we may not be able to anticipate and adapt to a developing market.
Moreover, we cannot accurately predict the future growth rate or the ultimate
size of the domestic diabetes, respiratory and cancer disease management
markets.
17
THIRD PARTY PAYORS AND GOVERNMENT-SPONSORED PROGRAMS MAY REDUCE PAYMENTS TO US.
Our revenues from continuing operations are derived from the following
types of customers: approximately 42% from private third-party payors,
approximately 25% from medical device manufacturers, approximately 14% from
domestic government payors, approximately 12% from foreign healthcare systems
and approximately 7% from employers.
Third-party and governmental payors exercise significant control over
patient access and increasingly use their enhanced bargaining power to secure
discounted rates and other concessions from providers. This trend, as well as
other changes in reimbursement rates, policies or payment practices by
third-party and governmental payors (whether initiated by the payor or
legislatively mandated) could have an adverse impact on our disease management
businesses.
Our sales and profitability are affected by the efforts of all payors
to contain or reduce the cost of healthcare by lowering reimbursement rates and
limiting the scope of covered services. Any changes that lower reimbursement
levels under Medicare, Medicaid or private pay programs, including managed care
contracts, could adversely affect us. Furthermore, other changes in these
reimbursement programs or in related regulations could adversely affect us.
These changes may include modifications in the timing or processing of payments
and more stringent reimbursement procedures. Any failure to comply with Medicare
or Medicaid reimbursement procedures could result in delays in, or loss of,
reimbursement and other sanctions, including fines and exclusion from
participation in the programs.
ONE OF OUR PRODUCT LINES AND ALL OF QUALITY ONCOLOGY'S REVENUES ARE
SUBSTANTIALLY DEPENDENT ON A FEW CUSTOMERS. THE LOSS OF ANY OF THESE CUSTOMERS
WOULD ADVERSELY AFFECT OUR BUSINESS.
Sales of our Facet Technologies subsidiary are substantially dependent
on sales to three customers. These three diabetes supply manufacturers
represented approximately 78% of our microsampling revenues, which in turn
represented approximately 21% of Matria's total revenues. We have multiple
contracts covering various products with these customers that have expirations
ranging from six months to two years. In addition, Quality Oncology received 67%
of its revenues from four customers in 2001 whose contracts expire at various
times through 2006. There is no guarantee that these contracts will be renewed.
If we do not generate as much revenue from our major customers and the major
customers of the acquired business as we expect to or if we lose certain of them
as customers, our total revenue will be significantly reduced.
WE ARE HIGHLY DEPENDENT ON AN EXCLUSIVE SUPPLY AGREEMENT.
Our microsampling products business is highly dependent on its
exclusive supply relationship with Nipro Corporation, from which it purchases
virtually all of its products on terms we believe to be favorable. Under the
agreement, some terms, such as pricing, are negotiated annually while others,
such as our exclusivity arrangement, are renewable after longer periods. The
exclusivity provisions of our agreement with Nipro will expire in November 2002.
While Nipro has been a supplier to our microsampling business, including prior
to our acquisition of that business in 1999, for more than 15 years, there can
be no assurance that we will be able to negotiate a renewal of our exclusivity
arrangement on favorable terms. Termination of the exclusive supply arrangement
or failure to continue it on favorable terms would have a material adverse
effect on our microsampling component, as would any interruption in the supply
of products from Nipro, whatever the cause.
18
OUR DATA MANAGEMENT AND INFORMATION TECHNOLOGY SYSTEMS ARE CRITICAL TO
MAINTAINING AND GROWING OUR BUSINESS.
Our services are dependent on the effective use of information
technology. Although we believe that our TRAX(TM) system and the Integrated Care
Management System being acquired from LifeMetrix provide or will provide us with
a competitive advantage in our industry, we are exposed to technology failure
and obsolescence risk. In addition, data acquisition, data quality control and
data analysis, which are a cornerstone of our disease management programs, are
intense and complex processes subject to error. Untimely, incomplete or
inaccurate data or flawed analysis of such data could have a material adverse
impact on our business and revenues.
THE DEVELOPMENT OF IMPROVED TECHNOLOGIES FOR GLUCOSE MONITORING THAT ELIMINATE
THE NEED FOR CONSUMABLE TESTING SUPPLIES MAY ADVERSELY AFFECT OUR BUSINESS.
Most of the revenues from our fulfillment services business are from
the sale of consumable testing supplies used to draw and test small quantities
of blood for the purpose of measuring and monitoring blood glucose levels.
Numerous research and development efforts are underway to develop more
convenient and less intrusive glucose measurement techniques. The
commercialization and widespread acceptance of new technologies that eliminate
or reduce the need for consumable testing supplies could negatively affect our
fulfillment services business.
MANY OF THE ACQUIRED BUSINESS' FEES ARE CONTINGENT UPON PERFORMANCE AND MAY HAVE
TO BE REFUNDED.
Many of the acquired business' existing disease management agreements
with health plans contain a savings guarantee, which typically provides that
Quality Oncology will repay to a client all or some of Quality Oncology's fees
if the cost savings achieved during the period that the Quality Oncology Program
operates do not at least equal Quality Oncology's fees for such period. Some
contracts also provide that Quality Oncology will receive bonus compensation by
meeting certain performance criteria. There is no guarantee that the cost
savings experienced by the acquired business' clients will be sufficient to
allow the acquired business to make a profit, and there is no guarantee that the
acquired business will meet the performance criteria necessary to receive the
designated bonus compensation or to avoid repayment of fees.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.
The medical industry is characterized by rapidly developing technology
and increased competition. In all of our product and service lines, we compete
with companies, both large and small, located in the United States and abroad.
Competition is strong in all of our lines without regard to the number and size
of the competing companies involved. Some of our competitors and potential
competitors have significantly greater financial sales resources than we do and
may, in some locations, possess licenses or certificates that permit them to
provide products and services that we cannot currently provide. We compete on a
number of factors, including quality of products and services, reputation within
the medical community, geographical scope and price.
There can be no assurance that we will not encounter increased or more
effective competition in the future which could limit our ability to maintain or
increase our services and operations or render some of our products and services
obsolete or non-competitive and which could adversely affect our operating
results.
OUR FOREIGN OPERATIONS ARE SUBJECT TO ADDITIONAL RISKS.
Although the majority of our operations are in the United States,
segments of our business derive substantial revenue from outside of the United
States. Approximately 15%, 16% and 16% of our revenues were derived from sales
outside the United States in 2001, 2000 and 1999, respectively. The risks of
doing business in foreign countries include potential adverse changes in the
stability of foreign governments and their diplomatic relations, hostility from
local populations, adverse effects of currency fluctuations and exchange
controls, deterioration of foreign economic conditions and changes in tax laws.
Due to the foregoing risks, any of which, if realized, could have a material
adverse effect on us, we believe that our business activities outside of the
United States involve a higher degree of risk than our domestic activities.
19
GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR BUSINESS.
All of our businesses are subject to varying degrees of government
regulation in the countries in which they operate. Participants in the health
care industry are subject to extensive and frequently changing regulation under
numerous laws administered by governmental entities at the federal, state and
local levels. There has been a trend in recent years both in the United States
and outside of the United States toward more stringent regulation and
enforcement of requirements applicable to healthcare providers and medical
device manufacturers. The continuing trend of more stringent regulatory
oversight in healthcare, enforcement activities and product clearance for
medical devices has caused healthcare providers and manufacturers to experience
more uncertainty, greater risk, higher expenses and longer approval cycles.
In the United States, regulation of the healthcare industry is
particularly pervasive. Many states require providers of home health services,
such as our 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 and respiratory disease management businesses require
Matria to be licensed as a pharmacy in several states. Moreover, certain of our
employees are subject to state laws and regulations regarding the ethics and
professional practice of pharmacy and nursing. We 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, or 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 our businesses.
Many states require companies that perform utilization review services
to obtain permits or licenses. The requirements or conditions imposed in
connection with the issuance and maintenance of such permits and licenses vary
among the states. Some states prohibit a person performing utilization reviews
from receiving compensation based on the person's decisions on utilization. Such
a prohibition could prevent Matria and the acquired business from guaranteeing
their fees or guaranteeing savings with respect to the performance of
utilization reviews concerning medical services for residents in such a state or
from obtaining increased compensation for reductions in the cost of cancer care.
The interpretation by the regulatory authorities of the effect of such a
prohibition on compensation provisions for a disease management company can vary
from state to state.
In addition, we 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 we use in the provision of our
services are classified as medical devices under the federal Food, Drug and
Cosmetic Act, or the FDC Act, and are subject to regulation by the United States
Food and Drug Administration, or FDA. Several recent FDA actions with respect to
home uterine activity monitors may affect our home uterine activity monitoring
business. In addition, some of our services involve the use of drugs that are
regulated by the FDA under the FDC Act. Although the medical devices and drugs
we use 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 and
medical devices for such "off-label" indications under the "practice of
medicine" doctrine. Nevertheless, we believe that publicity concerning the
off-label use of terbutaline sulfate has adversely affected our Women's Health
segment's business, and any future adverse publicity or increased FDA scrutiny
surrounding off-label use of any drugs and devices utilized in our business may
have an adverse effect on our business.
Numerous federal and state laws and regulations also govern the
collection, dissemination, use and confidentiality of patient-identifiable
health information, including the federal Health Insurance Portability and
Accountability Act of 1996, referred to as HIPAA, and related rules. As part of
our business, we collect and maintain patient-identifiable health information. A
violation of HIPAA could result in criminal and civil sanctions. There can be no
assurance that our inability to comply with existing or new laws or regulations
or to incur the costs necessary to comply with these laws or regulations related
to patient health information will not have a material adverse effect on us.
20
As a result of our desire to assure compliance with the increasingly
complex regulatory environment for the healthcare industry, we maintain a
company-wide compliance program. We believe our operations as currently
conducted are in material compliance with existing applicable laws and
regulations. However, there can be no assurance that we will not become the
subject of a regulatory or other investigation or proceeding or that our
interpretations of applicable laws and regulations will not be challenged. The
defense of any such challenge could result in substantial cost to us and
diversion of management's time and attention. Thus, any such challenge could
have a material adverse effect on our business, regardless of whether it
ultimately is sustained. Moreover, we believe that our businesses will continue
to be subject to increasing regulation, the scope and effect of which we cannot
predict.
OUR DEPENDENCE ON MEDICARE REIMBURSEMENTS MAY ADVERSELY AFFECT OUR BUSINESS.
Medicare is a federally funded program that provides health insurance
coverage for persons age 65 or older and for some disabled persons. Medicare
provides reimbursement for many of the products and services that we sell. This
portion of our business is therefore subject to extensive regulation. Medicare
reimbursement payments are often lower than reimbursement payments of other
third-party payers, such as traditional indemnity insurance companies. Effective
July 1, 1998, testing supplies for Type II diabetics became reimbursable. In
addition, effective October 1, 1998, Medicare reimbursement guidelines provided
that quarterly orders of diabetes supplies to existing customers be verified
before shipment and that all doctor's orders for supplies are valid for a period
of six months. In addition, the regulations require that individuals with Type I
diabetes who test more frequently than three times per day and individuals with
Type II diabetes who test more frequently than one time per day, visit their
physician every six months and maintain a 30-day log book to verify frequency of
testing.
We accept assignment of Medicare claims, as well as claims with respect
to other third-party payers, on behalf of our customers. We process claims,
accept payments and assume the risks of delay or nonpayment. We also employ the
administrative personnel necessary to transmit claims for product reimbursement
directly to Medicare and private health insurance carriers. Medicare reimburses
at 80% of the Medicare fee schedule for approved diabetes testing and
respiratory supplies, and we bill the remaining 20% of the Medicare fee schedule
to either third-party payers or directly to customers. In the event that
customers do not provide to us the documents required to bill Medicare, our
customers are responsible for the full amounts due. In the year ended December
31, 2001, we provided 2.9% of net revenues as an allowance for doubtful
accounts.
The processing of third-party reimbursements is a labor-intensive
effort, and delays in processing claims for reimbursement may increase working
capital requirements. The regulations that govern Medicare reimbursement are
complex and our compliance with those regulations may be reviewed by federal
agencies, including the Department of Health and Human Services, the Department
of Justice, and the FDA. Any failure to comply with required Medicare
reimbursement procedures could result in delays or loss of reimbursement and
other sanctions, including fines and loss of Medicare provider status.
WE MAY FACE COSTLY LITIGATION THAT COULD FORCE US TO PAY DAMAGES AND HARM OUR
REPUTATION.
Like other participants in the healthcare market, we are subject to
lawsuits alleging negligence, product liability or other similar legal theories,
many of which involve large claims and significant defense costs. Although we
currently maintain liability insurance intended to cover such claims, there can
be no assurance that the coverage limits of such insurance policies will be
adequate or that all such claims will be covered by the insurance. In addition,
these insurance policies must be renewed annually. While we currently have been
able to obtain liability insurance, such insurance may not be available in the
future on terms acceptable to us, if at all. A successful claim in excess of the
insurance coverage could have a material adverse effect on our results of
operations or financial condition. Claims, regardless of their merit or eventual
outcome, also may have a material adverse effect on our business and reputation.
OUR GROWTH AND OPERATING RESULTS MAY BE IMPAIRED IF WE ARE UNABLE TO MEET OUR
FUTURE CAPITAL REQUIREMENTS.
We may need to raise additional capital to support expansion, develop
new or enhanced applications, services and product offerings, respond to
competitive pressures, acquire complementary businesses or technologies
21
or take advantage of unanticipated opportunities. We may need to raise
additional funds by selling debt or equity securities, by entering into
strategic relationships or through other arrangements. We cannot assure you that
we will be able to raise any additional amounts on reasonable terms, or at all,
when they are needed.
PAST AND FUTURE ACQUISITIONS MAY CAUSE INTEGRATION PROBLEMS, DISRUPT OUR
BUSINESS AND DILUTE STOCKHOLDER VALUE.
In the past we have made several significant business acquisitions, and
may continue with such acquisitions in the future. Our success will depend, to a
great extent, on our ability to smoothly integrate any acquired business
entities.
These acquisitions, either individually or as a whole, could divert our
attention from other business concerns and expose us to unforeseen liabilities
or risks associated with entering new markets and integrating those new
entities. Further, the integration of these entities may cause us to lose key
employees. Integrating newly acquired organizations and technologies into Matria
could be expensive and time consuming and may strain our resources. In addition,
we may lose our current customers if any acquired companies have relationships
with competitors of our customers. Consequently, we may not be successful in
integrating these acquired businesses or technologies and may not achieve
anticipated revenue and cost benefits, which could hurt your investment in the
combined company.
We may continue to finance future acquisitions through the issuance of
additional common stock. To the extent we do so, your potential investment in
the combined company may be diluted. We may also opt to use cash to buy
companies or technologies in the future. If we do use cash, we may need to incur
debt to pay for these future acquisitions. Acquisition financing may not be
available on favorable terms or at all. If for any reason we fail to execute our
acquisition strategy successfully, our business will suffer significantly.
WE MAY EXPERIENCE LOSSES IF OUR INTELLECTUAL PROPERTY RIGHTS ARE INFRINGED UPON
OR IF WE ARE SUBJECTED TO INFRINGEMENT CLAIMS BY THIRD PARTIES.
We own a number of trademarks and service marks, which are important to
the marketing and promotion of our products and services. We have licensed
respiratory disease management programs and exclusive rights to other technology
that is critical to our business. In addition, we are acquiring various
intellectual property rights and proprietary technology interests through the
acquisition. The acquired business has filed patent applications to protect
certain architectural designs and software in its cancer care management system.
The acquired business also has pending trademarks related to its
Cancerpage.com(TM) website. We believe these proprietary rights give us a
competitive advantage in marketing our disease management services and are
necessary for the successful integration of the acquired business. Any
impairment of our rights in the intellectual property described above could have
a material adverse effect on the particular business to which they relate.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY.
In January of 1996 we adopted a stockholder rights agreement. Under the
rights agreement, when one person or group acquires a certain percentage of
Matria common stock, current stockholders have right to purchase additional
common stock of Matria. In certain situations the rights agreement gives Matria
stockholders the right to purchase shares of the acquiring company at a
discounted price. Although the plan is intended not to prevent a takeover but to
protect and maximize the value of stockholders' interests in the event of
unsolicited attempts to acquire Matria, it may make it more difficult for a
third party to acquire us. In addition, our bylaws provide for a staggered board
of directors and certain provisions of Delaware law may also delay or deter
attempts to secure control of Matria without the consent of Matria's management.
These laws, the staggered board, and the provisions of the rights plan could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.
22
FOLLOWING THE COMPLETION OF THE ACQUISITION, OUR COMMON STOCK PRICE MAY BE
HIGHLY VOLATILE, AND WE MAY BE SUBJECT TO LITIGATION AS A RESULT OF SUCH
VOLATILITY.
The trading price of our common stock may be volatile. The healthcare
market in particular, and the stock market in general, have experienced
volatility that often has been unrelated to the operating performance of
particular companies.
These broad market and industry fluctuations may significantly affect
the trading price of our common stock, regardless of our actual operating
performance. The trading price of our common stock could be affected by a number
of factors, including:
- Changes in expectations of our future financial performance;
- Changes in securities analysts' estimates (or the failures to
meet such estimates);
- Announcements of technological innovations;
- Customer and distributor relationship developments;
- Conditions affecting our targeted markets in general; and
- Quarterly fluctuations in our revenue and financial results.
Since its initial public offering, the price of Matria's common stock
has fluctuated significantly. Volatility in the market price of a company's
securities may make it vulnerable to securities class action litigation. If this
were to happen to us, litigation would be expensive and would divert
management's attention.
CHANGES IN GOVERNMENT LAWS AND REGULATIONS AFFECTING THE INTERNET COULD
ADVERSELY AFFECT OUR BUSINESS.
It is possible that laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
"indecent" materials, freedom of expression, pricing, content and quality of
products and services, taxation, advertising, intellectual property rights and
information security. The adoption of such laws or regulations could decrease
the rate of growth of Internet use, which, in turn, could decrease the demand
for Matria's and the acquired business' Internet products and services, increase
our cost of doing business or in some other manner have a material adverse
effect on our results of operations or financial condition.
The applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. Most of these laws
were adopted prior to the advent of the Internet and related technologies and,
as a result, do not contemplate or address the unique issues presented by the
Internet and its related technologies.
RECENT ACCOUNTING PRONOUNCEMENTS MAY REQUIRE A WRITE-DOWN OF OUR GOODWILL, WHICH
COULD MATERIALLY IMPAIR OUR NET WORTH.
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that purchased goodwill, including the goodwill arising from the transaction,
should not be amortized, but rather, it should be periodically reviewed for
impairment. Such impairment could be caused by internal factors as well as
external factors beyond our control. The FASB has further determined that at the
time goodwill is considered impaired an amount equal to the impairment loss
should be charged as an operating expense in the statement of operations. The
timing of such an impairment (if any) of goodwill acquired in past and future
acquisitions is uncertain and difficult to predict. Our results of operations in
periods of any such impairment could be materially adversely affected.
23
FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT
This document and the documents incorporated by reference herein
contain forward-looking statements within the meaning of the Securities Act of
1933 and the Securities Exchange Act of 1934. Such forward-looking statements
include statements relating to the business, results of operations, and
financial condition of Matria and the business being acquired. Words such as
will, would, may, could, anticipates, expects, intends, plans, believes, seeks,
estimates, and similar expressions often identify forward-looking statements.
These forward-looking statements are not guarantees of the future
performance of Matria or the business being acquired. These forward-looking
statements are subject to many risks and uncertainties that could cause actual
results to differ materially from those contemplated by the forward-looking
statements. In evaluating the proposals relating to the acquisition, you should
carefully consider the discussion of the factors in the section entitled "Risk
Factors" beginning on page 10.
24
THE MATRIA ANNUAL MEETING
This document is being furnished to Matria stockholders in connection
with the solicitation of proxies by Matria's board of directors. On April 29,
2002, Matria, LifeMetrix, Inc., and Quality Oncology, Inc., a wholly owned
subsidiary of LifeMetrix, entered into a purchase and sale agreement. The
purchase and sale agreement contemplates the acquisition by Matria of assets of
LifeMetrix, including all of the issued and outstanding stock of Quality
Oncology.
Matria will hold its annual meeting of stockholders to vote upon the
issuance of Matria common stock in connection with the proposed acquisition. At
the annual meeting, stockholders will also elect directors, vote upon the Matria
2002 Stock Incentive Plan and vote upon the Matria 2002 Stock Purchase Plan.
Matria's board of directors is soliciting proxies in connection with the matters
to be voted upon at the annual meeting.
DATE, TIME AND PLACE OF THE ANNUAL MEETING
___________, 2002
11:00 am local time
1850 Parkway Place
Suite 320
Marietta, Georgia 30067
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
The purpose of Matria's annual meeting is for Matria stockholders to
approve the issuance of shares of Matria common stock in connection with the
acquisition, to elect three Class I directors, to approve the Matria 2002 Stock
Incentive Plan and to approve the Matria 2002 Stock Purchase Plan. In addition,
stockholders of Matria may transact any other business that may properly come
before the Matria annual meeting or any adjournment or postponement of the
annual meeting. Examples of other business that could be transacted at the
meeting would be a motion to adjourn to a later date to permit further
solicitation of proxies, if necessary, or to establish a quorum.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The board of directors of Matria and a committee thereof have concluded
that the purchase and sale agreement, the acquisition and the issuance of shares
of Matria common stock in connection with the acquisition are fair to, and in
the best interests of, Matria and its stockholders. THE MATRIA BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF MATRIA VOTE FOR THE
PROPOSALS TO APPROVE THE ISSUANCE OF SHARES OF MATRIA COMMON STOCK IN CONNECTION
WITH THE ACQUISITION, TO ELECT THREE CLASS I DIRECTORS, TO APPROVE MATRIA'S 2002
STOCK INCENTIVE PLAN AND TO APPROVE MATRIA'S 2002 STOCK PURCHASE PLAN.
VOTING OF PROXIES; REVOCABILITY OF PROXIES
When a properly signed and dated proxy card is returned, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the annual meeting and does not
return the signed and dated proxy card, such stockholder's shares will not be
voted. If a stockholder returns a signed and dated proxy card but does not
indicate how his or her shares are to be voted, the shares will be voted FOR the
issuance of Matria common stock to LifeMetrix in connection with the
acquisition, FOR the election of the three Class I directors named herein, FOR
the adoption of the 2002 Stock Incentive Plan and FOR the adoption of the 2002
Stock Purchase Plan. As of the date of this proxy statement, the board of
directors does not know of any other matters that are to come before the annual
meeting. If any other matters are properly presented at the annual meeting for
consideration, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
Any proxy given may be revoked by the person giving it at any time
before it is voted. Proxies may be revoked by (i) filing with the Secretary of
Matria, at or before the taking of the vote at the annual meeting, a written
25
notice of revocation bearing a later date than the proxy, (ii) duly executing a
later dated proxy relating to the same shares of Matria common stock and
delivering it to the Secretary of Matria at or before the taking of the vote at
the annual meeting or (iii) attending the annual meeting and voting in person
(although attendance at the annual meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Matria Healthcare, Inc., 1850 Parkway
Place, Marietta, Georgia 30067, Attention: Secretary, or hand delivered to the
Secretary of Matria at or before the taking of the vote at the annual meeting.
Matria will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Matria in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and Matria will
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. In addition, D.F. King & Co. will assist in
the solicitation of proxies by Matria for a fee of $5,500, plus reimbursement of
reasonable out-of-pocket expenses.
RECORD DATES AND OUTSTANDING SHARES
Stockholders of record who owned Matria common stock at the close of
business on ___________, 2002 will be entitled to attend and vote at the annual
meeting. On the record date, Matria had approximately _____________ shares of
common stock issued and outstanding. Matria had ___________ stockholders of
record on the record date and believes that its common stock is held by more
than _________ beneficial owners.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of Matria's common stock is
necessary to constitute a quorum at the annual meeting. Abstentions and shares
held by a broker as nominee (i.e., in "street name") that are represented by
proxies at the annual meeting, but that the broker fails to vote on one or more
matters as a result of incomplete instructions from the beneficial owner of the
shares ("broker non-votes"), also will be treated as present for quorum
purposes.
VOTES REQUIRED
Matria's stockholders are entitled to one vote at the annual meeting
for each share of common stock held of record by them on the record date. The
affirmative vote of a majority of the shares having voting power, present in
person or represented by proxy at the annual meeting, is required to approve the
issuance of Matria common stock in connection with the acquisition, to approve
and adopt the 2002 Stock Incentive Plan and to approve and adopt the 2002 Stock
Purchase Plan. The affirmative vote of the holders of a plurality of the shares
of common stock present in person or represented by proxy at the annual meeting
is required to elect the Class I directors. Votes may be cast for, against or
withheld from voting on the issuance of Matria common stock in connection with
the acquisition, for or withheld from each nominee for Class I director, for,
against or withheld from voting on approval of the 2002 Stock Incentive Plan and
for, against or withheld from voting on approval of the 2002 Stock Purchase
Plan. Under applicable Delaware law, broker non-votes represented at the
meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal, and abstentions will have no effect on the vote
for the election of Class I directors. Abstentions will have the effect of a
vote against approval of the issuance of the Matria common stock in connection
with the acquisition, approval of the 2002 Stock Incentive Plan and approval of
the 2002 Stock Purchase Plan, while broker non-votes will have no effect on the
outcome of these proposals.
26
MATRIA PROPOSAL 1: APPROVAL BY MATRIA STOCKHOLDERS OF THE ISSUANCE OF
SHARES OF MATRIA COMMON STOCK IN THE ACQUISITION
We are furnishing this document to the stockholders of Matria in
connection with the solicitation of proxies by the Matria board of directors for
use at the annual meeting. At the annual meeting, which will be held on
__________, 2002, one of the proposals that Matria stockholders will be asked
to approve is the issuance of shares of Matria common stock in connection with
the acquisition of assets of LifeMetrix, including all of the issued and
outstanding stock of Quality Oncology, Inc., a wholly owned subsidiary of
LifeMetrix.
The board of directors of Matria has agreed to acquire assets of
LifeMetrix, including the stock of Quality Oncology, in exchange for a
combination of cash and Matria common stock including a possible earnout, based
on the future performance of the assets being acquired.
The approval of the Matria stockholders for the issuance of stock in
the acquisition is only required if Matria issues shares in the acquisition
amounting to more than 20% of Matria's outstanding common stock. The failure of
Matria's stockholders to approve the issuance of stock in the acquisition will
not affect Matria's obligation to close the acquisition and issue shares of
common stock at the closing. In the event that Matria is unable to obtain
stockholder approval for the issuance of Matria common stock in the acquisition,
Matria will be forced to pay cash for any amount due under the earn out that
would cause the total amount of Matria common stock issued in the acquisition to
exceed 20% of Matria's outstanding common stock or to issue shares amounting to
more than 20% of Matria's outstanding common stock without stockholder approval.
If Matria issues shares in the acquisition amounting to more than 20% of
Matria's outstanding common stock without stockholder approval, it may be
determined that we are in violation of NASD rules governing stockholder approval
requirements, and we may be subject to being delisted from Nasdaq.
We have attached a copy of the purchase and sale agreement as Appendix
A to this document.
27
CONSENT OF LIFEMETRIX STOCKHOLDERS
GENERAL
This document is being furnished to holders of LifeMetrix stock in
connection with the solicitation by LifeMetrix of stockholder consent to approve
the acquisition. Each LifeMetrix stockholder who is not already obligated by a
voting agreement should review carefully the purchase and sale agreement and the
information contained in this document when formulating his or her decision to
sign the consent relating to the acquisition. The purchase and sale agreement is
the principal legal document governing the acquisition and is attached to this
document as Appendix A.
This document also is being furnished to stockholders and option
holders of LifeMetrix and to employees of LifeMetrix and Quality Oncology who
may receive shares of Matria common stock as an incentive bonus from LifeMetrix
as a prospectus for the shares of Matria common stock that they may receive as a
result of the acquisition.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record who owned LifeMetrix common stock or preferred
stock at the close of business on ________, 2002 are entitled to approve the
acquisition. On the record date, LifeMetrix had approximately _______ shares of
common stock issued and outstanding and __________ shares of preferred stock
issued and outstanding. On the record date, LifeMetrix had ___ stockholders of
record of its common stock and ___ stockholders of record of its preferred
stock.
CONSENT REQUIRED
Approval of the acquisition requires the consent of a majority of the
outstanding shares of LifeMetrix common and preferred stock, voting as a single
class, on an as-converted basis, and the separate consent of a majority of the
outstanding shares of LifeMetrix preferred stock. Stockholders of LifeMetrix
having sufficient voting power to approve the acquisition have entered into
voting agreements with Matria in which they have agreed to approve the
acquisition. Consequently, approval of the acquisition by LifeMetrix
stockholders is assured.
LifeMetrix is seeking approval of the acquisition from its stockholders
by soliciting a written consent. LifeMetrix stockholders will find a form of
consent in the materials accompanying this document. It is important that shares
of LifeMetrix common and preferred stock are represented in this matter.
LifeMetrix stockholders are encouraged to sign, date and return the enclosed
consent form as soon as possible. If the acquisition is approved by less than
unanimous written consent, LifeMetrix will send notice of the action taken to
stockholders not consenting to the acquisition in accordance with Section 228(e)
of the Delaware General Corporation Law.
28
DESCRIPTION OF THE ACQUISITION
BACKGROUND OF THE ACQUISITION
The Matria board of directors and management continually review
strategic options to enhance stockholder value, including joint ventures,
strategic investments, acquisitions and dispositions. Throughout its history,
Matria has been involved in several acquisitions and joint ventures.
In early 2001, Matria began implementing a strategy to become a one
stop shop for disease management. As part of this strategy, Matria began to
pursue strategic relationships with providers of disease management services
other than diabetes, women's health and respiratory services. In August 2001,
Matria identified Quality Oncology as a potential strategic partner for cancer
disease management. Jeffrey Koepsell, Matria's Executive Vice President and
Chief Operating Officer, contacted Frederick C. Lee, Vice-Chairman of Quality
Oncology, by telephone to discuss the potential for Quality Oncology's working
with Matria on several prospective requests for disease management proposals.
Throughout early August, Matria and Quality Oncology collaborated on a
joint proposal to an employer that was interested in a broad spectrum of disease
management services, including cancer disease management. The proposal was
submitted on August 13, 2001.
On September 19, 2001, Matria and Quality Oncology entered into a
mutual Confidentiality Agreement.
On September 27, 2001, Mr. Koepsell met with Mr. Lee at a restaurant in
Alpharetta, Georgia, to discuss an expanded working relationship.
On October 3, 2001, Matria and Quality Oncology entered into a letter
of intent with respect to the joint proposal referenced above and agreed that
their relationship would be formalized in a vendor management agreement to be
negotiated between the parties. Since that time, Matria and Quality Oncology
have collaborated on a number of proposals to provide disease management
services to insurers and employer groups. Their intention with respect to each
insurer and employer group is set forth in separate letters of intent.
On October 10, 2001, Matria and LifeMetrix (Quality Oncology's parent
corporation) signed a mutual Confidentiality Agreement to allow further mutual
disclosures about their respective businesses.
On December 11, 2001, Parker H. Petit, Matria's Chairman, President and
CEO, Mr. Koepsell and other members of Matria's executive and divisional
management met with Edmund C. Bujalski, Chairman and CEO of LifeMetrix, and
Frederick C. Lee, Vice Chairman of Quality Oncology, at Matria's headquarters in
Marietta, Georgia, to discuss potential strategic relationships. Subsequently,
Mr. Petit placed a telephone call to Mr. Bujalski. In that call he expressed an
interest in an investment in LifeMetrix or an investment in Quality Oncology.
Mr. Petit reiterated Matria's interest in a letter to Mr. Bujalski dated
December 14, 2001.
On December 20, 2001, Mr. Bujalski and a representative of LifeMetrix's
systems group visited Matria's headquarters to demonstrate LifeMetrix's Data
Warehouse software. Matria personnel attending the meeting included Mr. Petit,
Mr. Koepsell and several members of Matria's systems group. At that meeting, Mr.
Bujalski and Mr. Petit had further discussions about the possibility of Matria's
making an investment in LifeMetrix or acquiring Quality Oncology.
On December 28, 2001, Matria forwarded LifeMetrix a draft vendor
management agreement pursuant to which Quality Oncology would provide cancer
disease management services as a subcontractor to Matria with respect to certain
agreed opportunities. Under the vendor management agreement, Matria is entitled
to a percentage of Quality Oncology's fees for services provided by Quality
Oncology to the various contracted payors identified in the vendor management
agreement.
Beginning in January, 2002, Mr. Bujalski and Mr. Petit had numerous
telephone conversations regarding the vendor management agreement and a possible
acquisition.
29
On January 11, 2002, Mr. Petit sent Mr. Bujalski a non-binding
expression of interest in two alternative proposals for Matria to make an
investment in LifeMetrix or acquire Quality Oncology.
On January 16, 2002, LifeMetrix's board of directors held their
regularly scheduled meeting. At the meeting the board discussed Matria's
proposals and discussed the status of other possible strategic relationships
that Quality Oncology was pursuing at that time. It was the consensus of the
directors that Mr. Bujalski should continue discussions with Matria.
On January 24, 2002, Matria's and LifeMetrix's systems personnel had a
meeting at Matria's headquarters to discuss LifeMetrix's Data Warehouse
software.
On February 13, 2002, Mr. Petit met with Mr. Bujalski at LifeMetrix's
headquarters in McLean, Virginia, for purposes of further discussion of a
proposed acquisition. Eugene N. Langan, Executive Vice President and Chief
Administrative Officer of LifeMetrix, was present for part of the meeting.
On February 15, 2002, Mr. Petit sent a memo to Matria's board of
directors outlining a proposal to make an investment in LifeMetrix, license
certain technology, acquire an option to purchase Quality Oncology and enter
into an exclusive two-year strategic alliance. Mr. Petit also included certain
informational materials regarding LifeMetrix.
On February 19, 2002, Matria's board of directors held their regularly
scheduled meeting. At the meeting Mr. Petit recounted his discussions with Mr.
Bujalski regarding a possible acquisition of Quality Oncology and discussed the
strategic rationale for pursuing the acquisition. The board directed Mr. Petit
to continue discussions.
On February 22, 2002, Mr. Bujalski sent Mr. Petit a non-binding
counterproposal to Mr. Petit's letter of January 11, 2002 and enclosed certain
historical and projected financial data of LifeMetrix.
On February 26, 2002, Mr. Petit sent Matria's board of directors Mr.
Bujalski's letter of February 22, 2002 along with the enclosed financial data of
LifeMetrix.
On March 7, 2002, Mr. Petit sent Matria's board of directors a
memorandum detailing the various alternatives Matria's management had considered
relative to LifeMetrix and Quality Oncology and reiterating the strategic
reasons for pursuing an acquisition. He enclosed a draft letter of intent. That
same day Mr. Petit forwarded the draft letter of intent to Mr. Bujalski.
On March 22, 2002, LifeMetrix's board of directors held a telephonic
board meeting to approve the letter of intent with Matria relating to the
acquisition.
On March 26, 2002, Matria, LifeMetrix and Quality Oncology signed the
vendor management agreement and a letter of intent outlining the proposed
acquisition, and Matria advanced LifeMetrix a deposit of $500,000 to obtain as
option to purchase, if the purchase or sale agreement is terminated prior to
closing, a perpetual, nonexclusive, nontransferable license to use LifeMetrix's
Data Warehouse system.
On March 27, 2002, Mr. Petit contacted JPMorgan about rendering an
opinion with respect to the proposed acquisition. Over the next several days,
representatives of JPMorgan and Matria had numerous telephone conversations to
discuss the acquisition and the financial information that Matria and LifeMetrix
had provided to JPMorgan.
On March 27 and 28, 2002, George W. Dunaway, Vice President - Finance
and Chief Financial Officer, Roberta L. McCaw, Vice President - Legal, General
Counsel and Secretary, and a representative of Troutman Sanders LLP, an outside
law firm representing Matria in connection with the proposed acquisition,
conducted a due diligence investigation at LifeMetrix's office in McLean,
Virginia. On March 28, 2002, Ms. McCaw and Mr. Dunaway were joined by Mr. Petit,
Mr. Koepsell and Thomas M. Robbins, President of Matria's Health Enhancement
division. Participating in these meetings representing Quality Oncology were Mr.
Bujalski and other financial, operating and systems personnel of LifeMetrix and
Quality Oncology, as well as a representative of Simon, Turnbull & Martin, an
outside law firm.
30
On April 1, 2002, representatives of JPMorgan conducted a due diligence
review of LifeMetrix and its subsidiaries at LifeMetrix's headquarters in
McLean, Virginia.
On April 2, 2002, Mr. Koepsell and certain members of Matria's
divisional management conducted an on-site due diligence review of Quality
Oncology's operations in Sunrise, Florida, where they met with Mr. Kanach and
certain representatives of Quality Oncology's operational management.
From April 2, 2002, until the purchase and sale agreement was signed,
representatives of LifeMetrix, Simon, Turnbull & Martin, Troutman Sanders LLP
and Matria negotiated the purchase and sale agreement and related acquisition
documents.
On April 10, 2002, representatives of JPMorgan met with Matria
management at Matria's headquarters in Marietta, Georgia, to gather financial
information relating to Quality Oncology and the acquisition.
On April 11 and 12, 2002, representatives of LifeMetrix conducted a due
diligence investigation of Matria at Matria's offices in Marietta, Georgia.
Among the personnel representing LifeMetrix at the due diligence sessions were
Mr. Bujalski, Mr. Kanach, Carolyn Lowstuter, LifeMetrix's Vice President -
Finance, Treasurer and Assistant Secretary, and Mr. Langan. Matria's
representatives participating in these meetings included Mr. Petit, Mr.
Koepsell, Yvonne V. Scoggins, Matria's Vice President - Financial Planning and
Analysis, and other operating and systems personnel of Matria. Also present were
representatives of JPMorgan, who reviewed financial projections and potential
synergies from the proposed acquisition.
Throughout the period of negotiations, Mr. Bujalski communicated
regularly with the individual directors of LifeMetrix to discuss the status of
the negotiations, the advantages and disadvantages of the acquisition, and the
negotiating positions of Matria and LifeMetrix.
On April 17, 2002, LifeMetrix's board of directors held their regularly
scheduled meeting. At the meeting, Mr. Bujalski updated the board on the status
of his negotiations with Matria. Following its discussion and analysis, the
board authorized Mr. Bujalski to continue his discussions with Matria and to
bring to the board for review the final terms reached through the negotiations.
On April 18, 2002, Matria's board of directors held a special meeting
for the purpose of approving the proposed acquisition. At the meeting, Mr. Petit
again reviewed the strategic and business rationale for the proposed
acquisition. Representatives of JPMorgan then reviewed the financial analyses
JPMorgan had prepared in connection with its evaluation of the proposed
consideration to be paid in the acquisition. After discussion and deliberation
the Matria board unanimously:
- Determined that the acquisition was in the best interests of
Matria and its stockholders;
- Approved the acquisition as presented to the meeting;
- Established a committee to act on behalf of the board of
directors in further considering the proposed acquisition and,
subject to receipt by the committee, on behalf of the board of
directors of an opinion from JPMorgan, ultimately approving
such acquisition on such final terms deemed necessary,
appropriate or advisable by the committee; and
- Authorized and reserved for issuance the shares of Matria
common stock necessary or desirable to pay the consideration
in the acquisition.
On the morning of April 23, 2002, Mr. Bujalski met with Mr. Petit at
Matria's offices in Marietta, Georgia. Later that day and the next, Mr. Petit
and Mr. Bujalski and their respective counsel met at the offices of Troutman
Sanders LLP in Atlanta, Georgia, to negotiate the remaining key issues in the
purchase and sale agreement.
On April 25, 2002, Matria's board of directors held their regularly
scheduled meeting. At the meeting, Mr. Petit updated the board of directors on
the status of negotiations surrounding the acquisition, highlighting the
material changes that had been made to the purchase and sale agreement since the
draft that had been distributed to the board of directors prior to its April 18,
2002 meeting.
31
On April 26, 2002, LifeMetrix's board of directors held a special
meeting by telephone for the purpose of approving the proposed acquisition. At
that meeting, the board concluded ongoing business discussions regarding the
proposed acquisition, the proposed agreement, and the rationale therefor. After
discussion, the LifeMetrix board unanimously:
- Approved the acquisition as presented to the meeting; and
- Determined that the acquisition was fair to and in the best
interests of LifeMetrix and its stockholders.
On April 29, 2002, the committee appointed by Matria's board at its
April 18th meeting met by telephone to consider the approval of the purchase and
sale agreement. As part of this approval process, representatives of JPMorgan
rendered JPMorgan's oral opinion, which was confirmed in its written opinion
dated April 29, 2002, to the effect that as of that date and subject to certain
matters stated therein, the consideration to be paid by Matria in the
acquisition was fair to Matria from a financial point of view. For a more
detailed discussion of JPMorgan's analysis and opinion, you should review the
section captioned "Opinion of Financial Advisor" beginning on page ___ and the
text of JPMorgan's opinion attached as Appendix B to this document.
After discussion and deliberation, the committee unanimously:
- Determined that the acquisition was fair to and in the best
interests of Matria and its stockholders;
- Approved the acquisition and the purchase and sale agreement;
- Resolved to submit to Matria's stockholders for approval the
issuance of Matria common stock in connection with the
acquisition; and
- Authorized the filing of a Form S-4 Registration Statement in
connection with the registration of the Matria common stock to
be issued in the acquisition.
By unanimous written consent acting without a meeting, effective as of
April 29, 2002, the LifeMetrix board:
- Ratified and approved execution and delivery of the purchase
and sale agreement;
- Approved the sale of substantially all of the assets of
LifeMetrix;
- Determined that the acquisition was fair to and in the best
interests of LifeMetrix and its stockholders;
- Determined that the purchase price for the acquisition
represented full and adequate consideration for the sale of
Quality Oncology and the other assets of LifeMetrix being sold
to Matria; and
- Resolved to submit the acquisition to LifeMetrix's
stockholders for approval of the acquisition under the terms
of the purchase and sale agreement.
Upon the conclusion of the Matria committee meeting, Matria and
LifeMetrix finalized the purchase and sale agreement. That same day JPMorgan
delivered its written opinion to Matria, the purchase and sale agreement and an
amended and restated vendor management agreement were executed and delivered,
voting agreements were executed and delivered by certain stockholders of
LifeMetrix and a press release was issued announcing the acquisition.
32
MATRIA REASONS FOR THE ACQUISITION
The Matria board of directors believes that the acquisition will
further its strategic objective of becoming a one-stop shop for disease
management services. Specifically, Matria believes that, to effectively compete
with other disease management service providers, Matria must broaden the scope
of services provided. Expanding its service offerings should enhance Matria's
ability to contract with and provide services to managed care organizations and
employers.
The Matria board of directors further believes that the terms of the
acquisition are fair to and in the best interests of Matria.
In determining to approve the acquisition and recommend it to its
stockholders, the Matria board of directors considered a number of factors,
including the following:
- The benefits to be derived in negotiating contracts with
third-party payors. The board considered the trend in the
industry to contract with a single service provider for
disease management services covering multi-disease states. The
board concluded that the addition of cancer disease management
to our product offerings would better position Matria to
respond to this trend.
- The potential for cross-selling opportunities. The board
concluded that there is the potential for each of Matria and
Quality Oncology to expand their relationships with their
existing customers to include the disease management services
offered by the other of them.
- The financial, management and operational strengths of Matria
and Quality Oncology. The Matria board of directors believe
that Quality Oncology will be in a better position to exploit
its strong operational and sales skills with the support of
Matria's financial resources and strategic sales experience.
- The corporate cultures of Matria and Quality Oncology will be
compatible.
- The financial presentation and opinion of JPMorgan to the
effect that, as of the date of its opinion and subject to
certain matters stated therein, the consideration to be paid
by Matria in the acquisition was fair to Matria from a
financial point of view. The board of directors considered the
various financial, comparative, pro forma and contribution
analyses of Matria and Quality Oncology included in JPMorgan's
presentation and felt that such analyses, taken as a whole,
supported the conclusion that the consideration was fair, from
a financial point of view, to the Matria stockholders (See
"Opinion of Financial Advisor"). Although the board did not
specifically adopt the opinion, it relied upon the opinion,
and the presentation of JPMorgan was one of a number of key
factors in the Matria board's decision to recommend approval
of the acquisition.
- The terms and conditions of the purchase and sale agreement
and the fact that Matria will be entitled to amortize the
goodwill acquired in the acquisition for federal income tax
purposes. The Matria board of directors concluded that the
nature of the closing conditions and termination provisions of
the purchase and sale agreement provided Matria with
reasonable assurance that the acquisition, once announced,
would ultimately be consummated. In addition, the Matria board
of directors believed that structuring a part of the
consideration as an earn out minimizes the risk to Matria's
stockholders.
In deciding to recommend the acquisition to its stockholders, the
Matria board of directors also considered several potentially unfavorable
factors. The most significant of these were:
- The number of shares of Matria common stock to be issued in
connection with the acquisition will be affected, possibly
significantly, by fluctuations in the trading price of Matria
common stock;
- The earn out payment has no upper limit and a large earn out
payment could result in substantial dilution to Matria
stockholders; and
- Failure to obtain stockholder approval for the issuance of
common stock in the acquisition could force Matria to seek
alternative financing, which may be unavailable on favorable
terms or at all.
33
Overall, Matria's board of directors concluded that these factors were
substantially outweighed by the benefits expected to result from the
acquisition.
No one factor was the reason for any individual director's decision,
and each director attached his or her own weight to the many factors considered.
However, based on the total mix of information available to them, all directors
determined to approve the acquisition and recommend to Matria stockholders that
they approve the issuance of shares of Matria common stock in the acquisition.
They concluded that the strategic, operational and financial opportunities the
acquisition presents should enhance Matria stockholder value and that
stockholders should stand to benefit in the future by holding ownership
interests in the combined entity.
RECOMMENDATION OF THE MATRIA BOARD
The Matria board of directors believes that the terms of the
acquisition are fair to and in the best interests of Matria and its stockholders
and recommends to its stockholders that they vote "FOR" the issuance of shares
of Matria common stock in the acquisition.
This recommendation is based primarily on the board of directors'
conclusions that the acquisition (1) will fulfill the strategic objectives
described above under "Matria Reasons for the Acquisition" and (2) will be
favorable financially to Matria and its stockholders. This second conclusion, in
turn, is the product of substantial financial analysis by Matria. In addition,
in arriving at its recommendations, Matria's board of directors relied upon the
opinion of its financial advisor, which is described more fully under "Opinion
of Financial Advisor" starting on page 40.
LIFEMETRIX REASONS FOR THE ACQUISITION
In determining to approve the acquisition and recommend it to its
stockholders, the directors of LifeMetrix considered a number of factors,
including the following:
- Due to continuing negative cash flow from operations,
LifeMetrix was in need of significant additional financing in
order to continue its operations. It was uncertain whether
LifeMetrix would be able to obtain additional financing upon
any reasonable terms, if at all. If LifeMetrix were able to
obtain additional financing, it was doubtful that LifeMetrix
could obtain such financing without significantly diluting the
ownership of existing stockholders.
- Although Quality Oncology was making significant progress in
signing new contracts, success by Quality Oncology in
obtaining this new business would only increase its short-term
need for cash due to the expenditures required for the
start-up phases of new business.
- The agreement with Matria provides Quality Oncology a source
of working capital and therefore gives LifeMetrix a reasonable
chance to receive significant value for its stockholders
through the earn out. The earn out offers an opportunity,
depending on the performance of Quality Oncology in 2003, to
satisfy its obligations (including to employees under the
incentive bonus arrangement), pay the liquidation preferences
on the preferred stock of approximately $41 million, and
distribute some additional amounts to the preferred and common
stockholders of LifeMetrix.
- The combination of working capital from Matria, joint sales
and marketing activities, and potential for combining call
center operations will enhance Quality Oncology's ability to
accelerate its growth through 2003, protecting its industry
leadership position. In addition, the ability of Quality
Oncology to join Matria in selling to health plans seeking a
one stop shop for disease management services and otherwise to
benefit from Matria's marketing support will help Quality
Oncology expand its market and increase the value of the earn
out.
- LifeMetrix had limited opportunities to pursue alternative
transactions. For more than two years, LifeMetrix had sought
to obtain further equity investment by approaching numerous
prospective institutional and corporate investors. These
efforts did not result in any investment proposal acceptable
to LifeMetrix. During this period, LifeMetrix had to obtain
34
significant funding from its existing preferred stockholders
on several occasions to continue its operations. In addition,
LifeMetrix held discussions about potential strategic
relationships involving LifeMetrix with two companies other
than Matria that managed multiple diseases. This process did
not result in a proposal to LifeMetrix for a strategic
relationship. In initial discussions with Matria, LifeMetrix
proposed that Matria negotiate a strategic relationship with
LifeMetrix, but Matria responded that it was interested in
acquiring quality Oncology.
- The purchase price to be paid by Matria for Quality Oncology
was substantially greater than the valuation that Quality
Oncology likely would realize in any additional financing.
- The transaction with Matria does not include the Data
Warehouse system or the business of LifeMetrix Information
Services, for which LifeMetrix might realize additional value
in a sale to a third party.
- The commitment of Matria to retain key personnel of Quality
Oncology enhances the probability that the operations of
Quality Oncology during 2003 will maximize the amount of any
earn out payment.
- The ability of LifeMetrix's review committee to exclude
new contracts of Quality Oncology that are entered into
subsequent to the closing of the transaction from the
calculation of the earn out payment and the limitations on
allocation of overhead by Matria to Quality Oncology enhances
the potential for a significant earn out payment.
In deciding to recommend the acquisition to its stockholders, the
directors of LifeMetrix also considered several potentially unfavorable factors.
The most significant of these were:
- Most of the purchase price would be paid by Matria through the
issuance of shares of Matria common stock; none of the shares
could be sold for a year after issuance; the price of Matria
common stock could decline significantly during the period in
which they cannot be sold; and once the shares could be sold,
Matria stock could be thinly traded and therefore it might be
difficult to dispose of shares without materially affecting
the price.
- Depending on the value of the earn out right as of the
relevant date, LifeMetrix might have taxable income in excess
of its available net operating loss carryforwards and
therefore might have a significant tax liability, with limited
liquidity available to satisfy that liability.
- Matria's balance sheet is highly leveraged and it could be at
risk if its operating margins deteriorate significantly.
- The form of the purchase price, largely in restricted Matria
common stock, is highly illiquid.
Overall, the directors of LifeMetrix concluded that these factors were
substantially outweighed by the benefits expected to result from the
acquisition.
No one factor was the reason for any individual director's decision,
and each director attached his own weight to the many factors considered.
However, based on the total mix of information available to them, all directors
determined to approve the acquisition and recommend to LifeMetrix stockholders
that they approve the acquisition. They concluded that the acquisition offered
the best foreseeable option for enhancing LifeMetrix stockholder value in the
future.
RECOMMENDATION OF THE LIFEMETRIX BOARD
The LifeMetrix board of directors believes that the terms of the
acquisition are fair to and in the best interests of LifeMetrix and its
stockholders and unanimously recommends to its stockholders that they consent to
the acquisition.
This recommendation is based primarily on the directors' conclusions
that the acquisition (1) offers the best foreseeable opportunity for obtaining
value and liquidity for LifeMetrix stockholders; (2) negates the substantial
risk that LifeMetrix would fail to obtain sufficient financing to continue
operations until its cash flow turns positive; and (3) eliminates the further
dilution of existing stockholders that would occur in another round of
financing.
35
INTERESTS OF LIFEMETRIX DIRECTORS AND EXECUTIVE OFFICERS IN THE ACQUISITION
When considering the LifeMetrix board of directors' recommendation that
LifeMetrix stockholders execute a consent in favor of the acquisition,
LifeMetrix stockholders should be aware that each of the LifeMetrix directors
and executive officers have or may have interests in the acquisition that are
different from, or in addition to, the interests of LifeMetrix stockholders as a
whole.
Edmund C. Bujalski is a director, Chairman of the Board, Chief
Executive Officer, President and common stockholder of LifeMetrix. Under the
purchase and sale agreement, Matria is obligated to offer employment to Mr.
Bujalski with Quality Oncology following the closing of the acquisition. In
addition, Mr. Bujalski will be eligible to receive an incentive bonus to be paid
by LifeMetrix to key personnel in connection with the acquisition. The amount of
any bonus payment will depend in part upon the amount of any earn out payment to
LifeMetrix by Matria under the terms of the purchase and sale agreement and upon
Mr. Bujalski's continued employment by Quality Oncology.
Frederick C. Lee is a director, employee and common and preferred
stockholder of LifeMetrix. Under the purchase and sale agreement Matria is
obligated to offer Mr. Lee employment with Quality Oncology following the
closing of the acquisition. In addition, LifeMetrix expects that Mr. Lee will be
eligible to receive an incentive bonus that will be paid by LifeMetrix in
connection with the acquisition. As a holder of preferred stock of LifeMetrix,
Mr. Lee will be entitled to preferential distributions upon a liquidation of
LifeMetrix. Under LifeMetrix's certificate of incorporation, the consummation of
the acquisition will be deemed to be a liquidation for purposes of the preferred
stockholders' preferential distribution rights.
Richard B. Weininger, M.D. is a director and preferred stockholder of
LifeMetrix and a consultant to Quality Oncology. As a holder of preferred stock
of LifeMetrix, Dr. Weininger will be entitled to preferential distributions upon
a liquidation of LifeMetrix. In addition, Dr. Weininger is expected to continue
to serve as a paid consultant to Quality Oncology after the acquisition by
Matria.
Larry H. Coleman and Charles W. Newhall, III, are directors of
LifeMetrix who have been appointed by, represent, and have ownership interests
in, institutional investors that are large preferred stockholders of LifeMetrix.
Under the LifeMetrix stockholders' agreement, Dr. Coleman has been designated a
director of LifeMetrix by Franklin Capital Associates III, L.P. (Franklin), and
Mr. Newhall has been designated as a director of LifeMetrix by New Enterprise
Associates VII, L.P. (NEA). NEA and Franklin are significant preferred
stockholders of LifeMetrix and will be entitled to preferential distributions
upon a liquidation of LifeMetrix.
In addition, the following executive officers will or may have a
financial interest in the acquisition through participation in incentive bonuses
that will be paid by LifeMetrix in connection with the acquisition: Eugene N.
Langan, Executive Vice President, Chief Administrative Officer and Secretary;
Daniel T. McCrone, M.D., Senior Vice President; Gregory M. Jungles, Senior Vice
President; and Carolyn Lowstuter, Vice President-Finance and Treasurer. Under
the purchase and sale agreement, Matria also has agreed to offer employment in
Quality Oncology to Dr. McCrone after the acquisition. LifeMetrix believes that
Mr. Jungles also will be offered employment by Quality Oncology after the
acquisition.
ACCOUNTING TREATMENT
The acquisition will be accounted for under the purchase method for
financial reporting and accounting purposes, pursuant to the newly issued SFAS
No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." The purchase price will be allocated to LifeMetrix's assets and
liabilities based upon the fair values of the assets acquired and liabilities
assumed by Matria. Goodwill and intangible assets will be subject to SFAS No.
142, which changes the accounting for goodwill and intangible assets with
indefinite lives from an amortization method to an impairment-only approach. A
portion of the purchase price may be allocated to identifiable intangible
assets. Any excess of the cost over the fair values of the net tangible and
identifiable intangible assets acquired from LifeMetrix will be recorded as
goodwill. Goodwill and intangible assets with indefinite lives will not be
amortized. Amortization will be required for identifiable intangible assets with
finite
36
lives. We have included unaudited pro forma financial information in this
document under the caption "Unaudited Pro Forma Combined Condensed Financial
Information" beginning on page P-1. The pro forma adjustments and the resulting
unaudited pro forma combined condensed financial statements were prepared based
on available information and assumptions and estimates described in notes to the
unaudited pro forma combined condensed financial statements. Matria has not made
a final determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed,
and you should consider the allocation reflected in the unaudited pro forma
combined condensed financial information preliminary.
REGULATORY MATTERS
A summary of the material regulatory requirements affecting the
acquisition are set forth below. Additional consents or notifications to
governmental agencies may be necessary or appropriate in connection with the
acquisition.
Consummation of the acquisition is conditioned upon receipt of final
orders from the various government entities described below. While we believe
that we will receive the requisite regulatory approvals and clearances for the
acquisition, there can be no assurance that any such approvals will be obtained
or timely granted, not be appealed by interveners to the appropriate courts or
contain terms, conditions or qualifications that fail to satisfy the conditions
to the consummation of the acquisition.
The acquisition is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, which prevents specified acquisitions from
being completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified waiting periods are terminated or expire. Even after the waiting
period expires or terminates, the Antitrust Division of the Department of
Justice and the Federal Trade Commission will have the authority to challenge
the acquisition on antitrust grounds before or after the acquisition is
completed. On _____, 2002, Matria and LifeMetrix submitted the required
filings with the Antitrust Division of the Department of Justice and the Federal
Trade Commission.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law, appraisal rights will not
be available to stockholders of Matria or stockholders of LifeMetrix in
connection with the acquisition.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The discussion set forth below is a summary of certain of the U.S.
federal income tax considerations that may be relevant to Matria stockholders
and to stockholders of LifeMetrix in connection with the transaction. This
discussion is based on the provisions of the Internal Revenue Code of 1986, as
amended, final, temporary and proposed Treasury regulations thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change (possibly on a retroactive
basis).
This summary is intended for general information only and does not
purport to address all of the U.S. federal income tax consequences that may be
applicable to such stockholders. Tax consequences which are different from or in
addition to those described herein may apply to stockholders who are subject to
special treatment under the U.S. federal income tax laws, such as foreign
individuals or entities, tax-exempt organizations, financial institutions,
insurance companies, broker-dealers, stockholders who hold their shares as part
of a hedge, straddle, wash sale, synthetic security, conversion transaction, or
other integrated investment comprised of their shares and one or more other
investments, and persons who acquired their shares in compensatory transactions.
This discussion does not address foreign, state or local tax considerations.
In addition, this discussion only addresses the tax consequences of the
transaction for stockholders who hold their shares as capital assets within the
meaning of Section 1221 of the Internal Revenue Code. As used herein, the term
"U.S. stockholder" means a beneficial owner of a share who or that is for U.S.
federal income tax purposes (i) a citizen or individual resident of the United
States, (ii) a corporation, partnership or other entity created or
37
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) a trust if both: (A) a
United States court is able to exercise primary supervision over the
administration of the trust, and (B) one or more United States persons have the
authority to control all substantial decisions of the trust. As used herein, the
term "foreign stockholder" means a beneficial owner of a share that is not a
U.S. stockholder.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES BELOW IS FOR
GENERAL INFORMATION ONLY. THIS DISCUSSION IS NOT A SUBSTITUTE FOR AN INDIVIDUAL
ANALYSIS OF THE TAX CONSEQUENCES OF THE TRANSACTION TO A STOCKHOLDER. EACH
STOCKHOLDER SHOULD CONSULT A TAX ADVISER REGARDING THE PARTICULAR FEDERAL,
FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE TRANSACTION IN LIGHT OF SUCH
HOLDER'S OWN SITUATION.
Tax Consequences to Existing Matria Stockholders of the Acquisition of
Certain Assets of LifeMetrix, Including the Stock of Quality Oncology.
The transaction will have no material tax consequences with respect to
Matria's existing stockholders, except indirectly to the extent of the
corporate-level tax consequences to Matria itself, as discussed below.
Corporate-Level Tax Consequence of the Transaction.
The transaction will be treated as a taxable asset acquisition, with
LifeMetrix and Quality Oncology as the sellers, and Matria as the buyer.
Although for state law purposes Matria will acquire the stock of Quality
Oncology, rather than its assets, the parties have agreed to make a special tax
election under Section 338(h) (10) of the Internal Revenue Code that will treat
that portion of the transaction as a taxable sale by Quality Oncology of all its
assets to a new subsidiary of Matria.
Accordingly, LifeMetrix and Quality Oncology will generally recognize
taxable gains or losses in the transaction, computed in each case as (1) the
fair market value of the consideration (including liabilities assumed) allocable
to the assets deemed sold by each such corporation less (2) the aggregate tax
basis of the assets deemed sold to Matria. Quality Oncology expects that it will
recognize gain on the deemed sale of all its assets to Matria, but that all or
most of such gain will be offset by its net operating loss carryforwards.
LifeMetrix also expects to recognize gain on the sale of assets to Matria, but
expects to have sufficient net operating loss carryforwards and/or cash to
offset and/or pay such tax liability.
As the buyer in a taxable asset acquisition, Matria will take an
aggregate tax basis in the acquired assets equal to the total consideration
paid. Going forward, Matria will be able to take depreciation or amortization
deductions with respect to the acquired assets based on this stepped up tax
basis. Any amounts ultimately paid pursuant to the earn out arrangement will
increase Matria's basis in such assets and will create subsequently larger
depreciation and amortization deductions. The use of Matria common stock as part
of the consideration for the acquisition will not trigger any taxable gain or
loss to Matria.
Tax Consequences of the Acquisition to LifeMetrix Stockholders.
The transaction will have no significant tax consequences with respect
to LifeMetrix's existing stockholders, except indirectly to the extent of the
corporate-level tax consequences to LifeMetrix itself, as discussed above, and
the subsequent tax consequences that may occur, as discussed below.
Tax Consequences to LifeMetrix Stockholders After the Acquisition
Following the consummation of the acquisition, the board of directors
of LifeMetrix will consider whether LifeMetrix should adopt a plan of
liquidation. A plan of liquidation adopted by LifeMetrix would likely provide
for the distribution by LifeMetrix of all of its assets (including the Matria
stock received at closing and the right to receive the earn out payment) to a
liquidating trust. The trustee of the liquidating trust would use the assets of
the trust to pay the liabilities of LifeMetrix and to wind up its business,
would receive the earn out payment, and would
38
distribute the remaining net assets of the trust to the stockholders of
LifeMetrix in accordance with the provisions of the certificate of incorporation
of LifeMetrix.
In any liquidation, LifeMetrix would recognize gain or loss measured by
the difference between the adjusted bases and the fair market values of the
assets distributed in liquidation. In the event of any liquidation subsequent to
consummation of the transaction, the principal assets of LifeMetrix would
consist of the Matria stock received at closing of the acquisition and the
right to receive the earn-out payment, which would have been issued to
LifeMetrix at closing, and would have adjusted bases equal to their fair market
values on the date of closing. Any change in the fair market values of these
assets between the date of closing and the date of any liquidation would be
included in the gain or loss recognized by LifeMetrix upon liquidation. If
LifeMetrix recognizes gain and does not have sufficient net operating losses to
offset such gains, it would be required to pay the resulting tax in cash.
The distribution of the assets and liabilities of LifeMetrix to any
liquidating trust will be treated for tax purposes as if the assets and
liabilities had been distributed to the stockholders of LifeMetrix and then
contributed by them to the liquidating trust. This deemed distribution to
stockholders would be treated as a distribution in exchange for their LifeMetrix
stock, and the stockholders would recognize gain or loss equal to the (i) fair
market value of the amounts received in liquidation (including the fair market
value of assets other than cash, and net of liabilities assumed by the
liquidating trust) minus (ii) the adjusted bases of such stockholders in their
LifeMetrix preferred or common stock, as the case may be. The gain or loss would
be capital gain or loss for each stockholder holding LifeMetrix stock as a
capital asset, and would be long term capital gain or loss if, as of the date of
any liquidation, the holding period for such shares is more than one year. The
stockholders would not be required to recognize any additional gain or loss on
the deemed contribution of these assets and liabilities to the liquidating
trust. The liquidating trust would be treated as a grantor trust for tax
purposes, and gains or losses realized by the trust in the course of its
administration (including gains and losses attributable to receipt of the earn
out payment or to sale of Matria stock) would be passed through to the
stockholders, who would be taxed on their respective shares of such gains and
losses on their own tax returns.
If LifeMetrix does not adopt a plan of liquidation, it may nevertheless
distribute various assets, including but not limited to Matria shares, to its
stockholders. If non-liquidating distributions are made, LifeMetrix would
recognize gain (but not loss) on such distributions. In addition, if
non-liquidating distributions are made in a taxable year in which LifeMetrix has
either current or accumulated earnings and profits, such distributions could be
treated in whole or in part as dividends, taxable in full at ordinary income
rates without regard to the recipients' basis in the LifeMetrix stock. Although
the amount taxable as a dividend would not exceed the current and accumulated
earnings and profits of LifeMetrix, the acquisition is expected to generate
significant amounts of current earnings and profits in the current year.
Tax Consequences from Ownership of Matria Common Stock
Stockholders who receive Matria common stock as a stock dividend, in a
liquidation of LifeMetrix, or otherwise, will have additional tax consequences
from holding such shares beyond the tax consequences of the dividend,
liquidation or other distribution event. Generally, any distributions made with
respect to shares of the Matria common stock will be treated as ordinary income
to the extent of Matria's current and accumulated earnings and profits. A
dividends-received deduction may be claimed to offset a portion of such income,
but is only available to certain corporate stockholders. Amounts in excess of
such earnings and profits are treated as a tax-free return of capital to the
extent of a stockholder's tax basis in the Matria common stock, and any amount
in excess of such tax basis is treated as proceeds from the sale of such stock.
Generally, holders of Matria common stock will recognize gain or loss
on a sale or other disposition of such shares to the extent of the difference
between the value of the consideration received for such shares and the tax
basis of such shares. Such gain or loss will generally be capital gain or loss,
assuming the Matria common stock is held as a capital asset.
Stockholders of Matria common stock may be subject, under certain
circumstances, to backup withholding with respect to payments received with
respect to the Matria common stock. This withholding generally applies if:
39
- a stockholder fails to furnish a social security or other
taxpayer identification number in the manner required by the
applicable tax regulations;
- a stockholder furnishes an incorrect taxpayer identification
number;
- Matria is notified by the IRS that a stockholder has failed to
properly report payments of interest or dividends and the IRS
has notified Matria that such stockholder is subject to backup
withholding; or
- a stockholder fails, under certain circumstances, to provide a
certified statement, signed under penalty of perjury, that the
taxpayer identification number provided is the stockholder's
correct taxpayer identification number and that the
stockholder is not subject to backup withholding.
Any amount withheld from a payment to a stockholder under the backup
withholding rules is allowable as a refundable credit against the stockholder's
U.S. federal income tax liability, provided that the required information is
timely furnished to the IRS. Under recently enacted legislation, the backup
withholding rate for the remainder of year 2002 is 30% and will remain 30%
through 2003, at which time it will be reduced to 29% for years 2004 and 2005,
and 28% for 2006 through 2010. Certain holders are not subject to back-up
withholding, including, among others, a corporation, and a foreign stockholder
who has certified its foreign status on properly executed IRS forms or has
otherwise established an exemption (provided that neither Matria nor its agent
has actual knowledge that such holder is a U.S. stockholder or that the
conditions of any other exemption are not in fact satisfied).
Stockholders should consult with their tax advisors as to their ability
to qualify for an exemption from backup withholding and the procedure for
obtaining an exemption from backup withholding. In addition, foreign
stockholders should consult with their tax advisors as to whether they are
subject to other withholding rules because of their foreign status, whether they
qualify for a full or partial exemption from such withholding and the procedure
for obtaining such an exemption.
THE FOREGOING DISCUSSION IS INTENDED FOR GENERAL INFORMATION AND IS NOT
TAX ADVICE. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE TRANSACTION, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY FOREIGN, STATE OR LOCAL TAX LAWS AND ANY
RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
OPINION OF FINANCIAL ADVISOR
On April 29, 2002, J.P. Morgan Securities Inc. delivered its oral
opinion, confirmed by its written opinion dated April 29, 2002, to the Matria
board of directors, to the effect that, as of such date and based upon and
subject to certain matters stated therein, the consideration to be paid by
Matria in the acquisition was fair, from a financial point of view, to Matria.
The full text of JPMorgan's opinion, which sets forth the assumptions
made, factors considered and limitations upon the review undertaken by JPMorgan
in rendering its opinion, is included as Appendix B. JPMorgan's written opinion
was addressed to the Matria board of directors, was directed only to the
consideration to be paid by Matria in the acquisition and did not constitute a
recommendation to any Matria stockholder as to how such stockholder should vote
on the acquisition or any other matter related thereto. The following summary of
the material provisions of JPMorgan's opinion is qualified by reference to such
opinion. Matria stockholders are urged to read this opinion in its entirety.
In arriving at its opinion, JPMorgan, among other things:
- reviewed the agreement;
- reviewed certain publicly available business and financial
information concerning the assets related to the business of
Quality Oncology and Matria and the industries in which they
operate;
- compared the proposed financial terms of the acquisition with
the publicly available financial terms of certain acquisitions
involving companies JPMorgan deemed relevant and the
consideration received for such companies;
40
- compared the financial and operating performance of the
business of Quality Oncology and Matria with publicly
available information concerning certain other companies
JPMorgan deemed relevant and reviewed the current and
historical market prices of Matria's common shares and certain
publicly traded securities of those other companies;
- reviewed certain internal financial analyses and forecasts
prepared by the managements of the business of Quality
Oncology and Matria relating to their respective businesses,
as well as the estimated amount of the earn-out payment and
the estimated amount and timing of the incremental revenues,
cost savings and related expenses and synergies expected to
result from the acquisition; and
- performed other financial studies and analyses and considered
other information deemed relevant for the purposes of its
opinion by JPMorgan.
In addition, JPMorgan held discussions with certain members of the
management of Quality Oncology, LifeMetrix and Matria with respect to certain
aspects of the acquisition, and the past and current business operations of
Quality Oncology and Matria, the financial condition and future prospects and
operations of Quality Oncology and Matria, the effects of the acquisition on the
financial condition and future prospects of Matria, and certain other matters
JPMorgan believed necessary or appropriate to its inquiry.
In rendering its opinion, JPMorgan relied upon and assumed, without
independent verification, the accuracy and completeness of all information that
was publicly available or was furnished to it by Quality Oncology, LifeMetrix or
Matria or otherwise reviewed by it, including without limitation the estimated
amount of the earn-out payment, and JPMorgan did not assume any responsibility
or liability therefor. JPMorgan did not conduct any valuation or appraisal of
any assets or liabilities, nor have any valuations or appraisals been provided
to it. In relying on financial analyses and forecasts provided to it, including
the estimated amounts of the earn-out payment and the incremental revenues, cost
savings and related expenses and synergies expected to result from the
acquisition, JPMorgan assumed that they were reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the operations of Quality Oncology and Matria to which such
analyses or forecasts relate. JPMorgan also assumed that the acquisition would
have the tax consequences described in the agreement and in discussions with,
and materials furnished to it by, representatives of Matria, and that the
acquisition and the other acquisitions contemplated by the agreement would be
consummated as described in the agreement. JPMorgan relied as to all legal
matters relevant to rendering its opinion upon the advice of counsel. JPMorgan
further assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the acquisition will be obtained
without any adverse effect on the business operations of Quality Oncology or on
Matria or on the contemplated benefits of the acquisition.
JPMorgan's opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to JPMorgan as
of, the date of its opinion. Subsequent developments may affect the written
opinion dated April 29, 2002, and JPMorgan does not have any obligation to
update, revise, or reaffirm that opinion. JPMorgan's opinion was limited to the
fairness, from a financial point of view, to Matria of the consideration to be
paid by Matria in the proposed acquisition. JPMorgan expressed no opinion as to
the underlying decision by Matria to engage in the acquisition or the manner,
timing or form of payment by Matria of the consideration. JPMorgan also
expressed no opinion as to the terms of the "Matria Investment" referred to in
section 3.11 of the agreement. JPMorgan expressed no opinion as to the price at
which Matria's common stock will trade at any future time.
JPMorgan was not engaged to and generally did not provide advice
concerning the structure, the specific amount of, or manner, timing or form of
payment of, the consideration, or any other aspects of the acquisition, or to
provide services other than the delivery of its opinion. JPMorgan did not
participate in negotiations with respect to the terms of the acquisition or any
related acquisitions. Consequently, JPMorgan expressed no opinion as to whether
such terms were the most beneficial terms from Matria's perspective that could
under the circumstances be negotiated among the parties to those acquisitions.
41
In accordance with customary investment banking practice, JPMorgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by JPMorgan
in connection with its presentation to Matria's board of directors on April 18,
2002, its oral opinion delivered to Matria's board of directors on April 29,
2002, and its written opinion dated April 29, 2002.
Discounted Cash Flow Analysis. JPMorgan performed a discounted cash
flow analysis for Quality Oncology using Matria management's projections. The
discounted cash flow analysis was calculated assuming discount rates ranging
from 10% to 12% and perpetuity free cash flow growth rates ranging from 2% to
4%. This analysis indicated a range of implied values of Quality Oncology of
approximately $82 million to $135 million, or up to $152 million including the
present value of potential tax savings and synergies estimated by Matria
management, compared to the present value of the consideration to be paid by
Matria based upon these projections of approximately $61 million. For purposes
of this comparison, the present value of the consideration to be paid by Matria
in the earn-out was calculated assuming a discount rate of 11%.
JPMorgan also performed a discounted cash flow analysis for Quality
Oncology using an alternative set of projections (the "Alternative Case"). The
Alternative Case assumed lower 2003 revenues and earnings before interest,
taxes, depreciation and amortization, which is referred to as EBITDA, for
Quality Oncology than Matria's management's projections as well as lower revenue
growth beyond 2003. Specifically, 2003 EBITDA and revenue growth beyond 2003 in
the Alternative Case were assumed to be less than two thirds of these variables
in Matria management's projections for Quality Oncology. Using the same discount
rates and perpetuity growth rates described above, this analysis indicated a
range of implied values of Quality Oncology of approximately $27 million to $45
million, or up to $62 million including the present value of potential tax
savings and synergies estimated by Matria management, compared to the present
value of the consideration to be paid by Matria based upon these projections of
approximately $48 million.
Selected Public Companies Trading Multiple Analysis. Using publicly
available information, including analyst consensus estimates provided by
I/B/E/S, JPMorgan calculated certain financial and operating information and
ratios for the following three disease management companies:
- American Healthways, Inc.
- Matria
- Q-Med, Inc.
Using the closing prices per share as of April 12, 2002, this analysis
indicated that:
- the ratio of the equity market value, calculated based on
diluted shares outstanding using the Treasury Stock method,
plus total long-term debt minus cash, which is referred to as
the enterprise value of those companies, to projected EBITDA
in 2003 ranged from 7.7x to 15.4x, with a median of 11.6x;
- the ratio of the enterprise value of those companies to EBITDA
in 2004 ranged from 6.8x to 10.5x, with a median of 8.7x;
- the ratio of the per share market price of those companies to
projected earnings per share in 2002 ranged from 16.3x to
41.9x, with a median of 35.0x;
- the ratio of the per share market price of those companies to
projected earnings per share in 2003 ranged from 13.4x to
21.4x, with a median of 21.3x; and
- the ratio of the per share market price of those companies to
projected 2003 earnings per share divided by 5 year estimated
annual earnings per share growth rate ranged from 0.5x to
0.7x, with a median of 0.6x.
42
Using Matria management's projections for Quality Oncology and applying
a range of 0.6x to 0.7x of the multiple of net income relative to the projected
5-year growth rate of net income, this analysis indicated a range of implied
values of Quality Oncology of approximately $58 million to $68 million, or up to
$85 million including the present value of potential tax savings and synergies
estimated by Matria management, compared to the present value of the
consideration to be paid by Matria based upon these projections of approximately
$61 million. Using a lower revenue growth rate of 2003 revenues and EBITDA
projected by Matria management for Quality Oncology and the same multiple, this
analysis indicated a range of implied values of Quality Oncology of
approximately $42 million to $49 million, or up to $66 million including the
present value of potential tax savings and synergies estimated by Matria
management, compared to the present value of the consideration to be paid by
Matria based upon these projections of approximately $48 million.
Historical Stock Performance. JPMorgan reviewed historical trading
prices for Matria's common stock. This stock price performance review indicated
that for the three year period ended April 12, 2002, the low, high and average
closing prices for Matria common stock were $7.63, $38.78 and $18.91 per share,
respectively, and the closing price on April 12, 2002 was $24.40 per share.
JPMorgan also reviewed for the same period historical trading prices for the
common stock of American Healthways, Inc. and Q-Med, Inc.
Pro Forma Merger Analysis. JPMorgan also analyzed the pro forma effects
of the acquisition on the projected earnings per share of Matria for fiscal
years 2002 through 2005 based on projections provided by the management of
Matria, as well as based on consensus analyst estimates. Incorporating
assumptions with respect to various structural considerations, acquisition and
financing costs and estimated annual synergies, this analysis indicated that the
merger would be dilutive to earnings per share of Matria common stock in 2002,
2003 and 2004 and accretive in 2005 with an 80% stock earn-out and accretive in
2003, 2004 and 2005 with an all cash earn-out, using the assumptions of Matria
management. Based on consensus analyst estimates, this analysis indicated that
the merger would be dilutive in 2002 and 2003 and accretive in 2004 and 2005
with an 80% stock earn-out and dilutive in 2002 and accretive in 2003, 2004 and
2005 using consensus analyst estimates and an all cash earn-out.
The summary set forth above does not purport to be a complete
description of the analyses or data presented by JPMorgan. The preparation of an
opinion regarding fairness is a complex process and is not necessarily
susceptible to partial analysis or summary description. JPMorgan believes that
the summary set forth above and its analyses must be considered as a whole and
that selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and opinion.
JPMorgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which JPMorgan
based its analyses are set forth above under the description of each such
analysis. JPMorgan's analyses are not necessarily indicative of actual values or
actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, JPMorgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
None of the comparable companies used in the comparable public
companies analysis described above is identical to Matria. Accordingly, an
analysis of publicly traded comparable companies and acquisitions is not
exclusively mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
As a part of its investment banking business, JPMorgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. JPMorgan was selected to deliver an opinion to
Matria's board of directors with respect to the acquisition on the basis of such
experience and JPMorgan's familiarity with Matria.
For services rendered in connection with the delivery of its opinion,
Matria has agreed to pay JPMorgan a customary fee contingent upon consummation
of the acquisition. Matria also has agreed to reimburse JPMorgan for
43
its expenses incurred in connection with its services, including the fees and
disbursements of counsel, and will indemnify JPMorgan against certain
liabilities, including liabilities arising under the federal securities laws.
JPMorgan has no other financial advisory or other relationships with
Matria, Quality Oncology or LifeMetrix, but in the future may perform financial
advisory and other commercial and investment banking services for these
companies for which it would receive customary compensation.
In addition, in the ordinary course of their businesses, JPMorgan and
its affiliates may actively trade the debt and equity securities and loans of
Matria for their own account or for the accounts of customers and, accordingly,
they may at any time hold long or short positions in such securities or loans.
44
THE PURCHASE AND SALE AGREEMENT
GENERAL
The following summary of the material terms of the purchase and sale
agreement is subject to, and qualified in its entirety by, the complete text of
the purchase and sale agreement. A copy of the purchase and sale agreement is
attached as Appendix A to this document and is incorporated in this document by
reference. You should read the full text of the purchase and sale agreement,
because it, and not this document, is the legal document that governs the
acquisition. In the event of any discrepancy between the terms of the purchase
and sale agreement and the following summary, the purchase and sale agreement
will control.
THE ACQUISITION
On the terms and subject to the conditions of the purchase and sale
agreement, Matria will acquire assets of LifeMetrix, including its cancer
disease management business, all of the issued and outstanding stock of Quality
Oncology (which is the subsidiary of LifeMetrix that primarily engages in the
cancer disease management business), and LifeMetrix's Integrated Care Management
System and its rights in Cancerpage.com(TM), and other items of personal
property and contract rights used in connection with the cancer disease
management business and the transferred intellectual property. Prior to the date
of the purchase and sale agreement, Matria advanced LifeMetrix a deposit of
$500,000 toward an option to purchase, if the purchase and sale agreement is
terminated prior to the closing, a perpetual, nonexclusive, nontransferable
license to use LifeMetrix's Data Warehouse system in Matria's care management
and disease management businesses, as described in more detail on page ____.
Upon the closing, the deposit will be applied as a reduction of the cash portion
of the purchase price otherwise payable by Matria. LifeMetrix will retain its
Data Warehouse and TrialMatch systems and existing data, its shares in all other
LifeMetrix subsidiaries, and other assets of LifeMetrix and its subsidiaries
(other than Quality Oncology) that are not a part of the cancer disease
management business or the transferred intellectual property. In addition,
Matria will assume certain contractual and payroll liabilities related to the
acquired business and assets.
LifeMetrix will receive consideration at the closing of $20,000,000
(subject to adjustments, from the stock portion of the purchase price only,
based on Quality Oncology's December 31, 2001 and closing date audits)
consisting of $3,000,000 in cash (less a $500,000 deposit made by Matria and any
additional advances made by Matria to LifeMetrix prior to the closing), and
$17,000,000 of Matria common stock, $2,000,000 of which will be placed in escrow
until March 31, 2003. The Matria stock price to be used in determining the
number of shares of Matria common stock to be issued at the closing will be the
average of the closing prices of Matria's common stock on the Nasdaq National
Market for the ten consecutive trading days immediately preceding the closing
date of the acquisition; provided, that, if this calculation yields an average
per share price of less than $19.148, then $19.148 will be used as the Matria
stock price, and if this calculation yields an average per share price of
greater than $28.722, then $28.722 will be used as the Matria stock price.
LifeMetrix will also receive an earn out payment during 2004 equal to a
total of one-half of the adjusted net revenues of Quality Oncology for the year
ending December 31, 2003 plus six times the adjusted EBITDA of Quality Oncology
for the year ending December 31, 2003. At Matria's election, the earn out
payment can be paid in cash or Matria common stock, or some combination,
provided that, unless LifeMetrix agrees otherwise, at least the lesser of 20% of
the earn out payment or $10,000,000 must be paid in cash. If payment includes
Matria common stock, the number of shares to be issued will be determined based
on the average of the last prices at which Matria common stock shall have been
sold on each trading day during the ten consecutive trading days immediately
preceding the date of payment. Matria will make the earn out payment by the
later of (i) the first business day after 45 days after the earn out payment is
finally determined, and (ii) June 30, 2004. Matria's ability to pay cash may be
limited by agreements with its lenders, and LifeMetrix will have the option of
acquiring additional shares of Matria common stock in lieu of any deficiency in
cash payments.
45
CLOSING OF THE ACQUISITION
The acquisition will close on the latest of (i) August 15, 2002; (ii)
the third business day following the satisfaction of all closing conditions set
forth in the purchase and sale agreement; and (iii) a date designated by Matria
within 10 days after the Matria 2002 Annual Stockholders Meeting.
REPRESENTATIONS AND WARRANTIES
Matria, LifeMetrix and Quality Oncology each made a number of
representations and warranties in the purchase and sale agreement regarding
aspects of their respective businesses, structure and other facts pertinent to
the acquisition.
LIFEMETRIX AND QUALITY ONCOLOGY REPRESENTATIONS AND WARRANTIES
The representations and warranties made by LifeMetrix and Quality
Oncology as they relate to LifeMetrix, Quality Oncology, and the business and
assets being acquired include, among others, representations and warranties as
to:
- authorization, execution and delivery of the purchase and sale
agreement;
- organization standing, power and qualification to do business;
- certificates of incorporation and bylaws;
- capitalization;
- title to Quality Oncology shares and transferred assets;
- taxes;
- financial statements;
- balance sheet items;
- absence of certain changes in the business being acquired
since December 31, 2001;
- litigation;
- customers and accounts;
- permits and compliance with laws;
- environmental;
- insurance;
- contracts, agreements and arrangements;
- licenses and intellectual property;
- title to the properties LifeMetrix or Quality Oncology owns
and leases;
- employees and benefits; and
46
- information supplied by LifeMetrix in this proxy
statement/prospectus and the related Registration Statement.
The majority of the representations and warranties of LifeMetrix and
Quality Oncology expire at the earlier of (i) the date the earn out payment is
made by Matria, or (ii) June 30, 2004. Others survive indefinitely.
MATRIA REPRESENTATIONS AND WARRANTIES
The representations and warranties given by Matria as they relate to
Matria include, among others, representations and warranties as to:
- organization, standing and power;
- certificate of incorporation and bylaws;
- capitalization;
- Exchange Act reports and financial statements; and
- information supplied by Matria in this proxy
statement/prospectus and the related Registration Statement.
The representations and warranties of Matria survive indefinitely,
except for the representations and warranties relating to Exchange Act reports
and financial statements and information supplied by Matria in this proxy
statement/prospectus and the related Registration Statement, which expire on the
earlier of (i) the date the earn out payment is made by Matria, or (ii) June 30,
2004.
The representations and warranties in the purchase and sale agreement
are complicated and not easily summarized. You are urged to carefully read the
articles of the purchase and sale agreement entitled "Representations and
Warranties of Seller and Quality Oncology" starting on page 35 thereof and
"Representations and Warranties of Matria" starting on page 58 thereof.
COVENANTS RELATING TO CONDUCT OF BUSINESS OF LIFEMETRIX AND QUALITY ONCOLOGY
LifeMetrix and Quality Oncology have agreed that until the closing of
the acquisition, unless Matria consents otherwise, each of LifeMetrix and
Quality Oncology will carry on its business in the usual and ordinary course. In
addition, without prior consent from Matria, LifeMetrix and Quality Oncology
have agreed as follows:
- Neither LifeMetrix nor Quality Oncology will sell, issue,
purchase or propose the sale, issuance or purchase of, any
shares of capital stock or any securities convertible into or
which give the right to acquire shares of capital stock of (i)
Quality Oncology or (ii) LifeMetrix, to the extent such sale,
issuance or purchase would or could result in the need to
obtain the vote or consent of LifeMetrix's stockholders
generally;
- Neither LifeMetrix nor Quality Oncology will amend its
certificate of incorporation, bylaws or other organizational
documents;
- LifeMetrix will maintain the properties and assets to be
acquired in good operating condition;
- LifeMetrix and Quality Oncology will maintain and keep in full
force and effect all insurance;
- No dividend, distribution or payment in respect of the capital
stock of Quality Oncology will be made, and Quality Oncology
will not redeem, purchase or otherwise acquire any of its
capital stock;
47
- Quality Oncology will not acquire any business or its assets
that are material to Quality Oncology or the business being
acquired by Matria;
- Neither LifeMetrix nor any of its subsidiaries will transfer
or dispose of any of the assets being acquired;
- Subject to certain exceptions consistent with past practice,
there will be no increases in the compensation or bonuses of
any director or officer of Quality Oncology or certain other
employees of LifeMetrix and Quality Oncology, and no employee
of LifeMetrix or any of its other subsidiaries will be
transferred to Quality Oncology;
- Quality Oncology will not incur any indebtedness for borrowed
money, purchase money indebtedness or capital lease
obligations;
- Quality Oncology will not pay any obligation or liability
other than in the ordinary course of its business or as
required by the terms of any instrument governing the same;
- Except for incentive bonuses that may be paid by LifeMetrix
under the terms of the purchase and sale agreement, neither
LifeMetrix nor any of its subsidiaries will enter into any
bonus, incentive compensation, deferred compensation,
severance, profit sharing, retirement, pension, group
insurance or other benefit plan, or any union, employment or
consulting agreement or arrangement;
- Neither LifeMetrix nor any of its subsidiaries will generally
enter into any contract related to the assets or business to
be acquired, except in the ordinary course of business
consistent with past practice;
- The books and records of LifeMetrix and Quality Oncology will
be maintained in the usual, regular and ordinary course of
business consistent with past practice; and
- LifeMetrix shall promptly advise Matria in writing of any
change or event having, or which can reasonably be foreseen to
have, a material adverse effect on Quality Oncology or the
business being acquired.
ADDITIONAL AGREEMENTS
Investor Consents. LifeMetrix stockholders having sufficient voting
power to approve the purchase and sale agreement and the acquisition have
entered into voting agreements with Matria to vote or execute and deliver a
written consent in favor of the approval of the purchase and sale agreement and
the acquisition. LifeMetrix is obligated to deliver to Matria at the closing a
certificate of its Chief Executive Officer certifying that all necessary
approvals to the purchase and sale agreement with respect to LifeMetrix have
been obtained.
Matria Deposit. Prior to the date of the purchase and sale agreement,
Matria deposited $500,000 with LifeMetrix toward an option to purchase a
perpetual, non-exclusive, non-transferable license to use LifeMetrix's Data
Warehouse system in Matria's care management and disease management business if
the closing is not consummated. Upon the closing of the acquisition, the deposit
shall be applied against and reduce the cash portion of the purchase price
otherwise payable by Matria. If the purchase and sale agreement is terminated
prior to closing, LifeMetrix is entitled to retain the deposit, unless such
termination results from a breach of the no shop provisions discussed below, and
Matria may, at its option, purchase the Data Warehouse license for a one-time
fee of $875,000, with the amount payable by Matria being reduced by the amount
of the deposit. However, if, under the circumstances described below under
"Matria Investment", Matria invests $2,000,000 in LifeMetrix following the
termination of the purchase and sale agreement, such deposit shall reduce the
amount otherwise payable by Matria with respect to such investment, and Matria
may purchase the Data Warehouse license for a one-time fee of only $375,000.
48
No Shop Provision. Until the closing or the termination of the purchase
and sale agreement, LifeMetrix and Quality Oncology shall not sell or agree to
sell to any person or entity other than Matria the business or assets to be
acquired by Matria under the purchase and sale agreement (or participate in any
discussions or provide any information in connection with any such proposed
transaction).
Matria Advances. If the closing has not occurred by July 1, 2002,
Matria will loan LifeMetrix $1,000,000. In the event the closing has not
occurred by August 1, 2002, Matria will loan LifeMetrix an additional $500,000.
Any advances will bear no interest until the closing or the termination of the
purchase and sale agreement. If the closing occurs, any advances will be
deducted from the cash portion of the closing purchase price. If the purchase
and sale agreement is terminated, LifeMetrix will repay the advances within six
months after termination with interest at the rate of ten percent per annum;
provided that if Matria makes an investment in LifeMetrix pursuant to the
purchase and sale agreement (see next paragraph), any advances shall be applied
against this investment.
Matria Investment. If the purchase and sale agreement is terminated
because Matria's stock price falls below $15 a share or because the shares of
Matria common stock to be issued to LifeMetrix are not registered pursuant to an
effective registration statement, then Matria shall invest $2,000,000 in
LifeMetrix by purchasing shares of a new series of LifeMetrix preferred stock
(with rights and preferences on par with LifeMetrix's Series D Preferred Stock),
subject to adjustment for a higher valuation of LifeMetrix than the valuation
reflected in the liquidation preference of the Series D Preferred Stock). The
amount paid by Matria in respect to such investment would be $2,000,000 less the
$500,000 deposit previously paid by Matria and less any and all advances
previously made by Matria to LifeMetrix. If the purchase and sale agreement is
terminated by either Matria or LifeMetrix due to a material breach of a
representation, warranty, covenant or agreement of the other party, then the
terminating party shall have the option, but not the obligation, to consummate
the investment. Also, upon termination of the purchase and sale agreement and
consummation of the investment, Matria shall have the right to acquire a license
to LifeMetrix's Data Warehouse system for a one-time fee of $375,000 (as opposed
to a one-time fee of $875,000 if Matria has not made the investment).
Review Committee. LifeMetrix has established a review committee for
purposes of representing LifeMetrix after the closing for monitoring Matria's
compliance with the earn out payment and other matters that may arise in
connection with the acquisition. The members of the review committee are Edmund
Bujalski, Charles Newhall, III and Larry Coleman.
Employment. Matria may hire or cause Quality Oncology to hire or retain
certain LifeMetrix employees, performing services in connection with the
acquired business and will use its reasonable efforts for Matria or Quality
Oncology to hire or retain Edmund Bujalski, Frederick Lee, Charles Kanach,
Daniel McCrone and Jude Gallagher at their existing compensation levels and, for
those employees residing in Virginia, without relocation, until December 31,
2003. LifeMetrix may pay certain incentive bonuses specified in the purchase and
sale agreement to LifeMetrix and Quality Oncology employees, including employees
hired by Matria or Quality Oncology after the closing.
Protective Covenants. LifeMetrix has agreed not to disclose any
confidential information or trade secrets of Quality Oncology or the assets or
business being acquired (i) with respect to confidential information that is not
a trade secret, for a period of five years after closing; and (ii) with respect
to trade secrets, for as long as such information is a trade secret under
applicable law. LifeMetrix has also agreed for a period of five years after the
closing not to (i) compete with Matria or Quality Oncology in the areas of
diabetes, cancer, women's health or other disease or healthcare management
services within the United States; (ii) solicit any client or customer of
LifeMetrix or any of its subsidiaries for the purpose of providing any competing
products or services for on behalf of any competing business; (iii) solicit any
key or material employee, consultant, contractor or other personnel of Matria or
Quality Oncology to terminate, alter or lessen such person's relationship with
Matria or Quality Oncology; or (iv) make any statement that impugns or attacks
the reputation or character or damages the goodwill of Matria, Quality Oncology
or the business or assets being acquired.
Indemnification. Under the purchase and sale agreement, LifeMetrix
shall indemnify Matria against any losses arising from breaches of the
representations, warranties, agreements and covenants of LifeMetrix or Quality
Oncology, any action or claim in any court, governmental agency, arbitration or
mediation against LifeMetrix or any of its subsidiaries (including Quality
Oncology) arising out of actions taken or facts existing prior to the closing or
49
arising out of the transactions contemplated by the purchase and sale agreement,
any claim relating to incentive bonuses or liabilities not assumed by Matria and
any tax incurred as a result of the Section 338(h)(10) election and certain
other tax liabilities. Matria shall indemnify LifeMetrix for losses arising from
breaches of its representations, warranties, agreements and covenants. However,
neither Matria nor LifeMetrix shall generally be entitled to indemnification
until its indemnifiable losses exceed $200,000, after which the other party
shall be obligated for all indemnifiable losses. The indemnification liability
of each party with respect to most representations, warranties, covenants and
agreements and litigation is subject to a limit equal to ten percent of the
closing purchase price plus the amount of any earn out payment, with certain
exceptions. Matria is entitled to recover indemnifiable losses out of the
escrowed shares and may exercise a right of set off against any earn out payment
for such losses.
Access to Information; Confidentiality. LifeMetrix has agreed to
provide to Matria and its representatives with reasonable access to the
properties, books, records, customers and employees of or relating to Quality
Oncology or the assets or business being acquired. Matria has agreed that,
following the closing, it will permit and cause Quality Oncology to permit
LifeMetrix and its representatives to have access to assets, books, records and
information of Quality Oncology as requested by LifeMetrix for reasonable
business purposes that are not adverse to Matria's or Quality Oncology's
interests. Until December 31, 2002, Quality Oncology will permit LifeMetrix to
use Quality Oncology's computer system and network in Northern Virginia to
support the business activities maintained by LifeMetrix, which will consist
generally of Data Warehouse, TrialMatch and websites retained by LifeMetrix.
Each party generally has agreed to hold such other party's confidential
information in strict confidence.
CONDITIONS PRECEDENT TO THE ACQUISITION
Matria is required to complete the acquisition only if each of the
following conditions is met:
- Approvals. Matria shall have obtained all consents and waivers
with respect to the acquisition required under its credit
agreement and Quality Oncology shall have obtained all third
party consents required in connection with the acquisition.
- Employment. Each of the key employees designated in the
purchase and sale agreement shall have accepted employment (or
continued employment, as applicable) with Matria or Quality
Oncology.
- Resignations. Matria shall have received resignation from all
directors and officers of Quality Oncology other than those
designated by Matria.
LifeMetrix and Quality Oncology are required to complete the
acquisition only if the common stock of Matria shall not have been delisted from
the Nasdaq National Market System, and Matria shall have filed with Nasdaq a
Notification Form for Listing of Additional Shares with respect to the shares of
Matria common stock to be issued and delivered to LifeMetrix at the closing of
the acquisition.
Additionally, the agreement obligates Matria, on the one hand, and
LifeMetrix and Quality Oncology on the other hand, to complete the acquisition
only if, before the acquisition, the following additional conditions are
satisfied or waived:
- Each of the representations and warranties of the other party
in the purchase and sale agreement is true and correct in all
material respects as of the closing date, except for
representations and warranties made as of a specific date
(other than the date of the purchase and sale agreement).
- The other party has performed or complied in all material
respects with all agreements and conditions required by the
purchase and sale agreement to be performed or complied with
prior to the closing date.
- All deliveries required by the purchase and sale agreement
shall have been made.
50
- There must be no injunction or order preventing the completion
of the acquisition in effect.
- All waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 must have expired or been terminated
and all other required consents or approvals from governmental
agencies shall have been obtained.
- The Registration Statement on Form S-4 of which this proxy
statement/prospectus is a part shall have been declared
effective under the Securities Act and no stop order
suspending the effectiveness of the Form S-4 has been
initiated or issued by the SEC and no similar proceedings with
respect to this proxy statement/prospectus shall be pending or
threatened in writing by the SEC.
TERMINATION, AMENDMENT AND WAIVER
Conditions to Termination. The purchase and sale agreement may be
terminated prior to the closing of the acquisition under the following
circumstances:
- Matria or LifeMetrix can terminate the purchase and sale
agreement if any of the covenants or agreements to be complied
with or performed by the other party prior to the closing
shall not have been complied with or performed on or before
September 30, 2002 or if the acquisition has not been
consummated by September 30, 2002, due to no fault of the
terminating party.
- Matria can terminate the purchase and sale agreement if an
event or events occur which could reasonably be expected to
materially diminish the value of Quality Oncology or the
business being acquired.
- Matria can terminate the purchase and sale agreement if Matria
learns of facts not disclosed by LifeMetrix or Quality
Oncology as required by the purchase and sale agreement which
could reasonably be expected to materially diminish the value
of Quality Oncology or the business being acquired.
- LifeMetrix can terminate the purchase and sale agreement if
the average of the closing prices at which Matria common stock
shall have traded on the Nasdaq National Market during the ten
day period ending three days prior to closing date is less
than $15 per share.
Effect of Termination. In the event of termination of the purchase and
sale agreement by either Matria or LifeMetrix, the purchase and sale agreement
will become void; provided, however, that (a) the provisions regarding the
deposit by Matria, repayment of any advances made by Matria, the investment to
be made by Matria under certain circumstances and confidentiality will survive,
and (b) in the event of a termination as a result of a material breach or
intentional or fraudulent misconduct of another party, the terminating party
shall be entitled to pursue all rights and remedies available to it. Also, upon
termination, Matria shall have the right to acquire the Data Warehouse system
license for a one-time fee of $875,000 (unless Matria has made the investment
discussed above, in which case the one-time fee shall be $375,000). If Matria
terminates because LifeMetrix has breached its covenants with respect to other
acquisition proposals, then, if requested by Matria, LifeMetrix is obligated to
return Matria's $500,000 deposit.
Termination Fees. Each party will pay its own costs and expenses
associated with the acquisition whether or not the acquisition is consummated;
provided, however, that in the event the purchase and sale agreement is
terminated because of the material breach or intentional or fraudulent
misconduct of the other party, than the terminating party can recover from the
other party its expenses relating to the purchase and sale agreement.
Amendment. The purchase and sale agreement may not be amended or
modified except by a writing executed by all of the parties to the purchase and
sale agreement.
51
Extension; Waiver. At any time prior to the closing of the acquisition,
any party to the purchase and sale agreement may, in writing:
- waive or extend the time for fulfillment of any obligations of
the other party under the purchase and sale agreement; and
- waive any conditions precedent to such party's obligation
under the purchase and sale agreement.
52
OTHER AGREEMENTS RELATED TO THE ACQUISITION
This section describes ancillary agreements related to the purchase and
sale agreement. While Matria and LifeMetrix believe that these descriptions
cover the material terms of these agreements, these summaries may not contain
all of the information that is important to you.
VOTING AGREEMENTS
As a condition to Matria's entering into the purchase and sale
agreement, stockholders of LifeMetrix having sufficient voting power to approve
the purchase and sale agreement have entered into voting agreements with Matria.
By entering into the voting agreements, these LifeMetrix stockholders have
agreed to vote or execute a written consent in favor of the approval of the
purchase and sale agreement and the acquisition and against any other
acquisition proposal and any other matter related to any other acquisition
proposal. These LifeMetrix stockholders have irrevocably appointed Matria as
their lawful attorney and proxy for the purpose of giving Matria the limited
right to vote all of the shares of LifeMetrix stock beneficially owned by these
LifeMetrix stockholders on all such matters.
Also, under these voting agreements, each of these LifeMetrix
stockholders have agreed not to sell or dispose of LifeMetrix stock until the
earlier of the termination of the purchase and sale agreement or the closing of
the acquisition. These voting agreements will terminate upon the earlier to
occur of September 30, 2002, the termination of the purchase and sale agreement
or the closing of the acquisition.
ESCROW AGREEMENT
At the closing of the acquisition, Matria shall place $2,000,000 of
Matria common stock in escrow pursuant to an escrow agreement to be entered into
by Matria, LifeMetrix and SunTrust Bank, as escrow agent. The number of shares
of Matria common stock in escrow shall be subject to adjustment in the case of
any dividend, distribution, stock split or similar event in respect of Matria's
common stock. The escrowed shares shall be available to (i) satisfy the
indemnification obligations of LifeMetrix pursuant to the purchase and sale
agreement, (ii) compensate Matria for any post-closing downward adjustment to
the purchase price, or (iii) compensate Matria for any other amounts it is owed
pursuant to the escrow agreement. Any amounts not so paid to Matria shall be
released to LifeMetrix on March 31, 2003.
STANDSTILL AGREEMENT
As a condition to Matria's obligation to close, LifeMetrix has agreed
to deliver to Matria a standstill agreement executed by LifeMetrix and
LifeMetrix preferred stockholders owning at least 70% of the fully-diluted
equity of LifeMetrix. Pursuant to the standstill agreement, LifeMetrix and these
preferred stockholders (and, generally, their permitted transferees) will agree
not to acquire Matria voting securities or assets, seek to place a
representative on Matria's board of directors, or take certain other actions
indicative of an attempt to gain control of Matria, for a period of five years
from the date the earn out payment is made; provided that this shall not prevent
these stockholders from indirectly acquiring Matria voting securities in the
ordinary course of their business through the acquisition of shares of a
privately-held entity that owns Matria voting securities or in a acquisition in
which shares of an entity owned by a LifeMetrix stockholder are sold or
exchanged for consideration including Matria voting securities. These
restrictions shall not apply to certain permitted transferees of LifeMetrix
preferred stockholders owing less than two percent of Matria's voting
securities.
Also, LifeMetrix and its stockholders (and permitted transferees)
cannot sell or transfer (except in connection with a liquidation of LifeMetrix,
in distributions by stockholders to their equity holders, in gifts or in
privately-negotiated acquisitions after which the transferee would not own five
percent or more of Matria's outstanding common stock) any shares of Matria
received in connection with the acquisition for a period of one year from the
date the shares are received. After such time, LifeMetrix and its stockholders
(and permitted transferees) cannot collectively transfer within any three month
period shares totaling more than ten percent of Matria's
53
aggregate outstanding stock as of the end of the previous calendar year (except
for certain permitted transfers as described above and transfers by persons or
entities receiving one percent or less of the total number of outstanding shares
of Matria common stock). LifeMetrix and the stockholders executing the
standstill agreement (and generally, permitted transferees) shall vote their
shares of Matria common stock as directed by Matria's board of directors.
REGISTRATION RIGHTS AGREEMENT
As a condition to the closing of the purchase and sale agreement,
Matria has agreed to grant LifeMetrix and certain of its preferred stockholders
"piggyback" registration rights with respect to the shares of Matria common
stock that LifeMetrix will receive in the acquisition and which can be
transferred to its preferred stockholders under certain circumstances. If Matria
proposes to register under the Securities Act any class of its stock for sale to
the public on Form S-1, S-2 or S-3, then Matria shall give LifeMetrix and its
preferred stockholders who are parties to the registration rights agreement the
right to include their shares of Matria common stock in the offering. If Matria
is registering shares in an underwritten public offering, then the number of
shares LifeMetrix and the preferred stockholders shall be entitled to include in
the offering may be reduced pro rata in the underwriter's discretion.
The term of the registration rights granted in the registration rights
agreement shall be as follows: (i) for shares of Matria common stock issued at
the closing, for two years from the date of the closing; and (ii) for shares of
Matria common stock issued in connection with the earn out payments, if any, for
two years from the date of issuance of such shares (or in either case until such
earlier time as such shares are eligible for resale pursuant to Rule 145(d)(2)
under the Securities Act). Registration rights can be transferred to parties
whom shares of Matria common stock may be transferred pursuant to the standstill
agreement so long as the transferee agrees in writing to be bound by the
registration rights agreement.
NON-COMPETITION AGREEMENTS
As a condition to the closing of the purchase and sale agreement,
Edmund Bujalski, Frederick Lee, Eugene Langan, Charles Kanach, Gregory Jungles,
Daniel McCrone and Jude Gallagher shall enter into non-competition agreements
with Matria. In the non-competition agreements, each of these individuals will
agree not to disclose any confidential information or trade secrets of Matria,
Quality Oncology or the assets or business being acquired (i) with respect to
confidential information that is not a trade secret, for a period of five years
after closing; and (ii) with respect to trade secrets, for as long as such
information is a trade secret under applicable law. Each of these individuals
shall agree, for differing periods of as short as one year from the closing for
Eugene Langan to as long as five years from the closing for Edmund Bujalski, not
to compete with Matria or Quality Oncology in the area of cancer disease
management services within the United States. Each of these individuals shall
also agree not to, for a period of five years after the closing of the
acquisition, (i) solicit any customer or actively sought prospective customer of
Matria or Quality Oncology for disease or healthcare management services similar
to those provided by Matria or Quality Oncology on behalf of any businesses
providing cancer disease management services in the U.S.; (ii) solicit any
employee, consultant or contractor of Matria or Quality Oncology to terminate,
alter or lessen such person's relationship with Matria or Quality Oncology; or
(iii) make any statement that impugns or attacks the reputation or character or
damages the good will of Matria, Quality Oncology or the business or assets
acquired by Matria.
DATA WAREHOUSE LICENSE AGREEMENT
At the closing of the acquisition, Matria, LifeMetrix and LifeMetrix
Systems, Inc., a Delaware corporation and wholly owned subsidiary of LifeMetrix,
shall enter into a Data Warehouse system license agreement pursuant to which
LifeMetrix and LifeMetrix Systems shall grant Matria and its affiliated parties
a license to use their Data Warehouse system and all of its existing data as of
the closing date solely for purposes of the licensees' respective case and care
management and disease management businesses. This license shall be perpetual,
royalty-free, non-exclusive and generally non-transferable. Pursuant to this
license agreement, Matria will grant LifeMetrix a royalty-free license to use
data developed by Matria after the closing date from which patient-identifying
information has been removed, provided that such data shall not be used by
LifeMetrix in the cancer disease management business.
54
ICMS LICENSE AGREEMENT
At the closing, Quality Oncology will acquire all rights to the
Integrated Care Management System (ICMS) developed by LifeMetrix and LifeMetrix
Systems. Also at the closing, Quality Oncology, LifeMetrix and LifeMetrix
Information Systems, Inc., a Delaware corporation and wholly owned subsidiary of
LifeMetrix, shall enter into an ICMS license agreement whereby Quality Oncology
grants to LifeMetrix and LifeMetrix Information Systems a license to use the
ICMS for specified purposes, but not for purposes of providing any diabetes,
cancer, women's health or other disease or healthcare management services. This
license shall be perpetual, royalty-free, non-exclusive and generally
non-transferable.
55
INFORMATION ABOUT THE COMPANIES
MATRIA
Matria Healthcare, Inc., a Delaware corporation, is a leading
comprehensive, integrated disease management company, offering its services to
patients, physicians, health plans and employers. Disease management encompasses
a broad range of services aimed at controlling healthcare costs through
proactive management of care. Matria's strategy is to focus on providing
cost-saving solutions for five of the most costly chronic diseases and medical
conditions in the nation: diabetes, obstetrical conditions, respiratory
disorders, cancer and cardiovascular disease. Matria's disease management
programs seek to lower healthcare costs and improve patient outcomes through a
broad range of disease management, mail-order supply and clinical services.
Matria contracts with managed care organizations and self-insured employers for
the provision of its services for which Matria is generally compensated on a
fee-for-service basis.
Matria was incorporated on October 4, 1995 for the purpose of the
merger of Tokos Medical Corporation and Healthdyne Maternity Management. The
effective date of the merger was March 8, 1996. Matria's headquarters are
located in Marietta, Georgia.
For additional information about Matria, see "Where You Can Find More
Information" on page 104.
MATRIA SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Matria's historical consolidated financial statements,
related notes incorporated by reference into this document and the information
set forth under the heading "Matria Transitional Disclosures Under Recently
Issued Accounting Standards" appearing on page 58 of this document. The selected
consolidated financial data as of and for each of the years ended December 31,
1997, 1998, 1999, 2000 and 2001 set forth below have been derived from Matria's
audited consolidated financial statements. The selected consolidated financial
data as of and for the three months ended March 31, 2001 and 2002 set forth
below have been derived from Matria's unaudited consolidated condensed financial
statements. In the opinion of management, the unaudited consolidated condensed
financial statements from which the data below is derived contain all
adjustments, which consist only of normal recurring adjustments, necessary to
present fairly Matria's financial position and results of operations as of the
applicable dates and for the applicable periods. Historical results are not
necessarily indicative of the results to be expected in the future.
56
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------------
1997 1998 1999 2000 2001 2001 2002
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Revenues $144,533 $ 128,572 $231,739 $225,767 $263,983 $61,368 $65,188
Cost of revenues 57,610 51,278 118,305 116,179 145,685 33,450 36,656
Selling and administrative expenses 65,020 60,613 73,653 68,468 76,249 17,836 20,736
Provision for doubtful accounts 6,599 6,342 7,193 7,043 7,575 1,778 1,842
Amortization of intangible accounts 36,604 27,700 9,439 9,803 9,827 2,457 140
Restructuring charges -- -- 4,241 1,599 -- -- --
Asset impairment charges -- 82,885 -- -- -- -- --
-------- --------- -------- -------- -------- ------- -------
Operating earnings (loss) from continuing operations (21,300) (100,246) 18,908 22,675 24,647 5,847 5,814
Interest income (expense), net 483 (608) (7,711) (8,156) (10,008) (1,707) (3,227)
Other income (expense), net (85) 448 16,169 8,275 (639) (759) 111
-------- --------- -------- -------- -------- ------- -------
Earnings (loss) from continuing operations before
income taxes (20,902) (100,406) 27,366 22,794 14,000 3,381 2,698
Income tax benefit (expense) -- -- 4,000 (9,100) (6,075) (1,350) (1,080)
-------- --------- -------- -------- -------- ------- -------
Earnings (loss) from continuing operations (20,902) (100,406) 31,366 13,694 7,925 2,031 1,618
Earnings (loss) from discontinued operations, net of
income taxes -- (1,136) 2,640 -- (455) -- --
Loss on disposal of discontinued operations, net of
income taxes -- -- -- -- (785) -- --
-------- --------- -------- -------- -------- ------- -------
Net earnings (loss) (20,902) (101,542) 34,006 13,694 6,685 2,031 1,618
Redeemable preferred stock dividends -- -- (3,049) (3,200) (1,638) (800) --
Accretion of Series B redeemable preferred stock -- -- (420) (441) (225) (109) --
Net gain on repurchases of preferred stock -- -- -- -- 739 -- --
-------- --------- -------- -------- -------- ------- -------
Net earnings (loss) available to common shareholders $(20,902) $(101,542) $ 30,537 $ 10,053 $ 5,561 $ 1,122 $ 1,618
======== ========= ======== ======== ======== ======= =======
Net earnings (loss) per common share
Basic:
Continuing operations $ (2.29) $ (10.98) $ 3.05 $ 1.10 $ 0.78 $ 0.13 $ 0.18
Discontinued operations -- (0.12) 0.29 -- (0.14) -- --
-------- --------- -------- -------- -------- ------- -------
$ (2.29) $ (11.10) $ 3.34 $ 1.10 $ 0.64 $ 0.13 $ 0.18
======== ========= ======== ======== ======== ======= =======
Diluted:
Continuing operations $ (2.29) $ (10.98) $ 2.82 $ 1.05 $ 0.76 $ 0.13 $ 0.17
Discontinued operations -- (0.12) 0.26 -- (0.14) -- --
-------- --------- -------- -------- -------- ------- -------
$ (2.29) $ (11.10) $ 3.08 $ 1.05 $ 0.62 $ 0.13 $ 0.17
======== ========= ======== ======== ======== ======= =======
Weighted average shares outstanding(1):
Basic 9,132 9,145 9,151 9,139 8,748 8,749 8,969
Diluted 9,132 9,145 10,036 9,946 8,992 8,811 9,403
DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------------
1997 1998 1999 2000 2001 2001 2002
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA
Cash and cash equivalents $ 9,086 $ 9,109 $ 9,548 $ 3,915 $ 1,983 $ 1,535 $ 1,607
Working capital 41,152 36,341 58,404 51,603 56,614 40,157 54,283
Total assets 191,132 97,034 285,713 268,850 260,623 248,661 267,579
Long-term debt (including current portion) 2,596 19,103 101,452 88,811 115,190 72,335 114,992
Stockholders' equity 153,169 49,881 99,244 98,850 104,897 98,961 108,017
----------------
(1) Adjusted to reflect a one-for-four reverse stock split, effective in
December 2000, under which every four shares of our common stock were
converted into one new share of common stock.
57
MATRIA TRANSITIONAL DISCLOSURES UNDER RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 141, Business Combinations, or
SFAS 141, and Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, or SFAS 141. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated or completed after
June 30, 2001 and specifies criteria intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of SFAS 142. SFAS 142 also
requires that intangible assets with finite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, or SFAS 121.
Matria adopted the provisions of SFAS 141 in 2001 and SFAS 142
effective January 1, 2002. Upon adoption of these provisions, Matria evaluated
the fair values of the business segments and concluded that no impairment of
recorded goodwill exists. Matria also reassessed the useful lives, residual
values and the classification of its identifiable intangible assets and
determined that they continue to be appropriate.
A reconciliation of reported net earnings adjusted for the adoption of
SFAS 142 is as follows:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- -------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
As reported $ (20,902) $(100,406) $ 31,366 $ 13,694 $ 7,925 $ 2,031 $ 1,618
Add back: Goodwill amortization, net of tax 33,937 25,583 8,879 5,553 5,246 1,392 --
--------- --------- --------- --------- --------- -------- --------
Adjusted earnings (loss) from continuing
operations $ 13,035 $ (74,823) $ 40,245 $ 19,247 $ 13,171 $ 3,423 $ 1,618
========= ========= ========= ========= ========= ======== ========
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS PER COMMON SHARE
Basic:
As reported $ (2.29) $ (10.98) $ 3.05 $ 1.10 $ 0.78 $ 0.13 $ 0.18
Add back: Goodwill amortization, net of tax 3.72 2.80 0.97 0.61 0.60 0.16 --
--------- --------- --------- --------- --------- -------- --------
Adjusted net earnings (loss) per common share $ 1.43 $ (8.18) $ 4.02 $ 1.71 $ 1.38 $ 0.29 $ 0.18
========= ========= ========= ========= ========= ======== ========
Diluted:
As reported $ (2.29) $ (10.98) $ 2.82 $ 1.05 $ 0.76 $ 0.13 $ 0.17
Add back: Goodwill amortization, net of tax 3.72 2.80 0.88 0.56 0.58 0.16 --
--------- --------- --------- --------- --------- -------- --------
Adjusted net earnings (loss) per common share $ 1.43 $ (8.18) $ 3.70 $ 1.61 $ 1.34 $ 0.29 $ 0.17
========= ========= ========= ========= ========= ======== ========
58
LIFEMETRIX AND QUALITY ONCOLOGY
History of LifeMetrix and Quality Oncology. LifeMetrix was organized in
November 1996 as a Delaware business corporation under the name Oncology
Affiliates, Inc. with the principal business objective of managing oncology
physician practices. Its founders were a team of experienced health care
executives headed by Edmund Bujalski, its Chairman and Chief Executive Officer.
In March 1997, the company received equity funding of $10.2 million from a group
of investors comprised of several venture capital funds and two healthcare
companies. During its first sixteen months, the company engaged in start-up and
developmental efforts, during the course of which the company began to explore
and evaluate cancer care management models and information and to identify and
negotiate possible affiliations with managed care organizations, disease
management practitioners, and other disease care management organizations.
In March 1998, LifeMetrix acquired Accountable Oncology Associates,
Inc., or AOA, in a merger through which AOA became a wholly owned subsidiary of
LifeMetrix. LifeMetrix simultaneously received additional equity funding of $6.1
million from its existing investors and the preferred stockholders of AOA.
AOA had been formed in 1995, with funding principally provided by three
venture capital funds. Prior to its acquisition by LifeMetrix, AOA had created a
cancer data base from claims data, had developed proprietary algorithms for
measuring cancer spending from claims data, and had begun to test its care
management program under a developmental contract with The Hitchcock Clinic in
New Hampshire, under which AOA provided cancer care management to patients
covered under the Matthew Thornton Health Plan and Blue Cross.
In April 1998, after the acquisition of AOA, LifeMetrix acquired
(through a wholly owned subsidiary) substantially all of the assets of Quality
Oncology, Inc., or Old Quality Oncology. Old Quality Oncology was a company in
Florida founded in 1994 by a group of radiation oncologists who had concluded
that cost-effective improvements in the treatment of cancer could only be
achieved by the development of integrated treatment guidelines and standardized
outcome monitoring systems, and that the physicians involved in this development
should include all major oncological specialties. Old Quality Oncology therefore
established a multi-disciplinary team to develop integrated, comprehensive and
standardized cancer treatment guidelines and a care management process, and
developed a cancer care management information system to support its care
management process. In addition, Old Quality Oncology obtained contracts to
provide cancer care management services to the Florida members of two national
managed care organizations.
Shortly after its acquisition of Old Quality Oncology, LifeMetrix
changed the name of AOA to "Quality Oncology, Inc." and combined the cancer care
management businesses, proprietary systems, and key personnel resources of AOA
and Old Quality Oncology to form the basis of the current business operated by
Quality Oncology. LifeMetrix and Quality Oncology then redesigned the AOA and
Old Quality Oncology information and care management systems to create an
integrated system that combined and enhanced the best features of the two
systems that LifeMetrix had acquired.
Since becoming a LifeMetrix subsidiary in 1998, Quality Oncology has
continued to focus on cancer care management, has refined and enhanced its
systems and procedures, and has obtained a number of contracts under which it
manages the cancer care provided to patients of various health care plans.
Revenues for cancer care management contracts increased from $837,000 in 1998 to
$5.1 million in 2001. LifeMetrix obtained an additional $15.3 million in equity
funding provided primarily by certain of its preferred stockholders in 2000 and
2001. During this period, Quality Oncology continued its developmental
activities, focusing on expanding and enhancing the proprietary software used in
the Quality Oncology cancer care management program so that it could be used for
other disease care programs and on developing other products and markets for the
large cancer treatment data base that had been initiated by AOA and expanded by
Quality Oncology. Two of these developments, the Integrated Care Management
System ("ICMS") and Cancerpage.com(TM), will be transferred to Quality Oncology
prior to its acquisition by Matria and are discussed below under "The Business
of Quality Oncology." A third development, the "Data Warehouse," will be
licensed to Matria and Quality Oncology for use in their care management and
disease management businesses and is also described below.
59
The Business of Quality Oncology - Cancer Care Management. Quality
Oncology is the nation's largest and most experienced provider of a cancer
disease management program, having provided care management and support for
approximately 11,000 cancer patients. Quality Oncology provides a systematic
approach to managing cancer, using its proprietary, Web-based integrated system
with embedded evidence-based cancer treatment guidelines and experienced
oncology nurses and physicians. Quality Oncology's cancer care management system
coordinates and facilitates cancer care across the entire delivery system, from
tissue diagnosis through follow-up. Quality Oncology assigns each patient a care
manager, who is a nurse averaging ten years of experience in the field of cancer
care. The care manager coordinates treatments and procedures, provides emotional
support to the patient and family members, recommends specific patient support
groups, and educates the patient and family members regarding diagnosis,
treatment options and symptoms management. The care manager is in contact as
needed with the patient and family members and the patient's physicians.
Compliance with treatment guidelines is tracked, and the Quality Oncology care
team works with the physicians and other providers to help them address
appropriate changes in treatment patterns. Through peer-to-peer consultations,
Quality Oncology's medical directors facilitate communication among the many
specialists involved in the patient's treatment.
During 2001, Quality Oncology provided cancer care management services
to fourteen health care plans. Covered lives under these plans totaled
approximately 2.6 million and produced revenues of $5.1 million. The largest of
these health care plans, whose contract extends through March 2006, but can be
terminated on 180 days' prior notice, accounted for $1.7 million of these
revenues. Revenues of approximately $2.1 million were derived from three other
health plans. These four health plans comprised 75% of the revenues from cancer
care management in 2001.
Most of Quality Oncology's cancer care contracts are for one-year or
three-year terms, with automatic renewal provisions (normally for additional
one-year terms) unless advance written notice is given. Most of the contracts
permit termination by the customer upon advance notice, ranging from 30 to 180
days. Quality Oncology's ability to sustain and increase its revenues is
dependent upon its ability to extend existing contracts and obtain new
contracts. To date in 2002, Quality Oncology has signed three new contracts to
manage cancer care for health care plans with approximately 1.6 million covered
lives. Also, three existing contracts have been amended to expand the service
areas adding approximately 485,000 covered lives and a Letter of Intent has been
signed to manage cancer care in a health care plan with approximately 110,000
covered lives.
Of the twelve existing disease management agreements with health plans,
six contracts contain a form of "savings guarantee," which varies contract to
contract but typically provides that Quality Oncology will repay to a client all
or some of Quality Oncology's fees if the cost savings achieved during the
period that the Quality Oncology Program operates does not at least equal
Quality Oncology's fees for such period, subject to the requirement that the
client provides a sufficient number of cases and sufficiently accurate and
complete patient and claims data for the Quality Oncology Program to operate in
accordance with its design. Six contracts contain "shared savings" provisions,
by which Quality Oncology is entitled to share, in a percentage determined on a
contract-by-contract basis, in the savings achieved for such period. Three
contracts contain a performance bonus by which Quality Oncology may receive
additional compensation by meeting certain performance criteria. Of the disease
management contracts signed in 2002, two agreements contain "savings guarantees"
and "shared savings" provisions and one contains a performance bonus.
Integrated Care Management System (ICMS). LifeMetrix will transfer
ownership of ICMS to Quality Oncology prior to Matria's acquisition of Quality
Oncology, and Quality Oncology will grant LifeMetrix a perpetual, fully-paid
license to use ICMS in business activities that do not compete with Quality
Oncology's and Matria's disease management and case and care management
businesses. ICMS is a set of software programs based upon the software programs
used in Quality Oncology's cancer care management system, but the ICMS can be
used to support disease care management programs other than cancer care. For
example, ICMS can be used as the basis for the non-cancer disease care
management programs such as asthma and diabetes. ICMS also can be licensed for
use by managed care organizations that do not want to utilize a disease care
management company. LifeMetrix's past licensing of the ICMS has been limited.
There are currently four outstanding licenses to use ICMS and total licensing
revenues in 2001 were approximately $600,000.
60
ICMS is a fully integrated care management system that enables users to
track the treatment of chronic disease patients by integrating disease
management treatment guidelines with a web-based data collection system. Data
collected as a result of performing disease management with the ICMS provide
detailed information about all material care provided to a patient. ICMS is
designed to make data readily accessible for the purpose of (i) monitoring
compliance with clinical treatment guidelines; (ii) providing proactive care
management tools; (iii) prompting regular interaction with health care
providers, patients and their family members; (iv) measuring and analyzing
clinical performance; (v) increasing accountability and narrowing the extent of
practice variation among health care providers; (vi) tracking patient
satisfaction with treatment and care management; (vii) producing reports on
utilization cost and quality information to providers and its clients; and
(viii) assisting ongoing physician education geared toward addressing changes in
clinical treatment patterns.
LifeMetrix believes that the benefits of ICMS are greater compliance
with "best practice" treatment patterns, measurable cost reductions, and
increased patient and provider satisfaction.
Data Warehouse. The Data Warehouse is a data aggregation, storage and
analysis system used primarily with claims and clinical data. It is separate
from the ICMS, but is able to use, on a "de-identified" basis (i.e., without
identification to individual patients) the information generated in ICMS from
interaction with patients and health care providers. The Data Warehouse
combines, on a "de-identified" aggregated basis, clinical and outcomes data with
the corresponding claims and other financial data as they are processed, thereby
forming a data base that enables the user to track the efficacy of its disease
management program as well as the patterns of care of health care providers.
Patient compliance, critical to most disease management programs, as well as
health care provider actions that vary from "best practice" guidelines, can be
readily identified. The Data Warehouse system also has enabled Quality Oncology
to project actual cancer spending and prevalence of the disease for clients and
the flexibility of the system has allowed Quality Oncology to reconfigure its
cancer data according to payor specifications in order to achieve the greatest
utility for Quality Oncology's clients. The Data Warehouse is used by Quality
Oncology in conjunction with its cancer care management program and is not a
separate source of revenue for Quality Oncology. The Data Warehouse system is
not restricted to cancer claims and clinical data and is capable of handling
similar types of data relating to other diseases.
Simultaneously with Matria's acquisition of Quality Oncology, Matria
and Quality Oncology will be granted a perpetual, full-paid license to use the
proprietary architectural designs and software that form the Data Warehouse
system, as well as the existing data base, in connection with their disease
management businesses.
Cancerpage.com(TM). Cancerpage.com(TM), which was established in 1999
by a LifeMetrix subsidiary, is a consumer web site for tumor-specific cancer
treatment information. Through Cancerpage.com(TM), patients and their family
members can find readily available information on appropriate treatment
approaches, locate relevant specialists, and find community support groups and
information on diet and health practices. Cancerpage.com(TM) generates virtually
no revenue.
Business Competition. Quality Oncology is the nation's largest and most
experienced provider of a general cancer disease management program marketed to
managed care plans. Quality Oncology is aware of only one other company,
CorSolutions Medical, Inc., that currently markets a general cancer disease
management program to managed care plans and Quality Oncology is aware of one
cancer disease management contract held by this competitor. Various companies
and institutions offer programs to manage particular aspects of cancer care,
such as radiation, chemotherapy, and stem cell transplants, and some managed
care plans also have internal cancer disease management programs. Health care
plans in general have been slow in seeking outside expertise to manage cancer
disease treatment in a systematic and comprehensive way. Quality Oncology
estimates that contracts under which managed care plans are operated for general
cancer disease management programs cover less than 5% of the beneficiaries of
managed care plans.
Business Locations and Employees. Quality Oncology's headquarters are
located at 1430 Spring Hill Road, Suite 106, McLean, Virginia, where it occupies
two suites, including one located at 1420 Spring Hill Road, totalling 10,376
square feet of office space under a five-year lease that expires September 30,
2005. Quality Oncology also occupies 10,691 square feet of office space in
Sunrise, Florida under a lease that expires October 31, 2003. Quality Oncology
recently subleased 2,080 square feet of office space in Los Angeles, California;
this sublease may be terminated by Quality Oncology, upon ninety days notice, at
the end of any month after April 2003.
61
On May 31, 2002, Quality Oncology had 77 full time employees and two
part time employees; the LifeMetrix subsidiary responsible for ICMS had 11 full
time employees; another LifeMetrix subsidiary had one full time and one part
time employee who support Cancerpage.com; and approximately 7 employees who
work for LifeMetrix provided corporate overhead services to Quality Oncology,
the ICMS, and Cancerpage.com(TM).
Intellectual Property, Patents, and Trademarks. LifeMetrix has sought
to protect the proprietary architectural designs and software that make up ICMS
and the proprietary procedures and processes used in Quality Oncology's cancer
care management system by filing certain patent applications. A patent
application filed by LifeMetrix on July 13, 2000 for the Integrated Care
Management System is pending before the United States Patent and Trademark
Office (USPTO). LifeMetrix has unregistered trademarks in "the Integrated Care
Management System" and "ICM." "Cancerpage.com(TM)," "Cancerpage.net," and
"Cancerpage.org" are registered internet domain names of LifeMetrix.
Cancerpage.com(TM) is registered as a trademark of LifeMetrix with the USPTO. A
trademark application for "CancerPage.com and Design" is pending with the USPTO
and similar applications are pending in Australia, Canada and the European
Union.
Disposition of Remaining LifeMetrix Assets. LifeMetrix is retaining
ownership of the Data Warehouse and TrialMatch systems and existing data, as
well as other assets that are not part of the cancer disease management business
and intellectual property being acquired by Matria. In addition, LifeMetrix will
retain a license to use the ICMS for purposes that do not compete with Matria or
Quality Oncology. LifeMetrix is currently attempting to find a buyer or buyers
for these retained assets and businesses.
QUALITY ONCOLOGY SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction
with our financial statements, the notes thereto, including the disclosure
setting forth pro forma financial results consistent with new accounting
principles as disclosed in the financial statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this proxy statement/prospectus. The
statement of operations data for the year ended December 31, 2001 and the
balance sheet data as of December 31, 2001 have been derived from financial
statements of Quality Oncology, Inc. that have been audited by KPMG LLP,
independent auditors. The financial statements as of and for the year ended
December 31, 2001 are included elsewhere in this document. The statement of
operations data for the years ended December 31, 1998, 1999 and 2000 and the
three months ended March 31, 2001 and 2002, and the balance sheet data as of
December 31, 1998, 1999 and 2000 and as of March 31, 2001 and 2002 are
unaudited but are presented on the same basis of accounting as the financial
information for the audited period.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1998 1999 2000 2001 2001 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues $ 847 $ 1,291 $ 2,591 $ 5,751 $ 833 $ 1,815
Net loss (2,676) (5,647) (5,469) (3,245) (1,299) (658)
DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1998 1999 2000 2001 2001 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets $ 5,466 $ 5,461 $ 3,379 $ 3,606 $ 3,459 $ 3,815
Due to LifeMetrix, Inc. 5,588 11,057 16,456 19,138 17,471 19,611
62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF QUALITY ONCOLOGY
The following should be read in conjunction with Quality Oncology's
financial statements and the related notes thereto and the description of
Quality Oncology's business included elsewhere in this document.
RESULTS OF OPERATIONS
General
Quality Oncology is a leading cancer care management company, providing
integrated, comprehensive and standardized cancer treatment guidelines and care
management processes for cancer patients. Since becoming a LifeMetrix subsidiary
in 1998, Quality Oncology has focused on cancer care management, has refined and
enhanced its systems and procedures and has obtained an increasing number of
contracts under which it manages the cancer care provided to patients of various
health care plans.
March 31, 2002 as compared to March 31, 2001
Total revenues increased approximately $982,000 or 117.9% for the
three-month period ended March 31, 2002 as compared to the same period in 2001.
The revenue growth was mainly due to the strong increase in disease management
revenues, which accounted for 88.4% of the total increase in revenue.
Disease management revenue increased approximately $868,000 or 121.5%
for the three-month period ended March 31, 2002 as compared to the same period
in 2001. The increase in disease management revenue was due to the addition of
three new contracts and expansion into three additional regions for an existing
client. Approximately $606,000 or 69.9% of the increase in disease management
revenue was due to the addition of a large new client. In late 2001, Quality
Oncology terminated one contract which produced approximately $48,000 of revenue
in the first quarter of 2001.
Operating expenses increased approximately $362,000 or 21.2% for the
three-month period ended March 31, 2002 as compared to the same period in 2001.
The increase was due to the increase in the number of clinical staff needed to
provide disease management services to patients enrolled with the new contracts
signed after the first quarter of 2001.
General and administrative expenses increased approximately $14,000 or
4.0% for the three-month period ended March 31, 2002 as compared to the same
period in 2001.
The net loss of approximately $658,000 for the three-month period ended
March 31, 2002, was 49.3% lower than in the same period of 2001. This
improvement in the net loss is the result of adding new contracts with operating
margins consistent with earlier contracts while holding expenses relatively
flat.
2001 as compared to 2000
Total revenues increased approximately $3.2 million or 121.9% for the
year ended December 31, 2001 as compared to the year ended December 31, 2000.
Disease management revenues increased approximately $3.1 million or 151.9%,
primarily resulting from providing care management services to a large health
plan that began operations in April 2001, providing care management services to
additional health plans and expanding the services area for an existing client.
System licensing revenue increased approximately $78,000 or 13.9%.
Operating expenses increased approximately $1.6 million or 29.0% for
the year ended December 31, 2001 as compared to the same period in 2000. The
increase was due to the increase in the number of clinical staff needed to
provide disease management services to patients enrolled with the new contracts
signed during 2001.
General and administrative expenses decreased approximately $557,000 or
31.4% for the year ended December 31, 2001 as compared to the same period in
2000. The decrease was due to the elimination of one executive management
position in 2000 and a reduction in marketing expenses during 2001.
63
The net loss of approximately $3.2 million represents a decrease of
approximately $2.2 million or 40.7% as compared to the year ended December 31,
2000. The improvement in the net loss is a result of the increased revenue
attributable to adding new contracts with operating margins consistent with
earlier contracts while decreasing general and administrative expenses.
2000 as compared to 1999
Total revenues increased approximately $1.3 million or 100.7% for the
year ended December 31, 2000 as compared to the year ended December 31, 1999.
Cancer disease management revenues increased approximately $750,000 or 58.6%,
primarily resulting from the addition of a large contract that began operations
in July 2000, receiving a savings performance bonus for a contract that began
operations in late 1999, and providing cancer care management services to
several additional health plans. In addition, the Company began licensing the
ICMS in 2000, resulting in increased revenues of approximately $550,000.
Operating expenses increased approximately $834,000 or 17.4% for the
year ended December 31, 2000 as compared to the same period in 1999. The
increase was due to the increase in the number of clinical staff needed to
provide disease management services to patients enrolled with the new contracts
and technical staff and office space needed to support the systems license and
development contracts signed during 2000.
General and administrative expenses increased approximately $82,000 or
4.9% for the year ended December 31, 2000 as compared to the same period in
1999.
The net loss decreased approximately $178,000 or 3.2% to approximately
$5.5 million as a result of the increased revenue attributable to adding new
contracts with operating margins consistent with earlier contracts while keeping
general and administrative expenses relatively flat.
LIQUIDITY AND CAPITAL RESOURCES
LifeMetrix has financed its operations principally through private
placements of preferred stock resulting in cash proceeds, before offering
expenses, totaling $31.6 million as of March 31, 2002. Quality Oncology's
activities are financed through a cash concentration account with LifeMetrix.
All cash receipts and disbursements are recorded through this account and
applied to or against intercompany receivable and payable accounts. At March 31,
2002, Quality Oncology had a net balance due to LifeMetrix of $19.6 million as
compared to $19.1 million at December 31, 2001, resulting from these activities.
The increase of $500,000 was primarily due to additional cash required to
finance our operations. No interest is charged on the intercompany debt balance.
The acquisition agreement requires that at or prior to closing, there be no
amounts due to LifeMetrix or any subsidiary of LifeMetrix. It is expected that
LifeMetrix will forgive the net balance due from Quality Oncology to LifeMetrix
to the capital of Quality Oncology before the closing of the acquisition.
Net cash used in operating activities was $2.5 million for the year
ended December 31, 2001 and $467,000 and $962,000 for the three-month periods
ended March 31, 2002 and 2001, respectively. The decrease in cash used for the
three months ended March 31, 2002 was primarily the result of improved operating
results as compared with the comparable period in 2001. Improved operating
results during the first quarter of 2002 were attributable to the addition of
three new contracts as well as expansion into three additional regions for an
existing client.
Net cash provided from financing activities was $2.7 million for the
year ended December 31, 2001 and $470,000 for the three month period ended March
31, 2002 as compared to $1.0 million for the comparable period in 2001. The
increase in amounts provided by LifeMetrix for the three months ended March 31,
2002 were primarily due to additional cash required to finance our operations.
64
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States, which
require that management make numerous estimates and assumptions. Actual results
could differ from those estimates and assumptions, impacting our reported
results of operations and financial position. Our significant accounting
policies are described in Note 2 to the financial statements included elsewhere
in this document. The critical accounting policies described here are those that
are most important to the depiction of our financial condition and results of
operations and their application requires management's most subjective judgment
in making estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
Our compensation for providing cancer disease management services to
managed care organizations under service agreements is generally stipulated to
be on the basis of per patient per month or per case managed. Revenue is
recognized in the month the member is entitled to receive services (for
contracts stipulated on a per patient per month basis) or ratably as services
are provided (for contracts stipulated on a per case basis). The service
arrangements contain risk-sharing provisions targeted to the achievement of
certain agreed upon cost savings. The managed care organization may receive a
refund of payments depending upon the annual results of the contract. We
periodically review contract experience to determine whether or not a provision
for contract losses is required. If the actual results at the end of a contract
year are materially different than our periodic reviews indicate, we may be
required to refund a part or all of the revenues we have recorded during the
contract year. We may receive additional payments from managed care
organizations under these risk-sharing provisions if cost savings exceed defined
minimum amounts. We record amounts due under these provisions when they are
fixed and determinable.
Intangible Assets
If facts and circumstances indicate goodwill may be impaired, we
perform a recoverability evaluation. Prior to the adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, our policy was to
compare undiscounted estimated future cash flows to the carrying amount of our
net assets, including goodwill, to determine if the carrying amount was not
recoverable and a write-down to fair value was required. Effective January 1,
2002, in accordance with SFAS No. 142, we began performing the recoverability
analysis based on fair value rather than undiscounted cash flows. An analysis of
the fair value of the Quality Oncology reporting unit as of January 1, 2002
indicated that no impairment charge was required.
65
PRINCIPAL STOCKHOLDERS OF LIFEMETRIX
The following table sets forth certain information regarding the
beneficial ownership of LifeMetrix stock as of June 13, 2002, by (i) all persons
and entities known by LifeMetrix to be beneficial owners of more than 5% of its
outstanding common stock or preferred stock (ii) each current director and each
current executive officer of LifeMetrix, and (iii) all current directors and
executive officers of LifeMetrix as a group. Unless otherwise indicated, each of
the shareholders listed below has sole voting and investment power with respect
to the shares beneficially owned.
COMMON STOCK
AMOUNT OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER WNERSHIP CLASS(1)
------------------------ ---------- ----------
EXECUTIVE OFFICERS AND DIRECTORS:
Edmund C. Bujalski (2) .......................................... 590,000 13.1%
Eugene N. Langan (2) ............................................ 320,000 7.1%
Frederick C. Lee (2) (3) ........................................ 208,229 4.6%
Daniel T. McCrone, M.D. (2) ..................................... 125,000 2.8%
Gregory M. Jungles (2) .......................................... 105,460 2.3%
Carolyn Lowstuter (2) .......................................... 66,000 1.5%
Richard B. Weininger, M.D. (2) (3) .............................. 30,242 *
Larry H. Coleman ................................................ -- *
Charles W. Newhall, III ......................................... -- *
All executive officers and directors as a group (9 persons) ..... 1,444,931 32.2%
FIVE PERCENT STOCKHOLDERS:
Coleman Swenson Hoffman Booth IV, L.P. (5) ...................... 459,410 10.2%
237 Second Avenue South
Franklin, TN 37064
New Enterprise Associates VII, L.P. (4) ......................... 444,912 9.9%
1119 St. Paul Street
Baltimore, MD 21202
Larry House ..................................................... 400,000 8.9%
Seven Montagel
Shoal Creek, AL 35242
James G. Schwade ................................................ 333,010 7.4%
P.O. Box 96-0193
Miami, FL 33296-0193
Cerner Corporation .............................................. 290,923 6.5%
2800 Rockcreek Parkway
Kansas City, MO 64117
Venrock Associates (11) ......................................... 256,496 5.7%
30 Rockefeller Plaza
Room 5508
New York, NY 10112
66
AMOUNT OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------ ---------- ----------
Acacia Venture Partners, L.P. (12) .............................. 256,494 5.7%
101 California Street
Suite 3160
San Francisco, CA 94111
Steven Prelack .................................................. 250,000 5.6%
7 Wheelright Road
Medfield, MA 02052
*Less than 1%.
PREFERRED STOCK
AMOUNT OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (6)
------------------------------------ ---------- ----------
Coleman Swenson Hoffman Booth IV, L.P.(8) ....................... 4,255,994 24.2%
237 Second Avenue South
Franklin, TN 37064
New Enterprises Associates VII, L.P.(7) ......................... 3,790,158 21.5%
1119 St. Paul Street
Baltimore, MD 21202
Venrock Associates (9) .......................................... 2,020,427 11.5%
30 Rockefeller Plaza
Room 5508
New York, NY 10112
Acacia Venture Partners, L.P. (10) .............................. 2,019,633 11.5%
101 California Street
Suite 3160
San Francisco, CA 94111
Johnson & Johnson Development Corp. ............................. 1,545,928 8.8%
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
North Bridge Venture Partners, L.P. ............................. 1,326,390 7.5%
950 Winter Street
Suite 4600
Waltham, MA 02451
(1) Based on 4,488,918 shares of common stock outstanding on May
31, 2002.
(2) Includes shares issuable upon exercise of vested stock option
within 60 days of May 31, 2002 held by the following executive
officers and directors of LifeMetrix: Mr. Bujalski, 240,000;
Mr. Langan, 150,000; Dr. McCrone, 125,000; Mr. Jungles,
105,460; Ms. Lowstuter, 66,000; Mr. Lee, 15,000; and Dr.
Weininger, 11,500.
67
(3) Includes shares of common stock issuable upon exercise of
warrants held by the following directors: Mr. Lee, 17,347 and
Dr. Weininger, 18,742.
(4) Includes 444,912 shares of common stock issuable upon exercise
of warrants held by New Enterprise Associates VII, L.P. The
warrants to purchase common stock that are held by New
Enterprise Associates VII, L.P. and by the other preferred
stockholders shown in these tables (except for Dr. Weininger)
have an exercise price of $1.447 per share of common stock. By
comparison, the most recently issued stock options to
LifeMetrix employees have exercise prices of $.05 per share of
common stock. The warrants held by Dr. Weininger have an
exercise price of $3.805 per share of common stock.
(5) Includes 239,534 shares of common stock issuable upon exercise
of warrants held by Coleman Swenson Hoffman Booth IV, L.P., in
which Mr. Coleman is a general partner, and 219,876 shares of
common stock issuable upon exercise of warrants held by
Franklin Capital Associates III L.P., an affiliate of Mr.
Coleman.
(6) Based on 17,607,177 shares of preferred stock outstanding on
May 31, 2002.
(7) Includes 18,364 shares held by NEA President's Fund, L.P. and
1,225 shares held by NEA Ventures 1997, L.P., each of which is
a limited partnership. Certain of the general partners of NEA
President's Fund, L.P. are also general partners of New
Enterprises Associates VII, L.P. The general partner of NEA
Ventures 1997, L.P. is an employee of an entity that is owned
by some of the general partners of New Enterprise Associates
VII, L.P.
(8) Includes 1,252,927 shares held by Franklin Capital Associates
III L.P., which is a limited partnership. Certain of the
general partners of Coleman Swenson Hoffman Booth IV, L.P. are
also general partners of Franklin Capital Associates III L.P.
(9) Includes 1,157,911 shares held by Venrock Associates II, L.P.
and 33,180 shares held by Venrock Entrepreneurs Fund, L.P.,
each of which is a limited partnership. Certain of the general
partners of Venrock Associates II, L.P. and Venrock
Entrepreneurs Fund, L.P. are also general partners of Venrock
Associates.
(10) Includes 78,961 shares held by South Pointe Venture Partners,
L.P., a limited partnership. Certain of the general partners
of Acacia Venture Partners, L.P. are also general partners of
South Point Venture Partners, L.P.
(11) Includes 256,496 shares of common stock issuable upon exercise
of warrants held by Venrock Associates, Venrock Associates II,
L.P. and Venrock Entrepreneurs Fund, L.P. Certain of the
general partners of Venrock Associates II, L.P. and Venrock
Entrepreneurs Fund, L.P. are also general partners of Venrock
Associates.
(12) Includes 256,494 shares of common stock issuable upon exercise
of warrants held by Acacia Venture Partners, L.P. and South
Pointe Venture Partners, L.P. Certain of the general partners
of Acacia Venture Partners, L.P. are also general partners of
South Pointe Venture Partners, L.P.
68
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
MATRIA
Matria's common stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "MATR." The approximate
number of stockholders of record of Matria common stock as of June 14, 2002 was
1,015 record holders, with approximately 7,000 street holders.
Matria has not paid any cash dividends with respect to its common stock
and does not intend to declare any dividends in the near future. Matria is a
party to a Loan and Security Agreement and an Indenture, each of which contains
covenants restricting the payment of dividends on and repurchases of Matria's
common stock.
The following table sets forth, for the calendar quarters indicated,
the high and low sales prices of Matria common stock as quoted on Nasdaq from
January 1, 2000 through June 14, 2002:
QUARTER LOW HIGH
------- ------- -------
2000
----
First $ 16.24 $ 26.24
Second 11.75 21.00
Third 13.00 18.24
Fourth 7.25 14.24
2001
----
First $ 9.25 $ 16.63
Second 12.25 16.10
Third 15.05 25.15
Fourth 21.45 36.67
2002
----
First $ 15.75 $ 40.00
Second (through June 14, 2002) 10.15 25.59
Share prices have been adjusted to reflect a one-for-four reverse stock
split that took effect on December 5, 2000.
LIFEMETRIX
As of June 14, 2002, shares of LifeMetrix common stock were held by
approximately 84 stockholders of record and shares of LifeMetrix preferred
stock were held by approximately 23 stockholders of record.
Neither LifeMetrix common stock nor LifeMetrix preferred stock is
traded on an established trading market. There are, however, occasional
exercises of employee stock options for LifeMetrix common stock. The last known
sale of the LifeMetrix common stock by exercise of an employee stock option
occurred on _____, at a price of $.05 per share.
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COMPARISON OF STOCKHOLDERS RIGHTS
This section of the proxy statement/prospectus describes certain
differences between the rights of holders of LifeMetrix common stock and
LifeMetrix Series A through D preferred stock on the one hand and holders of
Matria common stock on the other. After the completion of the acquisition and
the subsequent dissolution of LifeMetrix, holders of LifeMetrix common stock may
and holders of LifeMetrix Series A through D preferred stock will become
stockholders of Matria. As a result, former LifeMetrix stockholders' rights will
be governed by Matria's certificate of incorporation and bylaws.
Because both LifeMetrix and Matria are organized under the laws of
Delaware, the differences in stockholders' rights arise from various provisions
of LifeMetrix's certificate of incorporation, the LifeMetrix Stockholders'
Agreement and the LifeMetrix bylaws, and Matria's certificate of incorporation
and the Matria bylaws. While we believe that the description covers the material
differences between the two, this summary may not contain all of the information
that is important to Matria stockholders and LifeMetrix stockholders. Matria
stockholders and LifeMetrix stockholders should read this entire document and
the other documents referred to carefully for a more complete understanding of
the differences between Matria common stock and LifeMetrix common and preferred
stock.
AUTHORIZED SHARES; SHARES OUTSTANDING
Matria's certificate of incorporation authorizes the issuance of up to
25,000,000 shares of common stock, par value $.01 per share, of which 8,991,862
shares were issued and outstanding as of April 24, 2002. Matria's certificate of
incorporation also authorizes the issuance of up to 50,000,000 shares of
preferred stock, par value $.01 per share. Matria's common stock is the only
class or series of Matria stock issued and outstanding.
LifeMetrix's certificate of incorporation authorizes the issuance of up
to 32,000,000 shares of common stock, par value $.001 per share, of which
4,488,918 shares were issued and outstanding as of June 13, 2002. LifeMetrix's
certificate of incorporation also authorizes the issuance of up to 18,000,000
shares of preferred stock, par value $.001 per share, of which 3,055,646 shares
have been designated as Series A Preferred Stock, 2,550,085 shares have been
designated as Series B Preferred Stock, 8,039,477 shares have been designated as
Series C Preferred Stock, and 3,962,000 shares have been designated as Series D
Preferred Stock. As of June 13, 2002, 3,055,646 shares of such Series A
Preferred Stock, 2,550,085 shares of such Series B Preferred Stock, 8,039,477
shares of such Series C Preferred Stock, and 3,961,969 shares of such Series D
Preferred Stock were issued and outstanding.
VOTING RIGHTS; CUMULATIVE VOTING
Under Delaware law, each stockholder is entitled to one vote per share
unless the certificate of incorporation provides otherwise. In addition, the
certificate of incorporation may provide for cumulative voting at all elections
of directors of the corporation. Each holder of Matria common stock is entitled
to one vote for each share held of record. Holders of Matria common stock are
not allowed to cumulate votes for the election of directors. Matria's
certificate of incorporation also authorizes Matria to issue preferred stock in
one or more series, with such voting powers, designations, preferences, rights,
qualifications, limitations or restrictions as Matria's board of directors may
determine. The Matria bylaws provide that a quorum consists of a majority of the
issued and outstanding shares of common stock entitled to vote, present in
person or represented by proxy; 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 is approved by at
least a majority of the shares required to constitute a quorum.
70
Each holder of LifeMetrix common stock is entitled to one vote for each
share held of record. Each holder of Series A, Series B, Series C, and Series D
preferred stock is entitled to the number of votes equal to the number of shares
of common stock into which such shares are convertible. Unless otherwise
required by Delaware law, holders of Series A, Series B, Series C and Series D
preferred stock vote together with holders of common stock as a single class on
all matters submitted to a vote of stockholders, provided however:
- The holders of at least a majority of the outstanding Series
A, Series B, Series C, and Series D preferred stock, voting
together as a single class, must approve the following:
- Amendment of the certificate of incorporation or
bylaws
- Redemption, acquisition or repurchase of any capital
stock or rights to acquire capital stock (other than
in accordance with the redemption and conversion
provisions of the certificate of incorporation)
- Sale, lease, transfer or other disposition of all or
substantially all of the assets of the corporation;
- Merger, statutory share exchange, consolidation, or
other reorganization of the corporation with or into
another corporation or entity;
- Liquidation, winding up, dissolution or adoption of
any plan for the same;
- Reclassification or other change of any capital stock
or any recapitalization of the corporation
- Sale of stock of any wholly owned subsidiary (other
than to the corporation)
- Increase or decrease in total number of authorized
shares of preferred stock (other than through
authorized redemption)
- Increase or decrease in number of authorized shares
of common stock
- The holders of at least a majority of the outstanding Series D
preferred stock, voting as a separate class, must approve the
following:
- Authorization or issuance of any stock or equity
security with preference or priority over, or on
parity with Series D Preferred Stock
- Modification of any of the rights of Series D
preferred stock related to liquidation or redemption
- Making Series D preferred stock redeemable at option
of corporation
- The holders of at least a majority of the outstanding Series
A, Series B, and Series C preferred stock, voting together as
a single class, must approve the following:
- Authorization or issuance of any stock or equity
security with preference or priority over, or on
parity with Series A, Series B, or Series C preferred
stock
- Modification of any of the rights of Series A, Series
B, or Series C preferred stock related to liquidation
or redemption
- Making Series A, Series B, or Series C preferred
stock redeemable at the option of the corporation
71
In addition, the corporation may not modify any of the conversion
rights or other special rights and preferences (other than those relating to
redemption and liquidation) of Series A, Series B, Series C, or Series D
preferred stock without approval of a majority of the outstanding Series A,
Series B, Series C, and Series D preferred stock, voting together as a single
class.
LifeMetrix's certificate of incorporation also authorizes the board of
directors to issue the remaining shares of authorized preferred stock in one or
more series, with such voting powers, designations, preferences, rights,
qualifications, limitations or restrictions as the board of directors may
determine, subject to the approval of a majority of the outstanding shares of
Series A, Series B and Series C preferred stock, voting as a single class, if
such new series of preferred stock has preferences or priorities over, or is on
parity with, the Series A, Series B or Series C preferred stock, and subject to
the approval of a majority of the outstanding shares of Series D preferred
stock, voting as a separate class, if such new series of preferred stock has
preferences or priorities over, or is on parity with, the Series D preferred
stock. The LifeMetrix bylaws provide that a quorum consists of a majority of the
issued and outstanding shares of stock entitled to vote, present in person or
represented by proxy.
SPECIAL RIGHTS OF LIFEMETRIX PREFERRED STOCK
In addition to the rights discussed above, LifeMetrix's certificate of
incorporation grants certain rights to the holders of LifeMetrix preferred
stock. Holders of Series A, Series B, Series C and Series D preferred stock may
at any time, at their option, convert their shares into shares of LifeMetrix
common stock. In addition, each share of Series A, Series B, Series C, and
Series D preferred stock will be automatically converted into shares of
LifeMetrix common stock upon:
- Firm commitment underwritten public offering with gross
proceeds of at least $15.0 million and with company market
valuation of at least $50.0 million; or
- Vote of holders of a majority of the outstanding Series A,
Series B, Series C and Series D preferred stock, voting
together as a single class.
LifeMetrix's certificate of incorporation provides that Series D
preferred stock is redeemable by the corporation at a price of $0.631 per share
upon the written consent or affirmative vote of holders of a majority of Series
D preferred stock. If all Series D preferred stock has been redeemed, Series A,
Series B, and Series C preferred stock is redeemable as follows upon majority
approval of Series A, Series B, and Series C preferred stock, voting together as
a single class:
- Series A - $3.334 per share;
- Series B - $6.00 per share;
- Series C - $1.594 per share
Redemption Date - Series A, Series B, Series C or Series D preferred
stock may be redeemed as described above beginning on March 24th (the
"Redemption Date") of any year subsequent to 2003. The Series A, Series B and
Series C preferred stock are to be redeemed in annual 25% increments over a four
year period beginning on the first Redemption Date.
72
LifeMetrix's certificate of incorporation provides that a merger,
statutory share exchange, or consolidation in which the holders of the
corporation's outstanding shares do not retain a majority of the voting power of
the surviving corporation, or the sale of all or substantially all the assets of
the corporation, is deemed a liquidation. It also provides that, in the event of
any liquidation, dissolution or winding up of the corporation, the holders of
Series D preferred stock shall be first entitled to receive, prior and in
preference to any distribution to holders of common stock, Series A, Series B or
Series C preferred stock, an amount per share in addition to declared but unpaid
dividends equal to $0.631 per share. After the payment of all amounts due
holders of Series D preferred stock and before any payment to common stock or
other junior stock, the holders of Series A, Series B, and Series C preferred
stock shall be entitled to receive an amount per share in addition to declared
but unpaid dividends equal to:
- $3.334 per share for each share of Series A preferred stock
- $6.00 per share for each share of Series B preferred stock
- $1.594 per share for each share of Series C preferred stock
After the payment of all preferential amounts due to holders of Series
A, Series B, Series C and Series D preferred stock, the remaining assets and
funds of LifeMetrix available for distribution shall be distributed among the
holders of common stock and Series A, Series B, Series C and Series D preferred
stock pro rata based upon the number of shares of common stock held by each,
assuming conversion of all such preferred stock.
PRE-EMPTIVE RIGHTS
Unless the certificate of incorporation expressly provides otherwise,
stockholders of a Delaware corporation do not have pre-emptive rights. Neither
Matria's nor LifeMetrix's certificate of incorporation provides for pre-emptive
rights. Under the LifeMetrix stockholders' agreement the preferred stock holders
of LifeMetrix have pro rata rights, based upon their holdings of preferred
shares, to purchase any new shares of debt or equity securities of LifeMetrix.
SOURCE AND PAYMENT OF DIVIDENDS
Delaware law provides that, unless restricted by the corporation's
certificate of incorporation, dividends may be declared from the corporation's
surplus or, if there is no surplus, from its net profits for the fiscal year in
which the dividend is declared and the preceding fiscal year. However, if the
corporation's capital has been diminished to an amount less than the aggregate
amount of the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, dividends may not
be declared and paid out of net profits until the deficiency in the capital has
been repaired. Matria's bylaws provide that dividends on the capital stock may
be declared by the board at any regular or special meeting, pursuant to Delaware
law, and may be paid in cash, in property or in shares of capital stock.
LifeMetrix's certificate of incorporation provides that holders of
capital stock of the corporation are entitled to receive dividends when declared
by the board of directors out of funds of the corporation legally available
therefore. LifeMetrix's certificate of incorporation further provides that no
dividends shall be paid on the common stock or any other stock ranking on
liquidation junior to the Series A, Series B, Series C, or Series D preferred
stock unless an equal or greater dividend is paid for each such share of Series
A, Series B, Series C and Series D preferred stock. All dividends on common
stock shall be declared pro rata per share of common stock. All dividends
declared upon Series A, Series B, Series C and Series D preferred stock shall be
declared pro rata per share, based upon the number of shares of common stock
into which each such share could be converted. The LifeMetrix bylaws provide
that dividends may be declared by the board of directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of capital
stock.
73
RECORD DATE FOR DETERMINING STOCKHOLDERS
Both Matria's and LifeMetrix's bylaws provide that the board of
directors may fix a record date that is no more than 60 days, nor less than 10
days, before the date of the annual or special meeting, nor more than 60 days
prior to any other action taken in lieu of a meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware law, a special meeting of stockholders may be called by
the board of directors or any other person authorized to do so in the
certificate of incorporation or the bylaws. Matria's bylaws authorize the board
of directors and any committee of the board of directors given such powers to
call a special meeting. In addition, the bylaws authorize the President or
Secretary to call a special meeting at the request in writing of a majority of
the board of directors, or at the request in writing of stockholders owning 75%
of the entire outstanding capital stock of the corporation entitled to vote.
The LifeMetrix bylaws authorize the President to call a special
meeting. In addition, the bylaws authorize the President or Secretary to call a
special meeting at the request in writing of a majority of the board of
directors or at the request in writing of the majority of the holders of
outstanding stock entitled to vote.
NUMBER AND TERM OF DIRECTORS
Matria's bylaws provide that the board of directors shall consist of
nine members. The number of directors may be changed exclusively by resolutions
adopted by the board of directors. Matria directors are elected to a term of
three years and until their successors are elected and qualified or until their
earlier resignation.
The LifeMetrix bylaws provide that the board of directors shall consist
of not less than three persons, the exact number to be determined by action of a
majority of the board of directors. The LifeMetrix Stockholders' Agreement
provides that the stockholders will take such action as required to cause the
board of directors to set the number of the board at seven members. LifeMetrix
directors are elected annually and until their successors are elected and
qualified.
According to the LifeMetrix Stockholders' Agreement, the seven
directors of LifeMetrix are designated as follows:
- One member by a majority of the shares held by certain
preferred stockholders (Group I Institutional Investors and
Group IV Institutional Investors)
- One member by Franklin Capital Associates III, L.P.
- One member by New Enterprise Associates VII, L.P.
- One member by Venrock Associates
- One of whom shall be Edmund C. Bujalski (as long as employee
of company)
- One of whom shall be Frederick C. Lee (as long as employee of
company); and
- One member by a majority of the shares held by former AOA
stockholders who acquired LifeMetrix shares in the 1998 merger
(Group II Institutional investors and such other investors
that acquired common stock pursuant to the 1998 Merger
Agreement, who are collectively designated as the AOA
Investors.)
Any replacement of Frederick C. Lee is to be designated by the holders
of a majority of the shares, on an as-converted basis, held by AOA Investors.
Any replacement of Edmund C. Bujalski is to be designated by the holders of a
majority of the shares, on an as-converted basis, held by all investors other
than the AOA Investors.
74
CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. Under Matria's
bylaws the board of directors of Matria is divided into three classes, as nearly
equal in number as possible, with one class being elected annually.
The LifeMetrix bylaws do not provide for a classified board of
directors.
REMOVAL OF DIRECTORS
Under Delaware law, any director or the entire board of directors
generally may be removed, with or without cause, by a majority of the shares
then entitled to vote at an election of directors. Except as otherwise provided
in the corporation's certificate of incorporation, a director of a corporation
that has a classified board of directors may be removed only with cause.
Matria's certificate of incorporation is silent as to removal of directors.
The LifeMetrix bylaws provide that its directors may be removed, with
or without cause, by the holders of a majority of shares entitled to vote at an
election of directors. In addition, the LifeMetrix Stockholders' Agreement
provides that any director may be removed, with or without cause, by the
investor or investors which designated such director, and such investor or
investors shall thereafter have the right to designate a replacement for such
director.
BOARD OF DIRECTOR VACANCIES
Under Delaware law, vacancies and newly created directorships may be
filled by a majority of the directors then in office, even though less than a
quorum, unless otherwise provided in the certificate of incorporation or the
bylaws. Matria's bylaws provide that any vacancy on the board of directors,
including any newly created directorship resulting from an increase in the
number of directors, may be filled by a majority of the board of directors then
in office.
The LifeMetrix bylaws provide that vacancies on the board of directors
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the shares having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
COMMITTEES OF THE BOARD OF DIRECTORS
Matria's bylaws provide that the board of directors may by resolution
designate one or more individuals to constitute a committee having the powers
and authority of the board of directors to the extent provided by the board of
directors. However, no committee shall have power or authority in reference to:
- Amending the certificate of incorporation
- Adopting an agreement of merger or consolidation
- Recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and
assets; or
- Amending the bylaws of the corporation
75
Matria's bylaws provide for an Audit Committee, Compensation
Committee, Nominating Committee, and such other committees as may be designated
by the board or directors.
The LifeMetrix bylaws provide that the board of directors may, by
resolution passed by a majority of the board, designate one or committees
consisting of one or more directors of the corporation. The committees shall
have the power and authority of the board of directors to the extent provided by
the board. However, no committee shall have power or authority in reference to:
- Amending the certificate of incorporation
- Adopting an agreement of merger or consolidation
- Recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and
assets
- Recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution; or
- Amending the bylaws of the corporation
APPRAISAL AND DISSENTERS' RIGHTS
Under Delaware law, holders of common stock of a Delaware corporation
who follow prescribed statutory procedures are entitled to dissent from a merger
or consolidation of the corporation and instead demand payment of the fair value
of their shares. Unless the certificate of incorporation provides otherwise,
dissenters do not have rights of appraisal with respect to their shares in the
case of:
(a) A merger or consolidation, if the shares owned by the
dissenters are:
- Listed on a national securities exchange designated
as a national market system security on an
inter-dealer quotation system by the NASD; or
- Held of record by more than 2,000 stockholders;
- Provided that, in such case, the stockholders shall
be entitled to rights of appraisal if the
stockholders of the constituent corporation are
required to accept anything in exchange for their
shares other than:
- shares in the surviving corporation;
- shares of another corporation that are
publicly listed or held by more than 2,000
stockholders
- cash in lieu of fractional shares; or
- any combination of the above; or
(b) A merger where the corporation in which they own shares is the
corporation that survives the merger if no vote of its
stockholders is required to approve the merger.
76
ACTION BY WRITTEN CONSENT IN LIEU OF A STOCKHOLDERS' MEETING
Under Delaware law, stockholders may take action by written consent in
lieu of voting at a stockholders meeting. Delaware law permits a corporation,
pursuant to a provision in such corporation's certificate of incorporation, to
eliminate the ability of stockholders to act by written consent. Matria's
certificate of incorporation eliminates the ability of stockholders to act by
written consent, except (i) as permitted by resolutions of the board, or (ii)
for the purposes of approving, authorizing or adopting any action or proposal
which has been approved, authorized and adopted by the board of directors.
The LifeMetrix bylaws provide that action by written consent may be
taken by a number of shares sufficient to approve an action at a meeting. Prompt
notice of the taking of stockholder action without a meeting by less than
unanimous written consent must be given to those stockholders who have not
consented in writing to the action.
AMENDMENT OF CHARTER DOCUMENTS
Certificate of Incorporation. In accordance with Delaware law, both
Matria's and LifeMetrix's certificate of incorporation may be amended by a
majority of the outstanding shares entitled to vote on the proposed amendment.
Bylaws. Under Delaware law, stockholders entitled to vote always have
the power to adopt, amend or repeal bylaws. A corporation may, in its
certificate of incorporation, confer such power upon the board of directors
(although such power may not interfere with the power of the stockholders to
adopt, amend or repeal bylaws). Matria's bylaws provide that its bylaws may be
amended, repealed or new bylaws adopted by (i) the affirmative vote of a
majority of the holders of at least a majority of the outstanding common stock
of the corporation, or (ii) the board of directors at any regular or special
meeting.
The LifeMetrix bylaws provide that its bylaws may be altered, amended
or appealed or new bylaws may be adopted by the stockholders or by the board of
directors at any regular or special meeting.
BOARD AND STOCKHOLDERS' APPROVAL OF CERTAIN REORGANIZATIONS
Delaware law requires the approval of the board of directors and the
holders of a majority of the outstanding shares entitled to vote thereon for
mergers or consolidations.
Delaware law does not, however, unless otherwise provided in the
certificate of incorporation, require a vote of the stockholders of the
corporation surviving the merger if:
- The merger agreement does not amend the surviving
corporation's certificate of incorporation; and
- Each share of the surviving common stock outstanding
immediately prior to the effective date of the merger is
identical to an outstanding or treasury share of the surviving
corporation after the merger; and
- Any authorized but unissued shares or treasury shares of the
surviving common stock to be issued or delivered under the
plan of merger plus those initially issuable upon conversion
of any other securities or obligations to be issued or
delivered under such plan do not exceed 20% of the shares of
the surviving common stock outstanding immediately prior to
the effective date of the merger.
Any sale, lease or exchange of all or substantially all of a
corporation's assets requires authorization by a majority vote of the
outstanding stock entitled to vote.
In addition, the LifeMetrix Stockholders' Agreement requires that any
merger, consolidation, statutory share exchange or acquisition must be approved
by the directors then sitting designated by Franklin Capital Associates III,
L.P., New Enterprise Associates VIII, L.P., and Venrock Associates.
77
SPECIFIC PROVISIONS RELATING TO SHARE ACQUISITIONS
Section 203 of the Delaware General Corporate Law prevents a
corporation from entering into certain business combinations, including mergers,
consolidations and sales of assets, with an interested common stockholder or its
affiliates. An interested stockholder is one who beneficially owns or has the
right to vote 15% or more of a company's outstanding shares. Section 203 does
not apply in the following situations:
- Prior to the person or entity becoming an interested
stockholder, the business combination or the acquisition
pursuant to which such person or entity became an interested
stockholder was approved by the corporation's board of
directors,
- Upon consummation of the acquisition in which he or she became
an interested stockholder, the interested stockholder holds at
least 85% of the corporation's common stock outstanding at the
time the acquisition commenced (excluding shares held by
persons who are both officers and directors and shares held by
employee stock plans); or
- Following the acquisition in which such person became an
interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of
at least two-thirds of the outstanding shares of common stock
(excluding shares owned by the interested stockholder) at an
annual or special meeting of the corporation's stockholders
(and not by written consent).
These restrictions imposed on interested stockholders do not apply
under limited circumstances where a company proposes, with the approval of the
majority of the directors who were directors before any person became an
interested stockholder, a merger or sale of at least 50% of its assets or
supports (or does not oppose) a tender offer for at least 50% of its voting
stock.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is authorized for
quotation on The Nasdaq Stock Market or is held by record by more than 2,000
stockholders. However, a Delaware corporation may elect not to be governed by
this statute in its certificate of incorporation or its bylaws. The
authorization of this provision must be approved by a majority of the shares
entitled to vote and, in the case of a bylaw amendment, may not be further
amended by the board of directors. Currently, Section 203 applies to Matria but
not to LifeMetrix.
If the statute applies, then for three years after a person becomes an
interested stockholder, the following acquisitions between the company and the
interested stockholder or persons related to that stockholder are prohibited:
- Sale, lease, exchange, mortgage, pledge, transfer or
acquisition (other than proportionately to stockholders) of
any interest in assets worth more than 10% of the market value
of the company's assets;
- Mergers and similar acquisitions;
- Loans or guarantees; and
- Subject to certain exceptions, the issuance or transfer of
stock or any rights to acquire stock of the company's
outstanding stock or the stock of its subsidiaries.
78
DIRECTOR LIABILITY AND INDEMNIFICATION
Delaware law permits a corporation to indemnify any director, officer,
employee or agent made or threatened to be made a party to any threatened,
pending or completed proceeding if the person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. Delaware corporations
must indemnify the individuals in connection with successful defenses of those
actions.
Matria's bylaws require Matria to indemnify directors and officers of
the corporation to the fullest extent permitted by Delaware law; provided,
however that the corporation will indemnify a person in connection with a
proceeding brought by them only if the board has authorized such proceeding. The
LifeMetrix bylaws require LifeMetrix to indemnify directors, officers, employees
and agents of the corporation to the fullest extent permitted by Delaware law.
Both the Matria and the LifeMetrix bylaws provide, in accordance with
Delaware law, that the corporation may advance expenses incurred by its
directors or officers in defending a civil or criminal action, suit or
proceeding covered under its indemnification provisions. However, such payment
will be made only if the corporation receives an undertaking by or on behalf of
that director or officer to repay all amounts advanced if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
LIMITATION ON DIRECTORS' LIABILITIES
Delaware law permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director to the corporation or its stockholders for damages for a breach of the
director's fiduciary duty. Both the Matria's and LifeMetrix's certificate of
incorporation include a provision limiting such liability to the fullest extent
permitted by law.
STOCKHOLDERS' RIGHTS PLAN
In January of 1996, Matria designated certain rights to its
stockholders in connection with the adoption of a stockholder rights agreement.
The rights plan contains provisions that are designed to protect stockholders in
the event of unsolicited attempts to acquire Matria. Under the terms of the
rights agreement, a common stock purchase right is attached to each outstanding
share of Matria common stock. If a person or group acquires beneficial ownership
of 15% or more of Matria's outstanding common stock or announces a tender offer
or exchange that would result in the acquisition of beneficial ownership of 20%
or more of Matria's outstanding common stock, the rights detach from the common
stock and are distributed to stockholders 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 $244 per unit. If Matria is acquired in a merger
or other business combination acquisition, 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 Matria's common stock or if a 15% or larger holder merges with
Matria and the common stock is not changed or exchanged in such merger, or
engages in self-dealing acquisitions with Matria, each right not owned by such
holder becomes exercisable for the number of common shares of Matria having a
market value of twice the exercise price of the right. The rights, which do not
have voting power, expire on March 9, 2006 unless previously distributed and may
be redeemed by Matria in whole at a price of $0.01 per right any time before and
within ten days after their distribution.
LifeMetrix has no stockholder rights plan.
79
MATRIA PROPOSAL 2: ELECTION OF CLASS I DIRECTORS
BACKGROUND
Under Matria's Certificate of Incorporation, the board of directors is
divided into three classes, with approximately one-third of the directors
standing for election each year. The three nominees for election this year are
Guy W. Millner, Carl E. Sanders and Thomas S. Stribling. Each has consented to
serve for an additional term. If any director is unable to stand for election,
the board of directors may, by resolution, provide for a lesser number of
directors or designated substitute. In the latter event, shares represented by
proxies may be voted for a substitute director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS I NOMINEES SET FORTH
BELOW
CLASS I NOMINEES FOR THE TERM EXPIRING IN 2005
GUY W. MILLNER, age 66, has been a director of Matria since October 4,
2000. Mr. Millner is Chairman of MI Holdings, a private investment firm. Until
the fall of 1997 he was Chairman of Norrell Corporation, a staffing services and
outsourcing firm, which he founded in 1961. From 1997 until July 1999 he served
as a director of Norrell Corporation, at which time Norrell Corporation merged
with Spherion Corporation.
CARL E. SANDERS, age 77, has served as a director of Matria since the
formation of Matria on March 8, 1996 and previously served as a director of
Healthdyne, Inc., a predecessor to Matria, from 1986 until 1996. Mr. Sanders, a
former governor of the State of Georgia, is Chairman of Troutman Sanders LLP, an
Atlanta based law firm that provides legal services to Matria.
THOMAS S. STRIBLING, age 59, has served as a director of Matria since
May 18, 2000. Mr. Stribling has been President and Chief Executive Officer of
DermaCo, Inc., a development stage dermatology company since September 1, 2001
and was an entrepreneur and private investor from September 1999 to September
2001. From 1998 to September 1999, he was President, Chief Executive Officer and
a board member of Scandipharm, Inc., a privately held pharmaceutical company.
Prior thereto, he was Vice Chairman and Chairman of the Advisory board of Legacy
Securities Corporation, an investment banking and securities group, from 1997 to
1998, and from 1994 to 1996, he was President of UCB Pharma, Inc., a division of
a Belgian-based pharmaceutical company.
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2004
PARKER H. PETIT, age 62, has served as Chairman of the board of Matria
since the formation of Matria through the Tokos/Healthdyne merger and as
President and Chief Executive Officer since October 5, 2000. In addition, he
served as a member of the three-person Office of the President during a brief
period in 1997. Mr. Petit was the founder of Healthdyne, Inc., and served as its
Chairman of the board of directors and Chief Executive Officer from 1970 until
the formation of Matria in 1996. Mr. Petit is also a director of Intelligent
Systems Corp. and Logility, Inc.
JEFFREY D. KOEPSELL, age 55, has served as a director of Matria and as
Executive Vice President and Chief Operating Officer since May 17, 2000. From
1992 to 1998, he was President and Chief Executive Officer of CardioLogic
Systems, Inc., a venture capital-backed company in the cardiopulmonary market
segment formed in cooperation with Johns Hopkins University and Medical Center.
Prior thereto, he served as President and Chief Executive Officer of Physiologic
Diagnostic Services, Inc., a women's health service provider acquired by Tokos
Medical Corporation in 1992. Mr. Koepsell is also a former executive of
Healthdyne, Inc.
80
DONALD W. WEBER, age 65, has served as a director of Matria since May
18, 2000. Mr. Weber is a private investor. He was President and Chief Executive
Officer of Viewstar Entertainment Services, Inc., a distributor of satellite
entertainment systems, from August 1993 until November 1997. Prior thereto, from
1987 to 1991 he was President and Chief Executive Officer of Contel Corporation,
a telecommunications supplier, which was sold in 1991 to GTE Corp. Mr. Weber is
also a director of Knology Holdings, Inc.
MORRIS S. WEEDEN, age 82, has served as a director of Matria since the
Tokos/Healthdyne merger and previously served as a director of Healthdyne from
1987 until the merger. Mr. Weeden, who is retired, was Vice Chairman - board of
directors of Morton Thiokol Inc., a salt, chemical, household and aerospace
products manufacturer, from March 1980 to December 1984. Previous positions held
by Mr. Weeden include Executive Vice President of Morton Norwich Products, Inc.
in charge of pharmaceutical operations, President of Morton International, a
pharmaceutical division of Morton Norwich Products, Inc., and President of
Bristol Laboratories, a pharmaceutical division of Bristol Myers Corp. Mr.
Weeden is also a director of Stat-Chem, Inc.
CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2003
JACKIE M. WARD, age 63, has served as a director of Matria since the
Tokos/Healthdyne merger. Ms. Ward was Founder, Chairman and Chief Executive
Officer of Computer Generation Incorporated, which she founded in 1968, until
December 2000. In December 2000, Computer Generation Incorporated was purchased
by Intec Telecom Systems. She currently serves in the capacity of Outside
Managing Director of Intec, a British based corporation engaged in designing and
producing computer software systems for telecommunications and other specialized
applications. Ms. Ward is also a former Chairperson of the board of Regents of
the University System of Georgia and former Chairman of the Metro Atlanta
Chamber of Commerce, as well as a director of Bank of America, Equifax, Inc.,
Flower Foods, Inc., PTEK Holdings, Inc., PRG-Schultz International, Inc.,
Sanmina-SCI Corporation, SYSCO Corporation and Trigon Healthcare, Inc. and a
member of several other civic and government organizations.
FREDERICK P. ZUSPAN, M.D., age 80, has served as a director of Matria
since the Tokos/Healthdyne merger and previously served as a director of
Healthdyne from 1993 until the merger. Dr. Zuspan, who has been a physician
since 1951, has been Professor and Chairman Emeritus, Department of Obstetrics
and Gynecology at the Ohio State University College of Medicine since July 1991
and Editor-in-Chief of the American Journal of Obstetrics and Gynecology since
1991 and as an editor since 1969. Dr. Zuspan was previously Professor of the
Ohio State University College of Medicine from 1987 to 1991 and Professor and
Chairman of the Department of Obstetrics and Gynecology at the Ohio State
University College of Medicine from 1975 to 1987, at the University of Chicago,
Pritzker School of Medicine from 1966 to 1975, and at the Medical College of
Georgia from 1960 to 1966.
81
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the beneficial
ownership of shares of Matria's common stock as of April 1, 2002 by (i) all
stockholders known by Matria to be the beneficial owners of more than five
percent of its common stock, (ii) each director of Matria, (iii) each executive
officer named in the "Executive Compensation" section below, and (iv) all
executive officers and directors as a group. Unless otherwise indicated, the
holders listed below have sole voting and investment power with respect to all
shares beneficially owned by them.
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS
OWNERSHIP (1) (2)
---------------------------------------------------------------------------------------------------------
FMR Corp. (3) 1,011,800 11.1%
Edward C. Johnson, III (3) 1,011,800 11.1%
Abigail P. Johnson (3) 1,011,800 11.1%
Safeco Corporation (4) (5) 956,075 10.6%
Safeco Asset Management Company (6) (5) 956,075 10.6%
Wellington Management Company, LLP (7) 896,100 10.0%
Lord, Abbett & Co. (8) 663,550 7.4%
Safeco Common Stock Trust (9) 657,575 7.3%
Fidelity Small Cap Stock Fund (3) 550,900 6.1%
Fidelity Management & Research Company (3) 300,200 3.3%
Dimensional Fund Advisors, Inc. (10) 568,150 6.3%
Vanguard Explorer Fund (11) 553,200 6.2%
Gruber and McBaine Capital Management, LLC (12) 514,020 5.7%
John D. Gruber (12) 514,020 5.7%
J. Patterson McBaine (12) 514,020 5.7%
Thomas O. Lloyd-Butler (12) 514,020 5.7%
Eric B. Swergold (12) 514,020 5.7%
Parker H. Petit (13) 458,686 5.1%
Jeffrey D. Koepsell (14) 10,500 --
Frank D. Powers (15) 141,318 1.6%
George W. Dunaway (16) 15,329 --
James P. Reichmann (17) 40,338 --
Guy W. Millner (18) 11,250 --
Carl E. Sanders (19) 20,625 --
Thomas S. Stribling (20) 9,500 --
Jackie M. Ward (21) 18,750 --
Donald W. Weber (22) 10,000 --
Morris S. Weeden (23) 21,250 --
Frederick P. Zuspan (24) 22,879 --
All current executive officers and directors 666,024 7.4%
as a group (13 persons)
-- Less than 1%
(1) Under the rules of the SEC, a person is deemed to be a beneficial owner
of a security if he or she has or shares the power to vote or to direct
the voting of such security ("voting power") or the power to dispose or
to direct the disposition of such security ("investment power"). A
person is also deemed to be a beneficial owner of any securities of
which that person has the right to acquire beneficial ownership within
60 days as well as any securities owned by such person's spouse,
children or relatives living in the same house. Accordingly, more than
one person may be deemed to be a beneficial owner of the same
securities.
(2) Based on 8,984,495 shares of common stock outstanding on April 1, 2002.
With respect to each person or group in the table, assumes that such
person or group has exercised all options, warrants and other rights to
82
purchase common stock which he or she beneficially owns and which are
exercisable within 60 days and that no other person has exercised any
such rights.
(3) The address of these beneficial owners is 82 Devonshire Street, Boston,
Massachusetts 02109. According to a Schedule 13G/A filed March 11, 2002
by FMR Corp., Edward C. Johnson, III, Abigail P. Johnson, Fidelity
Management & Research Company and Fidelity Small Cap Stock Fund, FMR
possesses sole voting power with respect to 260,800 shares and sole
investment power as to 1,011,800 shares. FMR is the parent company of
Fidelity Management and Research Company, an investment advisor
registered under the Investment Advisors' Act of 1940, which
beneficially owns 754,400 shares, or 8.613% of the shares outstanding,
as a result of acting as investment advisor to various investment
companies. One of these investment companies, Fidelity Small Cap Stock
Fund, is the beneficial owner of 550,900 shares or 6.29% of the shares
outstanding. Edward C. Johnson 3rd and FMR, through its control of
Fidelity, and the funds each has sole power to dispose of 754,400
shares owned by the funds. Neither FMR nor Edward C. Johnson 3rd has
the sole power to vote or direct the voting of the shares owed directly
by the funds, which power resides with the funds' boards of trustees.
Fidelity Management Trust Company, a wholly owned subsidiary of FMR, is
the beneficial owner of 257,400 shares as a result of serving as
investment manager to institutional accounts, and Edward C. Johnson 3rd
and FMR each has sole dispositive power over 257,400 shares and sole
voting power as to 257,400 shares owned by such institutional accounts.
Members of the Edward C. Johnson 3rd family are the predominant owners
of the Class B shares of common stock of FMR, which class holds
approximately 49% of the voting power of FMR. Through their stock
ownership and the operation of a stockholders voting agreement to which
they are parties, members of the Johnson family may be deemed to form a
controlling group with respect to FMR under the Investment Company Act
of 1940.
(4) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on January 22, 2002. The
address of Safeco Corporation is Safeco Plaza, Seattle WA 98101.
(5) The reporting person disclaims any beneficial ownership of 942,325 of
the shares reported. Those reported shares are owned beneficially by
registered investment companies for which the reporting person serves
as an adviser, and include the shares reported in this proxy
statement/prospectus by Safeco Common Stock Trust.
(6) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on January 22, 2002. Safeco
Asset Management Company is the subsidiary on which Safeco Corporation
reports as the parent holding company. Safeco Asset Management Company
is an investment adviser, and its reported shares are owned
beneficially by registered investment companies for which Safeco Asset
Management Company serves as investment adviser. The address of Safeco
Asset Management Company is 601 Union Street, Suite 2500, Seattle, WA
98101.
(7) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on April 10, 2002. The
address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts 02109. According to its Schedule 13G, Wellington,
in its capacity as investment adviser, may be deemed to beneficially
own 896,100 shares of Matria's common stock, which shares are held of
record by clients of Wellington. Wellington reports that it has no
power to vote or direct the vote of such shares and shared power to
dispose or direct the disposition of such shares, while its clients
have the right to receive, or direct the receipt of, dividends from, or
proceeds from the sale of, such shares.
(8) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on January 28, 2002. The
address of Lord, Abbett & Co. is 90 Hudson Street, Jersey City, New
Jersey 07302.
(9) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on January 22, 2002. The
address of Safeco Common Stock Trust is 10865 Willows Road NE, Redmond,
WA 98052.
83
(10) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on February 12, 2002. The
address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(11) The number of shares owned is based on information contained in a
report on Schedule 13G/A filed with the SEC on January 31, 2002.
According to its Schedule 13G, Vanguard Explorer Fund has the sole
power to vote or direct the vote of such shares and shared power to
dispose or direct the disposition of such shares. The address of
Vanguard Explorer Fund is Post Office Box 2600, Valley Forge,
Pennsylvania 19482.
(12) The address of these beneficial owners is 50 Osgood Place, Penthouse,
San Francisco, CA 94133. According to a Schedule 13G filed February 27,
2002 by Gruber and McBaine Capital Management, LLC, Jon D. Gruber, J.
Patterson McBaine, Thomas O. Lloyd-Butler, and Eric B. Swergold, Gruber
and McBaine Capital Management, LLC possesses shared voting and
investment power with respect to 514,020 shares. Jon D. Gruber has the
sole voting power with respect to 66,350 shares and shared voting and
investment power with respect to 514,020 shares. J. Patterson McBaine
has sole voting power with respect to 50,675 shares and shared voting
and investment power with respect to 514,020 shares. Each of Thomas O.
Lloyd-Butler and Eric B. Swergold has shared voting and investment
power with respect to 514,020 shares.
(13) Represents 391,395 shares owned by Mr. Petit, 13,125 shares held by
Petit Investments Limited Partnership, 2,500 shares held by Petit
Grantor Trust and 51,666 shares which are subject to purchase upon
exercise of options exercisable within 60 days.
(14) Represents 3,000 shares owned by Mr. Koepsell and 7,500 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(15) Represents 13,692 shares owned by Mr. Powers and 127,626 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(16) Represents 7,413 shares owned by Mr. Dunaway and 7,916 shares which are
subject to purchase upon exercise of options exercisable within 60
days.
(17) Represents 5,068 shares owned by Mr. Reichmann and 35,270 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(18) Represents 10,000 shares owned by Mr. Millner and 1,250 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(19) Represents 3,125 shares owned by Mr. Sanders and 17,500 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(20) Represents 4,500 shares owned by Mr. Stribling and 5,000 shares which
are subject to purchase upon exercise of options exercisable within 60
days.
(21) Represents shares which are subject to purchase upon exercise of
options exercisable within 60 days.
(22) Represents 5,000 shares owned by Mr. Weber and 5,000 shares which are
subject to purchase upon exercise of options exercisable within 60
days.
(23) Represents 3,750 shares owned by Mr. Weeden and 17,500 shares which are
subject to purchase upon exercise of options exercisable within 60
days.
(24) Represents 217 shares owned by Dr. Zuspan, 125 shares held by Zuspan &
Associates Partnership, 3,787 shares owned by Dr. Zuspan's wife and
18,750 shares which are subject to purchase upon exercise of options
exercisable within 60 days.
84
BOARD COMMITTEES AND ATTENDANCE
In addition to an executive committee and other single purpose
committees established from time to time to assist the board of directors with
particular tasks, Matria's board of directors has the following standing
committees: a compensation and stock option committee, an audit committee and a
nominating committee.
The compensation committee is composed of Thomas S. Stribling, Morris
S. Weeden and Frederick P. Zuspan, M.D. The compensation committee is
responsible for the recommendation and approval of salaries of executive
officers and the review and approval of incentive plans, including stock options
and related programs. The compensation committee held eight meetings during the
year ended December 31, 2001.
The audit committee is composed of Jackie M. Ward, Guy W. Millner and
Morris S. Weeden. All members of the audit committee are "independent" as
defined by the listing standards of the National Association of Securities
Dealers. The audit committee evaluates the independence and performance of
Matria's independent accountants, handles relations with Matria's independent
accountants and evaluates the integrity of Matria's financial reporting process
and its policies and procedures relating to internal accounting functions and
controls. The audit committee held six meetings during the year ended December
31, 2001.
The nominating committee is composed of Parker H. Petit, Guy W. Millner
and Carl E. Sanders. The nominating committee identifies, screens and recommends
candidates for appointment to the board of directors for consideration by the
full board of directors of Matria and by the stockholders of Matria. The
nominating committee will consider a candidate for a director proposed by a
stockholder. A candidate must be highly qualified and be both willing and
expressly interested in serving on the board of directors. A stockholder wishing
to propose a candidate for the nominating committee's consideration should
forward the candidate's name and information about the candidate's
qualifications to Matria Healthcare, Inc., 1850 Parkway Place, Marietta, Georgia
30067, Attention: Corporate Secretary. The nominating committee held one meeting
during the year ended December 31, 2001.
During the year ended December 31, 2001, the board of directors held
ten meetings. Except for Ms. Ward who was unavoidably absent at four board of
directors meetings, each of the Directors who served as directors during 2001
attended more than 75% of the total number of board of directors meetings and
meetings of committees of which he or she was a member during 2001.
85
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to Matria's Chief
Executive Officer and the four other most highly compensated executive officers
for their services in all capacities to Matria and its subsidiaries in fiscal
years 2001, 2000, and 1999:
SUMMARY COMPENSATION TABLE
Long-term All Other
Annual Compensation Compensation Awards Compensation
------------------- ------------------- ------------
Securities Underlying ($) (1)
Name and Principal Position Year Salary ($) Bonus ($) Options (#)
--------------------------- ---- ---------- ------------ --------------------- ------------
Parker H. Petit (2) 2001 $ 425,038 -0- 238,750 $ 524,449
Chairman of the Board, 2000 96,924 -0- 41,250 472,603
President and 1999 -0- -0- 17,500 506,370
Chief Executive Officer
Jeffrey D. Koepsell (3) 2001 $ 320,031 -0- 119,935 $ 279
Executive Vice President and 2000 189,231 -0- 22,500 300
Chief Operating Officer
Frank D. Powers (4) 2001 $ 300,000 $ 119,513 28,856 $ 207,829
President, Population Health 2000 315,599 73,991 21,250 203,270
Management 1999 320,494 -0- 21,350 179,446
George W. Dunaway (5) 2001 $ 215,918 -0- 14,145 $ 5,290
Vice President - Finance and 2000 203,355 -0- 1,875 5,288
Chief Financial Officer 1999 50,000 -0- 10,000 21,821
James P. Reichmann (6) 2001 $ 218,416 -0- 16,856 $ 145,834
President, Women's Health 2000 205,900 -0- 7,544 127,837
1999 188,055 -0- 6,525 118,104
(1) Details of amounts reported in "All Other Compensation" column are
provided in the table below.
(2) Mr. Petit was elected President and Chief Executive Officer on October
5, 2000.
(3) Mr. Koepsell was elected to this position on May 17, 2000.
(4) Mr. Powers served as President, Population Health Management through
December 31, 2001. Mr. Powers has resigned his employment with Matria
effective March 31, 2002.
(5) Mr. Dunaway was elected to this position on October 5, 1999.
(6) Mr. Reichmann was elected to the new position of Corporate Vice
President of Strategic Sales on February 11, 2002.
86
ITEM MR. PETIT MR. KOEPSELL MR. POWERS MR. DUNAWAY MR. REICHMANN
---- ---------- ------------ ---------- ----------- -------------
Officer Term Life 2001 $ 29,698 $ 279 $ 5,669 $ 190 $ 2,001
Insurance 2000 30,098 300 5,946 188 1,045
1999 29,949 N/A 5,985 29 988
Split Dollar 2001 $ 280,088 $-0- $ 201,583 $-0- $ 138,733
Insurance Premium 2000 330,005 -0- 192,224 -0- 121,692
Value 1999 326,421 N/A 168,661 -0- 112,316
401(k) Matching 2001 $-0- $-0- $ 577 $ 5,100 $ 5,100
Contributions 2000 -0- -0- 5,100 5,100 5,100
1999 N/A N/A 4,800 -0- 4,800
Non-Employee Board 2001 N/A N/A N/A N/A N/A
Retainer 2000 $ 112,500 N/A N/A N/A N/A
1999 150,000 N/A N/A N/A N/A
Relocation Expenses 2001 N/A N/A N/A N/A N/A
2000 N/A N/A N/A N/A N/A
1999 N/A N/A N/A $ 21,792 N/A
Loan Forgiveness (1) 2001 $ 214,663 N/A N/A N/A N/A
2000 N/A N/A N/A N/A N/A
1999 N/A N/A N/A N/A N/A
Total All Other 2001 $ 524,449 $ 279 $ 207,829 $ 5,290 $ 145,834
Compensation 2000 472,603 300 203,270 5,288 127,837
1999 506,370 N/A 179,446 21,821 118,104
(1) See "Certain Relationships and Related Transactions."
87
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to the Chief Executive Officer and four other most highly compensated
executive officers of Matria during 2001:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
------------------------------------------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ ----------- ---------- --------- ---------
Parker H. Petit 38,750(2) 6.3% $14.63 2/16/2001 $ 356,528 $ 903,513
200,000(3) 32.5% $15.85 5/24/2011 1,993,596 5,052,164
Jeffrey D. Koepsell 19,935(2) 3.2% $14.63 2/16/2011 183,417 464,813
100,000(3) 16.2% $15.85 5/24/2011 996,798 2,526,082
Frank D. Powers 13,356(2) 2.2% $14.63 2/16/2011 122,885 311,415
5,000(3) 0.8% $15.85 5/24/2011 49,840 126,304
10,500(4) 1.7% $18.91 7/24/2011 124,870 316,446
George W. Dunaway 6,645(2) 1.1% $14.63 2/16/2011 61,138 154,938
1,500(3) 0.2% $15.85 5/24/2011 14,952 37,891
6,000(4) 1.0% $18.91 7/24/2011 71,354 180,826
James P. Reichmann 6,856(2) 1.1% $14.63 2/16/2011 63,080 159,858
2,500(3) 0.4% $15.85 5/24/2011 24,920 63,152
7,500(4) 1.2% $18.91 7/24/2011 89,193 226,033
(1) Based on actual option term and annual compounding. These amounts are
calculated pursuant to applicable requirements of the SEC and do not
represent a forecast of the future appreciation of Matria's common
stock.
(2) These options to purchase Matria's common stock were granted on
February 16, 2001 as follows: a total of 72,041 shares under Matria's
2000 Stock Incentive Plan, 6,645 shares under Matria's 1997 Stock
Incentive Plan and 6,856 shares under Matria's 1996 Stock Incentive
Plan. Full vesting shall occur not before two years and not later than
four years from the date of grant, based on performance vesting
thresholds.
(3) These options to purchase Matria's common stock were granted on May 24,
2001 as follows: a total of 100,000 shares under Matria's 2001 Stock
Incentive Plan, 186,250 shares under Matria's 2000 Stock Incentive
Plan, 10,248 shares under Matria's 1997 Stock Incentive Plan and 3,502
shares under Matria's 1996 Stock Incentive Plan. Full vesting shall
occur not before two years and not later than four years from the date
of grant, based on performance vesting thresholds.
(4) These options to purchase Matria's common stock were granted on July
24, 2001 as follows: a total of 16,500 shares under Matria's 1997 Stock
Incentive Plan and 7,500 shares under Matria's 1996 Stock Incentive
Plan. Full vesting shall occur not before two years and not later than
four years from the date of grant, based on performance vesting
thresholds.
88
STOCK OPTION EXERCISES
The following table sets forth information with respect to the Chief
Executive Officer and four other most highly compensated executive officers of
Matria concerning the exercise of options in 2001 and unexercised options held
as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY - END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
YEAR END(#) YEAR END($)(1)
---------------------------- --------------------------------
VALUE REALIZED
SHARES (MARKET PRICE
ACQUIRED ON AT EXERCISE LESS
NAME EXERCISE (#) EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ---------------- ----------- ------------- ----------- -------------
Parker H. Petit -0- -0- 38,750 277,500 $ 601,938 $ 5,330,413
Jeffrey D. Koepsell -0- -0- 7,500 134,935 124,725 2,256,150
Frank D. Powers -0- -0- 108,512 47,058 1,136,253 784,876
George W. Dunaway 988 $ 2,315 3,958 22,062 66,967 389,342
James P. Reichmann 990 $ 2,323 26,934 27,707 319,801 466,925
(1) Based on $34.63, the last sale price of Matria's common stock on
December 31, 2001.
COMPENSATION OF DIRECTORS
The directors who are employees of Matria receive no additional
compensation for serving on the board of directors. Directors who are not
employees of Matria receive a fee of $3,000 per quarter, plus $1,000 for each
board of directors meeting attended and $750 for each committee meeting attended
on a day other than a day on which a regular meeting of the board of directors
is held, and are reimbursed for any travel expenses incurred.
In addition, under the 2000 Directors' Non-Qualified Stock Option Plan,
all non-employee directors are entitled to receive an initial grant of options
to purchase 1,250 shares of Matria's common stock and at each annual meeting of
stockholders after their first full year serving as a director, an additional
grant of options to purchase 3,750 shares of common stock. The option price for
all such options is the fair market value of the underlying common stock on the
date of grant. Options have a ten year term and vest monthly over 12 months. On
May 24, 2001, each non-employee director other than Mr. Millner was awarded an
option to purchase 3,750 shares of common stock at a price of $15.85 per share
under the 2000 Directors' Non-Qualified Stock Option Plan.
SEVERANCE AGREEMENTS
Matria and Mr. Powers are party to a severance agreement, dated April
27, 1999. The severance agreement provides for a lump sum severance payment to
Mr. Powers in the event that his employment is involuntarily terminated for
reasons other than his death, disability or "cause" (defined as certain acts of
criminal or civil fraud), or if he voluntarily terminates employment for "good
reason" (defined as failure to be reelected as an officer of Matria, reduction
in base salary, discontinuance of certain incentive or stock option plans or
actions materially adversely affecting his participation therein, or failure to
honor earned and accrued vacation balances). The
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severance payment is in an amount equal to two times Mr. Powers' annual base
salary and targeted base bonus as of the date of the agreement. Mr. Powers also
is entitled to a lump sum severance payment if he voluntarily terminates his
employment without "good reason" at any time after the first year of the
agreement. In such case, the severance payment is equal to the severance amount
less the amount of any gain accruing to Mr. Powers after the date of the
agreement with respect to stock options granted to him by Matria (whether the
grant date is before or after the date of the agreement) through the earlier of
the date of exercise or the date of expiration of the option. In addition, in
circumstances in which he also is entitled to a severance payment, he also is
entitled to receive, for a period of two years after the date of termination,
life, disability and health insurance coverage, automobile allowance and other
fringe benefits equivalent to those in effect at the date of termination of
employment. The agreement requires Mr. Powers to comply with certain covenants
that preclude him from competing with Matria or soliciting customers or
employees of Matria for a period of two years following termination of
employment. Mr. Powers terminated his employment with Matria for "good reason"
on March 31, 2002, thereby entitling him to a severance payment of $969,931 and
continuation of benefits as provided in the agreement.
In addition to the agreement discussed in the preceding paragraph,
Matria entered into change in control severance agreements with Mr. Powers. Mr.
Powers' agreement terminated upon termination of his employment on March 31,
2002.
Mr. Petit, Mr. Koepsell and Mr. Dunaway have severance agreements with
Matria dated as of ____________, 2002. Under the agreements, if the executive's
employment with Matria terminates following the consummation of a "change in
control" for reasons other than the executive's death, disability or retirement,
or by Matria for "cause" (as defined in the preceding paragraph), or if the
executive terminates employment for "good reason" (which is defined to include
the reasons set forth in the preceding paragraph as well as other reasons, such
as a reduction in powers and responsibilities or an adverse change in title
following a change in control), the executive will receive a lump sum severance
payment equal to a multiple of the executive's annual base salary as of the date
of the change in control. The multiples applicable to Mr. Petit, Mr. Koepsell
and Mr. Dunaway are three, two and one, respectively. In addition, following
termination of employment, the executives are entitled to receive for a period
of three years in the case of Mr. Petit, two years in the case of Mr. Koepsell
and one year in the case of Mr. Dunaway, all life, disability and health
insurance coverage, automobile allowances and other fringe benefits equivalent
to those in effect at the date of termination and will be entitled to receive
additional amounts, if any, relating to any excise taxes imposed on the
executive as a result of Section 280(g) of the Internal Revenue Code of 1986, as
amended. The agreements require the executive to comply with certain covenants
that preclude the executive from competing with Matria or soliciting customers
or employees of Matria for a period following termination of employment equal to
the period for which fringe benefits are continued under the applicable
agreement.
On May 16, 2000, Matria entered into a letter agreement with Mr.
Koepsell providing for 12 months of severance pay and benefits if Matria
terminates Mr. Koepsell's employment for reasons other than "for cause." The
letter agreement also provides that if Matria terminates Mr. Koepsell's
employment other than "for cause" within 24 months of his hire date, Matria will
retain Mr. Koepsell as a consultant on a "prn" basis for the balance of the
24-month period, at compensation to be decided upon at the sole discretion of
Matria and deducted from the 12-month severance pay to which he would otherwise
be entitled.
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Notwithstanding anything to the contrary set forth in any of Matria's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this document, in whole
or in part, the compensation committee report on corporate compensation, the
report of the audit committee and the stock performance graph shall not be
incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Matria's executive compensation program is designed to (1) integrate
pay and incentive plans with Matria's strategic goals, so as to align the
interests of management with the long-term interests of Matria's stockholders,
(2) attract, motivate and retain executives capable of achieving Matria's
strategic business goals (3) recognize outstanding individual contributions and
(4) provide compensation opportunities that are competitive with those offered
by other companies of similar size and performance, especially within the
healthcare industry. To achieve these goals, Matria's executive compensation
program consists of three elements: (i) base salary, (ii) annual cash bonus, and
(iii) long-term incentives in the form of stock options. Each element of
compensation has an integral role in the total executive compensation program,
including the compensation of the Chief Executive Officer and four other most
highly compensated executive officers.
In making its compensation determinations, the compensation committee
evaluates, on both an absolute and relative basis, a variety of Company
financial results (including sales, earnings, return on equity, return on assets
and balance sheet strength), market share and competitive position, the
potential for future growth, the overall importance of the individual to the
organization and the individual and group performance of senior management and
compensation levels at comparable companies, especially within the healthcare
industry. In formulating its determinations, it recognizes and rewards
achievements on an annual basis, while emphasizing the value and importance of
sustained long-term performance and recognition of developing trends within the
healthcare industry. The compensation committee reviews information prepared or
compiled by Matria, and also draws on the business experience of the individual
members of the compensation committee.
Cash Compensation. Officers and other employees are compensated within
salary ranges that are generally based on similar positions in companies of
comparable size and complexity to Matria. The actual base pay level for each
executive officer is based on a combination of experience, performance and other
factors that are determined to be important by the committee. The salary of the
executive officers is generally reviewed annually at the beginning of each year,
with the amount of any increases based on factors such as Matria's performance,
general economic conditions, marketplace compensation trends and individual
performance.
Cash bonuses for management are paid under Matria's incentive bonus
plan. Bonuses under the management incentive plan are computed as a percentage
of year-end base salary. The amount of and entitlement to bonuses paid under the
management incentive plan are based upon the performance of Matria in comparison
to its operating budget. The committee determines the participants in the
management incentive plan and sets the target bonus levels and performance
criteria in the first quarter of each year.
Stock Options. Matria grants stock options to certain of its management
employees, based on guidelines that take salary level, tenure, individual
performance rating and importance to Matria into account. Stock options have
been granted at exercise prices equal to the market price on the date of grant
and typically become exercisable in one of two ways: (i) based on the financial
performance of Matria or (ii) 50% on the third anniversary of the grant and 50%
on the fourth anniversary of the grant. Stock options expire on the tenth
anniversary.
CEO Compensation. Mr. Petit has served as Matria's Chief Executive
Officer since October 5, 2000. Mr. Petit's initial negotiated compensation
package was finalized after extensive discussions between the compensation
committee and the executive search firm Matria engaged to assist in recruiting a
new chief executive officer as well as with other candidates for the position,
and a review of comparative data of selected peer companies. The committee
believes that Mr. Petit's package meets Matria's compensation goals as stated
above. Mr. Petit's initial annual base salary was $400,000. Mr. Petit's base
salary increased to $430,000 effective March 1, 2001 and increased to $451,500
effective March 31, 2001. These increases were based on available competitive
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information and inflation factors. On February 16, 2001 and May 24, 2001 Mr.
Petit was granted options to purchase 38,750 and 200,000 shares, respectively,
of Matria's common stock.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation committee consisted of Thomas S. Stribling, Morris S.
Weeden and Frederick P. Zuspan during 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is responsible for executive compensation
decisions as described above. No member of the compensation committee is
currently or has served as an executive officer or employee of Matria.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Carl E. Sanders, a director of Matria, is also the Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia, which provided
certain legal services to Matria in fiscal year 2001 and is expected to be
retained by Matria in the future.
In 2001, Matria had certain business relationships with MarketRing.com,
Inc. ("MarketRing"), a privately held company located in the Atlanta area.
Matria licenses from MarketRing certain software, and MarketRing provides
certain software development and website hosting services to Matria. Payments to
MarketRing under the agreements in 2001 totaled $2,182,217. Hosting and
maintenance fees payable to MarketRing in 2002 will approximate $450,000. Future
development fees will vary depending on the amount of development efforts Matria
undertakes.
In June 2002, Matria completed an acquisition of MarketRing through a
merger of a wholly owned subsidiary of Matria with MarketRing. In the merger
Matria issued 295,787 shares of common stock in exchange for all of the
outstanding shares of capital stock of MarketRing and reserved an additional
27,500 shares of Matria common stock for issuance upon exercise of MarketRing
options assumed and a warrant issued by Matria pursuant to the merger agreement.
Matria will hold 31,000 shares, out of the total number to be issued, in escrow
for a period of one year after the closing as security for the satisfaction of
claims by Matria arising under the merger agreement. As a result of the merger,
MarketRing will be a wholly owned subsidiary of Matria, and Robert W. Kelley,
Jr., the chief executive officer of MarketRing, has been retained as the
Corporate Vice-President of Technology of Matria and the Chief Executive Officer
of MarketRing.
Mr. Petit and Mr. Weber are members of the board of directors of
MarketRing and own approximately 20% and 1.5% of MarketRing's outstanding common
stock. Mr. Petit also owns 250 shares of MarketRing's convertible preferred
stock, which will be redeemed, pursuant to the request of MarketRing's board of
directors, prior to the merger at a price of $1,000 per share, plus any accrued
and unpaid dividends. The ownership percentages of Mr. Petit and Mr. Weber
include shares owned by certain affiliated companies of such individuals and, in
Mr. Petit's case, his spouse. In addition, Carl E. Sanders, Thomas S. Stribling
and Guy W. Millner respectively own .83%, .41% and 2.06% of MarketRing's
outstanding common stock. The terms of the merger agreement and the acquisition
of MarketRing were negotiated and recommended by an independent committee of the
Matria Board of Directors and have been approved by a vote of Matria's
disinterested directors.
In addition, in October 2000, Matria made a loan to Mr. Petit in the
principal sum of $200,000. The loan bore interest at a rate of 6% per annum and
matured on January 1, 2002. By its terms, the principal and interest on the note
were to be forgiven at maturity if Mr. Petit was still employed by Matria (or
his employment was previously terminated due to his death or disability) and
since the date of issuance of the note, Matria's common stock had traded at a
price of at least $24 per share. The applicable criteria for forgiveness were
met at January 1, 2002, and the note and accrued interest totaling $214,663 were
forgiven.
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REPORT OF THE AUDIT COMMITTEE AND RELATED MATTERS
Report of the Audit Committee. The board of director's audit committee,
currently composed of Jackie M. Ward, Guy W. Millner and Donald W. Weber,
evaluates the independence and performance of Matria's independent accountants,
handles relations with Matria's independent accountants and evaluates the
integrity of Matria's financial reporting process and its policies and
procedures relating to internal accounting functions and controls. This report
relates to the activities taken by the audit committee in fulfilling such role.
The audit committee oversees Matria's financial reporting process on
behalf of the board of directors. Matria's management has the primary
responsibility for the financial statements and reporting process, including
Matria's systems of internal controls. In fulfilling its oversight
responsibilities, the audit committee reviewed and discussed with management the
audited financial statements included in the annual report on Form 10-K for the
fiscal year ended December 31, 2001. This review included a discussion of the
quality and the acceptability of Matria's financial reporting and controls.
The audit committee also reviewed with Matria's independent
accountants, KPMG LLP, who are responsible for expressing an opinion on the
conformity of Matria's audited financial statements with generally accepted
accounting principles, their judgments as to the quality and the acceptability
of Matria's financial reporting and such other matters as are required to be
discussed with the audit committee under generally accepted auditing standards
including Statement on Auditing Standards No. 61. In addition, the audit
committee received and reviewed the written disclosures and the letter from KPMG
required by Independence Standards Board Standard No. 1 and discussed with the
independent accountants their independence from management and Matria.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the board of directors that the audited financial
statements be included in the annual report on Form 10-K for the fiscal year
ended December 31, 2001 for filing with the SEC.
The audit committee meets periodically with the independent accountants
to discuss the results of their examinations, their evaluations of Matria's
internal controls, and the overall quality of Matria's financial reporting.
The foregoing report has been furnished by the audit committee of
Matria's board of directors.
Jackie M. Ward
Guy W. Millner
Donald W. Weber
Audit Fees. KPMG billed Matria $267,000 for professional services
rendered for the audit of Matria's annual financial statements for fiscal year
2001 and the reviews of the financial statements included in Matria's quarterly
reports on Form 10-Q filed for the first three quarters of 2001.
Financial Information Systems Design and Implementation Fees. KPMG
rendered no professional services for the design and implementation of financial
information systems for Matria during fiscal year 2001.
All other Fees of KPMG. KPMG billed Matria $7,700 for tax services and
$61,500 for all other professional services rendered during fiscal year 2001
other than audits, quarterly reviews and financial information systems design
and implementation. The audit committee believes that such non-audit services
are compatible with maintaining the principal accountant's independence.
KPMG has been appointed by Matria's board of directors to audit the
accounts of Matria and its subsidiaries for the fiscal year ending December 31,
2002. A representative of KPMG will be present at the annual meeting and will
have the opportunity to make a statement and will be available to respond to
appropriate questions.
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MATRIA PROPOSAL 3: APPROVAL OF 2002 STOCK INCENTIVE PLAN
The board of directors has approved and recommends that the
stockholders of Matria approve the adoption of the Matria Healthcare, Inc. 2002
Stock Incentive Plan. Approval of the 2002 Stock Incentive Plan by the
stockholders is intended, among other things, to qualify options, stock grants
and stock appreciation rights granted under the 2002 Stock Incentive Plan to
certain executive officers of Matria as "performance-based compensation," which
is not subject to the limits on deductibility of Section 162(m) of the Internal
Revenue Code of 1986, as amended, described further below, and to enable Matria
to grant incentive stock options (ISOs) under Section 422 of the Internal
Revenue Code. In addition, the Nasdaq Stock Market, on which shares of Matria's
common stock are listed, requires stockholder approval of a plan pursuant to
which stock may be acquired by officers or directors.
PURPOSE OF THE 2002 STOCK INCENTIVE PLAN
The board of directors believes that stock-based incentives are an
important element of Matria's compensation package, particularly for senior
employees. The purpose of the 2002 Stock Incentive Plan is to attract and retain
selected individuals and provide incentives to selected individuals for
increased efforts and successful achievement on behalf of or in the interest of
Matria. Persons eligible to participate in the plan are such employees,
officers, independent contractors and consultants of Matria or one of its
subsidiaries (or future parent companies) as the stock option committee of the
board of directors, in its discretion, shall designate from time to time. As of
March 30, 2002, Matria employed 1,018 persons.
SUMMARY OF THE 2002 STOCK INCENTIVE PLAN
The 2002 Stock Incentive Plan has three components: a stock option
component, a stock bonus/stock purchase component and a stock appreciation
rights component. The stock option component of the 2002 Stock Incentive Plan
provides a means whereby participants are given an opportunity to purchase
shares of Matria's common stock pursuant to: (i) options that may qualify as
ISOs under Section 422 of the Internal Revenue Code, or (ii) nonqualified stock
options (NQSOs). ISOs may be granted only to persons who are employees of Matria
or any of its subsidiaries. ISOs may not be granted to any person who, at the
time that the ISO is granted owns stock possessing more than 10% of the combined
voting power of all classes of Matria's stock or any of Matria's subsidiaries
stock, unless the exercise price of the shares of Matria common stock covered by
the option is at least 110% of the fair market value of such shares at the date
of grant and such ISO by its terms is not exercisable after the expiration of
five years from the date of grant.
Except for ISOs granted to 10% stockholders, ISOs may be granted under
the stock option component of the 2002 Stock Incentive Plan for terms up to ten
years from the date of grant. Except for ISOs granted to 10% stockholders, the
exercise price of ISOs granted under the 2002 Stock Incentive Plan must be at
least equal to 100% of the fair market value of Matria's common stock as of the
date of grant. The exercise price of NQSOs granted under the 2002 Stock
Incentive Plan must be at a price determined by the stock option committee.
However, NQSOs granted to the Chief Executive Officer or the four other most
highly compensated officers of Matria must have an exercise price which is not
less than the fair market value of the shares covered by the option on the date
the option is granted.
The stock bonus/stock purchase component of the 2002 Stock Incentive
Plan provides a means whereby participants in the 2002 Stock Incentive Plan may
receive bonuses of shares of Matria's common stock or the right to purchase
shares of Matria's common stock, subject to the restrictions, if any, imposed by
the stock option committee. The purchase price for rights to purchase shares of
Matria's common stock granted under the 2002 Stock Incentive Plan will be at a
price determined by the stock option committee. Stock bonuses may be granted
under the 2002 Stock Incentive Plan with such terms and provisions and for such
consideration, if any, as may be determined by the stock option committee.
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The stock appreciation rights component of the 2002 Stock Incentive
Plan provides a means whereby participants may receive compensation based on
appreciation in value of Matria's common stock after the date of grant. Stock
appreciation rights may be granted either separately or in tandem with stock
options, as determined by the stock option committee.
Although Matria reserves the right to utilize both the stock
bonus/stock purchase and stock appreciation rights components of the 2002 Stock
Incentive Plan, Matria, historically has awarded ISOs and NQSOs only, and Matria
currently anticipates that this will continue to be its practice. The 2002 Stock
Incentive Plan is administered by the stock option committee. The stock option
committee has broad discretion, subject to the terms of the 2002 Stock Incentive
Plan to determine the persons entitled to receive options, stock bonuses, stock
appreciation rights or the right to purchase shares of Matria's common stock,
the timing, terms and conditions thereof, and the number of shares for which
such options, bonuses of stock, stock appreciation rights and rights to purchase
stock may be granted. Payment of the purchase price and any withholding amounts
upon the exercise of an option or stock appreciation rights granted under the
2002 Stock Incentive Plan shall be made in cash or by personal check, certified
check, bank draft, or postal or money order; provided that such payment may, in
the case of options, at the discretion of the stock option committee, consist
of: (i) shares of Matria's common stock; (ii) an irrevocable direction to a
broker to sell shares of Matria's common stock and deliver all or a portion of
the proceeds to Matria in payment of the exercise price; (iii) a promissory note
with such terms as the stock option committee shall approve; or (iv) any
combination of the foregoing. Grants made under the 2002 Stock Incentive Plan to
the Chief Executive Officer or four other most highly compensated officers (as
defined in Section 162(m) of the Internal Revenue Code) may be made only by a
subcommittee of the stock option committee which is composed solely of two or
more "outside directors," as such term is defined in Section 162(m) of the
Internal Revenue Code and the regulations thereunder.
Matria also has the discretion to provide in any stock option, stock
appreciation rights, stock bonus or stock purchase agreement under the 2002
Stock Incentive Plan that, in the event of a change of control or a corporate
acquisition (or in some cases, the disposition of a subsidiary), any such option
or stock appreciation rights will become immediately exercisable and any stock
covered by a stock bonus or stock purchase award will become released from any
restrictions on transfer and repurchase or forfeiture rights. Under the 2002
Stock Incentive Plan, a "change of control" occurs upon (i) the acquisition of
more than 50% of the voting power of Matria by any person or more than one
person acting as a group, or (ii) a change in the composition of the members of
the board of directors over a three-year period or less to include a majority of
persons not serving on the board of directors at the beginning of the period or
nominated by such persons. Under the 2002 Stock Incentive Plan, a "corporate
acquisition" consists of approval by the stockholders of (i) a merger or
consolidation in which Matria is not the surviving entity, (ii) the sale of all
or substantially all of the assets of Matria, or (iii) any reverse merger or
other acquisition or business combination in which Matria is the surviving
entity in which holders of Matria's voting securities prior to the merger do not
own at least 50% of the voting power in Matria after the merger.
Options, stock bonuses and rights to purchase Matria's common stock may
be granted under the 2002 Stock Incentive Plan to exercise or purchase an
aggregate of not more than 250,000 shares of Matria's common stock (subject to
adjustment to reflect certain acquisitions). The 2002 Stock Incentive Plan
contains a $100,000 limitation on the aggregate fair market value of ISOs which
first become exercisable by an optionee in any calendar year. In addition, under
the 2002 Stock Incentive Plan, the maximum number of shares of Stock with
respect to which stock appreciation rights or options to acquire stock may be
granted, or sale or bonus grants of stock may be made, to any individual per
calendar year shall not exceed 100,000 shares (subject to adjustment to reflect
certain corporate acquisitions).
Awards under the 2002 Stock Incentive Plan will be based on guidelines
that take salary level, tenure, individual performance rating and importance to
Matria into account. Accordingly, future awards under the 2002 Stock Incentive
Plan are not determinable at this time. Reference is made to the sections
captioned "Executive Compensation," "Stock Options" and "Stock Option Exercises"
at pages ____to ____of this document for detailed information on stock incentive
awards and exercises of such awards by certain executive officers under former
and existing stock incentive plans.
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The board of directors may at any time amend, suspend or terminate the
2002 Stock Incentive Plan as it deems advisable without stockholder approval
(subject to applicable law), but no such amendment, suspension or termination
may impair any option or stock appreciation rights previously granted, and the
2002 Stock Incentive Plan cannot be amended without stockholder approval to
materially increase the number of shares of common stock available under the
plan or to materially modify the eligibility requirements for participation in
the plan, reprice any option by lowering the option exercise price of a
previously granted award, or cancel outstanding options with subsequent
replacement, or regrants of options with lower exercise prices.
INCOME TAX CONSEQUENCES
Incentive Stock Options. If an option under the 2002 Stock Incentive
Plan is treated as an ISO, the optionee generally recognizes no regular taxable
income as the result of the grant or exercise of the option. However, an amount
equal to the difference between the fair market value of the stock on the date
of exercise and the exercise price is classified as an item of alternative
minimum taxable income in the year of exercise for purposes of the alternative
minimum tax.
Matria will not be allowed a deduction for federal income tax purposes
in connection with the grant or exercise of an ISO, regardless of the
applicability of the alternative minimum tax to the optionee. Matria will be
entitled to a deduction, however, to the extent that ordinary income is
recognized by the optionee upon a disqualifying disposition (see below).
Upon a sale or exchange of the shares at least two years after the
grant of an ISO and one year from exercise of the option, gain or loss will be
recognized by the optionee equal to the difference between the sale price and
the exercise price. Such gain or loss will be characterized for federal income
tax purposes as long-term capital gain or loss. Matria is not entitled to any
deduction under these circumstances.
If an optionee disposes of shares acquired upon exercise of an ISO
prior to completion of either of the above holding periods, the optionee will
have made a "disqualifying disposition" of the shares. In such event, the
optionee will recognize ordinary income at the time of disposition equal to the
difference between the exercise price and the lower of the fair market value of
the stock at the date of the option exercise or the sale price of the stock.
Matria generally will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee on a disqualifying disposition if the
optionee's total compensation is deemed reasonable in amount.
The optionee also will recognize capital gain or loss on such
disqualifying disposition in an amount equal to the difference between (i) the
amount realized by the optionee upon such disqualifying disposition of the stock
and (ii) the exercise price, increased by the total amount of ordinary income,
if any, recognized by the optionee upon such disqualifying disposition (as
described in the second sentence of the preceding paragraph). Any such capital
gain or loss resulting from a disqualifying disposition of shares acquired upon
exercise of an ISO will be long-term capital gain or loss if the shares with
respect to which such gain or loss is realized have been held for more than 12
months.
Nonqualified Stock Options. An optionee generally recognizes no taxable
income as the result of the grant of an NQSO, assuming that the option does not
have a readily ascertainable fair market value at the time it is granted (which
is usually the case with plans of this type). Upon exercise of an NQSO, an
optionee will normally recognize ordinary compensation income for federal tax
purposes equal to the excess, if any, of the then fair market value of the
shares over the exercise price. Optionees who are employees will be subject to
withholding with respect to income recognized upon exercise of a NQSO.
Matria will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the exercising optionee, so long as
the optionee's total compensation is deemed reasonable in amount.
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Upon a sale of shares acquired pursuant to the exercise of an NQSO, any
difference between the sale price and the fair market value of the shares on the
date of exercise will be treated as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than 12 months.
Stock Bonus/Stock Purchase. The federal income tax treatment of
individuals who receive property in connection with the performance of services
is governed by Section 83 of the Internal Revenue Code. That section requires
that the recipient of the property recognize income from the transfer in an
amount equal to the excess of the fair market value of the property received
over the amount (if any) paid for the property. Income is recognized by the
recipient in the first year in which the rights of the recipient to the property
become "vested," i.e., are transferable or are no longer subject to a
substantial risk of forfeiture, whichever occurs first. The income is taxable at
ordinary income rates and (in the case of participating individuals who are
employees) is subject to withholding of income and applicable employment taxes
at the time of vesting.
Under the 2002 Stock Incentive Plan, participating individuals may or
may not pay any consideration for stock transferred to them under the stock
bonus/stock purchase component of the Plan, and the stock transferred may or may
not be subject to restrictions. If stock is granted to a recipient without
restrictions, the recipient will recognize ordinary income (calculated as
described in the preceding paragraph) in the recipient's taxable year in which
the stock is granted.
If stock granted under the 2002 Stock Incentive Plan is nontransferable
and subject to a substantial risk of forfeiture, then (unless an election is
made under Section 83(b) of the Internal Revenue Code, as described in the next
paragraph), recipients of stock will recognize taxable income as of each date on
which they become vested in stock received under the 2002 Stock Incentive Plan
in the amount of the fair market value of the stock then vesting (less the
amount, if any, paid for such stock).
Participating individuals may elect under Section 83(b) of the Internal
Revenue Code to report as taxable income in the year of award an amount equal to
the stock's fair market value at the date of award (less the amount, if any,
paid for such stock). If such an election is made, the electing employee is not
required thereafter to report any further compensation income upon becoming
vested in the stock covered by the election. Such an election must be made
within 30 days of receipt of the stock. Such election may not be revoked except
with the consent of the Internal Revenue Service. Participating individuals
making this election who are employees will be subject to withholding with
respect to the taxable income they recognize at the time the stock is awarded to
them.
Matria will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individuals, so
long as the individual's total compensation is deemed reasonable in amount.
Dividends paid on stock transferred under the 2002 Stock Incentive Plan are
generally treated as additional compensation prior to vesting, but are treated
as true dividends after vesting (or after a Section 83(b) election). Dividends
are not deductible by Matria.
Participating individuals will recognize gain upon the disposition of
their stock equal to the excess of (a) the amount realized on such disposition
over (b) the ordinary income recognized with respect to their stock under the
principles set forth above (plus the amount, if any, paid for such stock). That
gain will be taxable as long or short-term capital gain depending on the period
held.
If a participating individual disposes of his or her stock for an
amount less than the amount of ordinary income recognized with respect to the
stock (plus the amount, if any, paid with respect to the stock), he or she will
generally recognize a capital loss (long or short-term, depending on the holding
period) equal to the difference between any ordinary income recognized with
respect to the stock under the principles described previously (plus the amount,
if any, paid for the stock) and the amount realized upon disposition of the
stock. If a participating individual forfeits unvested stock with respect to
which no Section 83(b) election has been made upon termination of employment, he
or she will generally recognize ordinary income or loss equal to the difference
between the amounts, if any, paid by the employee for the stock and the amount
received as a result of the forfeiture. If a participating individual forfeits
unvested stock with respect to which a Section 83(b) election has been made upon
97
termination of employment, he or she will generally recognize a capital gain or
loss equal to the difference between the amount, if any, paid by the employee
for the stock and the amount received as a result of the forfeiture, but no loss
or deduction is allowed with respect to the amount previously included in income
as a result of the Section 83(b) election.
Stock Appreciation Rights. Recipients of stock appreciation rights
generally should not recognize income until such rights are exercised. Upon
exercise, the participating individual will normally recognize ordinary
compensation income for federal income tax purposes equal to the amount of cash
and the fair market value of stock, if any, received upon such exercise.
Participating individuals who are employees will be subject to withholding with
respect to income recognized upon exercise of stock appreciation rights.
Matria will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual, so long
as the individual's total compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of
any stock received on exercise of stock appreciation rights equal to the excess
of (a) the amount realized on such disposition over (b) the ordinary income
recognized with respect to such stock under the principles set forth above. That
gain will be taxable as long or short-term capital gain depending on whether the
stock was held for at least 12 months.
Section 162(m) of the Internal Revenue Code. Under Section 162(m) of
the Internal Revenue Code, compensation paid to any covered employee is
potentially nondeductible by Matria to the extent that it exceeds $1,000,000.
However, certain "performance-based compensation" is exempt from the $1,000,000
cap on deductibility. The 2002 Stock Incentive Plan contains provisions designed
to qualify options and SARs granted thereunder to covered employees as
"performance-based compensation" under Section 162(m). These provisions include
the following: (1) grants to covered employees are made only by the Section
162(m) Subcommittee; (2) the 2001 Stock Incentive Plan states a maximum number
of shares with respect to which options or SARs may be granted to any individual
per calendar year; (3) in the case of grants to covered employees, the option
exercise price must be at least equal to the fair market value of the stock on
the date the option is granted; and (4) the effectiveness of grants to covered
employees is contingent upon stockholder approval of the 2002 Stock Incentive
Plan.
NEW PLAN BENEFITS
No new plan benefits table for the 2002 Stock Incentive Plan is
included in this document because the future number, amount and type of awards
to be received by or allocated to eligible participants under the 2002 Plan will
be determined from time to time by the stock option committee. In addition, the
amounts that would have been allocated under the 2002 Stock Incentive Plan if it
had been in effect during fiscal year 2001 cannot be determined. It is
impossible at this time to indicate the precise number, name or positions of
persons who will hereafter receive awards.
MARKET PRICE OF THE MATRIA COMMON STOCK
The closing price of Matria's common stock as reported on the Nasdaq
National Market System was $ __ per share on ___, 2002. As of such date, the
aggregate market value of the 250,000 shares of common stock issuable under the
2002 Stock Incentive Plan was $______.
TEXT OF THE PLAN
The preceding summary of the 2002 Stock Incentive Plan is qualified in
its entirety by reference to the complete text of the 2002 Stock Incentive Plan
which is set forth in Appendix C to this document.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE 2002
STOCK INCENTIVE PLAN.
98
MATRIA PROPOSAL 4: 2002 STOCK PURCHASE PLAN
The board of directors has approved and recommends that the
stockholders of Matria approve the adoption of the Matria Healthcare, Inc. 2002
Stock Purchase Plan. The 2002 Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code
and to provide eligible employees of Matria with an opportunity to purchase
Matria common stock through payroll deductions.
SUMMARY OF THE 2002 STOCK PURCHASE PLAN
Administration. The 2002 Stock Purchase Plan will be administered by
the Board of Directors or a committee designated by the Board, which will have
the authority to administer the plan and to resolve all questions relating to
the administration of the plan.
Stock Subject to 2002 Stock Purchase Plan. An aggregate of 125,000
shares of Matria common stock is reserved for issuance under the 2002 Stock
Purchase Plan and available for purchase, subject to adjustment in the event of
a stock split, stock dividend or other similar change in Matria common stock or
the capital structure of Matria.
Eligibility. All employees of Matria and its subsidiaries (including
officers) who have been continuously employed for one year or more, whose
customary employment is for more than five months in any calendar year and more
than 20 hours per week are eligible to participate in the 2002 Stock Purchase
Plan. Non-Employee Directors and certain 5% shareholders of Matria are not
eligible. As of March 30, 2002, we had 1,038 employees who would be eligible to
participate in the 2002 Stock Purchase Plan.
Offering Period. The 2002 Stock Purchase Plan designates purchase
periods, accrual periods and exercise dates. Purchase periods are generally
successive periods of three months. The first purchase period will begin on
[October 1, 2002] and end on [December 31, 2002]. Thereafter, purchase periods
will begin on January 1, April 1, July 1, and October 1 of subsequent years.
Purchase Price. On the first day of each purchase period, a
participating employee is granted a purchase right which is a form of option to
be automatically exercised on the last day of the purchase period (the "exercise
date"). During a purchase period, deductions are to be made from the pay of
participants in accordance with their authorizations and credited to their
accounts under the 2002 Stock Purchase Plan. When the purchase right is
exercised, the participant's withheld salary is used to purchase shares of
Matria common stock. The price per share at which shares of Matria common stock
may be purchased under the 2002 Stock Purchase Plan during any purchase period
(the "option price") is the lesser of: (a) 85% of the fair market value of
Matria common stock on the date of the grant of the option (i.e., the first day
of the purchase period), or (b) 85% of the fair market value of Matria common
stock on the exercise date (i.e., the last day of the purchase period).
Payment of Purchase Price; Payroll Deductions. Payroll deductions may
range from 1% to 10% (in whole percentage increments) of a participant's regular
base pay, plus commissions paid, exclusive of overtime, bonuses or
shift-premiums. Participants may not make direct cash payments to their
accounts. The maximum number of shares of Matria common stock which any employee
may purchase under the 2002 Stock Purchase Plan during a purchase period is
1,000 shares. Additional limitations on the amount of Matria common stock which
may be purchased under the 2002 Stock Purchase Plan during any calendar year are
imposed by the Code.
Tax Consequences. The 2002 Stock Purchase Plan is intended to qualify
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code. Under a plan which so qualifies, a participant recognizes no taxable
income upon either the grant or the exercise of the purchase rights. The
participant will not recognize taxable income until there is a sale or other
disposition of the shares acquired under the 2002 Stock Purchase Plan or in the
event the participant should die while still owning the purchased shares.
99
The tax treatment of a sale or disposition of shares acquired under the
2002 Stock Purchase Plan will depend on whether the "holding period"
requirements are satisfied. Generally, these requirements are satisfied if a
participant does not sell or dispose of shares acquired in a given purchase
period within two years after the beginning of such period, or within one year
after the end of such period.
If a participant sells or disposes of shares before the holding period
requirements are satisfied with respect to such shares, then the participant
will recognize ordinary income at the time of such sale or disposition equal to
the lesser of (1) the fair market value of such shares on the last day of the
purchase period from which they were acquired minus the option price, or (2) the
amount realized on the sale or disposition minus the option price. Any gain in
excess of this amount can be treated as capital gain.
If a participant sells or disposes of shares after the holding period
requirements are satisfied with respect to such shares, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
lesser of: (1) the fair market value of such shares on the sale or disposition
date minus the option price or (2) 15% of the fair market value of such shares
on the first day of the purchase period from which they were acquired. Any
additional gain upon the disposition will be taxed as a long-term capital gain.
If the participant owns shares acquired under the 2002 Stock Purchase
Plan at the time of death, then, regardless of whether the holding period
requirements are satisfied, the amount of ordinary income equals the lesser of:
(1) the fair market value of such shares on the date of death minus the option
price or (2) 15% of the fair market value of such shares on the first day of the
purchase period from which they were acquired.
Matria is not allowed any deductions upon either the grant or exercise
of the purchase rights. If the holding period requirements are not satisfied
with respect to the sale or disposition of any shares acquired under the 2002
Stock Purchase Plan, then Matria will be entitled to a tax deduction in the year
of such sale or disposition equal to the amount of ordinary income recognized by
the participant as a result of such sale or disposition. In all other cases,
Matria is entitled to no deduction.
NEW PLAN BENEFITS
No new plan benefits table for the 2002 Stock Purchase Plan is included
in this document. Participation in the 2002 Stock Purchase Plan is voluntary and
is dependent on each eligible employee's election to participate and his or her
determination as to the level of payroll deductions. Accordingly, future
purchases under the 2002 Stock Purchase Plan are not determinable. In addition,
the amounts that would have been allocated under the 2002 Stock Purchase Plan if
it had been in effect during fiscal year 2001 cannot be determined. No purchases
have been made under the 2002 Stock Purchase Plan since its adoption by the
board of directors.
Information with respect to securities issued and available for
issuance under existing equity compensation plans is set forth in the equity
compensation table on p. [ ].
TEXT OF THE PLAN
The preceding summary of the 2002 Stock Purchase Plan is qualified in
its entirety by reference to the complete text of the 2002 Stock Purchase Plan
which is set forth in Appendix D to this document.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE 2002
STOCK PURCHASE PLAN.
100
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about Matria common stock that
may be issued upon the exercise of options, warrants and rights under all
existing equity compensation plans as of December 31, 2001.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF EXERCISE PRICE OF UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN 1ST COLUMN)
------------- -------------------------- -------------------- ------------------------------
Equity compensation 1,189,890 $20.48 331,094(1)
plans approved by
security holders
Equity compensation 75,252 $24.72 -0-
plans not approved by
security holders (2)
--------- -------
Total 1,265,142 N/A 331,094
========= =======
(1) Includes securities available for future issuance under shareholder
approved compensation plans as follows: 222,666 shares under the 2001
Stock Incentive Plan, 100,000 shares under the 2000 Directors'
Non-qualified Stock Option Plan, 5,806 shares under the 2000 Stock
Incentive Plan, 2,414 shares under the 1997 Stock Incentive Plan and
208 shares under the 1996 Directors Non-qualified Stock Option Plan.
(2) This total includes 15,000 shares granted to Robert F. Byrnes, former
President and CEO of the Company, on October 1, 1997 pursuant to the
terms of a settlement agreement between Mr. Byrnes and the Company.
These options were immediately exercisable by Mr. Byrnes. This also
includes 40,252 shares granted to certain key employees (other than
executive officers) on October 20, 1997 and 20,000 shares granted to
non-employee members of the Company's Board of Directors on February
24, 1998. All of these options were granted at exercise prices which
were the fair market value of a share of the Company's stock on the
date of grant and all expire ten years from the date of the grant. The
October 20, 1997 grants vested 33% a year and became exercisable on
October 20, 2000. The February 24, 1998 grants vested on February 24,
1999.
101
OTHER INFORMATION RELATING TO THE MATRIA ANNUAL MEETING
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the periods indicated for Matria, the S&P 500 Index and the S&P Healthcare
Composite Index. The graph assumes that the value of the investment in Matria's
common stock and each index was $100 at December 31, 1996, and that all
dividends (there were none) were reinvested.
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Matria Healthcare, Inc. 100.00 118.42 60.53 86.84 50.66 182.26
S&P 500 Index 100.00 133.36 171.47 207.56 188.66 166.24
S&P HealthCare Composite 100.00 143.72 207.26 190.18 258.54 226.97
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Matria's
directors and executive officers and persons who own more than ten percent of a
registered class of Matria's equity securities to file reports with the SEC
regarding beneficial ownership of common stock and other equity securities of
Matria. To Matria's knowledge, based solely on a review of copies of such
reports furnished to Matria and written representations that no other reports
were required, during the fiscal year ended December 31, 2001, all officers,
directors and greater than ten percent beneficial owners complied with the
Section 16(a) filing requirements of the Act in all instances except for a late
filing with respect to the disposition of common stock by James P. Reichmann by
gift.
102
STOCKHOLDER PROPOSALS AT MATRIA'S NEXT ANNUAL MEETING OF STOCKHOLDERS
The 2003 Annual Meeting of Stockholders (the "2003 Annual Meeting") is
anticipated to be held in June 2003. Under Matria's Amended and Restated Bylaws,
a notice of intent of a stockholder to bring a proposal (other than a director
nomination) before the 2003 Annual Meeting must comply with the requirements of
Matria's bylaws and must be received by Matria no later than December 28, 2002
in order to be presented for a vote at the meeting. However, if the 2003 Annual
Meeting is held on a date more than 30 days before or after May 24, 2003, notice
of a stockholder proposal (other than a director nomination), to be timely, must
be received by Matria within a reasonable time before Matria begins to print and
mail proxy materials. If timely delivered to the Secretary, such proposals may
be included in Matria's Proxy Statement for the 2003 Annual Meeting, provided
the proponent(s) satisfies all applicable rules of the SEC relating to
stockholder proposals.
A director nomination by a stockholder will also only be considered at
the 2003 Annual Meeting if received by Matria no later than December 28, 2002.
However, if the 2003 Annual Meeting is held on a date more than 30 days before
or after May 24, 2003, notice of a director nomination must be received not less
than 60 nor more than 75 days prior to the meeting; provided that in the event
less than 70 days notice or prior public disclosure of the meeting is given or
made to stockholders, notice of such nomination must be received by the tenth
day following the earlier of public disclosure or mailing of notice of the date
of the meeting.
Matria will furnish copies of the bylaw provisions which set forth the
requirements for a stockholder's notice of intent to present proposals upon
written request to the Secretary of Matria at the address set forth in the
following sentence.
Notices of intention to present proposals at the 2003 Annual Meeting or
requests in connection therewith should be addressed to Matria Healthcare, Inc.,
1850 Parkway Place, Marietta, Georgia 30067, Attention: Corporate Secretary.
EXPERTS
The consolidated financial statements of Matria Healthcare, Inc. and
its subsidiaries as of December 31, 2001 and 2000 and for each of the years in
the three-year period ended December 31, 2001, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Quality Oncology, Inc. as of December 31,
2001 and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
Troutman Sanders LLP, Atlanta, Georgia, and Roberta L. McCaw, Vice
President and General Counsel of Matria Healthcare, Inc., will pass upon the
validity of the Matria common stock offered by this document. As of April 1,
2002, Carl E. Sanders, a partner and Chairman of Troutman Sanders LLP and one of
our directors, beneficially owns 3,125 of our common stock and options
exercisable within 60 days to purchase 17,500 shares of our common stock.
103
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC.
Copies of our reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
Copies of our reports, proxy statements and other information may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a Website that
contains reports, proxy statements and other information concerning Matria. The
address of the SEC Website is http://www.sec.gov.
In addition, we will provide, without charge, to each person to whom
this document is delivered, upon written or oral request, a copy of any or all
of the foregoing documents (other than exhibits to documents that are not
specifically incorporated by reference in the documents) upon request to Matria
in writing or by telephone at the following address:
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Attention: Corporate Secretary
Tel: (770) 767-4500
This document is part of a registration statement and does not contain
all of the information in the registration statement. Whenever a reference is
made in this document to any contract or other document of ours, you should
refer to the exhibits that are part of the registration statement for a copy of
the referenced contract or document.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY ______________,
2002 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
DOCUMENTS INCORPORATED BY REFERENCE
This document incorporates important business and financial information
about Matria that is not included in or delivered with the document.
Specifically, this document incorporates the following documents by
reference to the following SEC filings:
- Annual Report on Form 10-K, as amended by Form 10-K/A
Amendment No. 1, for the year ended December 31, 2001;
- Quarterly Report on Form 10-Q for the quarter ended March 31,
2002;
- Current Report on Form 8-K, as amended by Form 8-K/A, dated
April 29, 2002; and
- Current Report on Form 8-K dated April 30, 2002.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act of 1934, as amended after the date of this document are
incorporated by reference into and are made a part of this document from the
date of filing of those documents.
104
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this prospectus will be deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained in this prospectus or any other subsequently filed document
that is deemed to be incorporated by reference into this prospectus modifies or
supersedes that statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Matria has previously delivered to each of its stockholders of record
as of _________, 2002 a copy of its 2001 Annual Report to Stockholders. Matria
will furnish without charge a copy of its Annual Report on Form 10-K filed with
the SEC for the fiscal year ended December 31, 2001, including financial
statements and schedules, to any record or beneficial owner of its common stock
as of __________, 2002 upon written or oral request of such person. Requests for
such copies should be directed to:
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Attention: Corporate Secretary
(770) 767-4500
If the person requesting the Form 10-K was not a stockholder of record
on _____________, 2002, the request must include a representation that such
person was a beneficial owner of the common stock on that date. Copies of any
exhibit(s) to the Form 10-K will be furnished on request and upon the payment of
Matria's expenses in furnishing such exhibit(s).
GENERAL
Management does not know of any other business to come before the 2002
Annual Meeting. If, however, other matters do properly come before the 2002
Annual Meeting, it is the intention of the persons named in the accompanying
proxy card to vote on such matters in accordance with their best judgment.
105
INDEX TO FINANCIAL STATEMENTS
QUALITY ONCOLOGY, INC.
Page
----
Independent Auditors Report............................................................... F-2
Balance Sheet at December 31, 2001........................................................ F-3
Statement of Operations for the year ended December 31, 2001.............................. F-4
Statement of Stockholder's Deficit for the year ended December 31, 2001................... F-5
Statement of Cash Flows for the year ended December 31, 2001.............................. F-6
Notes to Financial Statements............................................................. F-7
Balance Sheet at March 31, 2002 (unaudited)............................................... F-17
Statements of Operations for the three months ended
March 31, 2002 and 2001 (unaudited).............................................. F-18
Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 (unaudited).............................................. F-19
Notes to Financial Statements (unaudited)................................................. F-20
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Quality Oncology, Inc.:
We have audited the accompanying balance sheet of Quality Oncology, Inc. (the
Company), a wholly owned subsidiary of LifeMetrix, Inc., as of December 31,
2001, and the related statements of operations, stockholder's deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quality Oncology, Inc. as of
December 31, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
McLean, Virginia
May 3, 2002
F-2
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Balance Sheet
December 31, 2001
Assets
Current assets:
Cash $ 1,100
Accounts receivable, net of allowance for doubtful accounts
of $25,503 1,164,101
Prepaid expenses and other current assets 32,213
------------
Total current assets 1,197,414
Property and equipment, net (note 4) 561,120
Intangible assets, net (note 5) 1,722,254
Other assets, net 113,614
Deposits 11,137
------------
Total assets $ 3,605,539
============
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable $ 88,904
Accrued expenses and other current liabilities (note 6) 759,497
Deferred revenue, net 625,757
Current obligations under capital lease 18,692
------------
Total current liabilities 1,492,850
Long-term obligations under capital lease 11,693
Due to LifeMetrix (note 10) 19,137,675
------------
19,149,368
------------
Commitments and contingencies (note 11)
Stockholder's deficit:
Common stock, $.001 par value, 1,000 shares authorized,
issued and outstanding 1
Accumulated deficit (17,036,680)
------------
Total stockholder's deficit (17,036,679)
------------
Total liabilities and stockholder's deficit $ 3,605,539
============
See accompanying notes to financial statements.
F-3
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Statement of Operations
Year ended December 31, 2001
Revenues:
Cancer disease management $ 5,110,006
Systems license and development 563,501
Other 77,346
------------
5,750,853
------------
Expenses:
Operating 7,277,609
General and administrative 1,215,998
Depreciation and amortization 582,981
------------
Total expenses 9,076,588
------------
Loss from operations (3,325,735)
Other income (expense):
Interest income 87,100
Interest expense (6,294)
------------
Net loss $ (3,244,929)
============
See accompanying notes to financial statements
F-4
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Statement of Stockholder's Deficit
Year ended December 31, 2001
COMMON STOCK
-------------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------------ ------------ ------------ ------------
Balance, January 1, 2001 1,000 $ 1 (13,791,751) (13,791,750)
Net loss -- -- (3,244,929) (3,244,929)
------------ ------------ ------------ ------------
Balance, December 31, 2001 1,000 $ 1 (17,036,680) (17,036,679)
============ ============ ============ ============
See accompanying notes to financial statements.
F-5
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Statement of Cash Flows
Year ended December 31, 2001
Cash flows from operating activities:
Net loss $ (3,244,929)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 322,377
Amortization of intangible assets 260,604
Changes in working capital:
Increase in accounts receivable (599,191)
Increase in prepaid expenses and other current assets (11,745)
Increase in accounts payable 88,904
Increase in accrued expenses and other current liabilities 273,698
Increase in deferred revenues 444,844
------------
Net cash used in operating activities (2,465,438)
------------
Cash flows from investing activities:
Purchase of property and equipment (198,855)
------------
Net cash used in investing activities (198,855)
------------
Cash flows from financing activities:
Capital lease repayments (17,106)
Net increase in amounts due to LifeMetrix 2,681,399
------------
Net cash provided by financing activities 2,664,293
------------
Net change in cash --
Cash at beginning of year 1,100
------------
Cash at end of year $ 1,100
============
Supplementary cash flow information - cash paid for interest $ 3,710
============
See accompanying notes to financial statements.
F-6
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
(1) ORGANIZATION AND BUSINESS DESCRIPTION
Quality Oncology, Inc., a wholly owned subsidiary of LifeMetrix, Inc.
(LifeMetrix), is a business-to-business disease management company that
uses its proprietary systems and the Internet to deliver its products
to managed-care organizations, self-insured employers and third-party
administrators. Quality Oncology's systems enable it to deliver chronic
disease management programs in multiple disease states while
simultaneously collecting, manipulating, and analyzing data sets which
combine both clinical and financial information. Quality Oncology's
current principal focus is on cancer, but management believes that
significant elements of disease management are transferable to other
chronic diseases and therefore, Quality Oncology is seeking to leverage
its expertise to other chronic diseases as opportunities arise.
Quality Oncology believes its proprietary system, the Integrated Care
Management System (ICMS), has commercial applications which it is
developing and marketing. The ICMS is a fully integrated care
management system which enables its clients to better manage the care
of chronic disease patients by integrating generally accepted disease
treatment guidelines and the client's own disease management treatment
guidelines with an Internet-based easy-to-use interface. Data collected
as a result of performing disease management with the ICMS provides
detailed patient specific treatment information across the entire
continuum of care, which should enable a client to improve quality of
treatment and lower treatment costs.
On April 29, 2002, LifeMetrix signed a definitive agreement to sell
certain assets including its cancer disease management business, all of
the issued and outstanding stock of Quality Oncology, the ICMS and its
rights in Cancerpage.com, collectively referred to as the Company, to
Matria Healthcare, Inc. for $3,000,000 in cash and $17,000,000 in
common stock. The agreement provides for additional consideration based
on 2003 operating results. The agreement requires that at or prior to
closing there be no amounts due to LifeMetrix or any subsidiary of
LifeMetrix. Under the terms of the agreement, if the closing of the
sale does not occur before September 30, 2002, Matria has an option to
purchase a data warehouse license and will be obligated, under certain
conditions, to purchase $2,000,000 in preferred stock of LifeMetrix.
The accompanying financial statements include the financial position
and results of operations of the Company as of and for the year ended
December 31, 2001.
The Company's current business activities consist of: (1) providing
cancer disease care management services to managed care organizations,
(2) licensing the ICMS to HMOs and other at-risk groups that wish to
implement the disease management process in-house, and (3) developing
and expanding its proprietary disease management information technology
products. The Company's disease management revenues are dependent on a
limited number of contracts and types of products and services.
The Company has incurred substantial losses and negative operating cash
flows since inception. As of December 31, 2001, the Company had an
accumulated deficit of approximately $17,000,000. Management currently
expects losses and negative operating cash flows through 2002. The
Company has historically been dependent on LifeMetrix for funding its
operations. LifeMetrix has been dependent on its investors for funding
its operations and believes it will obtain adequate financing to fund
its operations beyond 2002.
F-7
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
Failure of LifeMetrix to raise sufficient capital or significantly
increase revenues could have a material adverse effect on the Company's
results of operations and financial condition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated
useful lives of the equipment, furniture, and computer
software of three to five years. Leasehold improvements are
amortized using the straight-line method over the shorter of
the estimated useful life or the term of the lease.
(B) SOFTWARE COSTS
Costs incurred internally in creating computer software
products are charged to expense when incurred as research and
development until technological feasibility has been
established for the product. Thereafter, all software
production costs are capitalized until the product becomes
available for general release. Such costs are subsequently
reported at the lower of unamortized cost or net realizable
value. The Company also capitalized purchased software ready
for use. Capitalized costs are amortized on a straight-line
basis over 5 years, the estimated economic life of the
product.
(C) INTANGIBLE ASSETS
Goodwill, representing the excess of the cost over the net
tangible and identifiable intangible assets of acquired
businesses, is stated at cost and is amortized on a
straight-line basis over the estimated future benefit period
of 10 years.
(D) IMPAIRMENT
Intangible assets and other long-lived assets held and used by
the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows
expected to result from the use of the asset and its eventual
disposition. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
undiscounted 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 as the amount by which
the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
(E) INCOME TAXES
The Company files consolidated tax returns with its parent
company, LifeMetrix. Deferred tax assets and deferred tax
liabilities have been provided for on a separate company
basis.
F-8
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using the enacted tax
rates and laws that are expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments,
as reflected in the accompanying balance sheet, approximate
fair value generally due to their short maturities. Financial
instruments consist of cash, accounts receivable, accounts
payable, due to LifeMetrix, and obligations under a capital
lease.
(G) REVENUE RECOGNITION
The Company's compensation for providing cancer disease case
management services to other managed care organizations under
service arrangements is generally stipulated to be on the
basis of per patient per month or per case managed. Revenue is
recognized in the month the member is entitled to receive
services (for contracts stipulated on a per patient per month
basis) or ratably as services are provided (for contracts
stipulated on a per case basis). The service arrangements
contain risk-sharing provisions targeted to the achievement of
certain agreed upon outcomes. The managed care organization
may receive a refund of payments depending upon the annual
results of the contract. The Company periodically reviews
contract experience to determine whether or not a provision
for contract losses is required. The Company may receive
additional payments from managed-care organizations under
these risk-sharing provisions if cost savings exceed defined
minimum amounts. The Company records amounts due under these
provisions when they are fixed and determinable.
Systems license and development revenue represents monthly
fees earned from licensing the ICMS to HMOs and other at-risk
groups under hosting service arrangements. Revenue is
recognized in the month the services are provided. The Company
charges a one-time fee to cover the costs of implementation,
initialization, and initial training. Those fees and the
related costs associated with implementation, initialization,
and initial training are deferred over the term of the service
arrangement.
(H) CONTRACT ACQUISITION COSTS
Contract acquisition costs are expensed as incurred.
(I) STOCK OPTION PLANS
The Company's employees participate in LifeMetrix's stock
option plans. The Company accounts for grants of options to
its employees under these stock option plans using the
intrinsic value method set forth in Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees, and provides pro forma, net loss disclosures for
employee stock option grants as if the fair value method set
forth in Statement of Financial Accounting Standards (SFAS)
No. 123,
F-9
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
Accounting for Stock-Based Compensation, had been applied.
Under APB 25, compensation expense is generally based on the
difference, if any, on the date of grant, between the fair
value of LifeMetrix's stock and the exercise price.
Effective in October and November 2000, the board of directors
of LifeMetrix declared a repricing of certain stock options
outstanding by lowering the exercise price to the fair market
value of LifeMetrix's stock as of the date of repricing. In
addition, the board of directors of LifeMetrix declared an
acceleration of the vesting of the repriced options. Upon the
declaration of the repricing, the Company accounted for the
modified awards in accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. Under FASB
Interpretation No. 44, if the exercise price of a fixed stock
option award is reduced, the award shall be accounted for as
variable from the date of modification to the date the award
is exercised, forfeited, or expires unexercised. Under
variable accounting, compensation cost is measured at each
reporting period as the sum of the following:
1. The intrinsic value of the award (if any) at the
original measurement date, plus
2. The intrinsic value of the variable award that
exceeds the lesser of the intrinsic value of the
original award; (a) at the original measurement date;
or (b) immediately prior to the modification.
To date, no compensation expense has been recorded due to
declines in the fair value of the common stock of LifeMetrix
subsequent to the date of repricing.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates
also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
(K) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, Business
Combinations (SFAS 141), and SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 addresses the
accounting for acquisitions of businesses and is effective for
acquisitions occurring on or after July 1, 2001. SFAS 142
addresses the method of identifying and measuring goodwill and
other intangible assets acquired in a business combination,
eliminates further amortization of goodwill, and requires
periodic evaluations of goodwill balances for impairment. SFAS
142 is effective for the Company's fiscal year beginning
January 1, 2002. The Company amortized approximately $260,000
of goodwill and other intangibles for the year ended December
31, 2001. Unamortized goodwill as of January 1, 2002, the date
of adoption, was approximately $1,700,000. Adoption of SFAS
142 will eliminate further amortization of goodwill.
The following table presents the pro forma financial results
for the year ended December 31, 2001 on a basis consistent
with the new accounting principle.
December 31,
2001
-------------
Reported net loss $ (3,244,929)
Add back goodwill amortization 260,604
------------
Adjusted net loss $ (2,984,325)
============
F-10
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
In October 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS 144).
The provisions of SFAS 144 require the use of a consistent
accounting model for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired and
extend the presentation of discontinued operations to include
more disposal transactions. SFAS 144 is effective for the
Company's fiscal year beginning January 1, 2002. Adoption of
SFAS 144 is not expected to have a material impact on the
Company's financial position or results of operations.
(3) CONCENTRATIONS OF RISK
The Company enters into cancer disease care management contracts with
managed care organizations. To the extent the Company enters into a
contract with a single managed care organization serving substantial
membership, the Company is exposed to concentration of business risk.
As of December 31, 2001, the Company's contracts with managed care
organizations that represent greater than 10% of the Company's revenues
are as follows:
% OF
MANAGED CARE ORGANIZATION REVENUE
------------------------- -------
Carefirst of Maryland, Inc. 29
Blue Cross Blue Shield of Florida, Inc. 15
Neighborhood Health Partnership, Inc. 12
Foundation Health Corporation Affiliates 11
As discussed in note 2G, certain of the Company's disease management
contracts contain provisions for the Company to refund amounts to the
managed care organizations if cost savings targets are not obtained.
Revenues recognized in the accompanying statement of operations that
are subject to refund totaled approximately $1,700,000 for the year
ended December 31, 2001.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2001:
Furniture and fixtures $ 244,876
Capitalized software costs 499,700
Equipment 564,956
Leasehold improvements 171,519
-----------
1,481,051
Less accumulated depreciation and amortization (919,931)
-----------
$ 561,120
===========
Included in equipment is telephone equipment acquired under a capital
lease for $69,273. Accumulated depreciation thereon amounts to $34,637 at
December 31, 2001.
F-11
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
At December 31, 2001, unamortized capitalized software costs were
$186,125. Capitalized software amortization expense was $86,510 for the
year ending December 31, 2001.
(5) INTANGIBLE ASSETS
Intangible assets arising from business acquisitions during 1998
consisted of the following at December 31, 2001:
Goodwill $ 2,477,925
Assembled work force 64,000
-----------
2,541,925
Less accumulated amortization (819,671)
-----------
$ 1,722,254
===========
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the
following at December 31, 2001:
Accrued expenses $ 78,397
Salaries and benefits 165,544
Estimated liabilities under disease management contracts 515,556
--------
$759,497
========
(7) INCOME TAXES
A reconciliation of tax benefit computed at the statutory federal tax
rate on loss from operations before income taxes to the actual income
tax expense is as follows:
Federal tax benefit computed at
the statutory rate $(1,135,725)
State income tax benefit, net (267,827)
Change in the beginning of the year valuation
allowance for deferred tax assets allocated
to tax expense 1,328,863
Effect of items not deductible for tax purposes 74,689
-----------
Income tax expense $ --
===========
F-12
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
Deferred tax assets and liabilities reflect the net effects of net
operating loss carryforwards and the temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of
December 31, 2001 are as follows:
Deferred tax liabilities - internally developed
software $ 74,015
-----------
Deferred tax assets:
Net operating loss and other credit carryforwards 8,006,463
Vacation and other accruals 16,583
Allowance for bad debts 11,171
Depreciation and amortization due to differences in
book/tax basis 79,828
Other 94,423
-----------
Total deferred tax assets 8,208,468
Valuation allowance (8,134,453)
-----------
Net deferred tax assets $ --
===========
At December 31, 2001, the Company had a federal net operating loss
carryforward of approximately $18,277,000 that expires at various dates
between 2011 and 2021. The utilization of net operating loss
carryforwards may be subject to limitation under various provisions of
the Internal Revenue Code. At December 31, 2001, the Company also had
state net operating loss carryforwards of approximately $17,000,000.
$1.3 million of the state net operating loss carryforwards expire in
2003 and the remaining amount expires in 2021.
(8) COMMON STOCK
The Company was originally capitalized through the issuance of 1,000
shares of common stock at a par value of $0.001. At December 31, 2001,
these shares were still outstanding.
(9) STOCK OPTION PLANS
The Company applies APB 25 in accounting for option grants to its
employees under LifeMetrix's stock option plans. No compensation
expense has been recognized in the accompanying financial statements.
Had the Company determined compensation expense using the fair value
method of accounting for the grants of stock options, the Company's net
loss would have been increased to the pro forma amounts indicated
below:
Net loss:
As reported $3,244,929
Pro forma 3,259,641
The fair value of each option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2001: dividend yield
F-13
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
of 0%, risk-free interest rate of 4.5%, and expected lives of 5 years.
The Company uses the minimum value method.
A summary of the status of the stock options granted to the Company's
employees as of December 31, 2001, and the changes during the year then
ended, is presented below:
2001
--------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------ ------------
Outstanding at
beginning of year 662,001 $ 0.48
Granted 510,000 0.35
------------ ------------
Outstanding at end
of year 1,172,001 $ 0.42
============ ============
Weighted average fair
value of options
granted during the year $ 0.08
The following table summarizes information about stock options
outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE CONTRACTUAL EXERCISE EXERCISE
OF PRICES NUMBER LIFE IN YEARS PRICE NUMBER PRICE
--------- --------- ------------- ---------- --------- ----------
$ 0.35 838,552 8.29 $ 0.35 270,077 $ 0.35
$ 0.60 333,449 6.72 0.60 267,372 0.60
--------- --------- ------------- ---------- --------- ===========
1,172,001 7.84 $ 0.42 537,449 $ 0.47
========= ============= ========== ========= ===========
Options outstanding at December 31, 2001 include 15,000 options that
were issued for purposes other than employee compensation, with a
weighted average exercise price of $0.35.
(10) RELATED PARTY TRANSACTIONS
Certain administrative functions related to human resources,
facilities, financial management and information systems are provided
to the Company by LifeMetrix. All direct costs and an allocation of
indirect costs of performing these functions are charged to the
Company. The allocation of indirect costs is based on the size of the
Company's revenues in relation to the total revenues of LifeMetrix for
salaries and benefits and on full-time equivalents for all other
indirect costs. The cost to the Company resulting from
F-14
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
these services amounted to $2,894,321 in 2001. The Company does not
believe there would be a material difference in overhead costs if the
Company had operated on a stand-alone basis during the year ended
December 31, 2001.
The Company's activities are financed through a cash concentration
account with LifeMetrix and LifeMetrix's other subsidiaries. All cash
receipts and disbursements are recorded through this account and
applied to or against the intercompany receivable and payable accounts.
At December 31, 2001, the Company had a net due to LifeMetrix resulting
from these activities of $19,137,675. No interest is charged on
intercompany debt balances.
(11) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company has noncancelable leases for office space and
equipment. Future minimum lease payments under these
noncancelable leases are as follows:
Years ending December 31:
2002 $ 647,517
2003 595,927
2004 403,704
2005 305,260
------------
$ 1,952,408
============
Rent expense under operating lease agreements totaled $509,864
for the year ended December 31, 2001.
Future minimum lease payments under a capital lease are as
follows:
Years ending December 31:
2002 $ 20,645
2003 12,043
------------
32,688
Less imputed interest thereon (2,303)
------------
$ 30,385
============
(B) EMPLOYEE CONTRACTS
LifeMetrix has entered into employment agreements with the
Company's key executives, establishing minimum compensation
levels. In the event the Company is sold or control otherwise
changes, payments due for the remaining terms of these
agreements will become due.
F-15
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
December 31, 2001
(C) LITIGATION
The Company is involved in various legal proceedings
incidental to its business. The Company does not believe that
the ultimate resolution will have a material adverse effect on
the Company's financial position.
(12) DEFINED CONTRIBUTION 401(K) PLAN
The Company participates in LifeMetrix's 401(k) plan for employees.
Employees' salary deferrals under the plan may range from 1% to 15% of
their salary. The Company may make discretionary contributions. No
Company contributions were made to the plan for the year ended December
31, 2001.
F-16
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Balance Sheet
(unaudited)
MARCH 31,
ASSETS 2002
------------
Current assets:
Cash $ 1,100
Accounts receivable, net 1,415,618
Prepaid expenses and other current assets 69,795
------------
Total current assets 1,486,513
Property and equipment, net 491,243
Goodwill, net 1,722,254
Other assets, net 104,146
Deposits 11,137
------------
Total assets $ 3,815,293
============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 108,767
Accrued expenses and other current liabilities 875,780
Deferred revenue, net 886,990
Current obligations under capital lease 20,628
------------
Total current liabilities 1,892,165
Long-term obligations under capital lease 6,756
Due to LifeMetrix 19,610,978
------------
Total liabilities 21,509,899
------------
Stockholder's deficit:
Common stock, $.001 par value, 1,000 shares authorized,
issued and outstanding 1
Accumulated deficit (17,694,607)
------------
Total stockholder's deficit (17,694,606)
------------
Total liabilities and stockholder's deficit $ 3,815,293
============
See accompanying notes to financial statements.
F-17
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Statements of Operations
(unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------ ------------
Revenues:
Cancer disease management $ 1,582,519 $ 714,372
Systems license and development 130,116 108,694
Other 102,082 9,717
------------ ------------
1,814,717 832,783
------------ ------------
Expenses:
Operating 2,068,598 1,706,998
General and administrative 328,958 315,235
Depreciation and amortization 81,869 151,978
------------ ------------
Total expenses 2,479,425 2,174,211
------------ ------------
Loss from operations (664,708) (1,341,428)
Other income (expense):
Interest income 7,936 44,223
Interest expense (1,155) (1,497)
------------ ------------
Net loss $ (657,927) $ (1,298,702)
============ ============
See accompanying notes to financial statements.
F-18
QUALITY ONCOLOGY, INC.
(a wholly owned subsidiary of LifeMetrix, Inc.)
Statements of Cash Flows
(unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (657,927) $ (1,298,702)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 81,869 151,978
Loss on disposal of property and equipment 1,074 --
Changes in working capital:
Increase in accounts receivable (251,517) (189,307)
(Increase) decrease in prepaid expenses and other current assets (37,582) 5,638
Increase in accounts payable 19,863 71,937
Increase in accrued expenses and other current liabilities 116,283 156,685
Increase in deferred revenues 261,233 139,462
------------ ------------
Net cash used in operating activities (466,704) (962,309)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (3,598) (48,260)
------------ ------------
Net cash used in investing activities (3,598) (48,260)
------------ ------------
Cash flows from financing activities:
Capital lease repayments (3,001) (4,136)
Net increase in amounts due to LifeMetrix 473,303 1,014,705
------------ ------------
Net cash provided by financing activities 470,302 1,010,569
------------ ------------
Net change in cash -- --
Cash beginning of period 1,100 1,100
------------ ------------
Cash end of period $ 1,100 $ 1,100
============ ============
See accompanying notes to financial statements.
F-19
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
(unaudited)
March 31, 2002
(1) Organization and Business Description
Quality Oncology, Inc., a wholly owned subsidiary of LifeMetrix, Inc.
(LifeMetrix), is a business-to-business disease management company that
uses its proprietary systems and the Internet to deliver its products
to managed-care organizations, self-insured employers and third-party
administrators. Quality Oncology's systems enable it to deliver chronic
disease management programs in multiple disease states while
simultaneously collecting, manipulating, and analyzing data sets which
combine both clinical and financial information. Quality Oncology's
current principal focus is on cancer, but management believes that
significant elements of disease management are transferable to other
chronic diseases and therefore, Quality Oncology is seeking to leverage
its expertise to other chronic diseases as opportunities arise.
On April 29, 2002, LifeMetrix signed a definitive agreement to sell
certain assets including its cancer disease management business, all of
the issued and outstanding stock of Quality Oncology, its proprietary
system (the Integrated Care Management System (ICMS)) and its rights in
Cancerpage.com, collectively referred to as the Company, to Matria
Healthcare, Inc. for $3,000,000 in cash and $17,000,000 in common
stock. The agreement provides for additional consideration based on
2003 operating results. The agreement requires that at or prior to
closing there be no amounts due to LifeMetrix or any subsidiary of
LifeMetrix. Under the terms of the agreement, if the closing of the
sale does not occur before September 30, 2002, Matria has an option to
purchase a data warehouse license and will be obligated, under certain
conditions, to purchase $2,000,000 in preferred stock of LifeMetrix.
The accompanying financial statements include the financial position
and results of operations of the Company for all periods presented.
The Company's current business activities consist of: (1) providing
cancer disease care management services to managed care organizations,
(2) licensing the ICMS to HMOs and other at-risk groups that wish to
implement the disease management process in-house, and (3) developing
and expanding its proprietary disease management information technology
products.
(2) BASIS OF PRESENTATION
The financial statements included herein have been prepared, without
audit, pursuant to Regulation S-X of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed
or omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto contained in the accompanying registration
statement.
In the opinion of Quality Oncology's management, any adjustments
contained in the accompanying unaudited financial statements are of a
normal recurring nature, necessary to present fairly its financial
position as of March 31, 2002 and its results of operations and its
cash flows for the three-month periods ended March 31, 2002 and 2001.
Interim results are not necessarily indicative of results for an entire
year.
F-20
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
(unaudited)
March 31, 2002
(3) CONCENTRATIONS OF RISK
The Company enters into cancer disease care management contracts with
managed care organizations. To the extent the Company enters into a
contract with a single managed care organization serving substantial
membership, the Company is exposed to concentration of business risk.
The Company's contracts with managed care organizations that represent
greater than 10% of the Company's revenues for the three month periods
ended March 31, 2002 and 2001, are as follows:
MANAGED CARE ORGANIZATION % OF REVENUE
------------------------- --------------------
2002 2001
---- ----
Carefirst of Maryland, Inc. 33 --
Neighborhood Health Partnership, Inc. 12 22
Blue Cross Blue Shield of Florida, Inc. 10 22
Foundation Health Corporation Affiliates -- 18
The Company's disease management contracts contain provisions for the
Company to refund amounts to the managed care organizations if cost
savings targets are not obtained. Revenues recognized in the
accompanying statements of operations that are subject to refund
approximated $977,000 and $9,600 for the three months ended March 31,
2002 and 2001, respectively.
(4) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 142, Goodwill And Other Intangible
Assets (SFAS 142). SFAS 142 addresses the method of identifying and
measuring goodwill and other intangible assets acquired in a business
combination, eliminates further amortization of goodwill, and requires
periodic evaluations of goodwill balances for impairment. The Company
adopted SFAS 142 on January 1, 2002. Upon adoption, $64,000 of
intangible assets previously allocated to assembled workforce was
reclassified to goodwill in accordance with the provisions of SFAS 142.
The Company reviews the recoverability of goodwill annually or more
frequently if events occur which may impair these assets. Impairment
losses are recognized when the fair value of the reporting unit is
estimated to be less than the carrying value. In management's opinion,
no impairment exists at March 31, 2002.
F-21
QUALITY ONCOLOGY, INC.
Notes to Financial Statements
(unaudited)
March 31, 2002
The following table presents the pro forma financial results for the
three months ended March 31, 2002 and 2001, respectively, on a basis
consistent with the new accounting principle:
MARCH 31,
-------------------------------
2002 2001
----------- ------------
Reported net loss $ (657,927) $ (1,298,702)
Add back goodwill amortization -- 65,151
----------- ------------
Adjusted net loss $ (657,927) $ (1,233,551)
=========== ============
F-22
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet and
statements of operations are presented to give effect to the proposed
acquisition. The pro forma information was prepared based on the historical
financial statements and related notes of Matria and Quality Oncology, which are
incorporated by reference or included in this document. The following pro forma
financial statements present the combined financial position as of March 31,
2002, and the combined results of operations for the three months ended March
31, 2002 and for the year ended December 31, 2001. The pro forma financial
information is presented to reflect the transaction as if the acquisition had
been completed on January 1, 2001 for results of operations and on March 31,
2002 for balance sheet purposes. Pro forma adjustments to the balance sheet
reflect the additional borrowing and common stock issued, additional goodwill,
and the elimination of Quality Oncology's intercompany debt and equity accounts.
Pro forma adjustments to the statements of operations reflect incremental
interest expense from the borrowing and the income tax effect of Quality
Oncology's net loss and the other pro forma adjustments. Incremental shares of
Matria common stock resulting from the acquisition are reflected in the
calculation of pro forma earnings per share.
In the acquisition Matria will acquire from LifeMetrix all outstanding
capital stock of Quality Oncology, and LifeMetrix will contribute related
software, contracts and other assets to Quality Oncology. The acquisition will
be a purchase business combination with a purchase price consisting of
$3,000,000 in cash and $17,000,000 in Matria common stock. Matria will finance
the cash portion of the acquisition by borrowing under its revolving credit
facility. Both Matria and Quality Oncology have a calendar year-end.
The unaudited pro forma combined condensed financial statements and the
notes thereto should be read in conjunction with the historical financial
statements and related notes of Matria and Quality Oncology, which are
incorporated by reference or included elsewhere in this document. These
unaudited pro forma combined condensed financial statements were prepared in
accordance with rules and regulations established by the Securities and Exchange
Commission and are not necessarily reflective of the actual or future results of
operations or the financial position of Matria.
P-1
MATRIA HEALTHCARE, INC. AND QUALITY ONCOLOGY, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2002
(AMOUNTS IN THOUSANDS)
HISTORICAL
------------------------
QUALITY PRO FORMA PRO FORMA
MATRIA ONCOLOGY ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 1,607 $ 1 $ 1,608
Short-term investments 126 126
Trade accounts receivable, net 53,538 1,416 54,954
Inventories 20,541 20,541
Prepaid expenses and other current assets 15,410 70 15,480
-------------------------------------- ----------
Total current assets 91,222 1,487 92,709
Property and equipment, less accumulated depreciation 22,550 491 23,041
Intangible assets, less accumulated amortization 109,381 1,722 $ 18,084 (A) 129,187
Deferred income taxes 24,362 24,362
Other assets 20,064 115 20,179
-------------------------------------- ----------
$ 267,579 $ 3,815 $ 18,084 $ 289,478
========== ========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 247 $ 20 $ 267
Accounts payable, principally trade 23,134 109 23,243
Accrued liabilities and deferred revenue 13,558 1,763 15,321
-------------------------------------- ----------
Total current liabilities 36,939 1,892 38,831
Long-term debt, excluding current installments 114,745 7 $ 3,000 (B) 117,752
Other long-term liabilities 7,878 19,611 (19,611)(C) 7,878
-------------------------------------- ----------
Total liabilities 159,562 21,510 (16,611) 164,461
-------------------------------------- ----------
Common shareholders' equity:
Common stock 90 8 (D) 98
Additional paid-in capital 291,616 16,992 (D) 308,608
Accumulated deficit (179,417) (17,695) 17,695 (C) (179,417)
Accumulated other comprehensive loss (737) (737)
Notes receivable and accrued interest from shareholder (3,535) (3,535)
-------------------------------------- ----------
Total common shareholders' equity 108,017 (17,695) 34,695 125,017
-------------------------------------- ----------
$ 267,579 $ 3,815 $ 18,084 $ 289,478
========== ========== ========== ==========
P-2
MATRIA HEALTHCARE, INC. AND QUALITY ONCOLOGY, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
HISTORICAL
-----------------------
QUALITY PRO FORMA PRO FORMA
MATRIA ONCOLOGY ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
Revenues $ 263,983 $ 5,751 $ 269,734
Cost of revenues 145,685 7,278 $ (465)(I) 152,498
Selling and administrative expenses 76,249 1,216 620 (I) 78,085
Provision for doubtful accounts 7,575 0 167 (I) 7,742
Amortization of intangible assets 9,827 583 (583)(I)(E) 9,827
------------------------------------- ---------
Operating earnings (loss) from continuing operations 24,647 (3,326) 261 21,582
Interest income (expense), net (10,008) 81 (216)(F) (10,143)
Other income (expense), net (639) 0 (639)
------------------------------------- ---------
Earnings (loss) from continuing operations before 14,000 (3,245) 45 10,800
income taxes
Income tax expense 6,075 0 (1,389)(G) 4,686
------------------------------------- ---------
Earnings (loss) from continuing operations 7,925 (3,245) 1,434 6,114
Earnings (loss) from discontinued operations, net of
income taxes (1,240) 0 (1,240)
------------------------------------- ---------
Net earnings (loss) 6,685 (3,245) 1,434 4,874
Redeemable preferred stock dividends (1,638) 0 (1,638)
Accretion of Series B redeemable preferred stock (225) 0 (225)
Net gain on repurchases of redeemable preferred stock 739 0 739
------------------------------------- ---------
Net earnings (loss) available to common shareholders $ 5,561 $ (3,245) $1,434 $ 3,750
===================================== =========
Net earnings per common share:
Basic:
Continuing operations $ 0.78 $ 0.52
Discontinued operations (0.14) (0.13)
--------- ---------
$ 0.64 $ 0.39
========= =========
Diluted
Continuing operations $ 0.76 $ 0.51
Discontinued operations (0.14) (0.13)
--------- ---------
$ 0.62 $ 0.38
========= =========
Weighted average shares outstanding:
Basic 8,748 814 (D) 9,562
========= ============= =========
Diluted 8,992 814 (D) 9,806
========= ============= =========
P-3
MATRIA HEALTHCARE, INC. AND QUALITY ONCOLOGY, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(AMOUNTS IN THOUSANDS)
HISTORICAL
--------------------
QUALITY PRO FORMA PRO FORMA
MATRIA ONCOLOGY ADJUSTMENTS COMBINED
-------- -------- ----------- ----------
Revenues $ 65,188 $ 1,815 $ 67,003
Cost of revenues 36,656 2,069 (56)(I) 38,669
Selling and administrative expenses 20,736 329 114 (I) 21,179
Provision for doubtful accounts 1,842 0 24 (I) 1,866
Amortization of intangible assets 140 82 (82)(I) 140
------------------------------------- ----------
Operating earnings (loss) 5,814 (665) 5,149
Interest income (expense), net (3,227) 7 $ (41)(H) (3,261)
Other income (expense), net 111 0 111
------------------------------------- ----------
Earnings (loss) before income taxes 2,698 (658) (41) 1,999
Income tax expense 1,080 0 (280)(G) 800
------------------------------------- ----------
Net earnings (loss) available to common shareholders $ 1,618 $ (658) $ 239 $ 1,199
===================================== ==========
Net earnings per common share:
Basic $ 0.18 $ 0.12
======== ==========
Diluted $ 0.17 $ 0.12
======== ==========
Weighted average shares outstanding:
Basic 8,969 814 (D) 9,783
========= =========== ==========
Diluted 9,403 814 (D) 10,217
========= =========== ==========
P-4
MATRIA HEALTHCARE, INC.
PRO FORMA ADJUSTMENTS
(A) To reflect the elimination of Quality Oncology's goodwill and to
reflect the excess of the acquisition cost over the estimated fair
value of the tangible net assets acquired (goodwill). The purchase
price and financing of the transaction are summarized as follows:
Elimination of existing Quality Oncology goodwill $ (1,722)
==========
Purchase price paid as:
Proceeds of borrowing under revolving loan $ 3,000
Common stock 17,000
----------
Total purchase consideration 20,000
----------
Allocated to:
Fair value of tangible net assets acquired 194
----------
Excess of purchase price over allocation to
identifiable assets and liabilities (goodwill) $ 19,806
==========
(B) To reflect borrowing under the revolving credit facility to finance the
cash portion of the purchase price.
(C) To reflect the elimination of Quality Oncology's intercompany loan and
accumulated deficit.
(D) To reflect the issuance of 813,942 shares of Matria common stock at a
price of approximately $20.89 per share. The assumed price is the 5-day
average of Matria's closing stock prices between April 25 and May 1,
2002. The actual number of shares to be issued will be based on an
average of Matria's closing stock prices for 10 consecutive trading
days prior to the closing of the transaction.
(E) To reflect the elimination of amortization of Quality Oncology's
goodwill.
(F) To reflect the increase in interest expense resulting from the $3,000
borrowing under the revolving credit facility to finance the cash
portion of the purchase price. The interest rate is assumed to be 7.2%
for the period.
(G) To reflect the income tax effect of the pre-tax loss of Quality
Oncology and the income tax effect of the pro forma adjustments.
(H) To reflect the increase in interest expense resulting from the $3,000
borrowing under the revolving credit facility to finance the cash
portion of the purchase price. The interest rate is assumed to be 5.4%
for the period.
(I) To reclassify Quality Oncology depreciation expense, provision
for doubtful accounts and selling expenses to conform to Matria
presentation.
P-5
APPENDIX A
Purchase and Sale Agreement
================================================================================
PURCHASE AND SALE AGREEMENT
AMONG
MATRIA HEALTHCARE, INC.,
LIFEMETRIX, INC.,
AND
QUALITY ONCOLOGY, INC.
DATED AS OF APRIL 29, 2002
================================================================================
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered
into as of the 29th day of April, 2002, by and among MATRIA HEALTHCARE, INC., a
Delaware corporation ("Matria"), LIFEMETRIX, INC., a Delaware corporation
("Seller"), and QUALITY ONCOLOGY, INC., a Delaware corporation ("QO").
W I T N E S S E T H:
WHEREAS, Seller is the owner of 100% of the issued and outstanding
shares of capital stock of QO;
WHEREAS, QO is engaged in the business of providing cancer disease
management services (the "Business"); and
WHEREAS, Seller desires to sell and Matria desires to purchase all of
the issued and outstanding shares of the capital stock of QO (the "Shares"),
pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
SALE AND PURCHASE
1.1 SALE OF SHARES AT THE CLOSING.
(a) Subject to the terms and conditions set forth in this
Agreement and on the basis of and in reliance upon the representations,
warranties, obligations and covenants set forth in this Agreement, at the
"Closing" (as defined in Section 2.1 hereof), Seller hereby agrees to sell,
assign, transfer, convey and deliver to Matria, and Matria hereby agrees to
purchase and receive, free and clear of any and all mortgages, restrictions,
liens, charges, hypothecations, security interests, claims and encumbrances
(collectively, "Liens"), all of the Shares.
(b) At or prior to the Closing, Seller hereby agrees to assign,
transfer, convey and deliver (or, as applicable, to cause to be assigned,
transferred, conveyed and delivered) to QO, free and clear of any and all Liens,
each of the following (collectively, the "Transferred Assets"):
(i) all right, title and interest in and to
cancerpage.com(TM), including, without limitation, all copyrights, trademarks,
service marks, logos, trade names, patents, processes, inventions, technology,
trade secrets, confidential business information, goodwill and other
intellectual property (including, to the extent applicable, registrations,
applications, and renewals for registrations of each of the foregoing) related
thereto, including, without limitation, all such items as are set forth on
Schedule 1.1(b)(i);
(ii) all right, title and interest in and to all
architectural designs and proprietary software relating to Integrated Care
Management System(SM) ("ICMS"), including, without limitation, (A) all object
code, executables, copy books, modules required to compile programs and source
code related thereto; all descriptions, flow-charts and other work product used
to design, plan, organize and develop any of the foregoing, and all
documentation, including user manuals and training materials, related to any of
the foregoing, and (B) all copyrights, trademarks, service marks, logos, trade
names, patents, processes, inventions, technology, trade secrets, confidential
business information, goodwill and other intellectual property (including, to
the extent applicable, registrations, applications, and renewals for
registrations of each of the foregoing) related thereto, including, without
limitation, all such items as are set forth on Schedule 1.1(b)(ii)(A), but
excluding the commercially available software that has been licensed to Seller
or any Subsidiary (other than QO) and is not transferable by Seller or such
Subsidiary, which software is listed on Schedule 1.1(b)(ii)(B);
(iii) all rights of Seller and/or any of its "Subsidiaries"
(as defined in Section 4.3.1) under the contracts and agreements listed on
Schedule 1.1(b)(iii) and, to the extent approved by Matria at or prior to the
Closing, under any contracts and agreements relating to the Business or to the
assets described above in subsections (i) and (ii) and entered into between the
date hereof and the Closing in accordance with Section 6.14 (collectively, the
"Assigned Contracts"), and any and all accounts and other amounts receivable and
prepaid expenses arising under or in connection with such Assigned Contracts;
and
(iv) all right, title and interest in and to all other
items of tangible or intangible personal property used by Seller and/or any of
its Subsidiaries in connection with the operation and maintenance of the assets
described above in subsections (i) and (ii) or in connection with the operation
of the Business (other than assets and properties owned by QO), including,
without limitation, all such items as are set forth on Schedule 1.1(b)(iv)(A),
but excluding those items set forth on Schedule 1.1(b)(iv)(B) that are being
retained by Seller and the Subsidiaries (other than QO) for use in connection
with business activities that are not being transferred under this Agreement.
(c) Subject to the terms and conditions set forth in this
Agreement and in reliance upon the representations, warranties, obligations and
covenants set forth in this Agreement, QO shall, at the Closing, assume and,
after the Closing, Matria agrees to cause QO to perform and discharge, (i) the
liabilities and obligations of Seller and/or any of its Subsidiaries arising
after the Closing under the Assigned Contracts (but excluding any such
obligations or liabilities for or with respect to any actions, claims, suits,
investigations or proceedings by any third party or governmental or regulatory
authority arising out of or resulting from acts or omissions occurring prior to
the Closing), and (ii) the liabilities of Seller and the Subsidiaries (other
than QO) for accrued vacation and sick pay solely with respect to employees of
Seller and the Subsidiaries (other than QO) hired by QO as of the Closing
pursuant to Section 3.9 hereof (collectively, the "Assumed Liabilities").
(d) Seller hereby acknowledges and agrees that neither Matria nor
QO is assuming any liabilities or obligations of Seller or any of the
Subsidiaries (other than QO), whether known or unknown, liquidated or
unliquidated, contingent or fixed, and whether or not disclosed in this
Agreement or any Schedule or Exhibit hereto, other than the Assumed Liabilities
(collectively, the "Excluded Liabilities"). All Excluded Liabilities shall
remain the liabilities and obligations of Seller and/or its Subsidiaries (other
than QO), and Seller and/or its Subsidiaries (other than QO) shall pay, perform
and discharge all Excluded Liabilities in accordance with their respective
terms.
1.2 PURCHASE PRICE.
(a) Subject to the terms of this Article 1, the total purchase
price (the "Purchase Price") to be paid by Matria for the Shares shall be an
amount equal to the sum of the Closing Purchase Price and the Earn Out Payment.
(i) The "Closing Purchase Price" equals $20,000,000,
payable in accordance with Section 1.2, as adjusted by each of the following
adjustments (collectively, the "Adjustments"):
(A) The Closing Purchase Price shall be
increased (if positive) or reduced (if negative) by the amount obtained by
subtracting (I) $111,423; from (II) the Working Capital as of the Closing.
(B) The Closing Purchase Price shall be reduced
by an amount equal to the Audit Adjustment with respect to any Adverse Change in
the audited financial statements of QO as of and for the year ended December 31,
2001, as compared to the unaudited financial statements of QO as of and for the
year ended December 31, 2001 set forth in Schedule 4.3.7 ("2001 Unaudited
Financial Statements").
(ii) The "Earn Out Payment" equals an amount to be
determined and paid by Matria to Seller in accordance with Section 1.5.
(b) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Working Capital" means the current assets of QO
minus the current liabilities of QO (not including any reserve for contractual
liabilities or any liability for deferred revenue arising under the Assigned
Contracts).
A-2
(ii) "Audit Adjustment" means an amount equal to the
reduction in stockholders' equity resulting from an Adverse Change affecting the
balance sheet of QO as of December 31, 2001; provided, however, that any
allocation in the audited balance sheet of QO as of December 31, 2001 of
corporate general and administrative expense to QO, and any changes in the
balance sheet of QO as of December 31, 2001 resulting from the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby shall be disregarded for purposes of determining the Audit Adjustment,
including but not limited to any changes resulting from the transfer of the
Transferred Assets or the assumption of the Assumed Liabilities.
(iii) "Adverse Change" means any net adverse change in
excess of $10,000 in the line items of the audited balance sheet of QO as of
December 31, 2001 (other than any line item included in the calculation of
Working Capital) as compared with the corresponding line items in the
corresponding balance sheet included in the 2001 Unaudited Financial Statements.
(c) Notwithstanding any provision in this Agreement to the
contrary, all of the "Audited Financial Statements" (as defined in Section
1.4(a)) shall be prepared in accordance with generally accepted accounting
principles and practices of the United States, as in effect from time to time
("GAAP"), including appropriate closing adjustments, as if the Closing Date were
a fiscal year end, consistently applied, subject to the terms and conditions of
this Agreement.
(d) Not less than three (3) days prior to the Closing, Seller
shall prepare and deliver to Matria (i) a good faith estimate of the Closing
Purchase Price as of the Closing Date ("Estimated Closing Purchase Price"),
setting forth, in reasonable detail, (A) its calculation of the estimated
Working Capital at Closing and (B) its calculation of the Audit Adjustment, if
any, (ii) an audited balance sheet, statement of income and retained earnings,
statement of stockholders' equity and statement of cash flows of QO as of and
for the year ended December 31, 2001 (the "Audited 2001 Financial Statements"),
(iii) an estimated balance sheet for QO as of the Closing (after giving effect
to the transfer of the Transferred Assets and the assumption of the Assumed
Liabilities) (the "Estimated Balance Sheet"), subject to the terms and
conditions of this Agreement including, without limitation, Section 1.2(b)(i),
and (iv) a certificate of a duly authorized officer of Seller certifying the
foregoing.
1.3. CLOSING PURCHASE PRICE. At the Closing, Matria shall pay to
Seller the Estimated Closing Purchase Price as follows:
(a) Matria shall pay and deliver (A) an amount equal to
$3,000,000, less the amount of the "Deposit" (as defined in Section 3.1) and
less the amount of any and all "Matria Advances" (as defined in Section 3.10)
made to Seller, by wire transfer of immediately available funds to Seller; and
(B) the remainder of the Estimated Closing Purchase Price, less $2,000,000 of
the Closing Purchase Price deposited into escrow pursuant to Section 1.3(b), by
issuance and delivery to Seller of a number of shares of common stock, $.01 par
value per share, of Matria ("Matria Common Stock") equal to such amount divided
by the Closing Stock Price as of the Closing Date.
(b) For purposes of determining the number of shares of Matria
Common Stock to be delivered hereunder, subject to subsection (c) below,
"Closing Stock Price" shall mean, per share of Matria Common Stock, as of a
given date, (i) if such Matria Common Stock is listed on a national securities
exchange or traded on The Nasdaq National Market System ("NMS"), the average
during the ten (10) consecutive trading days immediately preceding such date of
the last price at which the Matria Common Stock shall have been sold 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 on each such
trading day, or (ii) if the Matria 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 ten (10) consecutive trading days immediately preceding
such date of the last price (if such last price is then reported on a real-time
basis) on each such trading 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, or (iii) if at any time quotations for the Matria Common Stock shall not
be reported by NASDAQ for the over-the-counter market and the Matria Common
Stock shall not be listed on any national securities exchange or traded on the
NMS, the fair market value per share of Matria Common Stock as determined by an
independent investment banking firm jointly selected by Matria and the "Review
Committee" (as defined in Section 3.7) on the basis of available prices for such
Matria
A-3
Common Stock or in such other manner as it deems reasonable. No fractional
shares shall be issued pursuant to this Agreement, and if any amount payable
hereunder in shares of Matria Common stock would result in a fractional share,
the number of shares to be delivered hereunder shall be rounded up to the next
whole number of shares.
(c) Notwithstanding any other provision set forth herein to the
contrary, for purposes of determining the Closing Stock Price as of the Closing
Date, (i) in the event the per share price of Matria Common Stock calculated in
accordance with Section 1.3(b) is less than $19.148, then the Closing Stock
Price as of the Closing Date shall be $19.148, and (ii) in the event the per
share price of Matria Common Stock calculated in accordance with Section 2.3(b)
is greater than $28.722, then the Closing Stock Price as of the Closing Date
shall be $28.722.
(d) Seller and Matria shall each deliver an escrow agreement (the
"Escrow Agreement") in the form attached hereto as Exhibit A (with such
reasonable changes as may be requested by the Escrow Agent) executed by each
such party, and Matria shall deliver certificates representing a number of
shares of Matria Common Stock, issued in the name of Seller, equal to $2,000,000
divided by Closing Stock Price as of the Closing Date, to the escrow agent under
the Escrow Agreement (the "Escrow Agent").
1.4 PURCHASE PRICE ADJUSTMENT.
(a) Within ninety (90) days following the Closing Date, Seller
shall prepare and deliver to Matria (i) an audited balance sheet, statement of
income and retained earnings, statement of stockholders' equity and statement of
cash flows of QO as of and for the partial year period ended as of the Closing
(after giving effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities) (in their final and binding form, the
"Audited Closing Date Financial Statements"), and its calculation of the Working
Capital as of the Closing Date, (ii) its calculation of any Audit Adjustment,
(iii) its calculation of the resulting Closing Purchase Price, and (iv) a
certificate of a duly authorized officer of Seller certifying the foregoing.
Matria and Seller shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the preparation of the Audited
Closing Date Financial Statements (together with the Audited 2001 Financial
Statements, the "Audited Financial Statements"). Such cooperation shall include
the retention and (upon reasonable request) the provision of information and
records which are reasonably relevant thereto, and making employees available on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Seller shall deliver to Matria, and Matria
shall have the right to review, all books and records and supporting work papers
(including schedules, memoranda and other documents) of Seller related to the
preparation of the Audited Financial Statements and the calculation of the
Closing Purchase Price, and Matria shall have a period of forty-five (45) days
(the "Objection Period") after delivery of the Audited Financial Statements in
which to provide written notice to Seller of any objections thereto (the
"Objection Notice"), setting forth the specific item of the calculation of the
Closing Purchase Price to which each such objection relates and the specific
basis for each such objection. Each of the Audited Financial Statements shall be
audited by KPMG LLP. The Audited Financial Statements and the resulting Closing
Purchase Price shall be deemed to be accepted by Matria and shall become final
and binding on the parties on the later of the expiration of the Objection
Period or the date on which all objections have been resolved by the parties. If
Matria gives any such Objection Notice within the Objection Period, then Seller
and Matria shall attempt in good faith to resolve any dispute concerning the
item(s) subject to such objection. If Seller and Matria do not resolve any
dispute arising in connection with the calculation of the Closing Purchase Price
and/or the Audited Financial Statements, such dispute shall be resolved in
accordance with the procedures set forth in subsection (b) below.
(b) If Matria and Seller have not been able to resolve a dispute
within thirty (30) days after the date of delivery of the Objection Notice
(which 30-day period may be extended by written agreement of the parties), such
dispute shall be resolved fully, finally and exclusively through the use of
Ernst & Young LLP ("E&Y") as an independent arbitrator, and the determination of
E&Y shall be final and binding on the parties. The E&Y personnel performing such
services shall be individuals who are independent of, and impartial with respect
to, QO, Seller, their officers, directors, agents and employees, and the
officers, directors, agents and employees of their respective affiliates. If E&Y
shall not be willing to serve as an independent accounting firm for this
purpose, then another independent international accounting firm (the "Alternate
Accounting Firm") shall be selected to serve as such by mutual agreement of
Matria and Seller. If Seller and Matria cannot mutually agree on the identity of
the Alternate Accounting Firm, such dispute shall be resolved fully and finally
in Atlanta, Georgia by an arbitrator selected pursuant to, and an arbitration
governed by, the Commercial Arbitration Rules of the American Arbitration
A-4
Association. The fees and expenses of E&Y, the Alternate Accounting Firm or the
arbitrator (the "Reviewing Party") incurred in the resolution of such dispute
shall be borne by the parties in such proportion as is appropriate to reflect
the relative benefits received by Seller on the one hand and Matria on the other
from the resolution of the dispute. For example, if Matria challenges the
calculation of the Closing Purchase Price by an amount of $100,000, but the
Reviewing Party determines that Matria has a valid claim for only $40,000,
Matria shall bear 60% of the fees and expenses of the Reviewing Party and Seller
shall bear the other 40% of such fees and expenses. Any arbitration proceeding
shall be commenced within sixty (60) days of the date of delivery of the
Objection Notice, and the parties shall submit to the Reviewing Party written
submissions detailing the disputed items within twenty (20) days after the
commencement of such proceeding. The Reviewing Party shall determine (and
written notice thereof shall be given to Seller and Matria) as promptly as
practicable, but in all events within thirty (30) days of the date on which
written submissions detailing the disputed items have been forwarded to it, (x)
whether the Audited Financial Statements, all Adjustments and the resulting
Closing Purchase Price were prepared in accordance with the terms of this
Agreement or, alternatively, (y) only with respect to the disputed items
submitted to the Reviewing Party, whether and to what extent (if any) the
Audited Financial Statements, the Adjustments and/or the resulting Closing
Purchase Price require adjustment. The Reviewing Party's decision shall be based
solely on the written submissions of the parties and any oral presentations
requested or approved by the Reviewing Party. All negotiations pursuant to this
Section 1.4(b) shall be treated as compromise and settlement negotiations for
purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules
of evidence, and all negotiations, submissions to the Reviewing Party, and
arbitration proceedings under this Section 1.4(b) shall be treated as
confidential information. The Reviewing Party shall be bound by a mutually
agreeable confidentiality agreement. The procedures of this Section 1.4(b) are
exclusive, and each party acknowledges that it is waiving its right to a court
or jury trial with respect to any dispute arising under this Section 1.4. The
decision rendered pursuant to this Section 1.4(b) may be filed as a judgment in
any court of competent jurisdiction. Either party may seek specific enforcement
or take other necessary legal action to enforce any decision under this Section
1.4(b). The provisions of this Section 1.4(b) shall in all respects be governed
by the Federal Arbitration Act.
(c) Promptly after the Audited Financial Statements, the
Adjustments and the resulting Closing Purchase Price calculated with reference
thereto become final and binding on the parties under Sections 1.4(a) and
1.4(b), the Estimated Closing Purchase Price shall be recalculated by giving
effect to such final and binding amounts (as recalculated, the "Final Closing
Purchase Price"). If the Estimated Closing Purchase Price is greater than the
Final Closing Purchase Price, the Escrow Agent shall remit to Matria, in
accordance with the Escrow Agreement, a number of shares of Matria Common Stock
equal to the amount by which the Estimated Closing Purchase Price exceeds the
Final Closing Purchase Price, divided by the Closing Stock Price as of the
Closing Date. If the Final Closing Purchase Price is greater than the Estimated
Closing Purchase Price, Matria shall, within ten (10) business days after the
Audited Financial Statements become final and binding, make payment to Seller of
the amount by which the Final Closing Purchase Price exceeds the Estimated
Closing Purchase Price, at Matria's option, either by wire transfer of
immediately available funds equal to such amount, by delivery of a number of
shares of Matria Common Stock equal to such amount divided by the Closing Stock
Price as of the Closing Date, or by any combination of the foregoing.
1.5 EARN OUT PAYMENT.
(a) Matria shall pay to Seller the Earn Out Payment, if any, with
respect to the fiscal year of QO ending December 31, 2003, determined in
accordance with the following formula:
(i) one-half (1/2) of Adjusted Net Revenues of QO for the
year ended December 31, 2003; and
(ii) six (6) times Adjusted EBITDA of QO for the year
ended December 31, 2003.
(b) On or before March 31, 2004, Matria shall (i) cause to be
prepared in accordance with GAAP, consistently applied, and delivered to the
"Review Committee," as defined in Section 3.7, the audited balance sheet of QO
as of December 31, 2003 and the audited income statement of QO for the twelve
(12) month period then ending, and (ii) prepare and deliver to Seller a
statement setting forth a calculation of Adjusted Net Revenues and Adjusted
EBITDA for the year ending December 31, 2003 and the Earn Out Payment payable
hereunder, together with a certificate of a duly authorized officer of Matria
certifying the foregoing (the "Earn Out Statement").
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(c) The Review Committee shall have the right to review, for a
period of forty-five (45) days commencing on the date of delivery by Matria of
the Earn Out Statement (the "Earn Out Objection Period") (and Matria shall
during such period provide access during normal business hours to), all books,
records and supporting work of Matria related to the calculation of Adjusted Net
Revenues, Adjusted EBITDA and the Earn Out Payment and the preparation of the
Earn Out Statement. The Review Committee shall have the right during the Earn
Out Objection Period to provide written notice to Matria of any objections to
any item of calculation in the Earn Out Statement (the "Earn Out Objection
Notice"). If the Review Committee fails to timely object to the calculations set
forth in the Earn Out Statement during the Earn Out Objection Period, then the
Earn Out Statement shall become final and binding on the parties and the Earn
Out Payment, if any, shall be as set forth in the Earn Out Statement. If the
Review Committee shall timely give the Earn Out Objection Notice, then such
dispute shall be resolved fully, finally and exclusively in accordance with the
procedures set forth in Section 1.4(b). Any Earn Out Payment to be made by
Matria to Seller hereunder shall be paid on or before the later of (i) the date
which is forty-five (45) days after the Earn Out Payment Determination Date or
(ii) June 30, 2004; provided, however, that the amount of the Earn Out Payment
set forth in the Earnout Statement, less any set-offs asserted by Matria against
the Earn Out pursuant to Article 9, shall be paid by Matria no later than June
30, 2004. Matria shall deliver the Earn Out Payment, at Matria's option in cash
by wire transfer of immediately available funds in accordance with the written
instructions of the Review Committee, in shares of Matria Common Stock (valued
at the Closing Stock Price as of the date on which the Earn Out Payment is made
by Matria), or in a combination of the foregoing. Notwithstanding the foregoing,
and unless otherwise agreed by Seller, Matria shall pay no less than a portion
of the Earn Out Payment (the "Required Cash Portion") equal to the lesser of (i)
twenty percent (20%) of the Earn Out Payment, or (ii) either $10,000,000, or
such greater amount as is then permitted under Section 4.06(12) (or any
successor provision) of the Indenture referenced in subsection (f) below, as the
same may be amended from time to time, in cash by wire transfer of immediately
available funds in accordance with the written instructions of the Review
Committee. The "Earn Out Payment Determination Date" shall mean the first
business day following the earliest of: (i) the Review Committee's failure to
timely object to the calculation of the Earn Out Payment pursuant to this
Section 1.5(c), (ii) determination of the Earn Out Payment by the Reviewing
Party as provided in this Section 1.5(c), or (iii) agreement of the parties on
the amount of the Earn Out Payment.
(d) The rights of Seller with respect to the Earn Out Payment (the
"Earn Out Rights") shall represent only a right to receive shares of Matria
Common Stock or cash from Matria, subject to the terms set forth herein. The
Earn Out Rights shall not possess any attributes of common stock and shall not
entitle the holders thereof to any rights of any kind other than as specifically
set forth herein.
(e) The Earn Out Rights are personal to Seller and are and shall
remain nontransferable for any reason other than by operation of law or by will
or the laws of descent and distribution; provided that Seller may transfer its
right to receive the Earn Out Payment to a liquidating trust in connection with
the assignment of its rights and obligations under this Agreement permitted by
Section 11.5. Any other attempted assignment, pledge, hypothecation, transfer or
other disposition of the Earn Out Rights by any holder thereof (other than as
set forth in the preceding sentence) shall be null and void.
(f) Seller hereby acknowledges and agrees that its right to
receive payment in cash of the Required Cash Portion of the Earn out Payment
shall be in all respects subordinate and subject in right of payment to the
payment of any and all indebtedness of Matria, whether outstanding on the date
hereof or hereafter incurred, created or assumed, which is owed to any creditor
under (i) the "Credit Agreement" (as defined in Section 7.5) or (ii) Matria's
11% Senior Notes issued pursuant to that Indenture dated as of July 9, 2001 by
and among Matria, the Guarantors named therein, and Wells Fargo Minnesota,
National Association, as Trustee (the "Indenture"). Seller agrees to take any
and all further actions, and to execute any and all further agreements,
instruments and other documents, as are reasonably requested by Matria or
Matria's applicable lenders in order to further evidence, clarify or give effect
to the foregoing subordination provisions. In the event Matria is unable, as a
result of the foregoing subordination provisions, to deliver a cash payment to
Seller equal to the Required Cash Portion on or before the required payment
date, Seller may elect, in its sole discretion, to receive payment in shares of
Matria Common Stock (valued at the Closing Stock Price as of the date on which
the Earn Out Payment is made by Matria) of the amount by which the Required Cash
Portion exceeds the amount of the cash payment actually tendered by Matria in
respect of the Earn Out Payment, in full satisfaction of Matria's obligations
with respect thereto.
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(g) As used herein, the term "Adjusted Net Revenues" shall mean,
with respect to QO for the year ended December 31, 2003, an amount equal to the
net revenues derived from the Business and the Transferred Assets, as determined
based on the books and records of QO maintained in the ordinary course of
business in accordance with GAAP, consistently applied; provided that any
increase in QO's reserve for contractual liabilities shall be treated as a
reduction of QO's net revenues for all purposes hereunder. Notwithstanding any
provision to the contrary, Adjusted Net Revenues shall not include revenues from
any "Payor Agreement" or "Program Attachment" (as such terms are defined in the
Vendor Management Agreement dated March 26, 2002 between QO and Matria) that the
Review Committee elects to exclude from the calculation of QO's 2003 Adjusted
Net Revenues and Adjusted EBITDA pursuant to Section 3.7 of this Agreement
("Excluded Customer Contracts").
(h) As used herein, the term "Adjusted EBITDA" shall mean, with
respect to QO for the year ending December 31, 2003, the positive amount, if
any, equal to (i) the income before income taxes derived from the Business and
the Transferred Assets (after deducting all service and direct costs, salaries
and employee benefits and selling, general and administrative expenses incurred
in connection with the Business and the Transferred Assets) for such period,
plus (ii) all depreciation and amortization expense and all interest expense
deducted in calculating the income described in clause (i) (and, in all events,
before deducting all federal, state and local income Taxes); provided, however,
that Adjusted EBITDA shall reflect a deduction of interest expense charged to QO
on the principal amount all "Matria Working Capital" (as defined in Section
3.7(a)) in excess of $2,000,000 outstanding from time to time. Such interest on
Matria Working Capital shall be charged at a rate equal to, at Seller's option
(as indicated by written notice from the Review Committee delivered to Matria on
or prior to December 31, 2002), either the "Base Rate" or the three (3) month
"LIBOR Rate," as such terms are defined in the Credit Agreement. All items
relevant to the calculation of Adjusted EBITDA shall be determined based on the
books and records of QO maintained in the ordinary course of business and in
accordance with GAAP, consistently applied. Allocations of overhead and charges
for services provided to QO by Matria and its affiliates will be charged against
Adjusted EBITDA in accordance with Schedule 1.5(h) hereto. Notwithstanding any
provision herein to the contrary, Adjusted EBITDA shall not include:
(i) net gains or losses (after expenses and Taxes
applicable thereto) resulting from the sale, conversion, condemnation or other
disposition of capital assets;
(ii) interest and investment income;
(iii) the financial results of any acquisition of assets or
of any other entity by QO outside the ordinary course of the Business subsequent
to the Closing;
(iv) any incremental revenues or costs incurred by QO
arising under or as a result of any Excluded Customer Contract. In calculating
such incremental costs, indirect costs shall be allocated to each Excluded
Customer Contract based on the ratio of direct nursing labor costs associated
with such Excluded Customer Contract to total direct nursing labor costs
associated with all disease management contracts of QO (including, without
limitation, Excluded Customer Contracts), during the period of performance of
such Excluded Customer Contract.
ARTICLE 2
CLOSING
2.1 CLOSING DATE. Subject to the fulfillment of the conditions
precedent specified in Articles 7 and 8 of this Agreement (or the waiver thereof
as provided therein), the closing of the transactions contemplated by this
Agreement (the "Closing") shall, unless otherwise mutually agreed by the
parties, take place at the offices of Troutman Sanders LLP, Bank of America
Plaza, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia 30308, at 9:00
a.m. local time on the latest to occur of (i) August 15, 2002, (ii) the third
business day following satisfaction or waiver of all conditions to the Closing
set forth in Article 7 and Article 8, or (iii) a date designated by Matria
within ten (10) business days after the date of the "Matria Stockholder Meeting"
(as defined in Section 3.3(e)) (the date on which the Closing occurs being
referred to herein as "Closing Date").
2.2 DELIVERIES OF SELLER. At the Closing, Seller shall deliver to
Matria the following:
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(a) any and all certificates representing the Shares, which
certificates shall be duly endorsed in blank for transfer or accompanied by
properly executed stock powers.;
(b) a bill of sale and assignment with respect to the Transferred
Assets executed by Seller and each of the Subsidiaries (other than QO), in form
and substance reasonably satisfactory to Matria, and such other documents of
transfer, assignment and conveyance as may be reasonably requested by Matria to
vest in QO good and marketable title in and to any and all of the Transferred
Assets;
(c) a certificate, dated as of the Closing Date, signed by the
chief executive officer of Seller certifying that (i) all conditions specified
in Sections 7.1 and 7.2 have been fulfilled; and (ii) all authorizations,
consents, approvals and waivers or other action required to be obtained or taken
by Seller in connection with the execution, delivery and performance of this
Agreement and the consummation of all agreements and transactions contemplated
by this Agreement have been obtained or taken;
(d) an opinion of Simon, Turnbull & Martin, Chartered, counsel for
Seller, dated the Closing Date, in form and substance reasonably satisfactory to
Matria;
(e) non-competition agreements, executed by each of Edmund C.
Bujalski, Frederick C. Lee, Eugene N. Langan, Charles Kanach, Gregory N.
Jungles, Daniel T. McCrone and Jude Gallagher substantially in the form of
Exhibit B attached hereto (collectively, the "Non-Competition Agreements");
(f) a software license agreement, executed by Seller, which grants
to Matria and its affiliates a license to use the architectural designs,
proprietary software and other intellectual property related to Seller's Data
Warehouse (the "Data Warehouse") and which grants to Seller a license to use on
a de-identified basis the clinical data generated by QO, on the terms set forth
therein, substantially in the form of Exhibit C attached hereto (the "Data
Warehouse License Agreement");
(g) a software license agreement, executed by Seller and Life
Metrix Information Services, Inc., a Delaware corporation and a subsidiary of
Seller ("LISI"), which grants to Seller and LISI a license to use the
architectural designs, proprietary software and other intellectual property
related to ICMS, on the terms set forth therein, substantially in the form of
Exhibit D attached hereto (the "ICMS License Agreement");
(h) a sublease agreement, executed by Seller, in form and
substance reasonably satisfactory to Matria and Seller (the "Sublease"),
pursuant to which Seller shall sublease from QO the portion of the leased
premises located at 1420 and 1430 Spring Hill Road, McLean, Virginia, currently
occupied by those employees of Seller and the subsidiaries who are not hired or
retained by Matria or QO following the Closing (along with a license to use
common areas), from the Closing Date through December 31, 2002 at a rental rate
equal to 25% of the rents and other amounts charged to QO under that Standard
Office Deed of Lease dated as of August 22, 1997 (the "Virginia Lease") between
Charles E. Smith Commercial Realty, L.P., (the "Landlord") and Seller, as
amended by that addendum dated as of August 22, 1997, First Amendment to Deed of
Lease dated as of March 31, 2000 and Tenant Estoppel Certificate dated June
2000;
(i) certificates of existence and good standing for each of Seller
and QO issued by the Secretary of State of Delaware, dated as of a date no more
than five (5) days prior to the Closing Date;
(j) copies of the Certificate of Incorporation of Seller and QO
certified to be true and accurate by the Secretary of State of Delaware, dated
as of a date no more than five (5) days prior to the Closing Date;
(k) copies of the Bylaws of Seller and QO certified to be true and
accurate by the current Secretary of such Seller or QO, dated as of the Closing
Date;
(l) certificates of existence and good standing from the Secretary
of State of each state in which Seller and QO are qualified to transact
business, dated as of a date not more than fifteen (15) days prior to the
Closing Date;
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(m) a copy of the text of the resolutions adopted by the board of
directors and stockholders of Seller authorizing the execution, deliver and
performance of this Agreement and the consummation of all of the transactions
contemplated by this Agreement, along with a certificate executed by the
Secretary of Seller certifying (i) that such copy is a true, correct and
complete copy of such resolutions, and (ii) that such resolutions were duly
adopted and have not been amended or rescinded, and constitute all corporate
action on the part of Seller's board of directors and stockholders required to
authorize the execution and delivery of this Agreement by Seller and the
consummation of the transactions contemplated hereby;
(n) a standstill agreement, executed by preferred stockholders of
Seller owning, collectively, at least 70% of the outstanding equity of Seller
(on an as-converted basis) as of the Closing, and Seller, substantially in the
form of Exhibit E attached hereto (the "Standstill Agreement");
(o) the "Registration Rights Agreement" (as defined in section
2.3(i)) executed by Seller;
(p) the Escrow Agreement, executed by Seller;
(q) a linking agreement executed by Seller, in form and substance
reasonably satisfactory to Matria, granting to QO a right, without royalty or
fee, to provide links within the cancerpage.com website to the TrialMatch
website for so long as such TrialMatch website is in existence; and
(r) all other documents, instruments, certificates and opinions
required to be delivered by Seller pursuant to this Agreement.
2.3 DELIVERIES OF MATRIA. At the Closing, Matria shall deliver or
cause to be delivered to Seller the following:
(a) the Estimated Closing Purchase Price in accordance with
Sections 1.2 and 1.3 hereof;
(b) the Escrow Agreement, executed by Matria;
(c) an assignment and assumption agreement with respect to the
Assumed Liabilities, executed by QO, in form and substance reasonably
satisfactory to Seller;
(d) the Sublease, executed by QO;
(e) a certificate executed by the chief executive officer of
Matria, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 8.1 and 8.2 hereof;
(f) an opinion of Troutman Sanders LLP, counsel for Matria, dated
the Closing Date, in form and substance reasonably satisfactory to Seller;
(g) the ICMS License Agreement, executed by QO;
(h) the Data Warehouse License Agreement, executed by QO;
(i) a registration rights agreement, substantially in the form of
Exhibit F attached hereto (the "Registration Rights Agreement"), executed by
Matria in favor of Seller and each preferred stockholder of Seller that executes
and delivers both the Registration Rights Agreement and the Standstill Agreement
at or prior to the Closing; and
(j) all other documents, instruments, and certificates required to
be delivered by Matria pursuant to this Agreement.
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ARTICLE 3
ADDITIONAL AGREEMENTS
3.1 DEPOSIT.
(a) Prior to the date of this Agreement, Matria has advanced to
Seller $500,000 in cash (the "Deposit") toward an option to purchase, for itself
and its affiliates, a perpetual, nonexclusive, nontransferable (except in
connection with the sale of all or substantially all of the assets of Matria or
QO) license to use the architectural designs, proprietary software and other
intellectual property relating to the Data Warehouse, including all object code
and source code related thereto, only for purposes of supporting Matria's care
management and disease management businesses, as well as ownership of all
modifications, improvements and derivative works of such software developed or
created by Matria and/or its subsidiaries (a "DW License"). Upon the Closing,
the full amount of the Deposit will be applied against the Purchase Price and
deducted from the cash portion of the amount of the Estimated Closing Purchase
Price payable to Seller at the Closing. If this Agreement is terminated pursuant
to Article 10, Seller shall, subject to the provisions of Section 3.2, be
entitled to retain the Deposit in its entirety. Notwithstanding the foregoing,
in the event Seller is entitled to retain the Deposit pursuant to a termination
contemplated by the preceding sentence, Seller shall, if requested by Matria
within ninety (90) days of such termination, grant (and/or cause one or more of
its Subsidiaries to grant) to Matria the DW License and retain the Deposit as
partial payment of the fee for the DW License; provided, however, that in the
event of the consummation of a "Matria Investment" (as defined in Section 3.11),
the Deposit shall be applied against and reduce the amount otherwise payable in
respect of the Matria Investment. The total, one-time, license fee for the DW
license will be $875,000, with the balance of $375,000 being payable by Matria
within ten (10) business days after delivery of the licensed software; provided,
however, that in the event of the consummation of a Matria Investment, the
total, one-time license fee for the DW License shall be $375,000.
(b) The DW License will give Matria a perpetual, non-exclusive,
nontransferable (except in connection with the sale of all or substantially all
of the assets of Matria) right to use all architectural designs, proprietary
software and other intellectual property, including all object code and source
code related thereto, relating to the Data Warehouse as they exist at the time
of the grant of such license, as well as ownership of all modifications,
improvements and derivative works of such software developed or created by
Matria and/or its subsidiaries, subject to customary software licensing
provisions to be negotiated by the parties in good faith. If requested by
Matria, Seller will provide routine ongoing maintenance and support for the Data
Warehouse for up to three years, for an annual fee of $87,500 for the first year
and increasing by the CPI for each year thereafter. Seller agrees that it will
negotiate in good faith with Matria to define and price any custom design work
required to tailor the Data Warehouse or related applications to Matria's needs.
Seller has indicated to Matria that such custom work is likely to cost an
additional $500,000, but that such costs could be much less or much more,
depending on Matria's needs and requests for custom work.
3.2 ACQUISITION PROPOSALS. Until the earlier of the Closing or the
termination of this Agreement in accordance with Article 10 hereof, each of
Seller and QO agrees that it shall not (and shall not permit any affiliate,
employee, officer, director, shareholder, agent or other person acting on behalf
of Seller or any of its Subsidiaries to) sell or agree to sell to any other
person or entity, conduct or participate in any discussions or negotiations with
any other person or entity regarding or provide any information to or otherwise
cooperate with any other person or entity in connection with a possible sale of,
or solicit, initiate, encourage or accept any offer to purchase (directly or
indirectly) from any other person or entity, all or any part of the Shares, any
securities or assets of QO, or any of the Transferred Assets, whether such
transaction takes the form of a sale of stock, merger, consolidation, sale of
assets or otherwise. Seller shall promptly notify Matria if any inquiry,
proposal or request for information in connection with any such possible
transaction is received by Seller or any officer at the level of vice president
or higher (each, a "Senior Officer") or director of Seller or QO. In the event
Seller or QO breaches the provisions of the first sentence of this section,
then, if requested by Matria, Seller shall immediately return the Deposit in its
entirety to Matria, and in such event the provisions of Section 3.1 shall be
void.
3.3 STOCKHOLDER APPROVAL; SECURITIES MATTERS
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(a) On or prior to the date of this Agreement, each person and
entity set forth on Schedule 3.3(a) hereto (collectively, the "Investors") has
executed and delivered to Matria a voting agreement in the form of Exhibit G
attached hereto (each, a "Voting Agreement"), wherein each such Investor has
agreed that it will (i) vote all of the shares of the capital stock of Seller
owned by such Investor in favor of the approval and adoption of this Agreement
and any and all transactions contemplated hereby, (ii) upon the request of
Seller or Matria, execute and deliver to Seller and Matria a written consent to
the approval and adoption of this Agreement and any and all transactions
contemplated hereby meeting the requirements of Section 228 of the Delaware
General Corporation Law (the "DGCL") and otherwise in form and substance
reasonably satisfactory to Seller and Matria, and (iii) not transfer any
interest in or relinquish its right to vote any of such shares prior to the
earlier of the Closing or the termination of this Agreement.
(b) As promptly as practicable after the date of this Agreement,
each of Matria and Seller agrees to prepare, and to cooperate in the preparation
of, a registration on Form S-4 or other appropriate form (the "Registration
Statement"), to be filed by Matria with the Securities and Exchange Commission
(the "SEC") in connection with the issuance of the Matria Common Stock pursuant
hereto (including any joint proxy and/or information statement and prospectus
and other proxy solicitation materials constituting a part thereof (the "Joint
Proxy Statement/Prospectus") and all related documents). Matria agrees to file
the Registration Statement with the SEC as promptly as practicable. Each of
Matria and Seller will respond to any comments of the SEC, will use its
respective best efforts to have the Registration Statement declared effective
under the Securities Act of 1933, as amended (the "Securities Act") as promptly
as practicable after such filing, and will cause the Joint Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest
practicable time. As promptly as practicable after the date of this Agreement,
Matria and Seller will prepare and file any other filings required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act or any other federal, foreign or "blue sky" laws relating to the
transactions contemplated by this Agreement (the "Other Filings"). Each of
Matria and Seller will notify the other party promptly upon the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff or
any other government officials for amendments or supplements to the Registration
Statement, the Joint Proxy Statement/Prospectus or any Other Filing, or for
additional information, and will supply the other party with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Joint Proxy
Statement/Prospectus, the Other Filings or the transactions contemplated by this
Agreement. The Joint Proxy Statement/Prospectus, the Registration Statement and
the Other Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Joint Proxy Statement/Prospectus, the Registration Statement
or any Other Filing, Matria or Seller, as the case may be, will promptly inform
the other party of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials, and/or mailing to stockholders of the
Matria or Seller such amendment or supplement. Matria agrees to advise Seller,
promptly after Matria receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Matria Common Stock for offering or sale in any jurisdiction, or of the
initiation or threat of any proceeding for such purpose.
(c) Within forty-five (45) days after the date hereof, Seller
shall deliver to Matria a list of those persons or entities who may be deemed to
be, in Seller's reasonable judgment, affiliates of Seller within the meaning of
Rule 145 promulgated under the Securities Act ("Seller Affiliates"). Seller will
provide Matria with such information and documents as Matria reasonably requests
for purposes of reviewing and confirming the names of the persons or entities
who do and do not appear on such list. Seller will deliver to Matria as promptly
as practicable following the date of this Agreement an affiliate agreement
executed by Seller and each Seller Affiliate in form and substance reasonably
satisfactory to Matria (the "Seller Affiliate Agreements"), each of which will
be in full force and effect as of the Closing. Matria will be entitled to place
appropriate legends on the certificates evidencing any shares of Matria Common
Stock issued pursuant to this Agreement to be received by Seller and any Seller
Affiliate, and to issue appropriate stop transfer instructions to Seller and the
transfer agent for such shares of Matria Common Stock, consistent with the terms
of the Seller Affiliate Agreements.
(d) Promptly after the effective date of the Registration
Statement and the delivery of the Joint Proxy Statement/Prospectus to the
Investors, Seller shall obtain and secure the written consents of each and all
of the Investors, as stockholders of Seller, to the approval and adoption of
this Agreement and any and all transactions
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contemplated hereby, (collectively, "Investor Consents") and shall deliver a
true and complete copy of such Investor Consents to Matria. Seller shall give
all notices to stockholders legally required, under Section 228 of the DGCL or
otherwise, in connection with the Investor Consents and all actions approved
therein in accordance with all applicable legal requirements. Seller represents
and warrants that the Investors hold in excess of 50% of the voting power of
each voting group of the stockholders of Seller (on both a basic and a
fully-diluted, assuming exercise of all outstanding options and warrants,
whether or not exercisable or in-the-money, basis) entitled to vote on the
approval of this Agreement and the transactions contemplated hereby, that the
Investor Consents, when obtained, will satisfy all requirements for stockholder
approval of this Agreement and the transactions contemplated hereby under the
DGCL, Seller's Certificate of Incorporation and Bylaws, and all other applicable
laws and governing documents of Seller, and that, upon the execution and
delivery of such Investor Consents by the Investors, no further approval by any
stockholders of Seller, of any class or series, will be legally required in
connection with this Agreement or in order for the parties to consummate the
transactions contemplated hereby.
(e) Promptly after the effective date of the Registration
Statement, Matria will take all action necessary in accordance with the DGCL and
its Certificate of Incorporation and Bylaws, and all other applicable laws and
governing documents of Matria, to convene a meeting of its stockholders for the
purpose of voting upon the issuance of the shares of Matria Common Stock to be
delivered to Seller pursuant to this Agreement and the transactions contemplated
hereby (the "Matria Stockholders' Meeting").
(f) Any shares of Matria Common Stock to be issued to Seller
pursuant to this Agreement shall, at the time of such issuance, have been
registered under the Securities Act.
3.4 PAYMENT OF CERTAIN INTERCOMPANY ACCOUNTS; RELEASE OF CERTAIN
LIABILITIES. At or prior to Closing, all amounts due and owing from Seller or
any Subsidiary of Seller to QO shall be paid in full. Seller agrees that, as of
the Closing, there shall be no amounts due or owing from QO to Seller or any
Subsidiary. At or prior to the Closing, Seller shall cause QO to be released
from any and all obligations of QO for any obligations (direct, contingent or
otherwise) of Seller and its Subsidiaries (other than QO), or any of them. The
parties shall use reasonable efforts to cause Seller and its Subsidiaries (other
than QO) to be released, at or prior to the Closing, from any guaranty or
similar obligation to third parties with respect to the obligations of QO, and
Matria shall indemnify Seller for any amounts payable by Seller or any of the
Subsidiaries (other than QO) as a result of the existence of any such guaranty
or similar obligation after the Closing, except to the extent such obligations
of QO would give rise to an indemnification obligation on the part of Seller
under Article 9 of this Agreement.
3.5 CORPORATE NAMES; DELIVERIES.
(a) Prior to or simultaneously with the Closing, Seller shall take
all steps reasonably necessary to insure that neither Seller nor any of its
Subsidiaries or affiliates (other than QO) will use, or be able to use, and that
Matria or QO shall own and be entitled to use, any corporate name, trade name or
advertising symbol owned or used by, included in, associated with, or similar to
those of QO or any of the Transferred Assets.
(b) Upon the Closing, Matria shall receive full custody and
control of, and Seller shall deliver or make available to Matria, (i) all of the
Transferred Assets, including, without limitation, all computer code and related
documentation, specifications, design diagrams, notes and comments, manuals,
instructions, operations materials, and any procedural code such as job control
language, all in a form that is readable by humans, which is included in or
necessary to the operation or performance of any of the Transferred Assets
(excluding the items set forth on Schedule 1.1(b)(ii)(B)), and (ii) all minute
books, stock record books, corporate seals, client lists, books of account, bank
accounts, leases, contracts, agreements, files and other documents, instruments,
work product, funds, receivables, assets, papers, and properties, of any kind,
of QO, and all such documents in any way related to the Transferred Assets.
3.6 PROTECTIVE COVENANTS.
(a) For purposes of this Agreement, the following terms shall have
the following respective meanings:
(i) "Confidential Information" shall mean all valuable,
proprietary and confidential information that is in any way included in or
relating or belonging to the Transferred Assets, QO or the Business,
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would be of tangible or intangible value to Matria or QO, does not constitute a
"Trade Secret" and that is not generally known by or available to competitors of
Matria, Seller or QO; provided, however, that "Confidential Information" as used
herein, shall not include information relating to "TrialMatch" or the Data
Warehouse or to any other assets or business operations of Seller or the
Subsidiaries (other than QO) that are not being transferred to Matria or QO
pursuant to this Agreement.
(ii) "Trade Secrets" shall mean all "trade secrets" in any
way included in or relating or belonging to the Transferred Assets, QO or the
Business as defined under applicable law.
(iii) "Restricted Territory" shall mean the United States
of America.
(b) In recognition of the need of Matria to protect its legitimate
business interests, and as covenants ancillary to the sale of a business, Seller
hereby covenants and agrees that it shall (and shall use reasonable efforts to
cause its officers, directors, employees, agents and subsidiaries to) regard and
treat each item of information or data constituting a Trade Secret or
Confidential Information as strictly confidential and wholly owned by Matria or
QO and not, without the prior written consent of Matria in each instance, use,
disclose, transfer, assign, disseminate, reproduce, copy or otherwise
communicate, directly or indirectly, in any way or for any purposes, for itself
or for any other person or entity: (a) any Confidential Information for a period
of five (5) years after the Closing; or (b) any Trade Secret at any time during
which such information shall constitute a trade secret under applicable law. If
Seller becomes legally compelled to disclose any Confidential Information or
Trade Secrets (whether by judicial or administrative order, applicable law, rule
or regulation, or otherwise), Seller will provide Matria with prior notice
thereof so that Matria may seek a protective order or other appropriate remedy
to prevent or limit such disclosure; provided, however, that Seller will use its
reasonable efforts to maintain the confidentiality of such Confidential
Information or Trade Secrets. If such protective order or other remedy is not
obtained prior to the time such disclosure is required, Seller will only
disclose that portion of such Confidential Information and Trade Secrets which
it is legally required to disclose.
(c) In recognition of Matria's need to protect its legitimate
business interests, and as covenants ancillary to the sale of a business, Seller
expressly covenants and agrees that, without the prior written consent of Matria
in each instance, for a period of five (5) years after the Closing, neither
Seller nor any of its subsidiaries, shall directly or indirectly, whether
individually, in partnership, jointly, or in conjunction with, or on behalf of,
any person, firm, partnership, corporation or unincorporated association or
entity of any kind (i) compete with Matria or QO by developing or providing any
diabetes, cancer, women's health or other disease or healthcare management
services within the Restricted Territory or enter into any agreement or other
arrangement which would require it to do so, or (ii) develop, provide or
contribute to the development or provision of any products for any Competing
Business, to the extent such products are substantially similar (in terms of
functionality or otherwise) to any of the Intellectual Property included in the
Transferred Assets (or perform or provide any services related thereto for any
Competing Business). For purposes of this Agreement, the term "Competing
Business" shall mean any person or entity, other than Matria, QO and their
respective subsidiaries and other affiliates, that is engaged in the business of
providing any diabetes, cancer, women's health or other disease or healthcare
management services within the Restricted Territory. Notwithstanding any other
provision set forth in this Section 3.6, the restrictions of this Section 3.6
shall not preclude Seller or any of its subsidiaries from (i) marketing the data
and analytical capabilities of their TrialMatch or Data Warehouse assets and
operations to any person or entity; (ii) granting a non-exclusive license (or an
exclusive license, subject to Matria's rights under the Data Warehouse License
Agreement) to use the architectural designs, proprietary software and other
intellectual property related to the Data Warehouse to any person or entity; or
(iii) selling or transferring any assets (other than Transferred Assets or any
assets of QO) to any person or entity; provided, however that during the
Restricted Period neither TrialMatch, Data Warehouse, nor any other assets of
Seller or any of its subsidiaries (or their applicable transferees) shall be
used, marketed for use, sold to any person for use or otherwise authorized by
Seller or any of its subsidiaries to be used in connection with the provision of
any diabetes, cancer, cardiac, women's health or other disease management
services.
(d) In recognition of Matria's need to protect its legitimate
business interests, and as covenants ancillary to the sale of a business, Seller
agrees that, without the prior written consent of Matria in each instance, for a
period of five (5) years after the Closing, neither Seller nor any of its
subsidiaries, shall directly or indirectly, whether individually, in
partnership, jointly, or in conjunction with, or on behalf of, any person, firm,
partnership, corporation or unincorporated association or entity of any kind;
(i) solicit or contact any person or entity within the
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Restricted Territory that was a client or customer or an actively sought
prospective client or customer of Seller or any Subsidiary at any time prior to
the Closing, for the purpose, directly or indirectly, of developing or providing
any cancer disease management services substantially similar to those developed,
offered or provided by QO (or, as applicable, Seller an any Subsidiary) to or
for such person or entity at any time prior to the Closing or for or on behalf
of any Competing Business; or (ii) solicit or attempt to solicit any Key or
Material Employee of Matria or QO, including any such individual employed by QO
at any time on or prior to the Closing Date, to terminate, alter or lessen such
person's affiliation with Matria or QO, or employ any such person; or (iii)
solicit or attempt to solicit any consultant or contractor or other personnel of
Matria or QO to terminate, alter or lessen such person's relationship with
Matria or QO. For purposes of this Agreement, a "Key or Material Employee" shall
mean any employee having access to the confidential and proprietary information
or trade secrets of Matria or to any Confidential Information or Trade Secrets.
(e) In recognition of Matria's need to protect its legitimate
business interests, and as covenants ancillary to the sale of a business, Seller
agrees that, for a period of five (5) years after the Closing, neither Seller
nor any of its subsidiaries shall make any statement or other communication that
impugns or attacks the reputation or character of Matria, QO or the Business or
damages the goodwill of Matria, QO or the Business or the Transferred Assets,
take any action that would interfere with any contractual, customer
relationships of Matria or QO, including, without limitation, any action that
would reasonably be expected to result in a diminution of business of Matria or
QO. The foregoing restriction shall not, in any respect, be deemed to limit
Seller's ability to assert or protect its rights arising under this Agreement or
in connection with the transactions contemplated hereby.
(f) Each of the parties hereby acknowledges and agrees as follows:
(i) the covenants set forth in this Section 3.6 (the
"Protective Covenants") constitute the most reasonable and equitable
restrictions possible as to time, scope, territory and otherwise in order to
protect Matria's legitimate business interests and its substantial investment in
the Shares, given the substantial consideration which Seller is receiving
hereunder, the complexity of the Business and the business of Matria, the
competitive nature of the industry in which Matria, Seller and QO are engaged,
and Seller's access to Trade Secrets and Confidential Information;
(ii) any breach of the Protective Covenants may cause
irreparable harm to Matria and that monetary damages may not be an adequate
remedy for any breach of the Protective Covenants, and that Matria may (in its
sole discretion), without limiting any other remedies available to Matria at
law, in equity or under this Agreement, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relieve in
order to enforce or prevent any violation (or threatened violation) of the
Protective Covenants; and
(iii) in the event any Protective Covenant shall be
determined by a court or tribunal of competent jurisdiction to be unenforceable
by reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
it is the intention of the parties that such provision be interpreted to extend
only over the maximum period of time for which it may be enforceable and/or over
the maximum geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable, all as
determined by such court or tribunal in such action.
3.7 COVENANTS RELATED TO EARN OUT PAYMENT; REVIEW COMMITTEE.
(a) Until December 31, 2003, Matria shall keep QO (including the
Transferred Assets) intact as a separate business unit, shall manage it in the
ordinary course, and shall make working capital available to it as reasonably
necessary to support the operation and growth of QO's business ("Matria Working
Capital"). Matria and/or Matria shall be entitled to withdraw cash from QO as
non-interest-bearing intercompany advances on a daily basis.
(b) Seller hereby designates Edmund C. Bujalski, Charles Newhall,
III and Larry H. Coleman as its Review Committee (the "Review Committee"). The
Review Committee, as it may be constituted from time to time, acting through
itself or one or more agents designated by the Review Committee, is hereby
authorized to act and appointed as Seller's true and lawful agent and
attorney-in-fact, effective from and after the Closing, to represent Seller and
act on Seller's behalf and in Seller's name, place and stead, in connection with
any and all matters
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contemplated by or arising under or in connection with this Agreement and any
and all transactions contemplated hereby and to take any and all further actions
and execute and deliver any and all such documents and agreements which the
Review Committee deems necessary or appropriate in connection with the
foregoing. Following the Closing, Matria shall be entitled to rely on any action
or inaction of the Review Committee as the action or inaction of Seller, any
notice from Seller contemplated by this Agreement shall be delivered on behalf
of Seller by the Review Committee, and Matria shall be entitled to deliver all
notices to Seller contemplated by this Agreement to the Review Committee.
(c) Without limiting the generality of the foregoing, the Review
Committee shall monitor Matria's compliance with the provisions of this Section
3.7(a) and the provisions of this Agreement relating to the Earn Out Payment.
Following the Closing, until December 31, 2003, Matria shall deliver, as and
when available, such monthly financial data, and, to the extent reasonably
requested by the Review Committee, such other operating and financial data,
related to QO, as is generated in the ordinary course of business. Prior to
undertaking any Major Action with respect to QO, Matria shall submit such
proposed action to the Review Committee and shall obtain the consent of the
Review Committee to such Major Action, which consent shall not be unreasonably
withheld. Any resulting dispute not resolved by the parties with respect to any
such Major Action would be submitted to E&Y for a binding determination as to
whether the Review Committee's consent to such Major Action has been
unreasonably withheld, and the parties shall proceed in accordance with any such
determination. The provisions of Section 1.4(b) shall control the procedures for
resolving any such dispute. The following actions would constitute "Major
Actions":
(i) the transfer of assets, outside the ordinary course
of business, with a net book value or fair market value, or the incurrence of
liabilities outside the ordinary course of business, in excess of $50,000 by QO
in any transaction or series of related transactions; provided, however, that
the creation or enforcement of any Lien on any of the Transferred Assets or the
assets of QO pursuant to or in connection with any credit facility of Matria or
QO shall in no respect be deemed to constitute a Major Action;
(ii) the material acquisition of assets or of any other
entity by QO outside the ordinary course of business; and
(iii) the termination or removal, without cause, by Matria
or QO of any "Key Employees" (as defined in Section 3.9).
(d) Following the Closing, until December 31, 2003, Matria shall
not, without the consent of the Review Committee, which consent may be withheld
in the sole discretion of the Review Committee, (i) permit or cause the
liquidation, consolidation, dissolution or merger of QO with or into any other
entity or the sale of more than fifty percent (50%) of the outstanding capital
stock or other equity securities of QO, (ii) otherwise relinquish its ability to
control the Business and the operations of QO, or (iii) permit or cause QO to
engage in any business other than cancer disease management and the sale or
license of ICMS, and the provision of services ancillary thereto.
(e) Following the Closing, until December 31, 2003, a complete
copy of any Payor Agreement or Program Attachment proposed to be executed by QO,
including all documents incorporated therein by reference, and all written
information and analyses possessed by Matria at such time which is specifically
relevant to such Payor Agreement or Program Attachment shall be delivered to the
Review Committee, which shall have the right, within ten (10) business days of
its receipt thereof, to designate, by written notice given to Matria prior to
the end of such ten (10) business day period, any such Payor Agreement or
Program Attachment as an Excluded Customer Contract for purposes of Section 1.5
of this Agreement.
(f) Any action or consent required to be taken by the Review
Committee shall be taken upon the approval of a majority of the members then
serving on the Review Committee, as evidenced by written agreement or consent of
such members or by votes taken at a meeting of such Review Committee in
accordance with such procedures as the Review Committee shall adopt from time to
time. In the event any member resigns from or becomes unable to serve on the
Review Committee for any reason, the remaining members may, by written notice
delivered to Matria, appoint a successor member of the Review Committee to fill
such vacancy. If all positions on the Review Committee become vacant for any
reason, a majority of the Investors may designate persons to fill one or more or
such vacancies. Each member of the Review Committee, whether designated in
Section 3.7(b) or
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pursuant to this Section 3.7(f), shall be required, as a condition to serving on
the Review Committee and receiving any information to be delivered to the Review
Committee hereunder, to execute a confidentiality agreement in form and
substance reasonably acceptable to Matria covering any non-public information to
the Review Committee concerning Matria or QO.
(g) Matria acknowledges and agrees that neither Matria nor QO
shall direct or attempt to direct Edmund C. Bujalski as to the manner in which
Mr. Bujalski casts any vote on any matter presented to the Review Committee,
assert any claim against Mr. Bujalski for breach of his fiduciary or employment
related obligations to QO or Matria as a result of any vote cast by Mr. Bujalski
as a member of the Review Committee, or seek to prevent Mr. Bujalski from
communicating with other members of the Review Committee on matters presented to
the Review Committee (provided such members have executed confidentiality
agreements in accordance with Section 3.7(f)). Matria further acknowledges and
agrees that it shall not seek to prevent Mr. Bujalski from engaging in
activities related to the liquidation or dissolution of Seller, provided that
such activities do not interfere with the performance of his duties as an
officer or employee of QO following the Closing.
3.8 TAX MATTERS.
(a) Section 338(h)(10) Election.
(i) Seller and Matria shall take all steps necessary to
make a timely, effective and irrevocable election under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code") and under any
comparable statutes in any other jurisdiction with respect to QO (collectively,
the "Section 338(h)(10) Election") arising out of the purchase and sale of the
Shares pursuant to this Agreement, and to file such election in accordance with
all applicable laws.
(ii) For the avoidance of all doubt and notwithstanding
anything else in this Agreement to the contrary, Seller will pay any federal,
state, local, domestic or foreign Taxes attributable to the making of the
Section 338(h)(10) Election.
(iii) Seller acknowledges that Matria's ability to obtain,
for tax purposes, a cost basis in the assets of QO (including the Transferred
Assets) by making, with Seller, the Section 338(h)(10) Election is a material
inducement to Matria in entering into this Agreement. In the event the Section
338(h)(10) Election is invalid, improper, inapplicable or otherwise does not
provide Matria (in whole or part) with a cost basis in the assets of QO for any
reason, Seller and its affiliates will cooperate with Matria as reasonably
requested in order to obtain all available remedial and curative relief,
including the filing of affidavits as part of obtaining administrative relief,
the filing of joint statements, and any and all other actions reasonably
designed to provide for an effective Section 338(h)(10) Election.
(b) Other Covenants.
(i) Without the prior written consent of Matria, which
consent shall not be unreasonably withheld, neither Seller nor any of its
affiliates shall, to the extent it may affect or relate to the liability for
Taxes of QO (other than federal income Taxes), make or change any Tax election
(other than making the Section 338(h)(10) Election), change any annual Tax
accounting period, adopt or change any method of Tax accounting, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment or
take or omit to take any other action, if any such action or omission would have
the effect of increasing the Tax liability or reducing any Tax Asset of QO,
Matria or any affiliate of Matria for any Post-Closing Tax Period.
(ii) Matria shall prepare and deliver a proposed
Allocation Statement to Seller at least ten (10) days before the Closing Date.
If Seller disagrees with the proposed Allocation Statement, Matria and Seller
shall negotiate to resolve such disagreement and to agree on the contents of the
Allocation Statement prior to
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the Closing Date. If Matria and Seller have not reached agreement on the
contents of the Allocation Statement prior to the Closing Date, the Closing
shall not be delayed for such reason. To the extent Matria and Seller reach
agreement as to the contents of the Allocation Statement prior to or on the
Closing Date, then Matria, Seller, QO and their Affiliates shall file all Tax
Returns in a manner consistent with such Allocation Statement, and shall act in
a manner consistent with the Allocation Statement in the audit of any Tax Return
relating to the transactions contemplated herein.
(iii) Seller will include all Pre-Closing Tax Period income
of QO (including any deferred income triggered into income by Treasury
Regulations ss.1.1502-13 and -14 and any Excess Loss Accounts taken into income
under Treasury Regulation ss.1.1502-19) on the Tax Returns of the appropriate
Affiliated Group to which QO belonged and pay any Taxes attributable to such
income. QO will furnish Tax information to Seller for inclusion in any Tax
Returns for the Pre-Closing Tax Period ending on the Closing Date in accordance
with past custom and practice of QO. Except as otherwise contemplated herein, or
with the consent of Matria, which consent shall not be unreasonably withheld,
Seller will take no position on Tax Returns that relate to QO that would
adversely affect QO after the Closing Date. The income of QO will be apportioned
to the period up to and including the Closing Date and the period after the
Closing Date by closing the books of QO as of the end of the Closing Date.
(iv) Matria will not settle any audits of Tax Returns of
QO for Pre-Closing Tax Periods in a manner which would adversely affect Seller
after the Closing Date without the prior written consent of Seller, which shall
not be unreasonably withheld.
(v) Seller will immediately pay to Matria any State or
local income Tax refund, reduction in Tax liability or credit resulting from a
carryback of a Post-Closing Period Tax Asset of QO into any Tax Return of an
Affiliated Group of which Seller is a member when such refund or reduction is
realized by such Affiliated Group. Seller will cooperate with QO in obtaining
such refunds, reductions in Tax liability or credits, including through the
filing of amended Tax Returns or refund claims. In all other cases, Matria will
immediately pay to Seller the amount of any State or local income Tax refund (or
reduction in Tax liability) or credit applicable to QO when received or realized
by QO or any Affiliated Group of which QO or Matria is a member with respect to
any Pre-Closing Tax Period of QO, unless the amount of such refund or credit was
included as a current asset of QO on the Closing Balance Sheet. Matria and QO
will cooperate with Seller in obtaining such refunds, reductions in Tax
liability and credits, including through the filing of amended Tax Returns or
refund claims.
(vi) Seller shall prepare (or cause to be prepared) and
file (or cause to be filed) all Tax Returns for QO for all Tax periods ending on
or prior to the Closing Date and which are filed after the Closing Date. Seller
shall permit Matria to review and comment on each such Tax Return described in
the preceding sentence prior to filing by providing copies of such Tax Return,
upon receipt of which Matria shall have thirty (30) days to complete such review
and comment. Seller shall pay all Taxes of QO with respect to such Tax periods,
or shall reimburse Matria within fifteen (15) days after payment by Matria or QO
of such Taxes, to the extent such Taxes are not reflected in the reserve for Tax
liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the Closing Balance
Sheet.
(vii) Matria shall prepare (or cause to be prepared), in a
manner consistent with past custom and practice, and file (or cause to be filed)
all Tax Returns of QO for Tax periods which begin before the Closing Date and
end after the Closing Date. Matria shall permit Seller to review and comment on
each such Tax Return by providing copies of such Tax Returns (or of such
portions of such Tax Returns that relate to Seller), upon receipt of which
Seller shall have thirty (30) days to complete such review and comment. Within
fifteen (15) days after the date on which Taxes are paid (by Matria or QO) with
respect to such Tax periods, Seller shall pay to Matria the portion of such
Taxes which relates to the Pre-Closing Tax Period to the extent such Taxes are
not reflected in the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the Closing Balance Sheet, and Matria shall likewise pay to
Seller the excess, if any, of such reserve over the actual Taxes which relate to
the Pre-Closing Tax Period.
(viii) For purposes of this Section 3.8, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Tax period that
includes (but does not end on) the Closing Date, the portion of such Tax related
to a Pre-Closing Tax Period shall (i) in the case of any Taxes, other than gross
receipts, sales or use Taxes and Taxes based upon or related to income, be
deemed to be the amount of such Tax for the entire Tax period
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multiplied by a fraction the numerator of which is the number of days in the Tax
period ending on and including the Closing Date and the denominator of which is
the number of days in the entire Tax period, and (ii) in the case of any Tax
based upon or related to income and any gross receipts, sales or use Tax, be
deemed equal to the amount which would be payable if the relevant Tax period
ended on and included the Closing Date. The portion of any credits relating to a
Tax period that begins before and ends after the Closing Date shall be
determined as though the relevant Tax period ended on and included the Closing
Date. All determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practice of QO. In the case of
an interest in an entity that is fiscally transparent for Tax purposes, items
shall be deemed to flow through on a daily basis rather than at the close of the
entity's Tax year.
(c) Except as provided in the Code and Treasury Regulations, any
and all existing Tax Sharing Agreements to which QO is a party (i) shall be
terminated as to QO as of the Closing Date; and (ii) from and after the Closing
Date shall have no further force or effect as to QO for any Tax period (whether
a current, future or past period), and QO shall not be bound thereby or have any
liability thereunder. This Agreement shall be the sole Tax Sharing Agreement
relating to QO for all Post-Closing Tax Periods.
(d) Matria and Seller shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the preparation and
filing of any Tax Return (including any report required to be filed as a result
of the transactions contemplated herein), any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such Tax Return, audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. QO and Seller agree (i) to retain all books and records with respect
to Tax matters pertinent to QO relating to any Pre-Closing Tax Period, and to
abide by all record retention agreements entered into with any Tax Authority
until the expiration of the statute of limitations (and, to the extent notified
by Matria or Seller, any extensions thereof) of the respective Tax periods, and
to abide by all record retention agreements entered into with any Tax Authority,
and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, QO or Seller, as the case may be, shall allow the other
party to take possession of such books and records. Matria and Seller further
agree, upon request, to use all reasonable efforts to obtain any certificate or
other document from any governmental authority or customer of QO thereof or any
other person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including but not limited to with respect to the transactions
contemplated herein).
(e) Seller shall be liable for and shall pay all sales, use,
stamp, documentary, filing, recording, transfer or similar fees or Taxes or
governmental charges (including, without limitation, real property transfer
gains taxes, UCC-3 filing fees, real estate and motor vehicle registration,
title recording or filing fees and other amounts payable in respect of transfer
filing) as levied by any Tax Authority in connection with the transactions
contemplated by this Agreement (other than Taxes measured by or with respect to
income imposed on Seller, QO or their affiliates). The parties will cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated in this Agreement that
are required or permitted to be filed on or before the Closing, and hereby agree
to file all such documents (including, but not limited to, all Tax Returns) with
respect to all such amounts in a timely manner.
(f) The following terms shall have the following meanings for
purposes of this Agreement:
(i) "Affiliated Group" means (a) an affiliated group
within the meaning of Section 1504(a) of the Code, or any similar group defined
under a similar provision of state, local or foreign law, or (b) any group of
persons or entities that files a Tax Return, or is liable for the Taxes of each
other, on an affiliated, consolidated, combined or unitary basis.
(ii) "Allocation Statement" means that written document
which allocates the Purchase Price and the liabilities of QO (including the
Assumed Liabilities) among the assets of QO (including the Transferred Assets).
The Allocation Statement shall also show the "adjusted grossed-up basis" amount
(as determined under
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Treasury Regulation ss.1.338-5) and the "aggregate deemed sale price" (as
determined under Treasury Regulation ss.1.338-4) with respect to the sale and
purchase of the Shares pursuant hereto, and allocate such amounts among the
assets of QO pursuant to Treasury Regulations ss.1.338-6 and -7.
(iii) "Excess Loss Account" has the meaning set forth in
Treasury Regulation ss.1.1502-19.
(iv) "Post-Closing Tax Period" means (i) any Tax period
beginning after the Closing Date, and (ii) with respect to a Tax period that
begins on or before the Closing Date and ends after the Closing Date, the
portion of such Tax period beginning after the Closing Date.
(v) "Pre-Closing Tax Period" means (i) any Tax period
ending on or before the Closing Date, and (ii) with respect to a Tax period that
begins on or before the Closing Date and ends after the Closing Date, the
portion of such Tax period ending on the Closing Date.
(vi) "Tax" means (i) any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
(vii) "Tax Asset" means any net operating loss, net capital
loss, investment Tax credit, foreign Tax credit, charitable deduction or any
other credit or Tax attribute which could reduce Taxes including, without
limitation, deductions and credits related to alternative minimum Taxes).
(viii) "Tax Authority" means any governmental authority,
agency or instrumentality (whether federal, state, local, or foreign)
responsible for the imposition of any Tax.
(ix) "Tax Return" means any report, estimate, declaration
of estimated Tax, information statement, return or other document required to be
filed in connection with any Taxes, including but not limited to original (or
amended) returns and filings, requests for extensions of time, requests for a
change in method of accounting, information statements and reports, claims for
refund, all documents required to be filed in connection with any claim, audit,
action, suit, proceeding, or investigation relating to Taxes, and any amendments
to the foregoing.
(x) "Tax Sharing Agreement" means any existing Tax
sharing agreements or arrangements (whether or not written) binding Seller or
any of the Subsidiaries that provide for the allocation, apportionment, sharing
or assignment of any Tax liability or benefit, or the transfer or assignment of
income, revenues, receipts, or gains for the principal purpose of determining
the Tax liability of any person or entity.
(xi) "Treasury Regulation" or "Treasury Regulations" shall
mean a permanent or temporary regulation of the United States Department of
Treasury under the Code, as such regulation may be amended from time to time.
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(g) Seller shall not liquidate, dissolve or otherwise terminate
its existence, and shall not adopt or approve a plan of liquidation,
dissolution, or termination, or otherwise agree to liquidate, dissolve or
terminate, for at least thirty (30) days after the Closing (unless sooner
permitted by Matria); provided, however, that Matria agrees that the Standstill
Agreement shall be revised prior to the Closing to permit Seller to sell a
number of Matria Shares during the first year following the Closing greater than
the number set forth in Section 3.4 of the Standstill Agreement, to the extent
that the sum of the following amounts exceeds $1,000,000: (i) the estimated tax
liability to Seller or its stockholders (as evidenced by a Tax Estimate
delivered to Matria by Seller) resulting from any appreciation in the price of
Matria Common Stock between the Closing Date and the earliest of (A) the
thirtieth (30th) day after the Closing, (B) the date which is five (5) days
after any such earlier date as Matria may permit Seller to adopt or approve a
plan of liquidation or dissolution, or (C) the first date on which any shares of
Matria Common Stock are distributed to any stockholders or a liquidating trust
of Seller; plus (ii) the estimated withholding obligation of Seller (as
evidenced by a Tax Estimate delivered to Matria by Seller) with respect to
recipients of "Incentive Bonuses" (as defined in Section 3.9(f)) resulting from
the payment of the Incentive Bonuses with respect to the 2002 calendar year. For
purposes of this Agreement, the term "Tax Estimate" shall mean a written
estimate of the applicable tax liability or withholding obligation, accompanied
by a detailed explanation of the manner in which such estimate was calculated
and the items and assumptions on which such calculation was based, prepared by
KPMG LLP or another independent accounting firm reasonably satisfactory to
Matria.
3.9 EMPLOYEES; BENEFIT PLANS.
(a) Seller shall and shall cause the Subsidiaries to use all
reasonable business efforts to retain the services of the employees of Seller
and the Subsidiaries set forth on Schedule 4.6.2 through the Closing Date. Prior
to or at the Closing, Matria, in its sole discretion, may offer or cause QO to
offer employment to or retain some or all of the employees reflected (by name or
position) on Schedule 1.5(h) hereto upon such terms and conditions as shall be
determined by Matria in its sole discretion, and Seller shall assist and support
Matria and/or QO in hiring all such employees that Matria shall seek to hire or
cause QO to hire as of the Closing Date.
(b) Matria shall use reasonable efforts (i) to hire or cause QO to
hire or retain, as of the Closing Date, each of Edmund C. Bujalski, Frederick C.
Lee, Charles Kanach, Daniel T. McCrone and Jude Gallagher (the "Key Employees"),
and (ii) to retain or cause QO to retain each of such Key Employees, at existing
compensation levels and upon such other terms and conditions as shall be
reasonably determined by Matria, through December 31, 2003. Matria shall not
require or cause or permit QO to require, as a condition of continued
employment, that any Key Employees residing in the state of Virginia as of the
Closing Date relocate on or prior to December 31, 2003.
(c) Seller shall retain all of the "Plans" (as defined in Section
4.6.2) through the Closing Date, and neither Matria, QO nor any of their
affiliates shall assume any liabilities or obligations under any such Plans.
(d) The employees of Seller or any of the Subsidiaries hired or
retained by Matria or QO following the Closing (i) shall be entitled to
participate in the employee benefit plans of Matria and its subsidiaries upon
the same terms and conditions as other similarly situated employees, subject to
such limitations as may be provided by applicable law or by the terms of such
benefit plans, and (ii) shall be given credit for time worked for the Seller
and/or its Subsidiaries (and their predecessors) for purposes of determining
their participation and vesting under the applicable employee benefit plans and
programs of Matria and its subsidiaries. Any additional costs or savings arising
from such employees' participation in such employee benefit programs shall be
reflected in Adjusted EBITDA.
(e) Without limiting any of the provisions herein, neither Matria,
QO nor any of their affiliates shall (i) assume any of the Plans, or any rights,
duties, obligations or liabilities thereunder, (ii) become a successor employer
or be responsible in any way for Seller's or a common control entity's (as such
term is defined under section 414(a) or (b) of the Code and as such term may be
amended from time to time) participation in or obligations or responsibilities
with respect to any Plan, (iii) be obligated by this Agreement to make any
provision with respect to employee benefits after the Closing Date, except as
required by this Section 3.9. No assets of any Plan shall be transferred to
Matria, QO or any of their affiliates or to any plan of Matria or any of its
affiliates. Seller and the Subsidiaries shall, after the Closing Date, comply
with the continuation coverage requirements of Section 601 through 609 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Section 4980B
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of the Code with respect to the employees of Seller and the Subsidiaries (and
their qualified beneficiaries); provided, however, that any such continuing
coverage obligations resulting from a qualifying event that occurs after such
employees are enrolled in any health plan of Matria or its affiliates shall be
the responsibility of Matria or its applicable affiliate.
(f) Matria acknowledges and agrees that Seller may pay, or cause
to be paid, incentive bonuses to any employees of Seller or any of the
Subsidiaries hired or retained by Matria or QO following the Closing, in amounts
up to and on the terms and conditions set forth on Schedule 3.9(f) ("Incentive
Bonuses"). Any such Incentive Bonuses shall be the sole responsibility of
Seller, and neither Matria, QO nor any of their affiliates shall assume or have
any liabilities or obligations with respect to such Incentive Bonuses. Seller
will take any and all actions reasonably requested by Matria to facilitate
compliance with any withholding or other legal requirements in respect of the
Incentive Bonuses.
3.10 MATRIA ADVANCES. In the event that the Closing has not
occurred on or prior to July 1, 2002, Matria shall on such date loan to Seller
the sum of $1,000,000, and, in the event that the Closing has not occurred on or
prior to August 1, 2002, Matria shall on such date loan to Seller the additional
sum of $500,000 (collectively, "Matria Advances"). Any Matria Advances shall,
until the Closing or the termination of this Agreement, bear no interest. Upon
the Closing, the full amount of any Matria Advances will be applied against the
Purchase Price and deducted from the cash portion of the amount of the Estimated
Closing Purchase Price payable to Seller at the Closing. If this Agreement is
terminated pursuant to Article 10, Seller shall repay in full, on or before the
date that is six (6) months after the effective date of such termination, all
Matria Advances, together with interest accruing thereon at a rate of 10% per
annum from the effective date of such termination until repaid; provided,
however, that in the event of the consummation of a Matria Investment, the
amount of such Matria Advances shall instead be deemed repaid by being applied
against and reducing the amount otherwise payable by Matria in respect of such
Matria Investment. Following the Closing or any termination of this Agreement,
Matria shall have no obligation to provide to Seller any further Matria
Advances.
3.11 MATRIA INVESTMENT.
(a) In the event this Agreement is terminated pursuant to Section
10.5 hereof or as a result of the failure of the condition to Closing set forth
in Section 7.10 or 8.7 hereof, Matria and Seller shall, within ten (10) business
days after the effective date of such termination, consummate a transaction
pursuant to which Matria shall invest $2,000,000 by purchasing a number of
shares of a new series of the Preferred Stock of Seller equal to $2,000,000
divided by the price per share of such Preferred Stock determined in accordance
with this Section 3.11(a) (the "Matria Investment"). The Preferred Stock to be
acquired pursuant to the Matria Investment shall be on par with and possess
rights, preferences, privileges and limitations equal in all respects to those
of the Series D Preferred Stock of Seller, and the sale of such Preferred Stock
shall be made on the same terms and conditions (including, without limitation,
registration rights) as were applicable to the sale of Series D Preferred Stock
completed by Seller on December 7, 2001; provided, however, that notwithstanding
the foregoing, (i) the assumed valuation of Seller, on a pre-investment basis,
for purposes of determining the number of shares of Preferred Stock to be issued
in exchange for the Matria Investment, shall be $25,000,000, (ii) the
determination of the price per share issued to Matria shall be made using the
same methodology used to determine the price per share of the Series D Preferred
Stock, subject to the use of the foregoing pre-investment valuation (as opposed
to the Series D pre-investment valuation of $15,000,000), (iii) the terms of the
Preferred Stock issued to Matria shall include such deviations from the terms of
the Series D Preferred Stock as are necessary to reflect the difference in price
per share between the two series (e.g., liquidation preference), and (iv) the
amount payable by Matria in respect of the Matria Investment shall be equal to
$2,000,000 less each of the following amounts: (A) the amount of any and all
Matria Advances made to Seller pursuant to Section 3.10, and (B) the amount of
the Deposit.
(b) In the event this Agreement is terminated by Seller pursuant
to Article 10 hereof as a result of a material breach of any representation,
warranty, covenant or agreement of Matria set forth in this Agreement, Matria
will, if requested by Seller, consummate the Matria Investment, within ten (10)
business days of the effective date of such termination, in accordance with the
terms set forth in Section 3.11(a), in which case Matria shall have no further
liability or obligation to Seller under this Agreement or otherwise arising out
of or in connection with any breach of Matria's representations, warranties,
covenants or agreements set forth herein, or, at Seller's option, Seller
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may instead pursue all rights and remedies available against Matria as a result
of any such breach by Matria, in which case Seller shall remain obligated to
repay the Matria Advances in accordance with Section 3.10 hereof.
(c) In the event this Agreement is terminated by Matria pursuant
to Article 10 hereof as a result of a material breach of any representation,
warranty, covenant or agreement of Seller or QO set forth in this Agreement,
Matria may, at its option, consummate the Matria Investment, within ten (10)
business days of the effective date of such termination, in accordance with the
terms set forth in Section 3.11(a), without limiting any rights or remedies to
which Matria may be entitled as a result of any such breach by Seller or QO.
(d) Upon the consummation of the Matria Investment, Seller shall
deliver to Matria stock certificates issued in the name of Matria representing a
number of shares of the new series of Preferred Stock determined in accordance
with subsection (a) above, and all such shares shall, if and when issued, be
duly authorized, validly issued, fully paid and non-assessable. In furtherance
of the foregoing, Seller shall (i) take all actions as may be necessary to
authorize the issuance of any shares of Preferred Stock to be issued pursuant to
a Matria Investment, including, as necessary, effecting any required amendment
to Seller's certificate of incorporation, (ii) at all relevant times maintain a
number of shares of authorized but unissued Preferred Stock sufficient to
consummate the sale of Preferred Stock pursuant to the Matria Investment, (ii)
at all relevant times maintain number of shares of authorized but unissued
common stock of Seller sufficient to satisfy any conversion features or
privileges of the Preferred Stock issued pursuant to the Matria Investment, and
(iii) prior to the date on or before which the Matria Investment is required to
be made hereunder, obtain from all of its applicable stockholders a waiver of
any preemptive rights which would otherwise arise as a result of the sale of
shares pursuant to the Matria Investment.
(e) Upon the consummation of the Matria Investment, (i) Seller
shall cause QO to execute and deliver an amendment to that Amended and Restated
Vendor Management Agreement of even date herewith between Matria and QO,
pursuant to which QO shall agree, for a period of two (2) years thereafter, not
to directly or indirectly offer its cancer disease management services in
conjunction with any competitor of Matria or its subsidiaries, in form and
substance reasonably satisfactory to Matria, and (ii) Matria shall have the
right to acquire the DW License in exchange for a one-time fee of $375,000 (as
opposed to $875,000) and otherwise on the terms and conditions set forth in
Section 3.1.
3.12 ACCESS TO PREMISES, RECORDS, PROPERTIES, CUSTOMERS AND
EMPLOYEES.
(a) During the period from the date of this Agreement to the
Closing, Seller agrees to permit and to cause its Subsidiaries to permit Matria
and its representatives, agents, counsel and accountants to have full access at
all reasonable times to the premises, business, properties, assets, financial
statements, contracts, books, employment and other records and working papers
of, and other relevant information pertaining to, QO, the Business, and the
Transferred Assets and to cause their respective officers and employees to
furnish to Matria and its representatives, agents, counsel and accountants such
financial and operating data and other information with respect to the
Transferred Assets and the Business, properties and assets of QO, as Matria may
reasonably request; and Seller agrees to cause the respective officers and
employees of Seller and its Subsidiaries to cooperate with Matria and its
representatives, agents, counsel and accountants in order to enable Matria to
become fully informed with respect to the Transferred Assets and the Business,
earnings, financial condition, prospects, properties, assets, liabilities and
obligations of QO.
(b) During the period from the date of this Agreement to the
Closing, Seller agrees to permit and to cause the Subsidiaries to permit Matria
and its representatives, agents, counsel and accountants to talk to and meet
with, at all reasonable times and subject to coordination with Seller, all
relevant customers and employees of Seller and the Subsidiaries.
(c) Following the Closing, Matria agrees to permit and to cause
QO to permit Seller and its representatives, agents, counsel and accountants to
have access at all reasonable times to the premises, business, properties,
assets, contracts, books, and records of, and other relevant information
pertaining to the QO, the Business, and the Transferred Assets as Seller, may
reasonably request in connection with the reasonable business purposes of Seller
following the Closing (to the extent such purposes are not adverse to Matria's
or QO's interests).
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(d) Following the Closing until December 31, 2002, QO will permit
Seller to use QO's computer system and network located in Northern Virginia for
purposes of operating and supporting the business activities that will be
retained by Seller after the Closing, including activities related to the Data
Warehouse, TrialMatch and websites owned by Seller. Such use will be consistent
with Seller's prior use of the system and the network for such purposes and will
in no event interfere with the Business or operations of QO. Such use will
include access to and use of QO's offsite resources at the Exodus server
facility. Prior to December 31, 2002, QO will cooperate with Seller's removal of
Seller's data and software not required to be transferred to QO hereunder from
QO's computer system and will permit Seller to copy any software that is used by
both Seller and QO, except to the extent such copying by Seller would violate
the terms of any license from a third party. For purposes of this subsection,
the term Seller shall refer to Seller, any subsidiary of Seller, or any
purchaser from Seller or a subsidiary; provided, however, that access and use by
a purchaser shall be solely incidental to removal and/or copying of data and
software.
3.13 CONFIDENTIALITY. Each party hereto will hold, and will use its
reasonable efforts to cause its respective affiliates, officers, directors,
employees and agents to hold, in strict confidence from any person, and not to
disclose, except to the extent, and only to the extent (i) compelled to disclose
by judicial or administrative process (including, without limitation, in
connection with obtaining the necessary approvals of this Agreement and the
transactions contemplated hereby of governmental authorities or by other
requirements of law) (provided the party compelled to disclose provides the
other party with prior notice thereof so that such other party may seek a
protective order or other appropriate remedy to prevent or limit such
disclosure) or (ii) disclosed in an action or proceeding brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder,
all documents and information concerning the other party or any of its
affiliates furnished to it by any other party or such other party's affiliates,
officers, directors, employees and agents pursuant to or in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party, or (c) later acquired by
the receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided, however, that following the
Closing the foregoing restrictions will not apply to Matria's or any of its
affiliates' use of documents and information concerning QO or the Transferred
Assets furnished by or on behalf of Seller. In the event the transactions
contemplated hereby are not consummated, upon the request of the other party,
each party hereto will, and will cause its affiliates, promptly (and in no event
later than five (5) days after such request) to redeliver or cause to be
redelivered all copies of documents and information furnished by the other party
in connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
party that furnished such documents and information or its officers, directors
and agents.
3.14 PUBLICITY. During the period from the date of this Agreement
to the Closing, each party hereto agrees to obtain the approval of the other
parties hereto prior to issuing any press release, written public statement or
announcement with respect to the transactions contemplated by this Agreement,
which approval shall not be unreasonably withheld; provided, however, that the
provisions of this Section 3.14 shall not prohibit Matria or Seller from issuing
a press release announcing the execution and delivery of this Agreement (a
complete copy of which has been provided to and approved by each of the parties
hereto) or prohibit any party from making any release, statement or announcement
if, upon advice of counsel, it is believed that such party is required to do so
under any applicable law, rule or regulation (in which case such party shall use
all reasonable efforts to give the other party prior notice thereof).
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3.15 APPROVALS AND CONSENTS; REASONABLE EFFORTS.
(a) From the date hereof until the Closing, each party hereto
hereby covenants with the other parties hereto that it will cooperate to give
all notices to and use reasonable efforts to obtain as soon as is practicable
all approvals, consents and waivers of (i) state and federal authorities
required or deemed necessary or beneficial for consummation of the transactions
contemplated by this Agreement and (ii) any other third parties required under
any "Contracts" (as defined in Section 4.5.1) or otherwise disclosed in the
Schedules to this Agreement; and shall use all reasonable efforts to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper, appropriate or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
(b) In the event that any consent of any third party necessary for
the assignment of any contract, certificate, license or other asset included
within the Transferred Assets, or any portion thereof, or any claim, right,
benefit or duty arising thereunder or resulting therefrom, shall not have been
obtained prior to the Closing, and Matria shall have waived delivery of such
consent as a condition to Closing, then as of the Closing this Agreement, to the
extent permitted by law, shall constitute full and equitable assignment by
Seller to QO of all of Seller's right, title and interest in and to any such
contract, certificate, license or other asset or applicable portion thereof. In
the event assignment contemplated by this Section 3.15 would give rise to any
right of termination or would otherwise adversely affect the rights of QO under
any such contract, certificate, license or other asset, or would not effectively
assign any rights thereunder as of the Closing, Seller shall continue to
cooperate and use all commercially reasonable efforts to provide Matria with all
such rights. From and after the Closing, to the extent that any required
consents are not obtained, or until the impediments to any assignment are
resolved, Seller shall use best efforts to (i) provide to QO, at the request of
Matria, the benefits of any such contract, certificate, license or other asset,
(ii) cooperate in any lawful arrangement designed to provide such benefits to
QO, and (iii) enforce, at the request of and for the account of QO, any rights
of Seller under any such contract, certificate, license or other asset against
any third party. In connection with obtaining the consents contemplated by this
Section 3.15, Seller shall not consent to any modification of any applicable
contract, certificate, license or other asset without the prior written consent
of Matria.
(c) To the extent required in order for the Landlord to release
Seller, as of the Closing Date, from its obligation to provide a letter of
credit as security under the Virginia Lease, following the Closing Matria agrees
to provide, as substitute security, a letter of credit in an amount not to
exceed $90,000 initially and to be thereafter reduced in accordance with the
terms of Section 8(c) of the Virginia Lease.
3.16 COOPERATION OF THE PARTIES; REGULATORY APPROVALS. The parties
shall cooperate with each other and with their respective counsel and
accountants in connection with any acts or actions required to be taken as part
of or as a condition to their respective obligations under this Agreement.
Seller shall cooperate with and assist Matria, and Matria shall cooperate with
and assist Seller, in each case as reasonably requested, in obtaining the
approval of all regulatory agencies and officials whose approval is required for
the transfer of all licenses and other regulatory approvals required to enable
Matria to acquire the Shares and QO to acquire the Transferred Assets and for QO
to operate the business incidental thereto.
3.17 HART-SCOTT-RODINO FILINGS. If Matria, in its reasonable
discretion, determines that any such filing is required by law or otherwise
necessary or desirable in connection with the transactions contemplated hereby,
each of Matria and Seller agree to (i) use its reasonable best efforts to file
all documents with the Federal Trade Commission and the United States Department
of Justice as may be necessary to comply with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); and (ii) promptly furnish
all materials and information thereafter requested by any of the regulatory
agencies having jurisdiction over such filings, and (iii) use all reasonable
efforts to obtain an early termination of the applicable waiting period.
3.18 EXPENSES. Whether or not the expenses are incurred before or
after the Closing, all expenses incurred by Matria or Seller in connection with
the authorization, preparation, execution and performance of this Agreement,
including without limitation all fees, commissions, and expenses of agents,
representatives, counsel, accountants, brokers and finders, shall be paid by the
party that incurred such expenses. Without limiting the generality of the
foregoing, Seller shall be responsible for the payment of:
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(i) any fees, commissions or expenses of any broker or
finder engaged by Seller, QO or any of their affiliates in connection
with the authorization, preparation, execution and performance of this
Agreement; and
(ii) any expenses of Seller, QO or any of their affiliates
in connection with the authorization, preparation, execution and
performance of this Agreement, including but not limited to all such
expenses related to agents, representatives, counsel, accountants,
brokers or finders, and the cost of the audit of the Audited Financial
Statements; provided, however, that notwithstanding the foregoing,
Seller shall not be responsible for expenses incurred by QO in
connection with the performance of this Agreement after the Closing
other than (i) any such expenses that constitute "Losses" indemnifiable
under Section 9.2(a) hereof (subject to the Threshold and aggregate
liability limitations of Section 9.2(c) and (d)) and (ii) the cost of
the audit of the Audited Financial Statements.
3.19 BROKERS. Each party hereto hereby represents and warrants to
the other parties hereto that no broker, finder or other financial consultant
has acted on its behalf in connection with this Agreement or the transactions
contemplated by this Agreement, except that J.P. Morgan Securities Inc. has
acted as financial advisor to Matria in connection with this Agreement and the
transactions contemplated hereby. Each party hereby agrees to indemnify the
other parties hereto and hold and save the other parties harmless from and
against any claim or demand for commissions or other compensation by any broker,
finder, financial advisor or similar agent claiming to have been employed by or
on behalf of such indemnifying party and to bear the costs and expenses,
including legal fees, incurred by the other parties hereto in defending against
any such claim.
3.20 FURTHER ACTION. Upon the terms and subject to the conditions
of this Agreement, Matria, Seller, and each of them, agree to use all reasonable
efforts to take or cause to be taken all actions and to do or cause to be done
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. From and after the Closing Date, Seller agrees to take such further
action or actions and execute such additional agreement or agreements as may be
reasonably requested by Matria to fully vest in Matria all right, title and
interest in and to the Shares and to fully vest in QO all right, title and
interest in and to the Transferred Assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND QO
As an inducement to Matria to enter into this Agreement and to
consummate the transactions contemplated hereby, and notwithstanding any
independent investigations or verification undertaken by Matria or its
representatives in connection herewith, Seller and QO hereby represent and
warrant to Matria that the following representations and warranties are true and
correct as of the date hereof and, except for any representations and warranties
made as of a specific date (other than the date hereof), shall be true and
correct as of the Closing:
4.1 VALIDITY. This Agreement has been duly executed and delivered
by each of Seller and QO and constitutes the legal, valid and binding obligation
of each of Seller and QO enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium and similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether asserted in a proceeding at law or
in equity).
4.2 SCHEDULES; SUPPLEMENTS. The Schedules referred to in this
Article 4 contain certain information regarding Seller and the Subsidiaries, as
indicated at various places in this Agreement, and have been delivered to Matria
herewith, and all information set forth in such Schedules shall be deemed for
all purposes of this Agreement to constitute part of the representations and
warranties under this Article 4. Seller shall, on a monthly basis, provide
Matria with written notification (each a "Supplement") of any material event or
occurrence or other information of any kind whatsoever necessary to maintain
this Agreement, representations and warranties contained herein, the Schedules,
and all other documents and writings furnished to Matria pursuant to this
Agreement as true, correct and complete in all material respects at all times
prior to and including the Closing Date; provided, however, that no such
Supplement shall cure any breach of any representation or warranty set forth
herein or otherwise limit any rights or remedies available to Matria. As used in
this Agreement, the term "Material Adverse Effect" shall mean an
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adverse effect on the Transferred Assets, the Business or the financial
condition, results of operations, properties, assets, liabilities or prospects
of QO which, individually or in the aggregate, materially diminishes the value
of QO (including the Transferred Assets) or the Business, causes this Agreement
to be invalid or unenforceable, or prevents or could reasonably be expected to
prevent Seller or QO from performing any material obligation hereunder. Any
reference in this Agreement or in any certificate delivered pursuant hereto to a
party's "Knowledge" (whether to "the best of" such party's knowledge or other
similar expressions relating to the knowledge or awareness of any party) shall
include all matters which any such party, through the Senior Officers and/or
directors of such party, actually knew or should have known.
4.3 CORPORATE AND FINANCIAL.
4.3.1 CORPORATE STATUS. Each of Seller and QO is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Schedule 4.3.1 sets forth a true, complete and correct
list of all direct or indirect subsidiaries of Seller (the "Subsidiaries"), and
QO has no direct or indirect subsidiaries and owns no shares of capital stock of
any corporation or any interest in the ownership or management of any other
entity except in those corporations and other entities listed on Schedule 4.3.1.
Each of Seller and QO has full power and authority and possesses all rights,
privileges, franchises, licenses, permits, authorizations and approvals,
governmental or otherwise, necessary to entitle it to use its name and to own or
lease its properties and assets and to carry on its business as and in the
places where such properties or assets are now owned, leased or operated and
such business is conducted. Each of Seller and QO is qualified to transact
business as a foreign corporation in the states listed on Schedule 4.3.1 and
neither Seller nor QO is required to be qualified to do business in any other
jurisdiction, except to the extent any failures to so qualify would not,
individually or in the aggregate, have a Material Adverse Effect.
4.3.2 AUTHORITY; NO VIOLATION; CONSENTS; NO APPRAISAL
RIGHTS.
(a) Each of Seller and QO has full corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby, and all
corporate or other action necessary on the part of Seller or any Subsidiary in
order for Seller and QO to execute and deliver this Agreement, to perform its
obligations hereunder and, except for the stockholder approvals contemplated by
Section 3.3, to consummate the transactions contemplated hereby, has been taken.
(b) Neither the execution and delivery of this Agreement
by Seller or QO nor the performance of its obligations hereunder will:
(i) violate or conflict with any provision of
the Certificate of Incorporation or Bylaws of Seller or any of
its Subsidiaries;
(ii) breach or otherwise constitute or give rise
to a default under any contract, commitment or other
obligation to or by which Seller or any of its Subsidiaries is
bound;
(iii) violate any statute, ordinance, law, rule,
regulation, judgment, order or decree of any court or other
governmental or regulatory authority to which Seller or any of
its Subsidiaries is subject; or
(iv) except as set forth on Schedule 4.3.2,
require any consent, approval or authorization of, notice to,
or filing, recording, registration or qualification with any
person, entity, court or governmental or regulatory authority.
(c) No stockholder of Seller shall be entitled to
exercise appraisal rights, under Section 262 of the DGCL or otherwise, as a
result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby or any liquidation and dissolution of
Seller.
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4.3.3 OWNERSHIP AND CAPITALIZATION.
(a) The authorized capital stock of Seller consists
solely of 32,000,000 shares of common stock, and 18,000,000 shares of preferred
stock, of which 3,055,646 shares have been designated as Series A Preferred
Stock, 2,550,085 shares have been designated as Series B Preferred Stock,
8,039,477 shares have been designated as Series C Preferred Stock, and 3,962,000
shares have been designated as Series D Preferred Stock. As of the date of this
Agreement, 4,488,918 shares of such common stock, 3,055,646 shares of such
Series A Preferred Stock, 2,550,085 shares of such Series B Preferred Stock,
8,039,477 shares of such Series C Preferred Stock, and 3,961,969 shares of such
Series D Preferred Stock are issued and outstanding. Schedule 4.3.3 lists the
names of all holders of such common stock and each such series of preferred
stock and their respective percentage ownership of Seller and voting power on
both a basic and a fully diluted basis.
(b) The authorized capital stock of QO consists solely of
1,000 shares of common stock, of which 1,000 shares are issued and outstanding
as of the date of this Agreement. All issued and outstanding shares of capital
stock of QO and each of the other Subsidiaries are owned, beneficially and of
record, solely by Seller.
(c) All of the issued and outstanding shares of the
capital stock of QO are (i) duly authorized, validly issued, fully paid and
nonassessable, (ii) were offered, sold, issued and delivered in compliance with
applicable federal and state securities laws and (iii) are not subject to, and
were not issued in violation of, any preemptive rights or any other third party
rights created by statute, the Certificate of Incorporation, Bylaws or similar
governing documents of QO or any agreement to which Seller or any of the
Subsidiaries is a party or by which Seller or any of the Subsidiaries is bound.
(d) Other than as listed on Schedule 4.3.3, neither
Seller nor QO has outstanding any options or warrants or agreements for the
purchase or issuance (contingent or otherwise) of, or any securities or other
rights which are either by their terms or by contract convertible or
exchangeable into capital stock or other equity interest in Seller or QO, or any
preemptive or similar rights to subscribe for or to purchase, any calls,
commitments or claims of any character relating to, the capital stock or other
equity interest (or securities convertible into capital stock or other equity
interest) in QO. QO is not subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire or to register any shares of its
capital stock or membership or other equity interests.
(e) Other than as listed on Schedule 4.3.3, there are no
agreements to which Seller or QO is a party in any way restricting the transfer
of any shares of capital stock or other equity interests of QO.
(f) Any shares of capital stock in Seller or QO which
have been purchased or redeemed by Seller or any of the Subsidiaries, as the
case may be, have been purchased or redeemed in accordance with all applicable
federal and state laws, rules, regulations, and ordinances, including, without
limitation, all federal and state securities laws.
(g) Neither Seller nor QO has registered shares of its
capital stock under the Securities Act or the Exchange Act.
4.3.4 TITLE TO SHARES AND TRANSFERRED ASSETS. Seller has
good and marketable title to all of the Shares, free and clear of all Liens, and
Seller or, to the extent reflected on Schedule 4.3.4, one or more Subsidiaries
has good, valid and marketable title to all of the Transferred Assets, free and
clear of any and all Liens, and Seller will transfer or cause to be transferred,
as applicable, good, valid and marketable title to the Shares, free and clear of
all Liens, to Matria at the Closing and good, valid and marketable title to the
Transferred Assets, free and clear of all Liens, to QO at or prior to the
Closing.
4.3.5 CORPORATE OR OTHER BOOKS AND RECORDS. The stock
records, minute books and other books and records of Seller and QO fully and
accurately reflect all issuances, transfers and redemptions of the capital stock
of Seller and QO, correctly show the total number of shares of such capital
stock or other equity interests, issued and outstanding on the date hereof,
accurately reflect in all material respects all corporate or other action taken
by the officers, directors, or shareholders of Seller and QO, as the case may be
(including actions taken by consent without a meeting), and contain true and
complete copies or originals of (i) Certificate of Incorporation and all
amendments thereto of QO and Seller, (ii) Bylaws as amended and currently in
force of QO and Seller, and
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(iii) the minutes of all meetings or consent actions of the respective officers,
directors or shareholders of QO and Seller. No resolutions, regulations or
bylaws have been passed, enacted, consented to or adopted by such officers,
directors or shareholders except those contained in such minute books and all
corporate or other actions of QO and Seller were duly and validly taken in
compliance with all applicable laws, rules, regulations and ordinances.
4.3.6 TAXES.
(a) QO has filed all Tax Returns that it was required to
file and all such Tax Returns were correct and complete in all material
respects. All Taxes owed by QO (whether or not shown on any Tax Return) have
been paid. There are no Liens for Taxes upon any of the assets of QO that arose
in connection with any failure (or alleged failure) to pay any Tax, excluding
Liens for Taxes which are not yet due and payable.
(b) QO has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party, and
complied with all information reporting and backup withholding requirements.
(c) The charges, accruals and reserves for Taxes with
respect to QO for any Pre-Closing Tax Period (including any Pre-Closing Tax
Period for which no Tax Return has yet been filed) reflected on the books of QO
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) are adequate to cover such Taxes. All
information set forth in the notes to such books relating to Tax matters is true
and complete in all material respects.
(d) QO is not currently the beneficiary of any extension
of time within which to file any Tax Return (other than extensions of time for
Tax Returns due for the year ended December 31, 2001). Neither QO nor any member
of any Affiliated Group of which QO is or has been a member has granted any
extension or waiver of the statute of limitations period in respect of any Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) There is no claim, audit, action, suit, proceeding,
or investigation concerning any Tax or Tax Asset of QO either pending or, to the
Knowledge of Seller and QO, threatened. Neither Seller nor QO expects or has any
reason to expect any Tax Authority to assess any additional Taxes for any period
for which Tax Returns have been filed. No claim has even been made by an
authority in a jurisdiction where QO does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no requests for rulings
or determinations in respect of any Tax or Tax Asset pending between QO and any
Tax Authority.
(f) QO has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. QO has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code. QO has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Sections 280G or 162(m) of the Code. No property owned by QO is
(i) property required to be treated as being owned by another person or entity
pursuant to the provisions of Section 168(f)(8) of the Code, (ii) "tax-exempt
use property" within the meaning of Section 168(h)(1) of the Code, or (iii)
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code. QO does not have an election in effect under Sections 108, 168, 338, 441,
463, 472, 1017, 1033, or 4977 of the Code. QO is not a "distributing
corporation" or a "controlled corporation" within the meaning of Section
355(a)(1)(A) of the Code in a distribution qualifying for tax-free treatment
under Section 355 of the Code (i) in the two years prior to the date of this
Agreement, or (ii) in a distribution that could otherwise constitute a "plan" or
"series of transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with this Agreement.
(g) QO is not now nor has it been a member of any
Affiliated Group other than one of which Seller was the common parent. Other
than as provided in the Code and Treasury Regulations, QO is not a party to any
Tax Sharing Agreement or similar arrangement. Schedule 4.3.6 lists all federal,
state, local, and foreign Tax Returns filed with respect to QO for Tax periods
ended on or after December 31, 2000, lists such Tax Returns that have been
audited and/or that currently are the subject of audit, and indicates for each
such Tax Return whether the
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applicable period for assessment under applicable law, after giving effect to
extensions or waivers, has expired. Schedule 4.3.6 lists all jurisdictions
(whether state, local or foreign) to which any amount of Tax is properly payable
by QO.
(h) QO is not currently under any contractual obligation
to pay any of the following: (i) any liability for the payment of any Tax as a
result of being a member of an Affiliated Group, or being a party to any
agreement or arrangement as a result of which the liability of QO to a Tax
Authority is determined or taken into account with reference to the liability of
any other Person; or (ii) any liability for the payment of any amount as a
result of being party to any Tax Sharing Agreement or with respect to the
payment of any Tax or any amount of the type described in clause (i) as a result
of any express or implied obligation (including, but not limited to, an
indemnification obligation). Moreover, QO has no liability for the Taxes of any
Person other than itself under Treasury Regulation ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract or otherwise. Each Affiliated Group has filed all Tax Returns that it
was required to file for each Tax period during which QO was a member of such
group and all such Tax Returns were correct and complete in all respects. All
Taxes owed by any Affiliated Group (whether or not shown on any Tax Return) have
been paid for all Tax periods during which QO was a member of such group. No
Affiliated Group has waived any statute of limitations in respect of any Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency for any Tax period during which QO was a member of such group.
(i) QO will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:
(i) change in method of accounting for a taxable period ending on or prior to
the Closing Date under Section 481(c) of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law); (ii) "closing
agreement" as described in Section 7121 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (iii) deferred intercompany gain or any Excess Loss
Account described in Treasury Regulations under Section 1502 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law);
(iv) installment sale or open transaction disposition made on or prior to the
Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
(j) Neither Seller nor QO has adopted or approved a plan
of liquidation, dissolution, or termination, or otherwise agreed to liquidate,
dissolve or terminate.
4.3.7 FINANCIAL STATEMENTS. Schedule 4.3.7 contains true,
correct and complete copies of the 2001 Unaudited Financial Statements,
including QO's unaudited balance sheet (the "Balance Sheet") and statement of
income as of and for the fiscal year ended as of December 31, 2001. Except as
set forth on Schedule 4.3.7 hereto, all of the 2001 Unaudited Financial
Statements were prepared in accordance with GAAP, consistently applied, present
fairly and accurately the financial condition of QO as of the date indicated
therein and the results of operations of QO for the period covered thereby and
are consistent with the books and records of QO.
4.3.8 ACCOUNTS. Schedule 4.3.8 contains a complete and
accurate list of the names and addresses of each and every bank and other
institution in which QO maintains an account or safety deposit box, the account
numbers of each such account, and the names of all persons who are presently
authorized to draw thereon or have access thereto.
4.3.9 BALANCE SHEET ITEMS.
(a) All notes receivable, accounts receivable, and other
obligations due and payable to QO as of December 31, 2001, are reflected in the
Balance Sheet. Except to the extent such receivables or other obligations have
been paid in the ordinary course of the Business since the date of the Balance
Sheet, all notes receivable, accounts receivable and other obligations and
receivables shown on the Balance Sheet or arising between the date of the
Balance Sheet and the Closing Date (collectively, the "Receivables") (i)
represent and constitute genuine, legal, valid and collectible obligations of
and bona fide claims against the respective makers thereof or debtors thereon
for sales made, services performed or other charges arising on or before the
date hereof, and all of the goods delivered and services performed that gave
rise to such Receivables were delivered or performed in all material respects in
accordance with the applicable orders, contracts, or client requirements
therefore, and (ii) will be collected in an
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amount not less than the aggregate amount thereof reflected on the Balance
Sheet, or, as applicable, the Balance Sheet included in the Audited Closing Date
Financial Statements (the "Closing Balance Sheet") (net of allowances and
reserves reflected on the Balance Sheet or the Closing Balance Sheet as
applicable, calculated in accordance with GAAP consistently applied). None of
such Receivables are subject to any defenses, counterclaims or rights of
off-set, except for such rights of off-set as are expressly set forth in any
contract listed on Schedule 4.5.1 resulting in a particular receivable. All
accounts, wages and other amounts payable shown on the Balance Sheet or the
Closing Balance Sheet represent or will represent, as applicable, sales made or
services provided and expenses incurred in the ordinary course of the Business
consistent with past practices.
(b) Except as set forth on Schedule 4.3.9, neither Seller
nor QO has written off any Receivables since the date of the Balance Sheet,
except nonmaterial write-offs in the ordinary course of the Business consistent
with past practice. All Receivables are evidenced by written agreements,
invoices or other instruments, true and correct copies of which will be made
available to Matria upon request for examination prior to the Closing. The
reserves relating to all Receivables set forth on the Balance Sheet and the
Closing Balance Sheet are (or will be) adequate, as of the respective dates
thereof, to cover all uncollectible amounts in respect of such Receivables.
Except as set forth in Schedule 4.3.9, none of the Receivables is the subject of
a pledge or assignment to secure debt, is subject to any Lien, or has been
placed for collection with any attorney or collection agency or similar
individual or firm.
(c) The reserves for contractual liabilities of QO set
forth on the Balance Sheet and the Closing Balance Sheet are (or will be)
adequate, as of the respective dates thereof, to cover all liabilities of QO
under all applicable "Third Party Payor Arrangements" (as defined in Section
4.5.1) to which QO is a party or by which it is bound.
(d) The deferred income of QO set forth on the Balance
Sheet has been calculated in accordance with GAAP, consistently applied.
4.3.10 LIABILITIES. Except as set forth on Schedule 4.3.10,
(a) QO has no indebtedness for borrowed money or capital lease obligations, and
(b) QO has no other debt, liability, or obligation of any kind, whether accrued,
absolute, known or unknown, contingent or otherwise, whether due or to become
due, and regardless of when asserted, except (i) those reflected on the Balance
Sheet, (ii) liabilities incurred in the ordinary course of business consistent
with past practice since the date of the Balance Sheet (none of which
individually or in the aggregate has had, or will have a Material Adverse
Effect), or (iii) obligations for future performance under any executory
contracts set forth on Schedule 4.5.1. Except as set forth on Schedule 4.3.10,
QO has no liability or obligation (absolute or contingent) to provide funds on
behalf of, or to guarantee or assume any debt, liability or obligation of any
corporation, partnership, association, joint venture, individual or other person
or entity.
4.3.11 ORDINARY COURSE OF BUSINESS AND ABSENCE OF CHANGES.
Except as set forth in Schedule 4.3.11, each of Seller and QO has operated its
respective business in the ordinary course consistent with reasonable past
practices since December 31, 2001. Without limiting the generality of the
foregoing, and except as set forth in Schedule 4.3.11, since December 31, 2001:
(a) there has been no material adverse change in the
Transferred Assets or the Business, assets, liabilities, results of operation,
cash flow or financial condition of QO or in any of QO's relationships with
customers, employees, independent contractors, lessors, third party payors,
regulators or others;
(b) there has been no damage, destruction, casualty or
loss to the Transferred Assets or the Business assets, properties or customer or
supplier relations of QO;
(c) the Transferred Assets and properties and assets of
QO have been maintained in good order, repair and condition, ordinary wear and
tear excepted;
(d) the books, accounts and records of Seller and the
Subsidiaries have been maintained in the usual, regular and ordinary manner on a
basis consistent with prior years;
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(e) there has been no declaration, setting aside or
payment of any dividend or other distribution on or in respect of the capital
stock of QO nor has there been any direct or indirect redemption, retirement,
purchase or other acquisition by QO of any of the capital stock of QO;
(f) except for annual salary increases made in the
ordinary course of business consistent with past practices, and except for the
Incentive Bonuses contemplated by Section 3.9(f), there has been (i) no increase
in the compensation or in the rate of compensation or commissions payable or to
become payable to any director, officer, employee, or agent of QO, or any
employee of Seller or any of the Subsidiaries set forth on Schedule 4.6.2, (ii)
no general increase in the compensation or in the rate of compensation payable
or to become payable to employees or fee-for-services contractors of QO or
employees of Seller or any of the Subsidiaries set forth on Schedule 4.6.2,
(iii) no director, officer, or employee of QO, or employee of Seller or any of
the Subsidiaries set forth on Schedule 4.6.2 hired at a salary in excess of
$50,000 per annum, (iv) no employee of Seller or any Subsidiary (other than QO)
transferred to QO, and (v) no increase in any payment of or commitment to pay
any bonus, profit sharing or other extraordinary compensation to any employee of
Seller or any of the Subsidiaries set forth on Schedule 4.6.2;
(g) there has been no change in the Certificate of
Incorporation or Bylaws or other organizational documents, as applicable, of
Seller or QO;
(h) there has been no labor dispute, organizational
effort by any union, unfair labor practice charge or employment discrimination
charge, nor institution or threatened institution of any effort, complaint or
other proceeding in connection therewith, involving Seller or QO or the Business
or affecting the operations of Seller or QO or the Business;
(i) there has been no issuance or sale by Seller or QO
of any capital stock, bonds, notes or other securities of QO or any modification
or amendment of the rights of the holders of any outstanding capital stock,
bonds, notes or other securities of QO;
(j) there has been no Lien (other than for current Taxes
not yet due and payable) created on or in (including without limitation, any
deposit for security consisting of) any of the Transferred Assets or the assets
of QO or assumed by Seller or QO with respect to any such asset;
(k) there has been no indebtedness for borrowed money
incurred and there has been no other indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise) incurred which
would be required to be reflected on a balance sheet of QO as of the date
hereof, prepared in accordance with GAAP, consistently applied, except such as
have been incurred in the ordinary course of the Business consistent with past
practice, none of which individually or in the aggregate has had or could result
in a Material Adverse Effect, and there has been no increase in the reserve for
contractual liabilities of QO except in accordance with GAAP;
(l) no obligation or liability which would be required to
be reflected on a balance sheet of QO as of the date hereof, prepared in
accordance with GAAP, consistently applied, has been discharged or satisfied,
other than current liabilities reflected on the Balance Sheet and current
liabilities incurred since the date thereof in the ordinary course of business
consistent with past practice;
(m) there has been no sale, transfer or other disposition
of assets of QO with a fair market value in excess of $10,000 in the aggregate;
(n) there have been no charge-offs of or reserves
established with respect to the accounts receivable shown on the Balance Sheet;
(o) there has been no amendment, termination or waiver of
any right of Seller or any of the Subsidiaries under any contract or agreement
or governmental license, permit or permission which, individually or in the
aggregate, has had or could result in a Material Adverse Effect;
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(p) except for the Incentive Bonuses contemplated by
Section 3.9(f) and payments required under group health insurance plans, there
has been no creation of, amendment to or contribution, grant, payment or accrual
for or to the credit of any employee set forth on Schedule 4.6.2, with respect
to any bonus, incentive compensation, deferred compensation, profit sharing,
retirement, pension, group insurance or other benefit plan, or any union,
employment or consulting agreement or arrangement;
(q) neither Seller nor any Subsidiary has (i) entered
into any contract, agreement or commitment affecting the Transferred Assets, QO
or the Business other than in the ordinary course of business consistent with
past practices (none of which has had or will result in a Material Adverse
Effect), (ii) made any sales affecting the Transferred Assets, QO or the
Business on terms (including, without limitation, discounts, extended payment
terms or other incentives) inconsistent with prior practice, (iii) made any
change in any method, practice or principle of financial or tax accounting, (iv)
failed to maintain its books and records in accordance with reasonable past
practices, or (v) failed to perform its obligations under any of its contracts
or agreements affecting the Transferred Assets, QO or the Business; and
(r) QO and Seller have used commercially reasonable
efforts to (i) increase QO's sales in a profitable manner, (ii) enhance QO's
financial position, (iii) address market changes affecting QO or the Business,
(iv) preserve QO's Business, (v) keep available the services of employees of QO
and employees of Seller set forth on Schedule 4.6.2, (vi) preserve the goodwill
of customers and suppliers of QO or the Business and others having business
relations with QO, or (vii) manage QO's working capital components in a manner
consistent with reasonable past practices.
4.3.12 LITIGATION AND PROCEEDINGS. Except as set forth on
Schedule 4.3.12, there are no actions, decrees, suits, counterclaims, claims,
proceedings or governmental or other investigations pending or threatened
against, by or potentially affecting QO, the Business or the Transferred Assets
or any of them, in any court or before any arbitrator or governmental agency,
and no judgment, award, order or decree of any nature has been rendered which
could potentially affect QO, the Business or the Transferred Assets by any
agency, arbitrator, court, commission or other authority which has not been paid
or discharged, nor does Seller or any Subsidiary have any unasserted contingent
liabilities which, individually or collectively, could result in a Material
Adverse Effect or which might prevent or impede the consummation of the
transactions contemplated by this Agreement. Neither Seller nor any Subsidiary
has been charged with or is under investigation with respect to any charge
concerning any provision of any federal, state or other applicable or
administrative regulation with respect to or potentially affecting the
Transferred Assets. There are no pending or threatened claims against any of the
officers, directors, employees, or stockholders of Seller or any of the
Subsidiaries in connection with the Business or the Transferred Assets. The
reserves relating to all actions, decrees, suits, counterclaims, claims,
proceedings, or governmental investigations which are set forth on Schedule
4.3.12 are adequate to cover all liabilities and obligations of QO and the
Business.
4.4 BUSINESS OPERATIONS.
4.4.1 CUSTOMERS AND ACCOUNTS. Schedule 4.4.1 contains a
true, complete and accurate list of all customers and accounts of QO and the
Business for the two year period ended as of the date hereof. Except as set
forth on Schedule 4.4.1, neither Seller nor QO knows of any customer who intends
to discontinue or materially reduce the purchase of services from QO or the
Business.
4.4.2 PERMITS AND COMPLIANCE WITH LAWS. Except as set
forth on Schedule 4.4.2:
(a) Each of QO and, as applicable, the employees of
Seller and the Subsidiaries, (i) has obtained and maintains all permits,
licenses, certifications, franchises and authorizations from governmental and
regulatory authorities or other parties necessary or required to conduct the
Business in the manner in which such Business has been and is being conducted
and in compliance with all applicable healthcare requirements (collectively,
"Permits"), including, without limitation, all outpatient facility licenses,
Drug Enforcement Administration permits, state drug control permits, approvals
of any local health departments of any authority and Reimbursement Approvals,
and (ii) has obtained and maintains all accreditations from accrediting
agencies, the maintenance of which is prudent and customary in the industry in
which it is engaged or required under applicable law (collectively,
"Accreditations"), which Permits and Accreditations are set forth on Schedule
4.4.2. The term "Reimbursement Approvals" shall mean, with respect to all Third
Party Payor Arrangements, any and all
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certifications, provider numbers, provider agreements, participation agreements,
accreditations, and any other similar agreements with or approvals by
governmental or regulatory authorities or other third parties.
(b) Except as set forth on Schedule 4.4.2, on the Closing
Date, all Permits and Accreditations shall be in full force and effect. There
has been no default on the part of Seller or any of the Subsidiaries with
respect to, and no event has occurred which, with the giving of notice or the
lapse of time, or both, and neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby, would constitute a
breach of, any condition to the issuance, maintenance, renewal and/or
continuance of, any Permit or Accreditation or result in any other impairment of
the rights of the holder thereof. QO has paid all fees, charges and other
expenses to the extent due and payable, and have provided all information and
otherwise complied with all material conditions precedent to the issuance,
maintenance renewal, and continuance of each of the Permits and Accreditations.
QO has made no assignment of any Permits or Accreditations to any third party,
and the Permits and Accreditations are free and clear of all Liens. There is no
action, decree, suit, counterclaim, proceeding or governmental or other
investigation pending or, to the Knowledge of Seller and QO, threatened by any
governmental authority either to revoke, withdraw, suspend, limit, refuse to
renew or issue on a probationary or limited basis, any Permit or Accreditation.
(c) Seller and each of the Subsidiaries, and each of its
predecessors in interest has complied and is in compliance with all federal,
foreign, state and local laws, rules, regulations and ordinances applicable to
the Transferred Assets, QO or the Business. No present or past violation of any
such law, rule, regulation or ordinance, whether known or unknown, has occurred
which could or would materially impair the value of the Transferred Assets or
the Business or the right or ability of QO or its successors, affiliates,
officers, directors, employees or agents to conduct their respective activities.
QO is not and has never been engaged in the manufacture, sale, licensing, lease
or distribution of medical devices, prescription drugs or other products.
(d) There has not been, nor is there pending, or to the
Knowledge of Seller and QO, threatened, any assessment of any civil or criminal
penalties or exclusion or suspension action or investigation by any governmental
authority against QO or, to the extent affecting or relating to the Business,
Seller or any of the Subsidiaries, against any physician or nursing personnel
utilized in connection with the operation of the Business. Without restricting
the generality of the foregoing, to the Knowledge of Seller and QO, no physician
or nursing personnel utilized in connection with the operation of the Business
has ever (i) had his or her license to practice medicine in any state or Drug
Enforcement Agency number suspended, relinquished, terminated, restricted or
revoked, (ii) been reprimanded, sanctioned or disciplined by any licensing
board, or any federal, state or local society or agency, governmental authority
or specialty board, (iii) had entered against him or her final judgment in, or
settled without judgment, a malpractice or similar action for an aggregate award
or amount to the plaintiff in excess of $50,000, or (iii) had his or her medical
staff privileges at any hospital or medical facility suspended, terminated,
restricted or revoked.
4.4.3 ENVIRONMENTAL.
(a) Except as set forth on Schedule 4.4.3, QO has at all
time complied and is currently in compliance with, and the Transferred Assets,
the Business and, during the period of Seller's or any Subsidiary's occupation
thereof, the "Real Property" (as defined in Section 4.5.4) have at all times
been occupied and operated and are currently in compliance with, all
Environmental Laws, and QO has obtained and maintains all permits, approvals,
authorizations and licenses required under any Environmental Law which are
necessary to own and operate the Business or to occupy any of the Real Property.
For purposes of this Agreement, the term "Environmental Laws" refers to the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
ss. 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss.
1801, et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901,
et seq.), the Federal Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean
Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. ss. 2601 et seq.) and the Occupational Safety and Health Act (29 U.S.C.
ss. 651 et seq.), as such laws may be amended or otherwise modified from time to
time, and any other applicable and present or future federal, state, local or
foreign statute, ordinance, rule, regulation, order, judgment, decree, policy,
guideline, permit, license or other binding determination of any governmental
authority imposing liability or establishing standards of conduct for protection
of the environment or health and safety.
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(b) Except as set forth on Schedule 4.4.3, QO has no
liability (whether known or unknown, absolute or contingent) arising under any
Environmental Law and there has been and is no event, condition, circumstance,
activity, omission, practice, incident, action or plan (including, without
limitation, any intentional or unintentional release into the environment of any
Hazardous Material) which may interfere with or affect the Transferred Assets or
the operation of the Business, prevent continued compliance by QO, or the
Business with all Environmental Laws, or otherwise give rise to any liability of
QO or any party owning or operating the Business or the Transferred Assets or
serve as the basis for any claim, action, suit, proceeding, hearing or
investigation against QO or any party owning or operating the Business or the
Transferred Assets under any Environmental Law. Except as set forth on Schedule
4.4.3, neither Seller nor QO has received any notice alleging that QO, the
Business or the Real Property is in violation of any Environmental Law or that
QO has any liability thereunder. For purposes of this Agreement, the term
"Hazardous Material" refers to (i) any element, compound or chemical that is
defined, listed or otherwise classified or regulated as a contaminant,
pollutant, toxic pollutant, toxic substance, hazardous substance, extremely
hazardous substance or chemical waste, hazardous waste, special waste, or solid
waste under any Environmental Laws; (ii) petroleum and its refined products;
(iii) polychlorinated biphenyls; (iv) any substance exhibiting a hazardous waste
characteristic, including, without limitation, corrosivity, ignitability,
toxicity or reactivity as well as any radioactive or explosive materials; and
(v) any raw materials, building components (including, without limitation,
asbestos-containing materials) and manufactured products containing hazardous
substances listed or classified as such under Environmental Laws.
(c) Except as set forth on Schedule 4.4.3, no portion of
the Real Property listed in Schedule 4.5.4 has been used by Seller or QO or by
any other party for the generation, handling, processing, use, refinement,
recycling, treatment, storage or disposal of any Hazardous Materials, and
neither Seller nor QO has any Knowledge that (i) any underground tank or
underground storage receptacle is located on, in or under any portion of the
Real Property, or (ii) any asbestos containing materials or structures are
located at or on any of the Real Property.
(d) Except as set forth on Schedule 4.4.3, neither QO nor
any of the Real Property is subject to any applicable Environmental Law
requiring the performance of site assessments, the removal or remediation of
Hazardous Materials, the giving of notice to any governmental agency or the
recording or delivery of an environmental disclosure document or statement by
virtue of the transactions contemplated by this Agreement. Except as set forth
on Schedule 4.4.3, as of the Closing Date, no expenditure will be required in
order for Matria or QO to comply with any Environmental Law in connection with
the operation of the Business, the Transferred Assets or the Real Property in a
manner consistent with the current operation thereof.
4.4.4 INSURANCE. Schedule 4.4.4 contains a complete list
and description (including the expiration date, premium amount and coverage
thereunder) of all policies of insurance and bonds presently maintained by, or
providing coverage for, the Transferred Assets or QO or its officers, directors
or employees, all of which will be maintained through the Closing Date in full
force and effect. Schedule 4.4.4 also contains a complete list of (i) all
pending claims under any of such policies or bonds, (ii) all claims made within
the last three (3) years under any of such policies or bonds, and (iii) any
denial of coverage or reservation of rights to contest any such claim asserted
by any insurer. All material terms, obligations and provisions of each of such
policies and bonds have been complied with; all premiums due thereon have been
paid, and no notice of cancellation with respect thereto has been received. Such
policies and bonds provide adequate coverage to insure the Transferred Assets
and the properties and businesses of QO and the activities of its officers,
directors and employees against such risks, including the risk of professional
and general liability, and in such amounts as are prudent and customary. QO will
not, as of the Closing Date, have any liability for premiums or for
retrospective premium adjustments for any period prior to or after the Closing.
4.4.5 POWERS OF ATTORNEY. Schedule 4.4.5 contains a
complete and accurate list setting forth the names and addresses of all persons
holding a power of attorney on behalf of QO.
4.5 CONTRACTS; PROPERTIES AND ASSETS.
4.5.1 CONTRACTS.
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(a) Schedule 4.5.1 includes a true, correct and complete
list of the Assigned Contracts, all contracts, agreements, arrangements or
understandings, written or oral, to which QO is a party or by which it is bound
(other than oral or written offers of at-will employment not containing any
arrangements for severance or other extraordinary compensation or outstanding
vendor orders arising in the ordinary course of the Business not exceeding
$10,000 in amount), and any of the following contracts, agreements, arrangements
or understandings to which Seller or any other Subsidiary is a party or by which
it is bound affecting the Transferred Assets or the Business (collectively, the
"Contracts"):
(i) all agreements and arrangements with
Medicare, Medicaid, CHAMPUS and any other governmental
authority or quasi-public agency, any managed care plans and
organizations including, without limitation, health
maintenance organizations and preferred provider
organizations, private commercial insurance companies and any
similar third party arrangements, plans or programs for
payment or reimbursement in connection with healthcare
services (collectively, "Third Party Payor Arrangements");
(ii) all escrow accounts associated with Seller's
and Subsidiaries' participation in each Third Party Payor
Arrangement;
(iii) all agreements or other documents regarding
arrangements with referral sources and marketing agents;
(iv) any joint venture or partnership agreement;
(v) all confidentiality agreements which could
reasonably be expected to result in a material restriction on
the operation of the Transferred Assets or the Business;
(vi) any agreement relating to the voting of
shares of the capital stock of QO;
(vii) any agreement or indenture relating to the
borrowing of money or placing a Lien on any of the Transferred
Assets or the assets of QO;
(viii) all lease agreements relating to any real
property or personal property used in connection with the
operation of the Business or under which QO is lessor or
lessee of any real property or personal property;
(ix) any agreement or group of related agreements
with the same party for the purchase or sale of products or
services under which the undelivered balance of such products
or services is in excess of $10,000 over the remaining term of
the agreement;
(x) any agreement or group of related agreements
with the same party continuing over a period of more than six
(6) months from the date or dates thereof, not terminable by
any of the respective parties thereto on thirty (30) days' or
less notice without penalty;
(xi) any contract which prohibits QO from freely
engaging in any business, or which prohibits QO from
soliciting customers or any other business, anywhere in the
word;
(xii) all employment, severance or non-competition
agreements to which any of the officers or employees of QO or
any of the employees set forth on Schedule 4.6.2 is a party
(other than oral or written offers of at-will employment not
containing any arrangements with respect to severance or other
extraordinary compensation);
(xiii) all license agreements pursuant to which any
"Intellectual Property" (as defined in Section 4.5.2) has been
licensed to or from any third parties;
(xiv) any contract or commitment for capital
expenditures;
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(xv) any contract under which the rights of QO
may be adversely affected as a result of a change in control
of QO; and
(xvi) any other contract, agreement, arrangement
or understanding which is material to QO, the Transferred
Assets or the Business.
(b) A true, correct and complete list of all notices or
other correspondence terminating a Third Party Payor Arrangement with QO or
related to the Business and the reason for such termination, and all notices or
other correspondence alleging any breach of or repayment obligation under any
such Third Party Payor Arrangement, received by Seller or any of its
Subsidiaries since December 31, 1999, is set forth on Schedule 4.5.1.
(c) Except as set forth on Schedule 4.5.1:
(i) Each Contract is in full force and effect
and constitutes a binding obligation of all parties thereto,
enforceable against the other party or parties to such
Contracts in accordance with its terms; no such Contract has
been canceled or otherwise terminated, and to the Knowledge of
Seller and QO, no such cancellation or termination has been
threatened;
(ii) Seller and the Subsidiaries have performed
all obligations required to be performed by them under the
Contracts; there are no existing breaches, defaults or events
of default, real or claimed, or events which with notice or
lapse of time or both would constitute defaults under any of
the Contracts, and neither Seller nor QO has received notice
of any such breach or default;
(iii) There are no Contracts to which any of the
following is a party: (A) any director, officer, or
stockholder of Seller or any Subsidiary (collectively,
"Insiders"), (B) any person or entity related to any such
Insider, or (C) any company or other organization in which any
Insider, or any person related thereto, has, or holds a right
to acquire, any direct or indirect equity interest in excess
of 5%;
(iv) No Contract requires Seller or any of the
Subsidiaries to share any profits or make any payments or
other distributions based on profits, revenues cash flows or
referrals;
(v) There are and have been no referral
agreements, discounts, rebates, kickbacks, or referral
payments or fees made or paid by QO or, to the extent relating
to or affecting the Business, Seller or any Subsidiary in
violation of any law, statute, rule, regulation, order, court
decision, judgment or decree of any federal, state, foreign,
territorial, provincial or municipal authority; and
(vi) no party to any Third Party Payor
Arrangement is seeking, threatening, requesting or claiming
any recoupments, that may call for the repayment of monies by
or withholding of monies due to QO.
4.5.2 LICENSES; INTELLECTUAL PROPERTY.
(a) Schedule 4.5.2 lists (i) all rights in patents,
patent applications, trademarks (whether registered or not), trademark
applications, software, service mark registrations and service mark
applications, trade names, Internet domain name registrations, Internet domain
name applications, corporate names, copyright applications, registered
copyrighted works and commercially significant unregistered copyrightable works
(including proprietary software, books, written materials, prerecorded video or
audio tapes, and other copyrightable works) (all such listed categories of
intellectual property, together with uniform resource locators, trade dress,
logos, slogans, tag lines, technology, software, trade secrets, know-how,
technical documentation, specifications, designs and other intellectual property
and proprietary rights, collectively the "Intellectual Property") included in
the Transferred Assets, owned by or licensed to QO or used in, developed for use
in, or necessary to the conduct of the Business as now conducted or planned to
be conducted, and (ii) all license agreements pursuant to which any such
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Intellectual Property has been licensed to or from third parties, including the
name of the licensee or licensor, as the case may be, and the date of each such
agreement.
(b) Seller and/or one or more of the Subsidiaries owns
and possesses all right, title and interest in and to all Intellectual Property
included in the Transferred Assets, free and clear of all Liens or any conflict
with the rights of others, and QO owns and possesses all right, title and
interest, free and clear of all Liens or any conflict with the rights of others,
or holds a valid license, in and to all other Intellectual Property reflected on
Schedule 4.5.2, without any conflict with the rights of others. Seller and each
of the Subsidiaries have taken all reasonably necessary action to protect the
secrecy, confidentiality and value of and their rights in and to such
Intellectual Property.
(c) All personnel, including employees, agents,
consultants and contractors, who have contributed to or participated in the
conception or development, or both, of Intellectual Property on behalf of Seller
or any of the Subsidiaries, as applicable, and all officers and technical
employees of Seller and the Subsidiaries either (i) have been a party to
"work-for-hire" arrangements or agreements in accordance with applicable
national and state law that has accorded full, effective, exclusive and original
ownership of all tangible and intangible property thereby arising to Seller or
one or more of the Subsidiaries, as applicable, or (ii) have executed
appropriate instruments of assignment in favor of Seller or one or more of the
Subsidiaries as assignee that have conveyed to Seller or one or more of the
Subsidiaries, as applicable, effective and exclusive ownership of all tangible
and intangible property arising thereby.
(d) Neither the development, maintenance, operation or
use of any of the Transferred Assets or the Data Warehouse or the conduct of the
Business has infringed, misappropriated or conflicted with or infringes,
misappropriates or conflicts with any Intellectual Property of any third party,
nor would any future conduct with respect to the Transferred Assets or the Data
Warehouse or the Business as presently contemplated infringe, misappropriate or
conflict with any Intellectual Property of any third party. To the Knowledge of
Seller and QO, the Intellectual Property listed on Schedule 4.5.2 has not been
infringed, misappropriated or conflicted by any third party. No claim by any
third party contesting the validity of any such Intellectual Property has been
made, is currently outstanding or, to the Knowledge of Seller and QO, is
threatened. Neither Seller nor QO has (i) received any notice of any
infringement, misappropriation or violation by Seller or QO of any Intellectual
Property listed on Schedule 4.5.2 by any third party or (ii) infringed,
misappropriated or otherwise violated any Intellectual Property of any third
party.
(e) Except as set forth in Schedule 4.5.2: (i) Seller or
one or more of the Subsidiaries is, and, as of the Closing, QO will be, the
exclusive owner of all data, data lists, information, systems, documentation,
processes, and other items compiled, processed, created or developed through any
function performed by any of the Transferred Assets, or any program or system
administered by Seller or any Subsidiary in connection with the Business,
including ICMS and cancerpage.com (collectively, the "Transferred Intellectual
Property Data"); (ii) Seller and one or more of its Subsidiaries has, and as of
the Closing QO will have the exclusive right to use and protect all such
Transferred Intellectual Property Data, and no third party has any rights in or
has filed any copyright registration with respect to the Transferred
Intellectual Property Data; (iii) neither Seller nor any Subsidiary has violated
or infringed any patent, copyright, trademark, service mark or other
intellectual property rights of any other person or entity in or to the
Transferred Intellectual Property Data, and, to the Knowledge of Seller and QO,
there are no claims pending or threatened against Seller or any Subsidiary
asserting that the use of any Transferred Intellectual Property Data by QO or
any Subsidiary infringes the rights of any other person or entity; (iv) neither
Seller nor any Subsidiary has made or asserted any claim of violation or
infringement of any Transferred Intellectual Property Data against any other
person or entity, and neither Seller nor QO has Knowledge of any such violation
or infringement; (v) neither Seller nor any Subsidiary has granted any
outstanding licenses or other rights to any such Transferred Intellectual
Property Data to any other person or entity, and Seller and its subsidiaries
have maintained and caused all of their employees, agents and independent
contractors to maintain the confidentiality of such Transferred Intellectual
Property Data.
4.5.3 PERSONAL PROPERTY. Except as otherwise noted on
Schedule 4.5.3, QO has good and marketable title to all tangible personal
property and assets, reflected on the Balance Sheet or acquired since the date
thereof, excluding properties and assets sold or otherwise disposed of in the
ordinary course of the Business since the date thereof, free and clear of all
Liens, and such property and assets (together with the "Leased Assets," "Real
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Property," as each is hereinafter defined, and the Transferred Assets,
Intellectual Property, Permits, Accreditations and Contracts) constitute and
include all of the property and assets related to, required, used, or useful in
the conduct of the Business as now conducted or proposed to be conducted or to
the operation and maintenance of any of the Transferred Assets or the Data
Warehouse. As of the date hereof, Seller or one or more of the Subsidiaries has,
and, as of the Closing, QO will have, the right to use all of the leased items
of tangible personal property and assets used in connection with the operation
of the Business or the operation and maintenance of the Transferred Assets or
the Data Warehouse (collectively, the "Leased Assets") pursuant to valid and
enforceable lease agreements. All of the tangible personal property and assets
included in the Transferred Assets and the Leased Assets are in good operating
condition and repair (ordinary wear and tear excepted).
4.5.4 REAL PROPERTY AND LEASES.
(a) QO owns no real property, and no real property owned
by Seller or any Subsidiary is used in connection with the operation of the
Business.
(b) Schedule 4.5.4 lists all of the leases (the "Facility
Leases") of any real property leased by QO in or used in connection with the
operation of the Business (the "Real Property"). Except as set forth on Schedule
4.5.4, each Facility Lease is valid, in full force and effect, and enforceable
in accordance with its terms and constitutes a legal and binding obligation of
each party thereto. Seller or one or more Subsidiaries has and, upon the
Closing, QO will have a valid leasehold interest under each Facility Lease.
Neither Seller nor QO has given or received any notice of default, termination
or partial termination under any Facility Lease, and there is no existing or
continuing default by Seller or any Subsidiary or, to the Knowledge of Seller or
QO, any other party in the performance or payment of any obligation under any
Facility Lease. Seller and each of the Subsidiaries, as applicable, have
complied in all material respects with the provisions of each Facility Lease.
(c) Except as set forth on Schedule 4.5.4, neither
Seller nor QO has received notice that any zoning or similar land use
restrictions are presently in effect or proposed by any governmental authority
which would impair the use or occupancy of any of the Real Property for the
purposes for which such Real Property is currently being used, and the use of
the Real Property by Seller and any of the Subsidiaries is in compliance with
all applicable building, zoning and land use laws and regulations. To the
Knowledge of Seller and QO, no condemnation by taking an eminent domain of any
Leased Real Property is pending or threatened.
(d) The interest of Seller and/or any Subsidiary in and
under each of the Facility Leases is unencumbered and subject to no present
claim, contest, dispute, action or threatened action at law or in equity, and
none of the Facility Leases is subject to any written, oral or implied sublease.
(e) There are no contractual obligations, agreements in
principle or present plans for QO to enter into new leases of real property or
with respect to the renewal or amendment of existing Facility Leases prior to
the Closing Date.
(f) No covenants, easements, restrictions, servitudes,
rights of way or regulations applicable to the Real Property have had or are
likely to have a Material Adverse Effect.
4.5.5 DATA WAREHOUSE. Each of the representations and warranties to
be made by Seller or any of the Subsidiaries under the Data Warehouse License
Agreement is true and correct on the date hereof and will be true and correct
when made on the Closing Date.
4.6 EMPLOYEES AND BENEFITS.
4.6.1 DIRECTORS AND OFFICERS. Schedule 4.6.1 correctly
lists all of the present officers and directors of Seller and QO.
4.6.2 EMPLOYEES.
(a) Schedule 4.6.2 sets forth a true, correct and
complete listing of all employees of QO and all employees of Seller or any
Subsidiary who devote a significant portion of their time to the Business and
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operations of QO or the operation and maintenance of the Transferred Assets or
the Data Warehouse, including their respective name, employer, job title or
function, and location, as well as a true, correct and complete listing of the
current salary or wage, incentive pay and bonuses, accrued vacation, and the
current status (as to leave or disability pay status, leave eligibility status,
full time or part time, exempt or nonexempt, temporary or permanent status) of
such employees. Other than as fully reflected or reserved against in accordance
with GAAP in the 2001 Unaudited Financial Statements (or as contemplated by
Section 3.9(f)) neither Seller nor QO has paid or promised to pay any bonuses to
such employees.
(b) Except as set forth on Schedule 4.6.2, to the
Knowledge of Seller and QO, no officer or employee (whose departure would
significantly disrupt the provision of services by a department or function) set
forth on Schedule 4.6.2, or group thereof, has any plans to terminate his, her
or its employment, and neither Seller nor QO has received notice that any such
officer or employee would refuse to continue or accept employment with QO or
Matria following the Closing.
(c) Except as set forth on Schedule 4.6.2, Seller and the
Subsidiaries have complied in all respects with all laws and regulations
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, workers' compensation, unemployment
compensation, collective bargaining and the payment of social security and other
taxes.
(d) Except as set forth on Schedule 4.6.2, neither Seller
nor any Subsidiary has any employment-related complaints or charges pending or,
to the Knowledge of Seller and QO, threatened against Seller or QO with the
Equal Employment Opportunity Commission, Department of Labor, or any other
comparable state or local agency.
(e) Neither Seller nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract. Except as set
forth on Schedule 4.6.2, there are currently no strikes, concerted slowdowns,
concerted work stoppages, lockouts or, to the Knowledge of Seller and QO, any
threats thereof, existing by or with respect to any employees of Seller or any
Subsidiary.
(f) Except as set forth on Schedule 4.6.2, there are no
workers' compensation claims pending or, to the Knowledge of Seller and QO,
threatened against Seller or any Subsidiary except to the extent any such claim
or claims are covered by workers' compensation insurance.
(g) To the Knowledge of Seller and QO, no employee set
forth on Schedule 4.6.2 is subject to any secrecy or noncompetition agreement or
any other agreement or restriction of any kind that would impede the ability of
such employee to carry out fully the activities currently performed by such
employee in furtherance of the business of QO.
(h) Schedule 4.6.2 contains a list of all physicians and
nurses employed or engaged by or contracted with or by QO or any Seller or
Subsidiary in connection with the operation of the Business, the type of
license, all states or other governmental entities which have licensed such
individual, and a list of all correspondence known to Seller and QO relating to
any adverse actions against any such persons. All such persons are properly
licensed by all applicable governmental and regulatory agencies with respect to
their activities on behalf of QO and the Business, and Seller and QO have no
Knowledge of any problems or adverse actions regarding any such licenses. Except
as set forth on Schedule 4.6.2, neither Seller nor QO has any reason to believe
that any such licensed physicians or nurses will voluntarily terminate his or
her employment, engagement or contract or would refuse to continue or accept
such employment or engagement with or by QO following the Closing.
4.6.3 INDEPENDENT CONTRACTORS. Schedule 4.6.3 contains a
true, correct and complete list of the names, titles, and compensation
arrangements of each independent contractor performing services for QO or for
Seller or any Subsidiary in connection with the operation of the Business or the
operation and maintenance of the Transferred Assets. No such independent
contractor has informed or advised Seller or any Subsidiary (nor does Seller or
QO have Knowledge) that any such independent contractor does not intend to
continue to provide such services after the date hereof or will voluntarily
terminate his or her applicable engagement or contract in connection with the
transactions contemplated hereby. Schedule 4.6.3 sets forth a true, correct and
complete list of all written and oral agreements currently in effect with any
such independent contractors.
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4.6.4 EMPLOYEE BENEFITS.
(a) Schedule 4.6.4, lists all "pension plans" (as such
term is defined in Section 3 of ERISA), "welfare benefit plans" (as such term is
defined in Section 3 of ERISA), bonus, stock option, stock purchase, restricted
stock, deferred compensation, retiree medical or life insurance, supplemental
retirement, severance or other benefit plans, programs or arrangements to which
Seller or any Subsidiary is a party or which are maintained, contributed to or
sponsored by Seller or any Subsidiary for the benefit of any current or former
employee, officer or director of QO or any employee set forth on Schedule 4.6.2
(all such plans listed on Schedule 4.6.4 are sometimes referred to herein
collectively as the "Plans" and individually as a "Plan").
(b) Except as set forth on Schedule 4.6.4, true and
complete copies of all the Plans and Plan trusts, Summary Plan Descriptions,
Actuarial Reports (if any) and Annual Reports on Form 5500 for the most recent
three years with respect to the Plans, Internal Revenue Service determination
letters, audit reports (if any) and any other related documents have been
provided to Matria.
(c) Except as set forth on Schedule 4.6.4, with respect
to each Plan, (i) no litigation or administrative or other proceeding is pending
or threatened; and (ii) the Plan has been administered in compliance with, and
has been restated or amended so as to comply with, all applicable requirements
of law including all applicable requirements of ERISA, the Code and regulations
promulgated thereunder by the Internal Revenue Service and the United States
Department of Labor, as well as the terms of such Plan. No Plan nor any trustee,
administrator or fiduciary thereof has at any time been involved in any
transaction relating to such Plan which was or is a breach of fiduciary duty
under ERISA or a "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Code.
(d) No Plan which is subject to Title IV of ERISA has
been maintained by or on behalf of Seller or QO. As of the date hereof, no
contribution to any profit sharing plan maintained by Seller or QO has been
authorized which has not been fully paid, except for salary reduction
contributions to Seller's 401(k) Employee Savings Plan, which will be paid on or
before the applicable due dates.
(e) Except as disclosed on Schedule 4.6.4 and except for
obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"): (i) QO has no obligation to provide, or liability for, health care,
life insurance or other benefits after termination of employment for former or
present employees; (ii) no Plan is cosponsored or has been adopted by QO; and
(iii) QO has no liability and, after the Closing, neither Matria, QO nor any of
their affiliates shall have any liability, under or in connection with any of
the Plans. As of the Closing Date, Seller will have used its reasonable
commercial efforts to cure any known violations or deficiencies under applicable
statutes, orders and regulations relating to the Plans or their administration
thereof and will have provided adequate reserves, or insurance or qualified
trust funds, for all claims incurred through the Closing Date with respect to
participants who are current or former employees of QO, the employees listed on
Schedule 4.6.2, and their respective beneficiaries, based on an actuarial
valuation satisfactory to the actuaries of Matria representing a projection of
claims expected to be incurred for such retirees during their period of coverage
under such Plans.
(f) No fact or circumstance exists which could constitute
grounds in the future for the Pension Benefit Guaranty Corporation ("PBGC") (or
any successor to the PBGC) to take any action whatsoever under Section 4042 of
ERISA in connection with any plan which an "Affiliate" (as defined below) of
Seller maintains within the meaning of Section 4062 or 4064 of ERISA, and, in
either case, the PBGC has not previously taken any such action which has
resulted in, or reasonably might result in, any liability of QO to the PBGC. The
term "Affiliate" for purposes of this Section means any trade or business
(whether incorporated or unincorporated) which is a member of a group described
in Section 414 of the Code of which any Seller or Subsidiary is also a member.
(g) The consummation of any of the transactions
contemplated by this Agreement will not give rise to the payment of any amount
which would constitute an "excess parachute payment" (within the meaning of
Section 280G of the Code) under any contract, agreement, or other arrangement of
QO.
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4.7 OTHER.
4.7.1 APPROVALS AND CONSENTS. Schedule 4.7.1 lists all
consents or other approvals necessary or beneficial to the consummation of the
transactions contemplated hereby or that are required pursuant to the terms of
any Contract, Permit or Accreditation in connection with such transactions or in
order to preserve any right, license, Permit, Accreditation or franchise held or
owned by QO or included in the Transferred Assets, including but not limited to
all governmental and other regulatory approvals and consents of lenders,
lessors, landlords and other third parties (collectively, "Third Party
Consents").
4.7.2 SECURITIES MATTERS.
(a) None of the information supplied or to be supplied by
Seller for inclusion in the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading. None of the information supplied or to be supplied by Seller for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
shall, on the date the Joint Proxy Statement/Prospectus is first mailed to any
of Seller's and Matria's stockholders, at the time any Investor Consent is
executed, at the time of the Matria Stockholders' Meeting, or at the Closing,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
Investor Consents or the solicitation of proxies for the Matria Stockholders'
Meeting which has become false or misleading. Notwithstanding the foregoing,
Seller makes no representation or warranty with respect to any information
supplied by Matria that is contained in any of the foregoing documents.
(b) Seller acknowledges that Matria delivered to Seller
and each Investor all "Reports" (as defined in Section 5.6) and has made
available to Seller and each Investor at a reasonable time prior to date hereof
the opportunity to ask questions and receive answers concerning the terms and
conditions of this Agreement and the shares of Matria Common Stock to be
received by Seller pursuant to this Agreement (the "Matria Shares") and to
obtain any additional information which Matria possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of the
information furnished to Seller.
(c) Seller acknowledges and agrees that each certificate
representing the Matria Shares issued pursuant to this Agreement, in addition to
any legend referenced in Section 3.3(c), shall include a legend in substantially
the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN A STANDSTILL
AGREEMENT DATED AS OF ______________, 2002 BETWEEN
[SELLER/INVESTORS] AND THE CORPORATION, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF THE CORPORATION, AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE TERMS OF
SUCH AGREEMENT, AND ANY ATTEMPTED TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE TERMS OF
SUCH AGREEMENT SHALL BE NULL AND VOID AND NOT RECOGNIZED BY
THE CORPORATION.
4.7.3 REPRESENTATIONS AND WARRANTIES. Without limiting the
effect of any representation or warranty set forth herein, Seller and QO further
represent and warrant that no representation or warranty or related Schedule
contained in this Article 4 or in any written statement delivered by or at the
direction of Seller or QO, pursuant hereto or in connection with the
transactions contemplated hereby contains or shall contain any untrue statement
of material fact, nor shall such representations and warranties taken as a whole
omit any statement of material fact necessary in order to make any statement
therein not misleading. There is no fact known to Seller or QO, which materially
adversely affects the Transferred Assets or the Business, operations, or assets
or the condition, financial or otherwise, of QO in any respect which has not
been disclosed in this Agreement or in the Schedules. Seller has furnished to
Matria a true, correct and complete copy of any and all Contracts, Plans,
Permits,
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correspondence, notices and other documents reflected in the Schedules, as any
of the same have been amended and are in effect on the date hereof.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MATRIA
As an inducement to Seller and QO to enter into this Agreement and to
consummate the transactions contemplated hereby, Matria represents and warrants
that the following representations and warranties are true and correct as of the
date hereof and, except for any representations and warranties made as of a
specific date (other than the date hereof), shall be true and correct as of the
Closing:
5.1 ORGANIZATION AND GOOD STANDING. Matria is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
5.2 POWER AND AUTHORITY. Matria has the corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Matria, and no other corporate proceedings on the part of Matria is necessary to
authorize the execution, delivery and performance of this Agreement by Matria.
5.3 BINDING EFFECT. This Agreement has been duly executed and
delivered by Matria and constitutes the legal, valid and binding obligation of
Matria, enforceable against Matria in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
and similar laws affecting creditors' rights generally and general principles of
equity (regardless of whether asserted in a proceeding at law or in equity).
5.4 NO VIOLATION; CONSENTS. Neither the execution and delivery of
this Agreement by Matria nor the performance by it of its obligations hereunder
will:
(a) violate or conflict with any provision of the
organizational documents of Matria;
(b) breach or otherwise constitute or give rise to a
default under any contract, commitment or other obligation to or by which Matria
is a party or is bound, except to the extent any such breach or default would
not have a material adverse effect on the ability of Matria to enter into this
Agreement or perform its obligations hereunder;
(c) violate any statute, ordinance, law, rule,
regulation, judgment, order or decree of any court or other governmental or
regulatory authority to which Matria is subject; or
(d) require any consent, approval or authorization of,
notice to, or filing, recording, registration or qualification with any third
party, court or governmental or regulatory authority, except for any such
requirements arising under the HSR Act.
5.5 CAPITALIZATION. The authorized capital stock of Matria
consists of 100,000,000 shares of common stock, par value $.01 per share, and
50,000,000 shares of preferred stock, par value $.01 per share. As of April 24,
2002, 8,991,862 shares of such common stock and no shares of such preferred
stock were issued and outstanding. The Matria Shares issuable to Seller pursuant
to this Agreement will be, when issued in accordance with the terms hereof,
validly issued, fully paid, nonassessable and free of preemptive rights.
5.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. Matria has
delivered to Seller (i) Matria's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 containing consolidated balance sheets of Matria at
December 31, 2001 and 2000 and consolidated statements of operations,
shareholders' equity and cash flows of Matria for the three years ended December
31, 2001, and (ii) any Current Reports on Form 8-K filed by Matria since
December 31, 2001 (collectively, the "Reports"). All Reports as of their
respective dates (i) comply in all material respects with the requirements of
the Exchange Act, and the rules and regulations of the SEC
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thereunder, and (ii) do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent any such misstatement or omission has
been superseded by a subsequent report or other document filed with the SEC. All
financial statements included in the Reports, including the related notes and
schedules, have been prepared in accordance with GAAP, consistently applied
(except as indicated therein) and fairly represent the consolidated financial
condition, assets and liabilities of Matria at the dates thereof and the
consolidated results of operations, shareholders' equity and cash flows of
Matria and its subsidiaries for the periods stated therein.
5.7 STATEMENTS; JOINT PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by Matria for inclusion or incorporation
by reference in the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. None of the information supplied or to be supplied by Matria for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
shall, on the date the Joint Proxy Statement/Prospectus is first mailed to any
of Seller's and Matria's stockholders, at the time any Investor Consent is
executed, at the time of the Matria Stockholders' Meeting, or at the Closing,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
Investor Consents or the solicitation of proxies for the Matria Stockholders'
Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, Matria makes no representation or warranty with
respect to any information supplied by Seller that is contained in any of the
foregoing documents.
5.8 REPRESENTATIONS AND WARRANTIES. No representation or warranty
by Matria contained in this Article 5 or any written statement delivered by
Matria pursuant hereto or in connection with the transactions contemplated
hereby contains or shall contain any untrue statement of material fact, nor
shall such representations and warranties taken as a whole omit any statement of
material fact necessary in order to make any statement not misleading. Copies of
all documents furnished to Seller by Matria in connection with this Agreement
are true, correct and complete.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
Except as otherwise expressly provided herein, Seller and QO covenant
and agree that, without the prior written consent of Matria in each instance,
between the date hereof and the Closing Date:
6.1 CONDUCT OF BUSINESS. Seller and QO (and any other applicable
Subsidiaries) shall carry on the Business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and preserve
intact the present business organization applicable to the Business, and use
reasonable efforts to keep available to the Business the services of their
respective present officers, employees and agents and to preserve the goodwill
of the Business and their relationships with customers, lenders and others
having business dealings with each of them affecting the Business.
6.2 MAINTENANCE OF PROPERTIES. Seller will maintain all of the
Transferred Assets, and QO will maintain its properties and assets, in good
operating condition, ordinary wear and tear excepted.
6.3 INSURANCE. Seller and QO will maintain and keep in full force
and effect all of the insurance referred to in Section 4.4.4 hereof or other
insurance equivalent thereto.
6.4 ISSUANCE OF SECURITIES. Neither Seller nor QO will sell,
issue, authorize or propose the sale or issuance of, or purchase or propose the
purchase of, any shares of capital stock of QO, or, to the extent such
authorization, sale or issuance would or could result in the need to obtain the
affirmative vote or consent of any stockholder other than the Investors in order
to obtain stockholder approval of this Agreement and the transactions
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contemplated hereby, of Seller, or any class of securities convertible into, or
rights, warrants or options to acquire, any such shares or other convertible
securities of QO or, to the extent such authorization, sale or issuance would or
could result in the need to obtain the affirmative vote or consent of any
stockholder other than the Investors in order to obtain stockholder approval of
this Agreement and the transactions contemplated hereby, of Seller, or enter
into any agreement with respect to any of the foregoing.
6.5 DIVIDENDS. No dividend, distribution or payment will be
declared or made in respect of the capital stock of QO, and QO will not directly
or indirectly, redeem, purchase or otherwise acquire any of its capital stock or
enter into any agreement with respect to any of the foregoing.
6.6 AMENDMENT OF CHARTER. Neither Seller nor QO will amend or
cause to be amended its respective Certificate of Incorporation, Bylaws or other
organizational documents.
6.7 NO ACQUISITIONS. Other than the transfer of the Transferred
Assets to QO pursuant to Section 1.1, QO will not acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets or
stock of, or by any other manner, any business or any corporation, partnership,
association or other entity or division thereof or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to QO or
the Business, nor will Seller or QO enter into any agreement with respect to any
of the foregoing.
6.8 DISPOSITION OF ASSETS. Other than the transfer of the
Transferred Assets to QO pursuant to Section 1.1, neither Seller nor any
Subsidiary will sell, mortgage, lease, buy or otherwise acquire, transfer or
dispose of any real property or interest therein used or to be used in
connection with the operation of the Business or sell or transfer, or subject to
any Lien, any of the Transferred Assets or any tangible or intangible asset of
QO or enter into any agreement with respect to any of the foregoing.
6.9 COMPENSATION. Except for annual salary increases made in the
ordinary course of business consistent with the past practices of QO and Seller,
and except for the Incentive Bonuses contemplated by Section 3.9(f), no increase
will be made in the compensation payable or to become payable to any director or
officer of QO or any employee set forth on Schedule 4.6.2; no general increase
will be made in the compensation payable or to become payable to any hourly or
salaried employees set forth on Schedule 4.6.2; no employee of Seller or any
Subsidiary (other than QO) will be transferred to QO; no increase will be made
in any payment of or commitment to pay any bonus, profit sharing, severance pay
or other extraordinary compensation to any director or officer of QO or any
employee set forth on Schedule 4.6.2; and neither Seller nor any Subsidiary will
enter into any agreement or understanding with respect to the foregoing.
6.10 BANKING ARRANGEMENTS. No change will be made in the banking
and safe deposit arrangements referred to in Section 4.3.8 hereof, except in the
ordinary course of business, consistent with past practice, and then only after
first notifying Matria of such change.
6.11 INDEBTEDNESS. QO will not incur any indebtedness for borrowed
money, purchase money indebtedness or capital lease obligations, or guarantee
any such indebtedness or issue or sell any of its debt securities or guarantee
any debt securities of others or enter into any agreement with respect to the
foregoing.
6.12 PAYMENT OF DEBT. QO will not pay any obligation or liability
or enter into any agreement with respect to the foregoing other than in the
ordinary course of the Business or as required by the terms of any instrument
evidencing or governing the same.
6.13 BENEFIT PLANS. Neither Seller nor any Subsidiary will enter
into or amend, or make or authorize the making of any contributions to, any
bonus, incentive compensation, deferred compensation, severance, profit sharing
(including, without limitation, the adoption of any resolution or taking of any
other action for or with respect to the contribution of any sum pursuant to the
terms of any existing profit sharing or similar plan), retirement, pension,
group insurance or other benefit plan, or any union, employment or consulting
agreement or arrangement, applicable to any employees set forth on Schedule
4.6.2, except as and only to the extent required by law or regulation.
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6.14 CONTRACTS. QO will not enter into any Contract, and neither
Seller nor any Subsidiary will enter into any Contract related to or affecting
the Transferred Assets or the Business, except in the ordinary course of
business consistent with past practice, provided further that in the event QO
proposes to enter into any Contract containing economic, payment or risk sharing
terms which deviate materially from prior Contracts with respect to similar
services or transactions, Seller shall deliver to Matria such proposed Contract
prior to its execution, and Matria shall have the right, for a period of five
(5) days, to review such Contract, and QO shall not enter into any such Contract
to which Matria reasonably objects within such five (5) day period.
6.15 BOOKS AND RECORDS. The books and records of Seller and QO will
be maintained in the usual, regular and ordinary course of business consistent
with past practice.
6.16 OTHER ACTIONS. Neither Seller nor any Subsidiary will take any
action that would or could reasonably be expected to result in any of the
representations and warranties of Seller or QO set forth in this Agreement or to
be made by Seller or any Subsidiary under the Data Warehouse License Agreement
becoming untrue in any respect at any time on or prior to the date this
Agreement terminates.
6.17 SELLER TO ADVISE MATRIA OF CHANGES. Seller shall promptly
advise Matria in writing of any change or event having, or which can reasonably
be foreseen to have, a Material Adverse Effect.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF MATRIA
All of the obligations of Matria to consummate the transactions
contemplated by this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions, any one or more of which may be
waived, in whole or in part, in writing by Matria:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and QO contained herein or in any certificate, Schedule or
other document delivered pursuant to the provisions hereof, or in connection
herewith, shall be true and correct in all respects as of the date when made
and, except for representations and warranties made as of a specific date (other
than the date hereof), shall be true and correct in all respects as of the
Closing Date as though made again on such date, without giving effect to any
Supplements, except for such failures to be true and correct that, individually
or in the aggregate, do not, and could not reasonably be expected to, constitute
or result in a Material Adverse Effect.
7.2 PERFORMANCE OF AGREEMENTS. Seller and QO shall have performed
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing.
7.3 DELIVERIES. Seller shall have delivered to Matria each and
every item required to be delivered by Seller pursuant to Section 2.2 hereof.
7.4 APPROVALS. Matria shall have received from any and all
governmental authorities, bodies or agencies having jurisdiction over the
transactions contemplated by this Agreement such consents, authorizations and
approvals as are necessary for the consummation thereof and all applicable
waiting or similar periods required by law shall have expired, including, if
applicable, the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and such regulatory consents, authorizations and
approvals shall not contain conditions or restrictions unduly burdensome on the
operations of Matria, Matria, QO or the Business to be conducted following the
Closing Date.
7.5 APPROVALS OBTAINED BY MATRIA. Matria shall have obtained all
consents and waivers to this Agreement and the transactions contemplated hereby
required under that First Amended and Restated Credit Agreement dated as of
January 19, 1999 and Amended and Restated as of July 9, 2001 among Matria and
certain of its subsidiaries, as Borrowers, the lenders named therein, First
Union National Bank, as Administrative Agent and UBS Warburg LLC, as Syndication
Agent, and arranged by First Union Securities, Inc. (the "Credit Agreement") on
terms satisfactory to Matria.
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7.6 NO INJUNCTIONS. No preliminary or permanent injunction or
other order by any federal or state court which prevents the consummation of the
transactions contemplated by this Agreement shall have been issued and remain in
effect, and no action to obtain any such injunction or order shall have been
filed and remain pending.
7.7 CONSENTS AND APPROVALS OF THIRD PARTIES. All Third Party
Consents shall have been duly obtained, and such consents, authorizations or
approvals shall be in form and substance satisfactory to Matria and without
condition, cost or expense to Matria or QO.
7.8 EMPLOYMENT. Each of the Key Employees shall have accepted
employment with Matria or QO or, as applicable, continued employment with QO, on
terms and conditions reasonably satisfactory to Matria, following the Closing.
7.9 RESIGNATIONS. Matria shall have received copies of written
resignations from all persons serving as directors and officers of QO except for
such officers and directors as Matria shall designate in writing to Seller,
which resignations shall be effective on or prior to the Closing Date.
7.10 REGISTRATION STATEMENT. The Matria Shares to be issued and
delivered at the Closing shall have been registered pursuant to an effective
registration statement under the Securities Act, no stop order suspending the
effectiveness of such registration statement or any part thereof shall have been
issued, and no proceeding for that purpose, and no similar proceeding in respect
of any proxy or information statement or prospectus included in such
registration statement, shall have been initiated or threatened in writing by
the SEC and not concluded or withdrawn.
7.11 OTHER DOCUMENTS. On or prior to Closing Date, Seller shall
have delivered such other documents, agreements and certificates required to be
delivered by Seller hereunder or as may have been reasonably requested by
Matria.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLER AND QO
All of the obligations of Seller and QO to consummate the transactions
contemplated by this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions, any one or more of which may be
waived, in whole or in part, in writing by Seller or QO:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Matria contained herein or in any certificate, Schedule or other
document delivered pursuant to the provisions hereof, or in connection herewith,
shall be true in all material respects as of the date when made and, except for
representations and warranties made as of a specific date (other than the date
hereof), shall be true and correct in all material respects as of the Closing
Date as though made again on such date.
8.2 PERFORMANCE OF AGREEMENTS. Matria shall have performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with by them prior to or on the
Closing Date.
8.3 DELIVERIES. Matria shall have delivered to Seller each and
every item required to be delivered by Matria pursuant to Section 2.3 hereof.
8.4 APPROVALS. Seller and QO shall have received from any and all
governmental authorities, bodies or agencies having jurisdiction over the
transactions contemplated by this Agreement such consents, authorizations and
approvals as are necessary for the consummation thereof and all applicable
waiting or similar periods required by law shall have expired, including, if
applicable, the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and such regulatory consents, authorizations and
approvals shall not contain conditions or restrictions unduly burdensome on the
operations or business of Seller to be conducted following the Closing Date.
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8.5 NO INJUNCTIONS. No preliminary or permanent injunction or
other order by any federal or state court which prevents the consummation of the
transactions contemplated by this Agreement shall have been issued and remain in
effect, and no action to obtain any such injunction or order shall have been
filed and remain pending.
8.6 LISTING. The common stock of Matria shall not have been
delisted from the NMS, and Matria shall have filed with NASDAQ a Notification
Form for Listing of Additional Shares with respect to the shares of Matria
Common Stock to be issued and delivered to Seller at the Closing.
8.7 REGISTRATION STATEMENT. The Matria Shares to be issued and
delivered at the Closing shall have been registered pursuant to an effective
registration statement under the Securities Act, no stop order suspending the
effectiveness of such registration statement or any part thereof shall have been
issued, and no proceeding for that purpose, and no similar proceeding in respect
of any proxy or information statement or prospectus included in such
registration statement, shall have been initiated or threatened in writing by
the SEC and not concluded or withdrawn.
ARTICLE 9
INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS.
(a) Except as otherwise provided in this Section 9.1, the
representations and warranties made by the parties to this Agreement and the
indemnification obligations of the parties with respect thereto shall survive
the Closing until the earlier of (i) the date on which the Earn Out Payment, if
any, is made by Matria, or (ii) June 30, 2004, and the covenants and agreements
of the parties set forth in this Agreement and the indemnification obligations
of the parties with respect thereto shall survive the Closing indefinitely (or
for such lesser period as is expressly set forth herein with respect to any
individual covenant or agreement).
(b) The representations and warranties in Sections 4.1, 4.3.1,
4.3.2, 4.3.3, 4.3.4, 4.7.1 and 4.7.2 shall survive the Closing indefinitely.
(c) The representations and warranties in Sections 5.1, 5.2,
5.3, 5.4 and 5.5 shall survive the Closing indefinitely.
(d) The expiration of any representation or warranty in accordance
with the provisions of this Section 9.1 shall not affect any party's right to
pursue any claim for a breach of such representation or warranty made prior to
such expiration or any claim based upon fraud in connection with this Agreement
or the transactions contemplated thereby.
9.2 INDEMNIFICATION.
(a) Subject to the terms and conditions of this Article 9, Seller
shall indemnify, reimburse, defend and hold harmless Matria, and its affiliates,
officers, directors, stockholders, employees, representatives, successors and
assigns (collectively, the "Matria Indemnified Parties") from and against any
and all direct or indirect claims, losses, liabilities, Taxes, damages
(including, without limitation, special and consequential damages), costs
(including court costs) and expenses (including, without limitation, all
reasonable attorneys' and accountants' fees and expenses) (collectively
"Losses"), arising out of or in connection with:
(i) any breach, inaccuracy or untruth of any
representation or warranty made by Seller or QO contained in this
Agreement or in any agreement or certificate delivered in connection
with this Agreement (without giving effect to any Supplements or any
qualifications as to materiality contained in such representations or
warranties), whether such breach, inaccuracy or untruth exists or is
made on the date of this Agreement or as of the Closing;
(ii) any breach of or noncompliance by Seller or QO with
any covenant or agreement of Seller or QO contained in this Agreement,
or covenant or agreement of Seller in any other agreement delivered in
connection with this Agreement;
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(iii) any action, decree, suit, claim, counterclaim
proceeding or investigation before any court, governmental or
regulatory agency, mediator or arbitrator directly or indirectly
involving Seller or any of the Subsidiaries (including QO), the
Business or any of the Transferred Assets, to the extent arising out of
actions taken or facts existing before the Closing or arising out of or
related to the transactions contemplated by this Agreement;
(iv) any claim, obligation or liability (A) arising under
or in connection with the Incentive Bonuses (or the payment or
non-payment thereof) or any of the Plans at any time, whether before or
after the Closing or (B) which constitutes an Excluded Liability;
(v) any Tax incurred as a direct result of the Section
338(h)(10) Election; and
(vi) any liability of QO for the payment of any Tax as a
result of (A) being a party to any Tax Sharing Agreement in any
Pre-Closing Tax Period, or (B) being a member of an Affiliated Group in
any Pre-Closing Tax Period, or being a party to any agreement or
arrangement in any Pre-Closing Tax Period as a result of which the
liability of QO to a Tax Authority is determined or taken into account
with reference to the liability of any other Person.
(b) Subject to the terms and conditions of this Article 9, Matria
shall indemnify, reimburse, defend and hold harmless Seller and its affiliates,
officers, directors, stockholders, employees, representatives, successors and
assigns (collectively, the "Seller Indemnified Parties") from and against any
and all Losses arising out of (i) any breach, inaccuracy or untruth of any
representation or warranty of Matria contained in this Agreement or any
agreement or certificate delivered in connection with this Agreement (without
giving effect to any qualifications as to materiality contained in such
representations and warranties), whether such breach, inaccuracy or untruth
exists or is made on the date of this Agreement or as of the Closing; or (ii)
any breach of or noncompliance by Matria with any covenant or agreement of
Matria contained in this Agreement or any agreement delivered in connection with
this Agreement.
(c) Claim Threshold; Liability Cap.
(i) Neither Seller nor QO shall have any liability to any
of the Matria Indemnified Parties in respect of any claim for indemnification
under this Section 9.2 until the aggregate amount of Losses for which all Matria
Indemnified Parties otherwise would be entitled to indemnification under this
Section 9.2 exceeds or is reasonably expected to exceed $200,000 (the
"Threshold"), at which point the Matria Indemnified Parties shall be entitled to
indemnification for all such Losses, including all Losses included in reaching
the Threshold. The foregoing limitation shall not apply to (A) any Losses
arising out of a breach of any of the representations, warranties, covenants or
agreements of Seller set forth in Sections 3.18 or 3.19 hereof, (B) any Losses
intentionally caused by Seller or QO or arising out of fraud, or (C) any Losses
arising under or in connection with the Incentive Bonuses (or the payment or
non-payment thereof).
(ii) Matria shall have no liability to any of the Seller
Indemnified Parties in respect of any claim for indemnification under this
Section 9.2 until the aggregate amount of Losses for which all Seller
Indemnified Parties otherwise would be entitled to indemnification under this
Section 9.2 exceeds or is reasonably expected to exceed the Threshold, at which
point the Seller Indemnified Parties shall be entitled to indemnification for
all such Losses, including all Losses included in reaching the Threshold. The
foregoing limitation shall not apply to (A) any Losses arising out of a breach
of any of the representations, warranties, covenants or agreements of Matria set
forth in Sections 3.18 or 3.19 hereof, or (B) any Losses intentionally caused by
Matria or arising out of fraud.
(d) Notwithstanding anything else contained herein to the
contrary, neither the aggregate liability of Seller pursuant to Sections
9.2(a)(i) and 9.2(a)(iii), nor the aggregate liability of Matria under
9.2(b)(i), shall exceed an amount equal to the sum of (i) ten percent (10%) of
the Closing Purchase Price plus (ii) the amount of the Earn Out Payment, if any.
The foregoing limitation shall not apply to (A) any Losses arising out of a
breach of the representations or warranties set forth in Sections 4.1, 4.3.2,
4.3.3(b) or 4.3.4, (B) any Losses intentionally caused by any party or arising
out of fraud on the part of any party, or (C) any indemnification obligations of
the parties under
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Sections 9.2(a)(ii), 9.2(a)(iv), 9.2(a)(v), 9.2(a)(vi) or 9.2(b)(ii) hereof;
provided, however, that in no event shall the aggregate liability of Seller, on
the one hand, or Matria, on the other hand, pursuant to this Section 9.2 exceed
an amount equal to the Purchase Price, except in the case of any Losses
intentionally caused by either party or arising out of fraud on the part of
either party.
(e) Without limiting the availability or enforcement of any other
remedies available to Matria, Matria shall have the right to set off the amount
of any Losses for which any of the Matria Indemnified Parties may be entitled to
indemnification under this Section 9.2 against the amount of the Earn Out
Payment otherwise payable to Seller under Article 1 of this Agreement, and to
recover any such Losses pursuant to and in accordance with the Escrow Agreement.
For purposes of this Article 9, the value of any Matria Share recovered pursuant
to the Escrow Agreement shall be deemed to be equal to the Closing Stock Price
as of the Closing Date, and the value of any Matria Share not delivered as a
result of any set off against the Earn Out shall be deemed equal to the Closing
Stock Price as of the date on which the Earn Out Payment, if any, is made.
(f) Indemnification Procedures.
(i) For purposes of this Agreement, (A) a party entitled
to make a claim of indemnification hereunder shall be referred to as an
"Indemnified Party," and (B) a party obligated for indemnification hereunder
shall be referred to as an "Indemnifying Party."
(ii) Whenever an Indemnified Party is entitled to
indemnification under this Section 9.2, the Indemnified Party shall promptly
notify the appropriate Indemnifying Party of the claim and, when known, the
facts constituting the basis for such claim. Any failure to provide such notice
shall not affect the Indemnified Party's right to indemnification hereunder,
unless, and only to the extent that, such failure has materially and adversely
affected the Indemnifying Party's ability to defend a Third Party Claim.
(iii) No Indemnifying Party shall settle or compromise or
voluntarily enter into any binding agreement to settle or compromise, or consent
to entry of any judgment arising from, any indemnifiable claim or proceeding by
a person who is not a party to this Agreement (a "Third Party Claim") except
with the prior written consent of the Indemnified Party, which will not be
unreasonably withheld. With respect to any Third Party Claim, the Indemnifying
Party shall undertake the defense thereof by representatives of its own choosing
reasonably satisfactory to the Indemnified Party. The Indemnified Party shall
cooperate in the defense of any Third Party Claim, to the extent reasonably
requested by and at the expense of the Indemnifying Party. The Indemnified Party
or any other party shall have the right to participate in any such defense of a
Third Party Claim with advisory counsel of its own choosing. Such participation
shall be at the expense of the Indemnified Party, unless any Indemnified Party
reasonably determines that, because of a conflict of interest or otherwise, the
Indemnifying Party is not adequately representing or may not adequately
represent its interests, in which case the reasonable costs of such
participation by the Indemnified Party shall be at the expense of the
Indemnifying Party. In the event the Indemnifying Party, after half of the
period for the presentation of a defense against any such Third Party Claim,
fails to begin to diligently defend it (or at any time thereafter ceases to
diligently defend it), the Indemnified Party will have the right to undertake
the defense, compromise or settlement of such Third Party Claim on behalf of,
and for the account of, the Indemnifying Party, at the expense and risk of the
Indemnifying Party.
(g) Nothing herein shall prevent an Indemnified Party from making
a claim for a Loss hereunder notwithstanding its knowledge of the Loss or
possibility of the Loss on, prior to, or after the Closing Date.
ARTICLE 10
TERMINATION
This Agreement may be terminated by Matria or Seller for the reasons
set forth in this Article 10 at any time prior to the Closing upon written
notice to the other parties as follows. These events of termination are intended
to operate independently from any other agreements, representations, warranties
and/or conditions contained in this Agreement.
10.1 MATERIAL ADVERSE EVENT. By Matria if, after the date hereof,
any event or events occur which have or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
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10.2 BY MATRIA. By Matria, (i) if any of the covenants or
agreements of this Agreement to be complied with or performed by Seller before
the Closing shall not have been complied with or performed on or before
September 30, 2002 (the "Termination Date"), and such non-compliance or
non-performance shall not have been waived by Matria, or (ii) if the Closing has
not occurred by the Termination Date, unless the failure of the parties to
consummate the transactions contemplated by this Agreement is due to a breach of
any of the representations, warranties, covenants or agreements of Matria under
this Agreement.
10.3 BY SELLER. By Seller, (i) if any of the covenants or
agreements of this Agreement to be complied with or performed by Matria before
the Closing shall not have been complied with or performed on or before the
Termination Date, and such non-compliance or non-performance shall not have been
waived by Seller, or (ii) if the Closing has not occurred by the Termination
Date, unless the failure of the parties to consummate the transactions
contemplated by this Agreement is due to a breach of any of the representations,
warranties, covenants or agreements of Seller or QO under this Agreement.
10.4 FAILURE TO DISCLOSE - SELLER. By Matria, if it learns of any
material facts, events, circumstances or conditions not disclosed in this
Agreement or the Schedules which were required to be disclosed by Seller or QO
pursuant to any provision of this Agreement at or prior to the date of execution
hereof which have or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
10.5 STOCK PRICE. By Seller, within three (3) business days after
the Determination Date, if on the Determination Date, the average, during the
ten (10) trading days immediately preceding such Determination Date, of the last
price at which the Matria Common Stock shall have been sold on the NMS on each
such trading day is less than $15 per share. For purposes of this Agreement, the
"Determination Date" shall be the business day which is three (3) business days
prior to the Closing Date.
10.6 EFFECT OF TERMINATION. If this Agreement is terminated other
than as a result of a material breach of this Agreement by or intentional or
fraudulent misconduct on the part of either party, all rights and obligations of
the parties hereto under this Agreement shall terminate, and no party hereto
shall have any further liability or obligation hereunder to any other party
hereto, except that the provisions of Sections 3.1 and 3.13 hereof, and the
obligations of Seller under Section 3.10 hereof, shall survive any termination
of this Agreement for any reason. If this Agreement is terminated as a result of
a material breach of this Agreement by or intentional or fraudulent misconduct
on the part of any party, the other party shall be entitled to exercise and
pursue all rights and remedies available against the party or parties committing
such breach or misconduct, at law, in equity or otherwise, and shall be entitled
to recover from the other party or parties all of its or their out-of-pocket
expenses incurred in connection with or relating to the negotiation,
preparation, execution and delivery of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or by nationally
recognized overnight courier service or mailed, first class, certified mail,
postage prepaid as to each of the parties hereto or by facsimile transmission,
receipt acknowledged, at the respective addresses and facsimile numbers set
forth below (or at such other address as to which any such party may have
notified the other party(ies) pursuant to the terms hereof):
(a) To Matria:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attn: General Counsel
Phone Number: (770) 767-8332
Facsimile Number: (770) 767-7769
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With copy to:
Troutman Sanders LLP
Bank of America Plaza
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
Attn: James L. Smith, III, Esquire
Phone Number: (404) 885-3111
Facsimile Number: (404) 962-6687
(b) To Seller or QO (prior to the Closing):
Edmund C. Bujalski
LifeMetrix, Inc.
1430 Spring Hill Road
Suite 106
McLean, Virginia 22102
Phone Number: (703) 287-9406
Facsimile Number: (703) 847-0810
To Seller or the Review Committee (following the Closing):
Edmund C. Bujalski
LifeMetrix, Inc.
1430 Spring Hill Road
Suite 106
McLean, Virginia 22102
Phone Number: (703) 287-9406
Facsimile Number: (703) 847-0810
Larry H. Coleman, Ph.D.
Coleman Swenson Hoffman Booth Inc.
237 2nd Avenue, South
Franklin, Tennessee 37064-2649
Phone Number: (615) 791-9462
Facsimile Number: (615) 791-9636
and
Charles W. Newhall, III
General Partner
New Enterprise Associates
1119 St. Paul Street
Baltimore, Maryland 21202
Phone Number: (410) 244-0115
Facsimile Number: (410) 752-7721
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With a copy to:
Simon Turnbull & Martin, Chartered
2000 Pennsylvania Avenue, N.W.
Suite 4600
Washington, D.C. 20006-1812
Attn: Lowell D. Turnbull
Phone Number: (202) 785-7644
Facsimile Number: (202) 785-2273
11.2 ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements between the parties hereto with respect to the
matters contained herein and the agreements referred to herein contain the sole
and entire agreement among the parties hereto with respect to the subject matter
hereof and the transactions contemplated herein.
11.3 WAIVER; AMENDMENT. Prior to or on the Closing Date, each party
hereto shall have the right to waive any default in the performance of any term
of this Agreement by any other party hereto, to waive or extend the time for the
fulfillment by such other party of any or all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to such party's
obligations under this Agreement, except any condition which, if not satisfied,
would result in the violation of any law or applicable governmental regulation.
No waiver, termination or discharge of this Agreement, or any of the terms or
provisions hereof, shall be binding upon the other parties hereto unless
confirmed in writing. No waiver by any party of any term or provision of this
Agreement or of any default hereunder shall affect such party's rights
thereafter to enforce such term or provision or to exercise any right or remedy
in the event of any other default, whether or not similar. This Agreement may
not be modified or amended except by a writing executed by all of the parties
hereto.
11.4 COUNTERPARTS, FAXED SIGNATURES, HEADINGS, ETC. This Agreement
may be executed simultaneously in any number of counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. Any signature page of any such counterpart, or any electronic
facsimile thereof, may be attached or appended to any other counterpart to
complete a fully executed counterpart of this Agreement, and any telecopy or
other facsimile transmission of any signature shall be deemed an original and
shall bind such party. The headings herein are for convenience of reference only
and shall not be deemed a part of this Agreement. A pronoun in one gender
includes and applies to the other gender as well.
11.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by any party hereto without the prior written consent of the other
party or parties. Notwithstanding the foregoing, Matria may, without consent,
assign its rights under this Agreement as collateral security to any lender or
assign its rights and obligations under this Agreement to any affiliate of
Matria (provided that no such assignment shall relieve Matria of any of its
obligations hereunder), and Seller may, in connection with any liquidation and
dissolution of Seller approved and consummated in accordance with the
restrictions of Section 3.8(g), (i) assign all of its rights and obligations
hereunder to a liquidating trust if such liquidating trust expressly agrees in
writing to assume, perform and discharge all of Seller's obligations and
liabilities hereunder, and (ii) subject to Matria's prior written consent, which
shall not be unreasonably withheld, assign its obligation to provide routine
maintenance and ongoing support for the Data Warehouse under Section 3.1.
11.6 GOVERNING LAW. The validity and effect of this Agreement and
the rights and obligations of the parties hereto shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
11.7 REMEDIES, DAMAGES, INJUNCTIONS AND SPECIFIC PERFORMANCE. It is
expressly understood and agreed that many of the covenants, agreements and
services to be rendered and performed by Seller and QO pursuant to this
Agreement are special, unique, and of an extraordinary character, and in the
event of any default, breach or threatened breach by Seller or QO of any term or
provision of this Agreement to be performed by Seller or QO, including, without
limitation, the refusal or failure of Seller to consummate the transactions
contemplated
A-52
hereby in violation of this Agreement, Matria shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, and shall be entitled to such relief
as may be available to it pursuant hereto, at law or in equity, including,
without limiting the generality of the foregoing, any proceedings to (i) obtain
damages for any breach of this Agreement, (ii) order the specific performance
thereof by Seller and/or QO, or (iii) enjoin Seller and/or QO from breaching
such provisions.
11.8 SEVERABILITY, INTERPRETATION. If any provision of this
Agreement shall be held void, voidable, invalid or inoperative, no other
provision of this Agreement shall be affected as a result thereof, and,
accordingly, the remaining provisions of this Agreement shall remain in full
force and effect as though such void, voidable, invalid or inoperative provision
had not been contained herein and all terms, provisions, Sections, sub-Sections
or paragraphs shall be interpreted and construed in such a manner as to carry
out fully the intention of the parties hereto. The parties acknowledge and agree
that the covenants and agreements contained in this Agreement shall be construed
as covenants and agreements independent of each other and of any other provision
of this Agreement or any other contract between the parties hereto and that the
existence of any claim or cause of action by any party, whether predicated upon
this Agreement or any other contract, shall not constitute a defense to the
enforcement of said covenants and agreements, except as contemplated in Section
9.2(f). This Agreement shall not be construed more strictly against any party
hereto regardless of which party is responsible for its preparation, it being
agreed that this Agreement was fully negotiated by both parties.
11.9 FURTHER ASSURANCES. Upon the reasonable request of any other
party, each party hereto agrees to take any and all actions, including, without
limitation, the execution of certificates, documents or instruments, necessary
or appropriate to give effect to the terms and conditions set forth in this
Agreement.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
"SELLER"
LIFEMETRIX, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
[CORPORATE SEAL]
"QO"
QUALITY ONCOLOGY, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
[CORPORATE SEAL]
"MATRIA"
MATRIA HEALTHCARE, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
A-54
APPENDIX B
Opinion of J.P. Morgan Securities, Inc.
April 29, 2002
The Board of Directors
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to Matria Healthcare, Inc. (the "Company") of the Consideration (as
defined below) to be paid by the Company in the proposed acquisition (the
"Transaction") by the Company of all of the issued and outstanding shares of
capital stock of Quality Oncology, Inc. ("QO") from Lifemetrix, Inc.
("Lifemetrix"). Pursuant to the Purchase and Sale Agreement dated April 29, 2002
(the "Agreement"), among the Company, QO and Lifemetrix, the Company will
purchase all of the issued and outstanding shares of capital stock of QO for
consideration consisting of (i) a combination of $2 million in cash and a number
of shares of the Company's common stock, par value $.01 per share (the "Company
Common Stock"), determined according to a formula set forth in the Agreement,
payable upon closing of the Transaction (the "Closing Purchase Price"), and (ii)
an additional amount, if any, payable in a combination of cash and a number of
shares of Company Common Stock (as provided in the Agreement), based upon the
financial performance of the Business (as defined below) for the fiscal year
ending December 31, 2003, determined according to a formula set forth in the
Agreement (the "Earn Out Payment", and collectively with the Closing Purchase
Price, the "Consideration"). The Agreement provides that, at or prior to the
closing of the Transaction, Lifemetrix will contribute or cause to be
contributed to QO certain assets described in the Agreement that are related to
the business of QO and are owned by Lifemetrix or its affiliates (the
"Transferred Assets"). The Transferred Assets and QO are collectively referred
to as the "Business."
In arriving at our opinion, we have (i) reviewed the Agreement; (ii) reviewed
certain publicly available business and financial information concerning the
Business and the Company and the industries in which they operate; (iii)
compared the proposed financial terms of the Transaction with the publicly
available financial terms of certain transactions involving companies we deemed
relevant and the consideration received for such companies; (iv) compared the
financial and operating performance of the Business and the Company with
publicly available information concerning certain other companies we deemed
relevant and reviewed the current and historical market prices of the Company
Common Stock and certain publicly traded securities of such other companies; (v)
reviewed certain internal financial analyses and forecasts prepared by the
managements of the Business and the Company relating to their respective
businesses, as well as the estimated amount of the Earn Out Payment and the
estimated amount and timing of the incremental revenues, cost savings and
related expenses and synergies expected to result from the Transaction (the
"Synergies"); and (vi) performed such other financial studies and analyses and
considered such other information as we deemed appropriate for the purposes of
this opinion.
In addition, we have held discussions with certain members of the management of
QO, Lifemetrix and the Company with respect to certain aspects of the
Transaction, and the past and current business operations of the Business and
the Company, the financial condition and future prospects and operations of the
Business and the Company, the effects of the Transaction on the financial
condition and future prospects of the Company, and certain other matters we
believed necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by QO, Lifemetrix and the Company or otherwise
reviewed by us, including without limitation, the estimated amount of the Earn
Out Payment, and we have not assumed any responsibility or liability therefor.
We have not conducted any valuation or appraisal of any assets or liabilities,
nor have any such valuations or appraisals been provided to us. In relying on
financial
B-1
analyses and forecasts provided to us, including the estimated amounts of the
Earn Out Payment and the Synergies, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Business and the Company to which such
analyses or forecasts relate. We have also assumed that the Transaction will
have the tax consequences described in the Agreement and in discussions with,
and materials furnished to us by, representatives of the Company, and that the
other transactions contemplated by the Agreement will be consummated as
described in the Agreement. We have relied as to all legal matters relevant to
rendering our opinion upon the advice of counsel. We have further assumed that
all material governmental, regulatory or other consents and approvals necessary
for the consummation of the Transaction will be obtained without any adverse
effect on the Business or the Company or on the contemplated benefits of the
Transaction.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
Our opinion is limited to the fairness, from a financial point of view, to the
Company of the Consideration to be paid in the proposed Transaction and we
express no opinion as to the underlying decision by the Company to engage in the
Transaction or the manner, timing or form of payment by the Company of the
Consideration. We also express no opinion as to the terms of the "Matria
Investment" referred to in Section 3.11 of the Agreement. We are expressing no
opinion herein as to the price at which the Company Common Stock will trade at
any future time.
We will receive a fee from the Company for the delivery of this opinion. Please
be advised that we have no other financial advisory or other relationships with
the Company, Lifemetrix or QO. In the ordinary course of our businesses, we and
our affiliates may actively trade the debt and equity securities of the Company
for our own account or for the accounts of customers and, accordingly, we may at
any time hold long or short positions in such securities.
In addition, we were not engaged to and generally did not provide advice
concerning the structure, the specific amount of, or manner, timing or form of
payment of, the Consideration, or any other aspects of the Transaction, or to
provide services other than the delivery of this opinion. We did not participate
in negotiations with respect to the terms of the Transaction and related
transactions. Consequently, we express no opinion as to whether such terms are
the most beneficial terms from the Company's perspective that could under the
circumstances be negotiated among the parties to such transactions.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the Consideration to be paid by the Company in the proposed
Transaction is fair, from a financial point of view, to the Company.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Transaction. This opinion
does not constitute a recommendation to any shareholder of the Company as to how
such shareholder should vote with respect to the Transaction or any other
matter. This opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever except with our
prior written approval. This opinion may be reproduced in full in any proxy or
information statement mailed to shareholders of the Company but may not
otherwise be disclosed publicly in any manner without our prior written
approval.
Very truly yours,
B-2
APPENDIX C
Matria Healthcare, Inc. 2002 Stock Incentive Plan
MATRIA HEALTHCARE, INC.
2002 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) Matria Healthcare, Inc. (the "Company") hereby adopts the
Matria Healthcare, Inc. 2002 Stock Incentive Plan (the "Plan").
(b) The purpose of the Plan is to allow the Company to attract and
retain eligible individuals (as defined in Section 5 below) and to provide
incentives to such individuals for their services, increased efforts, and
successful achievements on behalf of or in the interests of the Company and its
Affiliates and to maximize the rewards due them for those efforts and
achievements. The Plan provides employees (including officers and directors who
are employees) of the Company and of its Affiliates an opportunity to purchase
shares of common stock, $0.01 par value per share, of the Company (the "Stock")
pursuant to options which may qualify as incentive stock options (referred to as
"incentive stock options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and employees, officers, independent contractors,
and consultants of the Company and of its Affiliates an opportunity to purchase
shares of Stock pursuant to options which are not described in Sections 422 or
423 of the Code (referred to as "non-qualified stock options"). The Plan also
provides for the sale or bonus grant of Stock to eligible individuals in
connection with the performance of services for the Company or its Affiliates.
Finally, the Plan authorizes the grant of stock appreciation rights ("SARs"),
either separately or in tandem with stock options, entitling holders to cash
compensation measured by appreciation in the value of the Stock.
(c) The term "Affiliate" as used in the Plan means parent or
subsidiary corporations of the Company, as defined in Sections 424(e) and (f) of
the Code (but substituting "the Company" for "employer corporation"), including
parents or subsidiaries of the Company that become such after adoption of the
Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of
the Company (the "Board"). Subject to Section 2(f) below, the Board may delegate
the responsibility for administering the Plan to a committee, under such terms
and conditions as the Board shall determine (the "Committee"). To the extent
necessary to exempt transactions under the Plan from Section 16(b): (i) the
Committee shall consist of at least (a) two (2) members of the Board or (b) such
lesser number of members of the Board as permitted by Rule 16b-3; and (ii) each
member of the Committee shall be a Non-Employee Director (as defined in Rule
16b-3), or grants and awards under the Plan to persons subject to Section 16 of
the Exchange Act ("Insiders") shall be determined by a subcommittee consisting
solely of Non-Employee Directors or by the full Board. Members of the Committee
shall serve at the pleasure of the Board. The Committee shall select one of its
members as chair of the Committee and shall hold meetings at such times and
places as it may determine. A majority of the Committee shall constitute a
quorum, and acts of the Committee at which a quorum is present, or acts reduced
to or approved in writing by all members of the Committee, shall be the valid
acts of the Committee. If the Board does not delegate administration of the Plan
to the Committee, then each reference in this Plan to the "Committee" shall be
construed to refer to the Board.
(b) The Committee shall determine which eligible individuals (as
defined in Section 5 below) shall be granted options under the Plan, the timing
of such grants, the terms thereof (including any restrictions on the Stock, and
the number of shares subject to such options.
(c) The Committee shall also determine which eligible individuals
(as defined in Section 5 below) shall be granted or issued SARs or Stock (other
than pursuant to the exercise of options) under the Plan, the timing of such
grants or issuances, the terms thereof (including any restrictions and the
consideration, if any, to be paid therefor), and the number of shares or SARs to
be granted.
(d) The Committee may amend the terms of any outstanding option or
SAR granted under this Plan,
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but any amendment that would adversely affect the holder's rights under an
outstanding option or SAR shall not be made without the holder's written
consent. The Committee may, with the holder's written consent, cancel any
outstanding option or SAR or accept any outstanding option or SAR in exchange
for a new option, SAR, or Stock under the Plan on such terms determined by the
Committee. The Committee also may amend any stock purchase agreement or stock
bonus agreement relating to sales or bonuses of Stock under the Plan, but any
amendment that would adversely affect the individual's rights to the Stock shall
not be made without his or her written consent. Notwithstanding the foregoing,
without the prior approval of the Company's shareholders sufficient to approve
the Plan in the first instance: the Committee shall not reprice any option by
lowering the option exercise price of a previously granted award, or by
cancellation of outstanding options with subsequent replacement, or regrant of
options with lower exercise prices.
(e) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and the instruments evidencing
options, SARs, or Stock granted or issued under the Plan, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all participants.
(f) Notwithstanding the foregoing provisions of this Section 2,
grants of options or SARs or Stock to any "Covered Employee," as such term is
defined by Section 162(m) of the Code, shall be made only by a subcommittee of
the Committee which, in addition to meeting other applicable requirements of
this Section 2, is composed solely of two (2) or more outside directors within
the meaning of Section 162(m) of the Code and the regulations thereunder (the
"Subcommittee"), to the extent necessary to qualify such grants as
"performance-based compensation" under Section 162(m) of the Code and the
regulations thereunder. In the case of grants to Covered Employees, references
to the "Committee" shall be deemed to be references to the Subcommittee, as
specified above.
3. FAIR MARKET VALUE. Where this Plan uses the term "fair market
value" in connection with the Stock, such fair market value shall be determined
by the Committee as follows:
(a) If the Stock is listed on any established stock exchange or a
national market system, including, without limitation, the NASDAQ National
Market, its fair market value shall be the closing selling price for such stock
on the principal securities exchange or national market system on which the
Stock is at the time listed for trading. If there are no sales of Stock on that
date, then the closing selling price for the Stock on the next preceding day for
which such closing price is quoted shall be determinative of fair market value;
or
(b) If the Stock is not traded on an exchange or national market
system, its fair market value shall be determined in good faith by the
Committee, and such determination shall be conclusive and binding on all
persons.
4. STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment pursuant to Section 4(c) below, the
aggregate number of shares of Stock available for issuance under the Plan and
during the life of the Plan shall be 250,000 shares of Stock (subject to
adjustment pursuant to Section 4(c) below).
(b) If an option is surrendered or for any other reason ceases to
be exercisable in whole or in part, the shares of Stock that were subject to
such option, but as to which the option had not been exercised, shall continue
to be available under the Plan. Any shares of Stock forfeited to the Company
pursuant to the terms of agreements evidencing sales or bonus grants under the
Plan shall continue to be available under the Plan.
(c) If there is any change in the Stock through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend (in excess of two percent (2%)), or other change in the corporate
structure of the Company, appropriate adjustments shall be made by the Committee
in order to preserve but not to increase the benefits to the outstanding
options, SARs and stock purchase or stock bonus awards under the Plan, including
adjustments to the aggregate number and kind of shares subject to the Plan, or
to outstanding stock purchase or stock bonus agreements, or SAR agreements, and
the number and kind of shares and the price per share subject to outstanding
options.
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5. ELIGIBLE INDIVIDUALS. Individuals who shall be eligible to
have granted to them options, SARs, or Stock under the Plan shall be such
employees, officers, independent contractors, and consultants of the Company or
an Affiliate as the Committee, in its discretion, shall designate from time to
time. Notwithstanding the foregoing, only employees of the Company or an
Affiliate (including officers and directors who are bona fide employees) shall
be eligible to receive incentive stock options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARS.
(a) Each option granted pursuant to the Plan will be evidenced by
a written stock option agreement executed by the Company and the person to whom
such option is granted.
(b) The Committee shall determine the term of each option granted
under the Plan; provided, however, that the term of an incentive stock option
shall not be for more than ten (10) years and that, in the case of an incentive
stock option granted to a person possessing more than ten percent (10%) of the
combined voting power of the Company or an Affiliate, the term of each incentive
stock option shall be no more than five (5) years.
(c) In the case of incentive stock options, the aggregate fair
market value (determined as of the time such option is granted) of the Stock
with respect to which incentive stock options are exercisable for the first time
by an eligible employee in any calendar year (under this Plan and any other
plans of the Company or its Affiliates) shall not exceed $100,000. If the
aggregate fair market value of stock with respect to which incentive stock
options are exercisable by an optionee for the first time during any calendar
year exceeds $100,000, such options shall be treated as non-qualified options to
the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking options into account in the order
in which they were granted.
(d) The exercise price of each incentive stock option shall be not
less than the per share fair market value of the Stock subject to such option on
the date the option is granted. The exercise price of each non-qualified stock
option shall be as determined by the Committee. Notwithstanding the foregoing,
(i) in the case of an incentive stock option granted to a person possessing more
than ten percent (10%) of the combined voting power of the Company or an
Affiliate, the exercise price shall be not less than one hundred ten percent
(110%) of the fair market value of the Stock on the date the option is granted;
and (ii) in the case of an option granted to a Covered Employee, the exercise
price shall be not less than the per share fair market value of the Stock
subject to such option on the date the option is granted. The exercise price of
an option or SAR shall be subject to adjustment to the extent provided in
Section 4(c) above, but, in the case of a grant to a Covered Employee, only to
the extent such adjustment does not cause the grant to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code and the regulations thereunder.
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(e) The Committee may, under such terms and conditions as it deems
appropriate, authorize the issuance of SARs evidenced by a written SAR agreement
(which, in the case of tandem options, may be part of the option agreement to
which the SAR relates) executed by the Company and the person to whom the SARs
are granted. The SAR agreement shall specify the term for the SARs covered
thereby, the cash amount payable or securities issuable upon exercise of the
SAR, and contain such other terms, provisions, and conditions consistent with
this Plan, as may be determined by the Committee.
(f) Payment of the purchase price and any withholding amounts
pursuant to Section 11 upon the exercise of any option or SAR granted under this
Plan shall be made in cash or by optionee's personal check, a certified check, a
bank draft, or a postal or express money order payable to the order of the
Company in lawful money of the United States; provided, however, that the
Committee, in its sole discretion, may permit an optionee to pay the option
price and any such withholding amounts in whole or in part (i) with shares of
Stock owned by the optionee (provided that any shares of stock tendered for
payment shall have been owned for a period of six (6) months, or such other
period as in the opinion of the Committee shall be sufficient to avoid an
accounting compensation charge with respect to the shares used to pay the option
price); (ii) by delivery on a form prescribed by the Committee of an irrevocable
direction to a securities broker approved by the Committee to sell shares of
Stock and deliver all or a portion of the proceeds to the Company in payment for
the Stock; (iii) by delivery of the optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Committee in its
discretion determines appropriate; or (iv) in any combination of the foregoing.
Any Stock used to exercise options shall be valued at its fair market value on
the date of the exercise of the option.
(g) In the event that the exercise price is satisfied by shares
withheld from the shares of Stock otherwise deliverable to the optionee, the
Committee may issue the optionee an additional option, with terms identical to
the option agreement under which the option was exercised, entitling the
optionee to purchase additional shares of Stock equal to the number of shares so
withheld but at an exercise price equal to the fair market value of the Stock on
the grant date of the new option. Such additional option shall be subject to the
provisions of Section 6(i) below.
(h) The stock option agreement or SAR agreement may contain such
other terms, provisions, and conditions consistent with this Plan, as may be
determined by the Committee. If an option, or any part thereof, is intended to
qualify as an incentive stock option, the stock option agreement shall contain
those terms and conditions which are necessary to qualify it.
(i) The maximum number of shares of Stock with respect to which
SARs or options to acquire Stock may be granted, or sales or bonus grants of
Stock may be made, to any individual per calendar year under this Plan shall not
exceed 100,000 shares (which number may be increased without shareholder
approval to reflect adjustments under Section 4(c) above, to the extent such
adjustment, in the case of a grant to a Covered Employee, does not cause the
grant to fail to qualify as "performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations thereunder). To the extent
required to cause options granted to Covered Employees to qualify as
"performance-based compensation" under Section 162(m) of the Code and the
regulations thereunder, in applying the foregoing limitation with respect to an
employee, if any option is canceled, the canceled option shall continue to count
against the maximum number of shares for which options may be granted to the
employee under this Section 6(i). For this purpose, the repricing of an option
shall be treated as a cancellation of the existing option and the grant of a new
option to the extent required by Section 162(m) of the Code or the regulations
thereunder. The preceding sentence shall also apply in the case of an SAR, if,
after the award is made, the base amount on which stock appreciation is
calculated is reduced to reflect a reduction in the fair market value of the
Stock.
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
(a) Each sale or bonus grant of Stock pursuant to the Plan will be
evidenced by a written stock purchase agreement or stock bonus agreement, as
applicable, executed by the Company and the person to whom such stock is sold or
granted.
(b) The stock purchase agreement or stock bonus agreement may
contain such other terms, provisions,
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and conditions consistent with this Plan, as may be determined by the Committee,
including, not by way of limitation, the consideration, if any, to be paid for
the Stock, restrictions on transfer, forfeiture provisions, repurchase
provisions, and vesting provisions.
8. USE OF PROCEEDS. Cash proceeds realized from the exercise of
options granted under the Plan or from other sales of Stock under the Plan shall
constitute general funds of the Company.
9. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend, or terminate the
Plan as it deems advisable; provided that such amendment, suspension, or
termination complies with all applicable requirements of state and federal law,
including any applicable requirement that the Plan or an amendment to the Plan
be approved by the shareholders, and provided further that, except as provided
in Section 4(c) above and Section 15 below, the Board shall in no event amend
the Plan in the following respects without the approval of shareholders then
sufficient to approve the Plan in the first instance:
(i) to increase the maximum number of shares of Stock
provided in Section 6(i) above, with respect to which restricted stock,
SARs, or options to acquire Stock may be granted to any Covered
Employee per calendar year under the Plan;
(ii) to materially increase the number of shares of Stock
available under the Plan, or to increase the number of shares of Stock
available for grant of incentive stock options under the Plan; or
(iii) to materially modify the eligibility requirements for
participation in the Plan or the class of employees eligible to receive
options under the Plan, or to change the designation or class of
persons eligible to receive incentive stock options under the Plan.
(iv) to permit repricing of options by lowering the option
exercise price of a previously granted award, or by cancellation of
outstanding options with subsequent replacement, or regrants of options
with lower exercise prices.
(b) No option or SAR may be granted nor may any Stock be issued
(other than upon exercise of outstanding options) under the Plan during any
suspension or after the termination of the Plan, and no amendment, suspension,
or termination of the Plan shall, without the affected individual's consent,
alter or impair any rights or obligations under any option or SAR previously
granted under the Plan. The Plan shall terminate with respect to the grant of
incentive stock options on the tenth anniversary of the date of adoption of the
Plan, unless previously terminated by the Board pursuant to this Section 9.
10. ASSIGNABILITY. No option or SAR granted pursuant to this Plan
shall be transferable by the holder except to the extent provided in the option
agreement or the SAR agreement covering the option or the SAR. Stock subject to
a stock purchase agreement or a stock bonus agreement shall be transferable only
as provided in such agreement. Notwithstanding the foregoing, if required by the
Code, each incentive stock option under the Plan shall be transferable by the
optionee only by will or the laws of descent and distribution, and, during the
optionee's lifetime, be exercisable only by the optionee.
11. WITHHOLDING TAXES. No Stock shall be granted or sold under the
Plan to any individual, and no option or SAR may be exercised, until the
individual has made arrangements acceptable to the Committee for the
satisfaction of federal, state, and local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Stock under the Plan, the lapsing of restrictions applicable to such Stock,
the failure to satisfy the conditions for treatment as incentive stock options
under the applicable tax law, or the receipt of cash payments.
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12. RESTRICTIONS ON TRANSFER OF SHARES. The Committee may require
that the Stock acquired pursuant to the Plan be subject to such restrictions and
agreements regarding sale, assignment, encumbrances, or other transfer as are in
effect among the shareholders of the Company at the time such Stock is acquired,
as well as to such other restrictions as the Committee shall deem appropriate.
13. CHANGE IN CONTROL.
(a) For purposes of this Section 13, a "Change in Control" shall
be deemed to occur upon:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the
Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding Stock;
(ii) a change in the composition of the Board over a
period of thirty-six (36) months or less, such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership or by one or
more actions by written consent of shareholders, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period, or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.
(b) For purposes of this Section 13, a "Corporate Transaction"
shall be deemed to occur upon any of the following transactions to which the
Company is a party:
(i) approval by the Company's shareholders of a merger or
consolidation in which the Company is not the surviving entity, except
for a transaction the principal purpose of which is to change the state
in which the Company is incorporated;
(ii) approval by the Company's shareholders of the sale,
transfer, or other disposition of all or substantially all of the
assets of the Company (including the capital stock of the Company's
subsidiary corporations) in connection with a complete liquidation or
dissolution of the Company; or
(iii) approval by the Company's shareholders of any reverse
merger in which the Company is the surviving entity but in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(c) In its discretion, the Committee may provide in any stock
option, SAR, Stock bonus, or Stock purchase agreement (or in an amendment
thereto) evidencing an option, SAR, Stock bonus, or Stock purchase agreement
hereunder that, in the event of any Corporate Transaction or an event giving
rise to a Change in Control, any outstanding options or SARs covered by such an
agreement shall be fully vested, non-forfeitable, and become exercisable, and
that any restricted Stock covered by such an agreement shall be released from
restrictions on transfer and repurchase or forfeiture rights, as of the date of
the Change in Control or Corporate Transaction. However, the Committee may
provide in any such agreement that, in the case of a Corporate Transaction, the
Committee may determine that an outstanding option will not be so accelerated if
and to the extent, (i) such option is either to be assumed by the successor or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof; or (ii) such
option is to be replaced with a cash incentive program of the successor
corporation that preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payment in accordance with the
same vesting schedule applicable to such option.
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(d) If the Committee determines to incorporate a Change in Control
or Corporate Transaction acceleration provision in any option or SAR agreement
hereunder, the agreement shall provide that, (i) in the event of a Change in
Control or Corporate Transaction described in clauses (a)(i), (a)(ii), and
(b)(iii) of Section 13 above, the option or SAR shall remain exercisable for the
remaining term of the option or SAR; and (ii) in the event of a Corporate
Transaction described in clauses (i) or (ii) of Section 13(b) above, the option
or SAR shall terminate as of the effective date of the Corporate Transaction
described therein, unless such option or SAR is assumed by a successor
corporation in the event of a Corporate Transaction described in clause (i) of
Section 13(b). If an option or SAR is assumed in the event of a Corporate
Transaction described in clause (i) of Section 13(b) above, the option or SAR
shall remain exercisable for the remaining term of the option or SAR. In no
event shall any option or SAR under the Plan be exercised after the expiration
of the term provided for in the related stock option agreement or SAR agreement
pursuant to Section 6(b) or (e).
(e) The Committee may provide in any option or SAR agreement
hereunder that should the Company dispose of its equity holding in any
subsidiary effected by, (i) merger or consolidation involving that subsidiary;
(ii) the sale of all or distribution of substantially all of the assets of that
subsidiary; or (iii) the Company's sale of or distribution to shareholders of
substantially all of the outstanding capital stock of such subsidiary
("Subsidiary Disposition") while a holder of the option or SAR is engaged in the
performance of services for the affected subsidiary corporation, then such
option or SAR shall, immediately prior to the effective date of such Subsidiary
Disposition, become fully exercisable with respect to all of the shares at the
time represented by such option or SAR and may be exercised with respect to any
or all of such shares. Any such option or SAR shall remain exercisable until the
expiration or sooner termination of the term of the option or SAR.
14. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Any incentive stock options granted
hereunder and any options, SARs, or Stock granted to Covered Employees hereunder
shall become effective only upon such shareholder approval. The Committee may
grant incentive stock options or may grant options, SARs, or Stock to Covered
Employees under the Plan prior to such shareholder approval, but until
shareholder approval is obtained, no such option or SAR shall be exercisable and
no such Stock grant shall be effective. In the event that such shareholder
approval is not obtained within the period provided above, all options, SARs, or
Stock grants previously granted above shall terminate. If such shareholder
approval is obtained at a duly held shareholders' meeting, the Plan must be
approved by a majority of the votes cast at such shareholders' meeting at which
a quorum, representing a majority of all outstanding voting stock of the
Company, is, either in person or by proxy, present and voting on the Plan. If
such shareholder approval is obtained by written consent, it must be obtained by
the written consent of the holders of a majority of all outstanding voting stock
of the Company. However, approval at a meeting or by written consent may be
obtained to a lesser degree of shareholder approval if the Board determines, in
its discretion after consultation with the Company's legal counsel, that such a
lesser degree of shareholder approval will comply with all applicable laws and
will not adversely affect the qualification of the Plan under either Section
162(m) or 422 of the Code.
15. RULE 16B-3 COMPLIANCE.
(a) With respect to Insiders, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 to be stated therein as a condition to
exemption from Section 16(b) of the Exchange Act, such provision (other than one
relating to eligibility requirements or the price and amount of awards) shall be
deemed automatically to be incorporated by reference into the Plan insofar as
transactions with Insiders are concerned.
(b) If, subsequent to the Board's adoption of the Plan, Rule
16b-3 is amended to delete any of the Rule 16b-3 conditions or requirements
addressed by the provisions of the Plan, the Board may amend the Plan without
shareholder approval (unless such approval is required by Rule 16b-3, as so
amended) to delete or otherwise amend any such provisions no longer required for
grants of options, SARs, and Stock under the Plan to Insiders to be exempt from
Section 16(b) liability under the Exchange Act.
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16. THE RIGHT OF THE COMPANY TO TERMINATE EMPLOYMENT. No
provision in the Plan or any Option shall confer upon any Optionee any right to
continue in the employment of the Company or an Affiliate or to interfere in any
way with the right of the Company or an Affiliate to terminate his employment at
any time.
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APPENDIX D
Matria Healthcare, Inc. 2002 Stock Purchase Plan
MATRIA HEALTHCARE, INC.
2002 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2002 Employee Stock
Purchase Plan of Matria Healthcare, Inc.
1. Purpose. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code. The provisions of the Plan, accordingly,
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the common stock, $0.01 par
value per share, of the Company.
(d) "Company" shall mean Matria Healthcare, Inc., a
Delaware corporation.
(e) "Compensation" shall mean an Employee's base salary,
including commissions, from the Company or one or more Designated Subsidiaries,
including such amounts of base salary as are deferred by the Employee (i) under
a qualified cash or deferred arrangement described in Section 401(k) of the
Code, or (ii) to a plan qualified under Section 125 of the Code. Compensation
does not include overtime, bonuses, reimbursements or other expense allowances,
fringe benefits (cash or noncash), moving expenses, deferred compensation, and
contributions (other than contributions describe din the first sentence) made on
the Employee's behalf by the Company or one or more Designated Subsidiaries
under any employee benefit or welfare plan now or hereafter established.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Effective Date" shall mean the later of (i) October
1, 2002 and (ii) the date that the Plan is approved by the Company's
stockholders. However, should any Designated Subsidiary become a Participating
Company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee participants.
(h) "Employee" shall mean any individual who is engaged
in the rendition of personal services to the Company or a Designated Subsidiary
for Compensation. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(i) "Enrollment Date" shall mean the first day of each
Purchase Period.
(j) "Exercise Date" shall mean the last day of each
Purchase Period.
(k) "Fair Market Value" shall mean, as of any date, the
value of Common Stock determined as follows:
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(1) If the Common Stock is listed on any
established stock exchange or a national market system, including with out
limitation the Nasdaq National Market, its Fair Market Value shall be the
closing selling price of such stock on the principal securities exchange or
national market system on which the Common Stock is at the time listed for
trading. If there are no sales of Common Stock on that date, then the closing
selling price for the Common Stock on the next preceding day for which such
closing selling price is quoted shall be determinative of Fair Market Value; or
(2) If the Common Stock is not traded on an
exchange or a national market system, its Fair Market Value shall be determined
in good faith by the Board, and such determination shall be conclusive and
binding on all persons.
(l) "Participant" means an Employee of the Company or
Designated Subsidiary who is actively participating in the Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
(n) "Plan Administrator" shall mean either the Board or a
committee of the Board that is responsible for the administration of the Plan.
(o) "Purchase Period" shall mean a period of
approximately three months, commencing on January 1, April 1, July 1 and October
1 of each year and terminating on the next following March 31, June 30,
September 30 or December 31, respectively, provided, however, that the first
Purchase Period shall commence on the Effective Date and shall end on December
31, 2002.
(p) "Purchase Price" shall mean an amount equal to 85%
of the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower.
(q) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(r) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) General. Any Employee who is employed by the Company
on a given Enrollment Date shall be eligible to participate in the Plan for the
Purchase Period commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of
the Plan to the contrary notwithstanding, no Employee shall be granted an option
under the Plan (i) if, immediately after the grant, such Employee (taking into
account stock owned by any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or holding
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the company
or of any Subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
D-2
(c) Other Limits on Eligibility. Notwithstanding
paragraph (a) above, the following Employees, as defined in paragraph 2, shall
not be eligible to participate in the Plan for any relevant Purchase Period: (i)
employees whose customary employment is 20 hours or less per week; (ii)
employees whose customary employment is for not more than 5 months in any
calendar year.
4. Purchase Periods.
(a) The Plan shall be implemented through consecutive
Purchase Periods until such time as (i) the maximum number of shares of Stock
available for issuance under the Plan shall have been purchased, or (ii) the
Plan shall have been sooner terminated in accordance with paragraph 19 hereof.
(b) A Participant shall be granted a separate purchase
right for each Purchase Period in which he/she participates. The purchase right
shall be granted on the first day of the Purchase Period and shall be
automatically exercised on the last day of the Purchase Period.
(c) Except as specifically provided herein, the
acquisition of Common Stock through participation in the Plan for any Purchase
Period shall neither limit nor require the acquisition of Common Stock by a
Participant in any subsequent Purchase Period.
5. Participation.
(a) An eligible Employee may become a Participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office at least fifteen (15) business days prior to the Enrollment Date for the
Purchase Period in which such participation will commence, unless a later time
for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence
with the first period payroll following the Enrollment Date and shall end on the
last complete payroll period during the Purchase Period, unless sooner
terminated by the Participant as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a Participant files his/her subscription
agreement, he/she shall elect to have payroll deductions made on each pay day
during the Purchase Period in an amount not exceeding ten percent (10%) of the
Compensation which he/she receives on each payday during the Purchase Period.
(b) All payroll deductions made for a Participant shall
be credited to his/her account under the Plan and will be withheld in whole
percentages only. A Participant may not make any additional payments into such
account.
(c) A Participant may discontinue his or her
participation in the Plan as provided in paragraph 10, or may decrease the rate
of his/her deductions during the Purchase Period by completing or filing with
the Company a new subscription agreement authorizing a decrease in payroll
deduction rate. The decrease in rate shall be effective with the first full
payroll period following ten (10) business days after the Company's receipt of
the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A Participant may increase the rate of
his/her payroll deductions for a future Purchase Period by filing with the
Company a new subscription agreement authorizing an increase in payroll
deduction rate within ten (10) business days (unless the Company elects to
process a given change in participation more quickly) before the commencement of
the upcoming Purchase Period. A Participant's subscription agreement shall
remain in effect for successive Purchase Periods unless terminated as provided
in paragraph 10. The Board shall be authorized to limit the number of
participation rate changes during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b)
herein, a Participant's payroll deductions may be decreased to 0% at such time
during any Purchase Period which is scheduled to end during the current
D-3
calendar year (the "Current Purchase Period") that the aggregate of all payroll
deductions which were previously used to purchase stock under the Plan in a
prior Purchase Period which ended during that calendar year plus all payroll
deductions accumulated with respect to the Current Purchase Period equals
$25,000. Payroll deductions shall recommence at the rate provided in such
Participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the Participant as provided in paragraph 10.
7. Grant of Option. On the first day of each Purchase Period,
each eligible Employee participating in such Purchase Period shall be granted an
option to purchase on the Exercise Date for such Purchase Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Prices, provided (i) that such purchase
shall be subject to the limitations set forth in paragraphs 3(b), 12, and 21
hereof, and (ii) the maximum number of shares of Common Stock an Employee shall
be permitted to purchase in any Purchase Period shall be 250 shares, subject to
adjustment as provided in paragraph 18 hereof. Exercise of the option shall
occur as provided in paragraph 8, unless the Participant has withdrawn pursuant
to paragraph 10, and the option, to the extent not exercised, shall expire on
the last day of the Purchase Price.
8. Exercise of Option. Unless a Participant withdraws from the
Plan as provided in paragraph 10 below, his/her option for the purchase of
shares will be exercised automatically on each Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such Participant
at the applicable Purchase Price with the accumulated payroll deductions in
his/her account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Purchase Period, if the Participant
elects to participate in the next Purchase Period, or returned to the
Participant. Any amount remaining in a Participant's account following the
purchase of shares on the Exercise Date, other than the amounts described in the
preceding sentence, shall be returned to the Participant and shall not be
carried over to the next Purchase Period. During a Participant's lifetime, a
Participant's option to purchase shares hereunder is exercisable only by
him/her.
9. Delivery. Upon receipt of a request from a Participant after
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his/her options.
10. Withdrawal, Termination of Employment.
(a) A Participant may withdraw all but not less than all
the payroll deductions credited to his/her account and not yet used to exercise
his/her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the Participant's payroll
deductions credited to his/her account will be paid to such Participant promptly
after receipt of notice of withdrawal, such Participant's option for the
Purchase Period will be automatically terminated, and on further payroll
deductions for the purchase of shares will be made during the Purchase Period.
If a Participant withdraws from a Purchase Period, payroll deductions will not
resume at the beginning of the succeeding Purchase Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for
any reason or upon termination of a Participant's employment relationship (as
described in paragraph 2(h), the payroll deductions credited to such
Participant's account during the Purchase Period but not yet used to exercise
the option will be returned to such Participant or, in the case of his/her
death, to the person or persons entitled thereto under paragraph 14, and such
Participant's option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions
of a Participant in the Plan.
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12. Stock.
(a) The maximum number of shares of the company's Common
Stock which shall be made available for sale under the Plan shall be
125,000 shares, subject to adjustment upon changes in capitalization of
the Company as provided in paragraph 18. If on a given Exercise Date
the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company
shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) A Participant will have no interest or voting right
in shares covered by his/her option until such shares are actually
purchased on the Participant's behalf in accordance with the applicable
provisions of the Plan. No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the
date of such purchase.
(c) Shares to be delivered to a Participant under the
Plan will be registered in the name of the Participant or in the name
of the Participant and his/her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered
by the Board of the Company or a committee of members of the Board
appointed by the Board. The Board or its committee shall have full and
exclusive discretionary authority to construe, interpret and apply the
terms of the Plan, to determine eligibility and to adjudicate all
disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding under all parties.
Members of the Board who are eligible Employees are permitted to
participate in the Plan to the extent limited by subparagraph (b) of
this paragraph 13.
(b) Rule 16b-3 Limitations. Notwithstanding the
provisions of subparagraph (a) of this paragraph 13, in the event that
Rue 26b-3 promulgated under The Securities Exchange Act of 1934, as
amended, or any successor provision ("Rule 16b-3") provides specific
requirements for the administrators of plans of this type, the Plan
shall be only administered by such a body and in such a manner as shall
comply with the applicable requirements of Rule 16b-3. Unless permitted
by Rule 16b03, no discretion concerning decisions regarding the Plan
shall be afforded to any committee or person that is not
"disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary. (a) Each Participant will file a
written designation of a beneficiary who is to receive any shares and cash, if
any, from the Participant's account under the Plan in the event of such
Participant's death subsequent to an Exercise Date on which the option is
exercised but prior to delivery to such Participant of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death prior to exercise of the option. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
Participant (and his or her spouse, if any) at any time by written
notice. In the event of the death of a Participant and to the absence
of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator of the estate of
the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in it
discretion, may delivery such shares and/or cash to the spouse or to
any one or more dependents or relatives of the Participant, or if no
spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledge or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in
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paragraph 14 hereof) by the Participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may not treat such act as an election to withdraw funds from a Purchase
Period in accordance with paragraph 10.
16. Use of Funds. All payroll deduction received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the Reserves, as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number shares of
Common Stock effected without receipt of consideration by the Company, provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of share of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number of price of shares of Common Stock
subject to an option. The Board may, if it so determines in the exercise of its
sole discretion, make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganization, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock.
(b) Change in Ownership, Dissolution or Liquidation. In
the event of a proposed sale of all or substantially all of the assets of the
Company, the merger of the Company with or into another corporation, in which
merger the Company will not be the surviving corporation (other than a
reorganization effectuated primarily to change the state in which the Company is
incorporated), or a reverse merger in which the Company is the surviving
corporation but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the person or persons holding
those securities immediately prior to the transfer, each option under the Plan
shall be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise, of its sole discretion and in lieu of such
assumption or substitution, to shorten the Purchase Period then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Purchase Period then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each Participant in
writing, at least ten (10) days prior to the New Exercise Date, that the
Exercise Date for his/her option has been changed to the New Exercise Date and
that his/her option will be exercised automatically on the New Exercise Date,
unless prior to such date he/she has withdrawn from the Purchase Period as
provided in paragraph 10. For purposes of this paragraph, an option granted
under the Plan shall be deemed to be assumed if, following the sale of assets or
merger, the option confers the right to purchase, for each share of option
stock, subject to the option immediately prior to the sale of assets or merger,
the consideration (whether stock, cash or other securities or property) received
in the sale of assets or merger by holders of Common Stock for each share of
Common Stock held on the effective date of the transaction (and if such holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation and the Participant, provide for the consideration to be received
upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the sale of assets or
merger.
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19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in paragraph
18, no such termination can affect options previously granted, provided that a
Purchase Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in paragraph
18, no amendment may make any change in any option theretofore granted which
amendment adversely affects the rights of any Participant. To the extent
necessary to comply with Rule 16b-3 or Section 423 of the Code (or any successor
rule or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to
whether any Participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Purchase
Period, limit the frequency and/or number of changes in the amounts withheld
during Purchase Periods, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a Participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each Participant properly correspond with amounts withheld from
the Participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee), determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, the
requirements of any stock exchange upon which the shares may then be listed, and
applicable income or employment tax laws, and shall be further subject to the
approval of counsel for the Company with respect to such option to represent and
warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law. In addition,
no purchase rights shall be exercised or shares issued hereunder before the Plan
shall have been approved by shareholders of the Company as provided in paragraph
25.
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under paragraph 19.
23. Additional Restrictions of Rule 16b-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, such
options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
24. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve (12) months
before or after the date the Plan is adopted. If such shareholder approval is
obtained at a duly held shareholders' meeting, the Plan must be approved by a
majority of the votes cast at such shareholders' meeting at which a quorum
representing a majority of all outstanding voting stock of the Company is,
either in person or by proxy, present and voting on the Plan. If such
shareholder approval is obtained by written consent, it must be obtained by the
written consent of the holders of a majority of all outstanding voting stock of
the Company. However, approval at a meeting or by written consent may be
obtained by a lesser degree of shareholder approval if the Board determines, in
its discretion after consultation with the Company's legal counsel, that such a
D-7
lesser degree of shareholder approval will comply with all applicable laws and
will not adversely affect the qualification of the Plan under Section 423 of the
Code.
25. No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way the Company's right
to terminate, or otherwise modify, an employee's employment at any time.
26. Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each employee participating in the Plan, including, without
limitation, such employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such employee.
D-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation of Matria Healthcare, Inc.
provides that a director of Matria Healthcare, Inc. will not be liable to Matria
Healthcare, Inc. or its stockholders for monetary damages for breach of
fiduciary duty as a director, to the full extent permitted by the Delaware
General Corporation Law (the "DGCL"), as amended or interpreted from time to
time.
In addition, the Matria Healthcare, Inc. Restated Certificate of
Incorporation states that Matria Healthcare, Inc. shall, to the full extent
permitted by the DGCL, as amended or interpreted from time to time, indemnify
all directors, officers and employees whom it may indemnify pursuant thereto
and, in addition, Matria Healthcare, Inc. may, to the extent permitted by the
DGCL, indemnify agents of Matria Healthcare, Inc. or other persons. Section 145
of the DGCL permits indemnification against expenses, fines, judgments and
settlements incurred by any director, officer or employee of a company in the
event of pending or threatened civil, criminal, administrative or investigative
proceeding, if such person was, or was threatened to be made, a party by reason
of the fact that he or she is or was a director, officer, or employee of the
company. Section 145 also provides that the indemnification provided for therein
shall not be deemed exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. In addition, Matria Healthcare, Inc.
maintains a directors' and officers' liability insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement
is set forth on the Exhibit Index immediately preceding such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
A list of the supporting financial statement schedule and report of
independent auditors thereon included as part of this document is set forth on
page ___. All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required, amounts which would otherwise be required
to be shown with respect to any item are not material, are inapplicable or the
required information has already been provided elsewhere in the registration
statement.
(c) Opinions of Financial Advisors:
Opinion of J.P. Morgan Securities Inc., advisors to Matria Healthcare,
Inc., included as Appendix B.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and
II-1
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all
information concerning an acquisition, and the company being acquired or
involved therein, that was not the subject of and included in the registration
statement when it became effective.
(6) For purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(7) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement; (i) To include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement. (iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement. (2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Marietta,
State of Georgia, on June 20, 2002.
MATRIA HEALTHCARE, INC.
By: /s/ Parker H. Petit
------------------------------------
Parker H. Petit
Chairman of the Board, President and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Parker H. Petit, George
W. Dunaway and Roberta L. McCaw and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him or her and in his or her name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to the Registration Statement, 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 agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each said
attorneys-in-fact and agents or any of them or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Parker H. Petit Chairman of the Board, President, June 20, 2002
------------------------------------ Chief Executive Officer and Director
Parker H. Petit (Principal Executive Officer)
/s/ Jeffrey D. Koepsell Chief Operating Officer, Executive June 20, 2002
------------------------------------ Vice President and Director
Jeffrey D. Koepsell
/s/ George W. Dunaway Vice President - Finance and Chief June 20, 2002
------------------------------------ Financial Officer (Principal
George W. Dunaway Financial Officer)
/s/ Larry N. Brownlee Controller (Principal Accounting June 20, 2002
------------------------------------ Officer)
Larry N. Brownlee
Director June __, 2002
------------------------------------
Guy W. Millner
II-3
/s/ Carl E. Sanders Director June 20, 2002
------------------------------------
Carl E. Sanders
/s/ Thomas S. Stribling Director June 20, 2002
------------------------------------
Thomas S. Stribling
/s/ Jackie M. Ward Director June 20, 2002
------------------------------------
Jackie M. Ward
/s/ Donald W. Weber Director June 20, 2002
------------------------------------
Donald W. Weber
/s/ Morris S. Weeden Director June 20, 2002
------------------------------------
Morris S. Weeden
/s/ Frederick P. Zuspan Director June 20, 2002
------------------------------------
Frederick P. Zuspan, M.D.
II-4
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Purchase and Sale Agreement, dated as of April 29, 2002, among Matria Healthcare,
Inc., LifeMetrix, Inc. and Quality Oncology, Inc. (Included as Appendix A to the proxy
statement/prospectus which is part of this Registration Statement)
3.1 Amended and Restated Certificate of Incorporation of Matria Healthcare, Inc. (incorporated
herein by reference to Appendix D to the Joint Proxy Statement/Prospectus of Healthdyne and
Tokos, filed as part of our Registration Statement No. 333-00781 on Form S-4, filed with the
Commission on February 7, 1996).
3.2 Amended and Restated By-Laws of Matria Healthcare, Inc. (incorporated by reference herein
by reference to Exhibit 3 to our Quarterly Report on Form 10-Q for the quarter ended March
31, 2000).
5.1 Opinion of Troutman Sanders LLP.*
23.1 Consent of KPMG LLP (financial statements of Matria Healthcare, Inc.).
23.2 Consent of KPMG LLP (financial statements of Quality Oncology, Inc.)
23.3 Consent of Troutman Sanders LLP (included in its opinion filed as Exhibit 5.1 hereto).
24 Powers of Attorney (included in signature page of this document).
* To be filed by amendment.
II-5